-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vn63uAwkNh2Yx+x7nWZS97WFQRZWF8tdmrnu5/ZjOo/JRE6RIXQpuLVObiq6/yRJ EEQwAl+OlvyjwZzI47iFSA== 0000926236-99-000090.txt : 19990830 0000926236-99-000090.hdr.sgml : 19990830 ACCESSION NUMBER: 0000926236-99-000090 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990827 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WOLF HOWARD B INC CENTRAL INDEX KEY: 0000108018 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 750847571 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06775 FILM NUMBER: 99700891 BUSINESS ADDRESS: STREET 1: 3809 PARRY AVE CITY: DALLAS STATE: TX ZIP: 75226-1753 BUSINESS PHONE: 2148239941 MAIL ADDRESS: STREET 1: 3809 PARRY AVE CITY: DALLAS STATE: TX ZIP: 75226 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THIS SECURITIES 0F THE EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 1999 Commission file number 1-6775 HOWARD B. WOLF, INC. (Exact name of registrant as specified in its charter) Texas 75-0847571 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3710 Rawlins Street, Suite 970, Dallas, Texas 75219-4238 (Address of principal executive offices) (Zip Code) (214) 252-0124 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $0.331/3 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein; and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of Registrant's common stock held by non-affiliates (based upon the closing sale price on the American Stock Exchange) on August 6, 1999 was approximately $2,410,372. As of August 6, 1999, there were 1,056,191 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders on September 21, 1999 are incorporated by reference into Part III. HOWARD B. WOLF, INC. FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED MAY 31, 1999 PART I Item 1. Business General Howard B. Wolf, Inc. (the "Company") was incorporated under the laws of the State of Texas in 1952. Prior to May 6, 1999 the Company designed, manufactured and sold women's fashion apparel consisting of dresses, suits, shirts and coordinated groups of sportswear. These fashions were marketed, primarily through independent sales representatives, under the labels: HOWARD WOLF DRESSES, HOWARD WOLF SPORTSWEAR, HOWARD WOLF W, ERNESTO W and PRET-A-PORTE. These products were sold principally to better women's specialty stores and department stores throughout the United States and in Canada and Mexico. The Company designed and manufactured its products, using domestic independent sewing contractors for most of its sewing operations. Strict quality control was maintained giving the Company an industry-wide reputation for providing outstanding quality and service. The Company has not conducted any on-going operations since May 6, 1999, when the Company's shareholders approved a Plan of Liquidation and Dissolution at a special shareholder meeting. The Company is expected to be fully liquidated by September 2002. See "Management's Discussion and Analysis of Financial Condition and Results of Operation-FINANCIAL CONDITION-Liquidity and Capital Resources". Employees As of May 31, 1999 the Company had five full-time and three part- time employees. From February through May 31, 1999 all other employees severed their employment with the Company as their particular job function was completed. One week of vacation pay was paid to each full-time employee together with severance pay which was based on one weeks pay for each year of service up to a maximum of ten. In order to retain employees until their specific job function was completed, the employee retained was paid a bonus equal to fifty percent of their regular pay during the extended period. The total amount paid for vacation, severance and continuing bonus to all employees was approximately $350,000. The Company had no employees represented by a union and believes that it always enjoyed good relations with its employees. Item 2. Properties On March 16, 1999 a sale of the Company's principal office and manufacturing facility at 3809 Parry Avenue, Dallas, Texas was executed and a leaseback of the facility was entered into for the period March 16, 1999 through June 30, 1999. Effective June 24, 1999 an office of approximately 1,000 square feet was leased for three years, through June 30, 2002, in order to complete the liquidation and dissolution of the Company. The Company sold the facility it owned in Greenville, Texas, in February 1999 which was leased to a nonrelated entity and was shown in the balance sheet as property, plant and equipment not used in operations. The Company had one short-term lease of a permanent showroom in the Apparel Mart in Atlanta at May 31, 1999. This lease was cancelled effective July 31, 1999 and the Company has no further rights or liability in the lease. All of the machinery, equipment, furniture and fixtures used in the operation of the business were either sold or disposed of by May 31, 1999 except for three desks, eleven file cabinets and four personal computers required in the new office in order to complete the liquidation and dissolution of the Company. Item 3. Legal Proceedings The Company is not involved in any material litigation. Item 4. Submission of Matters to a Vote of Security Holders A special shareholders meeting was held May 6, 1999 where the shareholders voted to adopt the Plan of Liquidation and Dissolution of the Company. Out of the 72.7 percent of the shareholders voting, 72.4 voted FOR the adoption of the Plan and .3 percent voted AGAINST the adoption of the Plan. