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 March 31, 1999, 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.)
150 MARIE AVENUE EAST, WEST ST. PAUL, MINNESOTA 55118-4002
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(651) 450-4913
- --------------------------------------------------------------------------------
(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.
1,146,031 shares of Common Stock as of May 12, 1999
Transitional Small Business Disclosure Format (check one):
Yes ; No x
--- ---
1
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION ----
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Unaudited Balance Sheets
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Unaudited Statements of Operations
Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Unaudited Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Unaudited Financial Statements 6
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 14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
----------------------------
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
- ------ ------------ ------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 0 $ 25,261
Accounts receivable, net of allowance for doubtful accounts
of $10,000 469,567 217,715
Inventories (Note 3) 393,268 430,106
Prepaid expenses and other 25,129 3,691
------------ ------------
TOTAL CURRENT ASSETS 887,964 676,773
PROPERTY AND EQUIPMENT 862,918 798,401
Less accumulated depreciation 626,146 604,562
------------ ------------
236,772 193,839
OTHER ASSETS 7,295 11,792
------------ ------------
$ 1,132,031 $ 882,404
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
- --------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,211,381 $ 861,731
Accounts payable 383,775 459,462
Accrued interest payable 72,475 41,248
Accrued expenses - other 323,120 294,585
------------ ------------
TOTAL CURRENT LIABILITIES 1,990,751 1,657,026
LONG-TERM LIABILITIES
Accrued minimum purchase commitments 345,000 345,000
Long-term debt, net of current maturities 4,397,059 4,398,321
------------ ------------
4,742,059 4,743,321
------------ ------------
STOCKHOLDERS' DEFICIT (Note 4)
Common stock 114,603 114,603
Additional paid-in capital 11,711,064 11,711,064
Receivable from officer on issuance of common stock (15,000) (15,000)
Accumulated deficit (17,411,446) (17,328,610)
------------ ------------
(5,600,779) (5,517,943)
------------ ------------
$ 1,132,031 $ 882,404
============ ============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
3
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended March 31,
----------------------------
1999 1998
----------- -----------
NET SALES $ 1,181,751 $ 527,406
COST OF GOODS SOLD 826,796 471,880
----------- -----------
GROSS PROFIT 354,955 55,526
EXPENSES
Selling, general and administrative 304,959 283,827
Research and development 47,324 93,554
Loss on minimum purchase contract 0 41,250
----------- -----------
352,283 418,631
----------- -----------
INCOME (LOSS) FROM OPERATIONS 2,672 (363,105)
NONOPERATING INCOME (EXPENSE)
Interest expense (82,329) (97,200)
Other income (expense), net (4,270) (4,279)
Gain on disposal of fixed assets 1,091 0
----------- -----------
(85,508) (101,479)
----------- -----------
NET LOSS $ (82,836) $ (464,584)
=========== ===========
PER COMMON SHARE DATA - BASIC & DILUTED
NET LOSS $ (0.07) $ (0.42)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,146,000 1,104,000
=========== ===========
See notes to consolidated condensed unaudited financial statements.
4
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (82,836) $(464,584)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 28,100 36,215
(Gain) on disposal of fixed assets (1,091) 0
Changes in operating assets and liabilities:
Accounts receivable (251,852) 26,751
Inventories 36,838 133,137
Current and other assets (21,259) (6,568)
Accounts payable (75,687) 96,186
Accrued expenses 59,762 61,938
--------- ---------
Net cash used in operating activities (308,025) (116,925)
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of equipment 1,127 0
Purchases of property and equipment (66,751) (67,696)
--------- ---------
Net cash provided by (used in) investing activities (65,624) (67,696)
--------- ---------
FINANCING ACTIVITIES
Proceeds from loans by director/shareholder 350,000 200,000
Payments on long-term obligations (1,612) (1,344)
--------- ---------
Net cash provided by financing activities 348,388 198,656
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS (25,261) 14,035
CASH AND CASH EQUIVALENTS:
Beginning of period 25,261 5,241
--------- ---------
End of period $ 0 $ 19,276
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 51,102 $ 68,134
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES -
Stock options issued for services $ 7,676
=========
Accrued interest payable converted to a note payable $ 30,673
=========
</TABLE>
See notes to consolidated condensed unaudited financial statements.
5
<PAGE>
WTC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED
FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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 ("KSU") 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 cysts and reduce other targeted contaminants found in drinking water.
