SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13
of
The Securities Exchange Act of 1934
For the fiscal year Commission File
ended March 31, 1999 Number: 0-8505
NORTHWEST TELEPRODUCTIONS, INC.
(Name of Small Business Issuer in its Charter)
Minnesota 41-0641789
(State of incorporation) (I.R.S. Employer
Identification Number)
4455 West 77th Street
Minneapolis, Minnesota 55435
(Address of principal executive offices) (Zip code)
Telephone Number: 612-835-4455
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
Check whether the issuer: (1) 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 .
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended March 31, 1999 were
$10,662,581.
The aggregate market value of the Common Stock held by shareholders
other than officers, directors or holders of more than 5% of the outstanding
stock of the registrant as of June 2, 1999 was approximately $646,000 (based
upon the closing sale price of the registrant's Common Stock on such date).
Shares of $.01 par value Common Stock outstanding at June 2, 1999:
1,356,425
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended March 31, 1999 are incorporated by reference into Part II.
2. Portions of the Registrant's definitive Proxy Statement for the Registrant's
1999 Annual Meeting of Shareholders are incorporated by reference into Part III.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
Introduction
Northwest Teleproductions, Inc. and its subsidiaries, Southwest
Teleproductions, Inc. and Northwest Teleproductions/Chicago, Inc., are referred
to herein as the "Registrant" unless the context indicates otherwise.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business.
Northwest Teleproductions, Inc. (the "Registrant"), a Minnesota
corporation, was incorporated in 1945 and began its current business operations
in 1970. Since it began operations, the Registrant has been in the videotape
production business and, in fiscal 1981, added film production as an alternative
to videotape recording.
Each year since fiscal 1986, the Registrant has derived a significant
portion of its revenue from government twelve-month requirement contracts and
renewals. In August 1993, the Registrant was awarded a new contract by the
Government for the same requirements with four consecutive one-year renewal
options on the part of the Government, the fourth of which has been exercised by
the Government. The Company is in its final contract year of a five-year
contract with the Defense Department. This final contract year provides for
production work through August of 1999. See "Narrative Description of Business
- -- Dependence on One or a Few Customers."
The Registrant has significant business operations involved in the development
and creation of programming for the cable and network television markets. The
Registrant currently has seven shows in production.
Narrative Description of Business.
Principal Products and Services. The Registrant is engaged in the
videotape and film production business. The Registrant produces advertising
commercials, industrial, governmental and educational programs, programming for
cable broadcast, and fee-for-service electronic retailing (infomercials). The
Registrant offers services in all phases of production including production
planning (pre-production phase), recording (production phase), editing
(post-production phase) and duplication. The Registrant has five studios with a
total stage area of approximately 12,000 square feet and operates fifteen
post-production suites to provide editing services. In addition to studio
recording facilities, the Registrant has portable recording units used for
location production.
Markets and Distribution. The Registrant sells its services as a
producer of commercials to advertising agencies and advertisers, and to other
users of production services for various kinds of educational and broadcast
programs. Such advertising agencies, advertisers and other users are located
<PAGE>
throughout the United States although a majority of those purchasing the
Registrant's services are located in the north central and south central
portions of the United States. The Registrant presently uses six salespersons in
its marketing efforts. The Registrant sells programming and creative content
services to the broadcast networks and cable television operators throughout the
country.
Status of New Products or Services. None.
Competition. Numerous videotape and film production companies located
throughout the United States compete directly with the Registrant in the area of
both commercial and industrial production. Many of these companies are larger
than the Registrant in terms of sales, assets and resources.
Competition in the videotape and film production industry is based
primarily on creative ability, quality and timeliness of service at competitive
prices. Location of a company's production facilities and location of the client
involved are also factors in competition since the cost of transporting
equipment and crews can often affect a company's ability to compete. Location is
not an important factor to the network and cable industry clients, who are
accustomed to purchasing the best product wherever it may be. The Registrant has
production facilities in Minneapolis, Minnesota; Dallas, Texas; and Chicago,
Illinois. Although there are many production companies in the geographical areas
in which the Registrant is located, the major and much larger production
companies generally are located on either the west or east coasts of the United
States.
Sources and Availability of Raw Materials. There are many available
sources of supply for raw materials needed for the Registrant's operations.
Dependence on One or a Few Customers. Since fiscal 1986, a significant
portion of the Registrant's revenue has been derived from twelve-month
requirement contracts and renewals awarded to the Registrant by the U.S.
Department of Defense for the production of radio and television spot
announcements meeting the requirements of the Armed Forces Information
Service/Armed Forces Radio and Television Service. The original contract,
awarded in October 1984, provided for four consecutive one-year renewal options
by the Department of Defense, all of which were exercised by the Government. The
subsequent contract, awarded to the Registrant in January, 1990, covered the
Department's same requirements and provided for three one-year renewal options
by the Department of Defense, all of which were exercised by the Government. In
August 1993, the Registrant was awarded a new contract by the Department of
Defense for the Department's same requirements. The contract provides for four
consecutive one-year renewal options by the Department of Defense after the
initial year of the contract. The initial year and the first renewal year of the
contract each amounted to revenues of $2,600,000. The second renewal year
amounted to $2,250,000 of revenues. The third year renewal was exercised for
$2,250,000. The fourth renewal year was exercised for $2,500,000. On August 19,
1998 the Company was notified that it did not receive a renewal of its
Department of Defense (DOD) contract. However, the Company's current agreement
provides for continued work through August of 1999. It is worthwhile to note
that under the current agreement there are two vendors, of which we were one,
separately servicing the Department of Defense contract. Neither of the
incumbents was awarded the new contract.
<PAGE>
In fiscal 1999, 1998 and 1997, government contract revenue accounted
for 21%, 18.5% and 20% respectively, of total revenue. The loss of business from
the Government could have a material adverse effect on the Registrant.
Patents, Trademarks, Etc. The Registrant claims common law trademark
rights in its name, Northwest Teleproductions, and its subsidiaries' names. The
Registrant has no other patents, trademarks, copyrights, licenses, franchises or
concessions that it considers material.
Government Approvals. Other than approval by the U.S. Department of
Defense of the television spot announcements produced for it, the Registrant is
not required to obtain government approval of its products or services.
Effect of Governmental Regulations. The Registrant does not believe
that any existing or proposed governmental regulations will have a material
effect upon its business.
Research and Development. During each of the last two fiscal years the
Registrant expended an insignificant amount of funds on research activities
relating to the development of new products or services, or the improvement of
existing products or services, and had no employees who devoted full time to
research and development activities.
Effect of Environmental Regulation. To the extent management can
determine at this time, there are no federal, state or local provisions
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment, compliance with which by the Registrant
has had or is expected to have a material effect upon the capital expenditures,
earnings and competitive position of the Registrant.
Employees. At June 30, 1999 the Registrant employed approximately 71
persons, all of which were employed full time.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant's principal properties are as follows:
<TABLE>
<CAPTION>
Location General Description Manner of Ownership
<S> <C> <C>
4455 West 77th Street 20,000 square feet; office Leased with lease expiring June 30, 2001. Option
Minneapolis, Minnesota and production facility. to renew for one 5-year period. See Notes 4 and
7 to Consolidated Financial Statements.
4000 West 76th Street 13,000 square feet; office Leased with lease expiring June 30, 2001. Option
Minneapolis, Minnesota and production facility. to renew for one 5-year period. See Notes 4 and
7 to Consolidated Financial Statements
2649 Tarna Drive 14,000 square feet; office Direct fee ownership. See Note 2 to
Dallas, Texas and production facility. Consolidated Financial Statements.
142 E. Ontario Street 7,500 square feet; office Leased with lease expiring April, 2002.
Chicago, Illinois and production facility. Sub-rental expires June 30, 2000. See Note 4
Sub-rental of 2,250 square to Consolidated Financial Statements
feet of office space.
81 South Ninth Street 5,000 square feet; office. Leased with lease expiring October 31, 2001. See
Minneapolis, Minnesota The company no longer Note 4 to Consolidated Financial Statements
occupies the space but
leases to another party.
</TABLE>
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: $16,614 in year 1, $17,030 in year
2 and $17,454 in year 3.
