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, 1997, 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
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
14405 - 21ST AVENUE NORTH, MINNEAPOLIS, MINNESOTA 55447
(Address of Principal Executive Offices) (Zip Code)
(612) 473-1625
(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.
11,035,180 shares of Common Stock as of November 6, 1997
Transitional Small Business Disclosure Format (check one):
Yes ______; No __x__
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Unaudited Balance Sheets
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Unaudited Statements of Operations
Three Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Unaudited Statements of Operations
Nine Months Ended September 30, 1997 and 1996 5
Condensed Consolidated Unaudited Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Unaudited Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
- ------ ------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 30,949 $ 53,324
Accounts receivable, net of allowance for doubtful accounts
of $16,000 and $19,000, respectively 275,648 632,011
Inventories (Note 3) 1,275,573 651,895
Prepaid expenses 32,427 31,651
------------ ------------
TOTAL CURRENT ASSETS 1,614,597 1,368,881
PROPERTY AND EQUIPMENT 928,227 887,369
Less accumulated depreciation 633,477 499,382
------------ ------------
294,750 387,987
OTHER ASSETS
Restricted cash 86,823
Loan acquisition costs, net of accumulated amortization
of $49,583 and $36,739, respectively 28,542 41,386
Patents and trademarks, net of accumulated amortization
of $84,426 and $95,492, respectively 923 2,522
Other 13,613 13,613
------------ ------------
43,078 144,344
------------ ------------
$ 1,952,425 $ 1,901,212
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES
Notes payable - affliates (Note 7) $ 1,150,000 $
Line of credit (Note 7) 750,000 750,000
Notes payable - other 186,607
Current maturities of long-term obligations 5,571 9,109
Accounts payable 509,970 624,045
Accrued expenses 177,122 512,273
------------ ------------
TOTAL CURRENT LIABILITIES 2,592,663 2,082,034
LONG-TERM OBLIGATIONS, net of current maturities (Note 8) 1,459,676 1,463,941
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' DEFICIT (Note 4)
Common stock 110,352 106,917
Additional paid-in capital 11,347,638 11,021,940
Receivable from officer on issuance of common stock (15,000)
Accumulated deficit (13,542,904) (12,773,620)
------------ ------------
(2,099,914) (1,644,763)
------------ ------------
$ 1,952,425 $ 1,901,212
============ ============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30,
----------------------------
1997 1996
------------ ------------
NET SALES $ 517,362 $ 818,166
COST OF GOODS SOLD 477,838 600,047
------------ ------------
GROSS PROFIT 39,524 218,119
EXPENSES
Selling, general and administrative 316,087 474,287
Research and development 48,108 46,036
------------ ------------
364,195 520,323
------------ ------------
LOSS FROM OPERATIONS (324,671) (302,204)
OTHER EXPENSE, NET (81,539) (53,872)
GAIN ON DISPOSAL FIXED ASSETS 2,000
------------ ------------
(79,539) (53,872)
------------ ------------
NET LOSS $ (404,210) $ (356,076)
============ ============
NET LOSS PER COMMON SHARE $ (0.04) $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 11,035,000 10,691,000
============ ============
See notes to consolidated condensed unaudited financial statements.
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended September 30,
----------------------------
1997 1996
------------ ------------
NET SALES $ 2,916,313 $ 2,156,649
COST OF GOODS SOLD 2,253,385 2,110,769
------------ ------------
GROSS PROFIT 662,928 45,880
EXPENSES
Selling, general and administrative 1,052,040 1,840,015
Research and development 137,142 127,529
------------ ------------
1,189,182 1,967,544
------------ ------------
LOSS FROM OPERATIONS (526,254) (1,921,664)
OTHER EXPENSE, NET (206,131) (202,505)
GAIN (LOSS) ON DISPOSAL FIXED ASSETS 2,000 (66,368)
------------ ------------
(204,131) (268,873)
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (730,385) (2,190,537)
EXTRAORDINARY ITEM (LOSS ON EXTINGUISHMENT
OF DEBT) 38,899
------------ ------------
NET LOSS $ (769,284) $ (2,190,537)
============ ============
NET LOSS PER COMMON SHARE:
LOSS BEFORE EXTRAORDINARY ITEM $ (0.07) $ (0.22)
EXTRAORDINARY ITEM (LOSS ON EXTINGUISHMENT
OF DEBT) 0.00 0.00
------------ ------------
NET LOSS $ (0.07) $ (0.22)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,848,000 9,972,000
============ ============
See notes to consolidated condensed unaudited financial statements.
