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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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
JUNE 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)
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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 report(s) 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 JULY 31, 1995: 21,885,668
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TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 30, 1995
(unaudited) and December 31, 1994.......................... 2
Consolidated Statements of Operations (unaudited)
for the Three Months and Six Months Ended June 30,
1995 and 1994.............................................. 3
Consolidated Statements of Shareholders' Equity
(unaudited) for the Three Months and Six Months
Ended June 30, 1995 and 1994............................... 4
Consolidated Statements of Cash Flows (unaudited)
for the Three Months and Six Months Ended June 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
Item 1 Legal Proceedings................................. 11
Signatures................................................. 12
-1-
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
ASSETS 1995 1994
------------ ------------
Current Assets:
Cash ........................................... $ 268,709 $ 178,876
Accounts and other receivables - (net
of allowances of $334,148 and $202,077 in
1995 and 1994, respectively) (Note 1) ..... 7,876,109 4,451,871
Inventories (Notes 1 and 2) .................... 4,803,809 3,610,135
Prepaid expenses and other assets .............. 311,492 194,018
Deferred income taxes .......................... 315,946 315,946
------------ ------------
Total Current Assets ...................... 13,576,065 8,750,846
------------ ------------
Notes receivable - net (Note 1) ................ 650,000 650,000
Mortgage notes receivable - net (Note 1) ....... 84,243 84,874
Real estate acquired by foreclosure - net
(Note 1) .................................... 1,016,344 964,766
Property, plant and equipment - net ............ 4,050,643 2,509,979
Goodwill ....................................... 195,466 217,268
Deferred income taxes .......................... 973,778 973,778
Other Assets ................................... 1,511,923 239,148
------------ ------------
8,482,397 5,639,813
Total Assets .............................. $ 22,058,462 $ 14,390,659
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 1) ..... $ 2,631,880 $ 1,031,978
Accounts payable ............................... 3,933,705 2,974,419
Accrued payroll and related expenses ........... 462,877 399,730
Other accrued expenses ......................... 1,377,779 926,166
------------ ------------
Total Current Liabilities ................. 8,406,241 5,332,293
Long-term debt (Note 1) ........................ 8,879,319 5,676,021
------------ ------------
Total liabilities ......................... 17,285,560 11,008,314
------------ ------------
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 ......................... 21,885,668 20,385,668
Additional paid-in capital ..................... 31,396,419 32,376,419
Accumulated deficit ............................ (48,509,186) (49,379,742)
------------ ------------
Total Shareholders' Equity ................ 4,772,901 3,382,345
------------ ------------
Total Liabilities and Shareholders' Equity $ 22,058,462 $ 14,390,659
============ ============
See notes to consolidated financial statements
-2-
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Net sales .................................... $12,752,148 $ 9,172,828 $24,795,319 $17,440,718
Cost of sales ................................ 8,637,451 5,888,811 17,084,799 11,795,187
----------- ----------- ----------- -----------
Gross profit ................................. 4,114,697 3,284,017 7,710,520 5,645,531
Selling, general and administrative expenses . 2,967,882 2,433,941 6,055,718 4,467,592
----------- ----------- ----------- -----------
Operating income ............................. 1,146,815 850,076 1,654,802 1,177,939
Goodwill amortization ........................ 10,901 10,901 21,802 21,802
Interest expense ............................. 320,480 109,918 671,180 238,421
----------- ----------- ----------- -----------
Income before taxes .......................... 815,434 729,257 961,820 917,716
Provision for income taxes ................... 79,664 259,370 91,264 331,692
----------- ----------- ----------- -----------
Net income ................................... $ 735,770 $ 469,887 $ 870,556 $ 586,024
=========== =========== =========== ===========
Net income per share: (Note 1)
Shares of Beneficial Interest ........... $ 0.03 $ 0.02 $ 0.04 $ 0.03
=========== =========== =========== ===========
Weighted average number of shares outstanding:
Shares of Beneficial Interest ........... 21,786,767 20,385,668 21,699,551 20,385,668
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements
</FN>
-3-
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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 to Standun (Note 1) ................... (886,946) (886,946)
Net Income .......................................... 586,021 586,021
---------- ------------ ------------ ------------- ------------
Balance at June 30, 1994 ............................ 20,385,668 $ 20,385,668 $ 32,158,593 ($50,286,773) $ 2,257,488
========== ============ ============ ============= ============
Balance at January 1, 1995 .......................... 20,385,668 $ 20,385,668 $ 32,376,419 ($49,379,742) $ 3,382,345
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 .......................................... 870,556 870,556
---------- ------------ ------------ ------------- ------------
Balance at June 30, 1995 ............................ 21,885,668 $ 21,885,668 $ 31,396,419 ($48,509,186) $ 4,772,901
========== ============ ============ ============= ============
<FN>
See notes to consolidated financial statements
</FN>
-4-
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Cash Flows from Operating Activities:
Net income ......................................................... $ 735,770 $ 469,887 $ 870,556 $ 586,024
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ............................. 272,692 236,661 516,772 409,621
Changes in operating assets and liabilities:
Accounts and other receivables ............................ (1,217,752) (507,715) (2,016,039) (1,221,739)
Inventories ............................................... 110,041 (318,398) 173,781 (794,914)
Prepaid expenses and other current assets ................. (88,321) (84,224) (117,474) (146,013)
Accrued payroll ........................................... 42,925 137,016 63,147 98,856
Other accrued expenses .................................... 6,671 490,951 34,623 774,941
Accounts payable .......................................... 197,691 294,782 959,286 822,627
Other assets .............................................. (117,533) 400 (130,642) 2,058
Other liabilities ......................................... 0 52,726 0 (181,901)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities ........... (57,816) 772,086 354,010 349,560
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Investment revenues
Proceeds from sale of real estate and equipment ........... 0 0 0 38,917
Proceeds from repayment of mortgage notes receivable ...... 0 618 743 50,578
Investment expenditures
Notes receivable .......................................... 0 35,000 0 35,000
Investment in subsidiary........ ................................... (97,331) 0 (357,935) 0
Capital expenditures ...................................... (277,252) (81,246) (405,342) (149,724)
Investment in real estate ................................. (24,379) (4,031) (51,690) (4,031)
----------- ----------- ----------- -----------
Net cash (used in) investing activities ....................... (398,962) (49,659) (814,224) (29,260)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Distributions to Standun .................................. 0 (471,720) 0 (886,946)
Repayment of term debt .................................... (234,658) (121,793) (271,617) (168,981)
Net borrowings (repayments) on revolving debt ............. 867,284 135,459 821,664 1,005,032
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities ........... 632,626 (458,054) 550,047 (50,895)
----------- ----------- ----------- -----------
Net increase in cash .......................................... 175,848 264,373 89,833 269,405
Cash at beginning of period ................................... 92,861 31,737 178,876 26,705
----------- ----------- ----------- -----------
Cash at end of period ......................................... $ 268,709 $ 296,110 $ 268,709 $ 296,110
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements
</FN>
-5-
WEDGESTONE FINANCIAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 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 June 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's acquired substantially all of the assets of Hercules Bumpers, Inc.