On June 24, 1998, the Company entered into a sale-leaseback transaction of two
buildings with Lindue, LLC, a Minnesota limited liability corporation owned by a
member of the Company's Board of Directors. Proceeds from the sale-leaseback
were $1.6 million, of which $112,000 in accrued interest and a $20,000 security
deposit were held in escrow by the landlord. The $112,000 was subsequently
remitted to the Registrant. (See Note 7 for additional details.)
The Registrant believes its properties to be in good condition and
adequate for its present and foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS
On or around May 28, 1999, Robert Kaprall and M.E. Productions
commenced a lawsuit against the Company in Hennepin County District Court. The
plaintiffs seek damages of at least $163,000 and an injunction. Plaintiffs
allege that they have the right to produce the second season of the TIPical Mary
Ellen show (hereafter the "Show") pursuant to a contract with the Company.
Plaintiffs moved for a temporary injunction requiring the Company to retain
plaintiffs for the Show's second season or cancel it. On June 10, 1999, the
court denied plaintiffs' motion. The Company denies plaintiffs' allegations and
is pursuing counterclaims against the plaintiffs. In its counterclaims, the
Company will seek to recover in excess of $50,000 paid to Kaprall and M.E.
Productions during the Show's first season.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's shareholders
during the fourth quarter of the Registrant's 1999 fiscal year.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information required by Item 5 is incorporated herein by reference
to the section labeled "Financial Review -- Market Prices" which appears in the
Registrant's 1999 Annual Report to Shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information required by Item 6 is incorporated by reference to the
section labeled "Management's Discussion and Analysis" which appears in the
Registrant's 1999 Annual Report to Shareholders.
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7 is incorporated by reference to the
Consolidated Financial Statements, Notes thereto and Independent Auditors'
Reports thereon which appear in the Registrant's 1999 Annual Report to
Shareholders.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previously reported in the Registrant's Form 8-K Current Report filed
April 12, 1999.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The names and ages of the executive officers of the Registrant and
their positions and offices presently held are as follows:
<TABLE>
<CAPTION>
Name of Age Present Position(s) Business Experience
Executive Officer with Registrant
<S> <C> <C> <C>
Phillip A. Staden 42 President and Chief President and CEO of Registrant since October 20,
Executive Officer 1997 and CFO since November 1996. Vice-president of
Registrant from November 4, 1996 to October 1997. Controller
of the Registrant from April 1991 to November 3, 1996.
David S. Johnson 56 Vice-President Vice-President of Registrant since October 20, 1997.
Manager of The Government Services Division of the
Registrant since December 1993. Has worked with
the Registrant since January 1986.
Nancy L. Reid 50 Vice-President Vice-President of Registrant since October 20, 1997.
Currently General Manager of the Registrant's
Chicago subsidiary. Vice-President of Media Tech, a
video duplication company, from March 1994 to
January 1997. Vice-President of Jan Hughes
Productions, a film and video production company
from October 1993 to March 1994. Sales and Marketing
manager of Editel, Inc., a nationally recognized
post-production facility, from August 1984 to
October 1993.
Michael D. Smith 50 Vice-President Vice-President of Registrant since 1998. Executive
Producer the Registrant since 1993. Independent
Producer from 1984 through 1993.
</TABLE>
There are no family relationships among any of the Registrant's directors or
executive officers.
The information required by Item 9 relating to directors is
incorporated herein by reference to the section labeled "Election of Directors"
and the information relating to compliance with Section 16 (a) is incorporated
herein by reference to the section labeled "Section 16 (a) Beneficial Ownership
Reporting Compliance," which sections appear in the Registrant's definitive
Proxy Statement filed pursuant to Regulation 14A not later than 120 days after
the close of the Registrant's 1999 fiscal year end in connection with the
Registrant's 1999 annual meeting of shareholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 is incorporated herein by reference
to the Section labeled "Executive Compensation" which appears in the
Registrant's definitive Proxy Statement for its 1999 annual meeting of
shareholders.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated herein by reference
to the sections labeled "Principal Shareholders" and "Management Shareholdings"
which appear in the Registrant's definitive Proxy Statement for its 1999 annual
meeting of shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated herein by reference
to the section labeled "Election of Directors" which appears in the Registrant's
definitive Proxy Statement for its 1999 annual meeting of shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" on page following signatures.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last fiscal quarter of the
Registrant's 1999 fiscal year.
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NORTHWEST TELEPRODUCTIONS, INC.
(the "Registrant")
By /s/ Phillip A. Staden
Date: June 28, 1999 Phillip A. Staden, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes and appoints JOHN
C. McGRATH and PHILLIP A. STADEN his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments to this Annual Report on Form 10-KSB and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
<PAGE>
Signature Title Date
President, CEO, CFO and Director
/s/ Phillip A. Staden (principal executive officer and June 28, 1999
Phillip A. Staden principal financial and accounting
officer)
/s/ John C. McGrath Director June 28, 1999
John C. McGrath
/s/ Steve Lose Director June 28, 1999
Steve Lose
/s/ Ronald V. Kelly Director June 28, 1999
Ronald V. Kelly
/s/ Gerald W. Simonson Director June 28, 1999
Gerald W. Simonson
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
NORTHWEST TELEPRODUCTIONS, INC.
(Commission File Number: 0-8505)
E X H I B I T I N D E X
For
Form 10-KSB for 1999 fiscal year
Exhibit
3 Registrant's Articles of Incorporation and Bylaws
3.1 Registrant's Restated Articles of Incorporation, as amended to
date--incorporated by reference to Exhibit 3.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1998*
3.2 Registrant's Restated Bylaws, as amended to date--incorporated by
reference to Exhibit 6(b) to the Registrant's Registration Statement on
Form S-14, Reg. No. 2-55647*
4.1 Rights Agreement dated as of July 31, 1998 between the Registrant and
American Stock Transfer & Trust Company as Rights Agent, together with
the following exhibits thereto:
A. Certificate of Designation of Series A Preferred Stock of
Northwest Teleproductions, Inc.
B. Summary of Rights to Purchase Shares of Series A Preferred
Stock which, together with certificates representing the
outstanding Common Stock of Northwest Teleproductions, Inc.,
shall represent the Rights prior to the Distribution Date.
C. Form of Right Certificate
incorporated by reference to Exhibit 1 to the Registrant's
Form 8-A Registration Statement filed September 4, 1998.
10 Registrant's Material Contracts
10.1 Lease, dated January 31, 1994, covering facility at 142 East Ontario
Street, Chicago, Illinois--incorporated by reference to Exhibit 10.3 to
the Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1994*
<PAGE>
10.2 Lease, dated June 17, 1991, covering facilities at 81 South Ninth
Street, Minneapolis, Minnesota--incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1991*
10.3 Requirements Contract, dated August 27, 1993, between the Registrant
and the Department of Defense--incorporated by reference to Exhibit
10.6 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1994*
10.4** 1993 Stock Option Plan and form of option agreements--incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1993*
10.5 Amendment dated June 28, 1999, to 10-1/2% Subordinated Notes previously
issued by Registrant to certain members of its Board of Directors.
10.6 Form and amounts of 10-1/2% Subordinated Notes issued by the Registrant
to certain of its directors - incorporated by reference to Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1996*
10.7 Form and amounts of Warrants to Purchase Common Stock issued by the
Registrant to certain directors in connection with issuance of
Subordinated Notes - incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996*
10.8 10-1/2% Subordinated Note in the principal amount of $150,000 dated
February 10, 1997, issued by the Registrant to John G. Lindell --
incorporated by reference to Exhibit 10.13 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997.
10.9 Warrant to Purchase 60,000 shares of Common Stock at $2.50 per share,
dated February 10, 1997, issued by the Registrant to John G. Lindell --
incorporated by reference to Exhibit 10.14 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997.
10.10 Loan and Security Agreement, dated April 24, 1997, between the
Registrant and NationsCredit Commercial Funding Division
("NationsCredit")-- incorporated by reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1997.
10.11 Guaranty, dated April 24, 1997, by the Registrant of certain
obligations of Northwest Teleproductions/Chicago, Inc. (" NW Chicago")
and Southwest Teleproductions, Inc. ("Southwest") -- incorporated by
reference to Exhibit 10.16 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1997.
10.12 Loan and Security Agreement, dated April 24, 1997, between NW Chicago
and NationsCredit -- incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1997.
