10-Q 1 wwc10q-301.txt QUARTERLY REPORT FOR MARCH 31, 2001 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission File No. 0-17757 W-W CAPITAL CORPORATION (exact name of Registrant as specified in its charter) Nevada 93-0967457 (State or other jurisdiction of (IRS Employer Identi- incorporation or organization) fication Number) 3500 JFK Parkway Suite 202 Ft. Collins, CO 80525 (Address of principal executive offices, including zip code) (970) 207-1100 (Registrant's telephone number, including area code) Not Applicable (Former name, address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes _X_ No ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___ NOT APPLICABLE _X_ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of Each Class Number of Shares Outstanding ------------------- at August 10, 2001 Common stock ----------------------------- $0.01 Par Value 5,553,827 W-W CAPITAL CORPORATION Index PART I FINANCIAL INFORMATION PAGE NO. ------ --------------------- -------- Item 1 Balance Sheets March 31, 2001 and June 30, 2000 1 Statements of Income Three and Nine Months Ended March 31, 2001 and 2000 3 Statements of Cash Flows Nine Months Ended March 31, 2001 and 2000 5 Notes to Financial Statements 7 Independent Accountants Report 10 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION ------- ----------------- Item 1 LEGAL PROCEEDINGS 14 Item 2 CHANGES IN SECURITIES 14 Item 3 DEFAULTS UPON SENIOR SECURITIES 14 Item 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 14 Item 5 OTHER INFORMATION 14 Item 6 EXHIBITS AND REPORT ON FORM 8-K 14 SIGNATURES 15 Part 1-FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS -----------------------------

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See accompanying notes to financial statements. 6 W-W CAPITAL CORPORATION ----------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- NOTE 1 - BASIS OF PRESENTATION ------------------------------ The accompanying unaudited financial statements include the accounts of W-W Capital Corporation (the Company) and its three wholly-owned subsidiaries W-W Manufacturing Co., Inc., Titan Industries, Inc., and Eagle Enterprises, Inc. All significant intercompany accounts and transactions have been eliminated. In January 2001, the Company sold its water and environmental product segment, Titan Industries, Inc.. The Company's consolidated financial statements have been restated to reflect the segment as a discontinued operation for all periods presented. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and changes in cash flows in conformity with generally accepted accounting principles for full-year financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to W-W Capital Corporation's financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2000. In the opinion of management, all adjustments (consisting of normal recurring accrual basis adjustments) considered necessary for a fair presentation have been reflected in the accompanying financial statements. Operating results for the three and nine month periods ended March 31, 2001, are not necessarily indicative of the result that may be expected for the year ended June 30, 2001 NOTE 2 - NET BASIC EARNINGS PER SHARE ------------------------------------- The net basic earnings per share amount included in the accompanying statement of operations have been computed using the weighted-average number of shares of common stock outstanding and the dilative effect, if any, of common stock equivalents existing during the applicable three and nine month periods. NOTE 3 - RELATED PARTY TRANSACTION ---------------------------------- The Company has a number of related party transactions. See the footnotes to W-W Capital Corporation financial statements for the year ended June 30, 2000, included in its Annual Report on Form 10-K for the nature and type of related party transactions. 7 A summary of the related party transactions that effect the Company's statement of operations for the three and nine months ended March 31, 2001 and 2000, respectively, is as follows: Three Months Ended Nine Months Ended March 31, March 31, --------- --------- Transactions with ----------------- Related parties 2001 2000 2001 2000 --------------- ---- ---- ---- ---- Rent Expense $ 15,000 $ 15,000 $ 45,000 $ 40,000 NOTE 4 - CREDIT AGREEMENT ------------------------- During March 2001, the Company extended the maturity date of the revolving notes payable credit agreement with Wells Fargo Bank through October 2004. Borrowing base limitations and loan agreement covenants remain unchanged. NOTE 5 - DISCONTINUED OPERATION ------------------------------- On January 5, 2001, the Shareholders of the Company voted to sell its