<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 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE EXCHANGE ACT
For the transition period from ______________ to ______________
Commission file number 0-7267
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WEB PRESS CORPORATION
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(Exact name of registrant as specified in its charter)
Washington 91-0851298
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22023 68th Avenue S., Kent, Washington 98032
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(Address of principal executive offices)
Registrant's telephone number, including area code (253) 395-3343
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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 9, 2000.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Page 1 of 14 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
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FINANCIAL INFORMATION
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WEB PRESS CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS June 30, 2000
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<TABLE>
<CAPTION>
Current Assets:
<S> <C>
Cash......................... $ 0
Accounts receivable, less
allowance for doubtful
accounts of $88............ 1,498
Inventories.................. 5,396
Deferred tax assets.......... 262
Refundable income taxes...... 65
Deposits..................... 59
Prepaid expenses............. 72
------
Total Current Assets........... 7,352
Machinery and Leasehold
Improvements, at cost:
Machinery and equipment...... 3,575
Leasehold improvements....... 215
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3,790
Less accumulated depreciation
and amortization........... 2,883
------
Machinery and Leasehold
Improvements (Net)........... 907
------
Total Assets................... $8,259
======
</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)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 2000
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<TABLE>
<CAPTION>
Current Liabilities:
<S> <C>
Notes payable............................ $ 294
Accounts payable......................... 819
Customer deposits........................ 191
Accrued expenses......................... 978
Current portion of long-term debt........ 42
------
Total Current Liabilities................... 2,324
Long-Term Debt, less current portion........ 2,311
Deferred taxes on income.................... 618
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......................... 2,697
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3,103
Treasury stock, 331,100 shares at cost.... (97)
Total Stockholders' Equity.................. 3,006
Total Liabilities and
Stockholders' Equity..................... $8,259
</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 30th,
(Dollars in Thousands Except Earnings Per Share)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales.................... $2,883 $2,289 $5,124 $3,694
Cost of sales............ 2,193 1,754 3,918 2,868
------ ------ ------ ------
690 535 1,206 826
Selling, general and
administrative
expenses............... 571 458 971 805
------ ------ ------ ------
119 77 235 21
Interest expense......... 63 45 115 95
------ ------ ------ ------
Earnings(loss) before
taxes(benefit)......... 56 32 120 (74)
Taxes(benefit) on
earnings(loss)......... 19 11 41 (25)
------ ------ ------ ------
Net basic and diluted
earnings(loss)......... $ 37 $ 21 $ 79 $ (49)
====== ====== ====== ======
Basic and diluted earn-
ings(loss) per share... $.01 $.006 $.02 $(.02)
==== ===== ==== =====
</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)
2000 1999
---- ----
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) .................. $ 79 $ (49)
Adjustments to reconcile net
earnings (loss) to net cash provided
(used)by operating activities:
Depreciation and amortization....... 76 95
Provision for losses on accounts
receivable........................ (16) 3
Deferred taxes on income............ 35 (40)
Inventory valuation reserve......... 41 56
Increase (Decrease) in cash from
changes in operating accounts:
Accounts receivable............... 1,268 1,375
Inventory......................... (1,174) (1,457)
Deposits.......................... 76 (44)
Prepaid expenses.................. (28) (19)
Accounts payable.................. 144 (297)
Customer deposits................. (9) 131
Accrued expenses.................. (1,076) (380)
Income taxes payable.............. (135)
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Total adjustments (798) (577)
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Net cash used by operating
activities........................ (719) (626)
Cash flows from investing activities:
Capital expenditures.................. (61) (57)
Proceeds from retirement of assets.... 2
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Net cash used by investing activities... (59) (57)
Continued on following page
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<PAGE>
Continued from previous page
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Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................ 160
Payments on long-term debt............ (15) (974)
Net borrowings under short-term
line of credit...................... 122 (487)
Net borrowings under long-term
line of credit...................... 511 2,141
------ ------
Net cash provided by
financing activities................ 778 680
------ ------
Net increase (decrease) in cash......... 0 (3)
Cash at beginning of period............. 0 6
------ ------
Cash at end of period................... $ 0 $ 3
====== ======
Supplemental disclosures of cash
flow information:
Cash was paid during the year for:
Interest.............................. $145 $ 82
Taxes................................. 140
</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, 2000
Note 1 - Summary of Significant Accounting Policies:
Principles of consolidation
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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
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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:
(Dollars in Thousands)
June 30, 2000
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Raw materials and parts
(including subassemblies)..... $2,553
Work-in-progress.............. 1,121
Finished goods................ 1,489
Used equipment................ 233
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$5,396
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Machinery and leasehold improvements
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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
<PAGE>
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 ships. 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 revolving line of credit with a commercial bank
for borrowing up to $3 million. Borrowings against this line were
$2.058 million on June 30, 2000. That amount is included in long-
term debt on the balance sheet. The loan matures on June 1, 2003.
