-----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, TurqcXWHimJPJCk9QNP1D19Sb1ghVCcFvFes5PSaiuo2wmcl+4lrlgzWhCBighMu XO6Yj5fP/q5wUlQvieowgQ== 0000950005-95-000301.txt : 19951120 0000950005-95-000301.hdr.sgml : 19951120 ACCESSION NUMBER: 0000950005-95-000301 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951115 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEDGESTONE FINANCIAL INC CENTRAL INDEX KEY: 0000315621 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 042695000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08984 FILM NUMBER: 95593839 BUSINESS ADDRESS: STREET 1: 5200 N IRWINDALE AVE STE 168 CITY: IRWINDALE STATE: CA ZIP: 91706 BUSINESS PHONE: 8183383555 MAIL ADDRESS: STREET 1: 5200 N IRWINDALE AVE STREET 2: STE 168 CITY: IRWINDALE STATE: CA ZIP: 91706 FORMER COMPANY: FORMER CONFORMED NAME: WEDGESTONE FINANCIAL DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WEDGESTONE REALTY INVESTORS TRUST DATE OF NAME CHANGE: 19880218 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the period ended September 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from To - ----------------------------------- ---------------------------------- Commission File Number: 1-8984 WEDGESTONE FINANCIAL (Exact Name of Registrant as Specified in its Charter) Massachusetts 04-26950000 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification Number) 5200 N. Irwindale Avenue Suite 168 Irwindale, California 91706 (818) 338-3555 (Address, including zip code and telephone number, including area code of registrant's principal executive offices) --------------------------- Indicate by check mark whether the registrant has (1) 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 (or such shorter period that the registrant was required to file such reports and (2) has been subject to filing requirements for the past 90 days. [ X ] Yes [ ] No Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ X ] Yes [ ] No Shares of Beneficial Interest Outstanding as of November 10, 1995: 21,885,668 ================================================================================ TABLE OF CONTENTS
Page PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets - September 30, 1995 (unaudited) and December 31, 1994.........................................................................2 Consolidated Statements of Operations (unaudited) for the Three Months and Nine Months Ended September 30, 1995 and 1994........................3 Consolidated Statements of Shareholders' Equity (unaudited) for the Nine Months Ended September 30, 1995 and 1994.........................................4 Consolidated Statements of Cash Flows (unaudited) for the Three Months and Nine Months Ended September 30, 1995 and 1994........................5 Notes to Unaudited Consolidated Financial Statements......................................6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................8 PART II OTHER INFORMATION Signatures...............................................................................11
-1- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of September 30, 1995 and December 31, 1994
(Unaudited) ASSETS 1995 1994 ------------ ------------ Current Assets: Cash $ 178,566 $ 178,876 Accounts and other receivables - (net of allowances of $404,984 and $202,077 in 1995 and 1994, respectively) (Note 1) 6,396,390 4,451,871 Inventories (Notes 1 and 2) 4,420,784 3,610,135 Prepaid expenses and other assets 539,777 194,018 Deferred income taxes 315,946 315,946 ------------ ------------ Total Current Assets 11,851,463 8,750,846 ------------ ------------ Notes receivable - net (Note 1) 743,191 650,000 Mortgage notes receivable - net (Note 1) 84,243 84,874 Real estate acquired by foreclosure - net (Note 1) 1,048,344 964,766 Property, plant and equipment - net 4,691,671 2,509,979 Goodwill (Note 1) 623,248 217,268 Deferred income taxes 973,778 973,778 Other assets 1,437,064 239,148 ------------ ------------ 9,601,539 5,639,813 Total Assets $ 21,453,002 $ 14,390,659 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt (Note 1) $ 1,590,448 $ 1,031,978 Accounts payable 3,223,333 2,974,419 Accrued payroll and related expenses 591,736 399,730 Other accrued expenses 1,355,239 926,166 ------------ ------------ Total Current Liabilities 6,760,756 5,332,293 Long-term debt (Note 1) 9,655,843 5,676,021 ------------ ------------ Total liabilities 16,416,599 11,008,314 Commitments and contingencies -- -- ------------ ------------ Subtotal 16,416,599 11,008,314 Shareholders' Equity: Shares of Beneficial Interest-par value $1.00 per share: authorized - unlimited shares: issued and outstanding - 21,885,668 shares 21,885,668 20,385,668 Additional paid-in capital 31,396,420 32,376,419 Accumulated deficit (48,245,685) (49,379,742) ------------ ------------ Total Shareholders' Equity 5,036,403 3,382,345 ------------ ------------ Total Liabilities and Shareholders' Equity $ 21,453,002 $ 14,390,659 ============ ============ See notes to consolidated financial statements