<PAGE>
10.13 Guaranty, dated April 24, 1997, by NW Chicago of certain obligations of
the Registrant and Southwest -- incorporated by reference to Exhibit
10.18 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1997.
10.14 Loan and Security Agreement, dated April 24, 1997, between Southwest
and NationsCredit -- incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1997
10.15 Guaranty, dated April 24, 1997, by Southwest of certain obligation of
the Registrant and NW Chicago -- incorporated by reference to Exhibit
10.20 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1997.
10.16 Security Agreement, dated April 24, 1997, between Northwest
Teleproductions/ Kansas City, Inc. ( "NW Kansas City" ) and
NationsCredit -- incorporated by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1997.
10.17 Guaranty, dated April 24, 1997, by NW Kansas City of certain
obligations of the Registrant, NW Chicago and Southwest -- incorporated
by reference to Exhibit 10.22 to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1997
10.18 First Amendment dated June 4, 1997, to Loan and Security Agreement
dated April 24, 1997, between the Registrant and NationsCredit --
incorporated by reference to Exhibit 10.23 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997
10.19** Description of Officers' Incentive Compensation Agreement.
10.20 Real Property Mortgage, dated April 24, 1997, between the Registrant
and NationsCredit covering Registrant's property in Minneapolis,
Minnesota -- incorporated by reference to Exhibit 10.25 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1997
10.21 Employment Agreement, dated May 11, 1998, between the Registrant and
Phillip A. Staden -- incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1998.*
10.22 Real Estate Purchase Agreement, dated May 11, 1998, between the
Registrant and Lindue, LLC -- incorporated by reference to Exhibit
10.27 to the Registrant's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1998.*
10.23 Lease Agreement, dated June 24, 1998, between the Registrant and
Lindue, LLC relating to property at 4000 West 76th Street, Minneapolis,
MN -- incorporated by reference to Exhibit 10.28 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.*
10.24 Lease Agreement, dated June 24, 1998, between the Registrant and
Lindue, LLC relating to property at 4455 West 77th Street, Minneapolis,
MN -- incorporated by reference to Exhibit 10.29 to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998.*
11 Statement Regarding Computation of Per Share Earnings. The required
information is included in Note 1 of Notes to Consolidated Financial
Statements
13 Annual Report to Shareholders. The portions of the Registrant's 1999
Annual Report to Shareholders that are incorporated in this Form 10-KSB
by reference
21 Subsidiaries of the Registrant
Name State of Incorporation
Southwest Teleproductions, Inc. Texas
Northwest Teleproductions/Kansas City, Inc. Minnesota
Northwest Teleproductions/Chicago, Inc. Minnesota
23 Consent.
23.1 Consent of Boulay, Heutmaker, Zibell & Co., PLLP
23.2 Consent of Deloitte and Touche, LLP
24 Power of Attorney. Powers of Attorney from directors of the Registrant
are included as part of the "Signatures" page of this Form 10-KSB
27 Financial Data Schedule (filed in electronic format only)
* Incorporated by reference to a previously filed report of document, SEC File
No. 0-8505 unless otherwise indicated.
**Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-KSB
Exhibit 10.5
AMENDMENT TO 10-1/2% SUBORDINATED NOTES
The undersigned (the "Holders") are all of the holders of 10-1/2%
Subordinated Notes (the "Notes") of Northwest Teleproductions, Inc. (the
"Company") dated July 30, 1996, August 30, 1996 and February 10, 1997 in the
aggregate principal amount of $562,500. The Company is currently in default on
the payment of principal due on the Notes.
The Holders hereby waive the default by the Company on the payment of
principal on the Notes and agree that the Notes are hereby amended to provide
that (i) the original principal amount of the Notes shall be paid in five equal
annual installments commencing July 31, 2000 and (ii) interest on the Notes
shall be paid quarterly commencing October 31, 1999.
This Amendment may be signed in any number of counterparts which, when
taken together, shall be deemed to constitute one original. This Amendment shall
not become effective until all of the Holders have signed their names below.
Date Signed HOLDERS:
June 28, 1999 /s/ Ronald V. Kelly
Ronald V. Kelly
June 28, 1999 /s/ John G. Lindell
John G. Lindell
June 28, 1999 /s/ Gerald W. Simonson
Gerald W. Simonson
June 29, 1999 /s/ James S. Fish, Jr.
Authorized Personal Representative of the
Estate of James S. Fish
COMPANY:
NORTHWEST TELEPRODUCTIONS,
INC.
June 28, 1999 By /s/ Phillip A. Staden
Its President
EXHIBIT 10.19
OFFICER INCENTIVE COMPENSATION
Phillip A. Staden, shall receive additional compensation as a participant in the
"1999 Officers Incentive Compensation Plan" which plan is defined as follows:
*Incentive compensation in the form of a cash bonus shall be paid based on
consolidated audited pre-tax earnings, which for the purpose of this plan, will
be pre-tax earnings as determined in accordance with generally accepted
accounting principles and shall be net of a deduction for a provision for
officers incentive compensation to be paid under this plan.
*Total incentive compensation shall be calculated as follows:
Incentive compensation for, Phillip A. Staden, shall equal five percent
(5%) of consolidated pre-tax earnings in excess of eight percent (8%)
of consolidated stockholders' equity fiscal year end. The incentive is
subject to a maximum of fifty percent (50%) of compensation.
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
Financial Statements for the Years Ended
March 31, 1999 and 1998 and
Independent Auditors' Reports
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations:
Consolidated sales for the year ended March 31, 1999 of $10,662,581 compare to
consolidated sales of $11,192,233 in 1998. The 4.7% decrease in overall sales
from fiscal 1998 to fiscal 1999 reflects an increase in Department of Defense
(DOD) contract production, an increase in programming revenue and an increase in
overall sales from our traditional production business, all of which was offset
by the loss of sales from the Company's downtown Minneapolis operation which was
closed in fiscal 1998. After excluding 1998 sales from the closed downtown
Minneapolis office, sales for fiscal 1999, on a comparative basis, increased
5.3% to $10,662,581 from 1998 sales of $10,128,012.
The Company's estimated production orders at March 31, 1999 are $6,800,000.
Included in this amount are DOD production orders estimated at $560,000 and show
production for cable and network broadcast estimated at $6,100,000. The
production orders at March 31, 1998 were estimated to be $7,600,000, including
DOD production estimated at $2,800,000 and production for cable and network
broadcast estimated at $4,800,000.
In contrast to the moderate sales increases we have experienced in our
traditional production business, excluding the reduced sales effect of our
closed facility in Minneapolis, we are continuing to achieve growth in our
programming group. In order to continue that momentum we are investing in the
skilled personnel needed to accelerate the creation, sale, and production of
programming for the broadcast market. Management considers this an area of
importance and growth. It is management's belief that providers of quality
programming will be in demand as the outlets for content continue to expand
beyond the traditional distribution provided by cable and network operators. The
Internet will play a key role in the distribution of programming and content. In
the area of creative and marketing services the Company has assembled a creative
team led by a creative director with 15 years of advertising experience. The
combination of our television and radio broadcast experience coupled with the
addition of creative and marketing professionals will enhance our position
within the marketplace.
For the years ended March 31, 1999 and 1998, DOD contract sales equaled 21% and
18.5%, respectively, of total sales. Department of Defense production in fiscal
1999 consisted of completion of the balance of the contract requirements for the
fourth year of the five-year agreement. Additionally, the Company completed 80%
of the fifth and final year's requirements. This final contract year provides
for production work through August 1999.
Gross profits increased to 18.9% of sales from 7.4% in the prior year. This is
the third year of increases in our gross profit. Cost of products and services
sold, as a percentage of sales, equaled 81.1% and 92.6% for the years ended
March 31, 1999 and 1998, respectively. Included in our cost of sales for fiscal
1999 was a charge of $122,455 to write down our parts inventory. The parts were
written down as a result of changes in production equipment and technology. The
inventory write down had 1.1% effect on current year gross profit. The decrease
in the cost of sales percentage in fiscal 1999 is the result of reductions in
fixed overhead such as payroll, depreciation and occupancy costs along with
reduced expenditures for job related variable costs. The reduction in variable
costs was accomplished through better cost controls.
