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, 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
Common stock at November 19, 1999
$0.01 Par Value 5,540,661
W-W CAPITAL CORPORATION
Index
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PART I FINANCIAL INFORMATION PAGE NO.
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Item 1 Balance Sheets
September 30, 1999 and June 30, 1999 1
Statements of Income
Three Months Ended
September 30, 1999 and 1998 3
Statements of Cash Flows
Three Months Ended
September 30, 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
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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
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W-W CAPITAL CORPORATION
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Balance Sheets
September 30, June 30,
1999 1999
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(Unaudited)
Assets
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Current assets:
Cash ...................................... $ 323,269 $ 311,491
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Trade accounts receivable ................. 2,614,928 2,297,593
Less allowance for doubtful accounts ...... ( 120,000) ( 115,000)
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Net accounts receivable ............... 2,494,928 2,182,593
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Accounts receivable, other ................ 47,011 43,545
Inventories:
Raw materials ......................... 363,718 420,494
Work-in-process ....................... 293,302 240,573
Finished goods ........................ 3,029,058 2,814,682
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Total inventories ................ 3,686,078 3,475,749
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Prepaid expenses .......................... 52,785 17,058
Current portion of notes receivable
from related parties 465 465
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Total current assets .................. 6,604,536 6,030,901
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Property and equipment, at cost: ............... 4,889,534 4,860,564
Less accumulated depreciation
and amortization .......................... ( 2,856,869) ( 2,786,645)
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Net property and equipment ............ 2,032,665 2,073,919
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Other Assets:
Long-term notes receivable from
related parties, net of current portion 22,135 22,135
Loan Acquisition Costs--Net of
accumulated amortization of $19,432
at September 30, 1999 and $11,689
at June 30, 1999 ...................... 64,523 72,266
Other assets .............................. 19,773 21,571
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Total other assets .................... 106,431 115,972
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TOTAL ASSETS .............................. $8,743,632 $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
September 30, June 30,
1999 1999
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(Unaudited)
Liabilities
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Current Liabilities:
Accounts Payable ...................................... $ 2,241,163 $ 2,129,501
Accrued property taxes ................................ 31,052 23,062
Accrued payroll and related taxes ..................... 291,415 216,719
Accrued interest payable .............................. 19,513 19,790
Current portion of long-term notes payable ............ 228,000 227,000
Current portion of capital lease obligations .......... 18,000 17,000
Other current liabilities ............................. -- 874
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Total current liabilities ......................... 2,829,143 2,633,946
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Other Liabilities:
Long-term notes payable, net of current portion ....... 3,048,164 2,898,626
Long-term capital lease obligations, net
of current portion ................................ 68,031 73,002
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Total other liabilities ........................... 3,116,195 2,971,628
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TOTAL LIABILITIES ................................. 5,945,338 5,605,574
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Stockholders' Equity
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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 September 30, 1999
and June 30, 1999 ................................. 55,406 55,406
Capital in excess of par value ........................ 3,304,629 3,304,629
Accumulated Deficit ................................... ( 512,835) ( 695,911)
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2,847,200 2,664,124
Less 120,264 shares of treasury stock at cost ......... ( 48,906) ( 48,906)
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TOTAL STOCKHOLDERS' EQUITY ........................ 2,798,294 2,615,218
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .............................. $ 8,743,632 $ 8,220,792
=========== ===========
See accompanying notes to financial statements.
2
W-W CAPITAL CORPORATION
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Statements of Income
(Unaudited)
Three Months Ended
September 30,
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1999 1998
---- ----
Net Sales ............................... $4,985,387 $4,021,470
Cost of goods sold ...................... 4,014,330 3,337,910
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Gross profit ...................... 971,057 683,560
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Operating expenses:
Selling expenses .................. 360,479 300,775
General and administrative expenses 373,099 317,475
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Total operating expenses ..... 733,578 618,250
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Operating earnings ........... 237,479 65,310
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Other income (expenses):
Interest income ................... 16,989 19,015
Interest expense .................. ( 73,409) ( 82,482)
Gain (loss) on sale of assets ..... -- ( 1,347)
Other income (expense), net ....... 2,017 7,377
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Total other income (expense) . ( 54,403) ( 57,437)
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Earnings before income taxes ...... 183,076 7,873
Provision for deferred income taxes -- --
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Net earnings ...................... $ 183,076 $ 7,873
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Basic earnings per common share .03 .00
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Weighted-average number of
common shares outstanding ............... 5,540,661 5,560,794
========== ==========
See accompanying notes to financial statements.