-2- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Net sales $10,828,503 $ 9,057,493 $35,623,822 $26,498,211 Cost of sales 7,529,157 6,324,649 24,613,956 18,119,836 ----------- ----------- ----------- ----------- Gross profit 3,299,346 2,732,844 11,009,866 8,378,375 Selling, general and administrative expenses 2,583,388 2,142,892 8,639,106 6,610,484 ----------- ----------- ----------- ----------- Operating income 715,958 589,952 2,370,760 1,767,891 Goodwill amortization 10,902 10,902 32,704 32,704 Interest expense 365,355 136,034 1,036,535 374,455 ----------- ----------- ----------- ----------- Income before taxes 339,701 443,016 1,301,521 1,360,732 Provision for income taxes 76,200 279,962 167,464 611,654 ----------- ----------- ----------- ----------- Net income $ 263,501 $ 163,054 $ 1,134,057 $ 749,078 =========== =========== =========== =========== Net income per share: (Note 1) Shares of Beneficial Interest $ 0.01 $ 0.01 $ 0.05 $ 0.04 =========== =========== =========== =========== Weighted average number of shares outstanding: Shares of Beneficial Interest 21,885,668 20,385,668 21,790,296 20,385,668 =========== =========== =========== =========== See notes to consolidated financial statements
-3- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Nine Months Ended September 30, 1995 and 1994 (Unaudited)
Additional Shares of Beneficial paid-in Accumulated Interest capital deficit Total ------------------------- ------------ ------------ ------------ Shares Amount Balance at January 1, 1994 20,385,668 $ 20,385,668 $ 33,045,539 ($50,872,794) $ 2,558,413 Distributions from Standun (Note 1) 456,614 456,614 Net Income 749,078 749,078 ---------- ------------ ------------ ------------ ------------ Balance at September 30, 1994 20,385,668 $ 20,385,668 $ 33,502,153 ($50,123,716) $ 3,764,105 ========== ============ ============ ============ ============ Balance at January 1, 1995 20,385,668 $ 20,385,668 $ 32,376,420 ($49,379,742) $ 3,382,346 Issuance of shares of beneficial interest to secure third party debt guarantee (Note 1) 1,200,000 1,200,000 (840,000) 360,000 Issuance of shares of beneficial interest in exchange for acquisition services (Note 1) 200,000 200,000 (140,000) 60,000 Issuance of shares of beneficial interest to payoff outstanding debt (Note 1) 100,000 100,000 100,000 Net income 1,134,057 1,134,057 ---------- ------------ ------------ ------------ ------------ Balance at September 30, 1995 21,885,668 $ 21,885,668 $ 31,396,420 ($48,245,685) $ 5,036,403 ========== ============ ============ ============ ============ See notes to consolidated financial statements
-4- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 ----------- ----------- ----------- ----------- Cash Flows from Operating Activities: Net income $ 263,501 $ 163,054 $ 1,134,057 $ 749,078 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 333,022 188,087 849,794 544,589 Changes in operating assets and liabilities: Accounts and other receivables 1,367,719 52,119 (648,320) (1,169,620) Inventories 145,025 594,456 318,806 (200,458) Prepaid expenses and other current assets (228,285) (5,922) (345,759) (151,935) Accrued payroll and related expenses 128,859 (32,596) 192,006 66,260 Other accrued expenses (674,786) 373,439 (640,163) 1,148,380 Accounts payable (710,372) (441,960) 248,914 380,667 Other assets 23,644 (1,400) (106,998) 658 Other liabilities 0 (1,218,792) 0 (1,400,693) ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities 648,327 (329,515) 1,002,337 (33,074) ----------- ----------- ----------- ----------- Cash Flows from Investing Activities: Proceeds from sale of real estate and equipment 0 0 0 74,985 Proceeds from repayment of mortgage notes receivable 0 565 743 51,143 Notes receivable (92,191) 17,500 (92,191) 52,500 Investment in subsidiary (27,795) 0 (485,730) 0 Capital expenditures (317,525) (112,995) (722,867) (262,719) Investment in real estate (32,000) (43,974) (83,690) (84,073) ----------- ----------- ----------- ----------- Net cash (used in) investing activities (469,511) (138,904) (1,383,735) (168,164) ----------- ----------- ----------- ----------- Cash Flows from Financing Activities: Distributions to (from) Standun 0 653,386 0 (180,441) Repayment of term debt (25,383) (41,415) (297,000) (210,396) Net borrowings (repayments) on revolving debt (243,576) (204,745) 678,088 800,287 ----------- ----------- ----------- ----------- Net cash provided by used in financing activities (268,959) 407,226 381,088 409,450 ----------- ----------- ----------- ----------- Net decrease in cash (90,143) (61,193) (310) 208,212 Cash at beginning of period 268,709 296,110 178,876 26,705 ----------- ----------- ----------- ----------- Cash at end of period $ 178,566 $ 234,917 $ 178,566 $ 234,917 =========== =========== =========== =========== See notes to consolidated financial statements
