<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 June 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 12 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 90 days. Yes x No
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The number of shares of the registrant's common stock, $.01 par value,
outstanding as of August 10, 1997 was 3,719,778 shares.
Documents Incorporated by reference: None
Transitional Small Business Disclosure Format: Yes No x
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1
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PART 1 - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
NEI WEBWORLD, INC.
CONDENSED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................... $ 266,047 $ 43,460
Account Receivable - Net........... 2,519,408 2,374,985
Inventories........................ 944,946 731,609
Prepaid expenses and other......... 8,000 16,403
---------- ----------
Total current assets............... 3,738,401 3,166,457
PROPERTY, PLANT AND EQUIPMENT - Net... 5,064,813 4,580,355
INTANGIBLES AND OTHER ASSETS - Net.... 409 937 716.520
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TOTAL.............................. $9,213,151 $8,463,332
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable....................... $ 20,393 $1,836,547
Current portion of long term debt.. 457,143 664,286
Accounts payable................... 1,788,364 1,576,858
Accrued expenses and other
liabilities................... 309,982 442,412
Accrued equipment installation
costs......................... 130,972 580,000
---------- ----------
Total current liabilities.......... 2,706,854 5,100,103
LONG-TERM DEBT - Less current portion. 2,065,788 3,218,333
SHAREHOLDERS' EQUITY:
Redeemable common stock warrants
for 1,150,000 shares.......... 126,875 -
Common stock: 20,000,000 shares of
$.01 par value authorized;
3,719,778 shares and 2,719,778
shares issued and outstanding,
respectively.................. 37,198 27,198
Additional paid-in capital......... 5,401,771 1,033,687
Accumulated deficit................ (1,000,335) (790,989)
Notes receivable - shareholders.... (125,000) (125,000)
---------- ----------
Total shareholders' equity......... 4,440,509 144,896
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TOTAL.............................. $9,213,151 $8,463,332
========== ==========
</TABLE>
See notes to condensed financial statements.
2
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NEI WEBWORLD, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
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<S> <C> <C>
NET SALES..................................... $4,697,758 $3,479,751
COST OF SALES................................. 4,131,682 2,966,240
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GROSS PROFIT.................................. 566,076 513,511
OPERATING EXPENSES:
Selling, general and administrative...... 454,081 309,505
Depreciation - property.................. 145,161 106,304
Amortization - intangibles............... 54,039 58,054
Management and consulting fees........... 30,000 45,833
---------- ----------
Total................................. 683,281 519,696
OPERATING LOSS................................ (117,205) (6,185)
OTHER INCOME (EXPENSE):
Interest expense......................... (128,406) (111,429)
Other.................................... 1,265 16,435
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Total................................. (127,141) (94,994)
LOSS BEFORE INCOME TAX
EXPENSE AND EXTRAORDINARY ITEM............... (244,346) (101,179)
INCOME TAX BENEFIT EXPENSE.................... - -
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LOSS BEFORE EXTRAORDINARY ITEM................ (244,346) (101,179)
EXTRAORDINARY ITEM - Gain on debt retirement.. 35,000 _
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NET LOSS...................................... (209,346) (101,179)
EARNINGS PER SHARE:
Loss before extraordinary item........... $ (0.08) $ (0.04)
========== ==========
Net loss................................. $ (0.07) $ (0.04)
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.................................. 3,170,327 2,719,778
========== ==========
</TABLE>
See notes to condensed financial statements
3
<PAGE>
NEI WEBWORLD, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (209,346) $(101,179)
Extraordinary gain on debt retirement (35,000) -
Non-cash items in net loss:
Depreciation and amortization 199,200 164,358
Amortization of debt issuance cost 11,259 -
Interest expense portion of long-term debt increase 102,606 -
Cash provided by (used for) operating working capital:
Accounts receivable (144,423) 363,514
Inventories (213,337) 97,434
Prepaid expenses and other 8,403 (55,427)
Costs related to insurance claims settlements - (263,061)
Accounts payable and accrued liabilities 79,076 321,545
Accrued equipment installation cost (449,028) _
----------- ---------
Net cash provided by (used for) operating activities (650,590) 527,184
INVESTING ACTIVITIES:
Additions to property, plant and equipment (629,619) (118,542)
Decrease in intangibles and other assets - (18,407)
----------- ---------
Net cash used for investing activities (629,619) (136,949)
FINANCING ACTIVITIES:
Borrowings on notes payable and long-term debt 3,204,896 100,000
Payments/retirement of notes payable and long-term debt (6,620,085) (307,960)
Borrowings/payments under capital lease arrangements 171,741 (182,275)
Net proceeds from initial public offering 4,746,244 _
----------- ---------
Net cash provided by (used for) financing activities 1,502,796 (390,235)
INCREASE IN CASH 222,587 -
CASH:
Beginning of period 43,460 500
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End of period $ 266,047 $ 500
=========== =========
</TABLE>
See notes to condensed financial statements
4
<PAGE>
NEI WEBWORLD
NOTES TO CONDENSED FINANCIAL STATEMENTS
As of and for the Period Ended June 30, 1997
(unaudited)
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 Rule 10-01 of Regulation S-X. 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 period 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.
