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, 2003
Commission File No.: 0-17757
W W CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 93-0967457
- -------------------------------------- -----------------
(State or other jurisdiction of (IRS Employer
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
- ------------------- ----------------
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. [ X ] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
[ ] Yes [ X ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Company on October 14, 2003 (1,748,708 shares of common stock) was $17,487 (*)
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 October 14, 2003 was:
Common Stock, 2,010,614 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 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
Item 14. Principal Accounting Fees and Services.
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, 2003.
Item 15. 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
1 W W CAPITAL CORPORATION
FORM 10-K
PART I
Item 1. Business
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(a) General Development of Business
-------------------------------
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 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 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 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 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
4
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
livestock panels and gates.
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 division of W-W Manufacturing and is currently
doing business in a 35,000 square foot facility. The Company's primary functions
are the manufacture of livestock scales and hydraulic chutes.
On January 5, 2001, the Shareholders of the Company voted to sell its water and
environmental product segment, Titan Industries, Inc., to certain shareholders
of the Company in exchange for 3,387,949 shares, or approximately 61.0%, of the
common stock of the Company. The transaction had an effective date of December
31, 2000. In addition to giving up its 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, 2003, the Company and its segments had approximately
120 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 58-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 experienced growth in the eastern United States.
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. This is
significant since the W-W line has a long-term (58 years) reputation as an
industry leader and manufacturer of quality equipment. Eagle was hit hard by the
sluggish economy in 2002, the need to update certain equipment and the need for
installation of a new paint system. During November 2002 the decision was made
to scale back operations until a new inline pre-galvanized product could be
marketed. Eagle began marketing this new product during June 2003.
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.
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 the W-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
introduction 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.
6
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
- -----------
The Company encounters competition in varying degrees in both cattle handling
and equine product lines. Competitors are primarily domestic producers of
similar products. These companies compete in price, delivery schedules, quality,
product performance, and other conditions of sales. During 2003 and 2002,
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
- -------------------
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
improvement in 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 58 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.
OTHER INFORMATION RELATIVE TO THE BUSINESS
------------------------------------------
Patents and Trademarks
- ----------------------
With the purchase of the Adrian J. Paul Company, the livestock handling
equipment segment, has acquired various patents. The patents deemed useful to
the Company are current and registered with the United States Patent 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
- -----------
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
- ------------------------------------
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."
7
Dependence Upon a Single Customer
- ---------------------------------
Not Applicable
Dollar Amount of Backlog Orders
- -------------------------------
Backlog in the livestock handling equipment group was $1,250,000 in 2003 as
compared to $750,000 in 2002. This increase from 2002 is due to a slow recovery
in economic conditions. This is expected to remain steady as we move into the
fall season.
Business Subject to Renegotiation at Election of Government
- -----------------------------------------------------------
Not Applicable
Research and Development Expenditures
- -------------------------------------
Due to the nature of manufacturing operations of the Company and the types of
products produced expenditures for research and development are not material to
the overall operating cost.
Compliance with Environmental Controls
- --------------------------------------
The Company has faced issues with the Environmental Protection Agency regarding
a paint system located at the Eagle plant located in Livingston, Tennessee. The
Company was issued a temporary paint operating permit through December 31, 2001.
Over the past two years, management worked with the EPA offices to negotiate an
extension to the permit. In January 2003, the Company surrendered the temporary
paint permit and discontinued all wet paint finishing at the facility. When, and
if, painting resumes at the Eagle plant, a new permit will need to be applied
for and issued. To the best of its knowledge, the Company believes that it is
presently in substantial compliance with all other existing environmental laws.
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
- ------- ---------------------------------------------------
No matters were submitted for a vote of security holders of the Company during
the fourth quarter of the fiscal year ended June 30, 2003.
8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------- Matter
-------------------------------------------------------------
Market Information
- ------------------
High Bid Low Bid
-------- -------
Quarter ended
- -------------
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
September 30, 2002 $0.010 $0.010
December 31, 2002 0.010 0.010
March 31, 2003 0.010 0.010
June 30, 2003 0.010 0.010
The Company's common stock is listed on the over-the-counter market and trades
under the symbol "WWCL".
Holders
- -------
As of October 14, 2003 the Company had approximately 507 record holders of its
common stock, not including some individuals holding shares in street name.
Dividends
- ---------
The Company did not pay dividends during 2003 or 2002 and does not intend to pay
cash dividends in the foreseeable future. The management of the Company intends,
for the present, to retain all available funds for the development of its
business. Additionally, certain of the Company's loan covenants prohibit the
paying of dividends.
9
Item 6. Selected Financial Data
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Year ended June 30
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SUMMARY OF OPERATIONS (A)
2003 2002 2001 2000 1999
Net Sales 11,530,445 12,652,044 13,092,869 12,210,587 9,108,446
Gross Profit Margin 2,099,090 2,920,538 2,278,452 2,492,566 1,774,109
Operating Earnings
(Loss) (271,288) 243,481 (95,939) 456,463 164,026
Interest Expense 380,241 338,248 296,265 171,124 164,755
Operating Expense 2,370,378 2,677,057 2,374,391 2,036,103 1,610,083
Earnings(Loss)
From Continuing
Operations (409,120) 54,464 (247,455) 271,600 46,925
Net Earnings (Loss) (347,376) 54,464 (174,136) 338,777 104,808
PER SHARE DATA
- --------------
Earnings(Loss)
From Continuing
Operations (.20) .03 (.07) .05 .01
Dividends per
Common Share .00 .00 .00 .00 .00
Weighted Average
Shares Outstanding 2,010,614 2,010,614 3,724,256 5,420,397 5,420,397
FINANCIAL CONDITION
- -------------------
Total Assets 5,845,418 6,435,564 6,322,810 6,651,737 5,781,655
Fixed Assets (Net) 2,275,087 2,155,188 2,351,435 1,089,280 1,174,409
Long-Term Debt 2,645,976 4,186,666 4,087,665 1,521,418 1,606,879
Stockholders Equity (342,226) 5,150 (49,314) 2,953,995 2,615,218
Working Capital (B) (246,935) 2,003,747 1,676,546 1,627,455 1,174,058
Current Ratio (C) 0.93 2.00 1.80 1.80 1.75
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 2003 reflects a reclassification of debt from long-term to
short-term due to violation of bank covenants at year-end.
C. Percent of current assets to current liabilities.
10
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- and Results of Operations
-----------------------------------------------------------
Statements contained in this Form 10-K that are not historical facts, including,
but not limited to, any projections contained herein, are forward-looking
statements and involve a number of risks and uncertainties. The actual results
of the future events described in such forward-looking statements in this Form
10-K could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are adverse economic conditions, industry competition and other
competitive factors, government regulation and possible future litigation. The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto under Item 8.
The Company has incurred operating losses two out of the past three years, has a
working capital deficit of $246,935 and has an accumulated deficit of $342,226
as of June 30, 2003. The report of independent auditors on the Company's June
30, 2003 financial statements includes an explanatory paragraph indicating there
is substantial doubt about the Company's ability to continue as a going concern.
The Company believes that it has developed a viable plan to address these issues
and that its plan will enable the Company to continue as a going concern for the
next twelve months. This plan includes the realization of revenues from the
commercialization of new products and the reduction of certain operating
expenses. Although the Company believes that its plan will be realized, there is
no assurance that these events will occur. The financial statements do not
include any adjustments to reflect the uncertainties related to the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the inability of the Company to continue as a
going concern.
Results of Operations:
The following table presents, for the periods indicated, the dollar value and
percentage relationship which certain items reflected in the Company's
Statements of Operations. This percentage shows the percent as it relates to the
total revenue.