-5- WEDGESTONE FINANCIAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Nine Months Ended September 30, 1995 and the Twelve Months Ended December 31, 1994 NOTE 1. Background and Basis of Presentation History of the Company - Wedgestone Financial ("Wedgestone" or the "Company") was formed in 1980 as a real estate investment trust ("REIT") and, on August 9, 1991, filed for bankruptcy. Wedgestone's plan of reorganization (the "Plan") became effective on August 3, 1992. Acquisitions - Since May 1992, Wedgestone has acquired three manufacturing operations. In September 1992, Wedgestone acquired St. James Automotive Corp. ("St. James") in exchange for 6,795,220 shares of beneficial interest of Wedgestone and accounted for this acquisition as a purchase. On November 18, 1994, Wedgestone acquired the "Automotive Segment" of Standun, Inc. ("Standun"), which consisted of the Fey Automotive Products Division ("Fey") and Sigma Plating Co., Inc. ("Sigma") in exchange for 6,795,223 shares of beneficial interest of Wedgestone and the assumption of approximately $1,104,000 of outstanding debt due to related parties of both Wedgestone and Standun, and certain other liabilities. The shareholders of Standun owned, directly or indirectly, approximately 48% of Wedgestone prior to the acquisition and, as a result, this acquisition has been accounted for as a "put-together" which is similar to the pooling of interest method of accounting. On January 9, 1995 Wedgestone acquired substantially all of the assets of Hercules Bumpers, Inc. ("Hercules") which manufactures and distributes rear bumpers for both domestic and foreign light duty trucks. The purchase price for the assets acquired was the assumption of certain debt and other liabilities approximating $5.1 million. In addition, certain debt is being guaranteed jointly and severally by Charles W. Brady ("Brady"), the principal shareholder of Hercules, and Chattahoochee Leasing Corporation ("CLC"), a corporation controlled by Brady. In exchange for this guarantee, Brady received a promissory note in the amount of $300,000 and 1,200,000 shares of beneficial interest of Wedgestone. In consideration for an agreement to pay a liability of Hercules, CLC received a promissory note for $100,000 which was secured by 100,000 shares of beneficial interest of Wedgestone. In June, 1995, the Company exercised its right under the CLC Agreement and acquired the note by issuing these shares to CLC. Basis of Presentation and Principles of Consolidation - The accompanying consolidated financial statements include the operations of Wedgestone and give retroactive effect to the acquisition of Fey and Sigma for all periods presented. As a result, the financial position, results of operations and cash flows are presented as if Wedgestone, Fey and Sigma had been consolidated for all periods presented. The consolidated statements of changes in Wedgestone's shareholders' equity reflect the Wedgestone shares of beneficial interest issued to effect the Fey and Sigma acquisition as if they were outstanding for all periods presented. The results of operations and cash flows presented include the results of operations and cash flows of Hercules since its date of acquisition. The consolidated financial statements include the accounts of Wedgestone and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The consolidated financial statements do not include the operations of IRP. IRP is a wholly-owned subsidiary of the Company established for the sole purpose of liquidating the transferred assets for the benefit of Wedgestone's creditors pursuant to the Plan. Wedgestone has no control or influence over the operational decisions of IRP, and has no representation on the Board of Directors or management of IRP. In addition, at this time, management believes Wedgestone will receive no benefit or incur any liability from the liquidation of IRP. The financial statements included in this Form 10-Q have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1994. -6- The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. During the quarter ended September 30, 1995, the Company has performed an analysis of the assets acquired and liabilities assumed in connection with the acquisition of Hercules. As a result of this analysis, the Company has determined that its initial estimates of provisions for warranty costs, bad debts, inventory obsolescence and other liabilities were understated by approximately $994,000. In addition, based upon a valuation performed, the Company increased the carrying amount of property, plant and equipment by approximately $555,000. The net effect of the above adjustments was to increase goodwill from $0 to $439,000. Furthermore, the Company reversed expenses of approximately $257,900 during the quarter ended September 30, 1995, which related to the above matters which were