Selling, general, and administrative expenses for the years ended March 31, 1999
and 1998 totaled $1,724,701 and $2,025,653 respectively. Expenses for fiscal
<PAGE>
1999 decreased $300,952 or 14.9% from fiscal 1998. Reasons for the decrease
include reductions in payroll, depreciation and general overhead expenses.
Interest expense of $578,478 and $668,372 for the fiscal years ended March 31,
1999 and 1998, respectively, decreased $89,894 or 13.4% reflecting a decrease in
long term debt during fiscal 1999 compared to 1998. (Note 2).
The tax benefits for fiscal 1999 and 1998 reflect refunds received during 1999
and 1998 for items, such as state franchise taxes and goodwill impairment, where
the ultimate collectibility was uncertain, and, therefore, no deferred tax asset
was previously recorded. Management has recorded a valuation allowance on the
deferred tax assets to reflect the amount management estimates will be
ultimately collected.
This section contains disclosures which are forward-looking statements.
Forward-looking statements include all statements that do not relate solely to
historical or current facts, and can be identified by the use of words such as
"may," "will," "expect," "project," "estimate," "anticipate," "envision,"
"plan," or "continue." These forward-looking statements are based upon the
Company's current plans or expectations and are subject to a number of
uncertainties and risks that could significantly affect current plans and
anticipated actions and the Company's future financial condition and results.
The uncertainties and risks include, but are not limited to, general economic
and business conditions; loss of significant customers; changes in levels of
client advertising; and the impact of competition. As a consequence, current
plans, anticipated actions and future financial condition and results may differ
from those expressed in any forward-looking statements made by or on behalf of
the Company.
Looking forward to fiscal 2000, we currently have in production seven shows for
broadcast and cable television. Coupled with the balance of our DOD contract
work we have an estimated $6,800,000 in production orders. The emphasis in the
past few years has been overhead reductions and cost savings. This will
continue as a way of life. But, the emphasis must return to growing our
businesses. Internally, the Company has been reorganized into three market
groups. They consist of our Programming, Creative Services and Production
Services Groups. The Company's Programming Group has primary responsibility for
the development and production of our cable and network shows. Additionally,
there is a team evaluating broadcast and content development opportunities for
the Internet, along with special interest programs for business and consumer
use. Our Creative Services Group is responsible for combining our broadcast
capabilities and experience with their creative development and marketing
support skills in order to provide clients with a turn key solution. Our first
success this year was establishing a creative support relationship with one of
the nation's leading interactive golf superstores. The Production Services Group
is primarily responsible for pursuing and developing the traditional corporate,
industrial and agency markets. During the year we hired a seasoned veteran to
manage our Minneapolis Production Group. The management team will be aggressive
in pursuing these opportunities.
Liquidity and Capital Requirements:
The net loss of $156,910 in fiscal 1999 reduced stockholders' equity from
$1,206,716 at March 31, 1998 to $1,049,806 at March 31, 1999. The impact of the
net loss of $1,354,249 in fiscal 1998 reduced stockholders' equity from
$2,560,965 at March 31, 1997 to $1,206,716 at March 31, 1998.
<PAGE>
On April 24, 1997, the Company entered into a credit agreement with
NationsCredit. The credit agreement has a three-year term and consists of an
$8,500,000 revolving credit facility. The agreement includes a term note of
$3,750,000 to be repaid in monthly installments over three years. The payment is
based on a five-year amortization with the balance due at the end of the
three-year period, April 24, 2000. The Company used the proceeds of the term
loan to pay off and cancel its indebtedness to Norwest Bank (Note 2). Additional
borrowings against the line of credit in April 1998 were utilized to pay off
accounts payable and other current obligations. The Company's new term debt
agreement provides a reduced principal payment and a longer amortization period
than its prior term debt agreement. The Company's new revolving line of credit
adds flexibility and allows for increased borrowings against available
collateral. These changes had a significant impact on the Company's availability
under the line of credit. Additionally, NationsCredit provided $700,000 of
mortgage financing, as part of the $8,500,000 credit facility, in June 1997. The
mortgage was collateralized by the Company's real estate located in Edina,
Minnesota. The proceeds were used to further reduce accounts payable and other
current liabilities. In June 1998 the Company paid off its mortgage.
In June, 1999, the Company restructured the payment terms of its subordinated
notes payable (see Note 8).
In June, 1998, the Company sold its Edina, Minnesota buildings in a sale and
leaseback transaction. The Company used the proceeds to reduce debt, pay off
accounts payables, and fund facility improvements. See the section "Cash
Generation and Deployment" and Note 7 Related Party Transactions of the
Company's financial statements for further information. Management believes the
actions taken during fiscal 1999 will enable the Company to fulfill its
obligations in the normal course of business through its fiscal year 2000.
Cash Generation and Deployment:
In 1999, $452,195 of cash was generated from operating activities compared with
$83,408 in 1998. The increase in 1999 compared to 1998 is the result of the
changes in working capital coupled with improved operating results. The Company
utilized cash to pay down payables that had been accumulating. Compared to
fiscal 1998, which had a net payable decrease of $631,377 from fiscal 1997,
fiscal 1999 had a decrease in payables of $153,131. In fiscal 1998 the Company
had a decrease in client deposits of $247,880. In fiscal 1999 the Company
utilized an additional $9,982 of those deposits. Capital expenditures for
property, plant, and equipment were $679,441 in 1999, compared with $561,702 in
1998. The 1999 and 1998 depreciation and amortization charges were $1,108,525
and $1,595,523, respectively. The lower level of capital expenditures over the
past two years is the result of a significant upgrade of plant and production
equipment in years prior to 1996, a change in the business mix toward the
production of shows, and the sale/leaseback of the Edina, Minnesota facilities
in 1999. Also changes in the industry to off-the-shelf computer hardware and
software-based equipment results in lower costs for equipment. The increase in
capital expenditures over 1998 relates to the implementation of a new financial
accounting and production software system, expansion of the Company's
information systems and wide area network, building and studio improvements, the
purchase of 3D animation software and the upgrading of a non-linear real-time
edit suite. Management continues to invest in and upgrade equipment at levels
believed to be necessary.
During the year ended March 31, 1999 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:
<PAGE>
Pay off mortgage $560,000
Pay down term debt 275,000
Reduce payables and other liabilities 427,000
Reserve for building improvements 230,000
Payment of fees and security deposits 108,000
With proceeds from the building sale and payments during the year, the Company
paid down its bank term debt to $1,414,553 as of March 31, 1999. The Company's
financial institution subsequently agreed to reduce the term loan payment. The
principal part of the payment changed from $62,500 per month to $38,965.
Additionally, the Company's line of credit borrowings increased by $92,522 over
1998 and unrestricted cash balances decreased $13,902 during fiscal 1999.
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
are: (1) year 2000 compliant; (2) can be upgraded to be year 2000 compliant
without significant cost or effort; (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: (1) year 2000 compliant; (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 affect on the Company's results of operations, liquidity and financial
condition.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
FINANCIAL REVIEW
<TABLE>
<CAPTION>
Year Ended March 31
-------------------------------------------------
1999 1998 1997
HIGHLIGHTS
<S> <C> <C> <C>
Net sales $ 10,662,581 $ 11,192,233 $ 11,852,758
Net loss (156,910) (1,354,249) (1,455,823)
Basic and dilutive loss per share (.12) (1.00) (1.07)
Stockholders' equity 1,049,806 1,206,716 2,560,965
Stockholders' equity per share .77 .89 1.89
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
June 30 September 30 December 31 March 31
QUARTERLY OPERATING RESULTS
<S> <C> <C> <C> <C>
Year Ended March 31, 1999:
Net sales $ 2,388,350 $ 2,642,902 $ 3,017,735 $ 2,613,594
Gross profit 459,418 449,480 652,211 450,008
Net loss (58,651) (71,492) 104,943 (131,710)
Basic and dilutive loss per share (0.04) (0.05) .07 (0.10)
Year Ended March 31, 1998:
Net sales $ 2,886,840 $ 3,212,531 $ 3,022,712 $ 2,070,150
Gross profit 104,794 269,339 405,997 45,637
Net loss (475,829) (384,046) (156,184) (338,190)
Basic and dilutive loss per share (0.35) (0.28) (0.12) (0.25)
</TABLE>
Year Ended March 31
-------------------------------------------------
1999 1998
---------------------- ----------------------
High Low High Low
MARKET PRICES
Quarter Ended:
June 30 $ 1.31 $ .94 $ 4.00 $ 2.13
September 30 1.19 .50 4.00 2.38
December 31 .63 .26 3.25 1.13
March 31 .81 .26 1.50 1.00
The Company's common stock is currently traded on the over-the-counter market
and is quoted on the National Association of Securities Dealers, Inc. OTC
Bulletin Board under the symbol NWTL. Current published quotations for the
Company's Common Stock reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Prior to April 3, 1998, the Company's stock was traded on the Nasdaq National
Market. The table above sets forth the high and low closing sales prices as
reported by Nasdaq or the OTC Bulletin Board during the last two fiscal years.
