UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal year ended June 30, 2004
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
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(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
3500 JFK Parkway, Suite 202
Ft. Collins, Colorado 80525
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(Address of principal (Zip Code)
executive office)
Registrant's telephone number, including area code: (970) 207-1100
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange or
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par Value
---------------------------
(Title of Class)
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 such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K. [ ]
1
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
[ ] Yes [ X ] No
The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the Company, based on the average of the bid and asked prices
of the Company's common stock, as quoted on the over the counter market as of
December 31, 2003, was approximately $17,491.
The number of shares of the Company's common stock outstanding as of October 13,
2004 was 2,010,614.
Documents Incorporated by Reference: Portions of the Company's Definitive Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year are incorporated by reference in Part III
of this Annual Report on Form 10-K.
2
W W CAPITAL CORPORATION
FORM 10-K
PART I
Forward-Looking Statements:
- ---------------------------
Statements contained in this Annual Report on Form 10-K and in future filings
with the Securities and Exchange Commission, or the SEC, in our press releases
or in our other pubic or shareholder communications that are not purely
historical facts are forward-looking statements. Statements looking forward in
time are included in this Annual Report on Form 10-K pursuant to the "safe
harbor" provision of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words, "believe", "will continue", "will
likely result", and any variations of such words with similar meanings. These
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict, therefore, actual results
may differ materially from those expressed or forecasted in any such
forward-looking statements.
Factors that would cause or contribute to such differences include, but are not
limited to, the risk factors contained or referenced under the headings
"Business," "Managements Discussion and Analysis of Financial Condition and
Results of Operations" and "Factors That May Affect Future Results or Market
Price of Company Stock" set forth in this Annual Report on Form 10-K. Since we
operate in a rapidly changing environment, new risk factors can arise and it is
not possible for our management to predict all such risk factors, nor can
management assess the impact of all such risk factors on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, readers are cautioned not to place undue
reliance on forward-looking statements that only speak as of the date of this
filing.
We undertake no obligation to publicly revise these forward-looking statements
to reflect events, circumstances or the occurrence of unanticipated events that
occur subsequent to the date of this Annual Report on Form 10-K. As used in this
Annual Report on Form 10-K, the terms "the Company", "we", "us", "our", and "W W
Capital" refer to W W Capital Corporation and our subsidiaries and affiliates,
unless the context indicates otherwise.
Item 1. Business
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(a) General Development of Business
-------------------------------
W W Capital Corporation ("W W Capital" or the "Company") was originally
incorporated as Freedom Acquisition Fund, Inc., a Colorado corporation, on
September 23, 1987, to merge with or engage in a merger with, or acquisition of,
one or a small number of private firms.
On May 16, 1988, the Company completed a public offering of 15,000,000 Units at
an offering price of $.03 per Unit, each Unit consisting of one share of common
stock, one Class A Warrant to purchase one share of the Company's common stock
and one Class B Warrant to purchase one additional share of the Company's common
stock. The net proceeds of the offering to the Company were approximately
$240,000. The exercise period of the Class A Warrants expired on September 1,
1989. 3,754,500 Class A Warrants, at a price of $0.035 per common share, were
submitted to the Company's transfer agent for exercise, with proceeds of
$131,408 to the Company before the payment of offering expenses and commissions
associated with the offering. The Class B Warrants expired unexercised in June
1990.
On August 16, 1988, the Company acquired 100% of the outstanding shares of W-W
Manufacturing Co., Inc. ("W-W Manufacturing") one of the oldest and largest
livestock equipment manufacturers in the United States, in exchange for
160,000,000 shares of the Company's common stock. W-W Manufacturing manufactures
a full line of cattle and equine handling and confinement equipment for use by
farmers, ranchers, rodeos, and universities throughout the United States.
3
W-W Manufacturing's principals began doing business in Texas City, Texas in 1945
designing and building their first cattle squeeze chute. Due to production and
sales growth, the principals moved the operation to Dodge City, Kansas, where
they established their first manufacturing facility in 1948. Operations
continued to expand and develop, and on October 18, 1961, W-W Manufacturing was
incorporated in the State of Kansas.
On December 9, 1989, the Company's shareholders approved a proposal to
re-incorporate W W Capital in the State of Nevada and to concurrently therewith,
reverse split on a 1 for 100 basis the authorized shares of common stock from
500,000,000 shares par value $0.0001 per share to 5,000,000 shares of common
stock, par value $0.01 per share and the 40,000,000 shares of authorized
preferred stock, par value $0.10 per share to 400,000 shares of preferred stock,
par value $10.00 per share. The re-incorporation and reverse stock split were
completed effective December 15, 1989.
On November 16, 1990, the Company's shareholders approved a proposal to increase
the number of authorized shares of common stock from 5,000,000 to 15,000,000
shares.
On August 15, 1991, the Company entered into an exchange agreement ("Exchange
Agreement") with Titan Industries, Inc., a Nebraska corporation ("Titan"),
whereby the Company would issue to Titan common stock, in exchange for all the
outstanding stock of Titan. The consummation of this Exchange Agreement was
subject to approval by the stockholders of the Company. On December 13, 1991,
the stockholders approved the acquisition. The actual closing and exchange of
stock took place December 30, 1991. Under the terms of the agreement the
stockholders of Titan received 1,600,000 shares of W W Capital Common Stock in
exchange for all the outstanding common shares (7,500) of Titan Industries. The
shares had an aggregate value of $3,600,000 at the date of closing. The purchase
price was arrived at through an arms length negotiation.
On October 26, 1992, the Company entered into an exchange agreement ("Eagle
Exchange Agreement") with Eagle Enterprises, Inc., a Tennessee corporation,
whereby the Company would issue to the sole shareholder of Eagle Enterprises
shares of Company common stock in exchange for all the outstanding stock of
Eagle Enterprises. The consummation of the Eagle Exchange Agreement was subject
to approval by the Board of Directors of the Company. At a special meeting of
the Board of Directors held October 20, 1992, the Board unanimously approved the
acquisition. The actual closing and exchange of stock took place on October 26,
1992. Under the terms of the Eagle Exchange Agreement, the sole stockholder of
Eagle Enterprises received 325,000 shares of W W Capital common stock in
exchange for all the outstanding common shares (1,539) of Eagle Enterprises. The
shares had an aggregate value of $893,750 at the day of closing. The purchase
price was arrived through an arms length negotiation. Eagle Enterprises was
formed in August 1985 to manufacture livestock handling equipment. Eagle
Enterprises (renamed "W-W Livingston") is presently located in a 40,000 square
foot facility on 11 1/2 acres in Livingston, Tennessee. W-W Livingston's primary
products are livestock panels and gates. During October 1998, the Board of
Directors unanimously approved the merger of W-W Manufacturing and W-W
Livingston into one legal entity.
On October 15, 1993, the Company acquired various assets of Wholesale Pump and
Supply, Inc. ("Wholesale") of Oklahoma City, Oklahoma by issuing 250,000 shares
of common stock. The shares had an aggregate value of $145,000 at the day of
closing. The purchase of assets was arrived through an arms length negotiation.
Wholesale operated as a division of Titan Industries and distributed water well
supplies and environmental monitoring equipment for testing ground water.
On March 21, 2000, W-W Manufacturing acquired various assets and assumed various
liabilities of the Adrian J. Paul Company, (renamed "The W-W Paul Scale
Company") of Duncan, Oklahoma, out of bankruptcy. The transaction was accounted
for as a purchase and, accordingly, the excess of the asset values acquired over
the liabilities assumed were used first to reduce long term assets and the
remainder was recorded as negative goodwill of $67,210. The W-W Paul Scale
Company operates as a division of W-W Manufacturing and is currently doing
business in a 35,000 square foot facility in Duncan, Oklahoma. The W-W Paul
Scale Company's primary functions are the manufacture and sale of livestock
scales and hydraulic chutes.
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 3,387,949 shares, or approximately 61.0%, of the
common stock of the Company. The transaction had an effective date of December
31, 2000. In addition to giving up its
4
interest in Titan, the Company also contributed the sum of $850,000 to the
capital of Titan to equalize the value of the consideration being exchanged. The
sale was accounted for as a treasury stock transaction and a loss on disposal of
$14,900 was recorded as the result of professional fees attributable to the
transaction.
(b) Financial Information About Industry Segments
---------------------------------------------
The business of the Company is carried on by the Company's three operating
units, namely W-W Manufacturing, W-W Livingston and The W-W Paul Scale Company,
within one industry segment. The management of each operating unit has
responsibility for product development, manufacturing, marketing and for
achieving a return on investment in accordance with the standards and budgets
established by W W Capital. Overall supervision, coordination and financial
control are maintained by the Company's executive staff from offices located at
Rt. 1, Box 138, Highway 54, Thomas, Oklahoma and 3500 JFK Parkway, Suite 202,
Ft. Collins, Colorado. As of June 30, 2004, the Company had approximately 110
employees. The reader is referred to Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations and notes to the
Company's financial statements for certain financial information regarding this
segment.
(c) Narrative Description of Business
---------------------------------
The registrant conducts its business through its business segment: livestock
handling equipment group. A discussion of this segment follows.
LIVESTOCK HANDLING EQUIPMENT GROUP
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Principal Products, Markets and Distribution
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The livestock-handling group manufactures a broad line of cattle handling,
equine (horse), and rodeo equipment and containment systems. Farmers, ranchers,
rodeos, county fairs, veterinarians, and universities use this equipment.
Presently, with its 59-year-old history, W-W Manufacturing, the primary
subsidiary of this segment, is well recognized in the industry as the leader in
production of livestock handling equipment.
The market for cattle handling equipment is segmented by herd size into economic
classifications. Based upon an independent study done for the Company, it is
believed that economic dissimilarities between large and small operators create
important differences in buying behavior. Recognizing this, management of the
Company has positioned the Company to meet the demands of the market place and
to be able to service both the large and small operator through its sales and
marketing efforts targeted at expanding the dealer/distributor network
throughout the entire United States.
The Company continues to generate sales by offering special assistance in design
and installation of product. This service has proven to be a valuable asset in
the sale of equipment to large fairs, expo centers, rodeos, and universities.
Over the years, W-W Manufacturing products have become favored for durability
and ease of use by ranch hands who must work large volumes of cattle. W-W
Manufacturing's presence at rodeos underscores the Company's position in the
marketplace as a producer of equipment for the "working cowboy." W-W
Manufacturing has been responsible for many innovations in rodeo equipment and
has developed a well-respected line for that market. Since 1979, all of the
chutes and rodeo equipment for the Professional Rodeo Cowboys National Finals
Rodeo (NFR) have been supplied by W-W Manufacturing. The NFR is the largest
rodeo championship event in the world. In addition, W-W Manufacturing has
provided all the equipment for the International Rodeo Association Finals since
1978 and for many other top rodeos across the country.
In the past, the Company has produced both heavy duty and portable horse stalls.
These products have been primarily used by commercial users and exposition
centers. Based on the success of the commercial horse stalls, the Company has
introduced stalls designed for the equine hobbyist and horse show enthusiast.
Aesthetics, ease of use and durability are considered by management to be the
main selling points of this kind of equipment. The horse stalls have been
marketed through the distributor network established by the Company.
5
The Company experienced growth in the eastern United States with the acquisition
of W-W Livingston in October 1992. The W-W Livingston plant located in
Livingston, Tennessee was realigned to complement the W-W Manufacturing line of
products, thus improving its delivery time to dealer/distributors in the east,
and southeastern United States. This is significant since the W-W line has a
long-term reputation as an industry leader and manufacturer of quality
equipment. The Livingston plant was hit hard by the sluggish economy in 2002,
the need to update certain equipment and the need for installation of a new
paint system. During November 2002 the decision was made to scale back
operations until a new inline pre-galvanized product could be marketed. W-W
Livingston began marketing this new product during June 2003 and showed steady
sales throughout fiscal 2004.
With the acquisition of The W-W Paul Scale Company in March 2000, the Company
entered the livestock scale market. Scales manufactured by The W-W Paul Scale
Company are used to weigh and track the development of various livestock. This
market compliments the W-W line of equipment and can be sold by the W-W
distributor/dealer network. Also the W-W line of products is being offered and
sold by the distributors and dealers of The W-W Paul Scale Company. The W-W Paul
Scale Company is in the process of developing several new scales that will
compliment and work with the W-W cattle line of chutes.
Cost of distribution of products has and will continue to be a problem for the
Company. To help lower this cost, the Company continues to find ways to fill
trucks with a variety of products. Feed equipment and other horse related
products help reduce distribution costs and provide the Company's customers with
the opportunity to carry more items with less depth of inventory.
The Company relies heavily on steel and steel related inventory for the
manufacturing of their products. In the past two years, the steel industry has
experienced dramatic increases in the cost of steel. The Company has attempted
to pass these increases on to our customers through price increases and
surcharges, however these increases tend to lag behind the steel cost increase.
While management believes the cost of steel will eventually decrease and remain
at reasonable levels, there can be no assurances and a continual increase could
materially and adversely affect our business.
Management believes these developments are key to the success of the Company's
future expansion, and intends to vigorously continue to increase its
dealer/distributor network. Demonstrations, seminars and special designs will
continue to be offered and special discounts given to principal distributors for
volume purchases.
Raw Materials and Facilities
- ----------------------------
The manufacture of livestock handling equipment requires various sizes of steel
tubing and other related steel products. The products necessary for fabrication
of equipment are purchased from numerous steel companies, and the Company has
experienced no difficulties in obtaining adequate supplies. The divisions of
this segment are located as follows: W-W Manufacturing, the largest by sales
volume of the three divisions, is located at Route 1, Box 138, Hwy 54, Thomas,
Oklahoma. W-W Livingston, is located at 175 Windle Community Road, Livingston,
Tennessee. The W-W Paul Scale Company is located at Hwy 81 South, Duncan,
Oklahoma.
Competition
- -----------
The Company encounters competition in varying degrees in both cattle handling
and equine product lines. Competitors are primarily domestic producers of
similar products. These companies compete in price, delivery schedules, quality,
product performance, and other conditions of sales. During 2003 and 2004,
management invested in new equipment, did extensive training, scheduled many
live demonstrations, improved plant efficiencies and introduced new product
improvements and new products in order to maintain the Company's competitive
position. However, many of our competitors possess substantially greater
financial and other resources than us, including the ability to implement more
extensive marketing campaigns.