expensed during the prior six month period. Income Per Share of Beneficial Interest - Income per share of beneficial interest is calculated based on weighted average outstanding shares of beneficial interest. NOTE 2. Inventories Inventories consist of the following: September 30, December 31, 1995 1994 ----------- ----------- Finished goods $ 2,367,603 $ 2,397,771 Work in progress 1,015,699 783,303 Raw materials 1,459,617 711,648 ----------- ----------- Subtotal 4,842,919 3,892,722 Less Reserves (422,135) (282,587) ----------- ----------- Net Total $ 4,420,784 $ 3,610,135 =========== =========== NOTE 3. Related Parties Subsequent to the year ended December 31, 1994, in connection with the acquisition of the Automotive Segment of Standun Inc., Resource Holdings Associates and PFG Corp. ("PFG"), both of which are controlled by certain Wedgestone shareholders, received a fee of $225,000. In connection with the Hercules acquisition, Resource Holdings Associates and PFG received a fee of $220,000 consisting of $160,000 and 200,000 shares of beneficial interest of Wedgestone at a valuation price of $.30 per share. On January 25, 1995, Wedgestone entered into a five year agreement with PFG and Wedgestone Partners, an affiliate of the aforementioned shareholders, to provide advisory services to Hercules with respect to its operations, expansion and financing activities at an aggregate amount of $175,000 per year. NOTE 4. Supplemental Schedule of Non-cash Investing Activities In connection with the January 9, 1995 acquisition of Hercules, Wedgestone assumed liabilities to acquire assets as follows: Accrued expenses $1,094,021 Revolver and other debt 3,957,204 ---------- Total liabilities assumed $5,051,225 ========== Receivables, inventories and other assets $2,990,855 Property, Plant and Equipment 2,060,370 ---------- Total assets acquired $5,051,225 ========== -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Wedgestone (the "Company") is primarily engaged in the business of manufacturing automotive products for the light duty truck aftermarket. The Company has three manufacturing plants located in Irwindale, California, St. James, Minnesota and Pelham, Georgia. Results of Operations In general, the light duty truck market remains strong and continues to show growth over 1994. While total year-to-date Company sales perform ahead of 1994, sales of its more traditional product, Fey rear step bumpers for light duty pickup trucks, have slowed to 66% of 1994 levels. Management believes that this is primarily due to the Company's alignment with a major domestic manufacturer of light duty trucks. As a result, difficulties experienced by this manufacturer in meeting on-going demand for light duty vehicles has directly impacted the Company's sales of Fey's rear step bumpers for the second and third quarters of 1995. By the close of the third quarter, most of the difficulties restricting the delivery of light duty trucks by this manufacturer were resolved. Shipments of Fey rear step bumpers in October exceeded October 1994 levels. The Company's alignment with this manufacturer represents an effort to enhance product sales by both developing new OEM relationships and strengthening the Company's long standing relationship with this manufacturer's products in the aftermarket. Management remains committed to this strategy. During this period management has continued to cultivate relationships with other domestic and foreign OEM's. Offsetting the forgoing has been a 72% growth in year-to-date sales of the Company's Westin line of tubular products manufactured by its St. James subsidiary. Sales of the Westin line are expected to continue to be strong reflecting the public's desire for tubular truck accessories and acceptance of the line as representing both quality and style. Three Months Ended September 30, 1995 compared to Three Months Ended September 30, 1994 Revenues: Net sales increased 20% to $10,828,500 for the third quarter of 1995 from net sales of $9,057,500 for the same period last year. On January 9, 1995, the Company, through a wholly owned subsidiary ("Hercules") purchased substantially all of the assets of Hercules Bumpers, Inc. Hercules sales for the three months ended September 30, 1995 were $2,832,200. Westin sales increased by 84% over the third quarter of 1994, while Fey sales, as discussed above, decreased by 44%. Gross Margin: Gross margin on non-Hercules manufactured products increased to 31% for the third quarter of 1995 from 30% a year earlier. This increase is net of significant increases in the Company's cost of steel and other materials incurred during the period. These cost increases were partially offset by improvements made in the cost structure of all manufacturing entities. Management implemented price increases for its Fey and Hercules products which became effective on June 1, 1995 and July 1, 1995, respectively. Distribution, Sales