2003 2002 2001
----------------------- ----------------------- -----------------------
Total revenues $ 11,530,445 100.0% $ 12,652,044 100.0% $ 13,092,869 100.0%
Cost of revenues 9,431,355 81.8 9,731,506 76.9 10,814,417 82.6
------------ ----- ------------ ----- ------------ -----
Gross profit 2,099,090 18.2 2,920,538 23.1 2,278,452 17.4
Selling, general, and administrative
expense 2,370,378 20.6 2,677,057 21.2 2,374,391 18.1
------------ ----- ------------ ----- ------------ -----
Operating earnings (loss) (271,288) (2.4) 243,481 1.9 (95,939) (0.7)
Other income (expense) 54,909 0.6 174,631 1.3 103,206 0.8
Interest expense (380,241) (3.3) (338,248) (2.6) (296,265) (2.3)
------------ ----- ------------ ----- ------------ -----
Earnings (loss) before income taxes (596,620) (5.1) 79,864 0.6 (288,998) (2.2)
Income taxes from continuing
operations 187,500 1.6 (25,400) (0.2) 41,543 0.3
------------ ----- ------------ ----- ------------ -----
Net earnings (loss) from continuing
operations (409,120) (3.5) 54,464 0.4 (247,455) (1.9)
Net earnings of discontinued operations -- 0.0 -- 0.0 73,319 0.6
Cumulative effect of a change in
accounting principle 61,744 0.5 -- 0.0 -- 0.0
------------ ----- ------------ ----- ------------ -----
Net earnings (loss) $ (347,376) (3.0)% $ 54,464 0.4% $ (174,136) (1.3)%
============ ===== ============ ===== ============ =====
Depreciation and amortization $ 242,582 2.1% $ 258,974 2.0% $ 221,491 1.7%
============ ===== ============ ===== ============ =====
11
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 3,387,949 shares, or approximately 61.0% of the
common stock of the Company. The transaction had an effective date of December
31, 2000. In addition to giving up its 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. Gross margins as a percentage of sales
during the six month period ended December 31, 2000 were 14.3%. Total selling
expenses as a percentage of sales were 4.8% for the six month period ended
December 31, 2000. General and administration expense as a percentage of sales
was 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.
Fiscal Year Ended June 30, 2003 Compared to Fiscal Year Ended June 30, 2002.
The Company had a net loss of $347,376 for the year ended June 30, 2003 compared
to net earnings of $54,464 for the year ended June 30, 2002. The loss per share
for fiscal 2003 amounted to $0.17, a decrease of $0.20 per share from earnings
of $0.03 per share in fiscal 2002.
Sales decreased from $12,652,044 for the fiscal year ended June 30, 2002 to
$11,530,445 for the fiscal year ended June 30, 2003. This decrease of
$1,121,599, or 8.9%, was primarily due to a sluggish economy, the unsettled
geo-political environment and the tapering back of production at the Livingston,
Tennessee plant.
Sales at the W-W Manufacturing location in Thomas, Oklahoma increased $241,499,
or 3.0%, from $8,077,658 in fiscal 2002 to $8,319,157 for the fiscal year ended
June 30, 2003. Certain sales normally serviced at the Livingston, Tennessee
plant were moved to the Thomas location due to customer requests for a powder
coat paint finish. This helped sales levels at the Thomas location to remain
consistent with prior years.
Sales at the Eagle Enterprises location in Livingston, Tennessee decreased
$1,239,617, or 40.9%, from $3,033,256 in fiscal 2002 to $1,763,639 for the
fiscal year ended June 30, 2003. The Livingston plant was hit hardest by the
sluggish economy, the need to update certain equipment and the need for
installation of a new paint system. After the powder coat paint system was
implemented in Thomas, Oklahoma, many customers wanted to purchase only product
with a powder coat finish. With the economic environment in decline, management
decided that the cost to install a new paint system in the Livingston plant was
to high and the risk too great for the Company to take. During November 2002 the
decision to scale back operations at the Livingston plant was made. While
certain revenues were transferred to the Thomas plant, many revenues were
permanently lost. During June 2003 management made the decision to market a new
inline pre-galvanized product from the Livingston plant. This product allows for
manufacturing without problems related to paint. Management believes this new
product will allow the Livingston plant to be in full operation by the second
quarter of fiscal 2004.
Sales at the W-W Paul location in Duncan, Oklahoma decreased $123,481, or 7.9%,
from $1,571,130 for the fiscal year ended June 30, 2002 to $1,447,649 for the
fiscal year ended June 30, 2003. Whereas the Duncan location's primary
manufacturing responsibilities are livestock scales and hydraulic squeeze
chutes, they also serve as a supply source to the Thomas location. While all
interdivision sales are eliminated for financial statement purposes, the Duncan
location had a substantial increase in such sales. This allowed overall sales
for the Duncan location to remain stable. With the improved economic outlook and
the completion of new and redeveloped scales, management believes that sales at
the Duncan location should increase during fiscal 2004.
12
Gross margins decreased from 23.1% in fiscal 2002 to 18.2% in fiscal 2003. This
decrease of 4.9% is the result of an increase in workers compensation insurance
rates as well as steel tariffs imposed by Congress that resulted in higher steel
costs. In addition, the Livingston, Tennessee plant was affected by various
paint finish related problems that resulted in the replacement of products to
various customers at no charge. The Company did recover some of the replacement
costs by selling and reworking the bad product, however not all costs could be
recovered. The gross margin decrease is also the result of lower sales volumes,
which did not allow for the absorption of fixed manufacturing overhead and
several large special projects that resulted in a loss. Because of the slow
economy and the competitive nature of many products, the Company did not believe
the increase in costs could be passed on to customers through price increases
without a large reduction in sales. Management anticipates improvement to gross
margins as the cost of steel dropped during the last portion of fiscal 2003 and
is expected to remain lower through the first half of fiscal 2004. The Company
has also performed an extensive evaluation of raw material costs and found
various ways to lower certain costs that will improve margins during fiscal
2004.
Selling expense as a percentage of sales increased from 9.1% in fiscal 2002 to
9.4% in fiscal 2003. The increase is due to lower sales volume. Total dollars
expended for selling expenses decreased $65,255 for the fiscal year ended June
30, 2003 as compared to fiscal 2002. Management anticipates that selling
expenses will remain steady throughout fiscal 2004.
General and administrative expenses decreased as a percentage of sales from
12.1% in fiscal 2002 to 11.1% for the fiscal year ended June 30, 2003. This
decrease is a result of a write down of an accounts receivable balance of one
large account that was in default of credit terms during fiscal year 2002.
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, increased $7,024 for
the fiscal year ended June 30, 2003 as compared to fiscal 2002.
Interest expense increased in fiscal 2003 to $380,241 as compared to $338,248 in
2002. The increase reflects heavy borrowings on the revolving lines of credit to
support the slow down in sales due to the economic downturn and related slow
down of customer payments and decrease in cash flow. As profits and cash flow
increase, the Company plans to reduce debt, thereby reducing overall interest
expense.
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.
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. 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
13
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.
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.
Selling expense as a percentage of sales increased from 7.8% in fiscal 2001 to
9.1% in fiscal 2002. Total dollars expended for selling expense increased
$129,435 for the year. This increase reveals the Company's aggressive pursuit of
new markets and expanding its distributor/dealer base. Additionally, the
increase is attributable to higher costs related to traveling expenses by
salesmen and expanded exposure to new trade shows not attended by the Company in
prior years.
General and administrative expenses increased as a percentage of sales from
10.3% in fiscal 2001 to 12.1% for the fiscal year ended June 30, 2002. This
increase is a result of a write down of the accounts receivable balance of one
large account that is in default of credit terms. 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.
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.
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
14
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.
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.