water and environmental product segment, Titan Industries, Inc., to certain shareholders of the Company in exchange for 3,390,399 shares, or approximately 61.2%, of the common stock of the Company. In addition to giving up its interest in Titan, the Company also contributed to the capital of Titan the sum of $850,000 used to equalize the value of the consideration being exchanged. The sale is being accounted for as a treasury stock transaction and the estimated loss on disposal is the result of professional fees attributable to the transaction. The accompanying financial statements have been restated to conform to discontinued operations treatment for all historical periods presented. The operating results of the discontinued operation is as follows: Six Months Ended December 31, ------------ 2000 1999 ---- ---- Net Sales $ 4,699,336 $ 4,071,064 =========== =========== Earnings (loss) before provision for income taxes $ 147,219 $ (7,728) Provision for income taxes 59,000 -- ----------- ----------- Earnings (loss) from discontinued operations $ 88,219 $ (7,728) =========== =========== 8 Assets and liabilities of the discontinued operation is summarized as follows: December 31, June 30, 2000 2000 ---- ---- Cash $ 105,473 $ 96,986 Receivables 1,258,184 1,579,784 Inventories 2,551,495 2,537,367 Prepaid expenses 18,151 30,540 Deferred taxes 22,000 22,000 ---------- ---------- Current assets of discontinued operations 3,955,303 4,266,677 ---------- ---------- Net property and equipment 909,224 870,047 ---------- ---------- Accounts payable 1,405,448 1,731,932 Accrued liabilities 181,004 138,494 Short-term debt 1,065,000 57,000 ---------- ---------- Current liabilities of discontinued operations 2,651,452 1,927,426 ---------- ---------- Long-term debt 290,466 1,330,200 Deferred taxes 25,000 25,000 ---------- ---------- Non-current liabilities of discontinued operations 315,466 1,355,200 ---------- ---------- Net assets of discontinued operations $1,897,609 $1,854,098 ========== ========== During January 2001, the Company entered into an informal loan agreement with an affiliated investment group to borrow $1,000,000. 2,448,000 shares of the Company's outstanding common stock collateralize the loan. Loan proceeds of $750,000 were used to fund the capital contribution to Titan Industries, Inc. The informal note agreement is tentatively scheduled to mature in January 2011 and bears interest at 12%. The note is payable with one payment consisting exclusively of twelve month's interest on the second anniversary date, and beginning on the third anniversary date, annual installments of $125,000 plus all unpaid interest. NOTE 6 - SUBSEQUENT EVENT ------------------------- During April 2001, The Company started leasing its new facility in Thomas, Oklahoma under a capital lease obligation. As a result, the Company will capitalize the building and land for $1,046,380 and the building will be amortized over 30 years. 9 Independent Accountant's Report ------------------------------- Board of Directors and Stockholders W-W Capital Corporation Fort Collins, Colorado We have reviewed the accompanying balance sheets, statements of operations, and cash flows of W-W Capital Corporation and consolidated subsidiaries as of March 31, 2001, and for the three month and nine month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. BROCK AND COMPANY, CPAs, P.C. Fort Collins, Colorado July 2, 2001 10 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. ------ ----------------------------------------------------------------------- The business of the Company is carried on within two segments by a number of operating units. The livestock handling equipment segment is composed of W-W Manufacturing (W-W Manufacturing), Eagle Enterprises (Eagle) and W-W Paul Scales (Paul), and the water and environmental product segment is represented by Titan Industries (Titan). On January 5, 2001, the Shareholders of the Company voted to sell Titan to certain shareholders of the Company. The accompanying financial statements, as well as management's discussion and analysis of financial condition and results of operations, have been stated to reflect discontinued operations treatment for all historical periods presented. (A) Analysis of Results of Operations --------------------------------- The Company had net earnings from continuing operations of $106,598 for the nine months ended March 31, 2001, as compared to $265,942 for the same period of 2000. For the three month period ended March 31, 2001, the Company had net earnings of $54,657 as compared to $85,714 for the same period of 2000. This loss of earnings was attributable to transition costs associated with the plant shut down in Dodge