The approximate number of holders of record of the Company's Common Stock was
406 at March 31, 1999.
The Company has not paid dividends since fiscal 1991. Dividend declaration and
payment is currently restricted by the Company's credit agreement.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED
FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended March 31
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
OPERATIONS STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Net sales $ 10,662,581 $ 11,192,233 $ 11,852,758 $ 12,509,041 $ 13,203,986
Costs of products and services sold 8,651,464 10,366,466 11,518,677 10,733,791 9,888,482
------------- ------------- ------------- ------------- --------------
Gross Profit 2,011,117 825,767 334,081 1,775,250 3,315,504
Selling and administrative 1,724,701 2,025,653 1,855,691 2,707,709 2,542,140
Operating Income 286,416 (1,199,886) (1,521,610) (932,459) 773,364
Other Income (Expense)
Goodwill impairment charge (1,060,330)
Cost of litigation and settlement (100,000) (281,852)
Severance and other charges (38,000) (161,834) (443,000)
Gain on sale of assets 81,086 416,235
Miscellaneous income (expense) 23,319 13,774 10,574 58,582 44,567
Interest (578,478) (668,372) (489,953) (487,770) (379,736)
------------- ------------- -------------- ------------- --------------
Total other expenses, net (474,073) (276,363) (641,213) (2,032,518) (617,021)
Income(Loss) Before
Provision of Income Taxes (187,657) (1,476,249) (2,162,823) (2,964,977) 156,343
Income (tax benefit)/taxes (30,747) (122,000) (707,000) (549,000) 105,000
------------- ------------- ------------- ------------- --------------
Net (loss) earnings $ (156,910) $ (1,354,249) $ (1,455,823) $ (2,415,977) $ 51,343
============= ============== ============= ============= ==============
BASIC NET (LOSS) EARNINGS
PER SHARE $ (.12) $ (1.00) $ (1.07) $ (1.73) $ .03
DILUTED NET (LOSS)
EARNINGS PER SHARE (.12) (1.00) (1.07) (1.73) .03
NET EARNINGS (LOSS) % TO
BEGINNING EQUITY (13.00)% (52.9)% (36.2)% (35.4)% .8%
BALANCE SHEET DATA
Total assets $ 6,110,295 $ 7,407,750 $ 9,834,218 $ 11,065,349 $ 13,512,782
Property, plant, and equipment, net 2,877,116 3,309,840 5,901,116 7,457,534 8,390,182
Stockholders' equity 1,049,806 1,206,716 2,560,965 4,016,788 6,832,712
Shares outstanding 1,356,425 1,356,425 1,356,425 1,356,425 1,554,525
Equity per share .77 .89 1.89 2.96 4.35
Term obligations:
Current portion 670,026 1,679,282 851,610 3,844,659 1,806,914
Long-term portion 1,881,525 2,188,747 2,479,466 107,751 2,202,436
------------- -------------- ------------- ------------- --------------
Total term obligations 2,551,551 3,868,029 3,331,076 3,952,410 4,009,350
Term obligations % to equity 243% 321% 130% 98% 59%
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
Northwest Teleproductions, Inc. and
Subsidiaries
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Northwest
Teleproductions, Inc. and Subsidiaries (the Company) as of March 31, 1999 and
the related consolidated statements of operations, cash flows, and stockholders'
equity for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the March 31, 1999 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Northwest Teleproductions, Inc. and Subsidiaries as of March 31, 1999 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co., PLLP
Certified Public Accountants
Minneapolis, Minnesota
June 2, 1999, except for Note 8, as
to which the date is June 28, 1999
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
Northwest Teleproductions, Inc. and
Subsidiaries
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Northwest
Teleproductions, Inc. and subsidiaries (the Company) as of March 31, 1998 and
the related consolidated statements of operations, cash flows, and stockholders'
equity for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of
March 31, 1998 and the consolidated results of operations and cash flows for the
year then ended, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 10, 1998, except for the sale/leaseback disclosures in Notes 1, 2, 7, and
the supplemental disclosure of noncash investing and financing activities in the
statement of cash flows, as to which the date is June 24, 1998
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 316,153 $ 330,055
Restricted cash 124,116 1,825
Trade accounts receivable, less doubtful accounts of $58,663 and
$137,842, respectively 2,248,691 1,850,187
Refundable income taxes 18,217 16,886
Other assets 262,641 205,675
Land and building held for sale 1,158,063
----------- ----------
Total current assets 2,969,818 3,562,691
PROPERTY AND EQUIPMENT:
Land 50,000 72,500
Buildings and improvements 821,540 831,431
Leasehold improvements 599,553 359,641
Machinery and equipment 19,055,026 19,299,785
----------- ----------
20,526,119 20,563,357
Less accumulated depreciation 17,649,003 17,253,517
----------- ----------
2,877,116 3,309,840
Other assets 263,361 535,219
----------- ----------
Total assets $ 6,110,295 $7,407,750
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 515,806 $ 423,284
Current portion of long-term debt
and capital leases 670,026 1,679,282
Trade accounts payable 725,515 826,860
Commissions, salaries, and withholdings 423,420 359,086
Accrued expenses 202,572 296,633
Customer deposits 395,101 405,083
Deferred gain from building sale 123,996
Other liabilities 22,059
----------- ----------
Total current liabilities 3,056,436 4,012,287
DEFERRED GAIN FROM BUILDING SALE 122,528
LONG-TERM DEBT AND CAPITAL LEASES, less payments
due within one year 1,881,525 2,188,747
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 2,500,000 shares authorized, none issued
Common stock, par value $.01 per share; authorized 10,000,000
shares, 1,356,425 issued and outstanding 13,564 13,564
Additional paid-in capital 577,123 577,123
Retained earnings 459,119 616,029
----------- ----------
Total stockholders' equity 1,049,806 1,206,716
----------- ----------
Total liabilities and stockholders' equity $ 6,110,295 $7,407,750
=========== ==========
</TABLE>
Notes to consolidated financial statements are an integral part of this
statement.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net sales $ 10,662,581 $ 11,192,233
Costs of products and services sold 8,651,464 10,366,466
------------- --------------
Gross profit 2,011,117 825,767
Selling and administrative 1,724,701 2,025,653
------------- --------------
Operating income (loss) 286,416 (1,199,886)
Other income (expense)
Severance and other charges (38,000)
Gain on sale of assets 81,086 416,235
Miscellaneous income 23,319 13,774
Interest expense (578,478) (668,372)
------------- --------------
Total other expense, net (474,073) (276,363)
------------- --------------
Loss before income taxes (187,657) (1,476,249)
Benefit from income taxes (30,747) (122,000)
------------- --------------
Net loss $ (156,910) $ (1,354,249)
============= ==============
BASIC AND DILUTIVE LOSS PER SHARE $ (.12) $ (1.00)
============= ==============
WEIGHTED AVERAGE NUMBER OF BASIC AND
DILUTED COMMON SHARES OUTSTANDING 1,356,425 1,356,425
</TABLE>
Notes to consolidated financial statements are an integral part of this
statement.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------
Number of Additional
Shares Paid-in Retained
Issued Amount Capital Earnings
<S> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1997 1,356,425 $ 13,564 $ 577,123 $ 1,970,278
Net loss (1,354,249)
----------- --------- ----------- --------------
BALANCES AT MARCH 31, 1998 1,356,425 13,564 577,123 616,029
Net loss (156,910)
----------- --------- ----------- --------------
BALANCES AT MARCH 31, 1999 1,356,425 $ 13,564 $ 577,123 $ 459,119
=========== ========= =========== ==============
</TABLE>
Notes to consolidated financial statements are an integral part of this
statement.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (156,910) $ (1,354,249)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 1,108,525 1,595,523
Amortization of capitalized financing costs 171,412 108,096
Gain on sale of assets (81,086) (416,235)
Provision for losses on accounts receivable 59,325
Deferred gain on building sale (92,779)
Severance and other charges 38,000
Deferred rent 60,180 37,554
Changes in assets and liabilities:
Decrease (increase) in restricted cash (122,291) 433,837
Decrease (increase) in trade accounts receivable (457,829) 107,646
Decrease (increase in refundable income taxes (1,331) (350,114)
Decrease (increase) in other assets 128,092 62,379
(Decrease) increase in accounts payable and accrued liabilities (153,131) (631,377)
(Decrease) increase in customer deposits (9,982) (247,880)
------------- --------------
Net cash provided by operating activities 452,195 83,408
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (377,623) (561,702)
Proceeds from sale of assets 747,092 815,627
Other assets (90,470)
------------- --------------
Net cash provided by investing activities 278,999 253,925
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in line of credit 92,522 (703,915)
Long-term borrowings 4,816,350
Payments on long-term borrowings (783,296) (4,279,397)
Payments for financing costs (54,322) (372,933)
------------- --------------
Net cash used for financing activities (745,096) (539,895)
------------- --------------
DECREASE IN CASH (13,902) (202,562)
CASH AT BEGINNING OF YEAR 330,055 532,617
-------------- --------------
CASH AT END OF YEAR $ 316,153 $ 330,055
============= ==============
-Continued-
</TABLE>
Notes to consolidated financial statements are an integral part of this
statement.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED MARCH 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<S> <C> <C>
Cash payments made for:
Income taxes received $ (44,608) $ (469,000)
============= ==============
Interest paid $ 645,500 $ 508,000
============= ==============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 7, in June 1998 the Company entered into a sale-leaseback
transaction. Non-cash proceeds of $835,000 were used to reduce the Company's
term debt, $275,000, and to pay off the Company's mortgage of the disposed
buildings, $560,000.
