SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996, or
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
COMMISSION FILE NUMBER 0-19622
WTC INDUSTRIES, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 38-2308668
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(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
14405 - 21ST AVENUE NORTH, MINNEAPOLIS, MINNESOTA 55447
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(Address of Principal Executive Offices) (Zip Code)
(612) 473-1625
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing required for the past 90 days.
Yes __x__ No _____.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
10,691,698 shares of Common Stock as of October 24, 1996
Transitional Small Business Disclosure Format (check one):
Yes _____; No __x__
WTC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Unaudited Balance Sheets
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Unaudited Statements of Operations
Three Months Ended September 30, 1996 and 1995 4
Consolidated Condensed Unaudited Statements of Operations
Nine Months Ended September 30, 1996 and 1995 5
Consolidated Condensed Unaudited Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Condensed Unaudited Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 1996 1995
- ------ ------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 73,172 $ 33,489
Restricted Cash 123,900 148,000
Accounts receivable, net of allowance for doubtful accounts
of $34,000 and $149,000, respectively 721,200 787,775
Inventories 897,741 845,543
Prepaid expenses 55,298 63,062
------------ ------------
TOTAL CURRENT ASSETS 1,871,311 1,877,869
PROPERTY AND EQUIPMENT 886,169 935,420
Less accumulated depreciation 447,895 422,380
------------ ------------
438,274 513,040
OTHER ASSETS
Restricted cash 85,729
Loan acquisition costs, net of accumulated amortization
of $32,458 and $19,614, respectively 45,667 58,511
Patents and trademarks, net of accumulated amortization
of $51,301 and $36,678, respectively 46,712 61,335
Other 13,613 14,647
------------ ------------
105,992 220,222
------------ ------------
$ 2,415,577 $ 2,611,131
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- --------------------------------------
CURRENT LIABILITIES
Notes payable and current maturities of long-term obligations $ 946,515 $ 608,904
Accounts payable 438,959 903,974
Accrued expenses - other 361,620 430,014
------------ ------------
TOTAL CURRENT LIABILITIES 1,747,094 1,942,892
LONG-TERM OBLIGATIONS, net of current maturities 1,465,247 1,474,466
INDEBTEDNESS REFINANCED IN MARCH 1996 -- 800,000
STOCKHOLDERS' DEFICIT
Preferred stock -- 6,800
Common stock 106,966 82,898
Additional paid-in capital 11,021,891 8,039,159
Accumulated deficit (11,925,621) (9,735,084)
------------ ------------
(796,764) (1,606,227)
------------ ------------
$ 2,415,577 $ 2,611,131
============ ============
See notes to consolidated condensed unaudited financial statements.
</TABLE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30,
--------------------------------
1996 1995
------------- --------------
NET SALES $ 818,166 $ 798,717
COST OF GOODS SOLD 625,850 829,904
------------ ------------
GROSS PROFIT (LOSS) 192,316 (31,187)
EXPENSES
Selling, general and administrative 448,484 891,879
Research and development 46,036 32,287
------------ ------------
494,520 924,166
------------ ------------
LOSS FROM OPERATIONS (302,204) (955,353)
OTHER EXPENSE, NET (53,872) (93,140)
------------ ------------
NET LOSS $ (356,076) $ (1,048,493)
============ ============
NET LOSS PER COMMON SHARE $ (0.03) $ (0.15)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,690,652 7,105,322
============ ============
See notes to consolidated condensed unaudited financial statements.
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended September 30,
-------------------------------
1996 1995
------------- -------------
NET SALES $ 2,156,649 $ 1,967,305
COST OF GOODS SOLD 2,144,549 1,886,154
----------- -----------
GROSS PROFIT 12,100 81,151
EXPENSES
Selling, general and administrative 1,806,235 1,940,474
Research and development 127,529 220,776
----------- -----------
1,933,764 2,161,250
----------- -----------
LOSS FROM OPERATIONS (1,921,664) (2,080,099)
OTHER EXPENSE, NET (202,505) (261,500)
LOSS ON DISPOSAL FIXED ASSETS (66,368) 0
----------- -----------
(268,873) (261,500)
----------- -----------
NET LOSS $(2,190,537) $(2,341,599)
=========== ===========
NET LOSS PER COMMON SHARE $ (0.22) $ (0.35)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 9,971,820 6,666,236
=========== ===========
See notes to consolidated condensed unaudited financial statements.