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (769,284) $(2,190,537)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 148,539 187,019
Loss on settlement of note payable 38,899
Provision for obsolete inventory 250,000
Provision for doubtful accounts 36,000
Loss on disposal of property & equipment 66,368
Changes in operating assets and liabilities:
Accounts receivable 356,363 30,575
Inventories (623,678) (302,198)
Prepaid expenses and other 17,973 8,798
Accounts payable (114,075) (465,015)
Accrued expenses (228,901) 118,213
----------- -----------
Net cash used in operating activities (1,174,164) (2,260,777)
----------- -----------
INVESTING ACTIVITIES
Restricted cash 86,822 109,829
Purchases of property and equipment (40,858) (151,154)
----------- -----------
Net cash provided by (used in) investing activities 45,964 (41,325)
----------- -----------
FINANCING ACTIVITIES
Proceeds from loans by director/shareholder 650,000 400,000
Proceeds from sale of Common Stock to dirctor/shareholder 1,800,000
Proceeds from issuance of Common Stock 15,000
Proceeds from bank line of credit 4,500 250,000
Proceeds from loan from affliated company 500,000
Payments on bank line of credit (4,500)
Payments on settlement of note payable to Former CEO (51,372)
Payments on long-term obligations (7,803) (108,215)
----------- -----------
Net cash provided by financing activities 1,105,825 2,341,785
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (22,375) 39,683
CASH AND CASH EQUIVALENTS:
Beginning of period 53,324 33,489
----------- -----------
End of period $ 30,949 $ 73,172
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 181,197 $ 217,647
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES -
Common stock issued on conversion of accrued expenses $ 125,000
===========
Receivable from officer for common stock issued
from exercise of non-cash stock option $ 15,000
===========
Common stock issued on settlement of note payable/debt $ 174,134 $ 1,200,000
=========== ===========
Note payable issued on conversion of accrued expenses $ 186,807
===========
</TABLE>
See notes to consolidated condensed unaudited financial statements
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND MANAGEMENT'S PLANS REGARDING OPERATING
LOSSES AND LIQUIDITY
BUSINESS - WTC Industries, Inc. and its wholly-owned subsidiaries (collectively
the "Company" or "WTC") develop, manufacture, and market water filtration and
purification products for commercial and personal use. Filtration products
remove or reduce many undesirable contaminants found in water including lead,
chlorine, bad taste and odor. Purification products have the added benefit of
devitalizing or removing viruses, bacteria and parasites.
Many of the Company's purification products contain PentaPure(R) iodinated resin
("PentaPure(R)") and other patented and proprietary technology and
configurations. The PentaPure(R) technology was originally developed by Kansas
State University and has been licensed to the Company by the Kansas State
University Research Foundation ("KSURF") on an exclusive basis. PentaPure(R) and
other state of the art technologies, when applied in the Company's unique
purification products, devitalize bacteria and viruses, remove protozoa and
reduce other targeted contaminants in drinking water. Such systems are capable
of making virtually any source water microbiologically fit to drink and better
tasting. The Company's products fall into the following categories: portable
systems, systems and cartridges for use by original equipment manufacturers
(OEMs), point-of-use systems, point-of-entry systems, mobile purification
systems and commercial/industrial systems and components. The Company's products
are suitable for a broad range of applications including: home, personal travel,
recreation, military, emergency use, commercial and industrial.
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.
For the nine month period ended September 30, 1997, the Company incurred a net
loss of $769,284, and cash used in operating activities was $1,174,164. In
addition, as of September 30, 1997, the Company has a deficiency in working
capital of $978,066 and an accumulated deficit of $13,542,904.
These factors, among others, indicate that the Company may not be able to
continue as a going concern for a reasonable period of time. The Company's
working capital requirements for the first nine months of 1997 were met
principally through the issuance of promissory notes of $500,000 to Tapemark
Company, a company affiliated with the Chairman of the Board and issuance of
promissory notes to the Chairman of the Board of
<PAGE>
$500,000 and $150,000 in July and September, respectively, to fund operations
for the remainder of 1997.
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) raising additional capital through private or public
placements of debt or equity securities or through other sources, b) increasing
sales of the new PentaPure(R) InLine point-of-use filtration and purification
systems to niche market OEM customers and international distributors, and c)
developing new and expanding existing strategic relationships for marketing
representation and distribution through direct sales organizations for both the
domestic and international markets. There is no assurance that these plans can
be successfully accomplished.