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matter The common stock of the Company is traded on the American Stock Exchange. The following table gives the high and low sales prices and the amount of dividends paid for the fiscal quarters indicated: 1999 Date ended High Low Dividend First quarter August 31, 1998 $5 3/4 $5 1/4 $ .08 Second quarter November 30, 1998 5 7/16 4 3/8 .08 Third quarter February 28, 1999 4 5/8 3 1/8 - Fourth quarter May 31, 1999 4 1/2 3 1/2 - 1998 Date ended High Low Dividend First quarter August 31, 1997 $6 1/2 $5 3/8 $ .08 Second quarter November 30, 1997 6 1/2 5 13/16 .08 Third quarter February 28, 1998 6 1/4 5 1/2 .08 Fourth quarter May 31, 1998 6 1/4 5 1/2 .08 The Company's common stock closed at $4.00 on August 6, 1999. As of August 6, 1999, there were 220 holders of record of the Company's common stock. The Company paid dividends during fiscal years 1998 and the first two quarters of 1999. There are no restrictions on the Company's ability to pay dividends other than those provided by statute. The payment of dividends was reviewed each period by the Board of Directors taking into consideration earnings, business requirements and economic conditions. No dividends were declared during the last two quarters of the fiscal year ended May 31, 1999 nor subsequent to May 31, 1999. Item 6. Selected Consolidated Financial Data The following table summarizes certain information contained in or derived from the Consolidated Financial Statements and Notes thereto. (Not covered by Independent Auditors' Report) For the period ended June 1, 1998 through Fiscal years ended May 31, May 5, 1999 1998 1997 1996 1995 ----- ------ ------ ------ ------ Net sales $9,408 $14,322 $14,242 $15,213 $14,436 Income (loss) before federal income tax (2,332) 626 1,004 1,332 1,220 Provision (credit) for federal income tax (499) 224 370 460 431 Net income (loss) (1,833) 402 634 872 789 Basic and diluted earnings(loss)per share (1.74) .38 .60 .83 .75 Cash dividends per common share .16 .32 .32 .32 .30 Total assets 6,083 9,778 9,552 8,834 8,796
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION Liquidity and Capital Resources The Plan of Liquidation and Dissolution ("the Plan") (set forth in detail as APPENDIX A in the proxy material dated May 6, 1999 mailed to all shareholders) was adopted by the shareholders on May 6, 1999 at a duly called meeting. On February 3, 1999 the Board of Directors recommended to the shareholders that they adopt the Plan in order to preserve and maximize shareholder value. The shareholders met May 6, 1999 and voted to adopt the Plan as recommended by the directors. As a result of the recommendation and approval of the Plan the Company did not engage in any business activities except for completion of its business and affairs and preserving the value of its assets. All assets are to be sold under the plan, and all debts and liabilities, whether fixed or contingent, will either be paid when due or be provided for. Under the Texas Business Corporation Act, Howard B. Wolf, Inc. will continue as a corporate entity for a period of three years after the effective date of the dissolution or for such longer period as the Texas Court determines, for the purpose of completing its business and affairs, but not for the purpose of continuing its business. During this three year period the net assets will be distributed in accordance with the Plan as soon as the Board of Directors, in its sole judgment, deems to be prudent and in the best interests of the shareholders. As a result of the adoption of the Plan, after June 1, 1999 the Company's income and expenses now consist principally of (i) investment income on cash equivalents, (ii) collection of accounts and notes receivable and (iii) corporate expenses, primarily salaries, professional fees, office rent and expenses and necessary costs related to winding up the affairs of the Company. During the period of liquidation the directors and officers are authorized to implement and carry out the provisions of the Plan and will receive compensation for their services. The Board of Directors plans to authorize a partial liquidating distribution to shareholders of record on September 30, 1999 of $4.00 per share. This distribution is planned to be issued to shareholders as soon as the federal income tax refund is received. At such time as the Board has determined that all claims and liabilities have been identified and paid or provided for, the Board will determine a record date and issue a final liquidating distribution. As a result of the implementation of the Plan it is probable that the American Stock Exchange would delist the company's common stock. During the liquidating period, certain corporate expenses will continue to be incurred and investment income will continue to be earned on existing invested funds. The Board of Directors may determine that the amount of funds available for ultimate distribution to shareholders may be increased by transferring all of the Company's remaining assets into a liquidating trust, in which case the trustees would be responsible for liquidating all remaining assets, paying all liabilities and making any distributions to the shareholders. Based the following estimates the Company believes that its future investment income and asset liquidations will exceed its operating expenses and other costs during the liquidating period as shown below. Proforma (unaudited) Fiscal year ending May 31, 2000 2001 2002 Total --------- ------- ------- --------- Beginning cash balance $3,772,000 $339,000 $232,000 $3,772,000 Cash receipts: Collection of receivables 575,000 75,000 25,000 675,000 Investment income 75,000 25,000 10,000 110,000 Tax refund 677,000 0 0 677,000 Miscellaneous receipts 70,000 0 0 70,000 --------- ------- ------- --------- Total cash receipts 1,397,000 100,000 35,000 1,532,000 --------- ------- ------- --------- Total cash available 5,169,000 439,000 267,000 5,304,000 Cash requirements: Office operations and expenses 70,000 40,000 32,000 142,000 Professional fees 40,000 25,000 15,000 80,000 Salaries 200,000 60,000 40,000 300,000 Shareholder/SEC/AMEX costs 