Strategy for Growth
- -------------------
Growth is anticipated in two areas. First, the Company will continue to expand
its distributor/dealer network throughout the country. Future growth will,
however, be constrained by availability of capital resources and a lack of
improvement in market conditions.
6
Diversification into related product areas now served by the Company could
afford a second area for growth. Management believes W-W Manufacturing's
reputation for quality, as well as for introducing new innovations into existing
products, has positioned the Company ideally as a marketer for new products of
its own as well as other companies' products.
Continued emphasis will be put on specials and special sales to universities,
expo centers and fairgrounds. This highly visible use of equipment provides
product endorsement for the standard line of products and helps our
distributors/dealers market product to the end consumer.
OTHER INFORMATION RELATIVE TO THE BUSINESS
------------------------------------------
Patents and Trademarks
- ----------------------
With the purchase of The W-W Paul Scale Company, the livestock handling
equipment segment has acquired various patents. The patents deemed useful to the
Company are current and registered with the United States Patent and Trademark
Office. These patents deal with systems for weighing non-stationary objects,
torque bar suspension scales with strap assemblies and an on board truck
weighing system. No one patent is considered material to the Company's business
as a whole.
Seasonality
- -----------
The Company experiences seasonality in sales. The livestock handling equipment
product segment has increased sales in the fall through spring and lower sales
in summer. Accordingly, our cash flow is strongest in the second and fourth
fiscal quarters.
Practice Relating to Working Capital
- ------------------------------------
For information relating to our Working Capital, please see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Dependence Upon a Single Customer
- ---------------------------------
The Company has one customer that accounted for approximately 10% of total sales
for the year ended June 30, 2004.
Dollar Amount of Backlog Orders
- -------------------------------
Backlog in the livestock handling equipment group was $1,038,000 in 2004 as
compared to $1,250,000 in 2003. This decrease from 2003 is due to several large
nonrecurring fairground orders in backlog at June 30, 2003. Also, the increase
in steel costs has reduced the amount of backlog orders at June 30, 2004. The
backlog is expected to improve as we move into the fall season.
Research and Development Expenditures
- -------------------------------------
Due to the nature of manufacturing operations of the Company and the types of
products produced, expenditures for research and development are not material to
our overall operating cost.
Compliance with Environmental Controls
- --------------------------------------
The Company has faced issues with the Environmental Protection Agency regarding
a paint system located at the Livingston, Tennessee plant. The Company was
issued a temporary paint operating permit through December 31, 2001. Over the
next two years, management worked with the EPA offices to negotiate an extension
of the permit. In January 2003, the Company surrendered the temporary paint
permit and discontinued all wet paint finishing at the facility. When, and if,
painting resumes at the W-W Livingston plant, a new permit will need to be
applied for and issued. To the best of its knowledge, the Company believes that
it is presently in substantial compliance with all existing environmental laws.
7
Employees
- ---------
As of June 30, 2004, the Company employed a total of 110 individuals, five (5)
of whom work at the Company's offices in Ft. Collins, Colorado, seventy (70) of
whom work at the W-W Manufacturing facility in Thomas, Oklahoma, fourteen (14)
of whom work at the W-W Livingston facility in Livingston, Tennessee, and
twenty-one (21) of whom work at The W-W Paul Scale Company facility in Duncan,
Oklahoma.
Item 2. Properties
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The Company's corporate headquarters are located at 3500 JFK Parkway, Suite 202,
in Ft. Collins, Colorado, and are leased from an unrelated third party.
W-W Manufacturing is located at Route 1, Box 138, Hwy 54, Thomas, Oklahoma. This
facility is leased from the City of Thomas Economic Development Authority for
various monthly installments through June 2022. The facility is comprised of
approximately 80,000 square feet located on 10 acres of land.
W-W Livingston is located at 175 Windle Community Road, Livingston, Tennessee.
This facility is owned by the Company and has approximately 40,000 square feet
located on 11.5 acres of land.
The W-W Paul Scale Company is located at Highway 81 South, Duncan, Oklahoma.
This facility is owned by the Company and has approximately 35,000 square feet
located on 13.2 acres of land.
Item 3. Legal Proceedings
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In the normal course of business, the Company encounters certain litigation
matters, which in the opinion of Management will not have a significant adverse
effect on the financial position or the results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matters were submitted for a vote of security holders of the Company during
the fourth quarter of the fiscal year ended June 30, 2004.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matter
- ------- -------------------------------------------------------------
Market Information
- ------------------
Our common stock is currently traded on the over-the-counter market under the
symbol "WWCL". The following sets forth the high and low bid quotations for our
common stock in such market for the periods indicated. This information reflects
inter-dealer prices without retail mark-up, mark-down or commissions, and may
not necessarily represent actual transactions. No representation is made by us
that the following quotations necessarily reflect an established public trading
market in our common stock.
High Bid Low Bid
-------- -------
Quarter ended
- -------------
September 30, 2002 $0.010 $0.010
December 31, 2002 0.010 0.010
March 31, 2003 0.010 0.010
June 30, 2003 0.010 0.010
September 30, 2003 $0.010 $0.010
December 31, 2003 0.010 0.010
March 31, 2004 0.010 0.010
June 30, 2004 0.100 0.010
Holders
- -------
As of October 13, 2004 the Company had approximately 500 record holders of its
common stock. This amount represents the number of certificate holders and
excludes individual non-objecting beneficial owners of the Company's common
stock held in "street name".
Dividends
- ---------
The Company did not pay dividends during 2004 or 2003 and does not intend to pay
cash dividends in the foreseeable future. The management of the Company intends,
for the present, to retain all available funds for the development of its
business. Additionally, certain of the Company's loan covenants prohibit the
paying of dividends.
9
Item 6. Selected Financial Data
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Year ended June 30
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SUMMARY OF OPERATIONS (A)
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Net Sales 13,233,546 11,530,445 12,652,044 13,092,869 12,210,587
Gross Profit Margin 3,246,476 2,099,090 2,920,538 2,278,452 2,492,566
Operating Earnings
(Loss) 656,839 (271,288) 243,481 (95,939) 456,463
Interest Expense 362,249 380,241 338,248 296,265 171,124
Operating Expense 2,589,637 2,370,378 2,677,057 2,374,391 2,036,103
Earnings(Loss)
From Continuing
Operations 173,067 (347,376) 54,464 (247,455) 271,600
Net Earnings (Loss) 173,067 (347,376) 54,464 (174,136) 338,777
PER SHARE DATA
- --------------
Earnings(Loss)
From Continuing
Operations .09 (.20) .03 (.07) .05
Dividends per
Common Share .00 .00 .00 .00 .00
Weighted Average (B)
Shares Outstanding 2,010,614 2,010,614 2,010,614 3,724,256 5,420,397
FINANCIAL CONDITION
- -------------------
Total Assets 6,270,249 5,845,418 6,435,564 6,322,810 6,651,737
Fixed Assets (Net) 2,290,529 2,275,087 2,155,188 2,351,435 1,089,280
Long-Term Debt 2,448,992 2,645,976 4,186,666 4,087,665 1,521,418
Stockholders Equity (169,159) (342,226) 5,150 (49,314) 2,953,995
Working Capital (C) 7,458 (246,935) 2,003,747 1,676,546 1,627,455
Current Ratio (D) 1.00 0.93 2.00 1.80 1.80
<FN>
A. This summary has been restated to reflect proper accounting treatment
for the discontinued operations regarding the sale of Titan Industries,
Inc. during the year ended 2001.
B. Computed on the basis of the weighted average number of commons shares
outstanding during each year.
C. The year ended 2003 reflects a reclassification of debt from long-term
to short-term due to violation of bank covenants at year-end. The year
ended 2004 reflects a classification of the Line of Credit to
short-term.
D. Percent of current assets to current liabilities.
</FN>
10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ------- --------------------------------------------------------------
Statements contained in this Form 10-K that are not historical facts, including,
but not limited to, any projections and forward-looking statements, involve a
number of risks and uncertainties. The actual results of the future events
described in such forward-looking statements in this Form 10-K could differ
materially from those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are adverse
economic conditions, industry competition and other competitive factors,
government regulation and possible future litigation. The following discussion
and analysis of financial condition and results of operations should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto under Item 8.
The Company has incurred operating losses two out of the past four years, has a
weak working capital surplus of $7,458 and has an accumulated deficit of
$169,159 as of June 30, 2004. The report of independent auditors on the
Company's June 30, 2004 financial statements includes an explanatory paragraph
indicating there is substantial doubt about the Company's ability to continue as
a going concern. The Company believes that it has developed a viable plan to
address these issues and that its plan will enable the Company to continue as a
going concern for the next twelve months. This plan includes the realization of
revenues from the commercialization of new products and the reduction of certain
operating expenses. Although the Company believes that its plan will be
realized, there is no assurance that these events will occur. The financial
statements do not include any adjustments to reflect the uncertainties related
to the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the inability of the Company
to continue as a going concern.
Results of Operations:
- ----------------------
The following table presents, for the periods indicated, the dollar value and
percentage relationship, which certain items reflected in the Company's
Statements of Operations. This percentage shows the percent as it relates to the
total revenue. The selected financial data should be read in conjunction with
the related financial statements and notes thereto.
2004 2003 2002
---- ---- ----
Total revenues $ 13,233,546 100.0% $ 11,530,445 100.0% $ 12,652,044 100.0%
Cost of revenues 9,987,070 75.5 9,431,355 81.8 9,731,506 76.9
-------------- ------ -------------- ------ -------------- ------
Gross profit 3,246,476 24.5 2,099,090 18.2 2,920,538 23.1
Selling, general, and administrative
expense 2,589,637 19.5 2,370,378 20.6 2,677,057 21.2
-------------- ------ -------------- ------ -------------- ------
Operating earnings (loss) 656,839 5.0 (271,288) (2.4) 243,481 1.9
Other income (expense) 11,877 0.0 54,909 0.6 174,631 1.3
Interest expense (362,249) (2.6) (380,241) (3.3) (338,248) (2.6)
--------------- ------- --------------- ------- --------------- ------
Earnings (loss) before income taxes 306,467 2.4 (596,620) (5.1) 79,864 0.6
Income taxes operations (133,400) (1.1) 187,500 1.6 (25,400) (0.2)
--------------- ------- --------------- ------ ---------------- ------
Net earnings (loss) before cumulative
effect of a change in accounting
principle 173,067 1.3 (409,120) (3.5) 54,464 0.4
Cumulative effect of a change in
accounting principle -- 0.0 61,744 0.5 -- 0.0
-------------- ------- ------------- ----- --------------- ----
Net earnings (loss) $ 173,067 1.3% $ (347,376) (3.0)% $ 54,464 0.4%
============== ======= ============== ====== =============== =======
Depreciation and amortization $ 237,327 1.8% $ 242,582 2.1% $ 258,974 2.0%
============== ======= ============== ====== ============== =======
11
Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended June 30, 2003.
The Company had net income of $173,067 for the year ended June 30, 2004 compared
to a net loss of $347,376 for the year ended June 30, 2003. The earnings per
share for fiscal 2004 amounted to $0.09, an increase of $0.26 per share, from a
loss of $0.17 per share in fiscal 2003.
Overall sales increased from $11,530,445 for the fiscal year ended June 30, 2003
to $13,233,546 for the fiscal year ended June 30, 2004, an increase of
$1,703,101,or 14.8%.
Sales at the W-W Manufacturing location in Thomas, Oklahoma increased
$1,490,736, or 17.9%, from $8,319,157 in fiscal 2003 to $9,809,893 for the
fiscal year ended June 30, 2004. This increase was primarily due to an overall
recovery in the economy.
Sales at the W-W Livingston location in Livingston, Tennessee increased
$133,043, or 7.5%, from $1,763,639 in fiscal 2003 to $1,896,682 for the fiscal
year ended June 30, 2004. During June 2003 management made the decision to
market a new inline pre-galvanized product from the Livingston plant. This
product allows for manufacturing without problems related to paint that have
been a reason for reduced sales in the past. This new product has allowed the
Livingston plant to remain open during the economic slowdown. Management
continues to evaluate the Livingston plant on a regular basis to determine the
cost effectiveness of continued production.
Sales at The W-W Paul Scale Company location in Duncan, Oklahoma increased
$79,324, or 5.5%, from $1,447,649 for the fiscal year ended June 30, 2003 to
$1,526,973 for the fiscal year ended June 30, 2004. The Duncan locations primary
manufacturing responsibilities are livestock scales and hydraulic squeeze
chutes, as well as a supply source to the Thomas location. Interdivision sales,
which are eliminated for financial statement purposes, amounted to $898,062 for
the year ended June 30, 2004, compared to $812,709 for June 30, 2003. With the
improved economic outlook and the completion of new and redeveloped scales,
management believes that sales at the Duncan location should increase during
fiscal 2005.
Gross margins as a percentage of sales increased from 18.2% in fiscal 2003 to
24.5% in fiscal 2004. This increase of 6.3% is the result of retail price
adjustments and surcharges to help offset the increased cost of steel. The
Company also performed an extensive evaluation of raw materials during the
fourth quarter of fiscal 2003 and found several ways to lower certain costs for
2004. The gross margin increase is also the result of higher sales volumes,
which allowed for the absorption of fixed manufacturing overhead. Because of the
recovering economy and the competitive nature of many products, the Company was
able to pass on the higher cost of steel to customers through price increases.
Management anticipates a decrease in regards to gross margin percentages because
of the volatility of the cost of steel that is expected to increase during the
first and second quarters of 2005. The Company will continue to seek
improvements through manufacturing system analysis as well as price adjustments,
however, the Company does not believe the entire increase in cost can be passed
on to customers without a large reduction in sales.
Selling expense as a percentage of sales decreased from 9.4% in fiscal 2003 to
8.8% in fiscal 2004. The decrease is due to higher sales volume. Total dollars
expended for selling expenses increased $80,933 for the fiscal year ended June
30, 2004 as compared to fiscal 2003. The increase in dollars spent is due to the
Company's participation in additional shows and related travel costs. Management
anticipates that selling expenses will remain steady throughout fiscal 2005.
General and administrative expenses as a percentage of sales decreased slightly
from 11.1% in fiscal 2003 to 10.7% for the fiscal year ended June 30, 2004.
