SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 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.
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(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.)
150 MARIE AVENUE EAST, WEST ST. PAUL, MINNESOTA 55118-4002
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(Address of Principal Executive Offices) (Zip Code)
(651) 450-4913
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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.
1,169,364 shares of Common Stock as of October 25, 1999
Transitional Small Business Disclosure Format (check one):
Yes _____; No __x__
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Unaudited Balance Sheets
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Unaudited Statements of Operations
Three Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Unaudited Statements of Operations
Nine Months Ended September 30, 1999 and 1998 5
Condensed Consolidated Unaudited Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Unaudited Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
- ------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 5,592 $ 25,261
Accounts receivable, net of allowance for doubtful accounts
of $9,000 534,732 217,715
Inventories (Note 3) 213,774 430,106
Prepaid expenses and other 18,488 3,691
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TOTAL CURRENT ASSETS 772,586 676,773
PROPERTY AND EQUIPMENT 918,326 798,401
Less accumulated depreciation 675,044 604,562
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243,282 193,839
OTHER ASSETS 5,191 11,792
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$ 1,021,059 $ 882,404
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES
Current maturities of long-term debt $ 1,364,485 $ 861,731
Accounts payable 306,838 459,462
Accrued interest payable 123,568 41,248
Accrued expenses - other 295,231 294,585
------------ ------------
TOTAL CURRENT LIABILITIES 2,090,122 1,657,026
LONG-TERM LIABILITIES
Accrued minimum purchase commitments 345,000 345,000
Long-term debt, net of current maturities 4,195,744 4,398,321
------------ ------------
4,540,744 4,743,321
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STOCKHOLDERS' DEFICIT (Note 4)
Common stock 116,937 114,603
Additional paid-in capital 11,800,230 11,711,064
Receivable from officer on issuance of common stock (30,000) (15,000)
Accumulated deficit (17,496,974) (17,328,610)
------------ ------------
(5,609,807) (5,517,943)
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$ 1,021,059 $ 882,404
============ ============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1999 1998
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<S> <C> <C>
NET SALES $ 1,013,194 $ 1,481,609
COST OF GOODS SOLD 727,679 1,129,489
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GROSS (LOSS) PROFIT 285,515 352,120
EXPENSES
Selling, general and administrative 296,066 288,808
Research and development 88,064 11,144
Loss on minimum purchase contract -- 43,125
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384,130 343,077
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INCOME (LOSS) FROM OPERATIONS (98,615) 9,043
NONOPERATING INCOME (EXPENSE)
Interest expense (69,999) (117,708)
Other income (expense), net -- (4,278)
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(69,999) (121,986)
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NET INCOME (LOSS) $ (168,614) $ (112,943)
============= =============
PER COMMON SHARE DATA - BASIC & DILUTED
EARNINGS (LOSS) PER SHARE - BASIC & DILUTED $ (0.14) $ (0.10)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC & DILUTED 1,169,364 1,145,170
============= =============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
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<S> <C> <C>
NET SALES $ 3,678,689 $ 3,179,550
COST OF GOODS SOLD 2,530,909 2,826,197
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GROSS (LOSS) PROFIT 1,147,780 353,353
EXPENSES
Selling, general and administrative 897,445 848,627
Research and development 178,177 215,806
Loss on minimum purchase contract -- 125,625
Other -- 350,000
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1,075,622 1,540,058
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INCOME (LOSS) FROM OPERATIONS 72,158 (1,186,705)
NONOPERATING INCOME (EXPENSE)
Interest expense (234,505) (321,496)
Other income (expense), net (7,108) (12,830)
Gain (loss) on disposal of fixed assets 1,091 (10,263)
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(240,522) (344,589)
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NET INCOME (LOSS) $ (168,364) $ (1,531,294)
============= =============
PER COMMON SHARE DATA - BASIC & DILUTED
EARNINGS (LOSS) PER SHARE - BASIC & DILUTED $ (0.14) $ (1.36)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC & DILUTED 1,164,321 1,124,774
============= =============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
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WTC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (168,364) $ (1,531,294)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 79,853 110,432
Provision for obsolete inventory -- 40,000
Royalty fees paid in common stock -- 350,000
(Gain) Loss on disposal of fixed assets (1,091) 10,263
Accretion of long-term debt discount 6,772 --
Changes in operating assets and liabilities:
Accounts receivable (317,017) (353,648)
Inventories 216,332 186,894
Current and other assets 2,168 16,321
Accounts payable (152,624) 304,762
Accrued expenses 82,966 76,463
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Net cash used in operating activities (251,005) (789,807)
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INVESTING ACTIVITIES
Proceeds from sales of equipment 1,091 --
Advances on officer note receivable (15,000) --
Purchases of property and equipment (122,160) (132,208)
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Net cash used in investing activities (136,069) (132,208)
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FINANCING ACTIVITIES
Proceeds from loans by director/shareholder 400,000 950,000
Payments on long-term obligations (32,595) (4,205)
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Net cash provided by financing activities 367,405 945,795
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19,669) 23,780
CASH AND CASH EQUIVALENTS:
Beginning of period 25,261 5,241
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End of period $ 5,592 $ 29,021
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 152,186 $ 177,219
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES -
Stock options issued for services $ 17,677
=============
Accrued interest payable converted to a note payable $ 125,915
=============
Common stock issued for royalty agreement payment $ 350,000
=============
Stock options issued for rent $ 17,500
=============
Warrants issued with debt restructure $ 74,000
=============
</TABLE>
See notes to consolidated condensed unaudited financial statements.