The consolidated condensed 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 condensed 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 financial statements be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1996, which are included in the Company's Annual Report on Form
10-KSB.
NET LOSS PER COMMON SHARE - In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Standards No. 128, "Earnings per Share".
This Statement specifies the computation, presentation, and disclosure
requirements for earnings per share. This Statement is effective for financial
statements issued for periods after December 15, 1997, including interim
periods. Adoption by the Company in 1997 is not expected to have a material
impact on the earnings per share computation.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1996
consolidated financial statements to conform to the 1997 classification. These
reclassifications had no impact on net losses as previously reported.
<PAGE>
3. INVENTORIES
Inventories consist of the following: September 30, 1997 December 31, 1996
- ------------------------------------- ------------------ -----------------
Raw Materials $ 812,045 $ 459,724
Work-in-process 87,969 33,408
Finished Goods 375,559 158,763
----------- ----------
$ 1,275,573 $ 651,895
=========== ==========
4. COMMON STOCK
COMMON STOCK - At September 30, 1997 and December 31, 1996, the Company had
20,000,000 shares of $.01 par value common stock authorized, and 11,035,180 and
10,691,698 shares issued and outstanding, respectively.
5. 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, 1997 and 1996.
6. ARRANGEMENTS WITH SUPPLIERS
POROUS MEDIA CORPORATION
On February 4, 1997, the Company entered into a five year requirements contract
with Porous Media under which the Company will purchase all of its cyst filter
requirements for the PentaPure(R) Sport Purification System and Spring(R)
Filtration System beginning June 15, 1997, as amended. The Company agreed to
purchase a minimum of 100,000 filters per year throughout the term (each such
12-month period is a year). The Company's performance under the contract is
personally guaranteed, up to $100,000, by the Company's Chairman.
7. NOTES PAYABLE AND BANK LINE OF CREDIT
The Company has issued a promissory note of $500,000 to Tapemark Company which
is to mature on December 31, 1997. The promissory note has an interest rate at
the prime rate plus 2% and is payable quarterly. In addition, the Company has
issued promissory
<PAGE>
notes to the Chairman of the Board for $500,000 and $150,000 in July and
September, respectively, which mature on December 31, 1997. These notes bear an
interest rate at the prime rate plus 1% and is payable on December 31, 1997.
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. The interest rate
is the prime rate and is payable monthly. The amount outstanding at September
30, 1997 is $750,000. Unless it is extended or renewed, the line of credit will
expire on May 31, 1998.
8. LONG TERM OBLIGATIONS
The Company has outstanding $1,450,000 in principal of promissory notes that
mature May 31, 1999 and were issued by the Company under its Private Placement
Memorandum dated May 25, 1994. The notes bear interest at the prime rate plus 2%
and interest is payable quarterly.
9. SUBSEQUENT EVENT
Subsequent to September 30, 1997, the Company has received an additional
$300,000 in advances from the Chairman of the Board. These advances bear
interest at the prime rate plus 1% and both interest and principal are due on
December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 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.
For the nine month period ended September 30, 1997, the Company incurred a net
loss of $769,284, and cash used in operating activities was $1,174,164. In
addition, as of September 30, 1997, the Company has a deficiency in working
capital of $978,066 and an accumulated deficit of $13,542,904.
These factors, among others, indicate that the Company may not be able to
continue as a going concern for a reasonable period of time. The Company's
working capital requirements for the first nine months of 1997 were met
principally through the issuance
<PAGE>
of promissory notes of $500,000 to Tapemark Company, a company affiliated with
the Chairman of the Board and issuance of promissory notes to the Chairman of
the Board of $500,000 and $150,000 in July and September, respectively, to fund
operations for the remainder of 1997. Subsequent to September 30, 1997, the
Company borrowed an additional $300,000 from the Chairman of the Board.
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) raising additional capital through private placements of debt
or equity securities or through other sources, b) increasing sales of the new
PentaPure(R) InLine point-of-use filtration and purification systems to niche
market OEM customers and international distributors, and c) developing new and
expanding existing strategic relationships for marketing representation and
distribution through direct sales organizations for both the domestic and
international markets. There is no assurance that these plans can be
successfully accomplished.