The interest rate charged is the bank's prime rate. That rate was
9.5 percent on June 30, 2000. 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 financial facility with the bank for
borrowing on a short-term basis up to an additional $2 million to
manufacture equipment for export. On June 30, 2000, borrowings
against this line were $294 thousand. The loan is to be repaid
when the press ships or after six months, whichever occurs first.
The interest rate charged is the bank's prime rate. That rate was
9.5 percent on June 30, 2000. The loan is secured by an "export
working capital guarantee" from the Export-Import Bank of the
United States.
<TABLE>
<CAPTION>
Long-term debt consists of the following:
(Dollars in Thousands)
June 30, 2000
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<S> <C>
Note payable, 9%, due in monthly
installments of $2,027 including
interest. Final payment
due in April, 2010........................ $158
Note payable for equipment, 9.3%, due
in monthly installments of $2,198
including interest. Final payment due
in March, 2004............................ 84
Note payable for equipment, 8.97%, due in
monthly installments of $1,124 including
interest. Final payment due
in March, 2003............................ 48
Note payable for equipment, 8.23%, due in
monthly installments of $277 including
interest. Final payment due in December,
2001...................................... 5
----
295
Less current portion...................... 42
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$253
====
</TABLE>
Equipment with original cost of $206 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, 2000, no
options had been granted under this Plan.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
-----------------
Sales during the second quarter and for the first six months of
2000 were $2.883 million and $5.124 million, respectively. In
1999, sales were $2.289 million in the second quarter and $3.694
million for the six-month period. The table below compares
domestic, international and total sales by category for the first
six months of 2000 with the corresponding period in 1999:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Domestic International Total
-------- ------------- -----
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
New $1,755 $1,560 $2,232 $1,333 $3,987 $2,893
Used 148 84 94 50 242 134
Parts &
service 670 513 225 154 895 667
------ ------ ------ ------ ------ ------
Total $2,573 $2,157 $2,551 $1,537 $5,124 $3,694
====== ====== ====== ====== ====== ======
</TABLE>
The increase in new equipment sales is the result of the continuing
trend towards color by both newspapers and commercial printers.
Both the Quadra-Color and the Quad-Stack four-color printing
modules are designed for high quality color printing and have
benefited from the strong demand for color. During the first six
months of 2000 the Company has shipped 8 Quadra-Color and 7 Quad-
Stack printing modules. Of these, 1 Quadra-Color and 2 Quad-Stacks
were installed on press lines manufactured by other manufacturers.
The Company expects sales to printers using presses manufactured by
competitors to increase in the future due to the very good results
achieved so far.
Cost of sales, as a percentage of sales, was 76.1 percent in the
second quarter and 76.5 percent for the first six months of 2000.
In 1999, it was 76.6 percent in the second quarter and 77.6 percent
for the six-month period. The gross profit on new equipment sales
increased by 1.3 percent in 2000 compared with 1999, and the gross
profit on parts sales increased, too. The increase in sales for
both new equipment and parts and the slightly higher gross margin
on those sales resulted in a $380 thousand increase in gross
profits in the first six months of 2000 compared with the same
period in 1999.