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,190,537) $(2,341,599)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 187,019 171,214
Provision for obsolete inventory 250,000
Provision for doubtful accounts 36,000 69,000
Loss on disposal of fixed assets 66,368
Changes in operating assets and liabilities:
Accounts receivable 30,575 (348,310)
Inventories (302,198) 57,666
Prepaid expenses 8,798 (41,945)
Accounts payable (465,015) 167,979
Accrued expenses - other 118,213 324,707
----------- -----------
Net cash used in operating activities (2,260,777) (1,941,288)
----------- -----------
INVESTING ACTIVITIES
Restricted cash 109,829 89,422
Purchases of property and equipment (151,154) (194,907)
----------- -----------
Net cash used in investing activities (41,325) (105,485)
----------- -----------
FINANCING ACTIVITIES
Proceeds from loans by director/shareholder 400,000 1,308,399
Proceeds from sale of Common Stock to dirctor/shareholder 1,800,000
Proceeds from bank lines of credit 250,000 82,000
Payments on long-term obligations (108,215) (4,587)
----------- -----------
Net cash provided by financing activities 2,341,785 1,385,812
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,683 (660,961)
CASH AND CASH EQUIVALENTS:
Beginning of period 33,489 671,638
----------- -----------
End of period $ 73,172 $ 10,677
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 217,647 $ 114,031
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES -
Common stock issued on conversion of debt $ 1,200,000 $ 2,058,399
=========== ===========
Note payable issued on conversion of accrued expenses $ 186,607
===========
See notes to consolidated condensed unaudited financial statements.
</TABLE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED UNAUDITED
FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND MANAGEMENT'S PLANS REGARDING OPERATING LOSSES
AND LIQUIDITY
BUSINESS - WTC Industries, Inc. (WTC), formerly Water Technologies Corporation,
was incorporated in Delaware in April 1978. WTC and its subsidiaries (the
Company) manufacture and market water filtration and purification products for
commercial and personal use. Many of the Company's purification products are
based on an iodinated resin technology that was originally developed by Kansas
State University and has been licensed to the Company by Kansas State University
Research Foundation (KSURF). Prior to 1996, the majority of the Company's sales
have been to foreign customers or to customers in the United States who
ultimately resold the products to foreign customers. In 1996, the Company has
seen increased sales activities in the United States representing 32% of total
Net Sales.
GOING CONCERN - The accompanying financial statements have been prepared on a
going-concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
The Company incurred a net loss of $2,190,537 for the nine month period ended
September 30, 1996. Cash used in operating activities was $2,260,777. In
addition, at September 30, 1996, the Company had an accumulated deficit of
$11,925,621 and a stockholders' deficit of $796,764.
These factors, among others, indicate that the Company may not be able to
continue as a going concern for a reasonable period of time. Management's plans
to continue as a going concern include the following efforts to generate the
necessary cash flow to meet the Company's working capital needs until sufficient
operating cash flows can be generated to support the Company's cost structure:
a) raise additional capital, b) increase sales to a major appliance manufacturer
in the fourth quarter, c) complete introduction of the new PentaPure In-Line
product line scheduled for the fall of 1996 to generate revenues in first
quarter 1997, d) expand existing market presence in international markets with
new distributor network. There is no assurance that these plans can be
successfully carried out.
The Company's working capital requirements for 1995 were met principally through
the issuance of interest-bearing notes, aggregating $1,950,000, to the Chairman
of the Board and an entity to which the Chairman is affiliated. Of the amounts
advanced in 1995, $1,150,000, plus accrued interest of $58,399, was converted
into common stock of the Company in 1995 and $800,000 was converted into common
stock of the Company in March 1996. Also in 1995, the Chairman of the Board
assumed $1,100,000 of Company debt in exchange for common stock. During 1996,
the Chairman of the Board advanced an additional $2,200,000 to the Company for
additional shares of the Company's common stock, of which $1,300,000 was
advanced during the quarter ended March 31, 1996, and $900,000 was advanced
during the quarter ended June 30, 1996.
The consolidated financial statements do not include any adjustments related to
the recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying consolidated financial statements of
WTC Industries, Inc. and Subsidiaries have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments, consisting of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
presentation of financial position, results of operations, and cash flows for
the periods shown. These statements are condensed and do not include all
information required by generally accepted accounting principles. It is
recommended that these condensed financial statements be read in conjunction
with the Company's audited financial statements and notes thereto for the year
ended December 31, 1995, which are included in the Company's Annual Report on
Form 10-KSB.
