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 September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 principle executive offices, including zip codes)
(970) 207-1100
(Registrants 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 proceeding 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 T 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 December 9, 1998
Common stock -------------------
$0.01 Par Value 5,540,661
W-W CAPITAL CORPORATION
Index
PART I FINANCIAL INFORMATION PAGE NO
- ------ --------------------- -------
Item 1 Balance Sheets
- ------ September 30, 1998 and June 30, 1998 1
Statements of Operations
Three Months Ended
September 30, 1998 and 1997 3
Statements of Cash Flows
Three Months Ended
September 30, 1998 and 1997 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 10
- ------
Item 2 CHANGES IN SECURITIES 10
- ------
Item 3 DEFAULTS UPON SENIOR SECURITIES 10
- ------
Item 4 SUBMISSION OF MATTERS TO VOTE OF
- ------
SECURITY HOLDERS 10
Item 5 OTHER INFORMATION 10
- ------
Item 6 EXHIBITS AND REPORT ON FORM 8-K 10
- ------
SIGNATURES 11
Part 1-FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
W-W CAPITAL CORPORATION
-----------------------
Balance Sheets
September 30, June 30,
1998 1998
---- ----
(Unaudited)
Assets
- ------
Current assets:
Cash .......................................... $ 166,550 $ 281,449
----------- -----------
Trade accounts receivable ..................... 2,055,114 1,990,476
Less allowance for doubtful accounts .......... (186,814) (104,500)
----------- -----------
Net accounts receivable ................... 1,868,300 1,885,976
----------- -----------
Accounts receivable, othe ..................... 45,424 60,593
Inventories:
Raw materials ............................. 346,906 390,607
Work-in-process ........................... 177,619 207,079
Finished goods ............................ 2,521,060 2,559,813
----------- -----------
Total inventories ................... 3,045,585 3,157,499
----------- -----------
Prepaid expenses .............................. 84,159 19,262
Current portion of notes receivable
from related parties ...................... -- 893
Current portion of notes receivable, other .... 21,031 20,342
----------- -----------
Total current assets ...................... 5,231,049 5,426,014
----------- -----------
Property and equipment, at cost .................. 4,692,507 4,665,178
Less accumulated depreciation
and amortization .............................. (2,614,975) (2,561,929)
----------- -----------
Net property and equipment ................ 2,077,532 2,103,249
----------- -----------
Other Assets:
Long-term notes receivable from
related parties, net of current portion ... 22,600 22,135
Long-term notes receivable, other, net
of allowance for doubtful accounts
of $10,000 and current portion ............ 104,432 99,752
Other assets .................................. 20,165 29,428
----------- -----------
Total other assets ........................ 147,197 151,315
----------- -----------
TOTAL ASSETS .............................. $ 7,455,778 $ 7,680,578
=========== ===========
(Continued on following page)
See accompanying notes to financial statements.
