<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ending June 30th, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 0-7267
WEB PRESS CORPORATION________________________________
(Exact name of registrant as specified in its charter)
Washington __________ 91-0851298 _______
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22023 68th Avenue S., Kent, Washington 98032
(Address of principal executive offices)
Registrant's telephone number, including area code (206) 395-3343
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 ninety
(90) days Yes X No __
All reports during the preceding 12 months have been filed.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date
(applicable only to corporate issuers): Common Stock, $.025 par
value per share; 3,105,413 shares outstanding as of August 12,
1998.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Page 1 of 13 pages in this document
<PAGE>
INTRODUCTORY REMARKS
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading.
The information furnished reflects all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the interim period.
It is suggested that these condensed financial statements be read
in conjunction with the financial statements and the notes
therein included in the Company's latest annual report on Form
10-KSB.
<PAGE>
PART I
FINANCIAL INFORMATION
WEB PRESS CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS June 30, 1998
_____________
<S> <C>
Current Assets:
Cash.......................... $ 72
Accounts receivable, less
allowance for doubtful
accounts of $6.............. 2,087
Inventories................... 3,550
Refundable Income Taxes....... 101
Deposits...................... 100
Prepaid expenses.............. 70
______
Total Current Assets........... 5,980
Machinery and Leasehold
Improvements, at cost:
Machinery and equipment...... 3,321
Leasehold improvements....... 195
______
3,516
Less accumulated depreciation
and amortization........... 2,605
______
Machinery and Leasehold
Improvements (Net)........... 911
______
Total Assets................... $6,891
======
</TABLE>
The above figures are unaudited. The accompanying notes are an
integral part of the balance sheet.
<PAGE>
WEB PRESS CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1998
_____________
<S> <C>
Current Liabilities:
Notes payable............................ $1,036
Accounts payable......................... 533
Customer deposits........................ 333
Accrued expenses......................... 505
Current portion of long-term debt........ 316
______
Total Current Liabilities.................. 2,723
Long-Term Debt, less current portion....... 928
Deferred taxes on income................... 438
Stockholders' Equity:
Common stock, par value $.025 per share:
Authorized, 4,000,000 shares
Issued, 3,436,513 shares................ 86
Paid-in capital.......................... 320
Retained earnings........................ 2,493
______
2,899
Treasury stock, 331,100 shares at cost... (97)
______
Total Stockholders' Equity................. 2,802
______
Total Liabilities and
Stockholders' Equity...................... $6,891
======
</TABLE>
The above figures are unaudited. The accompanying notes are an
integral part of the balance sheet.
<PAGE>
WEB PRESS CORPORATION
Consolidated Statements of Operations
For the three and six months ending June 30,
(Dollars in Thousands Except Earnings Per Share)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
____________ __________
1998 1997 1998 1997
____ ____ ____ ____
<S> <C> <C> <C> <C>
Sales....................... $3,104 $1,940 $4,119 $3,400
Cost of sales............... 2,363 1,466 3,131 2,585
______ ______ ______ ______
741 474 988 815
Selling, general and
administrative expenses... 408 375 742 660
______ ______ ______ ______
333 99 246 155
Interest expense............ 57 65 103 104
______ ______ ______ ______
Earnings before taxes....... 276 34 143 51
Taxes on income............. 94 11 49 17
______ ______ ______ ______
Net earnings................ $ 182 $ 23 $ 94 $ 34
====== ====== ====== ======
Earnings per share.......... $.06 $.006 $.03 $.01
==== ===== ==== ====
</TABLE>
The above figures are unaudited. The accompanying notes are an
integral part of these statements of earnings.