RECLASSIFICATIONS - Certain reclassifications were made to the 1995 consolidated
financial statements to present them on a basis comparable with the current
period. The reclassifications had no effect on previously reported net loss or
stockholders' equity (deficit).
3. INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING: September 30, 1996 December 31, 1995
- ------------------------------------- ------------------- -----------------
Raw Materials $ 475,802 $ 473,960
Work-in-process 24,500 16,424
Finished Goods 397,439 355,159
----------- -----------
$ 897,741 $ 845,543
=========== ===========
4. INVESTMENT BY DIRECTOR/SHAREHOLDER
On March 22, 1996, the Company issued to the Company's Chairman of the Board,
Robert C. Klas, Sr., 2,400,000 shares of common stock and a five-year warrant to
purchase an additional 2,400,000 shares of common stock at an exercise price of
$2.00 per share for a purchase price of $3,000,000 which consisted of: (a)
conversion of $1,200,000 of debt, ($800,000 of which was outstanding at December
31, 1995); (b) $900,000 of cash; and (c) a $900,000 noninterest-bearing
promissory note which was paid in equal monthly installments in April, May, and
June of 1996. On March 22, 1996, the Chairman of the Board also purchased
1,600,000 shares of restricted common stock from the Former CEO in a private
transaction. As a result of these transactions, the Chairman owns more than 50%
of the outstanding stock of the Company. On April 13, 1996, Mr. Klas, Sr. was
appointed as the Company's Chief Executive Officer.
Since December 31, 1993, Mr. Klas and entities affiliated with him, have
invested a total of $5,968,399 in equity securities of the Company. These funds
have represented a critical source of cash to fund the Company's operations and
working capital needs. There is no assurance that Mr. Klas will be willing or
able to make any additional cash investment in the Company in the future, and
there is no agreement or requirement for him to do so.
5. COMMON AND PREFERRED STOCK
COMMON STOCK - On September 30, 1996 and December 31, 1995, the Company had
20,000,000 and 10,000,000 shares of $.01 par value common stock authorized,
respectively, and 10,691,698 and 8,289,773 shares issued and outstanding,
respectively.
PREFERRED STOCK - On December 31, 1995, the Company had 2,000,000 shares of 9%
convertible, cumulative, nonvoting, $1 par value preferred stock authorized with
6,800 shares issued and outstanding. On August 19, 1996, these shares were
converted into common stock.
6. LICENSE AGREEMENT
The Company manufactures and markets certain of its products pursuant to a
license agreement, amended on January 1, 1990 with KSURF. The Company pays a
royalty on annual sales of certain products equal to 3% of the first $1,000,000
of net sales and 2% of the excess, due quarterly, subject to a minimum annual
royalty of $75,000 per year. The license agreement will expire on or before the
final expiration date of the last patent or patent application contained in the
patent rights. The Company is also obligated to pay KSURF 40% of any royalties
or payments received for sublicensing the patent rights contained in the license
agreement. Royalty expenses were $56,250 for the nine month periods ended
September 30, 1996 and 1995.
7. CONTINGENCIES
POROUS MEDIA CORPORATION - On September 21, 1995, the Company was named a
defendant in a lawsuit brought in Hennepin County District Court in Minneapolis,
Minnesota by Porous Media Corporation (Porous Media), a former supplier of one
of the Company's component parts. In the lawsuit, the plaintiff seeks a cash
payment of approximately $32,000 pertaining to invoices being disputed by the
Company and claims to have the right, under certain circumstances, to be granted
a royalty-free license to make, use, and sell water purifiers incorporating
certain technologies of the Company. The Company's motion for summary judgment
on Porous Media's claims has been denied.
The Company has filed a countersuit against Porous Media alleging, among other
things, that the component parts supplied by the vendor were not as specified in
the contract, and that such non-conformance caused the Company to suffer
unnecessary testing costs and substantial delays in product testing and
delivery.
The Company has entered into negotiations with Porous Media in an effort to
settle the lawsuit. While the consolidated financial statements at September 30,
1996 and December 31, 1995 include the accrual of $32,000 pertaining to the
disputed Porous Media invoices, no other costs or expenses associated with this
litigation, other than legal fees incurred to date, have been recorded in the
consolidated financial statements.
