<PAGE>
Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarter ended September 30, 1997 Commission file number: 1-12967
NEI WEBWORLD, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-2524630
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
4646 BRONZE WAY 75236
DALLAS, TEXAS 75236 (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(214) 330-7273
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past ninety days.
Yes x No
--- ---
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of November 10, 1997 was 3,719,778 shares.
Documents Incorporated by reference: None
Transitional Small Business Disclosure Format: Yes No x
--- ---
1
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PART 1 - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
NEI WEBWORLD, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
--------------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................... $ 8,164 $ 43,460
Account Receivable - Net............................... 2,944,058 2,374,985
Inventories............................................ 865,536 731,609
Prepaid expenses and other............................. 12,500 16,403
----------- ----------
Total current assets................................... 3,830,258 3,166,457
PROPERTY, PLANT AND EQUIPMENT - Net..................... 7,786,530 4,580,355
INTANGIBLES AND OTHER ASSETS - Net...................... 438,152 716,520
----------- ----------
TOTAL.................................................. $12,054,940 $8,463,332
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable........................................... $ 1,729,807 $1,836,547
Current portion of long-term debt...................... 568,101 664,286
Accounts payable....................................... 2,696,114 1,576,858
Accrued expenses and other liabilities................. 415,750 442,412
Accrued equipment installation costs................... 36,870 580,000
----------- ----------
Total current liabilities.............................. 5,446,642 5,100,103
LONG-TERM DEBT - Less current portion................... 2,704,836 3,218,333
SHAREHOLDERS' EQUITY:
Redeemable common stock warrants for 1,150,000 shares.. 126,875 -
Common stock: 3,719,778 and 2,719,778 shares
issued and outstanding, respectively.................. 37,198 27,198
Additional paid-in capital............................. 5,380,312 1,033,687
Accumulated deficit.................................... (1,540,923) (790,989)
Notes receivable - shareholders........................ (100,000) (125,000)
----------- ----------
Total shareholders' equity............................. 3,903,462 144,896
----------- ----------
TOTAL.................................................. $12,054,940 $8,463,332
=========== ==========
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
NEI WEBWORLD, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES............................. $4,819,639 $3,828,493 $9,517,397 $7,308,244
COST OF SALES......................... 4.326.682 3,270,208 8,458,364 6,236,448
---------- ---------- ---------- ----------
GROSS PROFIT.......................... 492,957 558,285 1,059,033 1,071,796
OPERATING EXPENSES:
Selling, general and administrative.. 547,852 308,296 1,001,933 617,801
Depreciation - property.............. 154,678 106,304 299,839 212,608
Amortization - intangibles........... 50,783 51,551 93,563 103,103
Management and consulting fees....... 21,167 59,166 51,167 104,999
---------- ---------- ---------- ----------
Total............................. 774,480 525,317 1,446,502 1,038,511
OPERATING INCOME (LOSS)............... (281,523) 32,968 (387,469) 33,285
OTHER INCOME (EXPENSE)
Interest expense..................... (81,810) (116,361) (221,475) (234,292)
Gain on fire settlement.............. 0 271,265 0 271,265
Asset acquisition expenses........... (182,632) 0 (182,632) 0
Other................................ 5,377 1,278 6,642 17,713
---------- ---------- ---------- ----------
Total............................. (259,065) 156,182 (397,465) 54,686
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE AND
EXTRAORDINARY ITEM................... (540,588) 189,150 (784,934) 87,971
INCOME TAX (BENEFIT)
EXPENSE.............................. - 29,826 - 29,826
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM................... (540,588) 159,324 (784,934) 58,145
EXTRAORDINARY ITEM -
Gain on debt retirement.............. - - 35,000 -
---------- ---------- ---------- ----------
NET INCOME (LOSS)..................... $ (540,588) $ 159,324 $ (749,934) $ 58,145
========== ========== ========== ==========
EARNINGS PER SHARE:
Income (loss) before extraordinary
item............................... $ (0.15) $ 0.06 $ (0.23) $ 0.02