Inflation:
Raw material costs during fiscal 2003 were significantly higher than fiscal
2002. Steel costs most affected this increase. The Company attempts to adjust
selling prices to offset the effects of increased raw material costs. However,
these adjustments have historically been difficult to implement and tend to lag
behind cost increases. Minimizing the exposure to such cost increases is the
Company's diversity of operations and the ongoing efforts to achieve greater
manufacturing efficiencies.
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 decreased for the year
ended June 30, 2003 to $(246,935) as compared to $2,003,747 for June 30, 2002.
This reduction is due to the reclassification of long-term debt to current
liabilities because the Company was in violation of certain bank covenants at
year-end. The Company is currently negotiating new covenants with the bank for
fiscal 2004.
The Company generated funds from operations of $190,041 primarily caused by a
decrease in net accounts receivable and inventory balances. The provision for
loss on the write off of accounts receivables amounted to $57,880 in fiscal 2003
as compared to $306,328 for the year ended June 30, 2002. This decrease is due
to the write down of a large account that was in default of credit terms at June
30, 3002. The Company continues to vigorously attempt collection of this
receivable and believes it is reasonably possible that it will succeed.
15
The report of independent auditors on the Company's June 30, 2003 financial
statements includes an explanatory paragraph indicating there is substantial
doubt about the Company's ability to continue as a going concern. The Company
believes that it has developed a viable plan to address these issues and that
its plan will enable the Company to continue as a going concern for the next
twelve months. The plan includes the realization of revenues from the
commercialization of new products and the reduction of certain operating
expenses. The financial statements do not include any adjustments to reflect the
uncertainties related to the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the inability of
the Company to continue as a going concern. There is no assurance that the
Company will be able to achieve additional financing or that such events will be
on terms favorable to the Company.
The Company used cash in investing activities for the purchase and replacement
of property and equipment. Cash used in investing activities decreased to
$18,548 for the year ended June 30, 2003 compared to $37,124 for the same period
of 2002. Cash purchases for property and equipment remained consistent from
$42,378 in 2002 to $41,148 in 2003.
Net cash used in financing activities resulted in a net decrease in borrowing on
its revolving credit line of $104,366 for the year ended June 30, 2003. This
decrease was the result of increased efficiencies in the new production plant in
Thomas, Oklahoma and related pay down of the credit line. As the Company moves
into fiscal 2004 it anticipates that borrowing under its revolving line will
remain steady as sales increase 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 term loan
borrowings to help supply the present and future growth of the Company. Terms
and conditions of the agreement were not altered significantly from the original
term agreement. The Company also 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 and $160,584 from another of the Company's lending institutions,
Bancfirst of Duncan, Oklahoma. All other banking and credit agreements were
satisfactorily maintained throughout fiscal 2003.
Even with the weakened economic climate the Company has been able to maintain
sales at reasonable levels. Gross margins were weakened because of increased
material costs, production problems and discount incentives used to maintain
sales levels. The Company anticipates a recovery in profits during fiscal 2003
due to a decline in steel costs and an overall improvement in the economic
outlook.
Critical Accounting Policies:
Management's discussion and analysis of the Company's financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. Management bases its estimates and judgments
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition. The Company generally recognizes revenue when products are
shipped, which is when title and risk of loss pass to the buyer and provides for
estimated returns and allowances at the time of sale. The Company permits
customers to return defective products and incorrect shipments for credit
against other purchases. Terms offered by the Company are standard for the
industry.
16
Allowance for Doubtful Receivables. The Company uses the allowance method of
accounting for bad debts. The allowance is based upon estimates using analysis
of the company's prior experience, customer credit history and current economic
trends.
Historically, the Company's estimates of bad debts related to its various
receivables have been adequate to cover actual losses. Uncollectible accounts
written off were $57,880, $306,328 and $28,212 for the fiscal years ended June
30, 2003, 2002 and 2001, respectively. The Company's estimates involve a
significant amount of judgment, and actual results could differ adversely
resulting in additional losses on receivables over and above the reserves
provided. However, the Company believes its allowances for doubtful receivables
are fairly stated as of June 30, 2003.
Inventories. Inventories are stated at the lower of cost or market and consist
of raw materials, work-in-process and finished goods. Management evaluates the
need to record adjustments for impairments of inventory on a quarterly basis.
The determination of whether or not inventory items are slow moving, obsolete or
in excess of needs requires estimates about the future demand and ongoing
success of our products. A decrease in product demand due to changing customer
tastes, consumer buying patterns or loss of display space to competitors could
significantly impact our evaluation of our excess and obsolete inventories.
Accruals for Self-Insurance. Self-insurance accruals are made for certain claims
associated with employee health care. These accruals include estimates that are
based on historical losses. Differences in estimates and assumptions could
result in an accrual requirement materially different from the calculated
accrual.
Impairment of Long - Lived Assets. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," long-lived assets such as property, plant and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are separately presented in the balance sheet and reported at the lower of
the carrying amount or fair value less costs to sell, and are no longer
depreciated.
Prior to June 30, 2002, the impairment of long-lived assets was accounted for in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of."
Income Taxes. The Company accounts for income taxes under the asset and
liability method in accordance with Statement of Financial Accounting Standard
(SFAS) No. 109, "Accounting for Income Taxes". The Company recognizes deferred
income taxes, net of valuation allowances, for the estimated future tax effects
of temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their tax bases and net operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Changes in deferred tax
assets and liabilities are recorded in the provision for income taxes. As of
June 30, 2003 the Company had approximately $157,100 in net deferred tax assets.
The Company evaluates on a regular basis the realizability of its deferred tax
assets for each taxable jurisdiction. In making this assessment, management
considers whether it is more likely than not that some portion or all of its
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent on the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers all available evidence, both positive and negative, in making this
assessment.
17
Recent Accounting Pronouncements:
In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities", which
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of commitment to an
exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
SFAS No. 146 is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.
In November 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). These rules supersede
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of", providing a single accounting model
for long-lived assets to be disposed of. Although retaining many of the
fundamental recognition and measurement provisions of Statement 121, the new
rules significantly change the criteria that would have to be met to classify an
asset as held-for-sale. Statement 144 also supersedes the provisions of APB
Opinion 30 with regard to reporting the effects of a disposal of a segment of a
business. Adoption of SFAS 144 did not have a material impact on the Company's
financial condition, results of operations or cash flows.
In June 2001, the FASB issued SFAS No. 141, "Business Combination." SFAS No. 141
requires that unamortized negative goodwill arising from a business combination,
for which the acquisition date was before July 1, 2001, shall be written off and
recognized as a change in accounting principle. SFAS No. 141 was effective for
the Company on July 1, 2002, at which time the Company had $61,744 of
unamortized negative goodwill. The write off resulted in an increase in income
and was reflected as a cumulative effect of a change in accounting principle.
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, 2003, the Company had
variable rate notes payable of approximately $2,637,000. 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.
18
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, 2003 and
June 30, 2002. . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years
ended June 30, 2003, 2002 and 2001 . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended June 30, 2003, 2002 and 2001 . . . . . . F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 2003, 2002 and 2001 . . . . . . . . . . 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.
19
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, 2003 and 2002, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years ended June 30, 2003. 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, 2003 and 2002, and the results of
their operations and their cash flows for each of the three years ended June 30,
2003, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficit and a net capital deficiency. The Company
is also in violation of certain bank covenants at June 30, 2003. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management plans regarding those matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
BROCK AND COMPANY, CPAs, P.C.