EBCO MANUFACTURING COMPANY - In February of 1996, the Company was named a
defendant in a lawsuit brought in United States District Court by EBCO
Manufacturing alleging that the Company infringed upon several of its trademark
registrations for use of the name "Oasis". On August 5, 1996, the parties agreed
to a consent judgment whereby the Company will cease to manufacture products
bearing the name and mark Oasis(TM) on its products on or before December 31,
1996. The Company will have until July 31, 1997 to liquidate any inventory of
Oasis(TM) products manufactured on or before December 31, 1996. There will be no
other compensatory damages due either party and each party shall bear its own
costs, expenses, and attorney fees regarding this matter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
OVERVIEW
This Form 10-QSB contains forward looking statements within the meaning of
Section 21E of the Securities and Exchange Commission Act of 1934. Actual
results could differ significantly from those projected in the forward looking
statements as a result, in part, from changes in conditions and factors
encountered by the Company.
GOING CONCERN. The Company's consolidated financial statements are prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
For the nine month period ended September 30, 1996, the Company incurred a net
loss of $2,190,537 and cash used by operating activities was $2,260,777. In
addition, at September 30, 1996, the Company has an accumulated deficit of
$11,925,621 and a stockholders' deficit of $796,764.
These factors, among others, indicate that the Company may not be able to
continue as a going concern for a reasonable period of time. Management's plans
to continue as a going concern include the following efforts to generate the
necessary cash flow to meet the Company's working capital needs until sufficient
operating cash flows can be generated to support the Company's cost structure:
a) raise additional capital, b) increase sales to a major appliance manufacturer
in the fourth quarter, c) complete introduction of the new PentaPure In-Line
product line scheduled for the fall of 1996 to generate revenues in first
quarter 1997, d) expand existing market presence in international markets with
new distributor network. There is no assurance that these plans can be
successfully carried out.
The Company's working capital requirements for 1995 were met principally through
the issuance of interest bearing notes aggregating $1,950,000 to the Chairman of
the Board and an affiliated entity. Of the amounts advanced in 1995, $1,150,000,
plus accrued interest of $58,399, was converted into common stock of the Company
in 1995, and $800,000 was converted into common stock of the Company in March
1996. Also in 1995, the Chairman of the Board assumed $1,100,000 of Company debt
in exchange for common stock. During 1996, the Chairman of the Board advanced an
additional $2,200,000 to the Company for additional shares of the Company's
common stock, of which $1,300,000 was advanced during the quarter ended March
31, 1996, and $900,000 was advanced during the quarter ended June 30, 1996.
The consolidated financial statements do not include any adjustments related to
the recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
RESULTS OF OPERATIONS
NET SALES. The Company had net sales of $818,166 and $2,156,649 for the three
and nine month periods ended September 30, 1996, respectively. These results
represent increases of 2.4% and 9.6%, respectively, from the net sales of
$798,717 and $1,967,305 for the same periods in 1995. During 1995 and 1996, the
average selling prices of the Company's products have generally remained
unchanged or decreased, therefore, the increase in sales reflects increases in
the number of units sold.
Management believes that the Company will continue to experience a positive
trend in sales in the fourth quarter of 1996 and into 1997 due to the
introduction of new products in the fall of 1996, increased sales to a major
appliance manufacturer, new market opportunities for the PentaPure(TM) Sport
bottle in the domestic and international markets, and stronger distributor
channels in international markets. While the Company believes that the positive
trend in sales will continue, the Company's dependence on a limited number of
high-value transactions, and the inability to control the timing of some of
those transactions, as well as various other factors, may cause sales to
fluctuate significantly from quarter to quarter.
International sales (including domestic sales destined for foreign markets)
represented 68% of the Company's sales for the first nine months. To date, the
Company has required all payments from customers to be in U.S. dollars;
therefore, the Company has not been subject to currency exchange rate
fluctuations directly. To the extent that a foreign customer's currency weakens
against the U.S. dollar, the Company's products will become more expensive in
the foreign market, and the resulting relative price increase could affect the
demand for the Company's products. To date, management believes that foreign
currency exchange rate fluctuations have not had a material negative effect on
the demand for the Company's products in foreign markets.
COST OF GOODS SOLD. For the three and nine month periods ended September 30,
1996, the cost of goods sold were $625,850 and $2,144,549, respectively,
representing 76% and 99% of net sales, respectively. The cost of goods sold for
the same periods in 1995 were $829,904 and $1,886,154 respectively, representing
104% and 96% of net sales, respectively. The Company has and continues to
evaluate its cost components for each product and has established more stringent
controls in the areas of inventory management, product development,
manufacturing, and quality assurance. In addition, the Company is pursuing other
potential manufacturers to outsource assembly operations to meet anticipated
sales volume increases and to reduce overall manufacturing costs.