Such systems are capable of making virtually any water source microbiologically
fit to drink and better tasting. The Company's products fall into the following
categories; systems and cartridges for use by original equipment manufacturers
(OEMs), portable systems, point-of-use systems, point-of-entry systems, mobile
purification systems and commercial systems. 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 three month period ended March 31, 1999, the Company incurred a net loss
of $82,836, and cash used in operating activities was $308,025. In addition, as
of March 31, 1999, the Company has a deficiency in working capital of $1,102,787
and an accumulated deficit of $17,411,446.
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 during the first quarter of 1999 were met
principally through borrowings of $350,000 from Mr. Klas, Sr., Chairman of the
Board and CEO.
6
<PAGE>
Management's plans for the Company to continue as a going concern include; (a)
seeking further financing from Mr. Klas or other investors, (b) pursuing and
obtaining Environmental Protection Agency approval for the new PentPure(R)
InLine purification systems to increase sales to the OEM domestic market, and
(c) improving the Company's production processes and quality controls to
increase gross profit margins. There is no assurance that these plans will be
successful.
The condensed consolidated unaudited 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. BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited 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, 1998, which are included in the Company's Annual Report on Form
10-KSB.
3. INVENTORIES
INVENTORIES CONSIST OF THE FOLLOWING: March 31, 1999 December 31, 1998
- ------------------------------------- -------------- -----------------
Raw Materials $ 304,207 $ 283,326
Work-in-process 7,296 3,484
Finished Goods 81,765 143,296
---------- ----------
$ 393,268 $ 430,106
========== ==========
The total inventory reserve as of March 31, 1999 and December 31, 1998 is
$914,563 and $929,016, respectively.
4. COMMON AND PREFERRED STOCK
COMMON STOCK - At March 31, 1999 and December 31, 1998, the Company had
15,000,000 shares of $.10 par value common stock authorized, and 1,146,031
shares issued and outstanding.
7
<PAGE>
PREFERRED STOCK - At March 31, 1999 and December 31, 1998, there were 2,000,000
shares of the Company's 9% convertible, cumulative, nonvoting, $1 par value
preferred stock authorized and zero (0) shares issued and outstanding.
5. COMMITMENTS AND CONTINGENCIES
MINIMUM PURCHASE COMMITMENT - Effective June 15, 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. The Company agreed to
purchase a minimum of 100,000 filters per year throughout the term of the
agreement at an average price of $1.72 per filter. Mr. Klas, personally
guarantees the Company's performance under the contract, subject to a $100,000
limitation on the guaranty.
The Company recorded a liability at December 31, 1998 totaling $517,500, of
which $172,500 is included in current liabilities, for the remaining estimated
commitment not likely to be fulfilled by the Company over the remaining life of
the purchase commitment.
LICENSE AGREEMENT - The Company manufactures and markets certain of its products
pursuant to a license agreement with KSURF, as amended July 1, 1998. 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 $25,000 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 $6,250 for the three
month periods ended March 31, 1999 and 1998.
ARRANGEMENTS WITH SUPPLIERS - Hybrid Technologies - The Company utilizes the
services of Hybrid Technologies Corp. (Hybrid), an independent contractor, to
manufacture iodinated resins which are incorporated into some of the Company's
products. Certain techniques used to manufacture the iodinated resins were
developed by and are the property of Hybrid. Under the terms of an agreement,
the Company has agreed that if it elects to buy iodinated resin from an outside
vendor, it will buy iodinated resin only from Hybrid. Hybrid has agreed to sell
iodinated resin only to the Company and DentalPure Corp. DentalPure Corp. is
developing water purification products for dental applications and does not
compete with the Company in any of its product applications.
6. RELATED-PARTY TRANSACTIONS
Tapemark Company ("Tapemark"), of West St. Paul, Minnesota, provides labels for
the Company's products and office and manufacturing facilities. Mr. Klas, the
Company's
8
<PAGE>
CEO, Chairman and largest stockholder, is also the CEO and Chairman of the Board
for Tapemark. During the three month period ended March 31, 1999 and 1998, the
Company paid Tapemark a total of $28,000 and $14,000, respectively, for these
services.
7. NOTES PAYABLE AND LONG TERM OBLIGATIONS
At March 31, 1999 and December 31, 1998, the Company had a $750,000 note payable
to a financial institution. The note payable to the bank accrues interest at
prime, is due on May 31, 1999, and is secured by substantially all of the
Company's assets in addition to a guarantee by the Chairman.
