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, 2002
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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Common stock, $.01 par value 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.
Yes X No
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(Continued on next page)
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Company on November 15, 2002 (1,746,258 shares of common stock) was $17,463 (*)
based on the average of the bid and asked prices ($0.010 per share) as quoted on
the over the counter market.
The number of shares outstanding of each of the Company's sales of common stock,
as of November 15, 2002 was:
Common Stock, 2,008,164 Shares
$.01 par value
*This value is not intended to make any representation as to the value or worth
of the Company's shares of common stock. The number of shares held by
non-affiliates of the Company has been calculated by subtracting shares held by
controlling persons of the Company from the shares issued by the Company and
outstanding.
Documents Incorporated by Reference:
The Registrant hereby incorporates herein by reference the following documents:
Part III
Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
The foregoing are incorporated by reference from the Registrant's definitive
Proxy Statement relating to its annual meeting of stockholders, which will be
filed in an amendment within 120 days of June 30, 2002.
Item 13. Exhibits:
1. Incorporated by reference from the Company's Annual Report on Form 10-K for
the year ended June 30, 1990.
2. Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1991.
3. Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1991.
4. Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1992.
5. Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1993.
6. Incorporated by reference from the Registrant's definitive Proxy Statement
filed in conjunction with the Registrants' Annual Meeting of Shareholders
held January 5, 2001.
2
Forward-Looking Statements:
- ---------------------------
In addition to historical information, this Annual Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective. The forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, competitive pressures, changing economic conditions,
factors discussed in the section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations", and other factors, some of
which will be outside the control of management. Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Readers should refer to and
carefully review the information described in future documents the Company files
with the Securities and Exchange Commission.
3
W W CAPITAL CORPORATION
FORM 10-K
PART I
Item 1. Business
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(a) General Development of Business
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W W Capital Corporation ("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 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 was
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 16, 1988, the Company acquired 100% of the outstanding shares of W-W
Manufacturing Co., Inc. ("W-W") 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 manufactures a full line of cattle and equine
handling and confinement equipment for use by farmers, ranchers, rodeos, and
universities throughout the United States.
W-W'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 was incorporated in the State of Kansas.
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
("Eagle"), whereby the Company would issue to Eagle common stock, in exchange
for all the outstanding stock of Eagle. The consummation of the Eagle Exchange
Agreement was subject to
4
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 (Jerry Bellar) received 325,000 shares of W W Capital Corporation 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. The company is presently located in a 40,000 square foot facility on
11 1/2 acres in Livingston, Tennessee. The Company's primary products are creep,
bunk, mineral and round bale feeders for livestock. The Company also
manufactures livestock panels and gates along with two versions of headgates.
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.
During October 1998, the Board of Directors unanimously approved the merger of
W-W Manufacturing and Eagle Enterprises into one legal entity.
On March 21, 2000, W-W Manufacturing, a wholly owned subsidiary of the Company,
acquired various assets and assumed various liabilities of the Adrian J. Paul
Company, (renamed W-W Paul Scales) 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.
W-W Paul Scales operates as a subsidiary of W-W Manufacturing and is currently
doing business in a 35,000 square foot facility leased under a two year
agreement. The Company's primary functions are the manufacture of livestock
scales.
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. The transaction had an effective date of December
31, 2000. In addition to giving up its 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 continuing business of the Company is carried on within one segment by three
operating units, each with its own organization. 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 executive staff from
the corporate headquarters located at 3500 JFK Parkway, Suite 202, Ft. Collins,
Colorado. As of June 30, 2002, the Company and its segments had approximately
150 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.
5
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 57-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 equipment. With the acquisition of Eagle Enterprises,
October 1992, the Company has experienced growth with this segment. Eagle had
manufactured all types of livestock feeding equipment and various containment
systems similar to that manufactured by W-W Manufacturing. The Eagle line of
products is primarily distinguished from W-W Manufacturing's products by a
purchase decision that is primarily motivated/driven by pricing considerations.
Since the purchase of Eagle, the Company eliminated some of its line of feeding
equipment which had not been profitable. By elimination of these products, Eagle
has the manufacturing capacity to produce the majority of W-W Manufacturing line
of products, thus improving its delivery time to dealer/distributors in the
east, and southeastern United States. The Eagle plant was realigned to
complement the W-W Manufacturing line of products and all products will be sold
under the W-W Manufacturing name. This is significant since the W-W line has a
long-term (57 years) reputation as an industry leader and manufacturing of
quality equipment. Now that the W-W Manufacturing line is manufactured at Eagle,
Eagle has reintroduced a redesigned feeding line to meet customer needs and
enabling Eagle to produce it profitably. This reintroduction has helped Eagle
reclaim sales levels that were lost when the feeding line was dropped as well as
pick up new sales from customers previously handling the W-W Manufacturing line
only. The redesigned feeding line has been introduced into the midwest and west
markets and is now being manufactured at W-W Manufacturing. Feed equipment has
proven to be a lower margin product line but continues to sell during depressed
market conditions and is used as a lead in product to gain new customers
acceptance for the traditional higher margin W-W working equipment line.
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 targeted at expanding the dealer/distributor network throughout the
entire United States.
The Company will continue 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 new horse stalls have been
marketed through the distributor network already established by the Company.
6
With the acquisition of Adrian J. Paul Scales in March 2000 the Company entered
the new market of livestock scales. These scales 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 existing W-W distributor/dealer network. Also
the W-W line of products is being offered and sold by the distributors and
dealers of theW-W Paul Scale Company. The Company is in the process of
developing several new scales that will compliment and work interrelated with
the W-W cattle line of chutes.
Cost of distribution of products has and will continue to be a problem for the
customers and the Company. To help lower this cost, the Company needs to
continue to find ways to fill trucks with a variety of products. With the
reintroduction of the feed equipment, and other horse related products, the
Company believes these products will help reduce its distribution cost and
provides its customer the opportunity to carry more items with less depth of
inventory.
Management believes these developments are key to the success of the Company's
future expansion, and intends to continue to increase its dealer/distributor
network vigorously. 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. Eagle Enterprises, is located at 175 Windle Community Road,
Livingston, Tennessee. W-W Paul Scales is located at Hwy 81 South, Duncan,
Oklahoma.
Competition
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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 2002 and 2001,
management invested in new equipment, did extensive training, scheduled many
live demonstrations, improved plant efficiencies, introduced new product
improvements and new products, in order to maintain its competitive edge.
Strategy for Growth
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Growth is anticipated in two areas. First, the Company will continue to expand
the distributor/dealer network throughout the country. Future growth will,
however, be constrained by availability of capital resources and continuing good
market conditions.
Diversification into related product areas now served by the Company could
afford a second area for growth. Management believes W-W Manufacturing's 57 year
old 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 help
distributors/dealers to sell product to the end consumer.
7
OTHER INFORMATION RELATIVE TO THE BUSINESS
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Patents and Trademarks
- ----------------------
With the purchase of the Adrian J. Paul Company, the livestock handling
equipment segment, has acquired various patents. These patents are all current
and registered with the United States Patent 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.
Seasonality
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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.
Practice Relating to Working Capital
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The information relating to this Item is included under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Dependence Upon a Single Customer
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Not Applicable
Dollar Amount of Backlog Orders
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Backlog in the livestock handling equipment group was $750,000 in 2002 as
compared to $824,000 in 2001. This decrease from 2001 is due to depressed
economic conditions and the extraordinary hot and dry summer. This is expected
to improve as we move into the fall season.
Business Subject to Renegotiation at Election of Government
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Not Applicable
Research and Development Expenditures
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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
the overall operating cost.
Compliance with Environmental Controls
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The Company has faced issues with the EPA regarding its paint systems located at
various plants. The problems with the Dodge City, Kansas and temporary Thomas,
Oklahoma plants were solved with the powder coat paint system that was installed
in the new plant in Thomas, Oklahoma, which has passed all EPA requirements. In
the Eagle plant located in Livingston, Tennessee, the Company was issued a
temporary paint operating permit through December 31, 2001. By that time, the
Company was to be in compliance with the VOC's and HAP's emitted due to the
present flow coat paint system and to install a powder coat paint system. Over
the past two years, management has worked with various paint suppliers to come
up with a solution that solved the problem of emissions in the air thereby
lowering the VOC's to an acceptable level and meet other governmental
guidelines. Management has located the majority of the powder coat system to be
installed and has placed a $175,000 refundable deposit on the system. Management
has been in contact with the EPA offices and is presently negotiating an
extension of its' current permit until the new powder coat system is installed.
To the best of its knowledge, the Company believes that it is presently in
substantial compliance with all other existing environmental laws.
8
Item 2. Properties
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The Company's corporate headquarters is located at 3500 JFK Parkway, Suite 202,
in Ft. Collins, Colorado, and is 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.
Eagle Enterprises 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.
W-W Paul Scales 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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The Company is attempting to recover, through legal action, an accounts
receivable balance of approximately $268,500, plus accrued interest, from a
single customer that is in default of credit terms. Management believes it is
reasonably possible it will collect the balances due.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted for a vote of security holders of the Company during
the fourth quarter of the fiscal year ended June 30, 2002.
9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matter
- ------- --------------------------------------------------------------------
Market Information High Bid Low Bid
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Quarter ended
- -------------
September 30, 2000 $0.500 $0.080
December 31, 2000 0.500 0.070
March 31, 2001 0.063 0.063
June 30, 2001 0.063 0.063
September 30, 2001 $0.010 $0.010
December 31, 2001 0.010 0.010
March 31, 2002 0.010 0.010
June 30, 2002 0.010 0.010
The Company's common stock is listed on the over-the-counter market and trades
under the symbol "WWCL".
Holders
- -------
As of November 15, 2002 the Company had approximately 509 record holders of its
common stock, not including some individuals holding shares in street name.
Dividends
- ---------
The Company did not pay dividends during 2002 or 2001 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.
10
Item 6. Selected Financial Data
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Year ended June 30
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SUMMARY OF OPERATIONS (A)
-------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net Sales 12,652,044 13,092,869 12,210,587 9,108,446 8,988,176
Gross Profit Margin 2,920,538 2,278,452 2,492,566 1,774,109 1,711,749
Operating Earnings (Loss) 243,481 (95,939) 456,463 164,026 157,055
Interest Expense 338,248 296,265 171,124 164,755 195,616
Operating Expense 2,677,057 2,374,391 2,036,103 1,610,083 1,554,694
Earnings(Loss)
From Continuing Operations 54,464 (247,455) 271,600 46,925 4,655
Net Earnings (Loss) 54,464 (174,136) 338,777 104,808 87,420
PER SHARE DATA
--------------
Earnings(Loss)
From Continuing Operations .03 (.05) .05 .01 .02
Dividends
per Common Share .00 .00 .00 .00 .00
Weighted Average
Shares Outstanding 2,008,164 3,725,881 5,420,397 5,420,397 5,520,397
FINANCIAL CONDITION
-------------------
Total Assets 6,435,564 6,322,810 6,651,737 5,781,655 5,606,381
Fixed Assets (Net) 2,155,188 2,351,435 1,089,280 1,174,409 1,268,605
Long-Term Debt 4,186,666 4,087,665 1,521,418 1,606,879 1,117,818
Stockholders Equity 5,150 (49,314) 2,953,995 2,615,218 2,510,410
Working Capital (B) 2,003,747 1,676,546 1,627,455 1,174,058 481,657
Current Ratio (C) 2.00 1.80 1.80 1.75 1.24
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. The year ended 1998 reflects a reclassification of debt from short-term to long-term due to the renewal of its bank lines
for longer than one year.
C. Percent of current assets to current liabilities.
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------- ---------------------------------------------------------------
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.
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.
2002 2001 2000
---- ---- ----
Total revenues $ 12,652,044 100.0% $ 13,092,869 100.0% $ 12,210,587 100.0%
Cost of revenues 9,731,506 76.9 10,814,417 82.6 9,718,021 79.6
------------ ----- ------------ ----- ------------ -----
Gross profit 2,920,538 23.1 2,278,452 17.4 2,492,566 20.4
Selling, general, and administrative
expense 2,677,057 21.2 2,374,391 18.1 2,036,103 16.7
------------ ----- ------------ ----- ------------ -----
Operating earnings (loss) 243,481 1.9 (95,939) (0.7) 456,463 3.7
Other income (expense) 174,631 1.3 103,206 0.8 36,261 0.3
Interest expense (338,248) (2.6) (296,265) (2.3) (171,124) (1.4)
------------ ----- ------------ ----- ------------ -----
Earnings (loss) before income taxes 79,864 0.6 (288,998) (2.2) 321,600 2.6
Income taxes from continuing
operations (25,400) (0.2) 41,543 0.3 (50,000) (0.4)
------------ ----- ------------ ----- ------------ -----
Net earnings (loss) from continuing
operations 54,464 0.4 (247,455) (1.9) 271,600 2.2
Net earnings of discontinued operations -- 0.0 73,319 0.6 67,177 0.6
------------ ----- ------------ ----- ------------ -----
Net earnings (loss) $ 54,464 0.4% $ (174,136) (1.3)% $ 338,777 2.8%
============ ===== ============ ===== ============ =====
Depreciation and amortization $ 258,974 2.0% $ 221,491 1.7% $ 188,472 1.5%
============ ===== ============ ===== ============ =====
On January 5, 2001, the Shareholders of the Company voted to sell it's 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. The transaction had an effective date of December
31, 2000. In addition to giving up its 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 the loss on disposal of $14,900 was the result of
professional fees attributable to the transaction.