6
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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, light 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, 1999, the Company incurred a net
loss of $168,364, and cash used in operating activities was $251,005. In
addition, as of September 30, 1999, the Company has a deficiency in working
capital of $1,317,536 and an accumulated deficit of $17,496,974.
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 1999 were met
principally through the issuance of demand notes payable of $400,000 to Mr.
Klas, Sr., Chairman of the Board and CEO.
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Management's plans for the Company to continue as a going concern include; (a)
seeking further financing from Mr. Klas or other investors, (b) obtaining
Environmental Protection Agency (EPA) approval for the PentPure(R) InLine
purification systems product line, (c) continue developing and increasing sales
to the OEM and water dealer markets in the U.S., and (d) continue increasing
gross profit margins through improved production processes and quality controls.
There is no assurance that these plans will be successful.
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. 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: September 30, 1999 December 31, 1998
- ------------------------------------- ------------------ -----------------
Raw Materials $ 139,961 $ 283,326
Work-in-process 2,603 3,484
Finished Goods 71,210 143,296
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$ 213,774 $ 430,106
========== ==========
The total inventory reserve as of September 30, 1999 and December 31, 1998 is
$914,563 and $929,016, respectively.
4. COMMON AND PREFERRED STOCK
COMMON STOCK - The Company had 15,000,000 shares of $.10 par value common stock
authorized, with 1,169,364 and 1,146,031 shares issued and outstanding on
September 30, 1999 and December 31, 1998, respectively.
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PREFERRED STOCK - At September 30, 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. 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 CEO, Chairman and largest stockholder, is also the CEO and Chairman of
the Board for Tapemark. During the three and nine month periods ended September
30, 1999, the Company paid Tapemark a total of $7,000 and $65,000, respectively,
compared to $34,000 and $64,000, respectively, in 1998.
6. NOTES PAYABLE AND LONG TERM OBLIGATIONS
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 October 25, 1999, $400,000 had been advanced under this
agreement. Other than the remaining $100,000 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.
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, 1999, the Company incurred a net
loss of $168,364, and cash used in operating activities was $251,005. In
addition, as of September 30, 1999, the Company has a deficiency in working
capital of $1,317,536 and an accumulated deficit of $17,496,974.
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 1999 were met
principally through the issuance of demand notes payable of $400,000 to Mr.
Klas, Sr., Chairman of the Board and CEO.
9
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Management's plans for the Company to continue as a going concern include; (a)
seeking further financing from Mr. Klas or other investors, (b) obtaining
Environmental Protection Agency (EPA) approval for the PentPure(R) InLine
purification systems product line, (c) continue developing and increasing sales
to the OEM and water dealer markets in the U.S., and (d) continue increasing
gross profit margins through improved production processes and quality controls.
There is no assurance that these plans will be successful.
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, 1999 COMPARED TO THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1998
NET SALES. For the three month period ended September 30, 1999, the Company had
net sales of $1,013,194, a decrease of 31.6% from 1998 sales of $1,481,609. The
decrease in sales is due to lower sales in both the domestic and international
markets. Domestic sales were lower because of lower sales to the appliance
filter market. International sales continued to be lower than 1998 because of
the continuing effects of the poor economic conditions in Asia and Eastern
Europe and, in addition, lower sales of outdoor products to military and relief
organizations.
For the nine month period ended September 30, 1999, the Company had net sales of
$3,678,689, an increase of 15.7% from 1998 sales of $3,179,550. The increase is
attributed to the increase in domestic sales offset by lower international
sales. For the remainder of 1999 and into 2000, the Company anticipates that
domestic sales will continue to increase, while international sales will
continue to remain flat or slightly lower than previous years.
The Company continues to aggressively pursue new business opportunities in the
domestic OEM market.
For the three and nine month periods ended September 30, 1999, the Company has
one customer whose net sales accounts for 69.6% and 69.3%, respectively, of
total net sales. During the same periods in 1998, this customer had net sales
representing 59.9% and 49.5%, respectively, of total net sales.
GROSS PROFIT. For the three and nine month periods ended September 30, 1999, the
Company recognized a gross profit of $285,515 and 1,147,780, respectively,
representing 28.2% and 31.2% of net sales, respectively. During the same periods
in 1998, the Company recognized a gross profit of $352,120 and $353,353,
respectively, representing 23.8% and 11.1% of net sales, respectively. The
increase in gross profit as a percentage of
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sales for both the three and nine month period is primarily attributed to
improved manufacturing processes and cost reduction programs.