The Company has $1,450,000 in principal of promissory notes that were issued in
a private placement in 1994 that by their original terms matured on May 31,
1999. On April 13, 1999, the Company received approval from the holders of
$1,400,000 in principal of these notes to extend their maturity date to May 31,
2002. In addition, the note holders agreed to reduce the interest rate
applicable to these notes to either 5.18% until May 31, 2002, or to 1% for the
twelve months ending May 31, 2000 and thereafter to 5.18%. Note holders who
agreed to the 1% interest rate would receive a four year warrant to purchase
5,000 shares (for every $100,000 in principal) of the Company's common stock at
an exercise price of $1.00 per share. A total of 55,000 warrants will be issued.
On April 13, 1999, effective January 1, 1999, the Company entered into an
agreement to extend demand notes payable totaling $2,498,807 to the Chairman and
CEO through May 31, 2002. Accrued interest of $98,926 at December 31, 1998 was
included in the new note payable. Interest will accrue at 1.0% for the
seventeen-month period ending May 31, 2000 and then will increase to 5.18% for
the duration of the note. Interest is due and payable semi-annually. In exchange
for the reduced interest rate from January 1, 1999 to May 31, 2000, the Company
will issue Mr. Klas a four year warrant to purchase 176,998 shares of the
Company's Common Stock at an exercise price of $1.00 per share.
On April 13, 1999, effective January 1, 1999, the Company entered into an
agreement to extend demand notes payable totaling $553,114 to Tapemark Company
(which is affiliated with the Company's Chairman) through May 31, 2002. Accrued
interest of $27,080 at December 31, 1998 was included in the new note payable.
Interest will accrue at 1.0% for the seventeen-month period ending May 31, 2000
and then will increase to 5.18% for the duration of the note. In exchange for
the reduced interest rate from January 1, 1999 to May 31, 2000, the Company will
issue Tapemark a four year warrant to purchase 39,178 shares of the Company's
Common Stock at an exercise price of $1.00 per share.
On January 1, 1999, the Company entered into an agreement to borrow up to an
additional $500,000 from the Chairman and CEO. The loan matures on December 31,
1999 and accrues interest at prime and is payable on June 30, 1999 and December
31, 1999. As of May 7, 1999, $350,000 had been advanced under this agreement.
Other than the remaining $150,000 covered by an existing agreement with Mr.
Klas, he has no
9
<PAGE>
obligation to provide any further financing to the Company, and there is no
assurance that he will provide any further financing to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
GOING CONCERN. The accompanying condensed consolidated unaudited 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 three month period ended March 31, 1999, the
Company incurred a net loss of $82,836, and cash used in operating activities
was $308,025. In addition, as of March 31, 1999, the Company has a deficiency in
working capital of $1,102,787 and an accumulated deficit of $17,411,446.
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 during the first quarter of 1999 were met
principally through borrowings of $350,000 from Mr. Klas, Sr., Chairman of the
Board and CEO.
Management's plans for the Company to continue as a going concern include; (a)
seeking further financing from Mr. Klas or other investors, (b) pursuing and
obtaining Environmental Protection Agency approval for the new PentPure(R)
InLine purification systems to increase sales to the OEM domestic market, and
(c) improving the Company's production processes and quality controls to
increase gross profit margins. There is no assurance that these plans will be
successful.
The condensed consolidated unaudited 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 MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET SALES. The Company had net sales of $1,181,751 in the first quarter of 1999
representing a 124% increase over 1998's first quarter sales of $527,406. The
increase in total net sales is primarily due to higher sales in the domestic
market. The Company's largest customer had net sales of $789,000 or 67% of total
net sales in 1999 compared to $120,000 or 23% of total net sales for the same
period in 1998.
10
<PAGE>
International sales were flat because of the continuing poor economic conditions
in Asia and Eastern Europe and the strong U.S dollar. However, the Company
anticipates that international sales will gradually improve during the last half
of 1999 and into the year 2000.
GROSS PROFIT. The Company's gross profit increased to $354,955 or 30.0% of net
sales in the first quarter of 1999, compared to $55,526 or 10.5% of net sales in
1998. The increase in gross profit is primarily due to product mix and
significant product cost reductions on the Company's OEM water filtration
products.
OPERATING EXPENSES. Selling, general, and administrative expenses were $304,959,
an increase of $21,132 or 7.4% compared to 1998 expenses of $283,827. The
increase is primarily due to a higher employee head count in 1999. Research and
development costs were significantly lower in 1999 than in 1998 because of NSF
registration fees in 1998. The Company anticipates that research and development
costs will increase during the remainder of 1999 as the Company pursues EPA
registration of its new water purification system designed for the U.S. market.
