FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-17757
W-W CAPITAL CORPORATION
(exact name of Registrant as specified in its charter)
Nevada 93-0967457
(State or other jurisdiction of (IRS Employer Identi-
incorporation or organization) fication Number)
3500 JFK Parkway Suite 202 Ft. Collins, CO 80525
(Address of principal executive offices, including zip code)
(970) 207-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes _X_ No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether Registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes No NOT APPLICABLE X
---- ---- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Number of Shares Outstanding
- ------------------- at February 14, 2000
Common stock ----------------------------
$0.01 Par Value 5,540,661
W-W CAPITAL CORPORATION
Index
PART I FINANCIAL INFORMATION PAGE NO.
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Item 1 Balance Sheets
December 31, 1999 and June 30, 1999 1
Statements of Operations
Three and Six Months Ended
December 31, 1999 and 1998 3
Statements of Cash Flows
Six Months Ended
December 31, 1999 and 1998 4
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
PART II OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS 11
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Item 2 CHANGES IN SECURITIES 11
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Item 3 DEFAULTS UPON SENIOR SECURITIES 11
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Item 4 SUBMISSION OF MATTERS TO VOTE OF
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SECURITY HOLDERS 11
Item 5 OTHER INFORMATION 11
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Item 6 EXHIBITS AND REPORT ON FORM 8-K 11
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SIGNATURES 12
Part 1-FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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W-W CAPITAL CORPORATION
-----------------------
Balance Sheets
December 31, June 30,
1999 1999
---- ----
(Unaudited)
Assets
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Current assets:
Cash ............................................... $ 215,885 $ 311,491
------------ ------------
Trade accounts receivable .......................... 2,378,415 2,297,593
Less allowance for doubtful accounts ............... (120,000) (115,000)
------------ ------------
Net accounts receivable ........................ 2,258,415 2,182,593
------------ ------------
Accounts receivable, other ......................... 42,613 43,545
Inventories:
Raw materials .................................. 417,208 420,494
Work-in-process ................................ 239,823 240,573
Finished goods ................................. 3,019,814 2,814,682
------------ ------------
Total inventories ......................... 3,676,845 3,475,749
------------ ------------
Prepaid expenses ................................... 83,228 17,058
Current portion of notes receivable
from related parties 465 465
------------ ------------
Total current assets ........................... 6,277,451 6,030,901
------------ ------------
Property and equipment, at cost ......................... 4,905,390 4,860,564
Less accumulated depreciation
and amortization ............................... (2,918,120) (2,786,645)
------------ ------------
Net property and equipment ..................... 1,987,270 2,073,919
------------ ------------
Other Assets:
Long-term notes receivable from
related parties, net of current portion ........ 21,669 22,135
Loan Acquisition Costs--Net of
accumulated amortization of $27,175
at December 31, 1999 and $11,689 at
June 30, 1999 ................................. 56,780 72,266
Other assets ....................................... 17,974 21,571
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Total other assets ............................. 96,423 115,972
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TOTAL ASSETS ....................................... $ 8,361,144 $ 8,220,792
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(Continued on following page)
See accompanying notes to financial statements.
1
W-W CAPITAL CORPORATION
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Balance Sheets, Continued
December 31, June 30,
1999 1999
---- ----
(Unaudited)
Liabilities
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Current Liabilities:
Accounts Payable ................................... $ 2,081,512 $ 2,129,501
Accrued property taxes ............................. 28,143 23,062
Accrued payroll and related taxes .................. 209,015 216,719
Accrued interest payable ........................... 20,855 19,790
Current portion of long-term notes payable ......... 229,000 227,000
Current portion of capital lease obligations ....... 18,000 17,000
Other current liabilities .......................... 3,398 874
------------ ------------
Total current liabilities ...................... 2,589,923 2,633,946
------------ ------------
Other Liabilities:
Long-term notes payable, net of current portion .... 2,919,820 2,898,626
Long-term capital lease obligations, net
of current portion ............................. 63,683 73,002
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Total other liabilities ........................ 2,983,503 2,971,628
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TOTAL LIABILITIES .............................. 5,573,426 5,605,574
------------ ------------
Stockholders' Equity
- --------------------
Preferred stock: $10.00 par value, 400,000 shares
authorized -- --
Common stock, $0.01 par value, 15,000,000 shares
authorized; 5,540,661 shares issued and
outstanding at December 31, 1999
and June 30, 1999 .............................. 55,406 55,406
Capital in excess of par value ..................... 3,304,629 3,304,629
Accumulated Deficit ................................ (523,411) (695,911)
------------ ------------
2,836,624 2,664,124
Less 120,264 shares of treasury stock at cost ...... (48,906) (48,906)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ..................... 2,787,718 2,615,218
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........................... $ 8,361,144 $ 8,220,792
============ ============
See accompanying notes to financial statements.