and Marketing Expenses: During the three months ended March 31, 1995, the Company started a process of restructuring its distribution system to enhance both profitability and customer service through the consolidation of inventories. This process has resulted in the closure of one distribution facility and the consolidation of another with the newly acquired Hercules facility. Hercules sales and marketing costs for the three months ended September 30, 1995 were $123,500 and comprise a significant portion of the Company's $187,700 increase in sales and marketing costs over the same period in 1994. Administrative Expenses: Hercules administrative expenses for the three months ended September 30, 1995 were $259,200 and comprised all of the increase in administrative expenses over the same period in 1994. -8- Operating Income: Total operating income grew by 21% to $716,000 from $590,000 for the three months ended September 30, 1995 and 1994, respectively. Interest Expense: Interest expense increased $229,300 for the three months ended September 30, 1995 over the same period in 1994 of which 65% or $150,600 is attributable to financing the Hercules operations. Net Income: Net income grew by 62% to $263,500 from $163,100 for the three months ended September 30, 1995 and 1994, respectively. Nine Months Ended September 30, 1995 compared to Nine Months Ended September 30, 1994 Revenues: Net sales increased 34% to $35,623,800 for the nine months ended September 30, 1995 from net sales of $26,498,200 for the same period last year. Hercules sales for the nine months ended September 30, 1995 were $8,698,400. Westin sales increased 72% over 1994, while Fey sales decreased by 18%. Gross Margin: Gross margin decreased to 31% for the first nine months of 1995 compared to 32% a year earlier. This decrease is due to increases in the Company's cost of steel and other materials which in part were offset by improvements made in the cost structure of all manufacturing entities, and, in turn, led to price increases by the Company in June and July of 1995. Distribution, Sales and Marketing Expenses: Compared to 1994, the acquisition of Hercules has added $1,084,300 in total distribution, sales and marketing costs while growth in the sales of other products and continuing efforts to enhance the visibility of the Fey and Westin lines have added an additional $44,500. Administrative Expenses: Hercules administrative expenses for the nine months ended September 30, 1995 were $692,600 or 77% of the Company's $899,000 increase in administrative expenses over the same period in 1994. The increase in non-Hercules administrative expenses is due to a one time charge of $225,000 in consulting fees associated with the Company's 1994 acquisition of Fey and Sigma. Operating Income: Total operating income grew by 34% to $2,370,800 from $1,767,900 for the nine months ended September 30, 1995 and 1994, respectively. Of this increase, Hercules accounted for $397,700. Management is continuing to modify the Hercules operations and is unable to forecast the effect of these changes at this time. Interest Expense: Interest expense increased $662,100 for the nine months ended September 30, 1995 over the same period in 1994 of which $424,300 is attributable to financing the Hercules operations. The remaining increase of $237,800 is due to increased working capital requirements and the amortization of deferred financing costs associated with the November 1994 acquisition of Fey and Sigma. Net Income: Net income grew by 51% to $1,134,100 from $749,000 for the nine months ended September 30, 1995 and 1994, respectively. Liquidity and Capital Resources The Company finances its business activities through the cash flow from operations with additional debt obtained primarily for working capital and acquisitions. In connection with the acquisition of substantially all of the assets of Hercules Bumpers, Inc. on January 9, 1995, a wholly owned subsidiary of the Company assumed certain debt consisting of i) a revolving credit note of $3.7 million; ii) an industrial revenue bond of $112,000 due January 1, 1996; iii) an industrial revenue bond of $61,000 due March 1, 1999; and iv) certain other liabilities totaling $1,100,000. In addition, the Company issued 1,200,000 shares of beneficial interest to the guarantor of the acquired indebtedness and his related company and Hercules issued notes payable totaling $300,000. -9- During the quarter ended September 30, 1995, the Company has performed an analysis of the assets acquired and liabilities assumed in connection with the acquisition of Hercules. As a result of this analysis, the Company has determined that its initial estimates of provisions for warranty costs, bad debts, inventory obsolescence and other liabilities were understated by approximately $994,000. The understated liabilities have been included in the certain other