NONOPERATING ACTIVITY. Interest expense decreased to $82,329 in the first
quarter of 1999 from $97,200 in the first quarter 1998. The decrease is
attributed to the debt restructuring efforts in April 1999 that resulted in a
lower effective interest rate as compared to 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash in the first quarter of 1999 and 1998 were
funds provided by Mr. Klas totaling $350,000 and $200,000, respectively. As of
March 31, 1999, the Company had a working capital deficit (total current
liabilities in excess of total current assets) of $1,102,787 compared with a
working capital deficit of $980,253 as of December 31, 1998. Management believes
that its sources of liquidity are sufficient to meet its current and anticipated
requirements for the foreseeable future.
Cash used in operating activities increased to $308,025 in first quarter 1999
compared to $116,925 in 1998. The increase is primarily attributed to the
increase in accounts receivable and the decrease in accounts payable. The net
cash provided by net income plus depreciation and amortization is an important
measurement of cash generated from the earnings process before significant
non-cash charges. The decrease in the net loss plus depreciation and
amortization of $373,633 reflects the Company's increased gross profit margins
and reduced operating expenses compared to 1998.
Cash used for investing activities consisted of primarily purchases of equipment
totaling $66,751 in 1999 compared to $67,696 in 1998.
Cash provided by financing activities was $348,388 in 1999 compared to $198,656
in 1998. The increase is attributed to the increase in cash advances from Mr.
Klas totaling
11
<PAGE>
$150,000. The increased borrowing requirements of the Company during 1999 are
primarily due to the increase in accounts receivable.
At March 31, 1999, the Company has a $750,000 note payable to a financial
institution which is secured by a security interest in the Company's assets, is
guaranteed by the Chairman of the Board, and is due on May 31, 1999. If the note
is not renewed, and the Company is required to pay off the $750,000 balance, the
Company's liquidity could be adversely affected.
The Company has $1,450,000 outstanding in principal of promissory notes that
were issued in 1994 that by their original terms matured on May 31, 1999. On
April 13, 1999, the Company received approval from the holders of $1,400,000 in
principal of these notes to extend their maturity date to May 31, 2002. In
addition, the note holders agreed to reduce the interest rate applicable to
these notes to either 5.18% until May 31, 2002, or to 1% for the twelve months
ending May 31, 2000 and thereafter to 5.18%. Note holders who agreed to the 1%
interest rate will receive (for every $100,000 in principal), a four year
warrant to purchase 5,000 shares of the Company's common stock at an exercise
price of $1.00 per share. A total of 55,000 warrants will be issued.
On April 13, 1999, effective January 1, 1999, the Company entered into an
agreement to extend through May 31, 2002 demand notes totaling $2,498,807
payable to the Chairman and CEO. Accrued interest of $98,926 at December 31,
1998 was included in the new note payable. Interest will accrue at 1.0% for the
seventeen-month period ending May 31, 2000 and then will increase to 5.18% for
the duration of the note. Interest is due and payable semi-annually. In exchange
for the reduced interest rate from January 1, 1999 to May 31, 2000, the Company
will issue Mr. Klas a four year warrant to purchase 176,998 shares of the
Company's Common Stock at an exercise price of $1.00 per share.
On April 13, 1999, effective January 1, 1999, the Company entered into an
agreement to extend through May 31, 2002 demand notes payable totaling $553,114
to Tapemark Company (which is affiliated with the Company's Chairman). Accrued
interest of $27,080 at December 31, 1998 was included in the new note payable.
Interest will accrue at 1.0% for the seventeen-month period ending May 31, 2000
and then will increase to 5.18% for the duration of the note. In exchange for
the reduced interest rate from January 1, 1999 to May 31, 2000, the Company will
issue Tapemark a four year warrant to purchase 39,178 shares of the Company's
Common Stock at an exercise price of $1.00 per share.
On January 1, 1999, the Company entered into an agreement to borrow up to an
additional $500,000 from the Chairman and CEO. The loan matures on December 31,
1999 and accrues interest at prime and is payable on June 30, 1999 and December
31, 1999. As of May 7, 1999, $350,000 had been advanced under this agreement.
Other than the remaining $150,000 covered by an existing agreement with Mr.
Klas, he has no obligation to provide any further financing to the Company, and
there is no assurance that he will provide any further financing to the Company.
12
<PAGE>
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. In addition, the
Company will evaluate the possibility of converting to equity some or all of its
outstanding short term and long term debt. 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.