During the year ended March 31, 1999, the Company entered into capital lease
arrangements totaling $301,818.
Notes to consolidated financial statements are an integral part of this
statement.
<PAGE>
NORTHWEST TELEPRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Northwest Teleproductions, Inc. and
Subsidiaries (the Company) is a full-service production company
providing a full range of creative, production, and postproduction
service to clientele throughout the United States.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company after elimination of intercompany
balances and transactions.
Basis of Presentation - The Company's financial statements for the year
ended March 31, 1999 reflect a net loss of $156,910 and a decrease in
stockholders' equity from $1,206,716 at March 31, 1998 to $1,049,806 at
March 31, 1999.
Included in its net loss for 1999 are non-cash charges for depreciation
and amortization of property and equipment ($1,108,525) and
amortization of capitalized financing costs ($171,412). Capital
additions included $377,623 of cash expenditures and $301,818 of
capital leases. The Company also realized a one-time $122,000 charge
for the write off of supplies inventory due to changes in production
equipment and technology.
Management continued its program to reduce cash expenditures that
started in February 1997 by taking the following actions during the
year ended March 31, 1999:
o Entered into a sale-leaseback transaction in June 1998 that
generated cash to pay down liabilities, including bank debt of
approximately $835,000.
o Reduced monthly principal payments on the Company's term debt
o Restructured the terms of its subordinated debt on June 28,
1999 (see Note 8) to extend principal payment dates to the
five year period beginning in July 2000.
o Negotiated a new health insurance program which will save the
Company approximately $55,000 per year over the former
program.
o Reduced its interest expense by $90,000 from 1998.
The Company has a bank credit agreement which consists of a $8,500,000
revolving credit facility with a term expiring in April 2000. This
agreement is further discussed in Note 2.
As of March 31, the Company has signed contracts with customers for
shows totaling approximately $6,800,000 and anticipates recognizing
revenues of $5,200,000 from these contracts during its fiscal year
2000.
In the opinion of management, the aforementioned actions and agreements
will enable the Company to fulfill its obligations in the normal course
through its fiscal year ending March 31, 2000.
Management Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
<PAGE>
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting period.
Actual results could differ from those amounts.
Cash - The Company maintains its accounts primarily at one financial
institution. At times throughout the year, the Company's cash balances
may exceed amounts insured by the Federal Deposit Insurance
Corporation.
Restricted Cash - Restricted cash consists of customer payments
received on contracts to be utilized for specific production costs.
Other Assets - Other current assets consist of prepaid expenses and the
current portion of capitalized finance costs, as well as, videotapes,
tape reels, tape cassettes, electronic components, and other supplies
used in recording of film, videotape production, and equipment
maintenance. Other non-current assets consist primarily of deposits and
the non-current portion of deferred financing costs. Deferred financing
costs are amortized over the life of the Company's bank credit
agreement and included in interest expense. Prepaid expenses, tapes,
and other supplies are expensed as used. During the fourth quarter of
the year ended March 31, 1999, the Company wrote off approximately
$122,000 of its supplies inventory due to changes in production
equipment and technology.
Property and Equipment - Property and equipment are stated at the lower
of cost or estimated fair value. Depreciation and amortization are
computed using the straight-line basis over estimated useful lives.
Maintenance and repairs are expensed as incurred; major improvements
and betterments are capitalized. The present values of capital lease
obligations are classified as long-term debt and the related assets are
included in equipment. Amortization of equipment under capital leases
is included in depreciation expense.
Buildings and improvements 15 - 30 years
Leasehold improvements 2 - 15 years
Machinery and equipment 5 - 10 years
The Company is depreciating machinery and equipment using accelerated
methods for income tax purposes.
Estimated Fair Value - The estimated fair values of the Company's
financial instruments (cash, trade accounts receivable, trade accounts
payable, notes payable, and long-term debt), none of which are held for
trading purposes, approximate their carrying value due to the
relatively short-term nature of the instruments and/or due to the
short-term floating interest rates on the borrowing and/or due to
interest rates approximating rates currently available to the Company.
Revenue Recognition and Trade Accounts Receivable - Beginning in 1986,
the Company commenced performance on major government contracts which
are performed over extended periods of time and are based on fixed
prices. The Company subsequently began performing services under
similar arrangements for non-government customers. Sales and profits on
these contracts are recorded in a manner similar to the
percentage-of-completion method of accounting. During the years ended
March 31, 1999 and 1998 sales under these contracts accounted for 21%
and 18%, respectively, of total sales. Included in accounts receivable
<PAGE>
at March 31, 1999 and 1998 are $495,000 and $273,000, respectively, of
billings under government contracts and $270,000 and $292,000,
respectively, of unbilled sales from government contracts. In addition,
the Company has also recorded unbilled receivables due from
non-government sources of $658,000 and $176,000 at March 31, 1999 and
1998, respectively.
Stock-Based Compensation - Effective April 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 requires expanded
disclosures of stock-based compensation arrangements with employees and
encourages, but does not require, compensation cost to be measured
based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply Accounting Principles Board
(APB) Opinion No. 25, which recognizes compensation cost for employee
awards based on the intrinsic value of the equity instrument awarded.
The Company continues to apply APB Opinion No. 25 with regard to
measurement of compensation cost.
Earnings/(Loss) Per Common Share - In fiscal 1998, the Company adopted
SFAS No. 128, Earnings Per Share. SFAS No. 128 requires the disclosure
of basic and diluted earnings per share (EPS). Basic EPS is calculated
using income available to common shareowners divided by the weighted
average of common shares outstanding during the year. Diluted EPS is
similar to Basic EPS except that the weighted average of common shares
outstanding is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential
common shares, such as options, had been issued. The treasury stock
method is used to calculate dilutive shares which reduces the gross
number of dilutive shares by the number of shares purchasable from the
proceeds of the options assumed to be exercised. The dilutive effect of
the warrants and stock options were not included in the 1999 and 1998
computation of dilutive earnings/loss per share because to do so would
have been antidilutive for the periods presented.
Reclassification - The presentation of certain items in the fiscal 1998
financial statements has been changed to conform to the classifications
used in fiscal 1999. These reclassifications had no effect on net
income or retained earnings as previously presented.