Fort Collins, Colorado
September 15, 2003
F-1
W W CAPITAL CORPORATION
Consolidated Balance Sheets
====================================================================================
June 30 2003 2002
- ------------------------------------------------------------------------------------
ASSETS
Current Assets;
Cash $ 127,479 $ 137,948
Accounts receivable, trade, net of allowance for doubtful
accounts of $290,000 in 2003 and $275,000 in 2002 1,382,198 1,729,161
Accounts receivable, other 13,458 162,703
Inventories 1,511,826 1,790,304
Prepaid expenses 41,556 35,632
Current portion of notes receivable, related parties 1,261 603
Current portion of net investment in sales-type lease 18,055 --
Deferred income tax asset 178,000 149,500
---------- ----------
Total current assets 3,273,833 4,005,851
---------- ----------
Property and Equipment, net of accumulated
depreciation of $2,337,391 in 2003 and
$2,135,406 in 2002 2,275,087 2,155,188
---------- ----------
Other Assets;
Long-term notes receivable, related parties,
net of current portion 19,812 20,470
Net investment in sales-type lease, net of current portion 27,398 --
Loan acquisition costs, net of accumulated amortization
of $7,175 in 2003 and $3,075 in 2002 33,825 37,925
Equipment deposits 175,000 175,000
Other assets 40,463 41,130
---------- ----------
Total other assets 296,498 274,525
---------- ----------
Total assets $5,845,418 $6,435,564
========== ==========
The accompanying Notes are an integral part of the
consolidated financial statements
F-2
W W CAPITAL CORPORATION
Consolidated Balance Sheets (continued)
========================================================================================
June 30 2003 2002
- ----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities;
Accounts payable $ 1,260,959 $ 1,373,803
Accrued payroll and related taxes 205,417 198,887
Accrued property taxes 9,050 10,400
Accrued interest payable 14,898 80,106
Other current liabilities 14,444 24,908
Current portion of notes payable 1,943,000 239,000
Current portion of capital lease obligations 73,000 75,000
----------- -----------
Total current liabilities 3,520,768 2,002,104
----------- -----------
Long-Term Liabilities;
Long-term notes payable, net of current portion 1,498,515 2,966,693
Long-term capital lease obligations, net of current portion 1,147,461 1,219,973
Deferred income tax liability 20,900 179,900
Negative goodwill, net of accumulated amortization of
$5,466 in 2002 -- 61,744
----------- -----------
Net long-term liabilities 2,666,876 4,428,310
----------- -----------
Total liabilities 6,187,644 6,430,414
----------- -----------
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 2003 and 2002 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (824,182) (476,806)
----------- -----------
2,536,889 2,884,265
Less 3,543,213 shares of treasury stock at June 30, 2003
and 2002, at cost (2,879,115) (2,879,115)
----------- -----------
Net stockholders' equity (deficit) (342,226) 5,150
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 5,845,418 $ 6,435,564
=========== ===========
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 2003 2002 2001
- -------------------------------------------------------------------------------------------
Net Sales $ 11,530,445 $ 12,652,044 $ 13,092,869
Cost of Goods Sold 9,431,355 9,731,506 10,814,417
------------ ------------ ------------
Gross profit 2,099,090 2,920,538 2,278,452
------------ ------------ ------------
Operating Expenses;
Selling expenses 1,087,220 1,152,475 1,023,040
General and administrative expenses 1,283,158 1,524,582 1,351,351
------------ ------------ ------------
Total operating expenses 2,370,378 2,677,057 2,374,391
------------ ------------ ------------
Income (Loss) From Operations (271,288) 243,481 (95,939)
------------ ------------ ------------
Other Income (Expense);
Interest income 211 7,569 35,060
Interest expense (380,241) (338,248) (296,265)
Gain (loss) on property and equipment (3,439) 4,700 45,438
Other income, net 58,137 162,362 22,708
------------ ------------ ------------
Net other income (expense) (325,332) (163,617) (193,059)
------------ ------------ ------------
Earnings (Loss) Before Income Taxes (596,620) 79,864 (288,998)
Income Tax Benefit (Expense) From
Continuing Operations 187,500 (25,400) 41,543
------------ ------------ ------------
Earnings (loss) from continuing
operations (409,120) 54,464 (247,455)
------------ ------------ ------------
Discontinued Operations;
Earnings from operations of Titan Industries
disposed of (net of income taxes of
$59,000 at June 30, 2001) -- -- 88,219
Loss on disposal of Titan Industries -- -- (14,900)
------------ ------------ ------------
Earnings from discontinued operations -- -- 73,319
------------ ------------ ------------
Cumulative Effect of a Change
In Accounting Principle 61,744 -- --
------------ ------------ ------------
Net Earnings (Loss) $ (347,376) $ 54,464 $ (174,136)
============ ============ ============
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 2003 2002 2001
- --------------------------------------------------------------------------------------------
Earnings Per Common Share
Basic
Earnings (loss) from continuing operations $ (0.20) $ 0.03 $ (0.07)
Earnings from discontinued operations 0.00 0.00 0.02
Loss on disposal of Titan Industries 0.00 0.00 0.00
Cumulative effect of a change in
accounting principal 0.03 0.00 0.00
------------- ------------- -------------
Net earnings (loss) $ (0.17) $ 0.03 $ (0.05)
============= ============= =============
Weighted average number of
common shares outstanding 2,010,614 2,010,614 3,724,256
Diluted
Earnings (loss) from continuing operations $ (0.20) $ 0.03 $ (0.07)
Earnings from discontinued operations 0.00 0.00 0.02
Loss on disposal of Titan Industries 0.00 0.00 0.00
Cumulative effect of a change in
accounting principal 0.03 0.00 0.00
------------- ------------- -------------
Net earnings (loss) $ (0.17) $ 0.03 $ (0.05)
============= ============= =============
Weighted average number of
common shares outstanding 2,010,614 2,010,614 3,724,256
The accompanying Notes are an integral part of the
consolidated financial statements
F-5
W W CAPITAL CORPORATION
Consolidated Statements of Stockholders' Equity (Deficit)
===================================================================================================================================
Years ended June 30, 2003, 2002 and 2001
Common Stock Treasury Stock
-------------------- Capital -------------------- Total
Number of Par In Excess Accumulated Number of Stockholders'
Shares Value of Par Value Deficit Shares Cost Equity (Deficit)
-------------------------------------------------------------------------------------
Balance, July 1, 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. -- -- -- -- (3,387,949) (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) (3,543,213) (2,879,115) (49,314)
Net earnings for year ended June 30, 2002 -- -- -- 54,464 -- -- 54,464
--------- --------- ----------- ----------- ---------- ----------- -----------
Balance, June 30, 2002 5,553,827 55,538 3,305,533 (476,806) (3,543,213) (2,879,115) 5,150
Net loss for year ended June 30, 2003 -- -- -- (347,376) -- -- (347,376)
--------- --------- ----------- ----------- ---------- ----------- -----------
Balance, June 30, 2003 5,553,827 $ 55,538 $ 3,305,533 $ (824,182) (3,543,213) $(2,879,115) $ (342,226)
========= ========= =========== =========== ========== =========== ===========
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 2003 2002 2001
- -----------------------------------------------------------------------------------------------------
Cash Flow From Operating Activities;
Net earnings (loss) $ (347,376) $ 54,464 $ (174,136)
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by operating activities
Earnings from discontinued operations -- -- (43,511)
Depreciation 238,482 249,760 203,059
Amortization 4,100 9,214 18,432
(Gain) loss on dispositions of property
and equipment 3,439 (4,700) (45,438)
Provision for loss on accounts and
notes receivable 57,880 306,328 28,212
Amortization of negative goodwill -- (2,343) (2,343)
Effects of change in accounting principle (61,744) -- --
Write down of inventory to net realizable value 3,181 15,469 52,826
Net changes in assets and liabilities
Accounts receivable 289,083 (487,905) (201,153)
Inventories 275,297 (76,451) (16,340)
Other current and non-current assets 70,035 (85,192) (82,704)
Accounts payable, accrued expenses and
other current liabilities (342,336) (67,368) 206,757
------------ ------------ ------------
Net cash provided (used) by operating activities 190,041 (88,724) (56,339)
------------ ------------ ------------
Cash Flow From Investing Activities;
Proceeds from sale of property and equipment 22,600 4,700 73,435
Purchases of property and equipment (41,148) (42,378) (179,306)
Proceeds from stockholders' notes receivable -- 554 507
------------ ------------ ------------
Net cash used by investing activities (18,548) (37,124) (105,364)
------------ ------------ ------------
Cash Flow From Financing Activities;
Borrowings on notes payable 11,955,581 12,168,450 11,966,434
Payments on notes payable (12,063,031) (12,017,568) (11,700,110)
Payments on capital leases (74,512) (62,559) (37,982)
Payment of loan acquistion 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; (181,962) 47,323 64,278
------------ ------------ ------------
Net Decrease in Cash (10,469) (78,525) (97,425)
------------ ------------ ------------
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 2003 2002 2001
- -------------------------------------------------------------------------------------------
Net Decrease in Cash $ (10,469) $ (78,525) $ (97,425)
Cash, Beginning of year 137,948 216,473 313,898
----------- ----------- -----------
Cash, End of year $ 127,479 $ 137,948 $ 216,473
=========== =========== ===========
Supplemental Information;
Cash paid during the year for interest $ 414,141 $ 320,502 $ 248,084
Cash paid during the year for income taxes $ 7,425 $ 5,835 $ 50,677
Installment loans and capital leases to acquire
property and equipment $ 343,272 $ 11,135 $ 1,313,904
Installment loan to acquire residential
rental property $ -- $ 28,542 $ --
Installment loans used for deposits on purchase
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, 2003
================================================================================
Note 1 - Summary of Significant Accounting Policies
Nature of Operations. W W Capital Corporation and its
wholly-owned subsidiary (the Company) principally engage in the
manufacture, distribution and sale of a wide range of livestock
confinement and handling equipment.