City, Kansas and the opening of the new plant in Thomas, Oklahoma. Sales from continuing operations increased to $10,348,242 for the nine months ended March 31, 2001, compared to $8,432,082 for 2000. The increase of $1,916,160 is attributable to improved cattle prices, therefore creating strong distributor/dealer demand, as well as the Company's efforts in the equine (horse) equipment market and expanded product offerings in rodeo and special product sales. The Company continues to make improvements to various existing products and is planning on introducing some significant changes in the summer of 2001. Sales increased at both the W-W Manufacturing and Eagle plant locations. Sales at the W-W Manufacturing location increased slightly from $5,806,310 to $5,909,367 for the same nine-month period of 2000 and 2001. Sales increased at the Eagle plant to $2,707,247 for the nine months ended March 31, 2001 as compared to $2,559,620 for the same period of 2000. The Company also realized sales from the Paul location of $1,731,628 for the nine months ended March 31, 2001. Based on present economic conditions throughout the United States, the Company anticipates sales to decrease during the fourth quarter of fiscal 2001. The Company is attempting to limit the effect of the economic slowdown by continuing to analyze existing product improvements and new product introductions which have allowed the Company to gain acceptance with new customers and move into markets not normally serviced by the Company. The east coast market serviced by Eagle continues to show improvement, as this market accepts and appreciates a higher quality of equipment, replacing the lighter weight products previously offered. The eastern market has seen the most significant improvements in the rodeo and equine equipment lines. The Company is presently involved in several projects, which includes special sales to expo centers, fairs and livestock shows, as well as projects in the international market. The Company expects to see this area of sales improve throughout 2001. With the completion of the new plant in Thomas, Oklahoma during the first quarter of 2001, the Company has incurred significant costs for moving operations from Dodge City, Kansas and the training of new employees in Oklahoma. This increase in cost impaired profits for the third quarter of fiscal 2001 and management anticipates that the costs will impair profits throughout the balance of fiscal 2001. The Company kept both the Dodge City and Thomas plants operating as the move was taking place. It is anticipated that operations will be running at full operating levels by June 30, 2001, at which time management believes the Company will start realizing the benefits of the new plant and the cost reductions that are anticipated with the move completed. 11 Gross margins from continuing operations decreased for the nine months ended March 31, 2001 to 19.3% as compared to 21.1% in 2000. The decreased margins are the result of labor, shipping and manufacturing problems in the Dodge City facility due the closing of the plant. Many products during the nine month period ended March 31, 2001 had to be built in Thomas, Oklahoma due to labor shortages in Dodge City and the availability of the power coat paint system in Thomas. These products then had to be shipped to Dodge City for painting and then reshipped to our distributors/dealers. These extra costs, along with other manufacturing insufficiencies in Dodge City and additional costs associated with the start up of the new Thomas plant caused the decrease in margins. Management expects gross margins to improve after the consolidation of the two plants into the new facility in Thomas, Oklahoma. The move took place during the third quarter of fiscal 2001 and operations are expected to be in full swing by the first quarter of fiscal 2002. Gross margins at the Eagle plant continue to improve as the plant utilization continues and sales increase in the eastern market. Gross profits improved at the Eagle plant to $478,380 or 17.7% for the nine months ended March 31, 2001 as compared to $344,504 or 13.5% for the same period of 2000. Selling expenses from continuing operations as a percentage of sales decreased from 8.7% in 2000 to 7.3% in 2001. Total dollars expended for selling expense increased only $17,918 during the nine month period ended March 31, 2001. The slight increase reveals the Company's cost will remain stable while sales continue to improve. The Company will continue its aggressive pursuit of new markets and expanding its distributor/dealer base. Through the balance of the fiscal year, management will continue to evaluate selling expense to find ways to keep costs