20,000 10,000 10,000 40,000 Taxes and reserves 275,000 72,000 91,000 438,000 --------- ------- ------- --------- Total cash requirements 605,000 207,000 188,000 1,000,000 --------- ------- ------- --------- Cash available for distribution 4,564,000 232,000 79,000 4,304,000 Distribution to shareholders 4,225,000 - 79,000 4,304,000 --------- ------- ------- --------- Ending cash balance $ 339,000 $232,000 $ - $ - ========= ======= ======= ========= Inflation Because of the Company's current plans to liquidate its assets, pay all of its liabilities, distribute all of the remaining cash to its shareholders and dissolve within the next three years, the effects of inflation on the Company are believed to be minimal. Year 2000 Disclosure The Company is working to resolve the potential impact of the year 2000 on the ability of the Company's computerized information systems to accurately process information that may be date-sensitive. Any of the Company's programs that recognize a date using "00" as the year 1900 rather than the year 2000 could result in errors or system failures. Due to the liquidation and dissolution process, the Company now utilizes only one computer system which is year 2000 compliant and is obtaining year 2000 certifications from companies upon which it relies for critical information. Management does not believe that its very limited operations will be adversely impacted by year 2000 computer problems. RESULTS OF OPERATIONS 1999 Compared to 1998 In 1952 Howard B. Wolf, Inc. began the designing, manufacturing and marketing of the HOWARD WOLF label, which consisted primarily of dresses for career and professional women who demanded smart, fashionable clothes at a competitive price. The Company developed a design staff and production facilities to insure the look and quality of its products. Its primary market was better women's specialty stores and department stores. HOWARD WOLF fashions carved out a unique niche in the market place and became a prestigious label among discriminating consumers. As consumer demand changed in the market place, the Company introduced the HOWARD WOLF SPORTSWEAR label in 1972. Maintaining most of their profile and marketplace, the HOWARD WOLF labels enjoyed much success. Additional labels - PRET-A-PORTE - dresses and sportswear and ERNESTO W. blouses - were introduced in 1969 and 1976, respectively. In 1993, the HOWARD WOLF W label, featuring dresses and sportswear in fashionable larger sizes, was introduced. Due to a lack of sales volume, the three latter mentioned labels were primarily relegated to serve certain stores that placed special request orders. In 1994 management recognized that the Company's traditional target distribution channels, i.e. independent retail specialty stores, were experiencing a decline in volume and that many were opting to close their doors. The company engaged a consulting firm to analyze all aspects of its operations and markets with a view to reposition itself for growth over the next decade. Management concluded that the best course of action was to continue to broaden the Company's market base by gaining a greater penetration in selected geographical territories and increase its marketing in Canada and Mexico. In addition, steps were taken to develop chain and catalogue distribution. The desired volume was not achieved in these geographical territories, and initial export distribution was soon reduced dramatically by the peso devaluation in Mexico and the economic downturn in Canada. However, the volume of such exports never made any material contribution to the Company. The development of chain and catalogue sales was moderately successful, but profit margins were unacceptably low in this segment of business. In the 1980's the Company closed all of its non-headquarters' factories in order to gain cost efficiencies and quicker turn-around time in production. Independent sewing contractors were utilized together with limited offshore production. In order to gain the cost efficiencies considered necessary to be competitive in the marketplace, the Company sought to take advantage of offshore production. In the mid-1990's, the Company continued to experience the erosion of its primary marketplace as more and more independent women's specialty stores closed and many of the remaining stores were placing smaller and smaller orders. Changes in generational and societal buying habits of women were among the reasons for the stores' lower sales. Upon continued research and study, management determined that it would be necessary to try to find a compatible company to acquire or to merge with in order to gain both sales volume and the efficiencies necessary to generate acceptable profit levels. In 1996, the number one consulting firm in the apparel industry was engaged to explore the entire marketplace, both domestic and international, for the best candidate for acquisition or merger. After a two-year search a compatible partner had not been found. In 1997, the Company did extensive research on vertical retailing and opened two pilot HOWARD WOLF outlet mall retail stores in premium outlet malls in Napa, California and Las Vegas, Nevada. After approximately a year and one-half of operations in Napa and approximately eleven months of operations in Las Vegas, profitable sales volumes were not achieved and both stores were closed. Sales orders booked for the Fall 1998 season and the Holiday/Cruise 1998 season continued to be below desired levels. The Company's operation for the first quarter ended August 31, 1998 were at a break-even profit level. Sales orders booked for the Spring 1999 season were approximately forty percent lower than in 1998. This lower sales volume contributed to the Company's loss of $441,000 for the quarter ended November 30, 1998. Management again scrutinized all of