-----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, HAofXQRTPkVfqyCWVMIkBG+fVPTxQWyiyLTjCQhqcoAboiCPNUCRaSqNyDzWRC0F 6NBVBai4dwOs2O/S1Knu6Q== 0000950005-98-000455.txt : 19980514 0000950005-98-000455.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950005-98-000455 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 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: SEC FILE NUMBER: 001-08984 FILM NUMBER: 98619001 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 March 31, 1998 [ ] 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 As of May 13, 1998, 21,885,668 shares of beneficial interest were outstanding. - -------------------------------------------------------------------------------- ================================================================================ WEDGESTONE FINANCIAL & SUBSIDIARIES TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets - March 31, 1998 (unaudited) and December 31, 1997..................................................2 Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 1998 and 1997.....................3 Consolidated Statements of Shareholders' Equity (unaudited) for the Three Months Ended March 31, 1998 and 1997.....................4 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 1998 and 1997.....................5 Notes to Unaudited Consolidated Financial Statements...............6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................7 PART II OTHER INFORMATION Item 1 Legal Proceedings.................................................11 Item 2 Changes in Securities.............................................11 Item 3 Defaults upon Senior Securities...................................11 Item 4 Submission of Matters to a Vote of Security Holders...............11 Item 5 Other Information.................................................11 Item 6 Exhibits and Reports on Form 8-K..................................11 Signatures....................................................................12 -1- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of March 31, 1998 and December 31, 1997 (Amounts in Thousands - except share data)
(Unaudited) ASSETS 1998 1997 -------- -------- Current Assets: Cash $ 1,162 $ 902 Accounts and other receivables - (net of allowances of $410 and $344 in 1998 and 1997, respectively) 7,530 8,751 Inventories 6,104 5,983 Prepaid expenses and other current assets 720 654 Deferred income taxes 842 1,107 -------- -------- Total Current Assets 16,358 17,397 -------- -------- Real estate acquired by foreclosure - net 176 176 Property, plant and equipment - net 3,284 3,342 Goodwill 76 87 Deferred income taxes 1,420 1,420 Other assets 121 121 -------- -------- 5,077 5,146 -------- -------- Total Assets $ 21,435 $ 22,543 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Revolving credit line and current portion of long-term debt $ 558 $ 2,194 Accounts payable 5,782 4,488 Accrued payroll and related expenses 749 809 Other accrued expenses 1,479 1,395 -------- -------- Total Current Liabilities 8,568 8,886 Long-term debt 3,739 5,364 -------- -------- Total Liabilities $ 12,307 $ 14,250 Commitments and contingencies Shareholders' Equity: Shares of Beneficial Interest-par value $1.00 per share: authorized - unlimited shares: issued and outstanding - 21,885,668 shares 21,886 21,886 Additional paid-in capital 31,396 31,396 Notes receivable from shareholders (1,821) (1,772) Accumulated deficit (42,333) (43,217) -------- -------- Total Shareholders' Equity 9,128 8,293 -------- -------- Total Liabilities and Shareholders' Equity $ 21,435 $ 22,543 ======== ======== See notes to consolidated financial statements.
-2- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended March 31, 1998 and 1997 (Unaudited) (Amounts in Thousands - except per share data) 1998 1997 -------- -------- Net sales $ 15,138 $ 11,556 Cost of sales 9,836 7,807 -------- -------- Gross profit 5,302 3,749 Selling, general and administrative expenses 3,857 3,464 -------- -------- Operating income 1,445 285 Goodwill amortization 11 11 Other expense (income) -- (418) Interest expense 130 285 -------- -------- Income before taxes 1,304 407 Provision for income taxes 420 145 -------- -------- Net income $ 884 $ 262 ======== ======== Net income per share of beneficial interest Basic and fully diluted $ .04 $ .01 ======== ======== Weighted average number of shares outstanding 21,886 21,886 ======== ======== See notes to consolidated financial statements. -3- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1998 and 1997 (Unaudited) (Amounts in Thousands)
Additional Shares of Beneficial paid-in Shareholder Accumulated Interest capital Loans deficit Total ------------------------------------------------------------------------ Shares Amount Balance at December 31, 1996 21,886 $ 21,886 $ 31,396 $ (46,163) $ 7,119 Net income 262 262 -------- --------- -------- ---------- -------- Balance at March 31, 1997 21,886 $ 21,886 $ 31,396 $ (45,901) $ 7,381 ======== ========= ======== ========== ======== Balance at December 31, 1997 21,886 $ 21,886 $ 31,396 $ (1,772) $ (43,217) $ 8,293 Interest earned on shareholder notes (49) (49) Net income 884 884 -------- --------- -------- ---------- ---------- -------- Balance at March 31, 1997 21,886 $ 21,886 $ 31,396 $ (1,821) $ (42,333) $ 9,128 ======== ========= ======== ========== ========== ======== See notes to consolidated financial statements.