Total dollars expended for general and administrative expenses increased
$138,326 for the fiscal year ended June 30, 2004 compared to the same period of
2003. Management believes that
12
general and administrative expenses will be reduced for fiscal 2005 due to
certain cost evaluations and related cost cutting measures implemented during
the first quarter of 2005.
Interest expense decreased in fiscal 2004 to $362,249 as compared to $380,241 in
2003. The decrease reflects interest rate incentives earned by the Company that
reduced the interest rate charged on the revolving line of credit. As profits
and cash flow increase, the Company plans to reduce debt, thereby reducing
overall interest expense.
Fiscal Year Ended June 30, 2003 Compared to Fiscal Year Ended June 30, 2002.
The Company had a net loss of $347,376 for the year ended June 30, 2003 compared
to net earnings of $54,464 for the year ended June 30, 2002. The loss per share
for fiscal 2003 amounted to $0.17, a decrease of $0.20 per share from earnings
of $0.03 per share in fiscal 2002.
Sales decreased from $12,652,044 for the fiscal year ended June 30, 2002 to
$11,530,445 for the fiscal year ended June 30, 2003. This decrease of
$1,121,599, or 8.9%, was primarily due to a sluggish economy, the unsettled
geo-political environment and the tapering back of production at the Livingston,
Tennessee plant.
Sales at the W-W Manufacturing location in Thomas, Oklahoma increased $241,499,
or 3.0%, from $8,077,658 in fiscal 2002 to $8,319,157 for the fiscal year ended
June 30, 2003. Certain sales normally serviced at the Livingston, Tennessee
plant were moved to the Thomas location due to customer requests for a powder
coat paint finish. This helped sales levels at the Thomas location to remain
consistent with prior years.
Sales at the W-W Livingston location in Livingston, Tennessee decreased
$1,239,617, or 40.9%, from $3,033,256 in fiscal 2002 to $1,763,639 for the
fiscal year ended June 30, 2003. The Livingston plant was hit hardest by the
sluggish economy, the need to update certain equipment and the need for
installation of a new paint system. After the powder coat paint system was
implemented in Thomas, Oklahoma, many customers wanted to purchase only product
with a powder coat finish. With the economic environment in decline, management
decided that the cost to install a new paint system in the Livingston plant was
to high and the risk too great for the Company to take. During November 2002 the
decision to scale back operations at the Livingston plant was made. While
certain revenues were transferred to the Thomas plant, many revenues were
permanently lost. During June 2003 management made the decision to market a new
inline pre-galvanized product from the Livingston plant that allowed for
manufacturing without problems related to paint.
Sales at The W-W Paul Scale Company location in Duncan, Oklahoma decreased
$123,481, or 7.9%, from $1,571,130 for the fiscal year ended June 30, 2002 to
$1,447,649 for the fiscal year ended June 30, 2003. Whereas the Duncan
location's primary manufacturing responsibilities are livestock scales and
hydraulic squeeze chutes, they also serve as a supply source to the Thomas
location. While all interdivision sales are eliminated for financial statement
purposes, the Duncan location had a substantial increase in such sales. This
allowed overall sales for the Duncan location to remain stable.
Gross margins decreased from 23.1% in fiscal 2002 to 18.2% in fiscal 2003. This
decrease of 4.9% is the result of an increase in workers compensation insurance
rates as well as steel tariffs imposed by Congress that resulted in higher steel
costs. In addition, the Livingston, Tennessee plant was affected by various
paint finish related problems that resulted in the replacement of products to
various customers at no charge. The Company did recover some of the replacement
costs by selling and reworking the bad product, however not all costs could be
recovered. The gross margin decrease is also the result of lower sales volumes,
which did not allow for the absorption of fixed manufacturing overhead and
several large special projects that resulted in a loss. Because of the slow
economy and the competitive nature of many products, the Company did not believe
the increase in costs could be passed on to customers through price increases
without a large reduction in sales.
Selling expense as a percentage of sales increased from 9.1% in fiscal 2002 to
9.4% in fiscal 2003. The increase is due to lower sales volume. Total dollars
expended for selling expenses decreased $65,255 for the fiscal year ended June
30, 2003 as compared to fiscal 2002.
13
General and administrative expenses decreased as a percentage of sales from
12.1% in fiscal 2002 to 11.1% for the fiscal year ended June 30, 2003. This
decrease is a result of a write down of an accounts receivable balance of one
large account that was in default of credit terms during fiscal year 2002.
Overall dollars spent for general and administrative cost, not including bad
debt write downs, increased $7,024 for the fiscal year ended June 30, 2003 as
compared to fiscal 2002.
Interest expense increased in fiscal 2003 to $380,241 as compared to $338,248 in
2002. The increase reflects heavy borrowings on the revolving lines of credit to
support the slow down in sales due to the economic downturn and related slow
down of customer payments and decrease in cash flow.
Fiscal Year Ended June 30, 2002 Compared to Fiscal Year Ended June 30, 2001.
The Company had net earnings of $54,464 for the year ended June 30, 2002 as
compared to a net loss of $174,136 for the year ended June 30, 2001. This
increase in net earnings of $228,600 reflects the Company's recovery from
transition costs associated with the opening of the new Thomas, Oklahoma plant,
expenses related to the split-off of its wholly-owned subsidiary, Titan
Industries, Inc., as well as a general slowdown in the economy felt throughout
the United States during 2001and the first six months of fiscal 2002. Even
though sales were down slightly, overall production efficiencies were achieved
with the opening of the new Thomas plant.
Sales decreased from $13,092,869 for the fiscal year ended June 30, 2001 to
$12,652,044 for the fiscal year ended June 30, 2002. This decrease of $440,825,
or 3.4%, was primarily due to a sluggish economic environment experienced during
the first six months of the year, the effects of the September 11, 2001 tragedy
as well as very dry weather conditions felt throughout the Western and Southern
regions of the United States.
Sales at the W-W Manufacturing location in Thomas, Oklahoma increased $454,166,
from $7,623,492 in fiscal 2001 to $8,077,658 for the fiscal year ended June 30,
2002. Sales at the W-W Livingston location in Livingston, Tennessee decreased
$445,722, from $3,448,948 in fiscal 2001 to $3,003,256 for the fiscal year ended
June 30, 2002. The increase in sales at the Thomas location and related decrease
in sales at the W-W Livingston location are primarily due to transferring sales
to Thomas because of the demand from our distributor/dealer network for a powder
coat paint finish only offered at the Thomas location at this time. Sales at The
W-W Paul Scale Company location in Duncan, Oklahoma decreased $449,298 from
$2,020,427 for the fiscal year ended June 30, 2001 to $1,571,130 for the fiscal
year ended June 30, 2002. Because of the sluggish economy and hot/dry conditions
in the South, in addition to the manufacturing of livestock scales and hydraulic
chutes, the Duncan location was also used as a support to the Thomas plant by
manufacturing certain parts and equipment that were then shipped to Thomas for
painting. This allowed the Duncan plant to reduce production down time as well
as to keep any potential layoffs to a minimum.
Gross margins increased from 17.4% in fiscal 2001 to 23.1% in fiscal 2002. This
increase of 5.7% is due to several factors with the primary factor being
decreased labor and manufacturing costs associated with running two plants while
moving the largest plant from Dodge City, Kansas to Thomas, Oklahoma during
2001. The entire moving process took approximately four months to complete.
Another factor contributing to the increase in gross margins was the result of
labor, shipping and manufacturing efficiencies realized at the new plant during
the last six months of the fiscal year.
Selling expense as a percentage of sales increased from 7.8% in fiscal 2001 to
9.1% in fiscal 2002. Total dollars expended for selling expense increased
$129,435 for the year. This increase reveals the Company's aggressive pursuit of
new markets and expanding its distributor/dealer base. Additionally, the
increase is attributable to higher costs related to traveling expenses by
salesmen and expanded exposure to new trade shows not attended by the Company in
prior years.
General and administrative expenses increased as a percentage of sales from
10.3% in fiscal 2001 to 12.1% for the fiscal year ended June 30, 2002. This
increase is a result of a write down of the accounts receivable balance of one
large account that is in default of credit terms. Overall dollars spent for
general and administrative cost, not
14
including bad debt write downs, decreased $104,885 for the fiscal year ended
June 30, 2002 as compared to fiscal 2001 which was primarily due to legal
expenses related to the Titan split-off completed in fiscal 2001.
Interest expense increased in fiscal 2002 to $338,248 as compared to $296,265 in
2001. This increase is due to higher borrowings on the Company's' revolving line
of credit to support the Titan split-off, the manufacturing plant move and the
slow down in sales due to current economic conditions felt throughout the
country.
Inflation:
- ----------
Raw material costs during fiscal 2004 were significantly higher than fiscal
2003, due principally to increased steel costs. The Company attempts to adjust
selling prices to offset the effects of increased raw material costs. These
adjustments have historically been difficult to implement and tend to lag behind
cost increases. Management believes that the Company's diversity of operations
and the ongoing efforts to achieve greater manufacturing efficiencies will help
minimize the negative effects of such increases in raw material costs.
Liquidity and Capital Resources:
- --------------------------------
The Company's principal sources of liquidity are from working capital,
internally generated funds and borrowing under its various credit facilities.
The Company believes that these sources are sufficient to fund the current
requirements of working capital, capital expenditures and other financial
commitments. The Company has in place a revolving debt facility that could
provide up to $2,200,000. The Company's working capital increased from
$(246,935) for June 30, 2003 as compared to $7,458 for June 30, 2004. The
Company is currently negotiating new covenants with its primary lending
institution for fiscal 2005 and an extension to the revolving debt facility.
The Company generated funds from operations of $623,967 primarily caused by an
increase in net accounts payable and other current asset balances. The provision
for loss on the write off of accounts receivables amounted to $153,871 in fiscal
2004 as compared to $57,880 for fiscal 2003. This increase is due to the write
down of several accounts that were in default of credit terms at June 30, 2004.
The Company continues to vigorously attempt collection of these receivables and
other past due accounts and believes it is reasonably possible that it will
succeed. The report of independent auditors on the Company's June 30, 2004
financial statements includes an explanatory paragraph indicating there is
substantial doubt about the Company's ability to continue as a going concern.
The Company believes that it has developed a viable plan to address these issues
and that its plan will enable the Company to continue as a going concern for the
next twelve months. The plan includes the realization of revenues from the
commercialization of new products and the reduction of certain operating
expenses. The financial statements do not include any adjustments to reflect the
uncertainties related to the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the inability of
the Company to continue as a going concern. There is no assurance that the
Company will be able to achieve additional financing or that such events will be
on terms favorable to the Company.
The Company used cash in investing activities for the purchase and replacement
of property and equipment. Net cash used in investing activities increased from
$18,548 for the year ended June 30, 2003 compared to $47,012 for the same period
of 2004. Cash purchases for property and equipment increased from $41,148 in
2003 to $83,673 in 2004.
Net cash used in financing activities resulted in a net decrease in borrowing on
its revolving credit line of $113,256 for the year ended June 30, 2004. The
Company was also able to reduce overall debt by $565,325. This decrease was the
result of increased efficiencies in the new production plant in Thomas, Oklahoma
and related pay down of debt. As the Company moves into fiscal 2005 management
anticipates that borrowing under its revolving line will remain steady as sales
increase and overall cash flow improves.
The Company's three-year loan arrangement with its principal lender, Wells Fargo
Business Credit, was not altered significantly during the year. All other
banking and credit agreements were also satisfactorily maintained throughout
fiscal 2004. Even with the weakened economic climate, increased steel costs and
related retail price increases, the Company was able to maintain sales at
reasonable levels. Gross margins were strengthened due to the retail price
adjustments and surcharges used to offset the increased cost of steel. The
Company anticipates continuation of increased profits during fiscal 2005 due to
anticipated decline in steel costs during the second half of the fiscal year and
an overall improvement in the economic outlook.
15
Off-Balance Sheet Arrangements and Contractual Obligations:
- -----------------------------------------------------------
The Company has no off-balance sheet arrangements or significant guaranties to
third parties not fully recorded in our balance sheets or fully disclosed in the
notes to our consolidated financial statements. The Company's significant
contractual obligations include our debt agreements. Certain financial and
operating restrictions under these agreements are fully disclosed in notes 8, 9
and 10 of the consolidated financial statements.
Critical Accounting Policies:
- -----------------------------
Management's discussion and analysis of the Company's financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Management bases its estimates and judgments
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition. The Company generally recognizes revenue when products are
shipped, which is when title and risk of loss pass to the buyer and provides for
estimated returns and allowances at the time of sale. The Company permits
customers to return defective products and incorrect shipments for credit
against other purchases. Terms offered by the Company are standard for the
industry.
Allowance for Doubtful Receivables. The Company uses the allowance method of
accounting for bad debts. The allowance is based upon estimates using analysis
of the company's prior experience, customer credit history and current economic
trends.
Historically, the Company's estimates of bad debts related to its various
receivables have been adequate to cover actual losses. Uncollectible accounts
written off were $153,871, $57,880 and $306,328 for the fiscal years ended June
30, 2004, 2003 and 2002, respectively. The Company's estimates involve a
significant amount of judgment, and actual results could differ adversely
resulting in additional losses on receivables over and above the reserves
provided. However, the Company believes its allowances for doubtful receivables
are fairly stated as of June 30, 2004.
Allowance for Contract Termination. The Company uses the allowance method of
accounting for potential losses on contract terminations. The allowance is based
upon estimates using analysis of the company's prior experience and current
economic trends.
Inventories. Inventories are stated at the lower of cost or market and consist
of raw materials, work-in-process and finished goods. Management evaluates the
need to record adjustments for impairments of inventory on a quarterly basis.
The determination of whether or not inventory items are slow moving, obsolete or
in excess of needs requires estimates about the future demand and ongoing
success of our products. A decrease in product demand due to changing customer
tastes, consumer buying patterns or loss of display space to competitors could
significantly impact our evaluation of our excess and obsolete inventories.
16
Accruals for Self-Insurance. Self-insurance accruals are made for certain claims
associated with employee health care. These accruals include estimates that are
based on historical losses. Differences in estimates and assumptions could
result in an accrual requirement materially different from the calculated
accrual.
Impairment of Long - Lived Assets. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," long-lived assets such as property, plant and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and are no longer
depreciated.
Prior to June 30, 2002, the impairment of long-lived assets was accounted for in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of."