2
W-W CAPITAL CORPORATION
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31 December 31,
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1999 1998 1999 1998
---- ---- ---- ----
Net Sales ............................... $ 4,485,809 $ 3,819,669 $ 9,471,195 $ 7,841,139
Cost of goods sold ...................... 3,715,993 3,231,425 7,730,323 6,569,336
----------- ----------- ----------- -----------
Gross profit ...................... 769,816 588,244 1,740,872 1,271,803
----------- ----------- ----------- -----------
Operating expenses:
Selling expenses .................. 377,970 317,320 738,449 618,094
General and administrative expenses 345,527 339,061 718,626 656,536
----------- ----------- ----------- -----------
Total operating expenses ..... 723,497 656,381 1,457,075 1,274,630
----------- ----------- ----------- -----------
Operating earnings (loss) .... 46,319 (68,137) 283,797 (2,827)
----------- ----------- ----------- -----------
Other income (expenses):
Interest income ................... 14,263 16,990 31,252 36,005
Interest expense .................. (75,250) (70,779) (148,659) (153,261)
Gain (loss) on sale of assets ..... -- 1,500 -- 153
Other income (expense), net ....... 4,093 8,336 6,110 15,713
----------- ----------- ----------- -----------
Total other income (expense) . (56,894) (43,953) (111,297) (101,390)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (10,575) (112,090) 172,500 (104,217)
Provision for deferred income taxes -- -- -- --
----------- ----------- ----------- -----------
Net earnings (loss) ............... $ (10,575) $ (112,090) $ 172,500 $ (104,217)
=========== =========== =========== ===========
Basic earnings (loss) per common share .. .00 (.02) .03 (.02)
=========== =========== =========== ===========
Diluted earnings (loss) per common share .00 (.02) .03 (.02)
=========== =========== =========== ===========
Weighted-average number of
common shares outstanding ............... 5,540,661 5,560,794 5,540,661 5,560,794
=========== =========== =========== ===========
See accompanying notes to financial statements.
3
W-W CAPITAL CORPORATION
Statements of Cash Flows
(Unaudited)
Six Months Ended
December 31,
------------
1999 1998
---- ----
Cash flows from operating activities:
Net earnings (loss) .............................. $ 172,500 $(104,217)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization ................ 146,962 171,077
Gain on sale of property and equipment ....... -- (153)
Provision for doubtful accounts receivable ... 6,850 --
Change in assets and liabilities:
Accounts receivable .......................... (82,672) (152,960)
Inventories .................................. (201,096) (73,973)
Other current and non-current assets ......... (61,641) (86,254)
Accounts payable ............................. (47,989) 149,852
Accrued expenses and other current liabilities 966 (17,541)
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Net cash used in operating activities ... (66,120) (114,169)
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Cash flows from investing activities:
Proceeds from sale of property and equipment ..... -- 1,500
Purchase of property and equipment ............... (44,827) (67,906)
Increase in other notes receivable ............... -- (5,771)
Proceeds from other notes receivable ............. -- 25,268
Proceeds from stockholders' notes receivable 466 428
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Net cash used in investing activities ... $ (44,361) $ (46,481)
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(Continued on following page)
4
W-W CAPITAL CORPORATION
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Statements of Cash Flows, Continued
(Unaudited)
Six Months Ended
December 31,
------------
1999 1998
---- ----
Cash flows from financing activities:
Payments on notes payable, financial
institutions and government entities .......... $(8,572,474) $ (243,805)
Proceeds from notes payable ....................... 8,595,668 40,748
Payments on capital leases ........................ (8,319) (7,860)
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Net cash provided by (used in) financing
activities ........................... 14,875 (210,917)
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Net decrease in cash .............................. (95,606) (371,567)
Cash at beginning of period ....................... 311,491 281,449
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Cash at end of period ............................. $ 215,885 $ (90,118)
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .......... $ 144,971 $ 161,567
Installment loans to acquire property and equipment $ -- $ 128,238
See accompanying notes to financial statements.