As a result of the sale of Titan, the accompanying financial statements have
been restated for the years presented to reflect proper accounting treatment for
discontinued operations. The reader should be aware that the management
discussion and analysis for all years presented have been restated to include
only discussion of the livestock equipment segment. Sales in the water and
environmental product segment, disposed of during 2001, were $4,699,336 for the
six month period ended December 31, 2000 and $9,053,166 for the year ended June
30, 2000. Gross margins as a percentage of sales decreased during the six month
period ended December 31, 2000 to 14.3% as compared to 17.2% in fiscal 2000.
Total selling expenses as a percentage of sales decreased from 6.1% for fiscal
2000 to 4.8% for the six month period ended December 31, 2000. General and
administration expense as a percentage of sales also dropped from 7.6% at fiscal
2000 to 6.5% for the six month period ended December 31, 2000. Total interest
expense for the six month period ended December 31, 2000 was $80,659 and
$145,481 for fiscal 2000.
12
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 sale of Titan Industries 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 felt with the opening of the new Thomas plant. It is believed
that as operations stabilize at the new plant, that production efficiencies will
also continue to improve during fiscal 2003.
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 Livingston, Tennessee location 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 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. The Company is
continuing its effort to remodel and update the Livingston location in order to
house their own powder coat paint system. Sales at the W-W Paul 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, then shipping 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. The Company is planning promotions and specials in an effort to
maintain or improve sales levels through the new year. The Company continues to
introduce new additions to the product line, along with analyzing improvements
to existing products, which will help increase sales due to exposure in related
markets.
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 are the result of
labor, shipping and manufacturing efficiencies realized at the new plant during
the last six months of the fiscal year. Management anticipates keeping gross
margins in line as the Company begins to feel the effects of the new plant. The
Company continues to seek improvements through manufacturing system analysis as
well as price adjustments.
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. With the completion of the new Thomas plant and purchase of a
powder coat paint system, the Company feels it can expand into markets not
previously covered. Management continues to evaluate selling expense to seek
ways of keeping costs in line as a percentage of sales.
13
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. Management is continuing
collection efforts and believes it is reasonably possible it will collect the
balance due. Overall dollars spent for general and administrative cost, not
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 spin off during fiscal 2001. The Company continues
to look for ways to lower general and administrative expense through
centralization, job realignment, and line-by-line expense reductions.
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. As profits and cash flow increase, the Company plans to reduce debt,
thereby reducing overall interest expense.
Fiscal Year Ended June 30, 2001 Compared to Fiscal Year Ended June 30, 2000.
The Company had a net loss of $174,136 for the year ended June 30, 2001 as
compared to net earnings of $338,777 for the year ended June 30, 2000. The net
loss is attributed to several factors with the most notable being the cost to
move the largest production plant, formally in Dodge City, Kansas, to its new
modern facility in Thomas, Oklahoma. Moving expenses incurred of approximately
$112,000 included the loading, transporting and unloading of inventory and
equipment, training of new employees, relocation expenses for certain employees,
payroll expenses running dual plants during the four month moving process, set
up costs for the new plant and the cost to clean up the old plant in Dodge City.
Prior to moving, the Company incurred significant expense in training Oklahoma
employees by having them spend time in Dodge City, Kansas working with those
employees to learn the production process needed at the new plant in Oklahoma.
The cost related to this training was approximately $42,000. Other expenses
relating to the loss were costs associated to the sale of Titan Industries
during the year of $14,900 and other unrelated legal expenses of approximately
$78,000. Lower margins were also affected by costs at the new plant immediately
following the move due to the production flow inefficiencies and the learning
process of some of the new employees. Had the Company not incurred these
expenses management believes the Company would have continued to be profitable
for the fiscal year ending June 30, 2001.
Sales improved to $13,092,869 for the fiscal year ended June 30, 2001 as
compared to $12,210,587 for the same period of 2000. This increase of $882,282,
or 7.2%, is due to WW Paul Scales recording twelve months of sales for the year
compared to only four months for fiscal 2000.
Sales at the W-W Manufacturing location in Thomas, Oklahoma, which includes
sales at the Dodge City, Kansas location that was moved during a four month
process of February through May of 2001 to Thomas, decreased from $8,384,438 in
fiscal 2000 to $7,727,463 for the fiscal year ended June 30, 2001. This decrease
of $656,975 was primarily due to production down time during the move and
sluggish economic conditions experienced during the last quarter of the fiscal
year. Sales at the Livingston, Tennessee location declined slightly from
$3,604,068 in fiscal 2000 to $3,448,948 for the fiscal year ended June 30, 2001.
The decrease of $155,120 was due to slow sales during late spring into early
summer. Despite the sluggish economy, the Company planned promotions and
specials in an effort to maintain or improve sales levels through the fall and
winter selling season. The Company introduced new additions to the product line
along with product improvements throughout 2002. Also, management entered into a
marketing agreement to sell related products not presently produced by the
Company to enhance its equine product line. The Company believes the addition of
these outside products will help increase sales of its own products due to
increased exposure in related markets. With the completion of the new plant in
Thomas, Oklahoma the Company now has a production facility that will add
significant production capacity therefore allowing for an aggressive marketing
plan to be put in place.
14
Gross margins decreased from 20.4% in fiscal 2000 to 17.4% in fiscal 2001. This
decrease of 3.0% is due several factors with the primary factor being increased
labor cost of running both plants while moving from Dodge City, Kansas to
Thomas, Oklahoma. During the moving process, the Company continued operations at
the old plant in Dodge City while gearing up operations at the new plant in
Thomas, Oklahoma. The entire moving process took approximately four months to
complete and excess labor was used to have both plants producing products while
additional labor was needed for the moving process of loading and unloading
material and equipment at both plants. Another factor contributing to the
decrease in gross margins was the production inefficiencies at the new plant
while employees were learning their jobs and production flows could be
established.
Selling expense as a percentage of sales remained relatively constant in fiscal
2001 at 7.8% as compared to 7.9% in the same period of fiscal 2000. The Company
continued its aggressive marketing approach directed at developing new
distributors/dealers in areas not previously covered. With the new plant and
powder coat paint system, the Company has a competitive advantage with a
superior product and feels it can attack new markets that it could not in
previous years.
General and administrative expenses increased as a percentage of sales from 8.8%
in fiscal 2000 to 10.3% for the fiscal year ended June 30, 2001. This increase
was due primarily to legal fees, higher management travel costs related to the
move from Dodge City, Kansas to Thomas, Oklahoma, and other start up costs
related to the new plant.
Interest expense increased in fiscal 2001 to $296,265 as compared to $171,124 in
2000. This increase is due to higher borrowing on the Companies revolving line
of credit to cover plant moving costs, accrued interest on the note payable used
to finance the sale of its water and environmental segment, Titan Industries,
and the addition of the capital lease on the new production facility in Thomas,
Oklahoma. As the Company settles into its new plant and inventory levels off,
the Company anticipates that borrowing on its revolving line will be reduced to
normal levels.
Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30, 1999.
The Company had net earnings of $338,777 for the year ended June 30, 2000, as
compared to $104,808 for the same period of 1999. The Company has exhausted net
operating losses carried over from prior years, therefore, the financial
statements reflect income tax expense from continuing operations of $50,000 for
the year ended June 30, 2000, as compared to no tax expense in 1999. On a
comparison basis, earnings before income taxes and discontinued operations were
$321,600 for the year ended June 30, 2000 as compared to $46,925 for the year
ended June 30, 1999. The improvement in earnings was due to the overall increase
in sales, higher gross margins, and by strong market acceptance of new products.
Total sales reached a record level of $12,210,587 for the fiscal year ended June
30, 2000, as compared to $9,108,446 for the same period of 1999 representing an
increase of $3,102,141 or 34.1%. Sales at the Dodge City location increased
$1,824,409 and by $810,599 at the Livingston, Tennessee plant. Part of the
increase in sales for the livestock segment is due to the purchase of the Adrian
J. Paul Scale Company, later renamed W-W Paul Scales on March 21, 2000. Of the
total livestock equipment segment, sales by W-W Paul Scales represented $467,133
or 3.8% of total sales and 15.1% of the increase in sales.
Sales in the livestock equipment segment improved to $12,210,587 as stated
earlier. The increase of $3,102,141 is attributable to many factors including
the purchase of the Adrian J. Paul Company. The assets of this company were
purchased out of bankruptcy on March 21, 2000 and accounted for as a purchase.
The name of the company subsequent to the acquisition has been changed to W-W
Paul Scales. Sales reported from the purchase date through the fiscal year end
of June 30, 2000 amounted to $467,133. Other factors attributing to the sales
increase is the continued effort of the sales staff to find new
distributors/dealers throughout the upper Midwest and western states. Sales were
dramatically increased at the eastern plant (Livingston, Tennessee) due to one
of the Company's larger customers acquiring a competitor in the southeastern
part of the United States. Sales also improved due to the strong acceptance of
the Company's
15
equine products. Cattle product sales in all markets continue to
improve due to the strong cattle prices and an overall strong economy. Special
sales to expo centers, universities and fairgrounds also contributed to the
year's record sales. The Company continues to increase sales efforts in this
market, since it is an area the Company feels has tremendous growth
opportunities. Sales at the Dodge City plant improved due to the production
support from the hydraulic plant in Oklahoma. With the past and continued labor
problems and production inefficiencies in the Dodge City plant, some of the
production had to be moved to Oklahoma until the new plant in Thomas is
complete. As reported in Fiscal 1999, management has successfully reached an
agreement with the Economic Development Authority of Thomas, Oklahoma to
construct a new modern facility to house the consolidation of the Dodge City
facility and temporary Thomas location. The facility will be owned by the City
of Thomas and the Company will lease/purchase it over a twenty-year term.
Gross margins in the livestock handling equipment segment improved to 20.4% in
fiscal 2000 compared to 19.5% in 1999. The improvement was realized despite the
labor and production problems that persist at the Dodge City location. To combat
these problems, the Company has used the other production facilities in Oklahoma
to help produce product and ship to Dodge City for paint and distribution to
customers. With these steps taken, the Company was able to introduce new
products and expand some existing lines, which enabled sales to increase,
thereby improving gross margins.
Selling expenses as a percentage of sales decreased to 7.9% in fiscal 2000 as
compared to 9.3% in 1999. This decrease was due to the significant increase in
sales without the related increase in expense. The total dollars expended on
selling expense did increase from $847,566 in 1999 to $963,904 in 2000. This
increase was due to higher travel cost related to higher fuel prices, lodging
costs, and airline fares. The Company had expected to spend more dollars on
introducing new products and expanding product lines into new markets not
previously serviced. The increased sales expense is a direct effect of the
aggressive sales and marketing plan maintained by the Company over previous
years, and new sales personnel added.
General and administration expense increased from 8.4% as a percentage of sales
in 1999 to 8.8% in fiscal 2000. The total dollars spent on general and
administration expenses increased from $762,517 in 1999 to $1,072,199 in fiscal
2000. This increase was attributed to the write off of accounts receivables,
costs of start-up activities at the Adrian J. Paul Company and professional
fees.
Interest expense increased slightly in fiscal 2000 to $171,124 from $164,755 for
the same period of 1999. This increase of $6,369 is directly related to the
raise in the prime interest rate, and increase costs of carrying higher
inventories and accounts receivable resulting from the growth in sales.
Inflation:
Inflation has not been a significant factor in net income in recent years
because of the relatively modest rate of price increases in the United States.
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 improved for the year
ended June 30, 2002 to $2,003,747 as compared to $1,676,546 for June 30, 2001.