3
W-W CAPITAL CORPORATION
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Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
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1999 1998
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Cash flows from operating activities:
Net earnings ..................................... $ 183,076 $ 7,873
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization ................ 77,968 88,300
Provisions for doubtful accounts receivable .. 5,000 --
Loss on sale of property and equipment ....... -- 1,347
Change in assets and liabilities:
Accounts receivable .......................... ( 317,335) 28,166
Inventories .................................. ( 210,329) 111,914
Other current and non-current assets ......... ( 37,395) ( 55,634)
Accounts payable ............................. 111,662 ( 95,631)
Accrued expenses and other current liabilities 81,535 ( 44,604)
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Net cash provided by (used in)
operating activities ................ ( 105,818) 41,731
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Cash flows from investing activities:
Purchase of property and equipment ............... ( 28,971) ( 35,830)
Increase in other notes receivable ............... -- ( 690)
Proceeds from stockholders' notes receivable -- 428
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Net cash used in investing activities ... $( 28,971) $( 36,092)
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(Continued on following page)
4
W-W CAPITAL CORPORATION
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Statements of Cash Flows, Continued
(Unaudited)
Three Months Ended
September 30,
-------------
1999 1998
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Cash flows from financing activities:
Payments on notes payable, financial
institutions and government entities .... (4,171,566) ( 120,538)
Proceeds from notes payable ................. 4,322,094 --
Payment on capital leases ................... ( 3,961) --
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Net cash provided by (used in)
financing activities ........... 146,567 ( 120,538)
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Net increase (decrease) in cash ............. 11,778 ( 114,899)
Cash at beginning of period ................. 311,491 281,449
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Cash at end of period ....................... $ 323,269 $ 166,550
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Supplemental disclosures of cash flow information:
Cash paid during the period for interest .... $ 71,062 $ 103,894
See accompanying notes to financial statements.
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W-W CAPITAL CORPORATION
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NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - BASIS OF PRESENTATION
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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.
During 1999, the Company consolidated W-W Manufacturing and Eagle Enterprises
into one legal entity without effecting the financial statements. 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 month period ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
year ended June 30, 2000.
NOTE 2 - NET BASIC EARNINGS PER SHARE
- -------------------------------------
The net basic earnings per share amount included in the accompanying
statements of income 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 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
statements of income for the three months ended September 30, 1999 and 1998,
respectively, is as follows:
Three Months Ended
September 30,
-------------
Transactions with
Related parties 1999 1998
- --------------- ---- ----
Rent expense $15,000 $15,000
Interest expense $ 349 $ 515
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 $183,076 for the three month period
ended September 30, 1999, as compared to net earnings of $7,873 in 1998.
Net sales increased to $4,985,387 for the three months ended September
30, 1999, compared to $4,021,470 for 1998. The following table represents actual
sales by segment group.
Sales by segment group: Three Months Ended
September 30,
-------------
Increase
1999 1998 (Decrease)
---- ---- --------
Livestock Handling Equipment $ 2,686,554 $ 2,117,371 $ 569,183
Water and Environmental Products 2,298,833 1,904,099 394,734
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Total Sales $ 4,985,387 $ 4,021,470 $ 963,917
========= ========= ========
7
The sales in the water and environmental product segment increased to
$2,298,833 as compared to $1,904,099 for the corresponding period of 1998. The
increase of $394,734 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 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 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 increased $569,183 to
$2,686,554 for the three months ended September 30, 1999 compared to $2,117,371
in the same period of 1998. The increase was due to improved cattle prices,
improved market conditions, and strong acceptance of the new equine products.
