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 September 30th, 2000
[ ] 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
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 November 6,
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)
<TABLE>
<CAPTION>
ASSETS September 30, 2000
------------------
<S> <C>
Current Assets:
Cash.......................... $ -
Accounts receivable, less
allowance for doubtful
accounts of $74............. 888
Inventories................... 4,915
Deferred tax asset............ 288
Refundable income taxes....... 65
Deposits...................... 93
Prepaid expenses.............. 47
------
Total Current Assets............ 6,296
Machinery and Leasehold
Improvements, at cost:
Machinery and equipment....... 3,583
Leasehold improvements........ 220
------
3,803
Less accumulated depreciation
and amortization............ 2,923
------
Machinery and Leasehold
Improvements (Net)............ 880
------
Total Assets.................... $7,176
======
</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 September 30, 2000
------------------
[S] [C]
Current Liabilities:
Accounts payable ......................... $ 672
Customer deposits ........................ 503
Accrued expenses ......................... 643
Current portion of long-term debt ........ 43
------
Total Current Liabilities .................. 1,861
Long-Term Debt, less current portion ....... 1,636
Deferred Taxes on Income ................... 633
Stockholders' Equity:
Common stock, par value $.025 per share:
Authorized, 4,000,000 share
Issued, 3,436,513 shares ................ 86
Paid in capital .......................... 320
Retained earnings ........................ 2,737
------
3,143
Treasury stock, 331,100 shares, at cost .. (97)
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Total Stockholders' Equity ................. 3,046
------
Total Liabilities and Stockholders' Equity $7,176
======
[/TABLE]
The above figures are unaudited. The accompanying notes are an
integral part of the balance sheet.
WEB PRESS CORPORATION
Consolidated Statements of Operations
For the three and nine months ending September 30,
(Dollars in Thousands Except Earnings Per Share)
THREE MONTHS NINE MONTHS
------------ -----------
2000 1999 2000 1999
---- ---- ---- ----
[S] [C] [C] [C] [C]
Sales....................... $2,782 $2,965 $7,906 $6,659
Cost of sales............... 2,264 2,424 6,182 5,293
------ ------ ------ ------
518 541 1,724 1,366
Selling, general and
administrative expenses... 395 417 1,366 1,223
------ ------ ------ ------
123 124 358 143
Interest expense............ 63 69 178 164
------ ------ ------ ------
Earnings (loss) before taxes
(benefit) ................ 60 55 180 (21)
Taxes (benefit) on earnings
(loss). .................. 20 18 61 (7)
------ ------ ------ ------
Net basic and diluted
earnings (loss).......... $ 40 $ 37 $ 119 $ (14)
====== ====== ====== ======
Basic and diluted earnings
(loss) per share ........ $.01 $.01 $.04 $.00
==== ==== ==== ====
[/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 nine months ending September 30th,
(Dollars in Thousands)
2000 1999
---- ----
Cash flows from operating activities:
Net earnings (loss).................... $ 119 $ (14)
Adjustments to reconcile net
earnings loss to net cash provided
(used) by operating activities:
Depreciation and amortization.......... 117 141
Provision for losses on accounts
receivable............................ (13) 14
Deferred taxes on income............... 24 (22)
Inventory valuation reserve............ 12 88
Retirement of plant assets............. (1)
Increase (decrease) in cash from
changes in operating accounts:
Accounts receivable.................. 1,875 637
Inventory............................ (664) (1,534)
Deposits............................. 42 (26)
Prepaid expenses..................... (3)
Accounts payable..................... (3) (119)
Customer deposits.................... 303 685
Accrued expenses..................... (1,411) (312)
Income tax payable................... (135)
Total adjustments.................... 143 (448)
Net cash provided (used) by
operating activities................... 262 (462)
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Cash flows from investing activities:
Capital expenditures................... (73) (129)
Proceeds from retirement of assets..... 2
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Net cash used by investing activities.... (71) (129)
------ ------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................. 160
Payments on long-term debt............. (27) (979)
Net borrowings under short term
line of credit....................... (172) (211)
Net borrowings under long-term
line of credit....................... (152) 1,841
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Continued on following page
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<PAGE>
Continued from previous page
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Net cash provided (used) by
financing activities................. (191) 651
Net increase in cash..................... 0 60
Cash at beginning of period.............. 0 6
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Cash at end of period.................... $ 0 $ 66
====== ======
Supplemental disclosures of cash
flow information:
Cash was paid during the period for:
Interest............................... $237 $160
Taxes.................................. 171 15
[/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 NINE MONTHS ENDING SEPTEMBER 30, 2000
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)
September 30, 2000
------------------
<S> <C>
Raw materials and parts
(including subassemblies)..... $2,926
Work-in-progress.............. 472
Finished goods................ 1,262
Used equipment................ 255
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$4,915
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.
<PAGE>
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 the 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-basic and diluted were calculated based on
the weighted average number of shares outstanding. The weighted
average-basic and diluted number of shares outstanding was
3,105,413 in 2000 and 1999.
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 $1.395 million on September 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 September 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 financing facility with the bank for
borrowing on a short-term basis up to an additional $2 million
to manufacture equipment for export. On September 30, 2000,
there were no borrowings against this facility. The Company
intends to request additional loans using this facility during
<PAGE>
the next year. The interest rate charged is the bank's prime
rate. Loans from this facility are secured by an "export
working capital guarantee" from the Export-Import bank of the
United States.