GROSS PROFIT/LOSS. For the three and nine month periods ended September 30,
1996, the Company recognized a gross profit of $192,316 and $12,100,
respectively, representing 24% and .1%, respectively, of net sales. The gross
profit for the same periods in 1995 were ($31,187) and $81,151, respectively,
representing (4)% and 4% of net sales, respectively. If sales continue to
increase, management anticipates the Company's gross profit margins to continue
to improve.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three and nine month
periods ended September 30, 1996, selling, general and administrative expenses
were $448,484 and $1,806,235, respectively, representing 55% and 84%,
respectively, of net sales. The selling, general and administrative expenses for
the same periods in 1995 were $891,879 and $1,940,474, respectively,
representing 112% and 99% of net sales, respectively.
SALES AND MARKETING EXPENSES - For the three and nine month periods ended
September 30, 1996, sales and marketing expenses were $234,597 and $960,560
respectively, representing 29% and 44% of net sales, respectively. The sales and
marketing expenses for the same periods in 1995 were $357,173 and $921,009,
respectively, representing 45% and 47% of net sales, respectively.
As part of the Company's business development strategy, the Company has elected
to invest heavily in sales and marketing activities associated with new product
introductions. During 1996, in connection with the introduction of the PentaPure
Sport(TM) Bottle, PUREIT(R) Pitcher and PentaPure INLINE product lines, the
Company has maintained its expenditures for sales brochures, marketing
materials, packaging, trade shows, promotions and selling expenses. The Company
recognizes that these expenses represent an up front cost associated with the
introduction of new products to new markets. However, the Company believes that
such an investment is necessary if the Company's new product introductions are
to be successful. The Company expects these sales and marketing expenses to
decrease from existing levels.
The Company makes extensive use of independent sales representatives in
marketing its products. Management has evaluated their market penetration
effectiveness along with their expense reimbursement and commission rate
structure and has either implemented new agreements or discontinued the
relationship with various sales representatives, which in either case is
intended to reduce sales and marketing fixed costs in the fourth quarter.
GENERAL AND ADMINISTRATIVE EXPENSES - For the three and nine month periods ended
September 30, 1996, general and administrative expenses were $213,887 and
$845,675, respectively, representing 26% and 39% of net sales, respectively. The
general and administrative expenses for the same periods in 1995 were $429,706
and $914,465, respectively, representing 54% and 46% of net sales, respectively.
General and administrative expenses continue to be high due to professional fees
associated with various litigation matters and the Company's efforts to raise
capital during 1996. Management has implemented an expense reduction strategy
beginning in the fourth quarter which will include an employee reduction and
reorganization and tighter spending controls in all expense categories.
RESEARCH AND DEVELOPMENT EXPENSES. For the three and nine month periods ended
September 30, 1996, research and development expenses were $46,036 and $127,529,
respectively, representing 6% of net sales. The research and development
expenses for the same period in 1995 were $32,287 and $220,776, respectively,
representing 4% and 11% of net sales, respectively. The high level of research
and development expense for the nine month period in 1995 was due, in part, to
the substantial costs associated with the development and testing of the
SPRING(R), PentaPure Sport(TM) Bottle and PUREIT(R) product lines. While the
Company is committed to its long-term investment in research and development,
such expenses, by their nature, tend to fluctuate in amount and as a percentage
of sales. The Company's current research and development activities include
redesigning existing products to improve quality and performance, and designing
and testing the new PentaPure INLINE product line.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996 the Company had working capital of $124,217 compared
with a working capital deficit (total current liabilities in excess of total
current assets) of $213,023 as of December 31, 1995. The improvement in the
Company's working capital is primarily attributable to new financing which the
Company received during the first six months of 1996. On March 22, 1996, the
Company issued to the Chairman of the Board 2,400,000 shares of common stock and
a five-year warrant to purchase an additional 2,400,000 shares of common stock
at an exercise price of $2.00 per share for a purchase price of $3,000,000 which
consisted of: (a) conversion of $1,200,000 of debt, ($800,000 of which was
outstanding at December 31, 1995); (b) $900,000 of cash; and (c) a $900,000
noninterest-bearing promissory note which was paid in equal monthly installments
in April, May, and June of 1996. This investment by the Chairman of the Board
had the result of increasing working capital by $1,300,000 and $900,000 in the
first and second quarters, respectively.