1
W-W CAPITAL CORPORATION
-----------------------\
Balance Sheets, (Continued)
September 30, June 30,
1998 1998
---- ----
(Unaudited)
Liabilities
- -----------
Current Liabilities:
Accounts Payable ............................. $ 1,619,107 $ 1,714,738
Accrued property taxes ....................... 38,889 29,646
Accrued payroll and related taxes ............ 190,877 225,154
Accrued interest payable ..................... 3,746 25,158
Current portion of long-term payables ........ 280,478 300,000
Current portion of notes payable to
related parties ........................... 19,522 21,107
Current portion of capital lease obligation .. 4,660 --
Other current liabilities .................... 16,384 14,542
----------- -----------
Total current liabilities ................. 2,173,663 2,330,345
----------- -----------
Other Liabilities:
Long-term note payable to financial
institutions net of current portion ...... 2,740,392 2,839,823
Long-term capital lease obligation, net
of current portion ........................ 23,440 --
----------- -----------
Total other liabilities ................... 2,763,832 2,839,823
----------- -----------
TOTAL LIABILITIES ......................... 4,937,495 5,170,168
----------- -----------
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 and 5,530,661
shares issued and outstanding at
Sept. 30, 1998 and June 30, 1998 ......... 55,406 55,406
Capital in excess of par value ............... 3,304,629 3,304,629
Accumulated Deficit .......................... (792,846) (800,719)
----------- -----------
2,567,189 2,559,316
Less 20,264 shares of treasury stock at cost . (48,906) (48,906)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................ 2,518,283 2,510,410
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ...................... $ 7,455,778 $ 7,680,578
=========== ===========
See accompanying notes to financial statements
2
W W CAPITAL CORPORATION
-----------------------
Statements of Operations
(Unaudited)
Three Months Ended
September 30,
1998 1997
---- ----
Net Sales .................................... $ 4,021,470 $ 4,181,579
Cost of goods sold ........................... 3,337,910 3,269,215
----------- -----------
Gross profit ............................ 683,560 912,364
----------- -----------
Operating expenses:
Selling expenses ........................ 300,775 295,140
General and administrative expenses ..... 317,475 347,666
----------- -----------
Total operating expenses ............ 618,250 642,806
----------- -----------
Operating earnings .................. 65,310 269,558
----------- -----------
Other income (expense):
Interest income ......................... 19,015 24,161
Interest expense ........................ (82,482) (84,627)
Gain (loss) on sale of assets ........... (1,347) --
Gain income (expense), net .............. 7,377 20,974
----------- -----------
Total other income (expense) ........ (57,437) (39,492)
----------- -----------
Earnings before income taxes ............ 7,873 230,066
----------- -----------
Provision for deferred income taxes .......... -- --
----------- -----------
Net earnings ............................ $ 7,873 $ 230,066
=========== ===========
Basic earnings per common share .............. $ (.00) $ (.04)
=========== ===========
Weighted-average number of
common shares outstanding .................... 5,560,794 5,549,544
=========== ===========
See accompanying notes to financial statements.
3
W-W CAPITAL CORPORATION
Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
-------------
1998 1997
---- ----
Cash flows from operating activities:
Net earnings .................................... $ 7,873 $ 230,066
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization ................... 88,300 98,751
Loss (gain) on property and equipment ........... 1,347
Changes in assets and liabilities:
Accounts receivable ............................. 28,166 (180,114)
Inventories ..................................... 111,914 137,480
Other current and non-current assets ............ (55,634) (50,308)
Accounts payable ................................ (95,631) (353,484)
Accrued expenses and other current liabilities .. (44,604) 4,854
--------- ---------
Net cash used in operating activities . 41,731 (112,755)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment .............. (35,830) (45,733)
Increase in other notes receivable .............. (690) --
Proceeds from other notes receivable ............ -- 1,866
Proceeds from stockholders' notes receivable .... 428 6,689
--------- ---------
Net cash used in investing activities . (36,092) (37,178)
--------- ---------
(Continued on Following Page)
4
W-W CAPITAL CORPORATION
Statements of Cash Flows, Continued
(Unaudited)
Three Months Ended
September 30,
-------------
1998 1997
---- ----
Cash flows from financing activities:
Payments on notes payable, financial
Institutions and government entities ...... (120,538) (75,768)
Payments on notes payable to affiliates ........ -- (1,435)
Proceeds from notes payable .................... -- 19,400
--------- ---------
Net cash used in financing activities .......... (120,538) (57,803)
--------- ---------
Net decrease in cash ........................... (114,899) (207,736)
Cash at beginning of period .................... 281,449 357,373
--------- ---------
Cash at end of period .......................... $ 166,550 $ 149,637
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ....... $ 103,894 $ 93,110
========= =========
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, 1998. 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 month period ended September 30,
1998, are not necessarily indicative of the result that may be expected for the
year ended June 30, 1999.