16
The Company consumed funds from operations of $88,724 primarily caused by an
increase in net accounts receivable balances. The provision for loss on the
write off of accounts receivables amounted to $306,328 in fiscal 2002 as
compared to $28,212 for the year ended June 30, 2001. This increase is due to
the write down of a large account that is in default of credit terms. The
Company is vigorously trying to collect this receivable and believes it is
reasonably possible that it will succeed.
The Company used cash in investing activities for the purchase and replacement
of property and equipment. Cash used in investing activities decreased to
$37,124 for the year ended June 30, 2002 compared to $105,364 for the same
period of 2001. Cash purchases for property and equipment decreased $136,928
from $179,306 in 2001 to $42,378 in 2002. This decrease reflects the significant
amounts invested in property and equipment during the move into the new plant in
Thomas, Oklahoma in 2001.
Net cash provided from financing activities resulted in a net increase in
borrowing on its revolving credit line of $150,882. This increase was necessary
to fund the Titan split-off, the manufacturing plant move and the slow down in
sales due to current economic conditions felt throughout the country. As the
Company moves into fiscal 2003 it anticipates that borrowing under its revolving
line will decrease as operations at the new production plant in Oklahoma become
more efficient and overall cash flow improves.
The Company amended its three-year loan arrangement with its principal lender,
Wells Fargo Business Credit, during the year, increasing its upper borrowing
limits in case it was needed to supply the present and future growth of the
Company. Terms and conditions of the agreement were not altered significantly
from the original term agreement, therefore providing adequate lines to meet
current and future needs. Another of the Company's lending institutions, Gold
Bank of Weatherford, Oklahoma, agreed to refinance existing debt into a new loan
on equipment in Duncan, Oklahoma and to loan on certain rental real estate
purchased in Thomas, Oklahoma. All other banking and credit agreements were
satisfactorily maintained throughout fiscal 2002.
Even with the weakened economic climate and the tragedy of September 11, 2001,
the Company has been able to maintain sales at reasonable levels. Gross margins
may be weakened due to increased promotional costs and discount incentives used
to maintain sales levels. Despite these facts, the Company does anticipate
continued profitable operations during fiscal 2003.
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, 2002, the Company had
variable rate notes payable of approximately $2,643,000. 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
$26,000.
17
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, 2002 and
June 30, 2001. . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years
ended June 30, 2002, 2001 and 2000 . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 2002, 2001 and 2000 . . . . . . F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 2002, 2001 and 2000 . . . . . . . . . . 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.
18
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, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years ended June 30, 2002. 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 auditing standards generally
accepted in the United States of America. 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, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years ended June 30,
2002, in conformity with accounting principles generally accepted in the United
States of America.
BROCK AND COMPANY, CPAs, P.C.
Fort Collins, Colorado
October 21, 2002
F-1
W W CAPITAL CORPORATION
Consolidated Balance Sheets
=======================================================================================
June 30 2002 2001
- ---------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 137,948 $ 216,473
Accounts receivable, trade, net of allowance for doubtful
accounts of $275,000 in 2002 and $35,000 in 2001 1,729,161 1,547,584
Accounts receivable, other 162,703 67,975
Inventories 1,790,304 1,729,322
Prepaid expenses 35,632 50,168
Current portion of notes receivable, related parties 603 554
Deferred income tax asset 149,500 150,100
---------- ----------
Total current assets 4,005,851 3,762,176
---------- ----------
Property and Equipment, net of accumulated
depreciation of $2,135,406 in 2002 and
$1,927,259 in 2001 2,155,188 2,351,435
---------- ----------
Other Assets
Long-term notes receivable, related parties,
net of current portion 20,470 21,073
Loan acquisition costs, net of accumulated amortization
of $3,075 in 2002 and $43,574 in 2001 37,925 6,139
Equipment deposits 175,000 175,000
Other assets 41,130 6,987
---------- ----------
Total other assets 274,525 209,199
---------- ----------
Total assets $6,435,564 $6,322,810
========== ==========
The accompanying Notes are an integral part of the
consolidated financial statements
F-2
W W CAPITAL CORPORATION
Consolidated Balance Sheets (continued)
================================================================================================
June 30 2002 2001
- ------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 1,373,803 $ 1,423,041
Accrued payroll and related taxes 198,887 177,474
Accrued property taxes 10,400 15,950
Accrued interest payable 80,106 62,361
Other current liabilities 24,908 121,804
Current portion of notes payable 239,000 220,000
Current portion of capital lease obligation 75,000 65,000
----------- -----------
Total current liabilities 2,002,104 2,085,630
----------- -----------
Long-Term Liabilities
Long-term notes payable, net of current portion 2,966,693 2,806,268
Long-term capital lease obligations, net of current portion 1,219,973 1,281,397
Deferred income tax liability 179,900 155,100
Negative goodwill, net of accumulated amortization of
$5,466 in 2002 and $3,124 in 2001 61,744 43,729
----------- -----------
Net long-term liabilities 4,428,310 4,286,494
----------- -----------
Total liabilities 6,430,414 6,372,124
----------- -----------
Commitments and Contingency -- --
Stockholders' Equity (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 2002 and 2001 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (476,806) (531,270)
----------- -----------
2,884,265 2,829,801
Less 3,545,663 shares of treasury stock at June 30, 2002
and 2001, at cost (2,879,115) (2,879,115)
----------- -----------
Net stockholders' equity (deficit) 5,150 (49,314)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 6,435,564 $ 6,322,810
=========== ===========
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 2002 2001 2000
- ------------------------------------------------------------------------------------------------
Net Sales $ 12,652,044 $ 13,092,869 $ 12,210,587
Cost of Goods Sold 9,731,506 10,814,417 9,718,021
------------ ------------ ------------
Gross profit 2,920,538 2,278,452 2,492,566
------------ ------------ ------------
Operating Expenses
Selling expenses 1,152,475 1,023,040 963,904
General and administrative expenses 1,524,582 1,351,351 1,072,199
------------ ------------ ------------
Total operating expenses 2,677,057 2,374,391 2,036,103
------------ ------------ ------------
Income (Loss) From Operations 243,481 (95,939) 456,463
------------ ------------ ------------
Other Income (Expense)
Interest income 7,569 35,060 19,903
Interest expense (338,248) (296,265) (171,124)
Gain on property and equipment 4,700 45,438 1,144
Other income, net 162,362 22,708 15,214
------------ ------------ ------------
Net other income (expense) (163,617) (193,059) (134,863)
------------ ------------ ------------
Earnings (Loss) Before Income Taxes 79,864 (288,998) 321,600
Income Tax Benefit (Expense) From
Continuing Operations (25,400) 41,543 (50,000)
------------ ------------ ------------
Earnings (loss) from continuing
operations 54,464 (247,455) 271,600
------------ ------------ ------------
Discontinued Operations
Earnings from operations of Titan
Industries disposed of (net of income
taxes of $59,000 at June 30,
2001 and $12,000 at June 30, 2000) -- 88,219 67,177
Loss on disposal of Titan Industries -- (14,900) --
------------ ------------ ------------
Earnings of discontinued operations -- 73,319 67,177
------------ ------------ ------------
Net earnings (loss) $ 54,464 $ (174,136) $ 338,777
============ ============ ============
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 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
Earnings Per Common Share
Basic
Earnings (loss) from continuing operations $ 0.03 $ (0.05) $ 0.05
Earnings from discontinued operations 0.00 0.02 0.01
Loss on disposal of Titan Industries 0.00 (0.02) 0.00
------------ ------------- ------------
Net earnings (loss) $ 0.03 $ (0.05) $ 0.06
============ ============= ============
Weighted average number of
common shares outstanding 2,008,164 3,725,881 5,420,397
Diluted
Earnings (loss) from continuing operations $ 0.03 $ (0.05) $ 0.05
Earnings from discontinued operations 0.00 0.02 0.01
Loss on disposal of Titan Industries 0.00 (0.02) 0.00
------------ ------------- ------------
Net earnings (loss) $ 0.03 $ (0.05) $ 0.06
============ ============= ============
Weighted average number of
common shares outstanding 2,008,164 3,725,881 5,420,397
The accompanying Notes are an integral part of the
consolidated financial statements
F-5
W W CAPITAL CORPORATION
Consolidated Statements of Stockholders' Equity
===================================================================================================================================
Years ended June 30, 2002, 2001 and 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Treasury Stock
----------------------- Capital -------------------------- Total
Number of Par In Excess Accumulated Number of Stockholders'
Shares Value of Par Value Deficit Shares Cost Equity
----------- --------- ----------- ----------- ----------- ----------- -----------
Balance, July 1, 1999 5,540,661 $ 55,406 $ 3,304,629 $ (695,911) (120,264) $ (48,906) $ 2,615,218
Net earnings for year ended
June 30, 2000 -- -- -- 338,777 -- -- 338,777
----------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 5,540,661 55,406 3,304,629 (357,134) (120,264) (48,906) 2,953,995
Exercise of stock options 13,166 132 904 -- -- -- 1,036
Treasury stock redeemed in sale of
Titan Industries, Inc. -- -- -- -- (3,390,399) (2,812,709) (2,812,709)
Treasury stock redeemed in sale
of inventory -- -- -- -- (35,000) (17,500) (17,500)
Net loss for year ended
June 30, 2001 -- -- -- (174,136) -- -- (174,136)
----------- --------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2001 5,553,827 55,538 3,305,533 (531,270) (3,545,663) (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) (3,545,663) $(2,879,115) $ 5,150
=========== ========= =========== =========== =========== =========== ===========
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 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net earnings (loss) $ 54,464 $ (174,136) $ 338,777
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by operating activities
Earnings from discontinued operations -- (43,511) (67,177)
Depreciation 249,760 203,059 170,040
Amortization 9,214 18,432 18,432
Gain on dispositions of property
and equipment (4,700) (45,438) (1,144)
Provision for loss on accounts and
notes receivable 306,328 28,212 193,090
Amortization of negative goodwill (2,343) (2,343) (781)
Write down of inventory to net realizable value 15,469 52,826 97,418
Net changes in assets and liabilities
Accounts receivable (487,905) (201,153) (402,489)
Inventories (76,451) (16,340) (148,083)
Other current and non-current assets (85,192) (82,704) 5,133
Accounts payable, accrued expenses and
other current liabilities (67,368) 206,757 (101,795)
------------ ------------ ------------
Net cash provided (used) by operating
activities (88,724) (56,339) 101,421
------------ ------------ ------------
Cash Flows From Investing Activities
Proceeds from sale of property and equipment 4,700 73,435 93,519
Purchases of property and equipment (42,378) (179,306) (157,593)
Proceeds from stockholders' notes receivable 554 507 466
Cash acquired in acquisition of subsidiary -- -- 14,988
------------ ------------ ------------
Net cash used in investing activities (37,124) (105,364) (48,620)
------------ ------------ ------------
Cash Flows From Financing Activities
Borrowings on notes payable 12,168,450 11,966,434 10,955,779
Payments on notes payable (12,017,568) (11,700,110) (10,846,664)
Payments on capital leases (62,559) (37,982) (18,270)
Payment of loan acquisition costs (41,000) -- --
Proceeds from the exercise of stock options -- 1,036 --
Repurchase of common stock -- (165,100) --
------------ ------------ ------------
Net cash provided by financing activities 47,323 64,278 90,845
------------ ------------ ------------
Net Increase (Decrease) in Cash (78,525) (97,425) 143,646
------------ ------------ ------------
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 2002 2001 2000
- ------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash $ (78,525) $ (97,425) $ 143,646
Cash, Beginning of year 216,473 313,898 170,252
----------- ----------- -----------
Cash, End of year $ 137,948 $ 216,473 $ 313,898
=========== =========== ===========
Supplemental Information
Cash paid during the year for interest $ 320,502 $ 248,084 $ 167,096
Cash paid during the year for income taxes $ 5,835 $ 50,677 $ --
Installment loans and capital leases to acquire
property and equipment $ 11,135 $ 1,313,904 $ 19,693
Installment loan to acquire residential
rental property $ 28,542 $ -- $ --
Liabilities assumed to acquire subsidiary $ -- $ -- $ 383,990
Installment loans used for deposits on purchase
of property and equipment $ -- $ 175,000 $ --
Installment loans used for the repurchase
of common stock $ -- $ 750,000 $ --
Treasury stock acquired in sale of inventory $ -- $ 17,500 $ --
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, 2002
================================================================================
Note 1 - Summary of Significant Accounting Policies
Nature of Operations. W W Capital Corporation and its
wholly-owned subsidiaries (the Company) principally engage in the
manufacture, distribution and sale of a wide range of livestock
confinement and handling equipment, and in the processing, purchasing
and distributing of water and environmental products.