OPERATING EXPENSES. Selling, general, and administrative expenses for the three
and nine month periods ended September 30, 1999, were $296,066 and $897,445,
respectively, representing 29.2% and 24.4% of net sales, respectively. For the
same period in 1998, selling, general and administrative expenses were $288,808
and $848,627, representing 19.5% and 26.7% of net sales, respectively. The
increase in the dollar amount of spending in 1999 is primarily due to an
increase in the number of employees, partially offset by lower travel and
building related expenses.
Research and development expenses for the three and nine month periods ended
September 30, 1999, were $88,064 and $178,177, respectively, representing 8.7%
and 4.8% of net sales, respectively. For the same periods in 1998, research and
development expenses were $11,144 and $215,806, respectively, representing .01%
and 6.8% of net sales respectively. During the third quarter of 1999, the
Company continued new product development for the appliance industry and for a
long-term water purification device for the U.S market. The Company expects to
continue to incur research and development expenses at current levels during the
fourth quarter and into the year 2000.
For the three and nine month periods ended September 30, 1998, the Company
incurred a loss on minimum purchase contract with Porous Media of $ 43,125 and
$125,625, respectively. The Company incurred a one-time charge of $350,000 in
the second quarter of 1998 as a result of issuing 42,500 shares of Company
common stock to Kansas State University Research Foundation in exchange for
reducing the annual minimum cash payment from $75,000 to $25,000 for the
remainder of the PentaPure(R) technology license agreement.
NONOPERATING EXPENSES. Interest expense was $69,999 and $234,505, respectively,
for the three and nine month period ending September 30, 1999. During the same
periods in 1998, interest expense was $117,708 and $321,496, respectively. The
decrease in interest expense 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 during the first nine months in 1999 and
1998 were cash advances provided by Mr. Klas totaling $400,000 and $950,000,
respectively. As of September 30, 1999, the Company had a working capital
deficit (total current liabilities in excess of total current assets) of
$1,317,536, 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.
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For the nine month period ended September 30, 1999, cash decreased $19,669,
primarily due to cash used in operations of $251,005 and cash used in investing
activities of $136,069, which was essentially offset by cash provided by
financing activities of $367,405. Significant cash uses by operations included
an increase in accounts receivable of $317,017 and a decrease in accounts
payable of $152,624, partially offset by an increase in accrued expenses of
$82,966 and a decrease in inventory of $216,332. Net cash used by investing
activities consisted primarily of purchases of property and equipment of
$122,160 and an advance on an officer note receivable of $15,000. Net cash
provided by financing activities was from issuance of notes payable of $400,000,
partially offset by payments on long-term debt of $32,595.
During the same period in 1998, cash increased $23,780, primarily due to cash
provided by financing activities of $945,795, which was essentially offset by
cash used in operations of $789,807 and cash used in investing activities of
$132,208. Significant cash uses by operations included the net loss and
increases in accounts receivable of $353,648, partially offset by increases in
accounts payable of $304,762 and accrued expenses of $76,463 and an decrease in
inventory of $186,894. Net cash used by investing activities consisted of
purchases of property and equipment of $132,208. Net cash provided by financing
activities was from issuance of notes payable of $950,000, partially offset by
payments on long-term debt of $4,205.
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 October 25, 1999, $400,000 had been advanced under this
agreement. Other than the remaining $100,000 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.
At September 30, 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, 2000.
The Company has $1,450,000 in principal of promissory notes that were issued in
a private placement in 1994 that mature on May 31, 2002. $300,000 in principal
of these notes bear interest at 5.18% until May 31, 2002, and, $1,100,000 in
principal of these notes bear interest at 1% for the twelve months ending May
31, 2000 and then will increase to 5.18% for the duration of the note.
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.
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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.
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. Through September 30, 1999, the Company has fulfilled one year of its five
year obligation. The Company is required to purchase approximately $690,000 of
cyst filters over the next three (3) years. The Company's performance is
guaranteed by Mr. Klas 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
for the remainder of 1999 and for the first half of 2000.
EFFECTS OF INFLATION
The Company believes that during 1998 and 1999 inflation has not had a material
impact on the Company's business.
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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.
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.
14
<PAGE>
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
(b) Reports ON FORM 8-K.
No reports on Form 8-K were filed during the third 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: October 25, 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
SEPTEMBER 30, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,592
<SECURITIES> 0
<RECEIVABLES> 543,496
<ALLOWANCES> 8,764
<INVENTORY> 213,774
<CURRENT-ASSETS> 772,586
<PP&E> 918,326
<DEPRECIATION> 675,044
<TOTAL-ASSETS> 1,021,059
<CURRENT-LIABILITIES> 2,090,122
<BONDS> 4,540,744
0
0
<COMMON> 116,937
<OTHER-SE> (5,609,807)
<TOTAL-LIABILITY-AND-EQUITY> 1,021,059
<SALES> 3,678,689
<TOTAL-REVENUES> 3,678,689
<CGS> 2,530,909
<TOTAL-COSTS> 1,075,622
<OTHER-EXPENSES> 6,017
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,505
<INCOME-PRETAX> (168,364)
<INCOME-TAX> 0
<INCOME-CONTINUING> (168,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168,364)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