NOTE 2 - NET BASIC EARNINGS PER SHARE
- -------------------------------------
The basic earnings 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 month period.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
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,
1998, 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 months ended September 30, 1998 and 1997,
respectively, is as follows:
Three Months Ended
December 31,
------------
Transactions with
Related Parties 1998 1997
- --------------- ---- ----
Rent expense $15,000 $15,000
Interest income - 211
Interest expense 515 665
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
- --------------------------------------------------------------------------------
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 $7,873 for the three month period ended
September 30, 1998, as compared to net earnings of $230,066 in 1997. The overall
reduction in earnings is attributable to a loss sustained in the livestock
equipment segment at the Dodge City location while the water and environmental
product segment showed improved earnings.
Net sales decreased to $4,021,470 for the three months ended September 30,
1998, compared to $4,181,579 for 1997. The following table represents actual
sales by segment group.
Sales by segment group: Three Months Ended
September 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Livestock Handling Equipment $2,117,371 $2,363,522 $ (246,151)
Water and Environmental Products 1,904,099 1,818,057 86,042
--------- --------- ----------
Total Sales $4,021,470 $4,181,579 $(160,109)
========= ========= =========
The sales in the water and environmental product segment increased to
$1,904,099 as compared to $1,818,057 for the corresponding period of 1997. The
increase of $86,042 is attributable to strong demand for manufactured screens,
flush joint, and custom fabricated products. The water well supply aspect of the
business continues to remain competitive in pricing and margin, while the
advanced techniques developed for slotting perforating and threading offer the
company tremendous opportunity for growth. The
7
Company continues to lead the way with innovative products used in the water,
horizontal drilling, waste treatment, and mining industries. New products
introduced include Enviroflex well screens used to solve the problem of
sedimentation in horizontal wells or drainage screens. The unique feature of the
Enviroflex product is a porous polyethylene filter inside the PVC/steel pipe or
screen. The benefit of the Enviroflex screen is the installation in bore holes
is safer and easier, and it can be joined in a variety of ways. Another new
innovation of the Company is the custom mega screen product. This product is an
affordable high open area plastic screen with precision drilled round holes. The
Company feels the custom nature of this product allowing for short or long
length, various hole diameters, and spacing allows it to be used in various
applications and markets. Titan's Ver-Ta-Slot product continues to show strong
acceptance. This product was developed for heavier wall applications found in
landfills, highway construction, and various mining applications. Vertical
slotted openings are available in various diameters, schedules, and types of
pipe. The Company had developed the Ver-Ta-Slot for all applications and
material including belled end, gasket end, plain end, or flush joint material.
Sales in the livestock equipment segment decreased $246,151 to $2,117,371
for the three months ended September 30, 1998 compared to $2,363,522 in the same
period of 1997. The decrease was due to sluggish cattle prices and severe
drought conditions throughout the midwest and larger populated cattle states in
the south. The Company also experienced problems with labor causing
inefficiencies in production therefore delaying shipments to customers. As the
Company moved into the fall, orders regained strength and are expected to remain
strong throughout the balance of the year. Sales in the rodeo and equine (horse)
market continue to show strength and optimistic increases should be realized
throughout the year. The Company continued to make improvements to various
existing products including the squeeze chutes, headgates, working arenas and
horse stalls. The Company is presently working on a new solid sheeted working
area and will be introducing several new horse products in the spring of 1999.
The Company continues to expand its market area in the west and upper midwest.
The east coast market serviced by Eagle (Livingston Tennessee) continues to show
improvements, as this market continues to accept and appreciate a higher quality
of equipment, replacing the lighter weight products previously offered in this
market. As market conditions improve through the winter months and spring of
1999, the Company expects to see improved sales in the cattle related products.
The Company expects strong equine and rodeo product sales throughout the balance
of the year.