Basis of Presentation. The accompanying consolidated financial
statements include the accounts of W W Capital Corporation and all of
its wholly-owned subsidiaries, W-W Manufacturing Co., Inc. (W-W
Manufacturing) and Titan Industries, Inc. (Titan). W-W Manufacturing
Co. acquired WW Paul Scales on March 21, 2000. The accounts of WW Paul
Scales, since its acquisition, are included in the consolidated
financial statements. 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. 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.
Allowance for Doubtful Accounts. The Company uses the allowance
method of accounting for bad debts. The allowance for bad debts is
based on estimates and it is reasonably possible they 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, 2002
================================================================================
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. Future warranty
costs are not considered significant to the financial statements as
most warranty work, if any, is generally performed shortly after the
sale.
Negative Goodwill. 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. The Company is amortizing
negative goodwill using the straight-line method over a 20-year life.
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. The change in
accounting principle will be recognized on July 1, 2002 with an
increase in income of $61,744.
Stock-Based Compensation. The Company applies the provisions of
Statement of Financial Accounting Standards Board Statement No. 123
(FAS 123), "Accounting for Stock-Based Compensation." The Statement
defined a fair value based method of accounting for stock options or
similar equity instruments. FAS 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. FAS 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 relate
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, 2002, 2001 and 2000 was $145,639, $137,045 and
$85,795, 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 antidilutive.
F-10
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 2 - Related Party Transactions
Receivables. Notes receivable from stockholders and all
affiliated entities consisted of the following at June 30:
2002 2001
---------- ----------
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. $21,073 $21,627
Less current portion (603) (554)
------- -------
$20,470 $21,073
======= =======
During the years ended June 30, 2002, 2001 and 2000, the
Company recorded interest income of $1,897, $1,946 and $1,993 for the
notes receivable from related parties.
Operating Lease. The Company leased its manufacturing facility
in Dodge City, Kansas, from Murle F. Webster, a stockholder, on a month
to month basis. The lease required monthly payments of $5,000 through
April 2001 and monthly payments of $500 for May and June 2001. The
Company closed the Dodge City, Kansas location during 2001. The
provisions of the building lease required the Company to pay insurance,
property taxes and maintenance costs.
The Company has entered into the transactions with related
parties as disclosed above during the three-year period ended June 30,
2002. The Company has not attempted to determine whether any or all of
such transactions have been consummated on terms equivalent to those
that would have prevailed in arm's length transactions.
Note 3 - Inventories
Inventories consisted of the following at June 30:
2002 2001
------------- --------------
Raw materials $ 528,110 $ 658,943
Work-in-process 418,334 436,237
Finished goods 843,860 634,142
----------- -----------
$ 1,790,304 $ 1,729,322
=========== ===========
During the fourth quarter of 2002, 2001 and 2000, the Company
evaluated its inventories for impairment. The inventory value was
written down by $15,469, $52,826 and $97,418, respectively, to estimate
net realizable value of impaired items. The write down is recorded in
cost of goods sold. It is reasonably possible that estimates of net
realizable value may change in the near term.
F-11
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 4 - Property and Equipment
Property and equipment consisted of the following at June 30:
2002 2001
------------ ------------
Land and improvements $ 102,622 $ 102,622
Building and improvements 1,844,031 1,844,031
Leasehold improvements 89,372 76,510
Machinery and equipment 1,512,123 1,493,411
Automobiles and trucks 417,770 448,402
Office equipment 324,676 313,718
----------- ------------
4,290,594 4,278,694
Less accumulated depreciation and amortization (2,135,406) (1,927,259)
----------- ------------
$ 2,155,188 $ 2,351,435
=========== ============
Note 5 - Discontinued Operation
On January 5, 2001, the stockholders of the Company voted to
sell its water and environmental product segment, Titan Industries,
Inc., to certain stockholders of the Company in exchange for 3,390,399
shares, or approximately 61.2%, of the outstanding common stock of the
Company. The transaction had an effective date of December 31, 2000. In
addition to giving up its 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 the loss on disposal of $14,900 was
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 results of the discontinued operation is as follows:
For the period
from July 1, For the
2000 through year ended
December 31, June 30,
2000 2000
-------------- ------------------
Net Sales $ 4,699,336 $ 9,053,166
========== ============
Earnings before provision for income taxes $ 147,219 $ 79,177
Provision for income taxes (59,000) (12,000)
Loss on disposal of Titan Industries (14,900) -
------------ -------------
Earnings from discontinued operation $ 73,319 $ 67,177
============ =============
During January 2001, the Company borrowed $750,000 under a
loan agreement with an affiliated investment group. The loan proceeds
were used to partially fund the capital contribution to Titan
Industries, Inc. The loan is collateralized by 2,448,000 shares of the
Company's treasury stock.
F-12
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 6 - 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, 2002, 2001, and 2000, the Company made
$25,430, $11,877 and $7,289 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, 2002,
options to purchase 773,500 shares of common stock are available to be
granted by the Company under the plan. These options have a three-year
vesting period.
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
122,668 are outstanding as of June 30, 2002. Options to purchase 10,000
and 3,166 shares of common stock for $0.0625 and $0.13 per share were
exercised during 2001. These options vest immediately and expire ten
years after issuance.
Number of Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding, July 1, 1999 (all vested) 400,168 $0.8600
Granted 30,000 0.0625
Exercised -- --
Cancelled -- --
-------- -------
Outstanding, June 30, 2000 (all vested) 430,168 0.8000
Granted 10,000 0.0625
Exercised (13,166) 0.0800
Cancelled (110,334) 0.7900
-------- -------
Outstanding, June 30, 2001 (all vested) 316,668 0.8100
Granted -- --
Exercised -- --
Cancelled (17,500) 2.5000
-------- -------
Outstanding, June 30, 2002 (all vested) 299,168 $0.7200
======== =======
F-13
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 6 - Employee Benefit Plans (continued)
Options Outstanding Vested Options
-------------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Vested Price
---------- ----------- ------------ ------------ -------- ------------
$1.5000 50,000 0.7 $1.5000 50,000 $1.5000
0.8125 16,001 1.0 0.8125 16,001 0.8125
0.7500 143,167 1.9 0.7500 143,167 0.7500
0.5625 20,000 3.0 0.5625 20,000 0.5625
0.3000 10,000 6.0 0.3000 10,000 0.3000
0.1300 10,000 5.0 0.1300 10,000 0.1300
0.0625 50,000 5.9 0.0625 50,000 0.0625
-------- ---- -------- -------- --------
299,168 2.6 $0.7200 299,168 $0.7200
======= ==== ======= ======= =======
Note 7 - Long-Term Debt
Long-term debt consists of the following at June 30:
2002 2001
-------------- ------------
Financial Institutions
Revolving note payable bears interest at 3.0% above the Bank's
base rate (total interest rate of 7.75% at June 30, 2002). The note is
subject to various conditions described below and provides for the
issuance of $2,200,000 of revolving credit debt. The agreement matures
in October 2004. $1,570,875 $1,448,452
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. 142,939 179,165
Note payable bears interest at 8.0% and is due in monthly
installments of $2,505, including principal and interest, through
September 2004, at which time the remaining principal balance is due.
The note is collateralized by machinery and equipment located in
Duncan, Oklahoma. 106,899 -
Term note payable bears interest at 4% over the Bank's base rate
(total interest rate of 8.75% at June 30, 2002). The note is due in
monthly principal installments of $4,021 plus interest through April
2003. The note is collateralized by equipment, inventory, intangibles
and receivables. 60,047 118,384
F-14
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 7 - Long-Term Debt (continued)
2002 2001
----------- ----------
Notes payable bearing interest at rates ranging from 7.6% to 8.9%
and are due in monthly installments, including principal and interest,
totaling $2,219 through February 2003, and $1,744 through February
2005. The notes are collateralized by vehicles $ 53,052 $ 74,021
Note payable bears interest at 8.0% and is due in monthly
installments, including principal and interest, of $312 through August
2006, at which time the remaining principal balance is due. The note
is collateralized by rental property in Thomas, Oklahoma 27,291 --
Note payable bears interest at 8.5% and is due in monthly
installments, including principal and interest, of $522 through
December 2004. The note is collateralized by a vehicle 13,990 18,733
Notes paid in full during 2002 -- 129,758
----------- -----------
1,975,093 1,968,513
----------- -----------
Other Entities
Note payable bears interest at 3.0% above the Wall Street prime
lending rate (total interest rate of 7.75% at June 30, 2002). The note
is payable with one payment consisting exclusively of twelve month's
unpaid accrued interest on the second anniversary date, January 2003.
The remaining balance is due in monthly principal installments of
$10,541 commencing in February 2003 plus interest through December
2010. The note is collateralized by 2,448,000 shares of the Company's
treasury stock 1,011,981 750,000
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 213,523 242,777
Note payable bears interest at 5.25% and is due in quarterly
installments, including principal and interest, of $675. The note is
unsecured 5,096 7,452
Notes paid in full during 2002 -- 57,526
----------- -----------
1,230,600 1,057,755
----------- -----------
3,205,693 3,026,268
Less current portion (239,000) (220,000)
----------- -----------
$ 2,966,693 $ 2,806,268
=========== ===========
F-15
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 7 - Long-Term Debt (continued)
A revolving note payable in the amount of $1,570,875 at June
30, 2002 is collateralized by equipment, intangibles, inventories and
receivables. The debt is subject to borrowing 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 $1,000,000 of
the Company's consolidated net assets at June 30, 2002 are considered
to be restricted net assets of consolidated subsidiaries.
The aggregate maturities of long-term debt are as follows at
June 30, 2002:
Year
----------
2003 $ 239,000
2004 251,636
2005 1,853,799
2006 180,697
2007 178,802
Thereafter 501,759
-----------
$ 3,205,693
===========
Note 8 - Lease Commitments
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
$44,284 and $8,857 at June 30, 2002 and 2001, respectively.
The Company also leases certain manufacturing equipment under
eight capital leases which expire in August 2003 through February 2006.
Assets under capital leases are recorded at fair value and are
amortized over their estimated useful lives. The leased equipment has a
cost of $165,333 and $151,579 and accumulated amortization of $97,439
and $61,255 at June 30, 2002 and 2001.
Future minimum lease payments required under noncancelable
capital leases are as follows at June 30, 2002.
Year Building Equipment Total
---- ----------- --------- -----------
2003 $ 150,100 $ 37,416 $ 187,516
2004 157,600 21,736 179,336
2005 157,600 11,154 168,754
2006 157,600 2,337 159,937
2007 157,600 - 157,600
Thereafter 1,399,562 - 1,399,562
----------- --------- -----------
Total minimum lease payments 2,180,062 72,643 2,252,705
Less: amount representing interest (951,771) ( 5,961) (957,732)
----------- --------- -----------
Present value of net minimum lease payments $ 1,228,291 $ 66,682 $ 1,294,973
=========== ========= ===========
F-16
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2001
================================================================================
Note 8 - Lease Commitments (continued)
Operating Leases. In January 2002, the Company entered into a
two year lease extension for office space. The lease provides for
monthly rental payments of $2,733 escalating to $2,810 through March
2004, at which time the Company has an option to extend the lease for
an additional two years.
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.
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, 2002 are as follows:
Warehouse and Vehicles and
Year Office Space Equipment Total
---- -------------- ------------ ------------
2003 $ 40,831 $ 46,009 $ 86,840
2004 33,094 32,373 65,467
2005 3,250 8,061 11,311
2006 - 1,749 1,749
2007 - - -
--------- --------- ---------
Total minimum payments required $ 77,175 $ 88,192 $ 165,367
========= ========= =========
Rental expense under operating leases for the years ended June
30, 2002, 2001 and 2000 amounted to $130,993, $196,253 and $173,639,
respectively.
Note 9 - Business Combination
On March 21, 2000, W-W Manufacturing, a wholly-owned
subsidiary of WW Capital Corporation, acquired various assets and
assumed certain liabilities of Adrian J. Paul Company, out of
bankruptcy. Adrian J. Paul Company is located in Duncan, Oklahoma and
is a manufacturer of scales used by the livestock industry. Subsequent
to the acquisition, Adrian J. Paul Company was renamed WW Paul Scales.
W-W Manufacturing assumed liabilities of $383,990 to acquire
the assets. The transaction was accounted for as a purchase and,
accordingly, the excess of asset values over the total of cash paid and
liabilities assumed were used first to reduce long-term assets. The
remainder was recorded as negative goodwill of $67,210.
The accompanying consolidated financial statements reflect the
acquisition from the date acquired. The following unaudited pro forma
summary presents the consolidated results of operations of the Company
for the year ended June 30, 2000 as if the business combination had
occurred on July 1, 1999.
