SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
December 31, 1998
Commission File Number
0-8508
NORTHWEST TELEPRODUCTIONS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota 41-0641789
(State or other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
4000 West 76th Street
Minneapolis, MN 55435
(Address of Principal (Zip Code)
Executive Offices)
Issuer's telephone number including Area Code: 612-835-6450
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 of Exchange Act during the past twelve months (or for such
shorter period that the issuer was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No______
1,356,425 shares of $.01 par value common stock were outstanding at February 12,
1999.
Transitional Small Business Disclosure Format (Check One):
Yes____ No X
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
INDEX
FORM 10-QSB
December 31, 1998
PART I Financial Information
Item 1. Financial Statements Page No.
Condensed Consolidated Balance Sheets:
December 31, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations:
Three and Nine Months Ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flow:
Nine Months Ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2.Management Discussion and Analysis 7 & 8
PART II Other Information
Item 6. Exhibits and Reports on Form 8K 10
<PAGE>
PART I
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31 March 31
1998 1998
(Unaudited) *
-------------------------------
<S> <C> <C>
Assets
Current Assets
Cash $ 271,543 $ 330,055
Cash-restricted $ 71,002 $ 1,825
Trade accounts receivables less doubtful accounts
reserve of $163,657 and $137,842, respectively $ 1,892,943 $ 1,850,187
Inventory $ 148,090 $ 155,892
Other assets $ 105,828 $ 49,783
Refunable income taxes $ 13,624 $ 16,886
Deferred rent $ 60,180 $ 60,180
Capitalized finance costs $ 162,000 $ 108,096
Land and buildings held for sale $ 1,158,063
-------------------------------
TOTAL CURRENT ASSETS $ 2,725,210 $ 3,760,967
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and improvements $ 878,185 $ 1,263,572
Machinery and equipment $20,104,404 $19,299,785
-------------------------------
$20,982,589 $20,563,357
Less: Acumulated depreciation $17,931,034 $17,253,517
-------------------------------
$ 3,051,555 $ 3,309,840
DEPOSITS $ 203,147 $ 14,262
DEFERRED RENT $ 150,805 $ 195,940
CAPITALIZED FINANCE COSTS $ 33,307 $ 156,741
-------------------------------
$ 387,259 $ 366,943
$ 6,164,024 $ 7,407,750
===============================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Notes Payable $ 602,817 $ 423,284
Accounts Payable and accrued expenses $ 1,026,529 $ 1,123,493
Commission, salaries and withholding $ 291,298 $ 359,086
Other Liabilities $ 427,142
Deferred Gain-sale leaseback $ 123,996
Payments due within one year on term obligations $ 787,939 $ 1,679,282
-------------------------------
TOTAL CURRENT LIABILITIES $ 2,832,579 $ 4,012,287
DEFERRED GAIN-SALE LEASEBACK $ 163,527
LONG TERM DEBT AND CAPITAL LEASES, less $ 1,986,402 $ 2,188,747
STOCKHOLDERS EQUITY:
Preferred stock, 2,500,000 shares authorized, none issued
Common stock, Par value $.01 per share; 10,000,000 shares
authorized 1,356,425 issued and outstanding $ 13,564 $ 13,564
Additional paid in capital $ 577,123 $ 577,123
Retained earnings $ 590,829 $ 616,029
-------------------------------
$ 1,181,516 $ 1,206,716
$ 6,164,024 $ 7,407,750
===============================
</TABLE>
*The balance sheet at March 31,1998 has been taken from the audited
financial statements at that date. See notes to unaudited condensed
consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1998 1997 1998 1997
------------------------- --------------------------
<S> <C> <C> <C> <C>
NET SALES $3,017,733 $3,022,712 $8,048,987 $9,122,083
COSTS AND EXPENSES:
Costs of products and services sold 2,365,522 2,625,378 6,487,873 8,341,953
Selling,general and administrative 429,039 496,154 1,258,720 1,455,234
Interest 140,841 174,157 426,658 507,806
------------------------- --------------------------
2,935,402 3,295,689 8,173,251 10,304,993
82,331 (272,977) (124,264) (1,182,910)
OTHER INCOME 22,608 (207) 109,057 49,851
------------------------- --------------------------
EARNINGS BEFORE TAXES ON INCOME 104,939 (273,184) (15,207) (1,133,059)
TAX EXPENSE(BENEFIT) ON INCOME (117,000) 9,993 (117,000)
------------------------- --------------------------
NET INCOME (LOSS) $104,939 ($156,184) ($25,200) ($1,016,059)
========================= ==========================
BASIC AND DILUTIVE INCOME (LOSS) PER SHARE (1) $0.08 ($0.12) ($0.02) ($0.75)
========================= ==========================
</TABLE>
(1) Net earnings per share are based on the weighted average number of common
shares outstanding during the periods as follows:
Three months: December 31, 1998 1,356,425
December 31, 1997 1,356,425
Nine months: December 31, 1998 1,356,425
December 31, 1997 1,356,425
See notes to unaudited condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS,INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
December 31
1998 1997
--------------------------
<S> <C> <C>
CASH FLOW-OPERATING ACTIVITIES:
Net loss ($25,200) ($1,016,059)
Adjustments:
Depreciation 816,948 1,311,682
Other 56,790 114,179
(Increase) Decrease in trade receivables (42,756) (327,319)
Change in assets and liabilities excluding accounts receivable (727,060) (287,448)
--------------------------
Net cash provided (utilized) by operating activities 78,722 (204,965)
CASH FLOW - INVESTING ACTIVITIES:
Property,plant and equipment additions (721,591) (260,924)
Net Proceeds from Asset Sale 1,552,834
--------------------------
Net cash provided (utilized) by investing activities 831,243 (260,924)
CASH FLOW - FINANCING ACTIVITIES:
Advances(payments)-Line of credit 179,533 (989,656)
Advances(payments)-Long term borrowing (1,148,010) 929,063
--------------------------
Net cash provided (utilized) by financing activities (968,477) (60,593)
==========================
NET INCREASE (DECREASE) IN CASH ($58,512) ($526,482)
==========================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The consolidated balance sheet as of December 31, 1998, the consolidated
statement of operations for the three and nine month periods ended December
31, 1998 and 1997, and the condensed consolidated statements of cash flow
for the nine month periods then ended have been prepared by the Company
without audit. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations and changes in
financial position at December 31, 1998 and for all periods presented have
been made.
2. Sales - Leaseback
On June 24, 1998, the Company closed a three-year sale-leaseback transaction
involving the two parcels of land and buildings located at 4000 West 76th
Street and 4455 West 77th Street. After a three-year period, the Company has
the option of renewing the lease for an additional five years. The monthly
rental expense for the first three years will be as follows: $16,615 in year
1, $17,030 in year 2 and $17,456 in year 3.
The land and buildings were sold for $1.6 million in cash. The proceeds
from sale were used as follows:
Pay off mortgage $ 560,000
Pay down term debt 275,000
Reserve for building improvements 260,000
Reduce other liabilities 450,000
Payment of fees and security deposits 55,000
--------------
Total $ 1,600,000
==============
The transaction will be accounted for as an operating lease, wherein the
property and related mortgage will no longer remain on the Company's books,
and of which no additional depreciation will be taken. Included in the above
amounts paid from the proceeds were $112,000 in accrued interest and a
$20,000 security deposit.
Certain information and footnotes normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's March 31, 1998 annual report to
shareholders. The results of operations for the period ended December 31,
1998 are not necessarily indicative of the results for the full year.
<PAGE>
3.Reclassifications
Certain reclassifications have been made to the March 31, 1998 consolidated
financial statements to conform to the classifications used at December 31,
1998. These reclassifications had no effect on the operations or stockholders'
equity as previously reported.
NORTHWEST TELEPRODUCTIONS, INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL REQUIREMENTS
Operating cash requirements for the first nine months of fiscal 1999 were met
from cash flow from operations, utilization of the cash reserves from March 31,
1998, borrowing from the Company's line of credit and cash proceeds from the
sale of the Company's Edina, MN facilities.
Subsequent to the year-end March 31, 1998 the Company sold and subsequently
leased back its facilities in Minneapolis. This transaction generated cash
proceeds of $1,600,000. The proceeds were utilized as follows:
Pay off mortgage $ 560,000
Pay down term debt 275,000
Reduce other liabilities 450,000
Reserve for building improvements 260,000
Payment of fees and security deposits 55,000
It is suggested that the Company's annual report to shareholders be read for
more detail as to the Company's overall financial position.
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the nine months ended December 31, 1998 of $8,048,987 compare with
sales of $9,122,083 for the corresponding period of the prior year, an 11.8%
decrease. A significant portion of the decrease results from the closing of the
Company's Minneapolis based Post and Transfer facility and its NW Film
Production Office in February 1998.
COST OF PRODUCTS AND SERVICES SOLD
Cost of products and services sold for the nine months ended December 31, 1998
equaled 80.6% of sales as compared to a cost of sales rate of 91.4% in the
corresponding period of the prior year. This reduction in cost of sales reflects
the improvements in project budgeting, reductions in payroll, depreciation and
general overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the Nine months ended December
31, 1998 totaled $1,258,720 as compared to $1,455,234 in the corresponding
period of the prior year, a decrease of $196,514 or 13.5%. Decreased salary and
related expenses, attributable mainly to the consolidation of administrative
functions, along with reduced rent expense in the Chicago operation, account for
a majority of the decrease.
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR, continued.