Accruals for Warranty Costs. Warranty accruals are made for certain claims
associated with replacement and repair of damaged product. These accruals
include estimates that are based on anticipated claims. Differences in estimates
and assumptions could result in an accrual requirement materially different from
the calculated accrual.
Income Taxes. The Company accounts for income taxes under the asset and
liability method in accordance with Statement of Financial Accounting Standard
(SFAS) No. 109, "Accounting for Income Taxes". The Company recognizes deferred
income taxes, net of valuation allowances, for the estimated future tax effects
of temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases and net operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Changes in deferred tax
assets and liabilities are recorded in the provision for income taxes. As of
June 30, 2004 the Company had approximately $23,700 in net deferred tax assets.
The Company evaluates on a regular basis the realizability of its deferred tax
assets for each taxable jurisdiction. In making this assessment, management
considers whether it is more likely than not that some portion or all of its
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent on the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers all available evidence, both positive and negative, in making this
assessment.
Recent Accounting Pronouncements:
- ---------------------------------
In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities", which
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of commitment to an
exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS No. 146 is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
In November 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). These rules supersede
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", providing a single accounting model
for long-lived assets to be disposed of. Although retaining many of the
fundamental recognition and measurement provisions of Statement 121, the new
rules significantly change the criteria that would have to be met to classify an
asset as held-for-sale. Statement 144 also supersedes the provisions of APB
Opinion 30 with regard to reporting the effects of a disposal of a segment of a
business. Adoption of SFAS 144 did not have a material impact on the Company's
financial condition, results of operations or cash flows.
17
In June 2001, the FASB issued SFAS No. 141, "Business Combination." SFAS No. 141
requires that unamortized negative goodwill arising from a business combination,
for which the acquisition date was before July 1, 2001, shall be written off and
recognized as a change in accounting principle. SFAS No. 141 was effective for
the Company on July 1, 2002, at which time the Company had $61,744 of
unamortized negative goodwill. The write off resulted in an increase in income
and was reflected as a cumulative effect of a change in accounting principle.
Factors That May Affect Future Results or the Market Price of Company Stock:
- ----------------------------------------------------------------------------
We operate in a rapidly changing economic environment that presents numerous
risks. Many of these risks are beyond our control and are driven by factors that
we cannot predict. The following discussion highlights some of these risks.
Economic, political and market conditions can adversely affect our revenue
growth.
- --------------------------------------------------------------------------
Our revenue growth and profitability depends on the overall demand for livestock
handling equipment for commercial, recreational and residential uses. Because
our sales are primarily to corporate and government customers, our business
depends on general economic and business conditions. The general weakening of
the global economy, the weakening of business conditions in the manufacturing
industry, and state and local governmental budgetary constraints can result in a
decreased demand for our products. If demand for our products weakens, our
revenue growth rates will be adversely affected. In addition, our country's war
on terrorism, as well as state and local budgetary concerns, have contributed to
economic, political and other uncertainties that could adversely affect our
revenue growth and results of operations. If economic and market conditions do
not remain healthy, our business will be adversely affected.
Management has no comparative advantage in forecasting macroeconomic trends and
developments relating to general business conditions. Our management is,
however, required to make such forecasts in order to develop budgets, plan
research and development strategies and perform a wide variety of general
management functions. To the extent that our forecasts are in error, because we
are either overly optimistic or overly pessimistic about the performance of an
economy or of a sector, our performance can suffer because of a failure properly
to match corporate strategy with economic conditions.
If we do not successfully manage our operating margins, our business can be
negatively impacted.
- ---------------------------------------------------------------------------
Our future operating results will depend on our ability to forecast revenues
accurately and control expenses. While we can control certain internal factors,
our future operating results can be adversely impacted by external factors, such
as a slowing in demand for certain of our products or increased raw materials
costs. If there is an unexpected decline in revenues, which is not offset by a
decrease in expenses, our business and operating results will be adversely
affected.
We may be required to change our business practices if there are changes in
accounting regulations and related interpretations and policies.
- ---------------------------------------------------------------------------
Policies, guidelines and interpretations related to revenue recognition, income
taxes, allowances for doubtful accounts and other financial reporting matters
require difficult judgments as to complex matters that are often subject to
multiple sources of authoritative guidance. Some of these matters are also among
topics currently under re-examination by accounting standards groups and
regulators. These standards groups and regulators could promulgate
interpretations and guidance that could result in material and potentially
adverse, changes to our accounting policies.
Our business could be negatively impacted by the financial instability of our
customers.
- -----------------------------------------------------------------------------
We sell our products primarily on pre-qualified payment terms. Financial
difficulties of a customer could cause us to curtail business with that
customer. We may also assume more credit risk relating to that customer's
receivables. Our inability to collect on our trade accounts receivable from any
one of these customers could have a material adverse effect on our business or
financial condition.
18
Our current practice is to extend credit terms to a majority of our customers,
which is based on such factors as past credit history with us, reputation of
creditworthiness within our industry, and timelines of payment made to us. A
small percentage of our customers are required to pay C.O.D., which is also
based on such factors as lack of credit history, reputation (or lack thereof)
within our industry and/or prior negative payment history. Our management
exercises professional judgment in determining which customer will be extended
credit, which is based on industry practices applicable to our business,
financial awareness of the customers with whom we conduct business, and business
experience of our industry. As of September 30, 2004, we had $1,480,135 in
accounts receivable from our customers.
Our business could suffer as a result of our inability to acquire raw materials
on time and to our specifications.
- -------------------------------------------------------------------------------
We compete with other companies for the raw materials, such as steel tubing and
other steel products, needed to manufacture our products. Some of these
competitors have greater financial and other resources than we have, and thus
may have an advantage in the competition for raw materials. If we experience a
significant increase in demand, we will need to increase our supply of raw
materials. We cannot assure you that this additional capacity will be available
when required on terms that are acceptable to us or similar to existing terms
that we have with our current suppliers.
Our inability to acquire raw materials such as steel tubing and other steel
products in a timely manner that meet our quality standards could cause us to
miss the delivery date requirements of our customers, which could result in
cancellation of orders, refusal to accept deliveries or a reduction in purchase
prices, any of which could have a material adverse effect on our financial
condition and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates. Market
risk is the potential loss arising from adverse changes in market rates and
prices such as interest rates. For fixed rate debt, interest rate changes affect
the fair value of financial instruments but do not impact earnings or cash
flows. Conversely for floating rate debt, interest rate changes generally do not
affect the fair market value but do impact future earnings and cash flow,
assuming other factors are held constant. At June 30, 2004, the Company had
variable rate notes payable of approximately $2,344,000. Holding other variables
constant, the pre-tax earnings and cash flow impact for the next year resulting
from a one percentage point increase in interest rates would be approximately
$23,000.
The Company is also exposed to market risk from increases in steel costs. The
uncertainty of steel prices continues to impact the livestock equipment
industry. Management believes that the Company is well positioned with its mix
of steel supplies and product quality to help cushion problems associated with
any price increases that may occur. The Company attempts to adjust selling
prices to offset the effects of increased raw material costs. These adjustments
have historically been difficult to implement and tend to lag behind cost
increases.
19
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
W W CAPITAL CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Financial Statements:
Independent Auditors' Report . . . . . . . F-1
Consolidated Balance Sheets as of June 30, 2004 and
June 30, 2003. . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years
ended June 30, 2004, 2003 and 2002 . . . . . . . F-4
Consolidated Statements of Stockholders' Deficit for
the years ended June 30, 2004, 2003 and 2002 . . . . . F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 2004, 2003 and 2002 . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . F-9
Financial Statement Schedules:
Independent Auditors' Report . . . . . . . . . S-1
I - Condensed Financial Information of Registrant . . . . S-2
II - Valuation and Qualifying Accounts . . . . . . S-7
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the consolidated financial
statements or notes thereto.
20
Independent Auditor's Report
- ----------------------------
Board of Directors and Stockholders
W W Capital Corporation
Fort Collins, Colorado
We have audited the accompanying consolidated balance sheets of W W
Capital Corporation and subsidiaries as of June 30, 2004 and 2003, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years ended June 30, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of W W Capital
Corporation and subsidiaries as of June 30, 2004 and 2003, and the results of
their operations and their cash flows for each of the three years ended June 30,
2004, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
in recent years and has a net capital deficiency. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management plans regarding those matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BROCK AND COMPANY, CPAs, P.C.
Fort Collins, Colorado
September 22, 2004
F-1
W W CAPITAL CORPORATION
Consolidated Balance Sheets
============================================================================================
June 30 2004 2003
- --------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 139,109 $ 127,479
Accounts receivable, trade, net of allowance for doubtful
accounts of $163,000 in 2004 and $290,000 in 2003 1,597,071 1,382,198
Accounts receivable, other 112,557 188,458
Inventories 1,878,130 1,511,826
Prepaid expenses 21,602 41,556
Current portion of notes receivable, related parties 717 1,261
Current portion of net investment in sales-type lease 20,588 18,055
Deferred income tax asset 125,900 178,000
---------- ----------
Total current assets 3,895,674 3,448,833
---------- ----------
Property and Equipment, at cost, net of accumulated
depreciation of $2,518,422 in 2004 and
$2,337,391 in 2003 2,290,529 2,275,087
---------- ----------
Other Assets
Long-term notes receivable, related parties,
net of current portion 19,095 19,812
Net investment in sales-type lease, net of current portion 6,810 27,398
Loan acquisition costs, net of accumulated amortization
of $11,275 in 2004 and $7,175 in 2003 29,725 33,825
Other assets 28,416 40,463
---------- ----------
Total other assets 84,046 121,498
---------- ----------
Total assets $6,270,249 $5,845,418
========== ==========
The accompanying Notes are an integral part of the
consolidated financial statements
F-2
W W CAPITAL CORPORATION
Consolidated Balance Sheets (continued)
===============================================================================================
June 30 2004 2003
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 1,676,102 $ 1,260,959
Line of credit 1,353,253 1,466,509
Accrued payroll and related taxes 236,656 205,417
Accrued property taxes 14,520 9,050
Accrued interest payable 10,256 14,898
Other current liabilities 95,682 14,444
Current portion of notes payable 426,747 476,491
Current portion of capital lease obligations 75,000 73,000
----------- -----------
Total current liabilities 3,888,216 3,520,768
----------- -----------
Long-Term Liabilities
Long-term notes payable, net of current portion 1,358,052 1,498,515
Long-term capital lease obligations, net of current portion 1,090,940 1,147,461
Deferred income tax liability 102,200 20,900
----------- -----------
Net long-term liabilities 2,551,192 2,666,876
----------- -----------
Total liabilities 6,439,408 6,187,644
----------- -----------
Commitments and Contingency -- --
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 in 2004 and 2003 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (651,115) (824,182)
----------- -----------
2,709,956 2,536,889
Less 3,543,213 shares of treasury stock at June 30, 2004
and 2003, at cost (2,879,115) (2,879,115)
----------- -----------
Net stockholders' deficit (169,159) (342,226)
----------- -----------
Total liabilities and stockholders' deficit $ 6,270,249 $ 5,845,418
=========== ===========
The accompanying Notes are an integral part of the
consolidated financial statements
F-3
W W CAPITAL CORPORATION
Consolidated Statements of Operations
==========================================================================================
Years ended June 30 2004 2003 2002
- ------------------------------------------------------------------------------------------
Net Sales $ 13,233,546 $ 11,530,445 $ 12,652,044
Cost of Goods Sold 9,987,070 9,431,355 9,731,506
------------ ------------ ------------
Gross profit 3,246,476 2,099,090 2,920,538
------------ ------------ ------------
Operating Expenses
Selling expenses 1,168,153 1,087,220 1,152,475
General and administrative expenses 1,421,484 1,283,158 1,524,582
------------ ------------ ------------
Total operating expenses 2,589,637 2,370,378 2,677,057
------------ ------------ ------------
Income (Loss) From Operations 656,839 (271,288) 243,481
------------ ------------ ------------
Other Income (Expense)
Interest income 11,012 211 7,569
Interest expense (362,249) (380,241) (338,248)
Gain (loss) on property and equipment (6,945) (3,439) 4,700
Other income, net 7,810 58,137 162,362
------------ ------------ ------------
Net other income (expense) (350,372) (325,332) (163,617)
------------ ------------ ------------
Earnings (Loss) Before Income Taxes and
Cumulative Effect of a Change in
Accounting Principle 306,467 (596,620) 79,864
Income Tax Benefit (Expense) (133,400) 187,500 (25,400)
------------ ------------ ------------
Earnings (Loss) Before Cumulative
Effect of a Change in Accounting
Principle 173,067 (409,120) 54,464
------------ ------------ ------------
Cumulative Effect of a Change
In Accounting Principle -- 61,744 --
------------ ------------ ------------
Net Earnings (Loss) $ 173,067 $ (347,376) $ 54,464
============ ============ ============
The accompanying Notes are an integral part of the
consolidated financial statements
F-4
W W CAPITAL CORPORATION
Consolidated Statements of Operations (continued)
============================================================================================================
Years ended June 30 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------
Earnings Per Common Share
Basic
Earnings (loss) before cumulative effect of a
change in accounting principle $ 0.09 $ (0.20) $ 0.03
Cumulative effect of a change in
accounting principle 0.00 0.03 0.00
-------------- -------------- -------------
Net earnings (loss) $ 0.09 $ (0.17) $ 0.03
============= ============= =============
Weighted average number of
common shares outstanding 2,010,614 2,010,614 2,010,614
Diluted
Earnings (loss) before cumulative effect of a
change in accounting principle $ 0.09 $ (0.20) $ 0.03
Cumulative effect of a change in
accounting principle 0.00 0.03 0.00
-------------- --------------- -------------
Net earnings (loss) $ 0.09 $ (0.17) $ 0.03
============= ============= =============
Weighted average number of
common shares outstanding 2,010,614 2,010,614 2,010,614
The accompanying Notes are an integral part of the
consolidated financial statements
F-5
W W CAPITAL CORPORATION
Consolidated Statements of Stockholders' Deficit
==================================================================================================================================
Years ended June 30, 2004, 2003 and 2002
Common Stock Treasury Stock
----------------------- Capital --------------------------- Total
Number of Par In Excess Accumulated Number of Stockholders'
Shares Value of Par Value Deficit Shares Cost Deficit
--------- ----------- ------------ ------------ ----------- ------------- ------------
Balance, July 1, 2001 5,553,827 $ 55,538 $ 3,305,533 $ (531,270) (3,543,213) $(2,879,115) $ (49,314)
Net earnings for year ended
June 30, 2002 -- -- -- 54,464 -- -- 54,464
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2002 5,553,827 55,538 3,305,533 (476,806) (3,543,213) (2,879,115) 5,150
Net loss for year ended
June 30, 2003 -- -- -- (347,376) -- -- (347,376)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2003 5,553,827 55,538 3,305,533 (824,182) (3,543,213) (2,879,115) (342,226)
Net earnings for year ended
June 30, 2004 -- -- -- 173,067 -- -- 173,067
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2004 5,553,827 $ 55,538 $ 3,305,533 $ (651,115) (3,543,213) $(2,879,115) $ (169,159)
=========== =========== =========== =========== =========== =========== ===========
The accompanying Notes are an integral part of the
consolidated financial statements
F-6
W W CAPITAL CORPORATION
Consolidated Statements of Cash Flows
=================================================================================================================
Years ended June 30 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities
Net earnings (loss) $ 173,067 $ (347,376) $ 54,464
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by operating activities
Depreciation 233,227 238,482 249,760
Amortization 4,100 4,100 9,214
(Gain) loss on dispositions of property
and equipment 6,945 3,439 (4,700)
Loss on impairment of rental property 12,047 -- --
Provision for loss on accounts and
notes receivable 153,871 57,880 306,328
Amortization of negative goodwill -- (2,343)
Effects of change in accounting principle -- (61,744) --
Write down of inventory to net realizable value 4,903 3,181 15,469
Net changes in assets and liabilities
Accounts receivable (350,689) 289,083 (487,905)
Inventories (371,207) 275,297 (76,451)
Other current and non-current assets 147,955 70,035 (85,192)
Accounts payable, accrued expenses and
other current liabilities 609,748 (342,336) (67,368)
------------ ------------ ------------
Net cash provided (used) by operating activities 623,967 190,041 (88,724)
------------ ------------ ------------
Cash Flow From Investing Activities
Proceeds from sale of property and equipment 35,400 22,600 4,700
Purchases of property and equipment (83,673) (41,148) (42,378)
Proceeds from stockholders' notes receivable 1,261 -- 554
------------ ------------ ------------
Net cash used by investing activities (47,012) (18,548) (37,124)
------------ ------------ ------------
Cash Flow From Financing Activities
Net short term borrowings (repayments) -- -- --
Borrowings on notes payable 12,684,143 11,955,581 12,168,450
Payments on notes payable (13,175,337) (12,063,031) (12,017,568)
Payments on capital leases (74,131) (74,512) (62,559)
Payment of loan acquisition costs -- -- (41,000)
------------ ------------ ------------
Net cash provided (used) by financing activities (565,325) (181,962) 47,323
------------ ------------ ------------
Net Increase (Decrease) in Cash 11,630 (10,469) (78,525)
------------ ------------ ------------
The accompanying Notes are an integral part of the
consolidated financial statements
F-7
W W CAPITAL CORPORATION
Consolidated Statements of Cash Flows (continued)
============================================================================================
Years ended June 30 2004 2003 2002
- --------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash $ 11,630 $ (10,469) $ (78,525)
Cash, Beginning of year 127,479 137,948 216,473
--------- --------- ---------
Cash, End of year $ 139,109 $ 127,479 $ 137,948
========= ========= =========
Supplemental Information
Cash paid during the year for interest $ 366,892 $ 414,141 $ 320,502
Cash paid during the year for income taxes $ 11,058 $ 7,425 $ 5,835
Installment loans and capital leases to acquire
property and equipment $ 207,341 $ 343,272 $ 11,135
Installment loan to acquire residential
rental property $ -- $ -- $ 28,542
The accompanying Notes are an integral part of the
consolidated financial statements
F-8
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
===============================================================================
Note 1 - Summary of Significant Accounting Policies
Nature of Operations. W W Capital Corporation and its
wholly-owned subsidiary (the Company) principally engage in the
manufacture, distribution and sale of a wide range of livestock
confinement and handling equipment. The Company's customers are
principally resellers primarily located in the Midwest, Tennessee and
Georgia.