========== ========== ========== ==========
Net Income (loss).................... $ (0.15) $ 0.06 $ (0.22) $ 0.02
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING................... 3,719,778 2,719,778 3,446,554 2,719,778
========== ========== ========== ==========
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
NEI WEBWORLD, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
1997 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................... $ (749,934) $ 58,145
Extraordinary gain on debt retirement. (35,000) -
Non-cash items in net income (loss):
Depreciation and amortization...... 393,402 315,711
Amortization of debt issuance cost. 22,520 13,005
Interest expense portion of notes
payable and long-term
debt increase.................... 180,647 -
Cash provided by (used for) operating
working capital:
Accounts receivable................ (569,073) (823,166)
Inventories........................ (133,927) (452,409)
Prepaid expenses and other......... 3,903 (5,126)
Costs related to insurance claims
settlements....................... - 290,172
Accounts payable and accrued
liabilities....................... 1,092,594 1,244,155
Accrued equipment installation cost (543,130) 580,000
----------- -----------
Net cash provided by (used for)
operating activities............ (337,998) 1,220,487
INVESTING ACTIVITIES:
Additions to property, plant and
equipment............................ (3,506,014) (1,719,312)
Increase in intangibles and other
assets............................... - (17,102)
----------- -----------
Net cash used for investing
activities........................ (3,506,014) (1,736,414)
FINANCING ACTIVITIES:
Borrowings on notes payable and
long-term debt....................... 2,872,403 1,010,000
Payments/retirement on notes payable
and long-term debt................... (3,734,472) (494,573)
Payments for debt issuance cost....... (79,000) -
Net proceeds from initial public
offering............................. 4,724,785 -
Reduction in notes receivable
-shareholders........................ 25,000 -
----------- -----------
Net cash provided by financing
activities........................ 3,808,716 515,427
----------- -----------
DECREASE IN CASH........................ (35,296) (500)
CASH:
Beginning of period................... 43,460 500
----------- -----------
End of period......................... $ 8,164 $ 0
=========== ===========
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
NEI WEBWORLD
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 1997
Note 1: Interim Financial Statements
The unaudited interim financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and applicable SEC regulations. In the opinion of management, all adjustments
(consisting of normal recurring adjustments and accruals) considered necessary
for a fair presentation have been included. Some adjustments involve estimates
which may require revision in subsequent interim periods or at year end. The
unaudited financial statements and footnotes should be read in conjunction with
the Company's financial statements for the year ended March 31, 1997 that are
included in Form 10-KSB that was filed with the Securities and Exchange
Commission on June 27, 1997. Operating results for the three month and six
month periods are not necessarily indicative of results expected for the
remainder of the year.
Note 2: Earnings per Common Share
Earnings per common share is based on the weighted average shares
outstanding in each period. Common stock warrants are not included in shares
outstanding as common stock equivalents in the fiscal 1998 amounts because they
are anti-dilutive in the net loss per share computation.
5
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PART 1 - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General: WebWorld is a high-volume commercial printer specializing in the
printing of multi-color freestanding magazines, catalogues, tabloids, inserts
and mail wraps. Historically, the Company has concentrated on the newsprint
sector of the printing industry. Contracts with local newspapers for the
printing of weekly television guides accounted for 72%, 61% and 35% of net
sales for the years ended March 31, 1995, 1996 and 1997, respectively and 27% of
net sales for the quarter and six months ended September 30, 1997. In September
1996, the Company purchased certain assets of Webworks, Inc., which allowed it
to expand more rapidly into the coated and premium paper segments of the
commercial printing market. The asset acquisition also expanded the Company's
post-press production services, such as stapling, binding, sorting and folding
printed materials for mass mailing.