the Company's business and concluded that in the foreseeable future little change, if any, would be forthcoming in its niche in the fashion industry. Many department stores and discount volume stores became deeply entrenched in obtaining their own private label brands thus making them direct competitors. Management also noted that several apparel manufacturers throughout the country were closing. With the amount of 1999 Spring and Summer orders booked, the Company's loss from operations in the third quarter was projected to be even greater than in the second quarter. Again, one more effort was made to find a strategic partner. When this failed, management recommended to the Board of Directors that in the best interests of the shareholders, the Company should meet its obligations to its loyal customers by completing the production and shipment of the 1999 Spring and 1999 Summer seasons and then present to the shareholders a Plan of Liquidation and Dissolution. After intense study and research, the Board of Directors approved a press release to inform the shareholders and financial community of the decision to recommend a Plan to the shareholders and to take the necessary action to call a special shareholders meeting. The meeting was duly called and held May 6, 1999 wherein the shareholders voted to adopt the Plan of Liquidation and Dissolution as recommended by the Board of Directors. In February 1999, the Company sold its facility in Greenville, Texas for $237,000. This facility had been leased to a non-related entity and was not used in the Company's operations. The Company entered into a contract to sell its Parry Avenue property in Dallas, Texas in February 1999 to an unrelated buyer for $1,700,000 cash. This transaction closed on March 16, 1999 at which time the Company leased back the property until June 30, 1999. On February 16, 1999, the Company entered into a purchase agreement (the "Purchase Agreement") with Jean St. Germain, a California corporation ("JSG") pursuant to which the Company agreed to sell JSG all of the assets necessary to produce salesman's samples of the Howard Wolf Fall 1999 collection and its intellectual property (all trademarks and labels) for $250,000. All conditions of the sale have been met by the company and the company has received $75,000 of the sales price, with the remaining $175,000 to be paid by the end of November 1999. The Company had net sales of $9,591,388 and incurred a loss before federal income tax of $2,754,739, and a net loss of $2,255,416, or a basic and diluted loss per share of $2.14 during the fiscal year ended May 31, 1999. This compares to fiscal year ending May 31, 1998 net sales of $14,321,914, income before federal income tax of $626,398 and net income of $401,921, or basic and diluted earnings per share of $.38. The results of operations for fiscal year ended May 31, 1999 compared to fiscal year ended May 31, 1998 reflect the adoption and implementation of the Plan of Liquidation and Dissolution adopted by the shareholders on May 6, 1999. 1998 Compared to 1997 Net income for the fiscal year ended May 31, 1998 was $401,921, or $.38 per share, compared to $633,588, or $.60 per share in the 1997 fiscal year. Income before federal income tax was $626,398 in 1998 versus income before federal income tax of $1,004,079 in 1997. Net sales totaled $14,321,914 for the 1998 fiscal year, approximately one-half of one percent over the previous year. Sales to retail customers were $13,834,387. First year net sales in the "factory" outlet mall stores were $487,527 and operations resulted in a loss of $233,340. Cost of sales increased .3 percent to 66.2 percent as a percentage relationship to net sales. The percentage increase resulted primarily from product sales mix and increased sales allowances. Selling, general and administrative expenses increased approximately two percentage points as a percentage relationship to net sales. The percentage increase resulted primarily from the operations of the "factory" outlet mall stores. The provision for bad debt expense increased to $137,969 from $127,491 in 1997. Other income decreased approximately nineteen percent, primarily due to lower rental income from property not used in operations. Interest income decreased approximately twenty eight percent, primarily due to lower average cash balances. Interest expense increased approximately eighteen percent, primarily due to interest costs on extended terms granted on customer accounts. Item 8. Consolidated Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Management 9 Independent Auditors' Report 10 Consolidated Statement of Net Assets in Liquidation at May 31, 1999 11 Consolidated Statement of Changes in Net Assets in Liquidation for the period May 6, 1999 through May 31, 1999 12 Consolidated Balance Sheet at May 31, 1998 13 Consolidated Statements of Operations and Retained Earnings for the period June 1, 1998 through May 5, 1999 and the years ended May 31, 1998 and 1997 14 Consolidated Statements of Cash Flows for the period June 1, 1998 through May 5, 1999 and the years ended May 31, 1998 and 1997 15 Notes to Consolidated Financial Statements 16-22 Consolidated Schedules for the years ended May 31, 1999, 1998 and 1997: II-Allowance for Collection Losses and Discounts 23 All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes thereto. Report of Management Management is responsible for the consolidated financial statements and all information in this annual report. The statements have been prepared in conformity with generally accepted accounting principles. Financial information elsewhere in this report is consistent with that in the consolidated financial statements. The consolidated statements have been audited by Lane Gorman Trubitt, L.L.P., independent auditors. Their role is to express an opinion as to