The consolidated condensed 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
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1996
NET SALES. The Company had net sales of $517,362 and $2,916,313 for the three
and nine month periods ended September 30, 1997, respectively. These results
represent a decrease of (36.8%) for the three month period and an increase of
35.2% from the net sales of $818,166 and $2,156,649, respectively, for the same
periods in 1996. The reduction in net sales in the most recent quarter was due
to delayed shipments to Amana and lower demand from international distributors.
International sales, by their nature, tend to consist of a limited number of
high-value shipments. 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, will, at the current sales
levels, create the possibility, if not the probability, that sales could
fluctuate significantly from quarter to quarter.
To date, the Company has required all payments from international 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
<PAGE>
market, and the resulting relative price increase would be expected to affect
the demand for the Company's products. Beginning in third quarter 1997, the
Company has experienced a reduction in the demand for it's products because of
foreign currency exchange rate fluctuations in foreign markets.
During 1997 and 1996, the average selling prices of the Company's products have
generally remained unchanged, therefore, the change in sales reflects changes in
the number of units sold.
COST OF GOODS SOLD. For the three and nine month periods ended September 30,
1997, the cost of goods sold were $477,838 and $2,253,385, respectively,
representing 92.4% and 77.3% of net sales, respectively. The cost of goods sold
for the same periods in 1996 were $600,047 and $2,110,769, respectively,
representing 73.3 % and 97.9% of net sales, respectively.
GROSS PROFIT. For the three and nine month periods ended September 30, 1997, the
Company recognized a gross profit of $39,524 and $662,928, respectively,
representing 7.6% and 22.7% of net sales, respectively. In 1996, the Company
recognized a gross profit of $218,119 and $45,880, respectively, representing
26.7% and 2.1% of net sales, respectively. The fluctuation in gross profit is
due to the change in sales volume for both the three and nine month periods. The
Company is evaluating whether it can further improve its year-to-date gross
profit margin through enhanced pricing strategies, outsourcing assembly
operations, improved procurement management and revised sales representatives
commission structures.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three and nine month
periods ended September 30, 1997, selling, general and administrative expenses
were $316,087 and $1,052,040, respectively, representing 61.1% and 36.1% of net
sales, respectively. Selling, general and administrative expenses were $474,287
and $1,840,015, representing 58.0% and 85.3% of net sales, respectively, for the
same periods in 1996.
SALES AND MARKETING EXPENSES - For the three and nine month periods ended
September 30, 1997, sales and marketing expenses were $170,082 and $579,922,
representing 32.9% and 19.9% of net sales, respectively. The sales and marketing
expenses for the same periods in 1996 were $260,400 and $994,340, respectively.
During the first nine months of 1997, the Company has reduced its sales and
marketing expenses by $414,000 primarily due to lower personnel expenses and
reduced promotional expenses. During 1996, in connection with the introduction
of the Spring(R), PentaPure(R) Sport Bottle and PureIt(R) product lines, the
Company made significant expenditures for sales brochures, marketing materials,
packaging, trade shows, promotion and selling expenses.
GENERAL AND ADMINISTRATIVE EXPENSES - For the three and nine month periods ended
September 30, 1997, general and administrative expenses were $146,005 and
$472,118, representing 28.2% and 16.2% of total net sales, respectively. The
general and
<PAGE>
administrative expenses for the same periods in 1996 were $213,887 and $845,675,
respectively. The reduction in general and administrative expenses was due
primarily to reductions in professional fees, outside services and payroll
related expenses. During first quarter 1996, the Company incurred large
professional fees associated with various legal matters and the Company's
unsuccessful efforts to raise capital from new investors.
RESEARCH AND DEVELOPMENT EXPENSES. For the three and nine month periods ended
September 30, 1997, research and development expenses were $48,108 and $137,142,
respectively. The research and development expenses for the same periods in 1996
were $46,036 and $127,529, respectively. Such expenses, by their nature, tend to
fluctuate in amount and as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had a working capital deficit (total
current liabilities in excess of total current assets) of $978,066 compared with
a working capital deficit of $713,153 as of December 31, 1996. During the nine
month period ended September 30, 1997, the Company used short-term loans from an
affiliated company and the Chairman of the Board as a source of working capital
to fund its operations.