Basis of Presentation. The accompanying consolidated financial
statements include the accounts of W W Capital Corporation and its
wholly-owned subsidiary, W-W Manufacturing Co., Inc. (W-W
Manufacturing). 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.
Accounts Receivable and Allowance for Doubtful Accounts.
Accounts receivable consist primarily of receivables from the sale of
livestock handling equipment. The Company uses the allowance method of
accounting for bad debts. The allowance is based upon estimates using
analysis of the Company's prior experience, customer credit history and
current economic trends. It is reasonably possible the estimates may
change in the near term.
Inventories. Inventories are stated at the lower of cost or
market. Cost includes materials, labor and production costs and is
determined on a first-in, first-out (FIFO) method.
Property and Equipment. Property and equipment are stated at
cost. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets, which are
generally thirty to forty years for buildings and improvements, three
to seven years for leasehold improvements and automobiles and trucks,
and five to seven years for machinery and equipment and office
equipment. Amortization of property and equipment under capital leases
is included in depreciation expense.
Loan Acquisition Costs. Loan acquisition costs were incurred
to obtain certain of the Company's long-term debt. Such costs have
been capitalized and are being amortized over the terms of the related
debt.
Long-Lived Assets. Long-lived assets to be held and used are
recorded at cost. Management reviews long-lived assets and the related
intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable. Recoverability of these assets is determined by comparing
the forecasted undiscounted net cash flows of the operation to which
the assets relate, to the carrying amount including associated
intangible assets of such operation. If the operation is determined to
be unable to recover the carrying amount of its assets, then
intangible assets are written down first, followed by the other
long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values,
depending upon the nature of the assets.
F-9
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
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 and Cumulative Effect of a Change in
Accounting Principle. Negative goodwill was recorded in the
acquisition of the Adrian J. Paul Company. It is the excess of the
value of acquired assets over the total cash paid and liabilities
assumed, after reducing long-term assets.
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations." SFAS No. 141 requires that unamortized negative
goodwill arising from a business combination, for which the
acquisition date was before July 1, 2001, shall be written off and
recognized as a change in accounting principle. SFAS No. 141 was
effective for the Company on July 1, 2002, at which time the Company
had $61,744 of unamortized negative goodwill. The write off resulted
in an increase in income and was reflected as a cumulative effect of a
change in accounting principle.
Stock-Based Compensation. The Company applies the provisions
of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." The Statement defined a fair
value based method of accounting for stock options or similar equity
instruments. SFAS No. 123 allows an entity to continue to measure
compensation cost for employee stock option plans using the intrinsic
value based method of accounting prescribed by Accounting Principles
Board Opinion (APB) No. 25, which was elected by the Company. SFAS No.
123 requires the Company to make certain proforma disclosures as if the
fair value based method had been applied. The effects of the fair value
based method for the periods presented were not material for proforma
disclosure.
Revenue Recognition. The Company recognizes revenue in the
period the product is shipped and title is transferred to the customer.
Shipping and handling charges are included in net sales and the related
costs are included in cost of goods sold.
Advertising. The Company expenses the cost of advertising the
first time the advertising takes place. Advertising expense for the
years ended June 30, 2003, 2002 and 2001 was $126,859, $145,639 and
$137,045, respectively.
Income Taxes. Deferred income taxes are recognized for
temporary differences resulting from income and expense items reported
for financial accounting and tax purposes in different periods.
Deferred income taxes are classified as current or noncurrent,
depending on the classification of the assets and liabilities to which
they relate. Deferred income taxes arising from temporary differences
that are not related to an asset or liability are classified as
current or noncurrent depending on the periods in which the temporary
differences are expected to reverse. The recognition of deferred tax
assets is reduced if necessary, by the amount of any tax benefits
that, based on available evidence, are not expected to be realized.
Per Share Data. Basic earnings per share were computed on the
basis of weighted average number of shares outstanding. Diluted
earnings per share includes outstanding stock options, unless the
effect would be anti-dilutive.
F-10
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 2 - Going Concern
As shown in the accompanying financial statements, the Company
incurred a net loss of $347,376 during the year ended June 30, 2003,
and as of that date, the Company has a net working capital deficit
totaling $246,935 and total liabilities exceeded total assets by
$342,226. The Company is also in violation of bank covenants pertaining
to the maintenance of minimum net income and a minimum debt service
ratio.
The Company believes that it has developed a viable plan to
address these issues and that the plan will enable the Company to
continue as a going concern for the next twelve months. This plan
includes the realization of revenues from the commercialization of new
products and the reduction of certain operating expenses. Although the
Company believes that the plan will be realized, there is no assurance
that these events will occur. The financial statements do not include
any adjustments to reflect the uncertainties related to the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the inability of the
Company to continue as a going concern.
Note 3 - Related Party Transactions
Receivables. Notes receivable from stockholders and all
affiliated entities consisted of the following at June 30:
2003 2002
---- ----
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 $ 21,073
Less current portion (1,261) (603)
-------- --------
$ 19,812 $ 20,470
======== ========
Interest receivable on related party notes totaled $10,613 at
June 30, 2003 and 2002.
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,
2003. 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.
F-11
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 4 - Inventories
Inventories consisted of the following at June 30:
2003 2002
---- ----
Raw materials $ 528,112 $ 528,110
Work-in-process 375,882 418,334
Finished goods 607,832 843,860
----------- -----------
$ 1,511,826 $ 1,790,304
=========== ===========
During the fourth quarter of 2003, 2002 and 2001, the Company
evaluated its inventories for impairment. The inventory value was
written down by $3,181, $15,469 and $52,826, 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.
Note 5 - Sales-Type Lease
The Company's leasing operations consist principally of
leasing livestock equipment under a sales-type lease expiring August
2005.
