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, 2001
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
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(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
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(Address of principal executive offices, including zip code)
(970) 207-1100
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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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
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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 May 30, 2002
Common stock ----------------------------
$0.01 Par Value 2,008,164
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, 2001 and June 30, 2001 1
Statements of Operations
Three Months Ended
September 30, 2001 and 2000 3
Statements of Cash Flows
Three Months Ended
September 30, 2001 and 2000 5
Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis
- ------ of Financial Condition and Results
of Operations 9
PART II OTHER INFORMATION
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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
W-W CAPITAL CORPORATION
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Balance Sheets
September 30, June 30,
2001 2001
---- ----
(Unaudited)
Assets
- ------
Current assets:
Cash 155,968 216,473
----------- -----------
Trade accounts receivable 2,028,412 1,582,584
Less allowance for doubtful accounts (35,000) (35,000)
----------- -----------
Net accounts receivable 1,993,412 1,547,584
----------- -----------
Accounts receivable, other 67,351 67,975
Inventories:
Raw materials 668,114 658,943
Work-in-process 411,342 436,237
Finished goods 702,452 634,142
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Total inventories 1,781,908 1,729,322
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Prepaid expenses 84,934 50,168
Current portion of notes receivable
from related parties 554 554
Deferred income tax asset 201,100 150,100
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Total current assets 4,285,227 3,762,176
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Property and equipment, at cost: 4,279,708 4,278,694
Less accumulated depreciation
and amortization (1,986,406) (1,927,259)
----------- -----------
Net property and equipment 2,293,302 2,351,435
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Other Assets:
Long-term notes receivable from
related parties, net of current portion . 21,073 21,073
Loan Acquisition Costs--Net of
accumulated amortization of $48,182
at September 30, 2001 and $43,574
at June 30, 2001 42,531 6,139
Equipment deposits 175,000 175,000
Other assets 42,329 6,987
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Total other assets 280,933 209,199
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TOTAL ASSETS $ 6,859,462 $ 6,322,810
=========== ===========
(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,
2001 2001
---- ----
(Unaudited)
Liabilities
- -----------
Current Liabilities:
Accounts Payable $ 1,743,048 $ 1,423,041
Accrued property taxes 18,650 15,950
Accrued payroll and related taxes 182,397 177,474
Accrued interest payable 86,004 62,361
Current portion of long-term notes payable 201,000 220,000
Current portion of capital lease obligations 69,000 65,000
Other current liabilities 63,409 121,804
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Total current liabilities 2,363,508 2,085,630
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Other Liabilities:
Long-term notes payable, net of current portion 3,160,927 2,806,268
Long-term capital lease obligations, net
of current portion 1,261,410 1,281,397
Deferred income tax liability 155,100 155,100
Negative goodwill, net of accumulated
amortization of $3,709 at September 30, 2001
and $3,124 at June 30, 2001 43,144 43,729
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Total other liabilities 4,620,581 4,286,494
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TOTAL LIABILITIES 6,984,089 6,372,124
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Stockholders' Deficit
- ---------------------
Preferred stock: $10.00 par value, 400,000 shares
authorized -- --
Common stock, $0.01 par value, 15,000,000 shares
authorized; 5,553,827 shares issued and outstanding
at September 30, 2001 and June 30, 2001 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (606,583) (531,270)
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2,754,488 2,829,801
Less 3,545,663 shares of treasury stock at cost (2,879,115) (2,879,115)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (124,627) (49,314)
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TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 6,859,462 $ 6,322,810
=========== ===========
See accompanying notes to financial statements.