For the nine month period ended September 30, 1996; a) cash used in operating
activities consisted primarily of the Company's $2,190,537 net loss from
operations, an increase in inventories of $302,198, and a decrease in accounts
payable of $465,015, partially offset by noncash expenses of approximately
$539,000, b) cash used in investing activities consisted primarily of purchases
of property and equipment of $151,154 offset by applications of restricted cash
of $109,829, and c) cash provided by financing activities consisted of
$2,200,000 net proceeds from loans and the sale of common stock to a
director/stockholder and proceeds from a bank credit line of $250,000, offset by
payments on long-term obligations of $108,215.
For the nine month period ended September 30, 1995; a) net cash used in
operating activities consisted primarily of the Company's $2,341,599 net loss
from operations, b) cash used in investing activities consisted primarily of
purchases of property and equipment of $194,907 offset by applications of
restricted cash of $89,422, and c) cash provided by financing activities
consisted primarily of $1,308,399 proceeds from loans by a director/shareholder
and $82,000 proceeds from a bank line of credit.
The Company estimates that it will have working capital needs of approximately
$1 million for the next 3 to 6 months to fund its operations and to increase its
production capacity for the PentaPure Inline product line and sales to a major
appliance manufacturer. The Company is evaluating property improvements and
equipment purchases to automate and increase unit volume without increases in
direct labor costs. For the following 6 months, the Company anticipates that it
will need an additional $4 million to fund growth in inventories and accounts
receivable.
The Company maintains a $750,000 bank line of credit which is not secured by the
Company, but has been guaranteed by the Chairman of the Board. Unless it is
extended or renewed, the line of credit will expire on May 31, 1997. If the line
of credit expires, and the Company is required to pay off the $750,000 balance,
the Company's liquidity will be adversely affected.
The Company's plan of operations over the next 12 months is to increase sales
and further develop its domestic and international markets. In the U.S. market,
the Company's efforts will be to increase sales to a major appliance
manufacturer and increase revenues with the PentaPure Sport(TM) Bottle. In
addition, new product launches scheduled for the fourth quarter of 1996 include
the PUREIT(R) Pitcher and the PentaPure INLINE product line in both the domestic
and international markets. The Company will continue to expand existing and
develop new marketing and distribution channels in international markets.
The Company is also evaluating its available options to raise capital. Such
options include, but are not limited to, private placements of debt or equity
securities to accredited investors, registered offerings of the Company's common
stock, and strategic partnership or joint venture arrangements. The Company
recognizes that due to competition, the uncertainties of the capital markets,
and other factors beyond the Company's control, there is no assurance that the
Company will be able to obtain additional financing, or that the terms of any
such financing will be acceptable to the Company. If the Company's efforts to
raise additional capital are not successful, the Company's operations may be
adversely impacted.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of the report:
(a) EXHIBITS. The following exhibits are being filed as part of this
Form 10-QSB.
Exhibit
No. Title Method of Filing
- ------- ----------------------- ----------------
27 Financial Data Schedule Filed Herewith
SIGNATURES
In accordance with the Exchange Act, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: October 24, 1996 WTC Industries, Inc.
By: /s/ Robert C. Klas, Sr.
-----------------------------------
Robert C. Klas, Sr.
Chief Executive Officer
By: /s/ Gregory P. Jensen
-----------------------------------
Gregory P. Jensen
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WTC
INDUSTRIES, INC. CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS AS OF
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 73,172
<SECURITIES> 0
<RECEIVABLES> 721,200
<ALLOWANCES> 34,000
<INVENTORY> 897,741
<CURRENT-ASSETS> 1,871,311
<PP&E> 886,169
<DEPRECIATION> 447,895
<TOTAL-ASSETS> 2,415,577
<CURRENT-LIABILITIES> 1,747,094
<BONDS> 1,465,247
0
0
<COMMON> 106,966
<OTHER-SE> (903,730)
<TOTAL-LIABILITY-AND-EQUITY> 2,415,577
<SALES> 2,156,649
<TOTAL-REVENUES> 2,156,649
<CGS> 2,144,549
<TOTAL-COSTS> 1,933,764
<OTHER-EXPENSES> 268,873
<LOSS-PROVISION> 36,000
<INTEREST-EXPENSE> 190,505
<INCOME-PRETAX> (2,190,537)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,190,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,190,537)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
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