<PAGE>
WEB PRESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ending June 30th,
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................... $ 94 $ 34
Adjustments to reconcile net
earnings to net cash provided
(used)by operating activities:
Depreciation and amortization........ 109 106
Provision for losses on accounts
receivable.......................... 4 6
Deferred taxes on income............. 48 17
Inventory valuation reserve.......... 79 28
Retirement of plant assets........... 3 21
Increase (Decrease) in cash from
changes in operating accounts:
Accounts receivable............... 1,382 158
Inventory.......................... (879) (330)
Deposits........................... 7
Prepaid expenses................... (32) (41)
Accounts payable................... (155) (126)
Customer deposits.................. 139 (280)
Accrued expenses................... (803) (338)
Income taxes payable............... (38)
______ ______
Total adjustments.................. (98) (817)
______ ______
Net cash used by
operating activities .............. (4) (738)
Cash flows from investing activities:
Capital expenditures.................. (521) (163)
Proceeds from retirement of assets.... 55
______ ______
Net Cash used by investing activities... (466) (163)
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................ 421 1,111
Payments on long-term debt............ (149) (954)
Net borrowings under line of credit... 264 799
______ ______
Net cash provided by
financing activities................ 536 956
</TABLE>
Continued on following page
___________________________
<PAGE>
Continued from previous page
____________________________
<TABLE>
<S> <C> <C>
Net increase in cash.................... 66 10
Cash at beginning of period............. 6 6
______ ______
Cash at end of period................... $ 72 $ 16
====== ======
Supplemental disclosures of cash
flow information:
Cash was paid during the year for:
Interest.............................. $123 $ 89
Taxes................................. 38
</TABLE>
The above figures are unaudited. The accompanying notes are an
integral part of these statements of cash flows.
<PAGE>
WEB PRESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDING JUNE 30, 1998
Note 1 - Summary of Significant Accounting Policies:
Principles of consolidation
___________________________
The accompanying consolidated financial statements include the
accounts of Web Press Corporation and Web Leader International,
Inc., its wholly owned Domestic International Sales Corporation
(DISC). All significant inter-company accounts and transactions
have been eliminated in consolidation.
Inventories
___________
Raw materials, work-in-progress and finished goods inventories
are stated at the lower of average cost or market. Used presses
and other related press equipment are stated at the lower of
cost (specific identification basis) or market. Inventory costs
include material, labor, and manufacturing overhead.
Inventories were classified as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
June 30, 1998
_____________
<S> <C>
Raw materials and parts
(including subassemblies)..... $1,872
Work-in-progress.............. 699
Finished goods................ 602
Used equipment................ 377
______
$3,550
======
</TABLE>
Machinery and leasehold improvements
____________________________________
Machinery and equipment are depreciated on the straight-line
method, for financial statement purposes, based upon useful
lives of three to twelve years. Leasehold improvements are
amortized over their useful lives or the term of the lease,
whichever is shorter. For income tax purposes, accelerated
methods are used for all eligible assets.
Maintenance and repairs are charged directly to costs or
expenses as incurred. Equipment of only nominal value and
renewals and betterments that do not appreciably extend the life
of the asset are charged directly to costs or expenses.
Fully depreciated or fully amortized assets which are no longer
in use or are not identifiable are written off by charges to the
allowance for accumulated depreciation and amortization. When
assets are retired or disposed of, the costs and accumulated
depreciation of such assets are removed from the accounts and
the difference between the net depreciated cost and the amount
received is recorded in the statements of operations.
Revenue recognition
___________________
Revenue from sales of manufactured products under firm contracts
is recognized generally at the time equipment is available for
shipment. All freight and installation costs are accrued at the
time revenue is recognized. Estimated costs related to product
warranties are provided at the time of sale. Proceeds received
on contracts prior to recognition as a sale are recorded as
deposits.
Income taxes
____________
Income taxes are provided on income for financial reporting
purposes without regard to the period in which such taxes are
payable. Deferred taxes are provided for all significant items
which are reported for tax purposes in different periods than
the consolidated statements of earnings. Investment tax credits
are recorded as a reduction of Federal income taxes in the year
available.