whether management's financial statements, considered in their entirety, present fairly the Company's financial position, operating results and cash flows. Management maintains and relies on systems of internal accounting controls designed and intended to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and that transactions are executed in accordance with management's authorization and are properly recorded. These systems are tested and evaluated by management as well as by the independent auditors in connection with their annual audit. The Board of Directors selects an Audit Committee composed of two directors. The committee meets periodically with the independent auditors to review the scope and results of the audit, principles applied in financial reporting, and financial and operational controls. The independent auditors and corporate accountants have free access to the audit committee, who are not employees of the company. On the recommendation of the Audit Committee, the Board of Directors selects and engages the independent auditors. /s/Eugene K. Friesen Eugene K. Friesen Senior Vice President and Treasurer Chief Financial Officer Independent Auditors' Report The Board of Directors and Shareholders Howard B. Wolf, Inc. We have audited the accompanying consolidated statement of net assets in liquidation of Howard B. Wolf, Inc. and subsidiaries at May 31, 1999, the related consolidated statement of changes in net assets in liquidation for the period May 6, 1999 to May 31, 1999 and the consolidated statements of operations and retained earnings and cash flows for the period June 1, 1998 through May 5, 1999 (pre- liquidation). In addition, we have audited the accompanying consolidated balance sheet at May 31, 1998 and the related consolidated statements of operations and retained earnings and cash flows for each of the years in the two-year period ended May 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in the "Summary of Accounting Policies" footnote to the consolidated financial statements, the shareholders of Howard B, Wolf, Inc. approved a plan of liquidation and dissolution on May 6, 1999 and the Company commenced liquidation on that date. As a result, the Company has changed its basis of accounting for periods subsequent to May 5, 1999 to the liquidation basis of accounting. Accordingly, the carrying values of the remaining assets at May 31, 1999 are presented at estimated realizable values and all liabilities are presented at estimated settlement amounts. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated net assets in liquidation of Howard B. Wolf, Inc. and subsidiaries at May 31, 1999, the changes in its consolidated net assets in liquidation from May 6, 1999 to May 31, 1999, the results of its operations and its cash flows for the period June 1, 1998 to May 5, 1999, the financial position of Howard B. Wolf, Inc. and subsidiaries at May 31, 1998, and the results of its consolidated operations and its cash flows for each of the years in the two-year period ended May 31, 1998, in conformity with generally accepted accounting principles applied on the bases described in the preceding paragraph. We have also audited Schedule II of Howard B. Wolf, Inc. and subsidiaries for the years ended May 31, 1999, 1998 and 1997. In our opinion, this Schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ Lane Gorman Trubitt, L.L.P. Lane Gorman Trubitt, L.L.P., Certified Public Accountants Dallas, Texas July 29, 1999
HOWARD B. WOLF, INC. CONSOLIDATED STATEMENT OF NET ASSETS May 31, 1999 ASSETS Cash and cash equivalents $3,771,529 Accounts and note receivable - net 941,597 Prepaid expenses 34,199 Refundable federal income tax 676,624 Property and equipment - net 13,870 Other assets 51,957 --------- Total assets 5,489,776 LIABILITIES Accounts payable and accrued liabilities 185,911 --------- Net assets in liquidation at May 31, 1999 $5,303,865 ========= See accompanying notes
HOWARD B. WOLF, INC. CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION For the Period May 6, 1999 through May 31, 1999 Revenues Net sales $ 183,266 Interest income 16,816 --------- 200,082 Costs and expenses Cost of sales 281,123 Selling, general and administrative expenses 304,693 Provision for bad debt expense 33,349 Interest expense 2,843 --------- 622,008 --------- Decrease in net assets for the period (421,926) Net assets at May 5, 1999 5,725,791 --------- Net assets at May 31, 1999 $5,303,865 ========= See accompanying notes
HOWARD B. WOLF, INC. CONSOLIDATED BALANCE SHEET May 31, 1998 ASSETS Current assets: Cash and cash equivalents $1,128,991 Accounts receivable - net 2,530,137 Inventories 4,620,568 Prepaid expenses 159,322 Refundable federal income tax 112,813 Deferred federal income tax 234,000 --------- 8,785,831 --------- Property, plant and equipment 2,494,332 Less accumulated depreciation and amortization (1,555,118) --------- 939,214 Plant and equipment not used in operations - net 678 Other assets 51,957 --------- $9,777,680 ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $1,975,408 Deferred federal income tax 74,000 Shareholders' equity: Common stock, par $.33 1/3; 3,000,000 shares authorized; 1,081,191 shares issued 360,400 Additional paid-in capital 2,034,088 Retained earnings 5,433,784 Less common stock in treasury, at cost, 25,000 shares (100,000) --------- 7,728,272 --------- $9,777,680 ========= See accompanying notes