Basis of Presentation. The accompanying consolidated financial
statements include the accounts of W W Capital Corporation and its
wholly-owned subsidiary, W-W Manufacturing Co., Inc. (W-W
Manufacturing). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates. The preparation of the Company's
consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents. For purposes of the statement of cash flows,
the Company considers all highly liquid debt investments purchased with
an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts.
Accounts receivable consist primarily of receivables from the sale of
livestock handling equipment. The Company uses the allowance method of
accounting for bad debts. The allowance is based upon estimates using
analysis of the Company's prior experience, customer credit history and
current economic trends. The Company generally does not require
collateral for routine open accounts receivable. It is reasonably
possible the estimates may change in the near term.
Inventories. Inventories are stated at the lower of cost or
market. Cost includes materials, labor and production costs and is
determined on a first-in, first-out (FIFO) method.
Property and Equipment. Property and equipment are stated at
cost. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets, which are
generally thirty to forty years for buildings and improvements, three
to seven years for leasehold improvements and automobiles and trucks,
and five to seven years for machinery and equipment and office
equipment. Amortization of property and equipment under capital leases
is included in depreciation expense.
Loan Acquisition Costs. Loan acquisition costs were incurred
to obtain certain of the Company's long-term debt. Such costs have
been capitalized and are being amortized over the terms of the related
debt.
Long-Lived Assets. Long-lived assets to be held and used are
recorded at cost. Management reviews long-lived assets and the related
intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability of these assets is determined by comparing
the forecasted undiscounted net cash flows of the operation to which
the assets relate, to the carrying amount including associated
intangible assets of such operation. If the operation is determined to
be unable to recover the carrying amount of its assets, then
intangible assets are written down first, followed by the other
long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values,
depending upon the nature of the assets.
F-9
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
================================================================================
Note 1 - Summary of Significant Accounting Policies (continued)
Warranty. The Company provides a warranty to its customers and
the related costs are recorded at the time of service. The accompanying
financial statements for 2004 include a provision of $50,000 for
estimated warranty claims. It is possible that a change in the estimate
of warranty claims may occur in the near term.
Negative Goodwill and Cumulative Effect of a Change in
Accounting Principle. Negative goodwill was recorded in the
acquisition of the Adrian J. Paul Company. It is the excess of the
value of acquired assets over the total cash paid and liabilities
assumed, after reducing long-term assets.
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations." SFAS No. 141 requires that unamortized negative
goodwill arising from a business combination, for which the
acquisition date was before July 1, 2001, shall be written off and
recognized as a change in accounting principle. SFAS No. 141 was
effective for the Company on July 1, 2002, at which time the Company
had $61,744 of unamortized negative goodwill. The write off resulted
in an increase in income and was reflected as a cumulative effect of a
change in accounting principle.
Stock-Based Compensation. The Company applies the provisions
of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." The Statement defined a fair
value based method of accounting for stock options or similar equity
instruments. SFAS No. 123 allows an entity to continue to measure
compensation cost for employee stock option plans using the intrinsic
value based method of accounting prescribed by Accounting Principles
Board Opinion (APB) No. 25, which was elected by the Company. SFAS No.
123 requires the Company to make certain proforma disclosures as if the
fair value based method had been applied. The effects of the fair value
based method for the periods presented were not material for proforma
disclosure.
Revenue Recognition. The Company recognizes revenue in the
period the product is shipped and title is transferred to the customer.
Shipping and handling charges are included in net sales and the related
costs are included in cost of goods sold.
Advertising. The Company expenses the cost of advertising the
first time the advertising takes place. Advertising expense for the
years ended June 30, 2004, 2003 and 2002 was $118,474, $126,859, and
$145,639, respectively.
Income Taxes. Deferred income taxes are recognized for
temporary differences resulting from income and expense items reported
for financial accounting and tax purposes in different periods.
Deferred income taxes are classified as current or noncurrent,
depending on the classification of the assets and liabilities to which
they relate. Deferred income taxes arising from temporary differences
that are not related to an asset or liability are classified as
current or noncurrent depending on the periods in which the temporary
differences are expected to reverse. The recognition of deferred tax
assets is reduced if necessary, by the amount of any tax benefits
that, based on available evidence, are not expected to be realized.
Per Share Data. Basic earnings per share were computed on the
basis of weighted average number of shares outstanding. Diluted
earnings per share includes outstanding stock options, unless the
effect would be anti-dilutive.
Reclassifications. Certain amounts in the 2003 financial
statements have been reclassified to conform with reporting for 2004,
without affecting net income.
F-10
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
================================================================================
Note 2 - Going Concern
As shown in the accompanying financial statements, the Company
has suffered recurring losses from operations in recent years, a net
capital deficiency totaling $169,159, and a weak net working capital
surplus totaling $7,458. Additionally, the Company is currently in
negotiations for renewal of its revolving line of credit which expires
in October 2004.
The Company believes that it has developed a viable plan to
address these issues and that the plan will enable the Company to
continue as a going concern for the next twelve months. This plan
includes the realization of revenues from the commercialization of new
products and the reduction of certain operating expenses. Although the
Company believes that the plan will be realized, there is no assurance
that these events will occur. The financial statements do not include
any adjustments to reflect the uncertainties related to the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the inability of the
Company to continue as a going concern.
Note 3 - Related Party Transactions
Receivables. Notes receivable from stockholders and all
affiliated entities consisted of the following at June 30:
2004 2003
------------- -------------
Note receivable from a partnership owned by certain of the
Company's stockholders bears interest at 9%. The note provides for
annual installments of $2,500 through 2017 and for collateral
consisting of shares of the Company's common stock owned by the
partners. $ 19,812 $ 21,073
Less current portion ( 717) (1,261)
--------------- --------------
$ 19,095 $ 19,812
============ ============
Interest receivable on related party notes totaled $10,613 at
June 30, 2004 and 2003.
The Company entered into a transaction with related parties as
disclosed above during the three-year period ended June 30, 2004. The
Company has not attempted to determine whether the transaction was
consummated on terms equivalent to those that would have prevailed in
an arm's length transaction.
Note 4 - Inventories
Inventories consisted of the following at June 30:
2004 2003
-------------- ------------------
Raw materials $ 526,717 $ 528,112
Work-in-process 508,489 375,882
Finished goods 842,924 607,832
----------- -----------
$ 1,878,130 $ 1,511,826
=========== ===========
F-11
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
===============================================================================
Note 5 - Sales-Type Lease
The Company's leasing operations consist principally of
leasing livestock equipment under a sales-type lease expiring August
2005.
The following is a summary of the components of the Company's
net investment in the sales-type lease at June 30, 2004:
Total minimum lease payments to be received $ 32,197
Unearned income (4,799)
------------
Net investment $ 27,398
============
Future minimum lease payments to be received under the
sales-type lease are as follows at June 30, 2004:
Year
2005 $ 24,432
2006 7,765
------------
$ 32,197
============
Note 6 - Property and Equipment
Property and equipment consisted of the following at June 30:
2004 2003
----------- -----------
Land and improvements $ 122,622 $ 122,622
Building and improvements 2,034,615 2,034,615
Leasehold improvements 89,372 89,372
Machinery and equipment 1,627,819 1,547,564
Automobiles and trucks 569,943 484,486
Office equipment 364,580 333,819
----------- ----------
4,808,951 4,612,478
Less accumulated depreciation and amortization (2,518,422) (2,337,391)
----------- ----------
$2,290,529 $2,275,087
========== ==========
Note 7 - Employee Benefit Plans
401(k) Plan. The Company has a 401(k) Saving Plan, whereby
eligible employees, who have one half year of service and are age 21 or
older, may contribute up to 20% of their salary up to a maximum as
allowed by the Internal Revenue Code. The Company may make
discretionary matching contributions on the first 4% of employee
contributions vesting at 25% per year after three years of service.
During the years ended June 30, 2004, 2003, and 2002, the Company made
$33,685, $33,175 and $25,430 in discretionary contributions to the
Plan.
Stock Options. The Company has an Incentive Stock Option Plan.
Under this Plan, the Board of Directors or its designated committee is
authorized to grant officers and key employees options to purchase up
to 950,000 shares of the Company's common stock. At June 30, 2004,
options to purchase 950,000 shares of common stock are available to be
granted by the Company under the plan. These options have a three-year
vesting period.
F-12
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
================================================================================
Note 7 - Employee Benefit Plans (continued)
Additionally, the Company has a non-qualified stock option
plan for the outside directors of the Company. Under this plan, the
incentive stock option plan committee is authorized to grant outside
directors options to purchase up to 400,000 shares of the Company's
common stock. The Company granted options to purchase up to 153,334
shares at option prices ranging from $0.063 to $2.50 per share of which
64,167 are outstanding as of June 30, 2004. These options vest
immediately and expire ten years after issuance.
Number of Weighted Average
Shares Exercise Price
--------- ---------
Outstanding, June 30, 2001 (all vested) 274,168 $0.9000
Granted -- --
Exercised -- --
Cancelled (17,500) 2.5000
--------- ---------
Outstanding, June 30, 2002 (all vested) 256,668 0.7900
Granted -- --
Exercised -- --
Cancelled (50,000) 1.5000
---------- --------
Outstanding, June 30, 2003 (all vested) 206,668 0.6200
Granted -- --
Exercised -- --
Cancelled (142,501) 0.7570
----------- --------
Outstanding, June 30, 2004 (all vested) 64,167 $0.3300
=========== =======
Options Outstanding Vested Options
------------------------------------------------------------- ------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Vested Price
---------- ----------- ------------ --------- -------- --------
$ 0.7500 14,167 0.0 0.7500 14,167 0.7500
0.5625 10,000 1.0 0.5625 10,000 0.5625
0.0630 10,000 2.0 0.0630 10,000 0.0630
0.3000 10,000 4.0 0.3000 10,000 0.3000
0.0625 20,000 5.5 0.0625 20,000 0.0625
------- ---- ------- ------- -------
64,167 2.8 $0.3300 64,167 $0.3300
======= ==== ======= ======= =======
F-13
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
================================================================================
Note 8 - Line of Credit
The Company has a $2,200,000 revolving line of credit
agreement with Wells Fargo Bank, N.A. with outstanding borrowings
totaling $1,353,253 and $1,466,509 at June 30, 2004 and 2003,
respectively. The agreement bears interest at 3.0% above the Bank's
base rate (7.0% at June 30, 2004) and is collateralized by equipment,
intangibles, inventories, and receivables and matures in October 2004.