Revenues $ 13,495,000
Net earnings $ 397,000
Earnings per share $ 0.07
F-17
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 9 - Business Combination (continued)
The above amounts are based upon certain assumptions and
estimates, which the Company believes are reasonable. The pro forma
results do not necessarily represent results which would have occurred
if the business combination had taken place at the date and on the
basis assumed above.
Note 10 - Income Taxes
The provision for income taxes is as follows at June 30:
2002 2001 2000
--------- --------- ---------
Current
Federal $ 68,000 $ 37,757 $ 111,000
State 7,000 19,000 18,200
Deferred 25,400 (9,000) 17,000
Tax benefit of net operating loss (75,000) (89,300) (96,200)
--------- ---------- ----------
$ 25,400 $ (41,543) $ 50,000
========= ========== ==========
A reconciliation of income at the statutory rate to the Company's effective rate is as follows at June 30:
2002 2001 2000
--------- --------- ---------
Federal statutory rate 34.00% 34.00% 34.00%
Non deductible expenses 12.63 (2.53) 3.63
Basis difference in assets and liabilities 108.54 (25.42) 4.94
Capital loss and reversal of non
deductible write down of real estate (21.41) - -
Change in deferred tax asset
valuation allowance and net
operating loss (101.96) - (29.93)
Discontinued operations - (20.42) 3.73
Other - - (0.82)
--------- ------- --------
31.80% (14.37)% 15.55%
======== ======= ========
Deferred tax assets and liabilities are comprised of the following at June 30:
2002 2001 2000
--------- --------- ---------
Deferred Tax Assets
Allowance for doubtful accounts $ 102,600 $ 13,100 $ 12,300
Accrued compensation 30,200 27,600 21,600
Inventory 19,900 19,100 11,300
Capital loss carryforward 18,800 - -
Net operating loss carryforward 15,000 89,300 -
Other 10,600 1,000 46,800
---------- ----------- -----------
Total deferred tax assets 197,100 150,100 92,000
--------- --------- ----------
F-18
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
=====================================================================================================================
Note 10 - Income Taxes (continued)
2002 2001 2000
--------- --------- ---------
Deferred Tax Liabilities:
Depreciation of property and equipment $ (179,900) $ (155,100) $ (106,000)
Insurance proceeds receivable (47,600) - -
----------- ---------- ----------
Total deferred tax liabilities (227,500) (155,100) (106,000)
---------- ---------- ----------
Deferred taxes - net $ (30,400) $ (5,000) $ (14,000)
========== ========== ==========
Current deferred tax asset $ 149,500 $ 150,100 $ 92,000
Long-term deferred tax liability (179,900) (155,100) (106,000)
---------- ---------- ----------
$ (30,400) $ (5,000) $ (14,000)
========== =========== ===========
The Company's net operating loss of $40,000 expires in 2021. The
Company's capital loss carryover of $50,300 expires in 2003.
Note 11 - Significant Group Concentrations of Credit Risk
The Company's continuing business activity is in one industry
segment, livestock handling equipment. The Company's livestock
handling equipment customers are principally resellers and are
primarily located in the Midwest, Tennessee and Georgia. At June 30,
2002, the Company's accounts receivable, net of allowance for doubtful
accounts, totaled $1,729,161. The Company generally does not require
collateral for routine open accounts receivable.
During 2002, a single customer accounted for 11% of net sales.
Note 12 - 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 receivables and accounts payable and variable rate
debt instruments approximate fair value. The carrying value of
long-term debt approximates fair value in 2002 and 2001 due to the
scheduled maturities and restrictive provisions of the debt.
Note 13 - Contingencies
Environmental. The Company's past and present operations include
activities that are subject to federal and state environmental
regulations.
The Company has been notified by the Environmental Protection
Agency that the flow coat paint system located in its Livingston,
Tennessee plant is not in compliance with certain emission regulations.
The Company has placed a $175,000 refundable deposit in a powder coat
paint system with a total estimated cost of $400,000, including
required plant renovations. The new paint system is expected to comply
with federal and state regulations and to improve the quality of its
products.
F-19
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2002
================================================================================
Note 13 - Contingencies (continued)
The Company has been issued a temporary paint permit which
expired on December 31, 2001. The Company is negotiating with the
Environmental Protection Agency for an extension of the permit. The
accompanying financial statements do not include a provision for costs
which may result from this contingency. It is reasonably possible this
estimate may change in the near term, and the change may be material
to the financial statements.
Note 14 - 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 $60,000
at June 30, 2002 and $88,692 at June 30, 2001 is included in current
liabilities in the consolidated balance sheets.
Note 15 - Subsequent Events
On July 2, 2002, the Company exercised an option to purchase the
production facility in Duncan, Oklahoma, which it had been leasing. To
finance the purchase, the Company borrowed $50,000 from the Duncan
Area Economic Development Foundation which bears interest at 5% and is
payable in monthly installments of $944, including principal and
interest, through July 2007. Additionally, the Company borrowed
$160,584 from a financial institution. The loan bears interest at 6%
and is payable in monthly installments of $1,790, including principal
and interest, through July 2012. Both of these notes are
collateralized by the production facility.
On October 24, 2002, the Company refinanced a certain term loan
which resulted in additional borrowings of $184,447. The new term loan
bears interest at 4% over the Bank's base rate and is payable in
monthly principal installments of $6,250 plus interest through October
2004, at which time the remaining principal balance is due. The note
is collateralized by equipment, inventory, intangibles and
receivables.
F-20
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, 2002 and 2001, and the related statements of
operations, stockholders' equity and cash flows for each of the three years
ended June 30, 2002, and have issued our report thereon dated October 21, 2002.
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
October 21, 2002
S-1
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
=====================================================================================
June 30 2002 2001
- -------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 24,578 $ 98,423
Deferred income tax asset 149,500 150,100
Other current assets 28,023 58,923
---------- ----------
Total current assets 202,101 307,446
---------- ----------
Equipment
Net of accumulated depreciation of $125,482
in 2002 and $121,224 in 2001 5,539 7,211
---------- ----------
Other Assets
Investment in wholly owned subsidiaries 1,073,600 866,476
Loan acquisition costs, net of accumulated amortization
of $3,075 in 2002 37,925 --
Other assets 2,312 2,312
---------- ----------
Total other assets 1,113,837 868,788
---------- ----------
Total assets $1,321,477 $1,183,445
========== ==========
S-2
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Balance Sheets (continued)
===============================================================================================
June 30 2002 2001
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ -- $ 6,983
Accounts payable, subsidiaries 69,561 168,664
Accrued expenses 54,885 152,012
Current portion of notes payable 63,000 --
----------- -----------
Total current liabilities 187,446 327,659
----------- -----------
Long-Term Liabilities
Long-term notes payable, net of current portion 948,981 750,000
Deferred income tax liability 179,900 155,100
----------- -----------
Net long-term liabilities 1,128,881 905,100
----------- -----------
Total liabilities 1,316,327 1,232,759
----------- -----------
Stockholders' Equity (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 2002 and 2001 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (476,806) (531,270)
----------- -----------
2,884,265 2,829,801
Less 3,545,663 shares of treasury stock, at cost at
June 30, 2002 and 2001 (2,879,115) (2,879,115)
----------- -----------
Net stockholders equity (deficit) 5,150 (49,314)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,321,477 $ 1,183,445
=========== ===========
S-3
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Statements of Operations
==============================================================================================
Years ended June 30 2002 2001 2000
- ----------------------------------------------------------------------------------------------
Revenues
Management fee from subsidiaries $ 396,000 $ 336,000 $ 219,000
Operating Expenses
General and administrative 444,927 397,511 263,365
--------- --------- ---------
Operating loss (48,927) (61,511) (44,365)
--------- --------- ---------
Other Income (Expense)
Interest income -- 1,659 63
Interest expense (89,995) (48,969) (170)
Realized loss on asset sales
and real estate held for sale - -- (1,856)
Other income 11,663 539 2,234
Equity in earnings (loss) of continuing subsidiaries
before income taxes 207,123 (192,393) 315,694
--------- --------- ---------
Earnings (Loss) From Continuing Operations
Before Income Taxes 79,864 (300,675) 271,600
Income Tax Benefit (Expenses) From
Continuing Operations (25,400) 53,220 --
--------- --------- ---------
Earnings (loss) from continuing operations 54,464 (247,455) 271,600
--------- --------- ---------
Discontinued Operations
Earnings from operations of Titan Industries
disposed of (net of income taxes of $59,000 at
June 30, 2001 and $12,000 at June 30, 2000) -- 88,219 67,177
Loss on disposal of Titan Industries -- (14,900) --
--------- --------- ---------
Earnings of discontinued operations -- 73,319 67,177
--------- --------- ---------
Net earnings (loss) $ 54,464 $(174,136) $ 338,777
========= ========= =========
S-4
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Statement of Cash Flows
====================================================================================================
Years ended June 30 2002 2001 2000
- ----------------------------------------------------------------------------------------------------
Net Cash Flows Provided (Used) by Operating Activities $(292,239) $ 209,976 $ 52,415
--------- --------- ---------
Cash Flows From Investing Activities
Purchase of equipment (2,587) (1,566) (3,438)
--------- --------- ---------
Net cash used by investing activities (2,587) (1,566) (3,438)
--------- --------- ---------
Cash Flows From Financing Activities
Borrowings on notes payable 261,981 -- --
Payments of loan acquisition costs (41,000) -- --
Proceeds from the exercise of stock options -- 1,036 --
Repurchase of common stock -- (165,100) --
--------- --------- ---------
Net cash provided (used) by financing activities 220,981 (164,064) --
--------- --------- ---------
Net Increase (Decrease) in Cash (73,845) 44,346 48,977
Cash, Beginning of Year 98,423 54,077 5,100
--------- --------- ---------
Cash, End of Year $ 24,578 $ 98,423 $ 54,077
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest $ 75,216 $ 1,219 $ 170
========= ========= =========
Installment loans used for the repurchase of
common stock $ -- $ 750,000 $ --
========= ========= =========
Treasury stock acquired in sale of property $ -- $ 17,500 $ --
========= ========= =========
S-5
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Notes
June 30, 2002
================================================================================
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:
2002 2001 2000
--------- --------- ---------
Amounts receivable (payable):
W-W Manufacturing Co. Inc. $ (69,561) $(168,664) $332,657
Discontinued operation - - (288,881)
--------- --------- ---------
$ (69,561) $(168,664) $ 43,776
========= ========= =========
Management fee income from continuing operations:
W-W Manufacturing Co. Inc. $396,000 $ 336,000 $219,000
======== ========= ========
Equity (loss) from continuing subsidiary operations:
W-W Manufacturing Co. Inc. $207,123 $(192,393) $315,694
======== ========= ========
S-6
W W CAPITAL CORPORATION
Schedule II - Valuation and Qualifying Accounts
Years ended June 30, 2002
================================================================================
Additions
---------------------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End of
Description of Period Expenses Accounts Deductions Period
- --------------------------------- ---------- ----------- -------- ---------- ------------
June 30, 2002
Allowance for doubtful accounts:
Accounts receivable $ 35,000 $ 306,328 $ -- $ 66,328 $ 275,000
June 30, 2001
Allowance for doubtful accounts:
Accounts receivable 38,000 28,212 -- 31,212 35,000
June 30, 2000
Allowance for doubtful accounts:
Accounts receivable 20,000 193,090 -- 175,090 38,000
S-7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
- ------- ---------------------------------------------------------------
Not Applicable
19
PART III
Part III, Items 10, 11, 12 and 13, are incorporated herein by reference from the
Registrant's definitive proxy statement relating to its Annual Meeting of
Shareholders which will be filed in an amendment within 120 days of June 30,
2002.
20
PART IV
Item 14. 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, 2002 and June 30, 2001.
Consolidated Statements of Operations for the years ended June 30, 2002, 2001,
and 2000.
Consolidated Statements of Stockholders' Equity for the years ended June 30,
2002, 2001, and 2000.
Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001,
and 2000.
(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 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.
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 (attached hereto).
21
10.6 Promissory Note dated September 20, 2001 given by the Registrant
to West-OK Investment, LLC (attached hereto).
21.0 Subsidiaries of the Registrant (attached hereto).
99.0 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(attached hereto).
Item 14 (b)
- -----------
No reports on Form 8-K were filed during the fourth quarter of the fiscal year
covered by this report.