HOWARD B. WOLF, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS June 1, 1998 through Fiscal years ended May 5, 1999 May 31, 1998 May 31, 1997 --------- ---------- ---------- Net sales $9,408,122 $14,321,914 $14,242,066 Costs and expenses: Cost of sales 9,632,812 9,487,555 9,392,340 Selling, general and administrative expenses 3,033,892 4,127,553 3,820,471 Provision for bad debt expense 207,275 137,969 127,491 --------- ---------- ---------- 12,873,979 13,753,077 13,340,302 --------- ---------- ---------- Income (loss) from operations (3,465,857) 568,837 901,764 Loss on abandonment of assets (9,366) - - Gain on sale of assets 1,111,178 - - Other income 38,023 43,881 64,591 Interest income 32,514 48,813 67,399 Interest expense (39,305) (35,133) (29,675) --------- ---------- ---------- Income (loss) before federal income tax (2,332,813) 626,398 1,004,079 (Provision) credit for federal income tax 499,323 (224,477) (370,491) --------- ---------- ---------- Net income (loss) (1,833,490) 401,921 633,588 Retained earnings- beginning of period 5,433,784 5,369,844 5,074,237 Cash dividends (168,991) (337,981) (337,981) --------- ---------- ---------- Retained earnings-end of period $3,431,303 $5,433,784 $5,369,844 ========= ========= ========= Average number of shares outstanding 1,056,191 1,056,191 1,056,191 ========= ========= ========= Basic and diluted earnings (loss) per share $(1.74) $.38 $.60 ========= ========= ========= Dividends paid per share $.16 $.32 $.32 ========= ========= ========= See accompanying notes
HOWARD B. WOLF, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
June 1, 1998 through Fiscal years May 5, 1999 May 31, 1998 May 31, 1997 ---------- --------- --------- Cash flows from operating activities: Net income (loss) $(1,833,490) $ 401,921 $ 633,588 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities- Depreciation and amortization 170,259 174,605 150,067 Provision for losses on accounts receivable 207,275 137,969 127,491 Change in deferred federal income tax 160,000 (20,000) (41,000) Abandonment of assets 9,366 8,131 - Gain on sale of property, plant and equipment (1,111,178) - - Net changes in operating assets and liabilities- Accounts and note receivable 1,564,531 (252,862) (565,937) Inventories 4,620,568 (804,915) 331,633 Prepaid expenses 125,123 1,671 (626) Refundable federal income tax (563,811) (112,813) - Accounts payable and accrued liabilities (1,798,096) 202,421 350,163 Federal income tax payable - (40,635) 76,573 ---------- --------- --------- Net cash provided by (used in) operating activities 1,550,547 (304,507) 1,061,952 Cash flows from investing activities: Other assets - (860) (1,432) Additions to property, plant and equipment (18,200) (149,076) (63,111) Sale of property, plant and equipment 1,864,034 - - ---------- --------- --------- Net cash provided by (used in) investing activities 1,845,834 (149,936) (64,543) Cash flows from financing activities: Cash dividends paid (168,991) (337,981) (337,981) ---------- --------- --------- Net cash used in financing activities (168,991) (337,981) (337,981) ---------- --------- --------- Net increase(decrease) in cash and cash equivalents 3,227,390 (792,424) 659,428 Cash and cash equivalents at beginning of period 1,128,991 1,921,415 1,261,987 ---------- --------- --------- Cash and cash equivalents at end of period $ 4,356,381 $1,128,991 $1,921,415 ========== ========= ========= See accompanying notes
HOWARD B. WOLF, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Business Prior to May 6, 1999 the Company designed, manufactured and sold women's fashion apparel primarily to retail clothing stores in the United States. On February 3, 1999 the Board of Directors recommended a Plan of Liquidation and Dissolution to the shareholders who adopted the Plan at a duly called meeting on May 6, 1999. Subsequent to May 6, 1999 the Company has not engaged in any business activities except to complete the affairs of the Company, liquidate the assets, provide for the liabilities and maximize shareholder value. Summary of significant accounting policies In connection with the shareholder approval of the Plan of Liquidation and Dissolution on May 6, 1999 the Company adopted the liquidation basis of accounting. Under this basis of accounting, assets and liabilities are stated at their net realizable value and settlement amounts and estimated costs through the liquidation are provided to the extent reasonably determinable. The Company will be liquidated and dissolved, all liabilities and operating costs to carry out the liquidation and dissolution will be paid, and all remaining assets distributed to the shareholders. The consolidated financial statements include the accounts of the Company and all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Inventories have been totally liquidated as of May 31, 1999. Raw materials were priced at the lower of cost (identified unit basis) or market and work-in-process and finished goods were priced at the lower of average cost or market. All property, plant and equipment used in the operations of the Company, with the exception of immaterial computer and office equipment, have been sold or disposed of. Loss on abandonment of assets (unamortized leasehold improvements) and gain on the sale of assets reflect the difference between the book value of the assets and their net selling price. Refundable federal income tax is calculated on the basis of applying the tax net operating loss against the two previous years' taxable income and taxes paid. Deferred income taxes result from temporary differences between pre-tax earnings reported in the consolidated financial statements and taxable income. No deferred taxes were reflected on the balance sheet at May 31, 1999 since it is highly improbable that the Company will generate any taxable income in order to utilize the deferred tax benefits. Basic and diluted earnings (loss) per share is computed on the weighted average number of common shares outstanding during the period. In June 1997, the FASB released Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general- purpose financial statements and is effective for the Company's fiscal year 1999. SFAS 130 did not have an impact on the Company's consolidated