The following is a summary of the components of the Company's
net investment in the sales-type lease at June 30, 2003:
Total minimum lease payments
to be received $ 56,629
Unearned income (11,176)
------------
Net investment $ 45,453
============
Future minimum lease payments to be received under the
sales-type lease are as follows at June 30, 2003:
Year
----
2004 $ 24,432
2005 24,432
2006 7,765
------------
$ 56,629
============
Note 6 - Acquired Intangible Assets
In September 2001, the Company incurred loan acquisition costs
to obtain certain long-term debt. Such costs have been capitalized and
are being amortized over the terms of the related debt or ten years.
Loan acquisition costs are as follows at June 30:
2003 2002
---- ----
Gross carrying amount $ 41,000 $ 41,000
Accumulated amortization (7,175) (3,075)
--------- ---------
Net loan acquisition costs $ 33,825 $ 37,925
========= =========
Aggregate amortization expense totaled $4,100 and $3,075 for
the years ended June 30, 2003 and 2002, respectively.
F-12
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 6 - Acquired Intangible Assets (continued)
Estimated amortization expense is as follows for the years
ended June 30:
Year
2004 $ 4,100
2005 4,100
2006 4,100
2007 4,100
2008 4,100
Note 7 - Property and Equipment
Property and equipment consisted of the following at June 30:
2003 2002
---- ----
Land and improvements $ 122,622 $ 102,622
Building and improvements 2,034,615 1,844,031
Leasehold improvements 89,372 89,372
Machinery and equipment 1,547,564 1,512,123
Automobiles and trucks 484,486 417,770
Office equipment 333,819 324,676
---------- ----------
4,612,478 4,290,594
Less accumulated depreciation
and amortization (2,337,391) (2,135,406)
---------- ----------
$2,275,087 $2,155,188
========== ==========
Note 8 - 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 3,387,949
shares, or approximately 61.0%, 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 result of the discontinued operation for the period from
July 1, 2000 through December 31, 2000 is as follows:
Net Sales $ 4,699,336
===========
Earnings before provision for income taxes $ 147,219
Provision for income taxes (59,000)
Loss on disposal of Titan Industries (14,900)
-----------
Earnings from discontinued operation $ 73,319
===========
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-13
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 9 - 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, 2003, 2002, and 2001, the Company made
$33,175, $25,430 and $11,877 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, 2003,
options to purchase 823,500 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
80,168 are outstanding as of June 30, 2003. These options vest
immediately and expire ten years after issuance.
Number of Weighted Average
Shares Exercise Price
------ --------------
Outstanding, July 1, 2000 (all vested) 430,168 $ 0.8000
Granted 10,000 0.0625
Exercised (13,166) 0.0800
Cancelled (152,834) 0.6400
-------- ------
Outstanding, June 30, 2001 (all vested) 274,168 0.9000
Granted -- --
Exercised -- --
Cancelled (17,500) 2.5000
------- ------
Outstanding, June 30, 2002 (all vested) 256,668 0.7900
Granted -- --
Exercised -- --
Cancelled (50,000) 1.5000
------- ------
Outstanding, June 30, 2003 (all vested) 206,668 $ 0.6200
========= ============
F-14
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
==================================================================================================================
Note 9 - 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
------ ----------- ------------ ----- ------ -----
0.8125 16,001 0.0 $0.8125 16,001 $0.8125
0.7500 140,667 0.9 0.7500 140,667 0.7500
0.5625 10,000 2.0 0.5625 10,000 0.5625
0.0630 10,000 3.0 0.0630 10,000 0.0630
0.3000 10,000 5.0 0.3000 10,000 0.3000
0.0625 20,000 6.5 0.0625 20,000 0.0625
------ --- ------ ------ ------
206,668 1.8 $0.6200 206,668 $0.6200
======= === ======= ======= =======
Note 10 - Long-Term Debt
Long-term debt consists of the following at June 30:
2003 2002
---- ----
Financial Institutions
----------------------
Revolving note payable bears interest at 3.0% above the Bank's
base rate (total interest rate of 7.0% at June 30, 2003). 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. $ 1,466,509 $ 1,570,875
Term note payable bears interest at 4% over the Bank's base
rate(total interest rate of 8.0% at June 30, 2003). The note is due in
monthly principal installments of $6,250 plus interest through November
2004. The note is collateralized by equipment, inventory, intangibles
and receivables. 175,000 --
Note payable bears interest at 6.0% and is due in monthly
installments, including principal and interest, of $1,790 through July
2012. The note is collateralized by a building located in Duncan,
Oklahoma. 149,437 --
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. 103,472 142,939
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. 84,643 106,899
F-15
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 10 - Long-Term Debt (continued)
2003 2002
---- ----
Note payable bears interest at 6.0% and is due in annual
installments of $23,000, including principal and interest, through
August 2005. The note is collateralized by a lease purchase agreement. $ 48,114 $ --
Note payable is non-interest bearing and is due in monthly
installments of $573 through May 2008. The note is collateralized by a
vehicle. 33,781 --
Note payable bears interest at 8.9% and is due in monthly
\ installments of $1,744 , including principal and interest, through
February 2005. The note is collateralized by a vehicle. 32,286 49,359
Note payable is non-interest bearing and is due in monthly
installments of $592 through June 2007. The note is collateralized by
a vehicle. 28,412 --
Note payable bears interest at 2.9% and is due in monthly
installments of $695, including principal and interest, through
December 2006. The note is collateralized by a vehicle. 27,728 --
Note payable bears interest at 8.0% and is due in monthly
installments of $312, including principal and interest, through August
2006, at which time the remaining principal balance is due. The note is
collateralized by rental property in Thomas, Oklahoma. 25,674 27,291
Note payable bears interest at 3.9% and is due in monthly
installments of $441, including principal and interest, through March
2007. The note is collateralized by a vehicle. 18,421 --
Note payable bears interest at 7.75% and is due in monthly
installments of $379, including principal and interest, through July
2007. The note is collateralized by equipment. 15,886 --
Note payable bears interest at 8.5% and is due in monthly
installments of $522, including principal and interest, through
December 2004. The note is collateralized by a vehicle. 8,796 13,990
Notes paid in full during 2003 -- 63,740
--------- ---------
2,218,159 1,975,093
--------- ---------
F-16
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 10 - Long-Term Debt (continued)
2003 2002
---- ----
Other Entities
--------------
Note payable bears interest at 3.0% above the Wall Street
prime lending rate (total interest rate of 7.0% at June 30, 2003). The
note is payable in monthly installments, including principal and
interest, of $14,374 through December 2010. The note is collateralized
by 2,448,000 shares of the Company's treasury stock. $ 995,324 $ 1,011,981
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. 183,678 213,523
Note payable bears interest at 5.0% and is due in monthly
installments of $944, including principal and interest, through July
2007. The note is collateralized by a building located in Duncan,
Oklahoma. 41,739 --
Note payable bears interest at 5.25% and is due in quarterly
installments of $675, including principal and interest, through
September 2004. The note is unsecured. 2,615 5,096
--------- ---------
1,223,356 1,230,600
--------- ---------
3,441,515 3,205,693
Less current portion (1,943,000) (239,000)
--------- ---------
$1,498,515 $2,966,693
========== ==========
A revolving note payable in the amount of $1,466,509 at June
30, 2003 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 $410,000 of
the Company's consolidated net assets at June 30, 2003 are considered
to be restricted net assets of consolidated subsidiaries.
At June 30, 2003, the Company was in violation of the minimum
net income and minimum debt service ratio covenants. As a result, the
Company classified $1,566,509 of long-term debt as a current liability.
The aggregate maturities of long-term debt are as follows at
June 30, 2003:
Year
----
2004 $1,943,000
2005 343,283
2006 231,443
2007 233,839
2008 195,319
Thereafter 494,631
----------
$3,441,515
==========
F-17
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 11 - 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
$79,711 and $44,284 at June 30, 2003 and 2002, 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 accumulated amortization of $115,220 and $86,681
at June 30, 2003 and 2002.