22
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: November 15, 2002 By: /s/ Steve D. Zamzow
--------------------------------
Steve D. Zamzow, President,
CEO and Director
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: November 15, 2002 By: /s/ Steve D. Zamzow
--------------------------------
Steve D. Zamzow, President,
CEO and Director
Dated: November 15, 2002 By: /s/ Harold Gleason
--------------------------------
Harold Gleason, Chairman
Dated: November 15, 2002 By: /s/ L.M. "Mick" McCarty
--------------------------------
L.M. "Mick" McCarty, Secretary,
Treasurer and Director
Dated: November 15, 2002 By: /s/ Millard T. Webster
--------------------------------
Millard T. Webster, Director
Dated: November 15, 2002 By: /s/ A. Randall Kourt
--------------------------------
A. Randall Kourt, Director
I, Steve D. Zamzow, certify that:
1. I have reviewed this annual report on Form 10-K of 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;
Dated: November 15, 2002 By: /s/ Steve D. Zamzow
--------------------------------
Steve D. Zamzow, President and CEO
23
Exhibit 10.5
LOAN AGREEMENT DATED JANUARY 5, 2001 BETWEEN THE
REGISTRANT AND WEST-OK INVESTMENT, LLC.
LOAN AGREEMENT
WEST-OK INVESTMENT, LLC
and
W.W. CAPITAL CORPORATION
Dated as of January 5, 2001
LOAN AGREEMENT
THIS LOAN AGREEMENT, effective as of January 5, 2001, is between
WEST-OK INTESTMENT, LLC, an Oklahoma limited liability company (the "Lender")
and W.W. CAPITAL CORPORATION, a Nevada corporation (the "Company").
RECITALS
Lender and the Company acknowledge the following:
A. The Company and certain existing Company shareholders (the
"Exchanging Shareholders") have entered into an agreement (the "Split-Off
Agreement") under which the Exchanging Shareholders will exchange their
ownership interest in the Company consisting of approximately 3,390,399 shares
of the Company's common stock together with options exercisable to acquire an
additional 129,934 shares of the Company's common stock, for one hundred percent
(100%) of the issued and outstanding shares of the Company's wholly-owned
subsidiary, Titan Industries, Inc., a Nebraska corporation ("Titan") and other
consideration (the "Split-Off").
B. Subject to the terms and conditions of the Agreement, the Company
has agreed to contribute the sum of $850,000 to the capital of Titan prior to
consummation of the Split-Off, which sum is being contributed to Titan to
equalize the value of the consideration being exchanged in the Split-Off.
C. In order for the Company to meet its obligations under the
Agreement, the Company has requested, and the Lender has agreed, to loan the
Company the Loan Proceeds (defined below) subject to the terms and conditions of
this Loan Agreement.
D. The Company will execute and deliver to the Lender this Loan
Agreement together with the Promissory Note (defined below), which Promissory
Note shall be secured by a pledge of 2,448,000 of the Exchanging Shareholders'
Shares (as hereafter defined), and certain assets of the Company and/or its
Subsidiaries.
AGREEMENTS
In consideration of the recitals and the promises and agreements
contained herein, the Lender and the Company agree as follows:
1. Definitions As used in this Agreement, the following terms shall have
the following meanings:
1.1 "Closing Date" means the date on which the Split-Off closes.
1.2 "Debt" means all liabilities, obligations and indebtedness
of the Company to any Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired or
owing, whether primary, secondary, direct, contingent, fixed or otherwise, and
includes capitalized leases.
2
1.3 "Event of Default" means the occurrence of any of the events
described in section 9.1.
1.4 "Exchanging Shareholders' Shares means the 3,390,399
shares of Company common stock received by the Company from the Exchanging
Shareholders under the terms of the Agreement, 2,448,000 of which will be
pledged by the Company to secure repayment of the Promissory Note.
1.5 "GAAP" means generally accepted accounting principles in
effect in the United States from time to time applicable to entities such as the
Company.
1.6 "Lender Security Documents" means the documents described
in Section 4 and any other document, instrument or agreement furnished by the
Company to the Lender, which provides collateral for the obligations of the
Company under the Loan Documents.
1.7 "Loan Documents" means this Agreement, the Promissory
Note, the Lender Security Documents and all other documents, instruments,
agreements and certificates related to or executed in connection with this
Agreement and the transactions contemplated hereby.
1.8 "Loan Proceeds" means the sum of $1,000,000 to be loaned by the
Lender to the Company.
1.9 "Obligations" means all indebtedness and other obligations
of the Company to the Lender now existing or hereafter arising under this
Agreement or the Lender Security Documents or any other Loan Documents,
including without limitation any obligations to repay the Loan Proceeds to the
Lender in accordance with the terms of the Promissory Note.
1.10 "Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, or any other entity.
1.11 "Promissory Note" means the Promissory Note of the
Company in the form of Exhibit A attached hereto and incorporated herein by this
reference.
1.12 "Subsidiary" means, as of a particular date, any limited
liability company more than 50 percent of whose membership interest shall at the
time be owned or controlled by the Company or by one of its Subsidiaries or any
corporation more than 50 percent of whose outstanding stock having ordinary
voting power for the election of directors shall at the time be owned or
controlled by the Company or by one of its Subsidiaries. "Subsidiary" does not
include Titan.
2. Loan; Promissory Note; Interest; Default.
2.1 Loan. The Lender agrees that concurrently with the closing
of the Split-Off, on the terms and subject to the conditions hereinafter set
forth, and upon receipt of the Loan
3
Documents fully executed by the Company, it shall deliver the Loan Proceeds to
the Company on the Closing Date.
2.2 Promissory Note. The Loan shall be evidenced by the
Promissory Note, duly executed by the Company, the original principal amount of
which shall be equal to the Loan Proceeds. The Promissory Note shall mature, if
not sooner paid, ten years from the Closing Date, and be subject to prepayment
as provided in Section 3 below.
2.3 Interest. The Promissory Note shall bear interest from
January 5, 2001 to maturity on the unpaid principal balance thereof at a rate of
3 percentage points above the prime lending rate of Gold Bank (currently 9.5%)
per annum. After maturity (whether by acceleration or otherwise) interest shall
accrue on the unpaid principal balance at the rate of eighteen percent (18%) per
annum. Interest shall be calculated on the basis of a 365-day year.
2.4 Default. Upon the occurrence of an Event of Default, the
Company agrees to pay to the Lender, immediately upon its demand after the
occurrence of an Event of Default, the full amount then due and owing under the
Promissory Note, including, but not limited to, the unpaid principal balance of
the Promissory Note, together will all accrued but unpaid interest thereon.
3. Prepayments. The Company may from time-to-time, by giving the Lender not
less than 10 days' prior written notice, prepay the Promissory Note in part or
at any time in whole. Any such prepayment may be made without premium or
penalty. If notice of prepayment is given under this Section 3, the amount
specified therein to be paid shall be due and payable on the date specified
therein for such prepayment, together with accrued interest to such date. No
prepayment of less than the entire unpaid principal amount of the Promissory
Note shall relieve the Company to any extent from its obligation to comply with
all unsatisfied terms and conditions of the Loan Documents.
4. Security. As security for the full and timely payment of the principal
of and interest on the Promissory Note and all other of the Company's existing
or future indebtedness or Obligations to the Lender:
4.1 Stock Pledge. In consideration of the indebtedness of the
Company to the Lender, the Company shall grant a security interest to the Lender
in the following treasury shares of the common stock of the Company, as
evidenced by instruments of the following description:
Certificate Shares of
Name Number Capital Stock
---- ------ -------------
W.W. Capital Corporation 4109 2,448,000
duly endorsed in blank, which shares shall be delivered to the Lender. The
Lender shall hold the pledged shares as collateral security for the repayment of
the indebtedness to the Company in the principal sum of the Loan Proceeds,
together with interest thereon and any other sums that may become due and owing
as evidenced by the Promissory Note. The Lender shall hold the pledged shares as
security and shall not encumber or dispose of said shares except in accordance
with the
4
provisions of the Stock Pledge Agreement attached hereto as Exhibit B and
incorporated herein by this reference.
4.1.1 No Dividends. During the term of the pledge, and for so
long as the Promissory Note is not in default, the Lender shall not have any
right, title or interest in or to any dividends or other amounts paid by the
Company to the holders of its capital stock.
4.1.2 No Voting Rights. During the term of the pledge, and so
long as the Promissory Note is not in default and the Company is not in default
in the performance of any of the terms of this Loan Agreement, whether same may
exist now or arise in the future, the Lender shall not have the right to vote
the pledged shares on any corporate questions.
4.1.3 Adjustments. In the event that, during the term of the
pledge, any share reclassification, readjustment, or other change is declared or
made in the capital structure of the Company, all new or substituted shares or
other securities, issued by reason of any such change, shall be delivered to the
Lender in substitution of the shares referenced above and thereafter held by the
Lender under the terms of the Stock Pledge Agreement in the same manner as the
shares originally pledged thereunder.
4.2 UCC-1 Financing Statement. As additional consideration for
the indebtedness of the Company to the Lender, the Company and/or certain of its
Subsidiaries shall execute and deliver to the Lender a UCC-1 Financing Statement
in the form of Exhibit C attached hereto pursuant to which the Company and/or
certain of its Subsidiaries will grant a security interest to the Lender in
those assets of the Company and/or certain of its Subsidiaries specifically
defined on Exhibit C which shall include certain accounts, accounts receivable,
fixtures, proceeds, equipment, machinery, contract rights, inventory or products
of the Company and/or certain of its Subsidiaries.
5. Representations and Warranties. In order to induce the Lender to enter
into this Loan Agreement and to cause the Lender to loan the Loan Proceeds to
the Company, the Company represents and warrants to the Lender:
5.1 Organization; Subsidiaries; Power. The Company is a
corporation validly existing and in good standing under the laws of the State of
Nevada and in every other jurisdiction in which the nature of its business or
the ownership of its properties requires such qualification and in which the
failure to so qualify would materially adversely affect the business operations
or financial condition of the Company. The Company has the proper authority and
power to own its properties and carry on its business as currently being
conducted.
5.2 Authorization and Binding Effect. The execution and
delivery of the Loan Documents to which it is a party, and the performance by
the Company of its obligations thereunder, are within its power, have been duly
authorized by proper action on the part of the Company, are not in violation of
any existing law, rule or regulation of any governmental agency or authority,
any order or, decision of any court, the Articles of Incorporation of the
Company or the terms of any material agreement, restriction or undertaking to
which the Company is a party or by which it is bound, and do not require the
approval or consent of any governmental body, agency or authority or
5
any other person or entity, or, to the extent approval is required, such
approval has been obtained. The Loan Documents to which the Company is a party,
when executed and delivered, will constitute the valid and binding obligations
of the Company enforceable in accordance with their terms, except as limited by
bankruptcy, insolvency or similar laws of general application affecting the
enforcement of creditors' rights and except to the extent that general
principles of equity might restrict the specific enforcement of such Loan
Documents.
5.3 Litigation. Except as disclosed in writing to the Lender,
there is no litigation or administrative proceeding pending or, to the knowledge
of the Company, threatened against or affecting the Company or the properties of
the Company that if decided or resolved adversely to the Company or its
properties would have a material adverse effect on the Company or its properties
taken as a whole.
5.4 No Default. There exists no material default nor has any
act or omission occurred which, with the giving of notice or the passage of
time, would constitute a material default under the provisions of any instrument
evidencing material indebtedness for borrowed money incurred or assumed by the
Company or any material agreement relating thereto or any other material
agreement or instrument to which the Company is a party as of the date of this
Agreement.
5.5 Ownership of Pledged Securities; Liens. On the Closing
Date the Company will acquire the Exchanging Shareholders' Shares free and clear
of any liens, security interests, or pledges (other than the pledge granted
pursuant to the Stock Pledge Agreement hereunder) or other encumbrances. The
Company has not entered into or granted any mortgages, agreements, or permitted
the filing or attachment of any security interests, liens or encumbrances on or
affecting the Exchanging Shareholders' Shares pledged by the Company to secure
repayment of the Promissory Note that would be prior or that may in any way be
superior to the Lender's security interests and rights in and to such Exchanging
Shareholders' Shares granted to the Lender except as permitted in this Loan
Agreement or as disclosed in writing to the Lender.
5.6 Ownership of Pledged Assets; Liens. Subject to those
security interests granted by the Company and in existence as of the Closing
Date, including, but not limited to, the security interest of Wells Fargo Fort
Collins, NA, each of which is listed on Exhibit D hereto, the Company and/or
certain of its Subsidiaries has or will have acquired good and marketable title
to the assets described on Exhibit C and pledged as additional collateral to
secure repayment of the Promissory Note. Neither the Company nor its
Subsidiaries have entered into or granted any mortgages, agreements, or
permitted the filing or attachment of any security interests, liens or
encumbrances on or affecting said assets that would be prior or that may in any
way be superior to the Lender's security interests and rights in and to such
assets except as permitted in this Loan Agreement or as disclosed in writing to
the Lender.