Borrowings are subject to base limitations of 80% of eligible
accounts receivable and 50% of eligible inventory. The loan agreement
contains certain covenants including the maintenance of minimum net
income, minimum debt service ratio, limitations on the acquisition of
property and equipment and the requirement to develop certain inventory
control systems. The loan provides for charges of .25% on the unused
revolving credit line and for payment penalties in the event the
agreement is terminated prior to the maturity date. Receivable
collections are used to pay down the note on a daily basis. After two
business days, these funds are available for borrowing subject to the
borrowing base limitations. Approximately $645,000 of the Company's
consolidated net assets at June 30, 2004 are considered to be
restricted net assets of consolidated subsidiaries.
Note 9 - Long-Term Debt
Long-term debt consists of the following at June 30:
2004 2003
-------------- ------------
Financial Institutions
----------------------
Notes payable bearing interest up to 4.75%, due in monthly
installments totaling $5,414 including principal and interest and
maturing between December 2006 and May 2009. The notes are
collateralized by vehicles. $ 231,659 $ 108,342
Note payable bears interest at 6.0% and is due in monthly
installments, including principal and interest, of $1,790 through July
2012. The note is collateralized by a building located in Duncan,
Oklahoma. 136,572 149,437
Term note payable bears interest at 4.0% over the Bank's base
rate (total interest rate of 8.0% at June 30, 2004). The note is due in
monthly principal installments of $6,250 plus interest through October
2005. The note is collateralized by equipment, inventory,
intangibles and receivables. 100,000 175,000
Note payable bears interest at 6.0% and is due in monthly
installments, including principal and interest, of $1,944 through April
2009. The note is collateralized by equipment. 97,461 --
Note payable bears interest at 9.0% and is due in monthly
installments of $4,191, including principal and interest, through
November 2005. The note is collateralized by real estate and machinery
and equipment located in Livingston, Tennessee. 60,494 103,472
F-14
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
====================================================================================================================================
Note 9 - Long-Term Debt (continued)
2004 2003
-------------- ------------
Note payable bears interest at 6.0% and is due in annual
installments of $23,000, including principal and interest, through
August 2005. The note is collateralized by a lease purchase agreement. $ 26,814 $ 48,114
Note payable bears interest at 8.0% and is due in monthly
installments of $312, including principal and interest, through August
2006, at which time the remaining principal balance is due. The note
is collateralized by rental property in Thomas, Oklahoma. 23,924 25,674
Note payable bears interest at 6.0% and is due in monthly
installments, including principal and interest, of $381 through May
2007, at which time the remaining principal balance is due. The note
is collateralized by equipment. 19,408 --
Note payable bears interest at 7.75% and is due in monthly
installments of $379, including principal and interest, through July
2007. The note is collateralized by equipment. 12,445 15,886
Notes paid in full during 2004 -- 125,725
------------ ------------
708,777 751,650
------------ ------------
Other Entities
--------------
Note payable bears interest at 3.0% above the Wall Street
prime lending rate (total interest rate of 7.0% at June 30, 2004). The
note is payable in monthly installments, including principal and
interest, of $14,374 through December 2010. The note is collateralized
by 2,448,000 shares of the Company's treasury stock. 890,504 995,324
Note payable bears interest at 2.0% and is due in monthly
installments, including principal and interest, of $2,820 through March
2009. The note is unsecured. 153,231 183,678
Note payable bears interest at 5.0% and is due in monthly
installments of $944, including principal and interest, through July
2007. The note is collateralized by a building located in Duncan,
Oklahoma. 32,287 41,739
Note payable paid in full during 2004 -- 2,615
------------ ------------
1,076,022 1,223,356
------------ ------------
1,784,799 1,975,006
Less current portion (426,747) (476,491)
------------ ------------
$1,358,052 $1,498,515
============ ============
F-15
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
================================================================================
Note 9 - Long-Term Debt (continued)
The aggregate maturities of long-term debt are as follows at
June 30, 2004:
Year
----
2005 $ 426,747
2006 287,259
2007 303,401
2008 249,079
2009 216,961
Thereafter 301,352
-----------
$ 1,784,799
===========
Note 10 - Lease Commitments and Subsequent Event
Capital Leases. The Company leases its Thomas, Oklahoma plant
under a capital lease arrangement that expires in June 2022. The leased
building has a cost of $1,073,507 and accumulated amortization of
$115,137 and $79,711 at June 30, 2004 and 2003, respectively.
The Company also leases certain manufacturing equipment under
four capital leases which expire in March 2005 through April 2007.
Assets under capital leases are recorded at fair value and are
amortized over their estimated useful lives. The leased equipment has a
cost of $72,503 and $165,333 at June 20, 2004 and 2003, and accumulated
amortization of $35,021 and $115,220 at June 30, 2004 and 2003.
Future minimum lease payments required under noncancelable
capital leases are as follows at June 30, 2004:
Year Building Equipment Total
---- ----------- ----------- --------------
2005 $ 157,600 $ 18,473 $ 176,073
2006 157,600 9,656 167,256
2007 157,600 6,099 163,699
2008 157,600 -- 157,600
2009 157,600 -- 157,600
Thereafter 1,084,425 -- 1,084,425
----------- ---------- -----------
Total minimum lease payments 1,872,425 34,228 1,906,653
Less: amount representing interest (738,063) (2,650) (740,713)
----------- ---------- -----------
Present value of net minimum lease payments $ 1,134,362 $ 31,578 $ 1,165,940
=========== ========== ===========
Operating Leases. In April 2004, the Company entered into a
five year lease extension for office space. The lease extension
provides for monthly rental payments of $2,597 through March 2005,
escalating to $2,886 through March 2009. In October 2004, the Company
terminated the lease effective November 12, 2004. The Company is
currently negotiating a lease agreement for office space at a new
location.
In April 2000, the Company entered into a two year lease for a
production facility. The lease provided for monthly rental payments of
$4,000 though March 2002, at which time the Company exercised an option
to purchase the production facility for $208,000 plus closing costs.
The sale was consummated on July 2, 2002.
F-16
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
===============================================================================
Note 10 - Lease Commitments and Subsequent Event (continued)
The Company has entered into various lease agreements for
production and office equipment, office space and vehicles. The lease
terms are generally two to five years.
Future minimum rental payments under operating leases as of
June 30, 2004 are as follows:
Warehouse and Vehicles and
Year Office Space Equipment Total
---- -------------- ------------ ------------
2005 $ 14,676 $ 10,836 $ 25,512
2006 -- 5,580 5,580
2007 -- 3,831 3,831
------------- ------------ ------------
Total minimum payments required $ 14,676 $ 20,247 $ 34,923
============= ============ ============
Rental expense under operating leases for the years ended June
30, 2004, 2003 and 2002 amounted to $75,893, $97,548 and $130,993,
respectively.
Note 11 - Negative Goodwill and Change in Accounting Principle
In June 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations." SFAS No. 141 requires that unamortized
negative goodwill arising from a business combination, for which the
acquisition date was before July 1, 2001, shall be written off and
recognized as a change in accounting principle. SFAS No. 141 was
effective for the Company on July 1, 2002.
As of July 1, 2002, the Company had $61,744 of unamortized
negative goodwill relating to the fiscal year 2000 purchase of the
Adrian J. Paul Company by its subsidiary, WW Manufacturing Company. The
write off resulted in an increase in income and was reflected as a
cumulative effect of a change in accounting principle.
A reconciliation of reported net income (loss) adjusted to
reflect the adoption of SFAS No. 141 as if it had been effective July
1, 2001 is as follows:
2004 2003 2002
------------- ------------- -------------
Reported net income (loss) $ 173,067 $ (347,376) $ 54,464
Subtract-back adjustment for
accounting change -- (61,744) --
Add-back goodwill amortization -- -- 2,343
----------- ------------ ----------
Adjusted net income (loss) $ 173,067 $ (409,120) $ 56,807
============ ============ ==========
Adjusted net income (loss) per share-basic $ 0.09 $ (0.20) $ 0.03
Adjusted net income (loss) per share-diluted $ 0.09 $ (0.20) $ 0.03
F-17
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
===============================================================================
Note 12 - Income Taxes
The provision for income taxes is as follows at June 30:
2004 2003 2002
------------- ------------- -------------
Current
Federal $ -- $ -- $ 68,000
State -- -- 7,000
Deferred 133,400 (187,500) 25,400
Tax benefit of net operating loss -- -- (75,000)
----------- ----------- ----------
$ 133,400 $ (187,500) $ 25,400
=========== =========== ==========
A reconciliation of income at the statutory rate to the
Company's effective rate is as follows at June 30:
2004 2003 2002
------------- ------------- -------------
Federal statutory rate 34.00% 34.00% 34.00%
Non deductible expenses 5.22 1.02 12.63
Basis difference in assets and liabilities 51.58 (65.22) 108.54
Capital loss and reversal of nondeductible
write down of real estate - - (21.41)
Change in deferred tax asset valuation
allowance and net operating loss (47.27) 2.29 (101.96)
Change in accounting principal - (3.52) -
----------- ----------- ----------
43.53% (31.43)% 31.80%
=========== ============ ==========
Deferred tax assets and liabilities are comprised of the
following at June 30:
2004 2003 2002
----------- ----------- ----------
Deferred Tax Assets
Allowance for doubtful accounts $ 60,800 $ 108,200 $ 102,600
Accrued compensation 31,700 36,200 30,200
Inventory 20,800 17,300 19,900
Capital loss carryforward - - 18,800
Net operating loss carryforward 106,000 158,900 15,000
Other 12,700 16,400 10,600
--------- ---------- ----------
Total deferred tax assets 232,000 337,000 197,100
--------- ---------- ----------
Deferred Tax Liabilities:
Depreciation of property and equipment (208,300) (179,900) (179,900)
Insurance proceeds receivable -- -- (47,600)
--------- ---------- ----------
Total deferred tax liabilities (208,300) (179,900) (227,500)
--------- ---------- ----------
Deferred taxes - net $ 23,700 $ 157,100 $ (30,400)
========= ========== ==========
Current deferred tax asset $ 125,900 $ 178,000 $ 149,500
Long-term deferred tax liability (102,200) ( 20,900) (179,900)
--------- ---------- ----------
$ 23,700 $ 157,100 $ (30,400)
========= ========== ==========
The Company's net operating loss of $284,000 expires in 2022.
F-18
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2004
===============================================================================
Note 12 - Income Taxes (continued)
Realization of the income tax benefits of future deductible
amounts is dependent on the Company's ability to generate taxable
income in amounts sufficient to absorb net operating loss carryovers
prior to the expiration of the carryovers. Provisions of the Internal
Revenue Code pertaining to changes in ownership interest and
alternative minimum taxes may limit the amount of carryovers that may
be absorbed in any specific year. It is reasonably possible that a
change in the estimate of deferred income tax assets may occur in the
near term.
Note 13 - Major Customer
The Company has one customer that accounted for approximately
10% of total sales for the year ended June 30, 2004. At June 30, 2004,
the Company had accounts receivable balances totaling $98,375 due from
this customer.
Note 14 - Fair Value of Financial Instruments
The Company discloses fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the
balance sheet. The fair value of the financial statements disclosed
herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider tax
consequences of realization. The carrying value of cash, trade
receivables, notes receivable and accounts payable and variable rate
debt instruments approximate fair value. The carrying value of
long-term debt approximates fair value in 2004 and 2003 due to the
scheduled maturities and restrictive provisions of the debt.
Note 15 - Contingencies
Environmental. The Company's past and present operations
include activities that are subject to federal and state environmental
regulations.
In October 2000, the Company was notified by the Environmental
Protection Agency that the flow coat paint system located in its
Livingston, Tennessee plant was not in compliance with certain emission
regulations. The Company was issued a temporary paint permit which
expired on December 31, 2001. In January 2003, the Company surrendered
its temporary paint permit and discontinued all wet paint finishing at
the facility.
Note 16 - Partially Self-Insured Health Insurance
The Company is partially self-insured for losses and
liabilities related to health insurance claims. Losses are accrued
based upon the Company's estimates and experience. The plan includes a
$30,000 stop-loss provision per month. The self-insurance liability of
$30,000 at June 30, 2004 and $72,551 at June 30, 2003 is included in
current liabilities in the consolidated balance sheets.
F-19
Independent Auditors' Report
- ----------------------------
The Board of Directors and Stockholders
W W Capital Corporation
Fort Collins, Colorado
We have audited the accompanying consolidated balance sheets of W W
Capital Corporation as of June 30, 2004 and 2003, and the related statements of
operations, stockholders' deficit and cash flows for each of the three years
ended June 30, 2004 and have issued our report thereon dated September 22, 2004.
Our audit also included the financial statement schedules of W W Capital
Corporation listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
BROCK AND COMPANY, CPAs, P.C.