In June 1997, the Company increased its press production capacity through the
acquisition of an additional heatset web press and also acquired certain pre-
press equipment. In September 1997, the Company purchased certain assets of
Pelican Press, Inc. in order to again increase its press production and post-
press production capacity. Since the purchase of certain assets of Webworks,
Inc. in September 1996 the Company operated separate press and post-press
functions at the Webworks site. In September 1997, the Company vacated the
Webworks facility and, except for a press currently in storage, completed the
installation of the Webworks assets in its primary production facility. In
September 1997, the Company began operation of press and post-press functions at
a third location as a result of its acquisition of certain assets of Pelican
Press, Inc. In October 1997, the Company began moving the acquired assets to
its primary production facility and expects to have this move completed by the
end of November 1997.
Selected comparable financial information:
<TABLE>
<CAPTION>
Second Quarter Six Months
Ended Ended
September 30 September 30
1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 89.8% 85.4% 88.9% 85.3%
------ ----- ----- -----
Gross Profit 10.2% 14.6% 11.1% 14.7%
Selling, general & administrative expenses 11.4% 8.1% 10.5% 8.5%
Depreciation 3.2% 2.8% 3.2% 2.9%
Amortization of intangibles 1.0% 1.3% 1.0% 1.4%
Management & consulting fees 0.4% 1.5% 0.5% 1.4%
------ ----- ----- -----
Operating income (loss) (5.8%) 0.9% (4.1%) 0.5%
Other (income) expense 3.7% (7.0%) 1.8% (3.9%)
Interest expense (net) 1.7% 3.0% 2.3% 3.2%
------ ----- ----- -----
Income (loss) before income taxes (11.2%) 4.9% (8.2%) 1.2%
Income taxes 0.0% 0.7% 0.0% 0.4%
------ ----- ----- -----
Net income (loss) before
extraordinary item (11.2%) 4.2% (8.2%) 0.8%
Extraordinary item 0.0% 0.0% 0.3% 0.0%
------ ----- ----- -----
Net income (loss) (11.2%) 4.2% (7.9%) 0.8%
====== ===== ===== =====
</TABLE>
6
<PAGE>
Results of Operations: Second quarter ended September 30, 1997 compared to the
same period of the prior year (comparable quarter).
Net Sales
- ---------
Sales increased $1.0 million and 26% to $4.8 million as compared to the same
period of the prior year primarily due to increases in the sale of magazine and
catalogue product services utilizing coated and other premium papers. The
purchase of the Webworks assets in September 1996 and the additional
acquisitions in June and September 1997 significantly increased the Company's
capacity to produce such premium products. Sales to the Dallas Morning News,
comprised primarily of newsprint products, as a percentage of total sales
decreased to 27% for the quarter ended September 30, 1997 from 39% for the prior
comparable period. The primary reason for this decrease is in the increase in
total sales to other customers.
Gross Profit
- ------------
Gross profit decreased 12% to $493,000 and 10.2% of net sales as compared to
$558,000 and 14.6% of net sales in the prior comparable period. The gross
profit margin decrease as a percentage of net sales reflects increased labor,
equipment repair and utilities costs associated with the operation of additional
production facilities during the quarter and with the move of certain equipment
to the Company's primary production facility.
Labor costs increased to $1.16 million and 24% of sales as compared to $694,000
and 18% for the same period of the prior year. A significant portion of the
labor increase is due to scheduling and production inefficiencies caused by the
loss of press and post-press production capacity during the move of the Webworks
assets and the move and installation of the additional press acquired in June,
1997. Production time lost during the installation and "debugging" of these
machines decreased scheduling flexibility and decreased the Company's ability to
match jobs to their most efficient press and post-press equipment. Press and
post-press labor increased $360,000 and 60% compared to the comparable prior
year quarter and increased as a percent of sales to 19.9% from 15.7%. Pre-press
labor also increased $104,000 to 4.1%. Repair and maintenance, supplies and
utilities expenses increased $113,000 to 6.1% of sales as compared to 4.7% of
sales in the comparable quarter of the prior year. The majority of the increase
can be attributed to costs associated with the disassembly and reassembly of
equipment and the operation of multiple production facilities.