5
W-W CAPITAL CORPORATION
-----------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements include the accounts of W-W
Capital Corporation (the Company) and its three wholly-owned subsidiaries W-W
Manufacturing Co., Inc., Titan Industries, Inc., and Eagle Enterprises, Inc. All
significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. They do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and changes in cash
flows in conformity with generally accepted accounting principles for full-year
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to W-W Capital
Corporation's financial statements included in its Annual Report on Form 10-K
for the year ended June 30, 1999. In the opinion of management, all adjustments
(consisting of normal recurring accrual basis adjustments) considered necessary
for a fair presentation have been reflected in the accompanying financial
statements. Operating results for the three and six month periods ended December
31, 1999, are not necessarily indicative of the result that may be expected for
the year ended June 30, 2000
NOTE 2 - NET BASIC EARNINGS PER SHARE
- -------------------------------------
The net basic earnings (loss) per share amount included in the
accompanying statement of operations have been computed using the
weighted-average number of shares of common stock outstanding and the dilative
effect, if any, of common stock equivalents existing during the applicable three
and six month periods.
NOTE 3 - RELATED PARTY TRANSACTION
- ----------------------------------
The Company has a number of related party transactions. See the
footnotes to W-W Capital Corporation financial statements for the year ended
June 30, 1999, included in its Annual Report on Form 10-K for the nature and
type of related party transactions.
6
A summary of the related party transactions that effect the Company's
statement of operations for the three and six months ended December 31, 1999 and
1998, respectively, is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
Transactions with
Related parties 1999 1998 1999 1998
- --------------- ---- ---- ---- ----
Rent expense $ 15,000 $ 15,000 $ 30,000 $ 30,000
Interest expense 304 475 653 989
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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The business of the Company is carried on within two segments by a
number of operating units. The livestock handling equipment segment is composed
of W-W Manufacturing (W-W Manufacturing) and Eagle Enterprises (Eagle), and the
water and environmental product segment is represented by Titan Industries
(Titan).
(A) Analysis of Results of Operations
---------------------------------
The Company had net earnings of $172,500 for the six months ended
December 31, 1999, as compared to a net loss of $104,217 for the same period of
1998. For the three month period ended December 31, 1999, the Company incurred a
loss of $10,575 as compared to a net loss of $112, 090 for the same period of
1998. The loss sustained in the quarter was attributable to a loss reported by
the water and environmental product group of $105,954. This loss was
attributable to the normal slow selling periods during the winter months and
holiday season. The livestock equipment group had net earnings of $105,858 for
the quarter ended December 31, 1999.
Net sales increased to $9,471,195 for the six months ended December 31,
1999, compared to $7,841,139 for 1998. The following table represents actual
sales by segment group.
Sales by segment group: Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Livestock Handling Equipment $ 2,713,578 $ 2,154,000 $ 5,400,131 $ 4,271,371
Water and Environmental Products 1,772,231 1,665,669 4,071,064 3,569,768
--------- --------- --------- ---------
Total Sales $ 4,485,809 $ 3,819,669 $ 9,471,195 $ 7,841,139
========= ========= ========= =========
7
The sales in the water and environmental product segment increased to $4,071,064
as compared to $3,569,768 for the corresponding period of 1998. The increase of
$501,296 is attributable to strong demand in the new manufactured and custom
fabricated products. Titan is experiencing its usual slow down during the
holiday season and the cold month of December. As weather improves and we move
into the normal strong selling season of spring, Titan is expecting to see sales
reach all time levels. The Company continues to see strong acceptance of its new
products developed and introduced over the past year. These products include
Ver-Ta-Slot PVC, Enviroflex, mega-screen, and slotted high-density polyethylene
pipe. These products have allowed Titan the opportunity to go into
non-traditional water well markets such as horizontal drilling, landfills,
highway construction and various mining applications. With the new products,
market improvements, and Titan's commitment to quality and service, the Company
is anticipating strong sales throughout its traditionally strong selling seasons
of spring, summer and fall. Titan will continue to expand into new markets
through its efforts to establish new distributors and manufacturing
representation in all areas of the country. By continually concentrating
expansion in the south and the west coast, Titan should gradually eliminate
being effected by weather conditions and improve its sales during the winter
months.