Earnings per share
__________________
Earnings per share calculations are based on the weighted
average number of shares outstanding.
Note 2 - Financing:
The Company has a line of credit with a commercial bank for
borrowing up to $1.2 million. The interest rate charged is 2
percent above the bank's prime rate. Borrowings against this
line were $1.036 million on June 30, 1998. Accounts receivable,
firm orders in production, inventories, and values in excess of
the long-term financing on equipment are pledged as collateral.
The company has a second line of credit with the bank for
borrowing up to an additional $1 million to manufacture
equipment for export. The loan is a revolving line of credit
based on a series of transactions backed by letter of credit
orders acceptable to the bank. The line is secured by an
"export working capital guarantee" from the Export-Import Bank
of the United States. The interest rate charged is 1.5 percent
above the bank's prime rate. There were no borrowings against
this line on June 30, 1998.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
June 30, 1998
_____________
<S> <C>
Term note, 2% above prime rate, due
in monthly installments of $24,837
including interest. Final payment
due February, 2001..................... $ 694
Note payable for equipment, 8%, due
in monthly installments of $6,794
including interest. Final
payment due in March, 2003............. 410
Note payable for equipment, 9.38%, due
in monthly installments of $2,198
including interest. Final payment
due in March, 2004..................... 117
Note payable for equipment and leasehold
improvements, 12%, due in monthly install-
ments of $2,262 including interest. Final
payment due in October, 1998........... 9
Note payable for equipment, 10%, due in
monthly installments of $1,039 including
interest. Final payment due in
November, 1998......................... 5
Note payable for equipment, 8.23%,
due in monthly installments of
$277 including interest. Final
payment due December, 2001............. 9
______
1,244
Less current portion................... 316
______
$ 928
======
</TABLE>
Equipment with original cost of $621 thousand is pledged as
collateral under the notes payable for equipment and the
equipment purchase contracts.
Note 3 - Common Stock:
The Company's Stock Option Plan permits issuance of stock
options to key employees at prices not less than 100% of market
price at the date of grant. An aggregate of 600,000 shares of
common stock is reserved in connection with this Plan. As of
June 30, 1998, no options had been granted under this Plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Results
_________________
Sales for the second quarter of 1998 were $3.104 million, an
increase of $1.164 million from 1997 second quarter sales of
$1.940 million. Sales for the first six months of 1998 were
$4.119 million, an increase of $719 thousand from 1997 six-month
sales of $3.4 million. New equipment sales in 1998 were $2.225
million in the second quarter and $2.843 million for the first
six months, compared to 1997 sales of $1.594 million in the
second quarter and $2.728 million for the first six months. Used
equipment sales in 1998 were $460 thousand in the second quarter
and $554 thousand for the first six months. There were no used
presses sold during the first six months of 1997. In 1998, the
sale of parts and service increased 38.6 percent in the second
quarter and 15.1 percent for the first six months, compared to
the same periods in 1997. For the first six months,
international sales as a percentage of total sales, were 34
percent in 1998 and 75 percent in 1997.
Cost of sales, as a percentage of sales, was 76 percent in the
second quarter and for the first six months in both 1998 and
1997. New equipment sales and the gross profit margin on those
sales were both slightly higher in 1998 compared to 1997;
however, the sale of used equipment in 1998, on which the gross
profit margin is lower, counteracted the benefit of these
increases on the consolidated gross profit margin.
Selling, general and administrative expenses for the second
quarter of 1998 were 9 percent higher than they were for the same
period in 1997. For the first six months of 1998, they increased
12 percent over 1997 expenses for the same period. Higher
selling expenses, which increased $85 thousand during the first
six months of 1998, caused the increase. Commissions and payroll
cost increased 29 percent, the cost of attending certain trade
shows increased 31 percent, and advertising costs increased 57
percent in 1998 from 1997. Most other selling, general and
administrative expenses did not change significantly.