Gross margins declined for the three month period ended September 30, 1998
to 17% as compared to 18.4% for the year end June 30, 1998, and 21% for the same
three month period of 1997. The decrease was realized in the livestock equipment
segment due to a decrease in sales related to the poor market and weather
conditions. Another factor for the decline in gross margins was due to a
significant decrease at the W W Manufacturing plant in Dodge City Kansas due to
severe labor shortages and extreme inefficiency in production. Standard product
had to be manufactured at its Weatherford Oklahoma plant than shipped to the
Dodge City Kansas plant for shipment to the
end customer. This resulted in high level of inefficiencies and added freight
cost.Gross margins in the water and environmental product segment improved for
the three months ended September 30, 1998 as compared to the same period of
1997. The improvements are due to an increase in sales of manufactured and
custom fabricated products. The Company has continued to shift its sales efforts
to strengthen its custom fabricated products and manufactured products due to
higher margins realized on these products. Margins on the resale of water well
products continue to be very competitive and the Company is continuing its
effort to lower cost on the resale side of the business.
Operating profit in the water and environmental products decreased
slightly during the three months ended September 30, 1998 to $66,867 as compared
to $89,525 for the same period of 1997. Profits in the livestock equipment
decreased dramatically from $144,942 for the quarter ended September 30, 1998 to
8
$44,246. The largest decrease in the segment was realized at the Dodge City
location due to reasons already discussed. The decline realized at Dodge City
was a loss of ($3,001) for the quarter ended September 30, 1998 as compared to
an operating profit of $97,360 for the same period of 1997. The Eagle location
generated operating profits in 1998 of $47,247 as compared to $47,582 for the
same period of 1997.
Selling expenses as a percentage of sales remained consistent during the
quarter ended September 30, 1998 as compared to the same period of 1997. The
Company will continue to monitor selling costs as it expands its
distributor/dealer base in both segments and promotes its products to the end
customer.
General and administrative expenses declined $30,191 during the quarter
ended September 30, 1998 and as a percentage of sales declined to 7.9% from 8.3%
in the corresponding quarter of 1997. The decrease is attributable to cost cuts
taken at the corporate office and lower expense due to the settlement of various
lawsuits.
Interest expense continues to decline as overall borrowing is reduced.
Interest expense decreased to $82,482 during the first quarter ended September
30, 1998, compared to $84,627 during the same period of 1997.
Liquidity and Capital Resources
- -------------------------------
The Company generated profits of $7,873 during the quarter ended September
30, 1998 compared to $230,066 for the same quarter of 1997. The decrease in
profits was due to a loss realized in the livestock equipment segment in the
Dodge City location. Cash flow was used in operations to substantially reduce
accounts payable and bank debt. The Company will continue to improve cash flow
and reduce debt and interest expense. The improvement in cash flow will continue
to improve as the Company generates profits. Management will continue to monitor
inventory levels, improve receivable collections, reduce cost and improve
manufacturing efficiencies to insure adequate working capital.
Subsequent to the end of the quarter the Company successfully negotiated
new banking arrangements with Norwest Business Credit Inc. of Colorado. The new
revolving line and term loan commitment was for a three year term. These new
banking arrangements allows the Company new and enlarged credit facilities to
enable the Company the flexibility it needs to allow for sales and inventory
growth.
Based on current conditions in all subsidiaries and general economic
conditions, the Company anticipates continuing to make a profit for fiscal 1999.
With depreciation expense representing the major fixed non-cash cost, reduced
legal fees, and general administrative expense, the Company feels that
traditional cash flow will allow the Company to continue to reduce debt in
fiscal 1999.
9
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
- ------- --------------------------------------------------
Not Applicable
ITEM 5. OTHER INFORMATION
- ------- -----------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
Not Applicable
Exhibit 27 Financial Data Schedule
10
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: December 9, 1998 By:/s/ Steve D. Zamzow
--------------------------------
Steve D. Zamzow, President & CEO
Dated: December 9, 1998 By:/s/ Mike Dick
-------------------------------
Mike Dick, Controller
11