financial statements. In preparing the Company's financial statements, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ form these estimates. Estimates used in the liquidation basis of accounting are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and there are a number of important factors that could cause actual results to differ from these estimates including the Company's ability to collect accounts receivable and amounts to be received when assets are sold. Fair value of financial instruments are estimated to approximate the related book values, unless otherwise indicated, based on market information available to the Company. Cash flow information The consolidated statements of cash flows provide information about changes in cash and cash equivalents. Cash equivalents consist of highly liquid debt instruments with a maturity, when purchased, of three months or less. Cash payments for interest were: 1999-$42,148; 1998-$35,133 and 1997-$29,675. Cash payments for federal income taxes were: 1999-$-0-; 1998-$387,925 and 1997-$341,854. Cash and cash equivalents Cash and cash equivalents consist of: 1999 1998 --------- --------- Cash $ 383,130 $ 290,833 Money market funds 366,297 207,461 Matured funds at factor 25,791 630,697 U.S. Treasury bills 2,996,311 - --------- --------- $3,771,529 $1,128,991 ========= ========= Credit risk The Company and its subsidiaries maintain cash balances at several financial institutions located in Texas, California and Nevada. Accounts in each institution (except U. S. Treasury Bills, which are secured by the United States Government) are insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances aggregate to approximately $512,000 at May 31, 1999, ($855,000 at May 31, 1998). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk. The balance of accounts receivable factored and matured funds with a commercial factor of approximately $482,000 at May 31, 1999 are uninsured ($2,172,000 at May 31, 1998). Accounts receivable Accounts receivable are net of allowances for collection losses and discounts of $39,112 in 1999 and $132,546 in 1998. At May 31, 1999 and 1998 approximately $457,000 and $1,542,000, respectively, of accounts receivable were factored with a commercial factor. Approximately $145,000 and $707,000 were factored with recourse at May 31, 1999 and 1998, respectively. Inventories Inventories consist of: 1999 1998 ----- --------- Raw materials - $ 991,748 Work-in-process - 1,067,345 Finished goods - 2,561,475 ----- --------- - $4,620,568 ===== ========= Property, plant and equipment Details of property, plant and equipment at cost and the estimated useful lives used in computing depreciation and amortization are: Estimated useful lives 1999 1998 ------------ --------- --------- Property, plant and equipment: Land - $ - $ 109,846 Buildings 25 years - 661,727 Machinery and equipment 3-10 years 55,232 1,027,109 Building and lease hold improvements 4-10 years - 695,650 --------- --------- $ 55,232 $2,494,332 ========= ========= Plant and equipment not used in operations: Buildings 25 years $ - $ 137,005 Less accumulated depreciation - (136,327) --------- --------- $ - $ 678 ========= =========
Depreciation expense for the period May 6, 1999 through May 31, 1999 was $11,741. Accounts payable and accrued liabilities Accounts payable and accrued liabilities consist of: 1999 1998 ------- --------- Accounts payable-trade $ 60,001 $1,667,482 Accrued compensation 5,291 191,390 Accrued taxes 119,400 100,207 Other accrued liabilities 1,219 16,329 ------- --------- $185,911 $1,975,408
======= ========= Line of credit The Company has an oral agreement for a line of credit with a bank in the amount of $100,000 bearing no interest. The line is collateralized by the general assets of the company. As of May 31, 1999, amounts available under this line were $100,000. No amounts were drawn under this line of credit as of May 31, 1999. Leases Certain equipment, manufacturing facilities, showrooms and factory outlet mall stores were leased for periods expiring at various dates through fiscal 2003, at aggregate annual rentals of approximately $223,000 in 1999, $159,000 in 1998 and $103,000 in 1997, which consisted entirely of minimum rentals. Management does not expect to renew or replace terminated or expired leases as it completes the liquidation and dissolution process of the Company. As of May 31, 1999 there is only one lease for office space which expires in 2003 and one lease for office equipment which expires in 2001. Included in the 1999 rent expense is approximately $110,000 related to buy-out of certain facility operating leases. The future minimum lease payments required under operating leases that have an initial or remaining lease term in excess of one year at May 31, 1999 were as follows: Operating leases ------ 2001 $36,000 2002 31,000 2003 11,000 ------ $78,000 ====== Federal Income Tax Income taxes receivable at May 31, 1999 consists primarily of federal income taxes recoverable through carryback of net operating losses. The detail of the provision for federal income tax follows: For the period June 1, 1998 through For the years ended May 31, May 5, 1999 1998 1997 -------- ------- ------- Current tax payable (receivable) $(659,323) $244,477 $411,491 Deferred tax (benefit) expense 160,000 (20,000) (41,000) -------- ------- ------- Provision (credit) for income tax $(499,323) $224,477 $370,491 ======= ======= =======