Future minimum lease payments required under noncancelable
capital leases are as follows at June 30, 2003.
Year Building Equipment Total
---- -------- --------- -----
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
2008 157,600 - 157,600
Thereafter 1,242,026 - 1,242,026
----------- ---------- -----------
Total minimum lease payments 2,030,026 35,227 2,065,253
Less: amount representing interest (842,770) (2,022) (844,792)
----------- ---------- -----------
Present value of net minimum lease payments $ 1,187,256 $ 33,205 $ 1,220,461
=========== ========== ===========
Operating Leases. In January 2002, the Company entered into a
two year lease extension for office space. The lease extension provides
for monthly rental payments of $2,733 through March 2003, 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, 2003 are as follows:
Warehouse and Vehicles and
Year Office Space Equipment Total
---- ------------ --------- -----
2004 $33,094 $32,651 $65,745
2005 3,250 8,270 11,520
2006 - 1,749 1,749
------- ------- -------
Total minimum payments required $36,344 $42,670 $79,014
======= ======= =======
Rental expense under operating leases for the years ended June
30, 2003, 2002 and 2001 amounted to $97,548, $130,993 and $196,253,
respectively.
F-18
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 12 - Negative Goodwill and Change in Accounting Principle
In June 2001, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations." SFAS No. 141 requires that unamortized
negative goodwill arising from a business combination, for which the
acquisition date was before July 1, 2001, shall be written off and
recognized as a change in accounting principle. SFAS No. 141 was
effective for the Company on July 1, 2002.
As of July 1, 2002, the Company had $61,744 of unamortized
negative goodwill relating to the fiscal year 2000 purchase of the
Adrian J. Paul Company by its subsidiary, WW Manufacturing Company. The
write off resulted in an increase in income and was reflected as a
cumulative effect of a change in accounting principle.
A reconciliation of reported net income (loss) adjusted to
reflect the adoption of SFAS No. 141 as if it had been effective July
1, 2000 is as follows:
2003 2002 2001
---- ---- ----
Reported net income (loss) $ (347,376) $ 54,464 $ (174,136)
Subtract-back adjustment for
accounting change (61,744) - -
Add-back goodwill amortization - 2,343 2,343
---------- --------- ----------
Adjusted net income (loss) $ (409,120) $ 56,807 $ (171,793)
========== ========= ==========
Adjusted net income (loss) per share-basic $ (0.20) $ 0.03 $ (0.5)
Adjusted net income (loss) per share-diluted $ (0.20) $ 0.03 $ (0.5)
Note 13 - Income Taxes
The provision for income taxes is as follows at June 30:
2003 2002 2001
---- ---- ----
Current
Federal $ - $ 68,000 $ 37,757
State - 7,000 19,000
Deferred (187,500) 25,400 (9,000)
Tax benefit of net operating loss - (75,000) (89,300)
---------- --------- ----------
$ (187,500) $ 25,400 $ (41,543)
========== ========= ==========
A reconciliation of income at the statutory rate to the
Company's effective rate is as follows at June 30:
2003 2002 2001
---- ---- ----
Federal statutory rate 34.00% 34.00% 34.00%
Non deductible expenses 1.02 12.63 (2.53)
Basis difference in assets and liabilities (65.22) 108.54 (25.42)
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 2.29 (101.96) -
Discontinued operations - - (20.42)
Change in accounting principal (3.52) - -
----- ----- -----
(31.43)% 31.80% (14.37)%
====== ===== ======
F-19
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 13 - Income Taxes (continued)
Deferred tax assets and liabilities are comprised of the
following at June 30:
2003 2002 2001
---- ---- ----
Deferred Tax Assets
Allowance for doubtful accounts $ 108,200 $ 102,600 $ 13,100
Accrued compensation 36,200 30,200 27,600
Inventory 17,300 19,900 19,100
Capital loss carryforward - 18,800 -
Net operating loss carryforward 158,900 15,000 89,300
Other 16,400 10,600 1,000
------- ------- -------
Total deferred tax assets 337,000 197,100 150,100
------- ------- -------
Deferred Tax Liabilities:
Depreciation of property and equipment (179,900) (179,900) (155,100)
Insurance proceeds receivable - (47,600) -
------- ------- -------
Total deferred tax liabilities (179,900) (227,500) (155,100)
------- ------- -------
Deferred taxes - net $ 157,100 $ (30,400) $ (5,000)
========== ========== ===========
Current deferred tax asset $ 178,000 $ 149,500 $ 150,100
Long-term deferred tax liability ( 20,900) (179,900) (155,100)
------- ------- -------
$ 157,100 $ (30,400) $ (5,000)
========== ========== ===========
As of June 30, 2003, the Company had the following net
operating loss carryforwards:
Expiration Net Operating
Date Loss
---- ---------
2021 $ 40,000
2022 386,000
-------
$ 426,000
========
Realization of the income tax benefits of future deductible
amounts is dependent on the Company's ability to generate taxable
income in amounts sufficient to absorb net operating loss carryovers
prior to the expiration of the carryovers. Provisions of the Internal
Revenue Code pertaining to changes in ownership interest and
alternative minimum taxes may limit the amount of carryovers that may
be absorbed in any specific year. It is reasonably possible that a
change in the estimate of deferred income tax assets may occur in the
near term.
Note 14 - 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, 2003, the Company's
accounts receivable, net of allowance for doubtful accounts, totaled
$1,382,198. The Company generally does not require collateral for
routine open accounts receivable.
F-20
W W CAPITAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 2003
================================================================================
Note 15 - Fair Value of Financial Instruments
The Company discloses fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the
balance sheet. The fair value of the financial statements disclosed
herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider tax
consequences of realization. The carrying value of cash, trade
receivables, notes receivable and accounts payable and variable rate
debt instruments approximate fair value. The carrying value of
long-term debt approximates fair value in 2003 and 2002 due to the
scheduled maturities and restrictive provisions of the debt.
Note 16 - Contingencies
Environmental. The Company's past and present operations
include activities that are subject to federal and state environmental
regulations.
In October 2000, the Company was notified by the Environmental
Protection Agency that the flow coat paint system located in its
Livingston, Tennessee plant was not in compliance with certain emission
regulations. The Company was issued a temporary paint permit which
expired on December 31, 2001. In January 2003, the Company surrendered
its temporary paint permit and discontinued all wet paint finishing at
the facility.
Note 17 - 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
$72,551 at June 30, 2003 and $60,000 at June 30, 2002 is included in
current liabilities in the consolidated balance sheets.
F-21
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, 2003 and 2002, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years ended June 30, 2003, and have issued our report thereon dated September
15, 2003. Our audit also included the financial statement schedules of W W
Capital Corporation listed in Item 14. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
BROCK AND COMPANY, CPAs, P.C.