5.7 Tax Returns Filed. The Company has filed when due all
federal and state income and other tax returns, which are required to be filed.
The Company has paid or made provision for all taxes shown on said returns and
on all assessments received by it to the extent that such taxes have become due
except any such taxes which are being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP have been
6
established. The Company has no knowledge of any liabilities which may be
asserted against it upon audit of its federal or state tax returns, except that
the Tennessee Secretary of State has issued a Notice of Determination relating
to Eagle Enterprises, Inc., pursuant to which the Tennessee Secretary of State's
office has determined that grounds for corporate dissolution and/or the
revocation of Eagle's authority to do business in Tennessee exist.
5.8 Accuracy of Information. All information furnished by the
Company to the Lender is true, correct and complete in all material respects as
of the date furnished and does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make such information not
misleading as of such date.
6. Conditions for Funding. The Lender's obligation to deliver the Loan
Proceeds to the Company is subject to the Lender's receipt of the following
documents and the satisfaction of the following conditions (in a form or manner
acceptable to the Lender in its reasonable discretion):
6.1 Lender Security Documents.
(a) A Stock Pledge Agreement in the form of Exhibit B
granting the Lender a first priority security interest in the
Company's right, title and interest in and to 2,448,000 of the
Exchanging Shareholders' Shares, duly executed by the Company;
and
(b) UCC-1 Financing Statement in the form of Exhibit C
granting the Lender a security interest in certain assets of the
Company and/or certain of its Subsidiaries, duly executed by the
proper corporate entity; and
(c) such other documents or agreements as the Lender may
reasonably request.
6.2 Promissory Note. The Promissory Note, duly executed by the
Company.
6.3 Certified Articles of Incorporation. A copy of the Articles of
Incorporation of the Company, certified as of a recent date by the Secretary of
State of Nevada.
6.4 Good Standing Certificates. A certificate of good standing with
respect to the Company, issued as of a recent date by the Secretary of State of
Nevada.
6.5 Closing Certificate of Company. A copy, certified by an
executive officer of the Company to be true and correct and in full force and
effect on the Closing Date, of (i) the By-laws of the Company; (ii) proper
authorizations of the Company authorizing the issuance, execution and delivery
of the Loan Documents to which the Company is a party; and (iii) a statement
containing the names of the officer or officers of the Company authorized to
sign such Loan Documents, together with the signatures of such officer or
officers.
6.6 No Default Certificate. The representations and warranties
contained in section 5 hereof and in the other Loan Documents shall be true and
correct in all material respects on
7
and as of the Closing Date; there shall exist on the Closing Date no Event of
Default, and the Lender shall have received a certificate to those effects,
signed by an executive officer of the Company.
6.7 Other Documents. Such other documents, instruments and agreements
as the Lender may reasonably require.
6.8 Split-Off Agreement Closing. The Company shall have entered into
the Split-Off Agreement with the Exchanging Shareholder and, simultaneously with
the delivery of the Loan Proceeds to the Company, the transactions contemplated
by and under the Split-Off Agreement shall be consummated.
6.9 Proceedings Satisfactory. All proceedings taken in connection
with the transactions contemplated by the Split-Off Agreement, this Loan
Agreement, and all instruments, authorizations and other documents applicable
thereto, shall be satisfactory to the Lender. All such proceedings and all
instruments, authorizations and other documents applicable thereto, shall be
deemed to be satisfactory to the Lender unless the Lender, on or before
September, 20, 2000, provides the Company with written notice of its objection
setting forth the objection, and the action required to remedy the objection.
7. Affirmative Covenants. The Company agrees that it will, while the
Promissory Note is outstanding or any of the Obligations remain unpaid:
7.1 Annual Financial Information. Furnish to the Lender within 150
days after the end of each fiscal year of the Company, a statement of financial
position of the Company as of the close of such fiscal year and related
statements of activities and cash flows for such year, setting forth in each
case in comparative form corresponding figures from the preceding annual
financial statements, all in reasonable detail and satisfactory in scope to the
Lender, prepared in accordance with GAAP applied on a consistent basis, examined
and certified by independent public accountants selected by the Company, whose
opinion as to such financial statements shall be unqualified in scope and
substance, and, if requested by the Lender, certified by an executive officer of
the Company. If requested by Lender in writing, each such annual statement shall
be accompanied by a written statement from such executive officer certifying
that there exists no Default or Event of Default or, if any Default or Event of
Default exists, specifying the nature thereof, the period of existence thereof
and what action the Company proposes to take with respect thereto.
7.2 Interim Financial Statements. Furnish to the Lender within 60 days
after the end of each of the first three quarters of each fiscal year of the
Company a statement of financial position of the Company as of the end of each
such period and related statements of activities and cash flows for the period
from the beginning of the fiscal year to the end of such quarter which are
correct, complete and fairly present the financial condition of the Company,
certified, subject to normal year-end adjustments, by an executive officer of
the Company and accompanied by the certificate of such executive officer to the
effect that there exists no Event of Default or, if any Default or Event of
Default exists, specifying the nature thereof, the period of existence thereof
and what action the Company proposes to take with respect thereto.
8
7.3 Books and Records. Keep proper, complete and accurate books of
record and account and permit any representatives of the Lender to examine any
of the books and records of the Company at any reasonable time upon five
business day's prior notice and as often as may reasonably be desired.
7.4 Compliance with Law. Do all things necessary to (a) maintain its
existence in good standing in its state of incorporation, (b) preserve and keep
in full force and effect all material licenses, rights and franchises necessary
to continue its business and (c) comply with all applicable laws, rules,
regulations, ordinances in all material respects, and comply with all writs,
judgments, injunctions, decrees and awards to which it may be subject, except
those being contested in good faith and involving no possibility of criminal
liability.
7.5 Compliance with Other Loan Documents. Timely comply with all of
its Obligations under the Loan Documents. Compliance shall be considered timely
if it occurs within any applicable grace period set forth in the Loan Documents.
7.6 Notice of Event of Default or Claimed Default. Furnish to the
Lender (a) immediately upon becoming aware of any Event of Default, a written
notice specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto; (b) immediately upon
becoming aware that the holder of any indebtedness issued or assumed by the
Company, or the lessor under any lease as to which the Company is the lessee,
has given notice or has taken any action with respect to a claimed default
thereunder, or under any agreement under which any such indebtedness was issued
or secured, a written notice specifying the notice given or action taken, the
nature of the claimed default and what action the Company is taking or proposes
to take with respect thereto; (c) written notice of a material adverse change in
the financial condition of the Company, as soon as the Company becomes aware of
such condition or event.
7.7 Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present executive
and management personnel; provide written notice to the Lender of any change in
executive and management personnel; and conduct its business affairs in a
reasonable and prudent manner.
7.8 Board of Directors. For so long as all or any portion of the
Promissory Note remains unpaid, the Company's Board of Directors shall have five
members, two (2) of whom shall be designated by the Lender. To this end, on the
Closing Date, the Lender shall submit to the Company the names of two nominees
for appointment to the Company's Board of Directors ("Lender's Nominees"), each
of whom shall be appointed to the Company's Board of Directors to fill vacancies
created by the resignation of two (2) previous directors. Lender's Nominees
shall serve as members of the Company's Board of Directors until the next annual
meeting of the Company's shareholders and until their successors are duly
elected and qualified. Lender's Nominees shall owe fiduciary obligations to the
Company and its shareholders and shall discharge their fiduciary obligations to
the best of their abilities, and shall not unreasonably prevent the Company from
obtaining financing or otherwise entering into one or more agreements to raise
9
additional capital for the Company, all or a portion of which may be used by the
Company to retire the Company's obligations under the Promissory Note and other
Loan documents.
7.9 Litigation. Notify the Lender of any litigation in which the
Company or its assets are involved, where the Company's liability is asserted to
be, or may be, in the judgment of the Company, in excess of $50,000.
8. Negative Covenants. The Company covenants that, without the prior
written consent of the Lender, it will not while the Promissory Note is
outstanding or while any of the Obligations remain unpaid:
8.1 Limitations on Liens and Encumbrances. Create, assume or permit to
exist any mortgage, security interest, lien or charge of any kind upon the
Exchanging Shareholders' Shares pledged to Lender other than the lien and
security interest arising under the Stock Pledge Agreement hereunder.
8.2 Continuity of Operations. (a) Merge, transfer, acquire or
consolidate with any other entity, change ownership or change its name without
giving prior written notice to, and obtaining the consent of, the Lender, which
consent shall not be unreasonably withheld or (b) cease operations, liquidate,
dissolve or transfer or sell all or substantially all of its assets without the
prior written consent of the Lender, which consent shall not be unreasonably
withheld.
9. Events of Default; Remedies.
9.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default:
(a) Failure to Pay Obligations. The Company fails to pay
when due any of the Obligations, which failure to pay continues
for a period of thirty (30) days following receipt of written
notice by the Company from the Lender; or
(b) Failure to Pay Other Obligations. The Company fails to
pay when due any of its other obligations, such default shall
continue for a period of thirty (30) days and such default would
cause an adverse material effect on the business of the Company,
unless the Company, in good faith, is disputing the existence or
amount of such obligation and has set aside a reserve sufficient
to cover such obligation; or
(c) Falsity of Representations and Warranties. Any
representation or warranty made in any Loan Document is false or
misleading in any material respect on the date as of which made
or as of which the same is to be effective; or
(d) Breach of Affirmative Covenants. The Company fails to
comply with any term, covenant or agreement contained in section
7 of this Agreement and such default shall continue for a period
of thirty (30) days after written notice to the Company from the
Lender; or
10
(e) Breach of Negative Covenants. The Company fails to
comply with any term, covenant or agreement contained in section
8 of this Agreement and such default shall continue for a period
of thirty (30) days after written notice to the Company from the
Lender; or
(f) Breach of Other Provisions. The Company fails to comply
with any other agreement contained herein and such default shall
continue for a period of thirty (30) days after written notice to
the Company from the Lender; or
(g) Default Under Loan Documents. An Event of Default (as
defined therein) shall occur under one or more of the other Loan
Documents, including, but not limited to, the Promissory Note and
such default continues beyond any grace period provided therein;
or
(h) Insolvency, Failure to Pay Debts or Receiver, Etc. The
Company becomes insolvent or the subject of state insolvency
proceedings, fails generally to pay Debts as they become due or
fails to perform on any term, covenant or agreement of the
Company relating to Debt of the Company which results in the
holder of such Debt being able to accelerate such Debt or makes
an assignment for the benefit of creditors; or a receiver,
trustee, custodian or other similar official is appointed for, or
takes possession of any substantial part of the property of, the
Company which appointment remains in place for a period of sixty
days; or
(i) Subject of United States Bankruptcy. The taking of
action by the Company to authorize such corporation to become the
subject of proceedings under the United States Bankruptcy Code;
or the execution by the Company of a petition to become a debtor
under the United States Bankruptcy Code; or the filing of an
involuntary petition against the Company under the United States
Bankruptcy Code which remains undismissed for a period of sixty
days; or the entry of an order for relief under the United States
Bankruptcy Code against the Company.
9.2 Remedies. Upon the occurrence of an Event of Default, all of the
Obligations shall, at the Lender's option and without notice or demand, become
immediately payable with interest at the rate specified in Section 2.3. The
Lender shall have all of the remedies for default provided in the Lender
Security Documents, as well as applicable law, and the Lender may, at the
Lender's option, accelerate the maturity of the Promissory Note, and/or exercise
such other rights and remedies as may be available under the Loan Documents.
10. Indemnification. The Company agrees to defend, indemnify and hold
harmless the Lender, its members, directors, officers, employees and agents from
and against any and all claims, damages, losses, liabilities, costs or expenses
(including reasonable attorneys' fees) incurred in connection with any and all
claims and proceedings (whether brought by a private party or governmental
agency) as a result of or arising out of or related to:
(a) the execution and delivery or transfer of, or payment or
failure to pay under, the Promissory Note; provided, however,
that the Company shall not be required to indemnify the Lender
for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by the willful
misconduct or gross negligence of the Lender, its members,
directors, officers, employees and/or agents; or
11
(b) the entering into, performance of and exercise of its
rights under any Loan Document by the Lender.