Sales in the livestock segment increased to $5,400,131 as compared to $4,271,371
for the same period of 1998. The increase of $1,128,760 is attributable to
improved cattle prices, therefore creating strong distributor/dealer demand. The
Company's efforts to enter into new equine (horse) equipment and expand its
product offerings in rodeo and special product sales has accounted for the
increase in sales. Sales increased at both the Dodge City location and Eagle
plant location in Livingston, Tennessee. Sales at the Dodge City location
increased from $3,025,018 to $3,784,034 for the same six-month period of 1998
and 1999. Sales increased at the Eagle plant to $1,616,097 for the six months
ended December 31, 1999 as compared to $1,245,993 for the same period of 1998.
Based on present conditions, the Company anticipates sales and profits to remain
strong throughout fiscal 1999-2000. The Company is presently working on several
new products to be introduced during the spring and fall markets. The Company
continues to make product improvements to existing products, which has been
another factor in the recent increase in sales. These improvements and new
product introductions have allowed the Company to gain acceptance with new
customers and move into markets not normally serviced by the Company. The east
coast market serviced by Eagle continues to show improvement, as this market
continues to accept and appreciate a higher quality of equipment, replacing the
lighter weight products previously offered in this market. The cow-calf
operator, which is the largest segment of the eastern market, has learned the
value in having heavy working equipment. The eastern market has seen the most
significant improvements in the rodeo and equine equipment lines based on
present market conditions. The livestock handling equipment segment should see
strong sales and improved profits throughout the balance of the current fiscal
year.
Gross margins show improvement for both the three and six months ended December
31, 1999. For the six months ended December 31, 1999, overall gross margins
improved to 18.4% as compared to 16.2% for the same six-month period of 1998.
Gross margins stayed relatively level at 16.0% in the water and environmental
product group for the six-month period. Gross profit for the water and
environmental segment improved to $647,589 for the six months ended December 31,
1999 as compared to $571,312 for the same period of 1998.
8
Gross margins in the livestock equipment segment improved for the six months
ended December 31, 1999 to 19.8% as compared to 15.9% in 1998. The improved
margins are due to some improvements in manufacturing efficiencies, as well as
sales. As sales rise, expenses will not necessarily rise at the same level,
therefore lowering cost as a percentage of sales. Gross profit in the livestock
equipment segment increased to $1,093,283 for the six months ended December 31,
1999 as compared to $700,131 for the same six-month period of 1998.
Gross margins at the Eagle plant continue to improve as the plant utilization
continues to improve and sales increase in the eastern market. Gross profits
improved at the Eagle plant to $214,154 for the six months ended December 31,
1999 as compared to $137,763 for the same period of 1998.
Selling expenses as a percentage of sales decreased from 7.9% in 1998 to 7.8% in
1999. The decrease, while slight as a percentage of sales, shows the Company's
cost will decline as sales continue to improve. While the percentage cost of
selling expense declines, the dollars expended increased $123,355. This increase
in cost was due to one additional salesman added in the livestock equipment
segment and extra cost related to the introduction of new products in both
segments of operation. Selling cost increased in the livestock equipment segment
for the six months ended December 31, 1999 $80,637 as compared to the same
period of 1998. Overall selling cost increased $39,718 in the water and
environmental products group. The Company expects to maintain an aggressive
approach in developing and selling new products. Through the balance of the
fiscal year, management will continue to evaluate selling expense to find ways
to keep costs in line as a percentage of sales, as we continue to grow markets
and market share with new products.
General and administrative expense decreased as a percentage of sales to 7.6% as
compared to 8.4% for the same period of 1998. The decrease as a percentage of
sales was due to the increase in sales without a corresponding increase in
costs. Overall dollars spent on general and administrative expenses was realized
in both segments of operations. The water and environmental product segment
increased $58,677 for the six months ended December 31, 1999 as compared to the
same period of 1998. This was mainly due to salary increases and additional
people added in the livestock equipment segment. General and administrative
expenses only increased $25,381 for the six-month period ended December 31, 1999
as compared to the same period of December 31, 1998. The Company will continue
to find ways to lower general and administrative expense through the use of
centralization, job realignment, and line-by-line expense reductions.