2. FINANCING
At March 31, 1999 and 1998, the Company had a bank line of credit that
is secured by substantially all assets. Maximum borrowings under the
credit agreement were determined by an accounts receivable borrowing
base calculation or $4,000,000, whichever was less. Outstanding amounts
bear interest at prime plus 3% and 2.25% at March 31, 1999 and 1998,
respectively (a total of 10.75% at both dates). Amounts outstanding
under the line of credit were $515,806 and $423,284 at March 31, 1999
and 1998, respectively.
Long-term debt and capital leases included the following items:
<PAGE>
<TABLE>
<CAPTION>
March 31
-------------------------------
1999 1998
<S> <C> <C>
Term note payable in monthly installments of principal
plus interest at prime plus 3.00% and 2.25% at March 31,
1999 and 1998, respectively (10.75% at March 31,
1999 and 1998) (see below) $ 1,414,553 $ 2,248,239
First mortgage note payable in monthly installments of
principal plus interest at prime plus 2.25% (10.75% at
March 31, 1998), paid in June 1998 594,997
Subordinated notes convertible to common shares,
one-fifth payable annually beginning July 2000,
interest payable quarterly beginning in October 1999,
at 10.5% (Note 8) 562,500 562,500
Capital lease obligations (Note 4) 574,498 462,293
---------- ----------
2,551,551 3,868,029
Less payments due within one year 670,026 1,679,282
---------- ----------
$ 1,881,525 $ 2,188,747
========= =========
</TABLE>
The subordinated notes have detachable warrants that are exercisable
for the purchase of 225,000 shares of common stock at $2.50 per share.
The subordinated notes can be used as payment for the exercise of the
warrants. Included in the subordinated notes is $412,500 payable to
current and former Board members or their beneficiaries. Interest on
the subordinated notes was approximately $60,000 in each year.
On April 24, 1997, the Company and NationsCredit entered into a credit
agreement which consists of a $8,500,000 revolving credit facility with
a three-year term expiring in April 2000 which includes a $3,750,000
term note that is to be repaid in 36 monthly installments, based on a
five-year amortization, with the balance due April 2000. Interest on
loans outstanding under the credit agreement is based on prime plus
3.00% and 2.25% at March 31, 1999 and 1998, respectively (a total of
10.75% at both dates). The agreement includes certain non-financial
covenants and restricts the declaration or payment of dividends.
Proceeds from the new credit agreement were used to pay off the line of
credit and the term note payable outstanding at March 31, 1997.
For fiscal year ending March 31, 1998 the payments due within one year
include $560,000 of the first mortgage note payable and $275,000 of the
term note payable. These amounts were paid as a result of the
sale-leaseback transaction and are therefore classified as current.
Scheduled maturities of long-term debt and capital lease obligations
are as follows at March 31, 1999:
2000 $ 670,026
2001 1,201,694
2002 268,908
2003 185,922
2004 112,500
Thereafter 112,501
----------
$ 2,551,551
==========
<PAGE>
3. INCOME TAXES
The provision for (benefit from) income taxes for the years ended March
31 consists of:
1999 1998
Currently refundable:
Federal $ (100,000)
State $ (30,747) (22,000)
------- ---------
(30,747) (122,000)
Deferred - -
---------- ----------
$ (30,747) $ (122,000)
========= ==========
Reconciliations between the income tax provisions computed at the
federal statutory rate and the income tax provisions recorded are as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Income tax benefit at statutory rates
(34% and 35% at March 31, 1999 and 1998, respectively) ($64,000) ($516,000)
State income tax less applicable federal benefit (9,000) (33,000)
Valuation allowance 114,000 957,000
Nondeductible expenses 13,000 4,000
Contract termination loss (478,000)
Franchise tax refunds (31,000) (50,000)
Adjustment for previously recorded net loss and
tax credit carryforwards (53,747)
Other (6,000)
--------- --------
($30,747) $(122,000)
========= =========
</TABLE>
During the years ended March 31, 1999 and 1998, the Company increased
the valuation allowance by $114,000 and $957,000, respectively. These
changes resulted in total valuation allowances at March 31, 1999 and
1998 of $1,168,000 and $1,054,000 on the deferred tax assets, reducing
the total to an amount that management believes will ultimately be
realized.
Temporary differences that give rise to the net deferred tax assets and
liabilities at March 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net current deferred tax assets:
Severance and other $10,000
Allowance for doubtful accounts $ 24,000 65,000
Vacation accrual 53,000 65,000
Real estate tax accrual (6,000)
Profit on unbilled government contracts (22,000)
---------- -------
77,000 112,000
Less valuation allowance 77,000 112,000
---------- -------
$ - $ -
========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net non-current deferred tax assets:
Depreciation $ (187,000) $ (538,000)
Severance and other 13,000
Alternative minimum tax credit and NOL carryforwards 1,278,000 1,467,000
------------ ------------
1,091,000 942,000
Less valuation allowance 1,091,000 942,000
------------ ------------
$ - $ -
============ ============
</TABLE>
At March 31, 1999, the Company had net operating loss carryforwards of
approximately $2,400,000 available to be carried to future periods. The
loss carryforwards expire from 2012 through 2018 if not used.
4. COMMITMENTS AND CONTINGENCIES
Capital Leases - Included in machinery and equipment at March 31, 1999
and 1998 is $936,100 and $634,283 of equipment under capital lease. The
accumulated amortization at March 31, 1999 and 1998 for these assets is
$306,923 and $171,773 respectively. Amortization of capital leases for
the years ended March 31, 1999 and 1998 included in the consolidated
statements of operations was $135,150 and $147,984 respectively. The
Company is obligated to pay costs of insurance, taxes, repairs and
maintenance pursuant to the terms of most of the leases.
Minimum future payments, exclusive of the lease under the
sale-leaseback, for capital leases in effect at March 31, 1999 are as
follows:
2000 $ 271,784
2001 189,063
2002 179,851
2003 82,444
-----------
723,142
Less portion representing interest 148,644
$ 574,498
Operating Leases - The Company leases facilities in Minneapolis and
Chicago under operating leases. The Company is obligated to pay costs
of insurance, taxes, repairs and maintenance pursuant to the terms of
most of the leases.
The Minneapolis facility has two operating leases:
o Under the terms of a noncancelable lease commencing June 1998
and terminating June 30, 2001, monthly rental $16,614 for the
first nine months, $17,030 for the next twelve months, $17,454
for the final twelve months and $17,891 for the final three
months. The lease, which is with a former member of the Board
of Directors, will automatically renew for a period of five
years unless the Company cancels it prior to January 2001.
o The Downtown Minneapolis facility is leased under the terms of
a ten-year lease which commenced in October 1991 and provides
<PAGE>
for monthly rental of $4,133. During fiscal year 1998, the
Company elected to vacate the facility and accrued $74,500 in
costs associated with the remaining lease term less estimated
sublease rental.
The Chicago facility has one operating lease:
o Under the terms of a noncancelable lease commencing September
1993 and expiring in April 2002, monthly rental of $15,010 is
required during the initial 44 months of the lease decreasing
to $3,129 per month for the balance of the lease. The Company
has recorded rent expense on a straight-line basis recognizing
deferred rent for the difference between cash payments and
recorded expense. The lease has a five-year renewal option. In
April 1999, the Company amended this lease for 50% of the
square footage which decreased the payments to $1,565.
All leases provide for additional rental based on shared operating
expenses.
Minimum future payments for noncancelable operating leases with an
initial term of more than one year, including the lease payments
associated with the sale and lease back of the Company's Edina,
Minnesota facility (Note 7), at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Net
Deferred Deferred Operating
Cash Rent Gain Lease
Rents Expense (Benefit) Expense
Year Ending March 31:
<S> <C> <C> <C> <C>
2000 $ 254,640 $ 60,180 $(123,996) $ 190,824
2001 237,248 60,180 (103,960) 193,468
2002 72,453 60,180 (18,568) 114,065
2003 1,565 5,015 6,580
--------- ---------- --------- -----------
$ 565,906 $ 185,555 $(246,524) $ 504,937
========= ========== ========= ===========
</TABLE>
The Company also rents various types of production equipment. Total
rental expenses for facilities and equipment were approximately
$448,000 and $217,000 for the years ended March 31, 1999 and 1998,
respectively.