Long-term debt consists of the following:
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, 2000
------------------
<S> <C>
Revolving line of credit due
June 1, 2003.............................. $1,395
Note payable, 9%, due in monthly
installments of $2,027 including
interest. Final Payment
due April, 2010........................... 155
Note payable for equipment, 9.3%, due
in monthly installments of $2,198
including interest. Final payment due
in March, 2004............................ 79
Note payable for equipment, 8.97%, due in
monthly installments of $1,124 including
interest. Final payment due
in March, 2003............................ 46
Note payable for equipment, 8.23%, due in
monthly installments of $277 including
interest. Final payment due in December,
2001...................................... 4
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$1,679
Less current portion...................... 43
------
$1,636
======
</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
September 30, 2000, no options had been granted under this Plan.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Operating Results
-----------------
Sales during the third quarter and for the first nine months of
2000 were $2.782 million and $7.906 million, respectively. In
1999, sales were $2.965 million in the third quarter and $6.659
million for the nine-month period. The table below compares
domestic, international and total sales by category for the first
nine 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 equipment $2,778 $2,235 $3,647 $3,021 $6,425 $5,256
Used equipment 141 323 94 126 235 449
Parts & service 885 676 361 278 1,246 954
------ ------ ------ ------ ------ ------
Total sales $3,804 $3,234 $4,102 $3,425 $7,906 $6,659
====== ====== ====== ====== ====== ======
</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 nine months of 2000 the Company has shipped 8 Quadra-Color
and 15 Quad-Stack printing modules. Of these, 1 Quadra-Color and
4 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 81.4 percent in the
third quarter and 78.2 percent for the first nine months of 2000.
In 1999, it was 81.8 percent in the third quarter and 79.5
percent for the nine-month period. The gross profit on new
equipment sales increased by .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 $358
thousand increase in gross profits in the first nine months of
2000 compared with the same period in 1999.
Selling, general and administrative expenses for the third
quarter of 2000 were 5.3 percent lower than they were for the
same period in 1999. For the nine-month period, they increased
11.7 percent in 2000 from 1999. Selling expenses increased $72
thousand in the first nine months of 2000 compared with 1999.
Most of the increase was for promotional expenses, which were
$367 thousand in 2000, and $288 thousand in 1999. In May 2000,
the Company attended the "drupa 2000" printing conference and
<PAGE>
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. Lower
commission expense, which partially offset the increase in
promotional expenses, accounted for most of the decrease in other
selling expenses. General and administrative expenses increased
$65 thousand in the first nine moths of 2000 compared with 1999.
Payroll costs were $49 thousand higher in 2000 than they were in
1999; professional service fees, mainly in the form of higher
audit fees, increased $31 thousand; while doubtful account
expense was $20 thousand lower.
Interest expense was $63 thousand in the third quarter and $115
thousand for the first nine 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 9.6 percent for the third quarter and
9.2 percent for the first nine months of 2000, compared with 8.1
percent in the third quarter and 8.5 percent for the first nine
months of 1999. Average borrowings from the Company's revolving
lines of credit with the bank in 2000 were $1.968 million in the
third quarter and $1.802 million for the first nine months,
compared with $2.141 million and $1.933 million for the
corresponding periods in 1999. The increase in the prime rate
from 8.25 percent on September 30, 1999, to 9.5 percent on
September 30, 2000, has caused most of the increase in interest
expense.
Net earnings in the third quarter were $40 thousand in 2000 and
$37 thousand in 1999. For the nine-month period, net earnings
were $119 thousand in 2000. The Company had a net loss of $14
thousand in the first nine months of 1999.
The Company's operating results for the first nine 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 sales to be below normal levels in the fourth
quarter of 2000 and to have an operating loss in the fourth
quarter. During the past several months the number of new
orders for the Company's equipment have slowed. The Company
believes higher domestic interest rates for capital equipment
loans and a 30 percent increase in newsprint prices from a year
ago have both contributed to the slowdown in new orders.
Internationally, the strength of the dollar relative to foreign
currencies has hurt sales. The euro, in its first 22 months of
existence, has dropped nearly 30 percent against the dollar. The
Company has responded to the slowdown in new orders for its
equipment by cutting back production. In the third week of
<PAGE>
October the Company placed most of its workforce on a reduced
workweek until finished goods inventories are decreased.
Liquidity
---------
Net working capital was $4.435 million and the current ratio was
3.4:1 on September 30, 2000. Net cash provided by operating
activities was $262 thousand in the first nine months of 2000.
Changes in working capital components from December 31, 1999,
include a decrease in accounts receivable of $1.875 million; an
increase in inventory of $664 thousand; a decrease in accrued
expenses of $1.411 million; a decrease in accounts payable of $3
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 September 30, 2000, raw materials and parts
inventories had increased $794 thousand; work-in-progress had
decreased $2 thousand; finished goods had decreased $83 thousand;
and used equipment had decreased $61 thousand, from December 31,
1999.
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 September
30, 2000, the Company had additional borrowing capacity of $1.605
million from its $3 million operating line of credit, and could
request an additional $2 million from the export working capital
financing facility.
Capital Resources
-----------------
Total assets were $7.176 million on September 30, 2000.
Stockholders' equity had increased $119 thousand from December
31, 1999, to $3.046 million on September 30, 2000. Long-term
debt, primarily in the form of the long-term revolving line of
credit, was $1.636 million. As a percentage of total
capitalization, long-term debt and deferred income taxes (net of
deferred tax assets) was 39 percent on September 30, 2000. The
Company believes that its borrowing capacity is sufficient to
provide for orderly growth.
<PAGE>
PART II
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OTHER INFORAMTION
-----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K - There are no reports on Form
8-K filed for the three months ending September
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
---------------------
(Registrant)
November 10, 2000 /S/Gary B. Palmer
----------------- -------------------------
Date Gary B. Palmer, President
November 10, 2000 /S/Craig L. Mathison
----------------- -------------------------
Date Craig L. Mathison, Vice
President of Finance
14