For the nine month period ended September 30, 1997, cash decreased $22,375
primarily due to cash used in operations of $1,174,164, which was essentially
offset by cash provided by financing activities of $1,105,825. Significant cash
uses by operations included decreases in accounts payable of $114,074 and
accrued expenses of $228,902 and an increase in inventory of $623,678, partially
offset by a decrease in accounts receivable of $356,363. Net cash provided by
investing activities consisted of applications of restricted cash of $86,822 for
payment of interest, less purchases of property and equipment of $40,858. Net
cash provided by financing activities was from issuance of notes payable
totaling $1,150,000 and issuance of common stock for $15,000, partially offset
by payments on long-term debt of $7,803 and payments on notes payable of
$51,372.
During the same nine month period in 1996, cash increased $39,683, primarily due
to $2,341,785 from financing activities, which were essentially offset by cash
used in operations of $2,260,777. Significant cash used by operations included a
increase in inventory of $302,198, exclusive of the provision for obsolete
inventory, and a decrease in accounts payable of $465,015, partially offset by
an decrease in accounts receivable of $30,575 and an increase in accrued
expenses of $118,213. Net cash used in investing activities consisted of
purchases of property and equipment of $151,154 less applications of restricted
cash of $109,829. Net cash provided by financing activities consisted primarily
of $2,200,000 net proceeds from cash advances and the sale of common stock to
the Chairman of the Board and proceeds from a bank credit line of $250,000
offset by payments on long-term debt of $108,215.
<PAGE>
The Company's working capital requirements for the first nine months of 1997
were met principally through the issuance of promissory notes of $500,000 to
Tapemark Company, a company affiliated with the Chairman of the Board and
issuance of promissory notes to the Chairman of the Board totaling $650,000.
The Company estimates that it will have additional working capital needs of
approximately $500,000 during the remainder of 1997 to fund its operations. In
October, the Company received advances of $300,000 from the Chairman of the
Board. The Company does not anticipate that it will have significant capital
expenditures for the remainder of 1997.
On June 22, 1997, the Company paid $51,372 in cash and issued 193,482 shares of
the Company's Common Stock in full settlement of a $186,607 promissory held by
the Company's former CEO. The Company realized an extraordinary loss of $38,899
related to the extinguisment of the promissory note.
The Company maintains a $750,000 bank line of credit which is unsecured by the
Company, but has been guaranteed by the Chairman of the Board. The amount
outstanding at September 30, 1997 is $750,000. Unless it is extended or renewed,
the line of credit will expire on May 31, 1998. 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 has outstanding $1,450,000 in principal of promissory notes that
mature May 31, 1999 and were issued by the Company under its Private Placement
Memorandum dated May 25, 1994.
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 expand its OEM customer base and its sales of
the PureIt(R) InLine point-of-use systems. In international markets, the Company
will continue to attempt to develop new marketing and distribution channels and
will attempt to increase sales of all products through existing channels.
The Company is also evaluating its available options to raise capital. These
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. 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 negatively impacted.
EFFECTS OF INFLATION
The Company believes that, during the periods discussed above, inflation has not
had a material impact on the Company's business.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On July 1, 1997, the Company issued 75,000 shares of Common Stock for payment of
it's 1997 royalty payment to KSURF. There were no underwriters or placement
agents involved in this issuance and no commissions paid. The shares were issued
to KSURF as an investment for their own account and not with a view to a
distribution. Based on these facts the Company relied on the exemption provided
by section 4(2) of the Securities Act of 1933, as amended.
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
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the third quarter of 1997.
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: November 6, 1997 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>
EXHIBIT 27
WTC INDUSTRIES, INC.
14405 21st Avenue North
Minneapolis, Minnesota 55447
Financial Data Schedule
This schedule contains summary financial information extracted from WTC
Industries, Inc. unaudited condensed consolidated financial statements as of
September 30, 1997 and 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 30,949
<SECURITIES> 0
<RECEIVABLES> 275,648
<ALLOWANCES> 16,000
<INVENTORY> 1,275,573
<CURRENT-ASSETS> 1,614,597
<PP&E> 928,227
<DEPRECIATION> 633,477
<TOTAL-ASSETS> 1,952,425
<CURRENT-LIABILITIES> 2,592,663
<BONDS> 1,459,676
0
0
<COMMON> 110,352
<OTHER-SE> (2,210,266)
<TOTAL-LIABILITY-AND-EQUITY> 1,952,425
<SALES> 2,916,313
<TOTAL-REVENUES> 2,916,313
<CGS> 2,253,385
<TOTAL-COSTS> 1,189,182
<OTHER-EXPENSES> 243,030
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,696
<INCOME-PRETAX> (769,284)
<INCOME-TAX> 0
<INCOME-CONTINUING> (769,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (769,284)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