-4- WEDGESTONE FINANCIAL AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1997 and 1996 (Unaudited) (Amounts in Thousands) 1998 1997 ------- ------- Cash Flows from Operating Activities: Net income $ 884 $ 262 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 210 208 Gain on sale of real estate -- (418) Deferred income taxes 265 129 Deferred interest (49) -- Changes in operating assets and liabilities: Accounts and other receivables 1,221 898 Inventories (121) (395) Prepaid expenses and other current assets (66) 43 Accounts payable 1,294 77 Accrued payroll and related expenses (60) (150) Other accrued expenses 84 (50) Other assets -- 26 ------- ------- Net cash provided by operating activities 3,662 630 ------- ------- Cash Flows from Investing Activities: Proceeds from sale of real estate -- 1,328 Capital expenditures (141) (233) ------- ------- Net cash provided by (used in) investing activities (141) 1,095 ------- ------- Cash Flows from Financing Activities: Borrowings of term debt -- 841 Repayments of term debt (139) (110) Net borrowings (repayments) on revolving debt (3,122) (1,220) ------- ------- Net cash used in financing activities (3,261) (489) ------- ------- Net increase in cash 260 1,236 Cash at beginning of period 902 344 ------- ------- Cash at end of period $ 1,162 $ 1,580 ======= ======= See notes to consolidated financial statements. -5- WEDGESTONE FINANCIAL AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS For the Three Months Ended March 31, 1996 and 1995 NOTE 1. Background and Basis of Presentation Background - 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. Wedgestone, since emerging from bankruptcy in 1992, manufactures and distributes automotive aftermarket products for the light duty truck market. Its principal products include rear bumpers; tubular products such as grille guards, push bars, and step rails; and various other related aftermarket products. The Company's automotive products are marketed in traditional, original equipment and retail automotive aftermarkets. The Company manufactures and sells its products at two locations in California, and one in Minnesota. Sales are also made from distribution centers in Texas and Utah. Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of Wedgestone and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. 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 for the fiscal year ended December 31, 1997. 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. Income/Loss Per Share of Beneficial Interest - During 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. The Statement replaces the presentation of primary EPS with a presentation of basic EPS, which excludes dilution and is computed by dividing income available to shareholders of beneficial interest by the weighted average number of shares outstanding for the period. The Statement also requires the dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of diluted EPS computation. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No. 15. The adoption of SFAS No. 128 did not have an effect on the Company's financial statements as other potentially dilutive securities issued in 1997 were not dilutive. In addition, it was not necessary to restate prior periods presented. NOTE 2. Inventories Inventories consist of the following: (In Thousands) March 31, December 31, 1998 1997 ------- ------- Finished goods $ 3,534 $ 3,056 Work in progress 1,577 1,528 Raw materials 1,367 1,531 ------- ------- 6,478 6,115 Less allowances (374) (132) ------- ------- $ 6,104 $ 5,983 ======= ======= -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Background: On June 15, 1992, Wedgestone acquired St. James Automotive Corp. This subsidiary manufactures and sells tubular products for the light-duty truck market such as grille guards, push bars and step bars. On November 18, 1994, Wedgestone acquired the Automotive Segment of Standun, Inc. ("Standun") which consisted of Sigma and the Fey Automotive Products division. The assets of the Fey division, which included the stock of Sigma, were merged into Wedgestone's wholly owned subsidiary Fey Automotive Products, Inc. In conjunction with the acquisition of the Automotive Segment of Standun, Wedgestone placed St. James, Fey and Sigma under the common ownership of its wholly owned subsidiary, Wedgestone Automotive. Collectively, these companies comprise Wedgestone Automotive. On January 5, 1995, Wedgestone Automotive, through its wholly owned subsidiary Hercules Automotive Products, Inc. acquired substantially all of the assets of Hercules Bumpers, Inc., a Georgia company. This acquisition was intended to provide access to a new business segment for Wedgestone Automotive. The segment, known as dealer direct, involves the sale of rear step bumpers for light-duty trucks to new vehicle dealers as an alternative to the factory supplied bumper. Hercules Bumpers, Inc., was the largest domestic supplier in this dealer direct segment offering dealers a line of specialty bumpers. During 1994, a major OE manufacturer initiated a program to secure a greater portion of rear step bumper sales. The program, which involved