2
W-W CAPITAL CORPORATION
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Statements of Operations
(Unaudited)
Three Months Ended
September 30,
-------------
2001 2000
---- ----
Net sales $ 2,816,733 $ 3,582,142
Cost of goods sold 2,230,499 2,883,286
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Gross profit 586,234 698,856
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Operating expenses:
Selling expenses 281,663 226,413
General and administrative expenses 339,765 315,279
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Total operating expenses 621,428 541,692
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Operating earnings (loss) (35,194) 157,164
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Other income (expenses):
Interest income 5,754 7,820
Interest expense (97,698) (57,468)
Gain on sale of assets -- 27,300
Other income (expense), net 825 1,930
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Total other income (expense) (91,119) (20,418)
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Earnings (loss) before income taxes (126,313) 136,746
Income tax benefit (expense) from continuing
operations 51,000 (40,000)
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Net earnings (loss) from continuing operations (75,313) 96,746
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Discontinued operations:
Earnings from operations of Titan
Industries disposed of (net of income
taxes of $52,000 at three months ended
September 30, 2000) -- 87,620
Loss on disposal of Titan Industries -- 30,000
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Net earnings from discontinued operations -- 57,620
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Net earnings (loss) $ (75,313) $ 154,366
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See accompanying notes to financial statements.
3
W-W CAPITAL CORPORATION
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Statements of Operations, Continued
(Unaudited)
Three Months Ended
September 30,
-------------
2001 2000
---- ----
Earnings (loss) per common share:
Basic
Earnings (loss) from continuing operations $ (.04) $ .02
Earnings from discontinued operations -- .02
Loss on disposal of Titan Industries -- (.01)
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Net earnings (loss) $ ( .04) $ .03
========== ===========
Weighted average number of common
shares 2,008,164 5,420,397
Diluted
Earnings (loss) from continuing operations $ ( .04) .02
Earnings from discontinued operations -- .02
Loss on disposal of Titan Industries -- (.01)
----------- -----------
Net earnings (loss) $ ( .04) $ .03
=========== ===========
Weighted average number of common shares 2,008,164 5,420,397
See accompanying notes to financial statements.
4
W-W CAPITAL CORPORATION
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Statements of Cash Flows
(Unaudited)
Three Months Ended
September 30,
-------------
2001 2000
---- ----
Cash flows from operating activities:
Net earnings (loss) $ (75,313) $ 154,366
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Earnings from discontinued operations -- (77,620)
Depreciation and amortization 63,755 47,361
Gain on sale of property and equipment -- (27,300)
Amortization of negative goodwill (585) (586)
Change in assets and liabilities:
Accounts receivable (445,828) (115,215)
Inventories (52,586) (178,000)
Other current and non-current assets (91,941) (72,243)
Accounts payable 320,007 383,418
Accrued expenses and other current liabilities (27,129) 36,703
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Net cash provided by (used in)
operating activities (309,620) 150,884
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Cash flows from investing activities:
Purchase of property and equipment (1,014) (76,215)
Proceeds from sale of property and equipment -- 27,300
Proceeds from stockholders' notes receivable -- 507
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Net cash used in investing activities $ (1,014) $ (48,408)
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(Continued on following page)
5
W-W CAPITAL CORPORATION
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Statements of Cash Flows, Continued
(Unaudited)
Three Months Ended
September 30,
-------------
2001 2000
---- ----
Cash flows from financing activities:
Payments on notes payable, financial
institutions and government entities $(2,148,934) $(3,293,620)
Proceeds from notes payable 2,456,050 3,104,374
Payment on capital leases (15,987) (5,499)
Payment on loan acquisition costs (41,000) --
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Net cash provided by (used in)
financing activities 250,129 (194,745)
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Net decrease in cash (60,505) (92,269)
Cash at beginning of period 216,473 313,898
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Cash at end of period $ 155,968 $ 221,629
=========== ===========
Supplemental disclosures of cash flow for
continuing operations:
Cash paid during the period for interest $ 74,054 $ 53,516
Installment loans to acquire property
and equipment $ -- $ 19,455
Installment loan to acquire rental property $ 28,543 $ --
See accompanying notes to financial statements.