Paper and material costs decreased to 58.3% of sales as compared to 61.2% in the
comparable period of the prior year. The decrease is due primarily to an
increase in the production of higher margin coated and premium paper products
and a decrease in newsprint prices. The average cost of newsprint in the most
commonly used web sizes have decreased 10% when compared to the prior year's
comparable quarter.
Operating Expenses
- ------------------
Operating expenses increased $249,000 to 16.1% of sales as compared to 13.7% in
the comparable quarter of the prior period. The increase is due to an increase
in payroll and related costs associated with an increase in sales and marketing,
administrative and support personnel caused primarily by the need to support the
expected growth of the Company, and in property taxes and depreciation expense,
which increased with the new equipment acquisition.
Other Income (Expense)
- ----------------------
Other Income (Expense) decreased $415,000 to a net expense of $259,000 from net
other income of $156,000 for the comparable quarter in the prior year. The
current quarter reflects a decrease in the interest expense due to a net
decrease in average borrowing and an asset acquisition expense of $183,000 for
operating costs incurred to maintain Pelican Press, Inc. assets prior to the
completion of the asset acquisition in September 1997. The
7
<PAGE>
comparable quarter in the prior period includes a $271,000 gain from the
settlement of an insurance claim relating to a fire which occurred at the
Company's primary production facility in March 1996.
Per Share
- ---------
Net Loss per share increased to $ (0.15) as compared to net income of $ 0.06
for the comparable period of the prior year. The change in the weighted average
common shares outstanding is due to the completion of an initial public offering
resulting in the issuance by the Company of an additional one million shares of
common stock on May 21, 1997.
Results of Operations: Six months ended September 30, 1997 compared to the same
period of the prior year.
Net Sales
- ---------
Sales increased $2.2 million and 30% to $9.5 million for the six months ended
September 30, 1997 as compared to the same period of the prior year due
primarily to the factors previously discussed. Sales to The Dallas Morning News
as a percentage of total sales were 27%, as compared to 42% for the comparable
prior period.
Gross Profit
- ------------
Gross Profit remained virtually flat at $1.06 million and 11.1% of sales as
compared to $1.07 million and 14.7% in the prior comparable year. Labor
increased to $2.2 million and 23.0% of sales as compared to $1.3 million and
17.6% for the same period in the prior year. Press and post-press labor
increased $692,000 to 19.0% of sales as compared to 15.3% in the comparable
period of the prior year. This variance is attributable to the inefficiencies
caused by the move and installation of several presses as stated above in the
discussion of the labor costs for the quarter ended September 30, 1997 and the
assimilation of a third production facility housing the Pelican Press, Inc.
assets which occurred in the recent quarter ended September 30, 1997. Pre-press
labor increased to 3.9% of sales compared to 2.2% in the prior period primarily
due to a planned staffing increase implemented to accommodate the increased
production capacity associated with the recent press and pre-press equipment
acquisitions.
Other manufacturing costs increased $222,000 to 6.8% of sales as compared to
5.9% in the comparable prior period. This increase can be attributed to the
costs associated with the disassembly and reassembly of equipment and the
operation of multiple production facilities. The majority of this increase is
utilities expense which increased $118,000 and .7% of sales due to the cost of
operating two and three separate production facilities during the current year.
Paper and material costs decreased to 59.1% of sales as compared to 61.9% in
the comparable prior period. This decrease is due primarily to an increase in
the production of higher margin coated and premium paper products and a decrease
in newsprint prices, including a 10% decrease in the cost of the Company's two
most commonly purchased newsprint web sizes. Newsprint paper costs have not
varied significantly in the most recent nine months.
Operating Expenses
- ------------------
Operating expenses increased $408,000 to 15.2% of sales as compared to 14.2% for
the comparable prior period. The increase was due primarily to an increase in
payroll and related costs associated with a personnel increase in administrative
support and in the sales and marketing department and increased property tax and
depreciation expense caused by the new equipment acquisition.