Litigation-The Company is involved in an employment related legal
action that arose during fiscal 1999. In the opinion of management, the
ultimate disposition of this matter will not have a material adverse
effect on the Company's financial condition.
5. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
Accounting for Stock Based Compensation - In June 1993, the Company
adopted a stock option plan that included incentive stock options for
employees and non-qualified stock options for outside directors,
employees, and non-employees. The terms of the incentive and
non-qualified stock options are substantially the same. The plan
provides for the issuance of shares of the Company's common stock at
not less than fair market value at the date of grant. During fiscal
1999, the number of shares authorized for the plan was increased from
200,000 to 260,000.
<PAGE>
As permitted by SFAS No. 123, the Company has elected to continue
following the guidance of APB 25 for measurement and recognition of
stock-based transactions with employees. Accordingly, no compensation
cost has been recognized for the awards made in the form of stock
options. If compensation cost had been determined based on the fair
value at the dates for awards under those plans, consistent with the
method provided in SFAS No. 123, the Company's net loss and loss per
share would have been changed to the pro forma amounts indicated:
1999 1998
Net (loss):
As reported ($ 156,910) ($1,354,249)
Pro forma (183,203) (1,368,537)
1999 1998
(Loss) per share:
As reported (.12) (1.00)
Pro forma (.14) (1.01)
All stock option grants are reviewed and approved by the Compensation
Committee of the Board of Directors or by the Board of Directors.
Options granted typically vest over three years, with some grants
vesting immediately. Options expire after three to five years.
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999 and 1998,
respectively: dividend yield of 0% for all years; expected volatility
of 100.5% and 79.7%; risk-free interest rates of 4.49% and 10.75%; and
estimated lives of three to five years.
A summary of the Company's stock options as of March 31, 1999 and 1998
and the changes during the years ended on those dates are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Stock Options Shares Price
<S> <C> <C>
Year ended March 31, 1997 - granted and outstanding 85,000 $ 2.07
Year ended March 31, 1998 - granted 94,000 1.25
Year ended March 31, 1998 - forfeited (50,000) 2.00
---------
Options outstanding at March 31, 1998 129,000 1.50
=========
Options exercisable at March 31, 1998 29,000 2.10
=========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Year ended March 31, 1998 - granted and outstanding 129,000 1.50
Year ended March 31, 1999 - granted 144,000 .42
Year ended March 31, 1999 - forfeited (10,000) 1.25
Year ended March 31, 1999 - expired (6,000) 3.00
----------
Options outstanding at March 31, 1999 257,000 .87
=========
Options exercisable at March 31, 1999 65,335 1.40
=========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at March 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- -----------------------------
Shares Shares
Outstanding Weighted Exercisable Weighted
at Remaining Average at Average
March 31, Contractual Exercise March 31, Exercise
Exercise Price 1999 Life Price 1999 Price
<S> <C> <C> <C> <C> <C>
$0.42 144,000 4.6 $0.42 10,000 $0.42
1.25 84,000 3.8 1.25 31,335 1.25
2.00 29,000 2.6 2.00 24,000 2.00
-------- --- ---- ------ ----
257,000 4.1 $0.87 65,335 $1.40
======== === ==== ====== ====
</TABLE>
Series A Preferred Stock - The Company has authorized a total of
2,500,000 shares of preferred stock, none of which is issued. Of these
authorized shares, the Company has designated 100,000 shares as Series
A, cumulative, voting preferred stock with a per share par value of
$.01 and a per share liquidation value equal to the greater of $100 or
100 times the per share liquidation value of common stock. Each share
of Series A preferred stock has voting rights equal to 100 shares of
common stock. Upon issuance, the Series A preferred stock bears a
cumulative quarterly dividend equal to the greater of $1.00 or 100
times the amount of any quarterly declared dividend on common stock.
Shareholder Rights Plan - In July 1998, the Board of Directors adopted
a shareholder protection rights plan declaring a dividend of one right
for each share of the Company's common stock outstanding on August 14,
1998. The rights, which may be exercised (except by the acquirer of 15
percent or more of the Company's common stock) at a time specified by
the Board of Directors after a person or group has acquired, or
announced and intends to acquire, 15 percent or more of the Company's
stock, entitle the holder to purchase stock having a market value equal
to twice the exercise price. If the acquirer acquires more than 15
percent, but not more than 50 percent, of the Company's common stock,
the Board may elect to exchange common stock for the preferred stock
rights in accordance with a formula specified in the Company's Rights
Agreement. The rights are redeemable for $.001 per right until becoming
exercisable and have a life of 10 years unless redeemed earlier or
extended by the Company.
<PAGE>
6. EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan as set forth under
Section 401(k) of the Internal Revenue Code covering substantially all
of its employees. Under this plan, the Company contributes to the plan
an amount equal to 50% of an employee's contribution up to a maximum
Company contribution of 2.50% of an employee's covered compensation.
The cost of these contributions was approximately $50,000 and $78,000
for the years ended March 31, 1999 and 1998, respectively.
7. RELATED PARTY TRANSACTIONS
On October 1, 1997, the Company executed two promissory notes totaling
$412,000 with a member of the Board of Directors, as an advance against
two income tax refunds receivable (Minnesota and Illinois). The notes
were paid, with interest, per the terms of the notes, when the refunds
were received.
On June 24, 1998, the Company entered into a sale-leaseback transaction
of two buildings with Lindue, LLC, a Minnesota limited liability
corporation owned by a member of the Company's Board of Directors. The
individual subsequently resigned from the Board of Directors. Proceeds
from the sale-leaseback were $1.6 million, of which $112,000 in accrued
interest and a $20,000 security deposit were held in escrow by the
landlord. The interest was subsequently remitted to the Company and
paid to the noteholders. Of the sales proceeds, $275,000 and $560,000,
respectively, were used to pay down the Company's term debt and
mortgage on the building.
8. SUBSEQUENT EVENTS
In July 1998, the Company did not to make the first of its originally
scheduled annual principal and interest payments on its subordinated
debt. On June 28, 1999, the Company restructured the principal and
interest payment terms of its subordinated notes payable. The principal
payment terms were changed from being made over a three-year period
beginning in July 1998 to a five-year period beginning in July 2000.
Interest payments were also changed from annual payments to quarterly
payments beginning in October 1999. The subordinated notes are
presented in the accompanying financial statements in accordance with
the restructured terms since those terms more properly reflect the
commitments of the Company. Other terms of the subordinated notes
remained unchanged as a result of this restructuring.
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in the Registration
Statement of Northwest Teleproductions, Inc. on Form S-8 (File No. 33-69036) of
our report dated June 2, 1999, except for Note 8, as to which the date is June
28, 1999, appearing in the Annual Report on Form 10-KSB of Northwest
Teleproductions, Inc. and subsidiaries for the year ended March 31, 1999.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
June 28, 1999
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Form S-8 Registration
Statement of Northwest Teleproductions, Inc. on Form S-8 (File No. 33-69036) of
our report dated June 10, 1998, except for the sale/leaseback disclosures in
Notes 1, 2, 7, and the supplemental disclosure of noncash investing and
financing activities in the statement of cash flows, as to which the date is
June 24, 1998, appearing in this Annual report on Form 10-KSB of Northwest
Teleproductions, Inc., for year ended March 31, 1998.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
June 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 440,269
<SECURITIES> 0
<RECEIVABLES> 2,307,354
<ALLOWANCES> 58,663
<INVENTORY> 0
<CURRENT-ASSETS> 2,969,818
<PP&E> 20,526,119
<DEPRECIATION> 17,649,003
<TOTAL-ASSETS> 6,110,295
<CURRENT-LIABILITIES> 3,056,436
<BONDS> 1,881,525
0
0
<COMMON> 13,564
<OTHER-SE> 577,123
<TOTAL-LIABILITY-AND-EQUITY> 6,110,295
<SALES> 10,662,581
<TOTAL-REVENUES> 10,662,581
<CGS> 8,651,464
<TOTAL-COSTS> 8,651,464
<OTHER-EXPENSES> 1,724,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 578,478
<INCOME-PRETAX> (187,657)
<INCOME-TAX> (30,747)
<INCOME-CONTINUING> (156,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (156,910)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