6
W-W CAPITAL CORPORATION
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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 wholly owned subsidiaries W-W
Manufacturing Co., Inc., Titan Industries, Inc., and Eagle Enterprises, Inc. All
significant intercompany accounts and transactions have been eliminated.
In January 2001, the Company sold its water and environmental product
segment, Titan Industries, Inc. The Company's consolidated financial statements
have been restated to reflect the segment as a discontinued operation for all
periods presented.
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, 2001. 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,
2001, are not necessarily indicative of the results that may be expected for the
year ended June 30, 2002.
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 dilutive effect, if any, of common
stock equivalents existing during the applicable three month period.
NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern.
The Company has incurred losses from operations of $75,313 and $247,455
for the three months ended September 30, 2001 and the year ended June 30, 2001,
respectively. Additionally, the Company has a net stockholders' deficit of
$124,627 at September 30, 2001.
7
NOTE 3 - LIQUIDITY AND CAPITAL RESOURCES (continued)
- ----------------------------------------------------
The Company relies on revolving notes payable from a financial
institution for its working capital and has amended the associated credit and
security agreements in May 2002 to modify the loan covenants among other things.
Covenants beyond June 30, 2002 have not yet been established. The ability of the
Company to continue as a going concern is dependent on meeting the requirements
of its financing agreements in the near term.
NOTE 4 - 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, 2001, included in its Annual Report on Form 10-K for the nature and
type of related party transactions.
A summary of the related party transactions that effect the Company's
statements of income for the three months ended September 30, 2001 and 2000
respectively, is as follows:
Three Months Ended
September 30,
Transactions with -------------
- -----------------
Related parties 2001 2000
- --------------- ---- ----
Rent expense $1,500 $15,000
NOTE 5 - DISCONTINUED OPERATION
- -------------------------------
On January 5, 2001, the Shareholders of the Company voted to sell its
water and environmental product segment, Titan Industries, Inc., to certain
shareholders of the Company in exchange for 3,390,399 shares, or approximately
61.2%, of the common stock of the Company. In addition to giving up its interest
in Titan, the Company also contributed to the capital of Titan the sum of
$850,000 used to equalize the value of the consideration being exchanged. The
sale was accounted for as a treasury stock transaction and the loss on disposal
is the result of professional fees attributable to the transaction. The
accompanying financial statements have been restated to conform to discontinued
operations treatment for all historical periods presented.
The operating results of the discontinued operation for the three month
periods ended September 30 is as follows:
2001 2000
---- ----
Net Sales $ -- $2,530,355
========== ==========
Earnings before provision for income taxes $ -- $ 139,620
Provision for income taxes -- 52,000
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Earnings from discontinued operations $ -- $ 87,620
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8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
---------------
The business of the Company is carried on within one segment group by
three operating units. The livestock handling equipment segment is composed of
W-W Manufacturing (W-W Manufacturing), Eagle Enterprises (Eagle), and W-W Paul
Scales (Paul).
On January 5, 2001, the Shareholders of the Company voted to sell its
water and environmental product segment, Titan Industries, Inc., to certain
shareholders of the Company. The accompanying financial statements, as well as
management's discussion and analysis of financial condition and results of
operations, have been stated to reflect discontinued operations treatment for
all historical periods presented.
(A) Analysis of Results of Operations
---------------------------------
The Company had a net loss from continuing operations of $75,313 for
the three month period ended September 30, 2001, as compared to net earnings of
$154,366 in 2000. The loss of earnings was attributable to transition costs
associated with the manufacturing plant shut down in Dodge City, Kansas as well
as current economic conditions felt throughout the United States.