Effective June 15, 1997, the Company entered into a cyst filter requirements
contract with Porous Media. The minimum commitment is $172,500 per contract year
beginning June 15. Through December 31, 1998, the Company had fulfilled its
first contract year obligation. The Company is required to purchase an
additional 400,000 cyst filters over the next three and one-half (3.25) years.
The Company's performance is guaranteed by the Chairman and CEO up to $100,000.
Failure of the Company to perform under this agreement could have a significant
negative impact on the Company's financial resources.
If the Company is able to obtain additional financing to continue operations,
its plan of operations over the next 12 months is to further develop its OEM
customer base and its sales of the PureIt(R) InLine point-of-use systems in both
the domestic and international markets.
FOREIGN CURRENCY EFFECTS
Beginning in the third quarter 1997, foreign currency exchange rate fluctuations
and deteriorating economic conditions had a material impact on the demand for
the Company's products in Asian markets. In addition, beginning in the third
quarter of 1998, foreign currency exchange rate fluctuations and deteriorating
economic conditions in Eastern Europe had a material impact on sales to the
Company's largest distributor. The Company anticipates these trends to continue
into 1999.
EFFECTS OF INFLATION
The Company believes that during 1998 and 1999 inflation has not had a material
impact on the Company's business.
YEAR 2000 COMPLIANCE
The Company continues to implement its company-wide program to prepare the
Company's computer systems, information technology and non-information
technology to be Year 2000 compliant.
13
<PAGE>
The Company continues to communicate with its suppliers, customers and other
service providers to determine the extent of the Company's vulnerability to the
failure of third parties to be Year 2000 complaint. The Company has made
significant progress and has substantially completed its internal program to
remediate the Year 2000 issue. In 1998, the Company upgraded its manufacturing
and financial software, along with personal computers and related software. The
Company's expenditures in 1998 for the upgrade of computer hardware and software
related to Year 2000 issues were approximately $40,000. The costs of the new
equipment and software are being depreciated over their useful lives. Based on
information currently available, the total remaining maintenance or capital
costs to be incurred in 1999 is estimated to be $15,000.
The risks to the Company resulting from failure of the Company's own information
systems or third parties to attain Year 2000 readiness is similar to other
businesses. These risks include but are not limited to (1) disruptions in
information systems used for transaction processing, (2) disruptions in the
supply of raw materials and other components from major vendors, and (3)
disruptions in facilities used in the manufacturing process.
The Company is in the process of developing a contingency plan to address the
above risks. The contingency plan is expected to be in place by September 30,
1999. While the Company is not aware of any significant Year 2000 issues for
which it will not be adequately prepared, there can be no assurance that the
Company's business, operating results or financial condition will not be
adversely affected by issues surrounding the Year 2000 conversion.
NOTIFICATION REGARDING FORWARD LOOKING INFORMATION
Except for historical information contained herein, certain statements are
forward looking statements that involve risks and uncertainties, including, but
not limited to, the results of financing efforts and sufficiency of working
capital requirements, product demand and market acceptance risks, customer mix,
the effect of economic conditions including the Asian economic downturn, the
impact of competitive products and pricing, product development,
commercialization and technological difficulties, supply constraints or
difficulties, and actual purchases under agreements. The actual results that the
Company achieves may differ materially from these forward looking statements due
to such risks and uncertainties. Readers are urged to carefully review and
consider the various disclosures made by the Company's other filings with the
Securities and Exchange Commission that advise interested parties of the risks
and uncertainties that may effect the Company's financial condition and results
of operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of the report:
14
<PAGE>
(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 first quarter of
1999.
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: May 12, 1999 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)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from WTC
Industries, Inc. unaudited condensed consolidated financial statements as of
March 31, 1999 and 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000877542
<NAME> WTC INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 479,567
<ALLOWANCES> 10,000
<INVENTORY> 393,268
<CURRENT-ASSETS> 887,964
<PP&E> 862,918
<DEPRECIATION> 626,146
<TOTAL-ASSETS> 1,132,031
<CURRENT-LIABILITIES> 1,990,751
<BONDS> 4,742,059
0
0
<COMMON> 114,603
<OTHER-SE> (5,715,382)
<TOTAL-LIABILITY-AND-EQUITY> 1,132,031
<SALES> 1,181,751
<TOTAL-REVENUES> 1,181,751
<CGS> 826,796
<TOTAL-COSTS> 352,283
<OTHER-EXPENSES> 3,179
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,329
<INCOME-PRETAX> (82,836)
<INCOME-TAX> 0
<INCOME-CONTINUING> (82,836)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (82,836)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