5
<PAGE>
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 ended June 30, 1997. In September 1996, the Company
purchased certain assets of Webworks Inc., which allows it to expand more
rapidly into the coated and premium paper segments of the commercial printing
market. The asset acquisition also expands the Company's post-press production
services, such as stapling, binding, sorting and folding printed materials for
mass mailing. In June 1997, the Company acquired through a capital lease certain
pre-press equipment which is expected to greatly increase the Company's pre-
press capabilities.
Results of Operations: First quarter ended June 30, 1997 compared to the same
period of the prior year.
Sales increased $1.2 million and 35% to $4.7 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 significantly increased the
Company's capacity to produce such premium products. Sales to the Dallas Morning
News as a percentage of total sales decreased to 27% for the quarter ended June
30, 1997 from 47% for the prior comparable period. The primary reason for this
decrease is the increase in total sales and the loss of certain "wrap" or free
standing insert product services.
Gross profit increased 8% to $566,000 and 12% of net sales as compared to
$514,000 and 15% of net sales in the prior comparable period. The gross profit
margin decrease as a percentage of net sales reflects increased labor,
maintenance and freight costs associated with the operation of two separate
production facilities in the quarter ended June 30, 1997. The Company purchased
certain assets of Webworks, Inc. in September, 1996 and has operated separate
press and post-press functions at the Webworks site since the acquisition. The
Company began moving the acquired assets to its primary production facilities in
April 1997 and expects to have the move completed in September 1997. Upon
completion of the equipment move the Company expects to realize costs savings
through the elimination of certain maintenance, supervisory, inventory
purchasing and handling and administrative positions. Paper and material costs
were down approximately 4% from the comparable period of the prior year due
primarily to a decrease in newsprint paper costs. Paper and material costs were
flat as compared to the most recent quarter ended March 31, 1997. The Company
expects paper and material costs to remain flat or to increase marginally in the
second quarter ending September 30, 1997.
Operating Expenses increased 31% to $683,000 and 14.5% of net sales as compared
to $520,000 and 14.9% of net sales in the prior comparable period. The increase
is due primarily to increases in payroll and related costs associated with an
upgrading of the sales and marketing department. Cost increases were also
incurred in administrative salaries, caused primarily by the need to support the
growth of the Company, and in property taxes and depreciation expense, which
increased with the acquisition of $2.6 million in new equipment during the
twelve months ended June 30, 1997.
6
<PAGE>
Loss Before Income Tax Expense and Extraordinary Items increased $143,000 to
$(244,000) for the quarter ended June 30, 1997 as compared to the same period of
the prior year due to the factors described above.
Net Loss increased $108,000 to $(209,000) for the quarter ended June 30, 1997
as compared to the same period of the prior year. The Net Loss in the quarter
ended June 30, 1997 includes a $35,000 gain on early retirement of debt relating
to the acquisition of the Webworks assets.
Net Loss per share increased to $(0.07) as compared to $(0.04) 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.
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 notes payable; $450,000 for the
cost of relocating the Webworks assets and $650,000 for capital expenditures and
general working capital requirements.
Congress Financial Corporation (Southwest) ("Congress") has provided the Company
revolving credit, equipment, real estate and future capital expenditure
facilities totaling $9 million, of which $2.35 million was drawn at June 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.
The Company expects to complete in the current quarter the acquisition of a
facility adjacent to its existing building to accommodate the Company's
expansion needs. The cost of acquiring and upgrading the facility should
approximate $2.3 million and is expected to be financed through a third party
lender. The Company expects any additional capital expenditures to be financed
through internally generated funds or through funds available under the Congress
facilities.
7
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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.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NEI WEBWORLD, INC.
(Registrant)
Date: August 13, 1997 By:
-------------------------------------
Richard J. Wiencek
Chief Executive Officer
Date: August 13, 1997 By:
-------------------------------------
William K. Daniels
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 266,047
<SECURITIES> 0
<RECEIVABLES> 2,621,050
<ALLOWANCES> (101,642)
<INVENTORY> 944,946
<CURRENT-ASSETS> 3,738,410
<PP&E> 6,562,410
<DEPRECIATION> (1,497,597)
<TOTAL-ASSETS> 9,213,151
<CURRENT-LIABILITIES> 2,706,854
<BONDS> 2,065,788
0
0
<COMMON> 164,073
<OTHER-SE> 4,276,436
<TOTAL-LIABILITY-AND-EQUITY> 9,213,151
<SALES> 4,697,758
<TOTAL-REVENUES> 4,697,758
<CGS> 4,131,682
<TOTAL-COSTS> 4,131,682
<OTHER-EXPENSES> 683,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,406
<INCOME-PRETAX> (244,346)
<INCOME-TAX> 0
<INCOME-CONTINUING> (244,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 35,000
<CHANGES> 0
<NET-INCOME> (209,346)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