Interest expense declined for the six months ended December 31, 1999 to $148,659
from $153,261 for the same period of 1998. Interest expense for the three months
ended December 31, 1999 increased to $75,250 from $70,779 for the same
three-month period of 1998. This increase is due to the rise in the prime
interest rate and the heavy borrowing on the revolving lines to support higher
inventory levels. As profits and cash flow increase, the Company plans to reduce
debt, thereby reducing overall interest expense.
(B) Liquidity and Capital Resources
-------------------------------
The Company's principal sources of liquidity are borrowings under its credit
facilities and from internally generated funds. The Company generated funds from
operations with net earnings of $172,500 and used cash flow in operations of
$66,120 for the six months ended December 31, 1999. The funds generated from
operating cash flow and increased borrowings of $23,194 has provided adequate
liquidity to meet all current obligations for the six months ended December 31,
1999. The
9
Company's increase in net borrowings were used to support an increase
in inventories and accounts receivables. Increases in inventories and accounts
receivables were due to the significant sales growth realized over the past six
months.
The Company used cash in investing activities for the purchase of new property
and equipment. Overall purchases of property and equipment were reduced for the
six months ended December 31, 1999 to $44,827 from $67,906 for the same six
months ended December 31, 1998. Cash used in financing activity resulted in a
new increase in borrowings of $14,875 for the six months ended December 31,
1999, and the Company anticipates overall debt to remain steady over the balance
of fiscal 2000. In November 1998, management successfully completed new banking
arrangements with Norwest Business Credit of Denver. This allowed the Company
the necessary capital to continue to grow and meet its obligations. The details
of the arrangement called for a three-year commitment from the bank of various
revolving lines and an equipment line for purchase of equipment.
To give W-W Manufacturing the opportunity to grow and eliminate its
manufacturing and labor deficiencies, management entered into a letter-of-intent
agreement to move the Dodge City location to Thomas, Oklahoma. The agreement
called for the construction of a new 75,000 sq. foot manufacturing facility. The
facility will be owned by the City of Thomas and financed through various
federal, state, and local grants as well as low interest loans over a twenty
year period. The Company will receive various state and local tax incentives and
the cost of moving to be provided by the City of Thomas. Management successfully
signed a final agreement subsequent to December 31, 1999 with the expected move
date to be later in calendar 2000.
The Company has been investigating the possibility of purchasing a 46-year old
livestock equipment manufacturer specializing in the production of scale and
weighing devices for the agricultural market. The products manufactured include
animal scales as well as grain and feed scales, both mechanical and electronic.
This prospective company fits very well with the present livestock equipment
segment and will open up new markets for the present product line. The Company
has issued a letter in understanding on the purchase but at the time of this
report no final determination or outcome on the negotiations are available.
Management believes that with net cash provided from cash flow, available lines
of credit, and funds provided from earnings, it will have adequate sources to
meet its current obligations. Based on the current conditions in all
subsidiaries and general economic conditions, the Company anticipates continuing
to make a profit for fiscal 2000. However, management does anticipate that
moving the W-W Livestock Equipment plant from Dodge City to Thomas, Oklahoma
would have some effects on profitability during and for a period after the move.
The Company feels that with traditional cash flow continuing to improve, lower
overall operating cost, and a new modern production facility, that the Company
will continue to improve throughout the year.
10
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
Not Applicable
ITEM 2. CHANGES IN SECURITIES
- ------- ---------------------
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ------- -------------------------------
Not Applicable
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
- ------- --------------------------------------------------
On January 14, 2000, the Company held its annual meeting of stockholders.
Due to a lack of a quorum, the meeting was postponed until a later date.
ITEM 5. OTHER INFORMATION
- ------- -----------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
Exhibit 27 Financial Data Schedule
11
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
W W CAPITAL CORPORATION
(Registrant)
Dated: February 14, 2000 By: /s/ Steve D. Zamzow
----------------------------
Steve D. Zamzow, President & CEO
Dated: February 14, 2000 By: /s/ Mike Dick
----------------------
Mike Dick, Controller