Interest expense was $57 thousand in the second quarter and $103
thousand for the first six months of 1998, compared to $65
thousand and $104 thousand for the respective periods in 1997.
The average interest rate on the Company's short-term borrowings
from the bank in 1998 was 10.3 percent for the second quarter and
10.4 percent for the first six months, compared to 10.5 percent
in both the second quarter and the first six months of 1997.
Average short-term borrowings from the bank in 1998 were $768
thousand in the second quarter and $560 thousand for the first
six months, compared to $862 thousand and $618 thousand for the
corresponding periods in 1997.
Net earnings in the second quarter were $182 thousand in 1998,
compared to net earnings of $23 thousand in the second quarter of
1997. For the six-month period, net earnings were $94 thousand
in 1998, compared to net earnings of $34 thousand in 1997.
The Company's operating results for the first six months of 1998
are not necessarily indicative of results to be expected for the
full year, particularly because of the high value of each order
for the Company's equipment and their irregular timing. The
Company expects 1998 sales and earnings to exceed those of 1997.
Liquidity
_________
Net working capital was $3.257 million and the current ratio was
2.2:1 on June 30, 1998. Net cash used by operating activities
was $4 thousand during the first six months of 1998. Changes in
working capital components include a decline of $1.382 million in
accounts receivable, an increase of $800 thousand in inventories,
and a decrease of $803 thousand in accrued expenses.
Raw material and parts inventories increased to $1.872 million on
June 30, 1998, an increase of $648 thousand from December 31,
1997. Much of the increase was for materials needed to
manufacture the first six "QUAD-STACK" printing unit. Work-in-
progress was $699 thousand on June 30, 1998, increasing $188
thousand from December 31, 1997. Finished goods inventory
declined $168 thousand during the first six months of 1998 to
$602 thousand on June 30, 1998. Used equipment inventory was
$337 thousand on June 30, 1998, an increase of $132 thousand.
The higher inventories are necessary to meet press shipment
requirements in the third and fourth quarters
of 1998.
Funds provided by operations are the Company's primary source of
liquidity. In addition, the Company uses short-term debt from
two separate revolving lines of credit with a commercial bank to
finance fluctuating working capital requirements. On June 30,
1998, the Company had additional borrowing capacity of $164
thousand from its operating line of credit. There were no
borrowings from its "export line" of credit on June 30, 1998.
Capital Resources
_________________
Total assets decreased by $189 thousand during the first six
months of 1998. Stockholders' equity increased by $94 thousand;
working capital decreased by $28 thousand; and long-term debt
increased by $232 thousand.
Long-term debt and deferred income taxes (net of deferred tax
assets), as a percentage of total capitalization was 33 percent
on June 30, 1998. The Company believes that its borrowing
capacity is sufficient to provide for orderly growth.
Item 6. Exhibits and Reports on Form 8-K
_________________________________________
(b) Reports on Form 8-K - There are no reports on Form
8-K filed for the three months ending June 30,
1998.
SIGNATURE
_________
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
WEB PRESS CORPORATION
_____________________
(Registrant)
August 12, 1998 /s/ Gary B. Palmer
_______________ __________________
Date Gary B. Palmer, President
August 12, 1998 /s/ Craig L. Mathison
_______________ _____________________
Date Craig L. Mathison,Vice President
Of Finance
2
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 72
<SECURITIES> 0
<RECEIVABLES> 2093
<ALLOWANCES> 6
<INVENTORY> 3550
<CURRENT-ASSETS> 5980
<PP&E> 3516
<DEPRECIATION> 2605
<TOTAL-ASSETS> 6891
<CURRENT-LIABILITIES> 2723
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 2716
<TOTAL-LIABILITY-AND-EQUITY> 6891
<SALES> 4119
<TOTAL-REVENUES> 4119
<CGS> 3131
<TOTAL-COSTS> 3131
<OTHER-EXPENSES> 742
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 143
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<NET-INCOME> 94
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