Fort Collins, Colorado
September 22, 2004
S-1
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
=========================================================================================
June 30 2004 2003
- -----------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 47,393 $ 17,378
Deferred income tax asset 125,900 178,000
Other current assets 4,721 28,023
---------- ----------
Total current assets 178,014 223,401
---------- ----------
Equipment
Net of accumulated depreciation of $141,302
in 2004 and $128,628 in 2003 42,993 8,637
---------- ----------
Other Assets
Investment in wholly owned subsidiaries 1,116,922 656,568
Loan acquisition costs, net of accumulated amortization
of $11,275 in 2004 and $7,175 in 2003 29,725 33,825
Other assets 2,312 2,312
---------- ----------
Total other assets 1,148,959 692,705
---------- ----------
Total assets $1,369,966 $ 924,743
========== ==========
S-2
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Balance Sheets (continued)
===================================================================================================
June 30 2004 2003
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable, subsidiaries $ 471,184 $ 242,112
Accrued expenses 36,830 8,633
Current portion of notes payable 122,000 104,000
----------- -----------
Total current liabilities 630,014 354,745
----------- -----------
Long-Term Liabilities
Long-term notes payable, net of current portion 806,911 891,324
Deferred income tax liability 102,200 20,900
----------- -----------
Net long-term liabilities 909,111 912,224
----------- -----------
Total liabilities 1,539,125 1,266,969
----------- -----------
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 in 2004 and 2003 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (651,115) (824,182)
----------- -----------
2,709,956 2,536,889
Less 3,545,663 shares of treasury stock, at cost at
June 30, 2004 and 2003 (2,879,115) (2,879,115)
----------- -----------
Net stockholders' deficit (169,159) (342,226)
----------- -----------
Total liabilities and stockholders' deficit $ 1,369,966 $ 924,743
=========== ===========
S-3
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Statements of Operations
=======================================================================================
Years ended June 30 2004 2003 2002
- ---------------------------------------------------------------------------------------
Revenues
Management fee from subsidiaries $ 420,000 $ 420,000 $ 396,000
Operating Expenses
General and administrative 509,162 475,568 444,927
--------- --------- ---------
Operating loss (89,162) (55,568) (48,927)
Other Income (Expense)
Interest income -- -- --
Interest expense (68,096) (62,321) (89,995)
Other income 3,371 45 11,663
Equity in earnings (loss) of subsidiary
before income taxes 460,354 (417,032) 207,123
--------- --------- ---------
Earnings (Loss) Before Income Taxes 306,467 (534,876) 79,864
Income Tax Benefit (Expense) (133,400) 187,500 (25,400)
--------- --------- ---------
Net earnings (loss) $ 173,067 $(347,376) $ 54,464
========= ========= =========
S-4
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Statement of Cash Flows
===================================================================================================
Years ended June 30 2004 2003 2002
- ---------------------------------------------------------------------------------------------------
Net Cash Flows Provided (Used) by Operating Activities $ 143,458 $ 15,700 $(292,239)
--------- --------- ---------
Cash Flows From Investing Activities
Purchase of equipment -- (6,243) (2,587)
--------- --------- ---------
Net cash used by investing activities -- (6,243) (2,587)
--------- --------- ---------
Cash Flows From Financing Activities
Borrowings on notes payable -- 31,308 261,981
Payments on notes payable (113,443) (47,965) --
Payments of loan acquisition costs -- -- (41,000)
--------- --------- ---------
Net cash provided (used) by financing activities (113,443) (16,657) 220,981
--------- --------- ---------
Net Increase (Decrease) in Cash 30,015 (7,200) (73,845)
Cash, Beginning of Year 17,378 24,578 98,423
--------- --------- ---------
Cash, End of Year $ 47,393 $ 17,378 $ 24,578
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 69,491 $ 94,129 $ 75,216
========= ========= =========
S-5
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Notes
June 30, 2004
================================================================================
Note 1 - Related Party Transactions
The following amounts related to wholly owned subsidiaries of
the Company were eliminated in the consolidated financial statements of
the Company but are reflected in this condensed financial statement of
registrant at June 30:
2004 2003 2002
------------ ----------- ------------
Amounts receivable (payable):
W-W Manufacturing Co. Inc. $(471,184) $(242,111) $ (69,561)
========= ========= =========
Management fee income from operations:
W-W Manufacturing Co. Inc. $ 420,000 $ 420,000 $396,000
========= ========= ========
Equity (loss) from subsidiary operations:
W-W Manufacturing Co. Inc. $ 460,354 $(417,032) $207,123
========= ========= ========
S-6
W W CAPITAL CORPORATION
Schedule II - Valuation and Qualifying Accounts
Year ended June 30, 2004
================================================================================
Additions
-----------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End of
Description of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
June 30, 2004
Allowance for doubtful accounts:
Accounts receivable $290,000 $153,871 $ -- $280,871 $163,000
June 30, 2003
Allowance for doubtful accounts:
Accounts receivable $275,000 $ 57,880 $ -- $ 42,880 $290,000
June 30, 2002
Allowance for doubtful accounts:
Accounts receivable $ 35,000 $306,328 $ -- $ 66,328 $275,000
S-7
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.
- ------- -----------------------------------------------------------
None
Item 9A. Controls and Procedures.
- -------- ------------------------
The Company's management, including the Chief Financial Officer, conducted an
evaluation of the effectiveness of disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) as of the end of the period
covered by this report. Based such evaluation, the CFO has concluded that, as of
June 30, 2004, the Company's disclosure controls and procedures are effective in
ensuring that material information relating to the Company (including its
consolidated subsidiaries), which is required to be included in the Company's
periodic filings under the Exchange Act, has been made known to them in a timely
manner.
There have been no significant changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the Company's most recent fiscal quarter (the
Company's fourth fiscal quarter in the case of this report) that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Item 9B. Other Information.
- -------- ------------------
Not Applicable
21
PART III
Certain information required by Part III is omitted from this Annual Report on
Form 10-K because we intend to file our Definitive Proxy Statement for our next
Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, within 120 days of June 30, 2004, and certain
information to be included in the Definitive Proxy Statement is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
The information required by Item 10 as to directors, executive officers and
Section 16 reporting compliance is incorporated by reference from our Definitive
Proxy Statement.
Our Board of Directors adopted a Code of Business Conduct and Ethics for all of
our directors, officers and employees on October 7, 2004. You may request a free
copy of our Code of Business Conduct and Ethics from:
W W Capital Corporation
Attn: Chief Financial Officer
3500 JFK Parkway, Suite 202
Ft. Collins, Colorado 80525
(970) 207-1100
To date, there have been no waivers under our Code of Business Conduct and
Ethics. We intend to disclose any amendments to our Code of Business Conduct and
Ethics and any waiver from a provision of our Code of Business Conduct and
Ethics granted on a Form 8-K filed with the SEC within five business days
following such amendment or waiver.
Item 11. Executive Compensation.
- -------- -----------------------
The information required by Item 11 as to executive compensation is incorporated
by reference from our Definitive Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholders Matters.
- -------- --------------------------------------------------------------
The information required by Item 12 as to the security ownership of certain
beneficial owners and management and related stockholders matters is
incorporated by reference from our Definitive Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
The information required by Item 13 as to certain relationships and related
transactions is incorporated by reference from our Definitive Proxy Statement.
Item 14. Principal Accountant.
- -------- ---------------------
The information required by Item 14 as to principal accountant fees and services
is incorporated by reference from our Definitive Proxy Statement.
22
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
- -------- -------------------------------------------------------
(a) (1) List of Financial Statements Filed as a Part of This Report
-----------------------------------------------------------
Consolidated Balance Sheets as of June 30, 2004 and June 30, 2003.
Consolidated Statements of Operations for the years ended June 30, 2004, 2003,
and 2002.
Consolidated Statements of Stockholders' Deficit for the years ended June 30,
2004, 2003, and 2002.
Consolidated Statements of Cash Flows for the years ended June 30, 2004, 2003,
and 2002.
(a) (2) List of Financial Statement Schedules Filed as a Part of
This Report
--------------------------------------------------------
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts
(a) (3) Exhibits
--------
Exhibit
Number Document
- ------ --------
3.1 Articles of Incorporation dated December 13, 1989 of W W Capital
Corporation, a Nevada corporation (filed as Exhibit 3.2 to the
Company's Form 10-K for the year ended June 30, 1990 and is
hereby incorporated by reference).
3.2 Certificate and Amendment to Articles of Incorporation filed
December 21, 1990 with the Nevada Secretary of State (filed as
Exhibit 3.01 to the Company's Form 10-Q for the quarter ended
December 31, 1990 and is hereby incorporated by reference).
3.3 Bylaws of W W Capital Corporation (filed as Exhibit 3.2 to the
Company's Form 10-K for the year ended June 30, 1991 and is
hereby incorporated by reference).
10.1 Employee Stock Benefit Plan (filed as Exhibit 10.15 of Form 10-K
for the fiscal year ended June 30, 1992 and is hereby
incorporated by reference).
10.2 1992 Non-Qualified Stock Option Plan (filed as Exhibit 10.13 of
Form 10-K for the fiscal year ended June 30, 1993 and is hereby
incorporated by reference).
10.3 Lease agreement dated January 26, 2000 with an effective date at
time of occupancy, between W-W Manufacturing Co. Inc. (wholly
owned subsidiary of the Company) and Thomas Economic Development
Authority (filed as Exhibit 10.21 to the Company's Form 10-K for
the fiscal year ended June 30, 2000 and is hereby incorporated by
reference).
10.4 Stock Transfer and Exchange Agreement between the Registrant,
Titan Industries, Inc. and others (filed as Appendix I to the
Registrant's definitive Proxy Statement filed in conjunction with
the Registrant's Annual Meeting of Shareholders held January 5,
2001).
10.5 Loan Agreement dated January 5, 2001 between the Registrant and
West-OK Investment, LLC (filed as Appendix I to the Registrant's
definitive Proxy Statement filed in conjunction with the
Registrant's Annual Meeting of Shareholders held January 5,
2001).
23
10.6 Promissory Note dated September 20, 2001 given by the Registrant
to West-OK Investment, LLC (filed as Appendix I to the
Registrant's definitive Proxy Statement filed in conjunction with
the Registrant's Annual Meeting of Shareholders held January 5,
2001).
14.1 Code of Business Conduct and Ethics adopted as of October 7,
2004, filed herewith.
21.0 Subsidiaries of the Registrant filed herewith.
31.1 Certification of principal executive officer as required by
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2 Certification of principal financial officer as required by
Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of principal executive officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 filed herewith.
32.2 Certification of principal financial officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 filed herewith.
Item 15 (b)
- -----------
No reports on Form 8-K were filed during the fourth quarter of the fiscal year
covered by this report.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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: October 13, 2004 By: /s/ Harold Gleason
-------------------------------------
Harold Gleason, acting President, CEO
and Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: October 13, 2004 By: /s/ Harold Gleason
-------------------------------------
Harold Gleason, acting President, CEO
and Chairman
Dated: October 13, 2004 By: /s/ L.M. "Mick" McCarty
------------------------------------
L.M. "Mick" McCarty, Secretary,
Treasurer and Director
Dated: October 13, 2004 By: /s/ Millard T. Webster
------------------------------------
Millard T. Webster, Director
Dated: October 13, 2004 By: /s/ A. Randall Kourt
------------------------------------
A. Randall Kourt, Director
Dated: October 13, 2004 By: /s/ Tim Frymire
------------------------------------
Tim Frymire, Director
Dated: October 13, 2004 By: /s/ Michael S. Dick
------------------------------------
Michael S. Dick, Chief Financial
Officer
25
Exhibit 14.1
------------
CODE OF BUSINESS CONDUCT AND ETHICS
(AS APPROVED BY THE BOARD OF DIRECTORS)
THIS CODE APPLIES TO EVERY DIRECTOR, OFFICER (INCLUDING THE CHIEF EXECUTIVE
OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER), AND EMPLOYEE &
CERTAIN OUTSIDE ADVISORS & CONSULTANTS OF W-W CAPITAL CORPORATION (THE
"COMPANY").
To further the Company's fundamental principles of honesty, loyalty, fairness
and forthrightness, the Board of Directors of the Company (the "BOARD:") has
established and adopted this Code of Business Conduct and Ethics (this "CODE").
This Code strives to deter wrongdoing and promote the following six objectives:
o Honest and ethical conduct;
o Avoidance of conflicts of interest;
o Full, fair, accurate, timely and transparent disclosure; o Prompt internal
reporting of Code violations; o Accountability for compliance with the
Code; and
o Compliance with applicable government and self-regulatory organization
laws, rules and regulations.
Below, we discuss situations that require application of our fundamental
principles and promotion of our objectives. If you believe there is a conflict
between this Code and a specific procedure, please consult the Company's Board
of Directors for guidance.
Each of our directors, officers and employees & outside consultants/advisors is
expected to:
o understand the requirements of your position, including Company
expectations and governmental rules and regulation that apply to your
position;
o comply with this Code and all applicable laws, rules and regulations;
o report any violation of this Code of which you become aware; and
o be accountable for complying with this Code.
1
TABLE OF CONTENTS PAGE
======================================================================== ======
- ------------------------------------------------------------------------ ------
ETHICS ADMINISTRATOR 3
- ------------------------------------------------------------------------ ------
ACCOUNTING POLICIES 3
- ------------------------------------------------------------------------ ------
AMENDMENTS AND MODIFICATIONS OF THIS CODE 3
- ------------------------------------------------------------------------ ------
COMPLIANCE WITH LAWS, RULES AND REGULATIONS 3
- ------------------------------------------------------------------------ ------
CONFIDENTIAL INFORMATION BELONGING TO OTHERS 4
- ------------------------------------------------------------------------ ------
CONFIDENTIAL AND PROPRIETARY INFORMATION 4
- ------------------------------------------------------------------------ ------
CONFLICTS OF INTEREST 5
- ------------------------------------------------------------------------ ------
CORPORATE OPPORTUNITIES AND USE AND PROTECTION OF COMPANY ASSETS 6
- ------------------------------------------------------------------------ ------
DISCIPLINE FOR NONCOMPLIANCE WITH THIS CODE 6
- ------------------------------------------------------------------------ ------
DISCLOSURE POLICIES AND CONTROLS 7
- ------------------------------------------------------------------------ ------
FILING OF GOVERNMENT REPORTS 7
- ------------------------------------------------------------------------ ------
INSIDER TRADING OR TIPPING 7
- ------------------------------------------------------------------------ ------
INVESTOR RELATIONS AND PUBLIC AFFAIRS 8
- ------------------------------------------------------------------------ ------
RECORD RETENTION 9
- ------------------------------------------------------------------------ ------
REPORTING VIOLATIONS OF THIS CODE 9
- ------------------------------------------------------------------------ ------
WAIVERS 9
- ------------------------------------------------------------------------ ------
CONCLUSION 9
- ------------------------------------------------------------------------ ------
2
ETHICS ADMINISTRATOR
All matters concerning this Code shall be heard by the Board of Directors.
ACCOUNTING POLICIES
The Company will make and keep books, records and accounts, which in reasonable
detail accurately and fairly present the Company's transactions.
All directors, officers, employees and other persons are prohibited from
directly or indirectly falsifying or causing to be false or misleading any
financial or accounting book, record or account. You and others are expressly
prohibited from directly or indirectly manipulating an audit, and from
destroying or tampering with any record, document or tangible object with the
intent to obstruct a pending or contemplated audit, review or federal
investigation. The commission of, or participation in, one of these prohibited
activities or other illegal conduct will subject you to federal penalties, as
well as to punishment, up to and including termination of employment.