severe price competition and program buying, eroded a substantial portion of Hercules' sales base and placed Hercules in a loss position for the fourth quarter of 1995. In response to the likely prospect of continued losses, Wedgestone Automotive ceased manufacturing operations at Hercules on March 5, 1996. In a further decision to exit this segment, Wedgestone Automotive sold its ownership in Hercules to MBC Corporation for $1.00 and the assumption of certain debt and other liabilities approximating $4.5 million pursuant to a Stock Purchase Agreement. The Pelham manufacturing plant along with its inventory and accounts receivable constituted all of the material assets of Hercules. The Company operates solely within the automotive aftermarket, serving both OE manufacturers and aftermarket customers with bumpers and tubular steel accessories. Sales of the Company's bumper products have been to both the Crash Replacement market and the Traditional Market involving dealers, jobbers, warehouse distributors and others. Since 1995, an erosion of Wedgestone's bumper sales has occurred due to a desire on the part of truck manufacturers to integrate the design of rear step bumpers into their current designs for light duty pick-up trucks and sport utility vehicles. New vehicle dealers who might choose Wedgestone's bumpers instead of the factory equivalent due to advantages in either price or greater tow capacity have been returning to the factory bumper due to the incompatibility of the Company's current bumper line with current vehicle designs. This trend is continuing as overall sales of bumpers for the three months ended March 31, 1998 has fallen 8.1% or $406,000 over the same period in 1997. For the near term, sales of Wedgestone bumpers to the crash replacement market will continue, however, unless the Company invests in new designs, its current line will not support the long term demands of the crash replacement market for aftermarket bumpers. In the past, the expected return on investment for updating the Company's bumper line was based on both crash replacement and aftermarket sales for new vehicles. Sales in both of these markets is required to justify the cost of new tooling. Since 1995, however, there has been a significant effort on the part of the OE manufacturers to improve dealer loyalty for their products. These efforts, which have been promoted through the use of pricing strategies designed to enhance dealer profits, have significantly eroded the Company's sales of bumpers to new vehicle dealers. As a result of the success of OE campaigns to enhance dealer loyalty, the Company does not believe there would be a sufficient return on investment to support the estimated $2 million required to develop new tooling to replicate current OE bumper designs. The Company is looking at alternative methods to lower the cost of this investment, including avoiding the investment through the import of components that more closely conform to the appearance of the new OE bumpers. In recent years, particulary with the development of their new truck designs, the OE manufacturers have increased their own line of aftermarket truck accessories. These accessories are being offered to their dealer networks in an effort to enhance OE profitability by participating in the more profitable aspects of the accessory aftermarket for their light duty trucks and sport utility vehicles. The sale of OE accessories has significantly benefitted from the OE programs designed to promote dealer loyalty. Wedgestone's line of tubular accessories has also benefitted from the OE accessory programs in that the Company has been able to secure supplier agreements from several OE manufacturers for Step Bars, Grille Guards, Light Bars, Push Bars and Combo Bars. These accessories are all tubular -7- in nature and represent one consistent style of product. The Company's ability to rely on the sales of these products in the future is entirely dependant on the consumer's continued acceptance of these types of accessories. Due to the vulnerability of continued earnings stemming from a decline in bumper sales and the Company's dependancy on tubular products for its OE programs, Wedgestone intends to seek additional products and markets. While remaining committed to its core competency of metal fabrication and finishing, and maintaining its commitment to the light duty pickup and sport utility aftermarket, Wedgestone intends to reduce its dependancy on this market as the sole source of return on invested capital. This expansion of product and markets will require significant investments in tooling, processes and product design. The Company expects this expansion to take several years and will involve a significant financial commitment to procure equipment and finance the acquisition of companies that would assist and accelerate Wedgestone's penetration of market segments compatible with its core competency. Since emerging from bankruptcy, the Company has been unable to utilize its SBI effectively for acquisitions, financing, or employee incentives because of (i) its low market price and low trading volume and (ii) limitations that