The Company continues to make improvements to various existing products and is
planning on introducing some significant changes in the spring of 2000. The
Company continues to expand its market area in the upper midwest and west. The
east coast market, serviced by the Livingston, Tennessee plant, continues to
show improvements as this market continues to accept a higher quality of
equipment replacing the lighter weight products previously offered in this
market. As market conditions remain strong through the winter months and spring
of 2000, the Company expects to see improved sales in traditional cattle
products, as well as rodeo and equine product lines. Special sales to expo
centers, fairs, and livestock shows continue to improve. The Company is
presently involved with several projects in the international market and is
expected to see this area of sales improve in the spring of 2000.
Gross margins improved for the three month period ended September 30,
1999 to 19.5% as compared to 17.0% for the same period of 1998. The increase was
realized in both segments with the largest improvement in the livestock
equipment segment. This was primarily due to improved manufacturing efficiencies
and shipments during the quarter as compared to the same period of 1998. Despite
standard products being manufactured at its Weatherford, Oklahoma plant, the
Company overcame added costs to improve margins. Gross margins in the water and
environmental product segment improved. This improvement is due to increased
sales in 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 wholesale water well products continue to be very competitive and the
Company is continuing its efforts to lower cost on the resale side of the
business.
8
Operating profit in the water and environmental products segment
improved to $98,227 as compared to $30,867 for the same period of 1998. Profits
in the livestock equipment segment increased to $90,177 for the quarter ended
September 30, 1999 as compared to a loss of $3,755 for the same period of 1998.
The largest increase in the segment was realized at the Dodge City location. The
Livingston, Tennessee location had a net decrease in operating profit due to
labor problems and manufacturing inefficiencies. Management has taken steps to
make changes in operations to see that this location gets back to previous
levels.
Selling expenses as a percentage of sales decreased slightly from 7.5%
for the three month period of September 30, 1998 as compared to 7.2% for the
same period of 1999. The Company will continue its aggressive pursuit of new
markets and expanding its distributor/dealer base.
General and administration expenses declined from 7.9% for the quarter
ended September 30, 1998 to 7.5% for the corresponding quarter in 1999. Overall,
general and administration expenses increased in dollars spent.
Interest expense continues to decline as the effects of the new banking
arrangements with Norwest Business Credit, Inc. of Colorado continue to be felt.
Overall borrowing cost has been reduced through competitive rates and the
utilization of a lock box system for receipts which allows for a direct paydown
on the lines of credit. Interest expenses decreased to $73,409 during the first
quarter ended September 30, 1999, compared to $82,482 during the same period of
1998.
(B) Liquidity and Capital Resources
-------------------------------
The Company's principal sources of liquidity are internally generated
funds and borrowings under its credit facilities. The Company generated funds
from operations with net earnings of $183, 076 and produced a traditional cash
flow from operations of $261, 044. This cash flow and funds form operating lines
were used to fund the sales growth of $963,917 and the resulting inventory and
accounts receivable increase. The Company used cash from investing for the
purchase and updating of new equipment. Cash provided by financing activities
resulted in a net increase in borrowings for the quarter ended September 30,
1999. With the increase in sales growth, the Company used its revolving lines
extensively to carry the additional inventory and accounts receivables that came
along with sales growth. As the Company moves further into fiscal 2000, it
anticipates continued sales growth with a leveling off of borrowings.
Based on current conditions in all operating segments and the general
economy, the Company fees that it will continually improve in both sales and
operating earnings through fiscal 2000. With the increased working capital and
lines of credit, the Company feels it has an adequate supply of liquidity to
meet its needs.
9
PART II
OTHER INFORMATION
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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
--------------------------------
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: November 19, 1999 By:/s/ Steve D. Zamzow
- ------ ------------ ---- --------------------------------
Steve D. Zamzow, President & CEO
Dated: November 19, 1999 By:/s/ Mike Dick
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Mike Dick, Controller
11