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As a result of the Plan of Liquidation and Dissolution, all deferred tax assets have been allowed for since they are not expected to be realized. Net operating losses available for carryforward at May 31, 1999 were approximately $1,263,000 expiring May 31, 2119. Total deferred tax assets and liabilities in the consolidated statement of net assets and balance sheet are as follows at May 31,: Assets 1999 1998 -------- ------- Bad debt reserve $ 13,300 $ 40,000 Discount reserve - 5,000 Inventory capitalization of selling, general and administrative costs - 189,000 Net operating loss carryforward 429,551 -------- ------- $ 442,851 $234,000 Less valuation allowance (442,851) - -------- ------- $ - $234,000 ======== ======= Liabilities Depreciation $ - $ 74,000 ======== ======= The income tax provision reconciled to the tax computed at federal statutory rates is as follows: For the years ended May 31, 1999 1998 1997 -------- ------- ------- Tax at statutory rates $(936,611) $212,975 $341,387 Tax effect of net operating loss carryforward 429,551 - - Tax effect on non- deductible items 11,848 14,620 13,472 Other-net (164,111) 16,882 56,632 -------- ------- ------- $(659,323) $244,477 $411,491 Deferred tax (benefit) expense 160,000 (20,000) (41,000) -------- ------- ------- $(499,323) $224,477 $370,491 ======== ======= ======= The components of deferred income tax (benefit) expense are as follows: For the years ended May 31, 1999 1998 1997 -------- ------- ------- Difference between tax and book depreciation $ (74,000) $ 282 $ (3,400) Difference between tax and book allowance for doubtful accounts 26,945 (810) (13,430) Difference between tax and book basis of merchandise inventories 189,018 (20,072) (21,809) Reserve for discounts 4,738 600 (2,361) Net operating loss carryforward (429,551) - - Valuation allowance 442,850 - - -------- ------- ------- Deferred tax (benefit) expense $ 160,000 $(20,000) $(41,000) ======== ======= =======
Advertising costs The Company's policy is to expense all advertising costs in the period in which the advertising first takes place. Advertising expense was approximately $111,000, $208,000 and $122,000 for the years ended May 31, 1999, 1998 and 1997, respectively. HOWARD B. WOLF, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Selected quarterly financial data (UNAUDITED) First Quarter Second Quarter Third Quarter Fourth Quarter Ended Ended Ended Ended Aug 31,1998 Nov 30,1998 Feb 28,1999 May 5,1999 --------- --------- ---------- ---------- Net sales $3,148,230 $2,641,063 $ 2,491,598 $ 1,127,231 Gross profit(loss) 992,183 286,070 (1,272,663) (3,471,447) Income (loss) before federal income tax 6,309 (624,618) (2,042,448) 327,944 Net income (loss) 5,233 (441,463) (1,317,661) (79,599) Basic and diluted earnings (loss) per share .01 (0.42) (l.25) (.08) Average number of shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191 Aug 31,1997 Nov 30,1997 Feb 28,1998 May 31,1998 --------- --------- ---------- ---------- Net sales $3,680,093 $3,861,720 $ 3,276,419 $ 3,503,682 Gross profit 1,299,050 1,460,640 1,028,199 1,046,470 Income before federal income tax 265,460 259,988 80,217 20,733 Net income 170,196 168,996 43,682 19,047 Basic and diluted earnings per share .16 .16 .04 .02 Average number of shares outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Item 9. Changes in and disagreements with accountants on accounting and financial disclosure matters None PART III The information required by items 10, 11, 12 and 13 of Part III is incorporated by reference from the indicated pages in the Company's definitive proxy statement for its annual meeting of shareholders to be held September 21, 1999. Pages of Proxy Statement Item 10. Directors and Executive Officers of the Registrant 3-4 Item 11. Executive Compensation 5 Item 12. Executive Ownership of Certain Beneficial Owners and Management 2-3 Item 15. Certain Relationships and Related Transactions 7 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial statements and financial statement schedules The financial statements and schedules listed in the accompanying index to consolidated financial statements are filed as part of this annual report. 3. Exhibits None (b) Report on Form 8-K One Form 8-K was filed in the fourth quarter ended May 31, 1999 on May 6, 1999. HOWARD B. WOLF, INC. SCHEDULE II-ALLOWANCE FOR COLLECTION LOSSES AND DISCOUNTS Years ended May 31, 1999, 1998 and 1997 000's Omitted Balance at Additions Amount Balance beginning charged charged Discounts at end of year to income off(2) allowed of year ---- ------ ---- ------ ------- Year ended May 31, 1999 Collection losses $119 $ 241 $321 $ - $ 39 Discounts 14 509(1) - 523 - ---- ------ ---- ------ ------- $133 $ 750 $321 $ 523 $ 39 Year ended May 31,1998 Collection losses $116 $ 138 $136 $ - $ 119 Discounts 16 857(1) 1 857 14 ---- ------ ---- ------ ------- $132 $ 995 $137 $ 857 $ 133 Year ended May 31, 1997 Collection losses $ 77 $ 127 $ 88 $ - $ 116 Discounts 9 1,048(1) (7) 1,048 16 ---- ------ ---- ------ ------- $ 86 $1,175 $ 81 $1,048 $ 13
(1) Charged to net sales. (2) Net of recoveries. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) or the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. Howard B. Wolf, Inc. By:/s/ Robert D. Wolf Robert D. Wolf President (Chief Executive Officer) August 27,1999 By:/s/ Eugene K. Friesen Eugene K. Friesen Senior Vice President and Treasurer (Principal Accounting Officer) August 27,1999 Pursuant of the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Creed L. Ford III Director August 27,1999 /s/Eugene K. Friesen Eugene K. Friesen Senior Vice President, Treasurer and Director August 27,1999 /s/Joel Held Joel Held Director August 27,1999 Juan Villamizar Director August 27,1999 /s/Howard B. Wolf Howard B. Wolf Chairman of the Board, Secretary and Director August 27,1999 /s/Robert D. Wolf Robert D. Wolf President, Chief Executive Officer and Director August 27,1999 EX-27 2
5 1,000 12-MOS MAY-31-1999 MAY-31-1999 3,772 0 981 39 0 4,792 55 42 5,490 186 0 0 0 360 4,944 5,490 9,408 9,479 9,632 12,874 (1,102) 0 39 (2,332) (499) (1,833) 0 0 0 (1,833) (1.74) (1.74)
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