INTEREST EXPENSE
Interest expense for the nine months ended December 31, 1998 totaled $426,658
compared with expense of $507,806 in the corresponding period of the prior year,
a decrease of $81,148, or 15.9%. The decrease in interest expense is the result
of a reduction in the amount of outstanding debt.
INCOME TAX EXPENSE (CREDIT)
During the year ended March 31, 1998, the Company had a valuation allowance of
$957,000 on the deferred tax assets. For the nine months ended December 31, 1998
the Company added $50,500 to the valuation allowance. Income tax expense of
$10,000 was recorded in the period to reflect an adjustment by the State of
Illinois of a previously received refund associated with the carryback of an
operating loss.
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH
CORRESPONDING PERIOD OF PRIOR YEAR.
SALES
Sales for the three months ended December 31, 1998 of $3,017,733 compare with
sales of $3,022,712 for the corresponding period of the prior year, a decrease
of less than 1%.
COST OF PRODUCTS AND SERVICES SOLD
Cost of products and services sold for the three months ended December 31, 1998
equaled 78.3% of sales as compared to a cost of sales rate of 86.8% in the
corresponding period of the prior year. This reduction in cost of sales reflects
the improvements in project budgeting, reductions in payroll, depreciation and
general overhead.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended December
31, 1998 totaled $429,039 as compared to $496,154 in the corresponding period of
the prior year, a decrease of $67,115, or 14%. Decreased salary and related
expenses, attributable mainly to the consolidation of administrative functions,
along with reduced rent expenses in the Chicago operation, account for a
majority of the decrease.
INTEREST EXPENSE
Interest expense for the three months ended December 31, 1998 totaled $140,841
compared with expense of $174,157 in the corresponding period of the prior year,
a decrease of $33,316, or 19.1%. The decrease in interest expense is the result
of a reduction in the amount of outstanding debt.
INCOME TAX EXPENSE (CREDIT)
During the year ended March 31, 1998, the Company had a valuation allowance of
$957,000 on the deferred tax assets. For the three months ended December 31,
1998 the Company did not add to the valuation allowance. That decision was based
on the Company's third quarter operating results.
<PAGE>
Year 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. When the year 2000 begins,
these computers may interpret "00" as the year 1900 and could stop processing
date related computations or could process them incorrectly. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates to be year compliant.
The Company has performed an assessment of its internal information systems and
has determined that its application software and internal information systems
either: (1) are year 2000 compliant; (2) can be upgraded to be year 2000
compliant without significant cost or effort; or (3) do not pose a significant
issue to the Company if left uncorrected. Total costs are expected to be less
than $5,000 and are not material to the operation of the Company.
The Company has assessed non-IT systems within the Company and has determined
that the systems either: (1) are year 2000 compliant; or (2) can be upgraded to
be year 2000 compliant without significant cost or effort. Although the Company
is not aware of any material operational issues or costs associated with
preparing its internal systems for the year 2000, there can be no assurance that
the Company will not experience serious unanticipated negative consequences and
or material costs caused by undetected errors or defects in the technology used
in its internal operating systems, which are composed predominately of third
party software and hardware technology.
The Company is in the process of determining the impact those parties that are
not year 2000 compliant may have on the operations of the Company.
Non-compliance by any of the major vendors, suppliers, customers or financial
organizations could result in business disruptions that could have a material
adverse effect on the Company's results of operations, liquidity and financial
condition.
IMPACT OF ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which is required to be adopted for the
fiscal year beginning June 28, 1998. At that time, the Company will be required
to disclose certain financial and descriptive information about its operating
segments as redefined by SFAS No. 131. The Company is in the process of
assessing the impact of SFAS No. 131 on its footnote disclosures.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a)Exhibits
27. Financial Data Schedule
b) Reports on form 8-K
None
Signatures
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.
Date: February 12, 1999 Northwest Teleproductions, Inc.
(Registrant)
By: /s/ Phillip A. Staden
. Phillip A. Staden
President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 271,543
<SECURITIES> 0
<RECEIVABLES> 2,056,600
<ALLOWANCES> (163,657)
<INVENTORY> 148,090
<CURRENT-ASSETS> 2,725,210
<PP&E> 20,982,589
<DEPRECIATION> 17,931,034
<TOTAL-ASSETS> 6,164,024
<CURRENT-LIABILITIES> 2,832,579
<BONDS> 1,986,402
0
0
<COMMON> 13,564
<OTHER-SE> 1,167,952
<TOTAL-LIABILITY-AND-EQUITY> 61,464,024
<SALES> 8,048,987
<TOTAL-REVENUES> 8,048,987
<CGS> 6,487,873
<TOTAL-COSTS> 7,746,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 39,300
<INTEREST-EXPENSE> 426,658
<INCOME-PRETAX> (15,207)
<INCOME-TAX> 9,993
<INCOME-CONTINUING> (25,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,200)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