in line as a percentage of sales, as we continue to grow markets and market share with new products. General and administrative expense from continuing operations increased as a percentage of sales to 9.6% as compared to 7.1% for the same period of 2000. Overall dollars spent on general and administrative expenses increased $400,302 for the nine months ended March 31, 2001 as compared to the same period of 2000. The increase was due to higher salaries, legal and accounting costs related to the changes in business structure and the increase of travel costs nationwide. The overall dollar increase was also a result of the addition of Paul by $119,332. The Company will continue to find ways to lower general and administrative expense through the use of centralization, job realignment, and line-by-line expense reductions. The Company also believes that general and administrative expenses will also decrease due to the fact that the business structure changes were completed during the third quarter of fiscal 2001 and a majority of the legal and accounting fees were finalized at that time. Interest expense from continuing operations increased for the nine months ended March 31, 2001 to $197,287 from $122,228 for the same period of 2000. Interest expense from continuing operations for the three months ended March 31, 2001 increased to $84,025 from $42,416 for the same three-month period of 2000. This increase is due to the rise in the prime interest rate for the first six months of fiscal 2001 and the heavy borrowing on the revolving lines to support the Titan split-off and manufacturing plant move. The Company maintained higher levels of inventory while moving from Dodge City to Thomas in an effort to maintain sales levels while in transit. As profits and cash flow increase, the Company plans to reduce debt, thereby reducing overall interest expense. 12 (B) Liquidity and Capital Resources ------------------------------- The Company's principal sources of liquidity are borrowings under its credit facilities and from internally generated funds. The Company generated funds from operations with net earnings of $114,817 and produced a traditional cash flow from operations of $268,206. This cash flow and funds from an operating line increase of $566,983 were used to fund the sales growth and the resulting inventory and accounts receivable increase. The Company anticipates keeping a high level of borrowings throughout the fourth quarter of fiscal 2001 due to the plant move from Dodge City to Thomas and the current economic slowdown throughout the country. As the Company moves into fiscal 2002, it anticipates that continued sales growth along with the cost saving benefits associated with the new Thomas plant will help level off and reduce borrowings. The Company used cash in investing activities for the purchase of new property and equipment. Overall purchases of property and equipment increased for the nine months ended March 31, 2001 to $254,495 from $45,736 for the same nine months ended March 31, 2000. The increased purchases are a result of the Company providing equipment for the new Thomas plant. Cash used in financing activities resulted in an increase in borrowings of $651,154 for the nine months ended March 31, 2001, and the Company anticipates overall debt to increase slightly over the balance of fiscal 2001. Based on current and general economic conditions, the Company anticipates a reduction in both sales and profits for the fourth quarter of fiscal 2001. The production plant move from Dodge City, Kansas to Thomas, Oklahoma has had a negative effect on profitability, however management believes that the benefits of the move will be felt throughout fiscal 2002 and thereafter. Management also believes that with net cash provided from cash flow, available lines of credit, and funds provided from earnings, it will have adequate sources to meet its current obligations. 13 PART II OTHER INFORMATION ----------------- ITEM 1. LEGAL PROCEEDINGS ----------------- Not Applicable ITEM 2. CHANGES IN SECURITIES --------------------- Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- Not Applicable ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS -------------------------------------------------- Not Applicable ITEM 5. OTHER INFORMATION ----------------- Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- Not Applicable 14 Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. W W CAPITAL CORPORATION (Registrant) Dated: August 10, 2001 By: /s/ Steve D. Zamzow ----------------------------------- Steve D. Zamzow, President & CEO Dated: August 10, 2001 By: /s/ Mike Dick ----------------------------------- Mike Dick, Controller 15

W W CAPITAL CORP 10-Q