11. Obligations Absolute. The Obligations of the Company under this Loan
Agreement shall be absolute, unconditional and irrevocable and shall remain in
full force and effect until the Promissory Note has been paid in full, and such
obligations of the Company shall not be affected, modified or impaired upon the
happening of any event, including, without limitation, any of the following,
whether or not with notice to, or the consent of, the Company:
(a) Any amendment, modification, waiver, consent, or any
substitution, exchange, or release of collateral, with respect to
any of the Loan Documents;
(b) Any failure, omission or delay on the part of the Lender
or any party to any of the Loan Documents in enforcing, asserting
or exercising any right, power or remedy conferred upon the
Lender or any such party under this Loan Agreement or any of the
operative documents, or any other acts or omissions on the part
of the Lender or any such party;
(c) Any other event or action that would, in the absence of
this clause, result in the release or discharge by operation of
law of the Company from the performance or observance of any
obligation, covenant or agreement contained herein.
12. Waiver. The Lender shall not be deemed to have waived any of its rights
hereunder unless the Lender shall have signed such waiver in writing.
13. Binding Effect. This Agreement inures to the benefit of, and is binding
upon, the successors and assigns of the Lender and the Company, provided that
none of the rights of the Company hereunder may be assigned without the prior
written consent of the Lender.
14. Governing Law. This Agreement is being delivered in and shall be deemed
to be a contract governed by the laws of the State of Oklahoma and shall be
interpreted and enforced in accordance with the laws of that state without
regard to the principles of conflicts of laws.
15. Notices. All notices provided for herein shall be in writing and shall
be (a) delivered; (b) sent by express or first-class mail, postage prepaid and
return receipt requested; (c) sent by Federal Express or other nationally
recognized overnight courier service; or (d) sent by facsimile transmission and
confirmation in writing provided to the recipient in a manner described in (a),
(b) or (c) and, if to the Lender, addressed to it at 115 West Orient, Thomas,
Oklahoma, 73669 and, if to the Company, addressed to it at 3500 JFK Parkway,
Suite 320, Ft. Collins, Colorado, 80525 Attention: President, or to such other
address with respect to any party as such party shall notify the others in
writing; such notices shall be deemed given when delivered, mailed or so
transmitted.
16. Titles. The titles of sections in this Agreement are for convenience
only and do not limit or construe the meaning of any section.
12
17. Submission to Jurisdiction; Service of Process.
(a) THE LENDER AND COMPANY AGREE THAT ALL ACTIONS OR
PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS LOAN
AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT ONLY IN
COURTS OF THE STATE OF COLORADO LOCATED IN DENVER COUNTY OR THE
FEDERAL DISTRICT COURT IN COLORADO AND THE LENDER AND COMPANY
CONSENT TO THE JURISDICTION OF SUCH COURTS. THE LENDER AND
COMPANY WAIVE ANY OBJECTION THEY MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH COURT AND ANY RIGHT THEY MAY HAVE NOW OR
HEREAFTER HAVE TO CLAIM THAT ANY SUCH ACTION OR PROCEEDING IS IN
AN INCONVENIENT COURT; and
(b) The Lender and Company consent to the service of process
in any such action or proceeding by certified mail sent to the
address specified in section 15; provided, however, that nothing
contained herein shall affect the right of either the Lender or
the Company to serve process in any other manner permitted by
law.
18. Limitation of Liability. THE COMPANY AND THE LENDER HEREBY WAIVE ANY
RIGHT EITHER OF THEM MAY HAVE TO CLAIM OR RECOVER FROM THE OTHER PARTY ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES, OF
WHATEVER NATURE, OTHER THAN ACTUAL DAMAGES.
19. Entire Agreement. This Agreement and the other Loan Documents shall
constitute the entire agreement of the parties pertaining to the subject matter
hereof and supersede all prior or contemporaneous agreements and understandings
of the parties in connection therewith.
20. Arbitration. Except for "Core Proceedings" under the United States
Bankruptcy Code, the Lender and the Company agree to submit to binding
arbitration all claims, disputes and controversies between or among them,
whether in tort, contract or otherwise (and their respective employees,
officers, directors, attorneys, and other agents) arising out of or relating to
in any way the Loan Documents or transactions which are the subject of this
Agreement and their negotiation, execution, collateralization, administration,
repayment, modification, extension, substitution, formation, inducement,
enforcement, default or termination. Any arbitration proceeding will (i) proceed
in Denver, Colorado; (ii) be governed by the Federal Arbitration Act (Title 9 of
the United States Code); and (iii) be conducted in accordance with the
Commercial Arbitration rules of the American Arbitration Association ("AAA").
The arbitration requirement does not limit the right of either party to (i)
foreclose against collateral; (ii) exercise self-help remedies relating to
collateral or proceeds of collateral such as setoff or repossession; or (iii)
obtain provisional ancillary remedies such as replevin, injunctive relief,
attachment or the appointment of a receiver, before, during or after the
pendency or any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of either party to submit any dispute to
arbitration, including those arising from the exercise of the actions detailed
in sections (i), (ii) and (iii) of this paragraph.
13
Any arbitration proceeding will be before a single arbitrator selected
according to the Commercial Arbitration Rules of the AAA. The arbitrator will be
a neutral attorney who has practiced in the area of commercial law for a minimum
of ten years. The arbitrator will determine whether or not an issue is
arbitratable and will give effect to the statutes of limitation in determining
any claim. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction.
In any arbitration proceeding the arbitrator will decide (by documents only
or with a hearing at the arbitrator's discretion) any pre-hearing motions which
are similar to motions to dismiss for failure to state a claim or motions for
summary adjudication.
In any arbitration proceeding discovery will be permitted and will be
governed by the Colorado Rules of Civil Procedure. All discovery must be
completed no later than 20 days before the hearing date and within 180 days of
the commencement of arbitration proceedings. Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
The arbitrator shall award costs and expenses of the arbitration proceeding
in accordance with the provisions of this Agreement, the Promissory Note and/or
other Loan Documents.
WEST-OK INVESTMENT, LLC, an Oklahoma limited
liability company
By:
-----------------------------------------------------------
Managing Member
W.W. CAPITAL CORPORATION, a Nevada corporation
By:
-----------------------------------------------------------
Title:
--------------------------------------------------------------
14
Exhibit 10.6
PROMISSORY NOTE DATED SEPTEMBER 20, 2001 GIVEN BY
THE REGISTRANT TO WEST-OK INVESTMENT, LLC.
PROMISSORY NOTE
$1,000,000.00 September 20, 2001
FOR VALUE RECEIVED, and intending to be legally bound, W.W. CAPITAL
CORPORATION, a Nevada Corporation ("Debtor") hereby promises to pay to the order
of WEST-OK INVESTMENT, LLC., an Oklahoma limited liability company whose address
is 115 West Orient, Thomas, Oklahoma 73669 ("Holder") the principal amount of
One Million Dollars ($1,000,000) ("Principal Amount") subject to the following
terms and conditions:
1. Commencing effective as of January 5, 2001, the outstanding principal
amount of this Note shall bear interest at the rate of 3 percentage points above
the Wall Street Prime lending rate (currently 9.5%) per annum until the
principal amount hereof, together with all accrued and unpaid interest, has been
paid in full. Hereinafter, the total outstanding principal balance hereof,
together with any and all accrued and unpaid interest shall be referred to as
the "Loan Amount."
2. Subject to the terms and conditions hereinbelow set forth, the Loan
Amount shall be payable as follows:
(a) No payments shall be due or payable for the period commencing on
the date hereof and ending on January 5, 2002 (the "Abatement
Period"). Interest shall continue to accrue on the unpaid portion
of the Principal Amount during the Abatement Period.
(b) On January 5, 2003, the Debtor shall pay to the Holder one
payment consisting exclusively of twelve months accrued interest.
(c) On January 5, 2003, all accrued but unpaid interest shall be
added to the unpaid Principal Amount and shall hereinafter be
referred to as the "Remaining Loan Amount." Commencing on January
5, 2003, and continuing on the 5th day of each month thereafter
until the entire Remaining Loan Amount has been paid in full, the
Debtor shall pay to the Holder one-ninety-sixth (1/96th) of the
Remaining Loan Amount plus any unpaid interest which has accrued
on the Remaining Loan Amount. By way of example, because all
accrued but unpaid interest as of January 5, 2003 will be
included in the Remaining Loan Amount, the payment due to Holder
on January 5, 2003 pursuant to this Section 2(c) will consist
exclusively of one-ninety-sixth (1/96th) of the Remaining Loan
Amount. The payment due Holder on February 5, 2003, and on each
month thereafter, will consist of one-ninety-sixth (1/96th) of
the Remaining Loan Amount plus any interest which has accrued on
the Remaining Loan Amount from the date of the last payment
through the payment date. If not sooner paid, the final
installment, together with all accrued but unpaid interest, shall
be due and payable on January 5, 2010.
3. If Debtor shall default in the payment of principal hereunder when the
same shall become due and payable, the unpaid principal sum of this Note shall
immediately bear interest at the rate of eighteen percent (18%) per annum until
paid in full, and shall be payable monthly or, at the option of Holder hereof,
on demand.
A-1
4. Debtor may at any time, upon ten days advance notice, prepay the entire
unpaid principal of this Note or any part thereof without additional interest or
penalty. Any prepayment in part shall be applied first to accrued but unpaid
interest hereunder, and second to installments of principal in the reverse order
of maturity.
5. Payments of both principal and interest on this Note shall be made to
Holder in immediately available funds in lawful money of the United States.
6. This Note is fully negotiable and may be assigned by Holder. Neither
this Note nor the obligations of Debtor hereunder may be assigned or delegated
by Debtor without the prior written consent of Holder.
7. The occurrence of any of the following events ("Events of Default") with
respect to Debtor, shall constitute a default hereunder: (a) if any payment of
principal or interest shall not be paid in full when due, and shall continue
unpaid for a period of thirty (30) days thereafter; or (b) if a default shall
occur under any covenant contained in any instrument relating to the rights of
Holder hereunder including, but not limited to, that certain Loan Agreement of
even date herewith and to which this Note is attached as Exhibit A, or any of
the Loan Documents referenced in said Loan Agreement.
8. Upon the occurrence of a default hereunder, the entire principal balance
of this Note plus accrued interest, shall, at the option of Holder, become
immediately due and payable without notice or demand, and Holder shall have all
rights and remedies provided under all applicable laws and shall be deemed to
have exercised the same immediately upon the occurrence of any such event
without notice or further action, irrespective of when any record of the same
may thereafter be noted by Holder.
9. Failure by Holder to declare a default hereunder shall not constitute a
waiver of any subsequent default. Debtor further promises to pay a reasonable
attorney's fee, court costs, and any other expenses, losses, charges, damages
incurred or advances made by Holder in protection of its rights or caused by
Debtor's default under the terms of this Note.
10. If Holder retains an attorney for collection of this Note, or if any
suit or proceeding is brought for the recovery of all or any part of or for
protection of the indebtedness, or any collateral, or to enforce Holder's rights
under any security agreement, letter of credit securing the Principal Amount, or
other collateral agreement, then Debtor agrees to pay on demand all reasonable
costs and expenses of the suit or proceeding, or any appeal thereof, incurred by
Holder, including, without limitation, reasonable attorney's fees.
11. The terms of this Note shall not be varied, altered or modified except
by a writing signed by Holder and Debtor.
12. Debtor hereby waives presentment for payment or acceptance, demand and
protest, and notice of protest, dishonor and non-payment of this Note.
13. No delay on the part of Holder in exercising any power or right under
this Note shall operate as a waiver of the power or right, nor shall any single
or partial exercise of that power or right, preclude further exercise of that
power or right. The rights and remedies
A-2
specified in this Note are cumulative and not exclusive of any rights and
remedies that Holder may otherwise possess.
14. The provisions of this Note shall be severable, so that if any
provision hereof is declared invalid under the laws of any state where it is in
effect, or of the United States, all other provisions of this Note shall
continue in full force and effect.
15. This Note shall be binding upon Debtor and its successors and assigns,
and shall inure to the benefit of and be enforceable by Holder, its successors
and assigns.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has caused this Note to be executed on the date first above written.
W.W. CAPITAL CORPORATION, a Nevada corporation
By: /s/ Steven Zamzow, President
-------------------------------------------
Steven Zamzow, President
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Exhibit 21.0
SUBSIDIARIES OF THE REGISTRANT
W-W Manufacturing Co., Inc.
Incorporated in the state of Kansas
Exhibit 99.0
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACTO 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, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Steve D. Zamzow,
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: November 15, 2002 By: /s/ Steve D. Zamzow
--------------------
Steve D. Zamzow, President & CEO