liabilities mentioned above. In addition, based upon a valuation performed, the Company increased the carrying amount of property, plant and equipment by approximately $555,000. The net effect of the above adjustments was to increase goodwill from $0 to $439,000. For the nine months ended September 30, 1995, the Company invested $485,700 in organizational costs associated with the acquisitions of Fey and Hercules, $83,700 in real estate acquired by foreclosure and $722,900 in capital equipment. These investments were funded through $1,002,300 in net cash flows from operating activities and $381,100 in borrowings under the Company's revolving credit agreements. Net cash used in operating activities and cash flows from revolver borrowings for the comparable period in 1994 were ($33,100) and $589,900 respectively. In connection with the acquisition of certain assets of Fey and Sigma, the Company, through certain wholly-owned subsidiaries, entered into a three-year $7.5 million revolving credit line (the "revolver") with a financial institution. The revolver provides for borrowing based on a percentage of inventory and accounts receivable. The revolver also includes equipment term loans approximating $1.5 million at September 30, 1995. Interest on the outstanding borrowing accrues at prime plus 2.5%. At September 30, 1995, the interest rate on the revolver was 11.25% The revolver contains certain covenants which, among other things, requires the maintenance of minimum working capital and equity. The Company has a loan outstanding from a related party totalling $729,000 as of September 30, 1995 (the "Rockaway Loan") which matures in January, 1997. Borrowings under this credit agreement are collateralized by substantially all of the assets of the Company. To the extent that the Company expands its operations and makes additional acquisitions, it will need to obtain additional funding from institutional lenders and other sources. The Company's ability to use equity in obtaining funding may be limited by its desire to preserve certain tax attributes including its net operating loss carry forwards. Management is continuing to modify the Hercules operations and implement operational and quality control systems that it has established at its Fey and St. James subsidiaries. The company continues to evaluate the most efficient use of its various facilities and cost effective and productive use of its assets and personnel. This evaluation includes the possible consolidation of the company's facilities and/or the exchange of assets between the company's facilities. -10- PART II SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Wedgestone Financial Date: By: /s/ Jeffrey S. Goldstein ---------------------------- President and Treasurer (Principal Executive and Financial Officer) The name "Wedgestone Financial" (Formerly Wedgestone Realty Investors Trust) is the designation of the Trustees under a Declaration of Trust dated March 12, 1980, as amended, and in accordance with such Declaration of Trust notice is hereby given that all persons dealing with Wedgestone Financial by so acting acknowledge and agree that such persons must look solely to the Trust property for the enforcement of any claims against Wedgestone Financial and that neither Trustees, Officers, employees, agents nor shareholders assume any personal liability for claims against the Trust or obligations entered into on behalf of Wedgestone Financial, and that respective properties shall not be subject to claims of any other person in respect of any such liability. -11- SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Wedgestone Financial Date: By: --------------------------- Jeffrey S. Goldstein, President and Treasurer (Principal Executive and Financial Officer) The name "Wedgestone Financial" (Formerly Wedgestone Realty Investors Trust) is the designation of the Trustees under a Declaration of Trust dated March 12, 1980, as amended, and in accordance with such Declaration of Trust notice is hereby given that all persons dealing with Wedgestone Financial by so acting acknowledge and agree that such persons must look solely to the Trust property for the enforcement of any claims against Wedgestone Financial and that neither Trustees, Officers, employees, agents nor shareholders assume any personal liability for claims against the Trust or obligations entered into on behalf of Wedgestone Financial, and that respective properties shall not be subject to claims of any other person in respect of any such liability. -11- EX-27 2 FDS --
5 9-MOS DEC-31-1995 JAN-1-1995 SEP-30-1995 178,566 0 6,801,374 404,984 4,420,784 11,851,863 12,201,472 7,509,801 21,453,002 6,760,756 44,349 21,885,668 0 0 (16,849,265) 21,453,002 35,623,822 35,623,822 24,613,956 24,613,956 8,639,106 27,352 1,036,535 1,301,521 167,464 1,134,057 0 0 0 1,134,057 .05 .05
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