Fort Collins, Colorado
September 15, 2003
S-1
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Balance Sheets
==================================================================================
June 30 2003 2002
- ----------------------------------------------------------------------------------
ASSETS
Current Assets;
Cash $ 17,378 $ 24,578
Deferred income tax asset 178,000 149,500
Other current assets 28,023 28,023
---------- ----------
Total current assets 223,401 202,101
---------- ----------
Equipment;
Net of accumulated depreciation of $128,628
in 2003 and $125,483 in 2002 8,637 5,539
---------- ----------
Other Assets;
Investment in wholly owned subsidiaries 656,568 1,073,600
Loan acquisition costs, net of accumulated amortization
of $7,175 in 2003 and $3,075 in 2002 33,825 37,925
Other assets 2,312 2,312
---------- ----------
Total other assets 692,705 1,113,837
---------- ----------
Total assets $ 924,743 $1,321,477
========== ==========
S-2
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Balance Sheets (continued)
=========================================================================================
June 30 2003 2002
- -----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities;
Accounts payable, subsidiaries $ 242,112 $ 69,561
Accrued expenses 8,633 54,885
Current portion of notes payable 104,000 63,000
----------- -----------
Total current liabilities; 354,745 187,446
----------- -----------
Long-Term Liabilities;
Long-term notes payable, net of current portion 891,324 948,981
Deferred income tax liability 20,900 179,900
----------- -----------
Net long-term liabilities 912,224 1,128,881
----------- -----------
Total liabilities 1,266,969 1,316,327
----------- -----------
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 2003 and 2002 55,538 55,538
Capital in excess of par value 3,305,533 3,305,533
Accumulated deficit (824,182) (476,806)
----------- -----------
2,536,889 2,884,265
Less 3,545,663 shares of treasury stock, at cost at
June 30, 2003 and 2002 (2,879,115) (2,879,115)
----------- -----------
Net stockholders' equity (deficit) (342,226) 5,150
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 924,743 $ 1,321,477
=========== ===========
S-3
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Statements of Operations
===========================================================================================
Years ended June 30 2003 2002 2001
- -------------------------------------------------------------------------------------------
Revenues;
Managment fee from subsidiaries $ 420,000 $ 396,000 $ 336,000
Operating Expenses;
General and administrative 475,568 444,927 397,511
--------- --------- ---------
Operating loss (55,568) (48,927) (61,511)
Other Income (Expense);
Interest income -- -- 1,659
Interest expense (62,321) (89,995) (48,969)
Other income 45 11,663 539
Equity in earnings (loss) of continuing subsidiaries
before income taxes (417,032) 207,123 (192,393)
--------- --------- ---------
Earnings (Loss) From Continuing Operations
Before Income Taxes (534,876) 79,864 (300,675)
Income Tax Benefit (Expense) From
Continuing Operations 187,500 (25,400) 53,220
--------- --------- ---------
Earnings (loss) from continuing operations (347,376) 54,464 (247,455)
--------- --------- ---------
Discontinued Operations;
Earnings from operations of Titan Industries
disposed of (net of income taxes of $59,000 at
June 30, 2001) -- -- 88,219
Loss on disposal of Titan Industries -- -- (14,900)
--------- --------- ---------
Earnings of discontinued operations -- -- 73,319
--------- --------- ---------
Net earnings (loss) $(347,376) $ 54,464 $(174,136)
========= ========= =========
S-4
W W CAPITAL CORPORATION
Schedule I - Condensed Financial Information of Registrant
Statement of Cash Flows
============================================================================================
Years ended June 30 2003 2002 2001
- --------------------------------------------------------------------------------------------
Net Cash Flows Provided (Used) by Operating Activities $ 15,700 $(292,239) $ 209,976
--------- --------- ---------
Cash Flows From Investing Activities;
Purchase of equipment (6,243) (2,587) (1,566)
--------- --------- ---------
Net cash used by investing activities (6,243) (2,587) (1,566)
--------- --------- ---------
Cash Flows From Financing Activities;
Borrowings on notes payable 31,308 261,981 --
Payments on notes payable (47,965) -- --
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 (16,657) 220,981 (164,064)
--------- --------- ---------
Net Increase (Decrease) in Cash (7,200) (73,845) 44,346
Cash, Beginning of Year 24,578 98,423 54,077
--------- --------- ---------
Cash, End of Year $ 17,378 $ 24,578 $ 98,423
========= ========= =========
Supplemental Disclosure of Cash Flow Information;
Cash paid during the year for interest $ 94,129 $ 75,216 $ 1,219
========= ========= =========
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, 2003
================================================================================
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:
2003 2002 2001
---- ---- ----
Amounts receivable (payable):
W-W Manufacturing Co. Inc. $(242,111) $ (69,561) $(168,664)
========= ========= =========
Management fee income from continuing operations:
W-W Manufacturing Co. Inc. $ 420,000 $396,000 $ 336,000
========= ========= =========
Equity (loss) from continuing subsidiary operations:
W-W Manufacturing Co. Inc. $(417,032) $207,123 $(192,393)
========= ========= =========
S-6
W W CAPITAL CORPORATION
Schedule II - Valuation and Qualifying Accounts
Years ended June 30, 2003
================================================================================
Additions
-----------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End of
Description of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
June 30, 2003
Allowance for doubtful accounts:
Accounts receivable $ 275,000 $ 57,880 $ -- $ 42,880 $ 290,000
June 30, 2002
Allowance for doubtful accounts:
Accounts receivable 35,000 306,328 -- 66,328 275,000
June 30, 2001
Allowance for doubtful accounts:
Accounts receivable 38,000 28,212 -- 31,212 35,000
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------- and Financial Disclosures.
-----------------------------------------------------------
Not Applicable
Item 9A. Controls and Procedures.
- -------- ------------------------
The Company's management, including the President and Chief Executive Officer,
conducted an evaluation of the effectiveness of disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based such evaluation, the CEO has
concluded that, as of June 30, 2003, the Company's disclosure controls and
procedures are effective in ensuring that material information relating to the
Company (including its consolidated subsidiaries), which is required to be
included in the Company's periodic filings under the Exchange Act, has been made
known to them in a timely manner.
There have been no significant changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the Company's most recent fiscal quarter (the
Company's fourth fiscal quarter in the case of this report) that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
20
PART III
Part III, Items 10, 11, 12, 13 and 14, 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,
2003.
21
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) (1) List of Financial Statements Filed as a Part of This Report
-----------------------------------------------------------
Consolidated Balance Sheets as of June 30, 2003 and June 30, 2002.
Consolidated Statements of Operations for the years ended June 30, 2003, 2002,
and 2001.
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
June 30, 2003, 2002, and 2001.
Consolidated Statements of Cash Flows for the years ended June 30, 2003, 2002,
and 2001.
(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.
10.6 Promissory Note dated September 20, 2001 given by the Registrant to
West-OK Investment, LLC.
22
21.0 Subsidiaries of the Registrant (attached hereto).
31.1 Certification of principal executive officer a required by Section 302
of the Sarbanes-Oxley Act of 2002 (attached hereto).
32.1 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 15 (b)
- -----------
No reports on Form 8-K were filed during the fourth quarter of the fiscal year
covered by this report.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
W W CAPITAL CORPORATION
(Registrant)
Dated: October 14, 2003 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: October 14, 2003 By: /s/ Steve D. Zamzow
-----------------------------------
Steve D. Zamzow, President, CEO
and Director
Dated: October 14, 2003 By: /s/ Harold Gleason
-----------------------------------
Harold Gleason, Chairman
Dated: October 14, 2003 By: /s/ L.M. "Mick" McCarty
------------------------------------
L.M. "Mick" McCarty, Secretary,
Treasurer and Director
Dated: October 14, 2003 By: /s/ Millard T. Webster
-----------------------------------
Millard T. Webster, Director
Dated: October 14, 2003 By: /s/ A. Randall Kourt
-----------------------------------
A. Randall Kourt, Director
24
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AS REQUIRED BY SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Steve D. Zamzow, President and Chief Executive Officer of W W Capital
Corporation, certify that:
1. I have reviewed the annual report on Form 10-K filed by W W
Capital Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and I have:
a. designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
my supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities,
particularly during the period in which this report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of this
annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's
internal control over financial reporting;
5. I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: October 14, 2003 By: /s/ Steve D. Zamzow
-----------------------------
Steve D. Zamzow,
President and CEO
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of W W Capital Corporation
(the "Company") for the period ending June 30, 2003 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: October 14, 2003 By: /s/ Steve D. Zamzow
----------------------------------
Steve D. Zamzow,
President and CEO