Net sales from continuing operations decreased to $2,816,733 for the
three months ended September 30, 2001, compared to $3,582,142 for 2000. The
total decrease in sales of $765,409 was felt throughout the Company. While the
W-W Manufacturing plant in Thomas, Oklahoma had a slight decrease in sales of
$42,104 the Eagle and Paul plants had decreased sales of $336,923 and $386,382,
respectively. The decrease in sales is attributable to a general slow down in
the economy as well as the terrorist attacks of September 11, 2001. During the
second quarter of fiscal year 2002, the Company will aggressively attempt to
limit the effect of the economic slowdown by continuing to analyze existing
product improvements and new product introductions which have allowed the
Company to gain acceptance with new customers and move into markets not normally
serviced by the Company. The Company is also involved in several projects, which
includes special sales to expo centers, fairs and livestock shows. Sales will
also improve through the offer of special discounts and incentives to our
distributor/dealer network. Through the next quarter, the Company expects to see
sales improve through these efforts.
Gross margins from continuing operations increased from 19.5% for the
three month period ended September 30, 2000 to 20.8% for the same period of
2001. The increased margins are a result of savings in labor, shipping and
manufacturing efficiencies with the opening of the new plant in Thomas,
Oklahoma. During the first quarter of 2000 many products had to be built in
temporary production facilities in Thomas due to labor shortages in Dodge City,
Kansas. These products then had to be loaded on trucks and shipped to the Dodge
City plant for painting and then reshipped to our distributors/dealers. These
extra costs, along with other manufacturing insufficiencies in Dodge City,
caused the closing of the Dodge City plant in March of 2001. Management expects
continued improvements in gross margins throughout 2002.
9
Selling expenses from continuing operations as a percentage of sales
increased from 6.3% for the three month period ended September 30, 2000 to 10.0%
for the same period of 2001. This increase was due to the significant decrease
in sales without the related decrease in expense. The dollars expended on
selling expense increased from $226,413 for the three months ended September 30,
2000 to $281,663 for the same period of 2001, an increase of $55,250. The
Company will continue its aggressive pursuit of new markets and expanding its
distributor/dealer base while at the same time evaluating ways of keeping costs
in line as a percentage of sales.
General and administration expenses from continuing operations
increased from 8.8% for the quarter ended September 30, 2000 to 12.1% for the
corresponding quarter in 2001. The total dollars expended on general and
administration costs increased $24,486. This increase was due to final closing
costs related to the financing of the Titan Industries spin off as well as the
decrease in sales. 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 evaluation and reduction. It is anticipated that general
and administrative costs will improve due to the finalization of various
business structure changes during the first quarter of fiscal 2002.
Interest expense from continuing operations increased from $57,468 for
the three months ended September 30, 2000 to $97,698 for the same period of
2001. This increase is due to borrowings under the revolving credit facilities
having increased due to larger inventories being maintained while moving from
Dodge City to Thomas as well as the decrease in sales in response to current
economic conditions. The securing of additional financing used for the Titan
spin off also increased interest expense. As profits and cash flow improve, the
Company plans to reduce debt, thereby reducing overall interest expense.
(B) Liquidity and Capital Resources
-------------------------------
The Company's principal sources of liquidity are internally generated
funds and borrowings under its credit facilities. 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, 2001 of $250,129. With the decrease in sales growth, the
Company used its revolving lines extensively to carry the inventory and accounts
receivable balances as well as pay for the plant move to Thomas, Oklahoma. As
the Company moves further into fiscal 2002, it anticipates increased sales
growth with a leveling off of borrowings.
Even though the United States economy is in a state of recession and
current worldwide conditions are uncertain, the Company feels that it will
improve in both sales and operating earnings throughout fiscal 2002. The Company
also believes that significant benefits will be realized because of the move to
Thomas through fiscal 2002 and thereafter. With increased working capital and
lines of credit, the Company feels it has an adequate supply of liquidity to
meet its needs.
10
PART II
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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
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: May 30, 2002 By:/s/ Steve D. Zamzow
---------------------------------
Steve D. Zamzow, President & CEO
Dated: May 30, 2002 By:/s/ Mike Dick
---------------------------------
Mike Dick, Controller
12