would be imposed on the use of net operating loss carryforwards after the issuance of additional shares, and so has been unable to realize the principal benefits of public ownership. In light of the costs of remaining public without the benefits thereof, the Company's Board of Trustees agreed to explore the feasibility of a "going private" transaction proposed by the majority owners of the Company. On October 15, 1997 an independent committee of the Board was formed to review the transaction. In response, (i) to this review, (ii) a fairness opinion obtained by the independent committee indicating a $.65 price per share of beneficial interest as a fair representation of value, and (iii) additional negotiations leading to a $.67 per share price with a one year clawback privilege, the Board on February 9, 1998, by a unanimous vote of all Trustees present and voting recommended that all Public Shareholders accept the offer and tender their Shares pursuant to the offer. On February 9, 1998 the Company announced the Tender Offer (the "Offer" or "Tender Offer") to acquire all of the issued and outstanding shares of the Company not owned by certain majority shareholders which include Stockwood LLC, JCS Management Co. Inc., PFG Corporation, RAB Management Corp., and JMS Holdings Co., Inc. whom collectively own 62.1% of the current issued and outstanding shares. The Offer price is $ .67 net per share to sellers in cash. Shares not tendered will be converted into the right to receive $ .67 per share in a merger to be consummated as soon as practical after the tender offer. The Company has arranged for financing the Offer through its primary lender, The CIT Group / Credit Finance. The arrangements include additional borrowings under the Company's current revolver loan approximating $3,000,000, additional advances under equipment financing term notes approximating $500,000 and an 18 month term note for $1,500,000. The Company will use approximately $1,000,000 of existing cash to fund the balance of the $6,000,000 estimated costs associated with the Tender Offer. Liquidity and Capital Resources To date, Wedgestone has financed its business activities through cash flows from operations. Additional debt has been incurred primarily for working capital and acquisitions. Cash flows from operations totaling $1,359,000 were supplemented by a $1,221,000 reduction in advances to customers and $1,318,000 in additional advances by unsecured creditors. These funds were used to provide $235,000 in additional working capital consisting of $121,000 in inventories and $65,000 in other current assets and $49,000 in other assets, resulting in net cash provided by operations totaling $3,662,000 for the three months ended March 31, 1998 compared to $630,000 for the same period in 1997. During the quarter, the Company invested $141,000 in new equipment, made payments on long term debt totaling $139,000 and reduced revolving debt $3,122,000 for a net increase in cash of $260,000 in 1998 compared to $1,236,000 in 1997 On May 20, 1997 Wedgestone advanced Stockwood, LLC. ("Stockwood") $1,650,000 under a one year secured note with interest at 12 percent. The note is secured by 3,500,000 shares of beneficial interest of Wedgestone Financial with principal and interest due at maturity. Stockwood is a related party through common ownership by certain Wedgestone Financial shareholders. On February 9, 1998, the Company signed a commitment letter with The CIT Group / Credit Finance ("CIT") in connection with its Tender Offer. The agreement provides additional term loans on equipment totaling approximately $500,000, an 18 month term loan for $1,500,000, and raises the Company's overall credit line with CIT to $13,000,000. -8- Interest on the new loans are unchanged for the Company's current rates which are prime plus 1.375%. (Aggregating 9.75% as of May 12, 1998.) On March 18, 1997, the Company amended and restated the agreement with CIT to a five-year $10 million credit facility collateralized by substantially all of the assets of the Company's wholly owned subsidiaries, providing a revolving credit line and term loan under terms substantially similar to the original agreement. The amended and restated agreement provides for borrowings based on a percentage of inventory and receivables and includes an equipment term loan. All loans are stated at the lender's prime rate plus 1.375% (9.75% at March 31, 1998). The company continues to actively seek acquisition opportunities in the Automotive Products Business Segment. To the extent that Wedgestone expands its operations and makes additional acquisitions, it will need to obtain additional funding from institutional lenders and other sources. Wedgestone'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. The Company is currently addressing its computer systems and business processes to ensure that its systems will be capable of processing periods for the year 2000 and beyond as well as ensure that its business processes will be able to support current and anticipated growth projections. The Company does not anticipate the costs associated with ensuring the capabilities will have