8
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Other Income (Expense)
- ----------------------
Other Income (Expense) decreased $452,000 to a net expense of $397,000. The
current period reflects an asset acquisition expense of $183,000 relating to
the Pelican Press asset acquisition. The comparative period in the prior year
includes a gain of $271,000 from the settlement of an insurance claim relating
to a fire which occurred at the Company's primary production facility in March,
1996.
Net Income (Loss)
- -----------------
Net Income (Loss) decreased $808,000 to a loss of $750,000 in the current
period. The Net Loss reflects a $35,000 extraordinary gain on early retirement
of debt relating to the acquisition of the Webworks assets.
Liquidity and Capital Resources:
In May 1997, the Company completed an initial public offering of common stock
and common stock warrants. Proceeds of the offering, less underwriting
commissions and fees and other offering expenses was $4.5 million. Proceeds were
used as follows: $3.4 million to repay existing long-term debt, $450,000 for the
cost of relocating the Webworks assets and $650,000 for capital expenditures.
Congress Financial Corporation (Southwest) ("Congress") has provided the Company
revolving credit, equipment, real estate and future capital expenditure
facilities totaling $9 million, of which $5 million was drawn at September 30,
1997. The capital expenditure facility's term runs concurrently with the term
of the revolving credit facility and provides financing for up to 85% of the
value of the equipment purchased. These borrowings would be payable over five
years or by the termination of the facilities.
During the six months ended September 30, 1997 the Company completed the
purchase of pre-press and post-press equipment totaling approximately $2.6
million, including $1.3 million for the purchase in September 1997 of certain
assets of Pelican Press, Inc. and incurred cost of $1 million in building
improvements to upgrade its existing facility, including improvements to a
facility adjacent to its existing building. These asset acquisitions were
financed through borrowings on existing credit facilities. This adjacent
building was acquired for $1.78 million in October 1997. In conjunction with the
building acquisition, the Company financed in October 1997 both buildings for a
total of $2.7 million through a third party mortgage lender. The financing was
completed at an interest rate of 8.19% with a twenty-five year amortization of
principal and a ten year balloon. This financing should enable the Company to
reduce its short-term borrowings. The Company expects additional capital
expenditures to be financed through internally generated funds or through funds
available under the Congress facilities.
9
<PAGE>
PART 2 - OTHER INFORMATION
ITEMS 1, 2, 3, 4, AND 5 ARE OMITTED FROM THIS REPORT AS INAPPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following document is filed as part of this Quarterly Report on
Form 10-QSB.
Exhibit No. Description of Exhibits
----------- -----------------------
27.1* Financial Data Schedule required by Item 601 of
Regulation S-B.
*Filed herewith.
(b) No forms 8-K have been filed.
10
<PAGE>
SIGNATURES
In accordance with the requirements of Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEI WEBWORLD, INC.
(Registrant)
Date: November 11, 1997 By:
----------------------------------
Richard J. Wiencek
Chief Executive Officer
Date: November 11, 1997 By:
----------------------------------
William K. Daniels
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,164
<SECURITIES> 0
<RECEIVABLES> 3,055,700
<ALLOWANCES> (111,642)
<INVENTORY> 865,536
<CURRENT-ASSETS> 3,830,257
<PP&E> 9,438,806
<DEPRECIATION> (1,652,276)
<TOTAL-ASSETS> 12,054,940
<CURRENT-LIABILITIES> 5,446,642
<BONDS> 2,704,836
0
0
<COMMON> 164,073
<OTHER-SE> 3,739,389
<TOTAL-LIABILITY-AND-EQUITY> 12,054,940
<SALES> 4,819,639
<TOTAL-REVENUES> 4,819,639
<CGS> 4,326,682
<TOTAL-COSTS> 4,326,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,810
<INCOME-PRETAX> (540,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> (540,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (540,588)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