Selling, general and administrative expenses for the second quarter
of 2000 were 24.7 percent higher than they were for the same period
in 1999. For the six-month period, they increased 20.6 percent in
2000 from 1999. Selling expenses increased $121 thousand in the
first six months of 2000 compared with 1999. Most of the increase
was for promotional expenses, which were $303 thousand in 2000, and
$205 thousand in 1999. In May 2000, the Company attended the
<PAGE>
"drupa 2000" printing conference and exhibition held in Dusseldorf,
Germany. Drupa is the largest printing exhibition in the world,
and it is only held once every four years. Attending durpa 2000
cost $100 thousand and accounted for all of the increase in
promotional expenses. Higher payroll costs accounted for most of
the other increase in selling expenses. General and administrative
expenses increased $45 thousand in the first six months of 2000
compared with 1999. Payroll costs were $40 thousand higher in 2000
than they were in 1999, accounting for most of the increase.
Interest expense was $63 thousand in the second quarter and $115
thousand for the first six months of 2000, compared with $45
thousand and $95 thousand for the respective periods in 1999. The
average interest rate on the Company's revolving lines of credit
from the bank was 9.3 percent for the second quarter and 9 percent
for the first six months of 2000, compared with 7.9 percent in the
second quarter and 8.7 percent for the first six months of 1999.
Average borrowings from the Company's revolving lines of credit
with the bank in 2000 were $1.969 million in the second quarter and
$1.780 million for the first six months, compared with $2.076
million and $1.539 million for the corresponding periods in 1999.
The increase in the prime rate from 7.75 percent on June 30, 1999,
to 9.5 percent on June 30, 2000, has caused most of the increase in
interest expense.
Net earnings in the second quarter were $37 thousand in 2000 and
$21 thousand in 1999. For the six-month period, net earnings were
$79 thousand in 2000. The Company had a net loss of $49 thousand
in the first six months of 1999.
The Company's operating results for the first six months of 2000
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 2000 sales and earnings to meet or exceed those of 1999.
LIQUIDITY
---------
Net working capital was $5.028 million and the current ratio was
3.2:1 on June 30, 2000. Net cash used by operating activities was
$719 thousand in the first six months of 2000. Changes in working
capital components from December 31, 1999, include a decrease in
accounts receivable of $1.268 million; an increase in inventory of
$1.174 million; a decrease in accrued expenses of $1.076 million;
an increase in accounts payable of $144 thousand; and payment of
$135 thousand in federal income taxes.
The Company is manufacturing equipment in larger lots to meet
demand for both the Quad-Stack and Quadra-Color, and to achieve
other manufacturing efficiencies. This has caused inventories to
increase. On June 30, 2000, raw materials and parts inventories
had increased $421 thousand; work-in-progress had increased $651
thousand; finished goods had increased $144 thousand; and used
equipment had decreased $83 thousand, from December 31, 1999.
<PAGE>
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,
2000, the Company had additional borrowing capacity of $942
thousand from its $3 million operating line of credit, and could
request an additional $1.706 million from the export working
capital financing facility.
CAPITAL RESOURCES
-----------------
Total assets were $8.259 million on June 30, 2000. Stockholders'
equity increased $79 thousand from December 31, 1999, to $3.006
million on June 30, 2000. Long-term debt, primarily in the form of
the long-term revolving line of credit, was $2.311 million. As a
percentage of total capitalization, long-term debt and deferred
income taxes (net of deferred tax assets) was 47 percent on June
30, 2000. The Company believes that its borrowing capacity is
sufficient to provide for orderly growth.
PART II
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OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
(10) Material Contracts
The following exhibits are filed herewith:
(10a) being the Business Loan Agreement between Web Press
Corporation and KeyBank National Association dated
May 19, 2000.
(10b) being the Borrowing Agreement between Web Press
Corporation and the Export-Import Bank of the
United States dated May 21, 2000.
(10c) being the modification and extension agreement of the
business loan Agreement dated April 7, 1999, between
Web Press Corporation and KeyBank National
Association.
(27) Financial Date Schedule
(b) Reports on Form 8-K -- There are not reports on Form 8-K filed
for the three months ending June 30, 2000.
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
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(Registrant)
August 9, 2000 /s/Gary B. Palmer
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Date Gary B. Palmer, President
August 9, 2000 /s/Craig L. Mathison
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Date Craig L. Mathison, Vice
President of Finance
12