No director, officer or employee of the Company may directly or indirectly make
or cause to be made a materially false or misleading statement, or omit to
state, or cause another person to omit to state, any material fact necessary to
make statements made not misleading, in connection with the audit of financial
statements by independent accountants, the preparation of any required reports
whether by independent or internal accountants, or any other work which involves
or relates to the filing of a document with the Securities and Exchange
Commission ("SEC").
AMENDMENTS AND MODIFICATIONS OF THIS CODE
There shall be no amendment or modification to this Code except upon approval by
the Board of Directors.
In case of any amendment or modification of this Code that applies to an officer
or director of the Company, the amendment or modification shall be provided to
officers and directors within two days of the board vote or shall be otherwise
disclosed as required by applicable law or the rules of any stock exchange or
market on which the Company's securities are listed for trading.
COMPLIANCE WITH LAWS, RULES AND REGULATIONS
The Company's goal and intention is to comply with the laws, rules and
regulations by which we are governed. In fact, we strive to comply not only with
requirements of the law but also with recognized compliance practices. All
illegal activities or illegal conduct are prohibited whether or not they are
specifically set forth in this Code.
Where law does not govern a situation or where the law is unclear or
conflicting, you should discuss the situation with our CEO or the chairman of
the Board of Directors, who
3
may then direct you to our legal counsel. Business should always be conducted in
a fair and forthright manner. Directors, officers and employees are expected to
act according to high ethical standards.
CONFIDENTIAL INFORMATION BELONGING TO OTHERS
You must respect the confidentiality of information, including, but not limited
to, trade secrets and other information given in confidence by others, including
but not limited to partners, suppliers, contractors, competitors or customers,
just as we protect our own confidential information. However, certain
restrictions about the information of others may place an unfair burden on the
Company's future business. For that reason, directors, officers and employees
should coordinate with the CEO to ensure appropriate agreements are in place
prior to receiving any confidential third-party information. In addition, any
confidential information that you may possess from an outside source, such as a
previous employer, must not, so long as such information remains confidential,
be disclosed to or used by the Company. Unsolicited confidential information
submitted to the Company should be refused, returned to the sender where
possible and deleted, if received via the Internet.
CONFIDENTIAL AND PROPRIETARY INFORMATION
It is the Company's policy to ensure that all operations, activities and
business affairs of the Company and our business associates are kept
confidential to the greatest extent possible. Confidential information includes
all non-public information that might be of use to competitors, or that might be
harmful to the Company or its customers if disclosed. Confidential and
proprietary information about the Company or its business associates belongs to
the Company, must be treated with strictest confidence and is not to be
disclosed or discussed with others.
Unless otherwise agreed to in writing, confidential and proprietary information
includes any and all methods, inventions, improvements or discoveries, whether
or not patentable or copyrightable, and any other information of a similar
nature disclosed to the directors, officers or employees of the Company or
otherwise made known to the Company as a consequence of or through employment or
association with the Company (including information originated by the director,
officer or employee). This can include, but is not limited to, information
regarding the Company's business, products, processes, and services. It also can
include information relating to research, development, inventions, trade
secrets, intellectual property of any type or description, data, business plans,
marketing strategies, engineering, contract negotiations and business methods or
practices.
The following are examples of information that is not considered confidential:
o information that is in the public domain to the extent it is readily
available;
o information that becomes generally known to the public other than by
disclosure by the Company or a director, officer or employee; or
o information you receive from a party that is under no legal obligation of
confidentiality with the Company with respect to such information.
4
We have exclusive property rights to all confidential and proprietary
information regarding the Company or our business associates. The unauthorized
disclosure of this information could destroy its value to the Company and give
others an unfair advantage. You are responsible for safeguarding Company
information and complying with established security controls and procedures. All
documents, records, notebooks, notes, memoranda and similar repositories of
information containing information of a secret, proprietary, confidential or
generally undisclosed nature relating to the Company or our operations and
activities made or compiled by the director, officer or employee or made
available to you prior to or during the term of your association with the
Company, including any copies thereof, unless otherwise agreed to in writing,
belong to the Company and shall be held by you in trust solely for the benefit
of the Company, and shall be delivered to the Company by you on the termination
of your association with us or at any other time we request.
CONFLICTS OF INTEREST
Conflicts of interest can arise in virtually every area of our operations. A
"conflict of interest" exists whenever an individual's private interests
interfere or conflict in any way (or even appear to interfere or conflict) with
the interests of the Company. We must strive to avoid conflicts of interest. We
must each make decisions solely in the best interest of the Company. Any
business, financial or other relationship with suppliers, customers or
competitors that might impair or appear to impair the exercise of our judgment
solely for the benefit of the Company is prohibited.
Here are some examples of conflicts of interest:
o FAMILY MEMBERS--Actions of family members may create a conflict of
interest. For example, gifts to family members by a supplier of the Company
are considered gifts to you and must be reported. Doing business for the
Company with organizations where your family members are employed or that
are partially or fully owned by your family members or close friends may
create a conflict or the appearance of a conflict of interest. For purposes
of this Code "family members" includes any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, and adoptive relationships.
o OUTSIDE EMPLOYMENT--Officers and employees may not participate in outside
employment, self-employment, or serve as officers, directors, partners or
consultants for outside organizations, if such activity:
o reduces work efficiency;
o interferes with your ability to act conscientiously in our best
interest; or
o requires you to utilize our proprietary or confidential
procedures, plans or techniques.
5
You must inform your supervisor or the CEO of any outside employment, including
the employer's name and expected work hours.
You should report any actual or potential conflict of interest involving
yourself or others of which you become aware to your supervisor or our CEO.
Officers and directors should report any actual or potential conflict of
interest involving yourself or others of which you become aware to the chairman
of the Board of Directors.
CORPORATE OPPORTUNITIES AND USE AND PROTECTION OF COMPANY ASSETS
You are prohibited from:
o taking for yourself, personally, opportunities that are
discovered through the use of Company property, information or
position;
o using Company property, information or position for personal
gain; or
o competing with the Company.
You have a duty to the Company to advance its legitimate interests when the
opportunity to do so arises.
You are personally responsible and accountable for the proper expenditure of
Company funds, including money spent for travel expenses or for customer
entertainment. You are also responsible for the proper use of property over
which you have control, including both Company property and funds and property
that customers or others have entrusted to your custody. Company assets must be
used only for proper purposes.
Company property should not be misused. Company property may not be sold, loaned
or given away regardless of condition or value, without proper authorization.
Each director, officer and employee should protect our assets and ensure their
efficient use. Theft, carelessness and waste have a direct impact on the
Company's profitability. Company assets should be used only for legitimate
business purposes.
DISCIPLINE FOR NONCOMPLIANCE WITH THIS CODE
Disciplinary actions for violations of this Code can include oral or written
reprimands, suspension or termination of employment or a potential civil lawsuit
against you. The violation of laws, rules or regulations, which can subject the
Company to fines and other penalties, and may result in your criminal
prosecution.
6
DISCLOSURE POLICIES AND CONTROLS
The continuing excellence of the Company's reputation depends upon our full and
complete disclosure of important information about the Company that is used in
the securities marketplace. Our financial and non-financial disclosures and
filings with the SEC must be transparent, accurate and timely. Proper reporting
of reliable, truthful and accurate information is a complex process involving
cooperation between many departments and disciplines. We must all work together
to insure that reliable, truthful and accurate information is disclosed to the
public.
The Company must disclose to the SEC, current security holders and the investing
public information that is required, and any additional information that may be
necessary to ensure the required disclosures are not misleading or inaccurate.
The Company requires you to participate in the disclosure process, which is
overseen by our CEO and principal accounting officer. The disclosure process is
designed to record, process, summarize and report material information as
required by all applicable laws, rules and regulations. Participation in the
disclosure process is a requirement of a public company, and full cooperation
and participation by our CEO, principal accounting officer and, upon request,
other employees in the disclosure process, is a requirement of this Code.
Officers and employees must fully comply with their disclosure responsibilities
in an accurate and timely manner or be subject to discipline of up to and
including termination of employment.
FILING OF GOVERNMENT REPORTS
Any reports or information provided, on our behalf, to federal, state, local or
foreign governments should be true, complete and accurate. Any omission,
misstatement or lack of attention to detail could result in a violation of the
reporting laws, rules and regulations.
INSIDER TRADING OR TIPPING
Directors, officers and employees who are aware of material, non-public
information from or about the Company (an "INSIDER"), are not permitted,
directly or through family members or other persons or entities, to:
o buy or sell securities (or derivatives relating to such
securities) of the Company, or
o pass on, tip or disclose material, nonpublic information to
others outside the Company including family and friends.
Such buying, selling or trading of securities may be punished by discipline of
up to and including termination of employment; civil actions, resulting in
penalties of up to three times the amount of profit gained or loss avoided by
the inside trade or stock tip, or criminal actions, resulting in fines and jail
time.
7
Examples of information that may be considered material, non-public information
in some circumstances are:
o undisclosed annual, quarterly or monthly financial results, a
change in earnings or earnings projections, or unexpected or
unusual gains or losses in major operations;
o undisclosed negotiations and agreements regarding mergers,
concessions, joint ventures, acquisitions, divestitures, business
combinations or tender offers; undisclosed major management
changes;
o a substantial contract award or termination that has not been
publicly disclosed; a major lawsuit or claim that has not been
publicly disclosed;
o the gain or loss of a significant customer or supplier that has
not been publicly disclosed; an undisclosed filing of a
bankruptcy petition by the Company;
o information that is considered confidential; and any other
undisclosed information that could affect our stock price.
The same policy also applies to securities issued by another company if you have
acquired material, nonpublic information relating to such company in the course
of your employment or affiliation with the Company.
When material information has been publicly disclosed, each insider must
continue to refrain from buying or selling the securities in question until the
third business day after the information has been publicly released to allow the
markets time to absorb the information.
INVESTOR RELATIONS AND PUBLIC AFFAIRS
It is very important that the information disseminated about the Company be both
accurate and consistent. For this reason, all matters relating to the Company's
internal and external communications are handled by our CEO. Our CEO is solely
responsible for public communications with shareholders, analysts and other
interested members of the financial community. Our CEO is also solely
responsible for our marketing and advertising activities and communication with
employees, the media, local communities and government officials. Our CEO serves
as the Company's spokesperson in both routine and crisis situations.
We will not allow retaliation against an employee for reporting a possible
violation of this Code in good faith. Retaliation for reporting a federal
offense is illegal under federal law and prohibited under this Code. Retaliation
for reporting any violation of a law, rule or regulation or a provision of this
Code is prohibited. Retaliation will result in discipline, up to and including
termination of employment, and may also result in criminal prosecution. However,
if a reporting individual was involved in improper activity the individual may
be appropriately disciplined even if he or she was the one who disclosed the
matter to the Company. In these circumstances, we may consider the conduct of
the reporting individual in reporting the information as a mitigating factor in
any disciplinary decision.
8
RECORD RETENTION
The alteration, destruction or falsification of corporate documents or records
may constitute a criminal act. Destroying or altering documents with the intent
to obstruct a pending or anticipated official government proceeding is a
criminal act and could result in large fines and a prison sentence of up to 20
years. Document destruction or falsification in other contexts can result in a
violation of the federal securities laws or the obstruction of justice laws.
REPORTING VIOLATIONS OF THIS CODE
You should be alert and sensitive to situations that could result in actions
that might violate federal, state, or local laws or the standards of conduct set
forth in this Code. If you believe your own conduct or that of a fellow employee
may have violated any such laws or this Code, you have an obligation to report
the matter.
Generally, you should raise such matters with our CEO who may, if a law, rule or
regulation is in question, then refer you to our legal counsel. The most
important point is that possible violations should be reported and we support
all means of reporting them.
Directors and officers should report any potential violations of this Code to
the chairman of the Board of Directors or to our legal counsel.
WAIVERS
There shall be no waiver of any part of this Code for any director or officer
except by a vote of the Board of Directors. In case a waiver of this Code is
granted to a director or officer, the notice of such waiver shall be disclosed
as required by applicable law or the rules of any stock exchange or market on
which the Company's securities are listed for trading.
CONCLUSION
This Code is an attempt to point all of us at the Company in the right
direction, but no document can achieve the level of principled compliance that
we are seeking. In reality, each of us must strive every day to maintain our
awareness of these issues and to comply with the Code's principles to the best
of our abilities. Before we take an action, we must always ask ourselves:
o Does it feel right?
o Is this action ethical in every way?
o Is this action in compliance with the law?
o Could my action create an appearance of impropriety?
o Am I trying to fool anyone, including myself, about the propriety
of this action?
9
If an action would elicit the wrong answer to any of these questions, do not
take it. We cannot expect perfection, but we do expect good faith. If you act in
bad faith or fail to report illegal or unethical behavior, then you will be
subject to disciplinary procedures. We hope that you agree that the best course
of action is to be honest, forthright and loyal at all times.
10
Exhibit 21.0
SUBSIDIARIES OF THE REGISTRANT
W-W Manufacturing Co., Inc.
Incorporated in the state of Kansas
EXHIBIT 31-1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AS REQUIRED BY SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Harold Gleason, Chairman, acting President and Chief Executive Officer of W W
Capital Corporation, certify that:
1. I have reviewed the annual report on Form 10-K filed by W W
Capital Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I am responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a. designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of this
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: October 13, 2004 By: /s/ Harold Gleason
-----------------------
Harold Gleason, Chairman, acting
President and Chief Executive Officer
EXHIBIT 31-2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER AS REQUIRED BY SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Michael S. Dick, Chief Financial Officer of W W Capital Corporation, certify
that:
1. I have reviewed the annual report on Form 10-K filed by W W
Capital Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I am responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a. designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of this
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: October 13, 2004 By: /s/ Michael S. Dick
---------------------------------------
Michael S. Dick, Chief Executive Officer
EXHIBIT 32-1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of W W Capital Corporation
(the "Company") for the period ending June 30, 2004 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Harold Gleason,
Chairman, acting President and Chief Executive Officer of the Company, certify,
based on my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: October 13, 2004 By: /s/ Harold Gleason
-----------------------------------
Harold Gleason, Chairman, acting
President and Chief Executive Officer
EXHIBIT 32-2
CERTIFICATION OF OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of W W Capital Corporation
(the "Company") for the period ending June 30, 2004 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Michael S. Dick,
Chief Financial Officer of the Company, certify, based on my knowledge, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: October 13, 2004 By: /s/ Michael S. Dick
----------------------------------------
Michael S. Dick, Chief Financial Officer