a material adverse impact on the Company's financial position or results of operations. Results Of Operations Current Year Performance: 1998 Compared to 1997 Net sales increased $3,582,000 to $15,138,000 for the three months ended March 31, 1998 compared to $11,556,000 for the same period in 1997. Sales under supplier agreements to Original Equipment manufacturers increased $1,329,000 or 223% to $1,925,000 in the three months ended March 31, 1998 compared $596,000 for the same period in 1997. Sales of the Company's tubular accessories increased $2,659,000 or 54% to 7,502,000 in the quarter compared to $4,855,000 in 1997. Sales of the Company's bumper products decreased $406,000 or 8% to $4,579,000 for the quarter compared to $4,986,000 in 1997. Gross margins increased $1,553,000 or 41% to $5,302,000 or 35% of sales in 1998 compared to $3,749,000 or 32% of sales in 1997. The increase in sales volume and the related efficiencies in 1998 are responsible for this increase. Sales and marketing costs increased by $130,000 or 7% to $2,042,000 or 13% of sales in 1998 compared to $1,912,000 or 17% of sales in 1997. Administrative costs increased by $263,000 or 17% to $1,815,000 in 1998 compared to $1,552,000 in 1997. This reflects an increase in the Company's reserves for bad debt totaling $100,000, increases in the Company's product design and development costs totaling $153,000 and increases in other administrative costs totaling $10,000. Product design and development costs include salaries, benefits and overhead costs for additions to the Company's engineering staff. The Company believes that its future competitive position in the automotive aftermarket will require significant increases in engineering and development costs over the next several years. Legal, accounting, insurance and other administrative costs make up the balance of this increase. Other income for the three months ended March 31, 1997 consists of the gain on the sale of the Company's 21 acres of land known as the College Point property. Interest expense decreased $155,000 or 54% to $130,000 in 1998 compared to $285,000 in 1997. This decrease is attributable to the decrease in revolving debt over the period ended March 31, 1998, the March 18, 1997 reduction in the Company's borrowing rate with its primary lender and the inclusion in 1998 of $49,000 in interest income associated with the Stockwood note. -9- Forward Looking Information Information contained in this Form 10-Q contains "forward-looking statements" within the meaning of the private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may", "will", "expect", "plan", "anticipate", "estimate or "continue" or the negative thereof or other variations thereon or comparable terminology. There are certain important factors that could cause results to differ materially from those anticipated by some of these forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The factors, among others, that could cause actual results to differ materially include: pricing and merchandising policies from the major automotive manufacturers; the Company's ability to execute its business plan; the acceptance of the Company's merchandising strategies by its target customers; competitive pressures on sales and pricing; and increases in other costs which cannot be recovered through improved pricing of merchandise. -10- PART II OTHER INFORMATION Item 1. Legal Proceedings On April 18, 1998, J. Coleman Tidwell, as Trustee and Plaintiff filed an Adversary Proceeding (Adversary Proceeding No. 98-1019) in connection with the Bankruptcy proceedings of Hercules Automotive Products, Inc.("HAP") in US Bankruptcy Court in the Middle District of Georgia (the "Proceeding"). Defendants listed in the filing are; MBC Corporation; Wedgestone Financial and its subsidiaries Wedgestone Automotive Corp and Fey Automotive Products Inc.; related parties of Wedgestone Financial, Wedgestone Partners, Resource Holdings Associates, and PFG Corporation; Trustee, John C. Shaw, current Trustee and former President of Wedgestone, Jeffrey S. Goldstein; and current Wedgestone officers David Sharp and Eric Lee; and, as individuals, James Pinto, Richard Bartlett and Jerry Seslowe. Among other matters, the Proceeding alleges that the defendants conspired to acquire the customer base and assets of HAP which the Complaint contends the defendants did not otherwise rightfully own. Damages sought in the claim approximate $6,000,000. The Company believes that it has good defenses with which to refute the Trustee's claim. Item 2. Changes in Securities None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K None. -11- 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: May 12, 1998 By: /s/ Eric H. Lee ----------------- Chief Financial Officer (Principal 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. -12- EX-27 2 FINANCIAL DATA SCHEDULE
5 0000315621 WEDGESTONE FINANCIAL 1,000 3-MOS DEC-31-1998 JAN-1-1998 MAR-31-1998 1,162 0 7,530 410 6,104 16,358 12,460 9,176 21,435 8,568 0 0 0 21,886 (12,758) 21,435 15,138 15,138 9,836 3,868 0 0 130 1,304 420 884 0 0 0 884 .04 .04
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