Hercules 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 $4.4 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. CLC received a promissory
note for $100,000 which was secured by 100,000 shares of beneficial interest of
Wedgestone in consideration for an agreement to pay a liability of Hercules. In
June, 1995, the Company exercised its right under the CLC Agreement and issued
these shares to CLC and acquired the note.
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.
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 reflectsall
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature.
-6-
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:
June 30, December 31,
1995 1994
----------- -----------
Finished goods ...... $ 2,418,621 $ 2,397,771
Work in progress .... 1,108,837 783,303
Raw materials ....... 1,688,021 711,648
5,215,479 3,892,722
Less Reserves ....... (411,670) (282,587)
----------- -----------
$ 4,803,809 $ 3,610,135
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NOTE 3. RELATED PARTIES
Subsequent to the year ended December 31, 1994, in connection with the
acquisition of the Automotive Segment of the 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 ............ $ 441,775
Revolver and other debt ..... 3,953,154
----------
Total liabilities assumed ... $4,394,929
==========
Receivables, inventories and
other assets ................ $2,901,172
Property, Plant and Equipment 1,493,757
----------
Total assets acquired ....... $4,394,929
==========
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL:
Wedgestone Financial (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 Company sales perform ahead of 1994, sales of
its more traditional product, rear step bumpers for light duty pickup trucks,
have slowed to 90% 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 rear step bumpers.
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 59% growth in sales of the Company's
tubular products manufactured by its St. James Automotive subsidiary. Sales of
this product line are expected to continue to be strong reflecting the public's
desire for tubular truck accessories and its acceptance of the Westin line as
representing both quality and style.
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS ENDED JUNE 30, 1994
Revenues: Net sales increased 39% to $12,752,100 for the second quarter of
1995 from net sales of $9,172,800 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 June 30, 1995 were $3,100,400 or 87% of Wedgestone's
$3,579,300 increase in sales over the same period in 1994. Sales of all other
automotive subsidiaries increased by 5% in the second quarter of 1995 compared
to 1994.
Gross Margin: Gross margin on non-Hercules manufactured products increased
to 37% for the second quarter of 1995 from 36% a year earlier. This increase is
net of significant increases in the Company's cost of steel and other materials
incurred during the period. Management implemented a price increase for its Fey
products which took effect on June 1, 1995, and a similar price increase on
Hercules products which took effect on July 1, 1995. These cost increases have
been offset by improvements made in the cost structure of all manufacturing
entities. Most recent are refinements at Fey and St. James resulting in 1995
scrap and warranty cost reductions of 34% and 45%, respectively. These
improvements, along with declared dividends on workers compensation policies
resulting from a 75% reduction in worker injury claims, have enhanced the
Company's three month operating income by $290,100 in 1995.
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. As a result, distribution costs fell 19% or $153,000 in the
second quarter of 1995 over the same period in 1994. Hercules sales and
marketing costs for the three months ended June 30, 1995 were $241,000 and, net
of the aforementioned distribution savings, comprise all of the Company's
$85,900 increase in sales and marketing costs over the same period in 1994.
Administrative Expenses: Hercules administrative expenses for the three
months ended June 30, 1995 were $344,600 or 77% of the Company's $448,000
increase in administrative expenses over the same period in 1994. Also included
in the second quarter 1995 administrative costs is a one time charge for
$225,000 in consulting fees associated with the Company's 1994 acquisition of
Fey and Sigma. Offsetting these cost increases are savings generated by on-going
efforts to reduce administrative expenditures throughout the Company.
-8-
Operating Income: Total operating income grew by 35% to $1,146,800 from
$850,100 for the three months ended June 30, 1995 and 1994, respectively. 1995
includes $17,300 in operating losses incurred at the Hercules subsidiary
compared to $67,000 in losses incurred as of March 31, 1995 for the initial
three months of operation of this facility.
Interest Expense: Interest expense increased $210,600 for the three months
ended June 30, 1995 over the same period in 1994 of which $138,600 is
attributable to financing the Hercules acquisition.
Net Income: Net income grew by 56% to $735,800 from $469,900 for the three
months ended June 30, 1995 and 1994, respectively.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Revenues: During the six months ended June 30, 1995 the Company's sales
increased 42% to $24,795,300 compared to $17,440,700 for the same period in
1994. 80% of this increase is due to the acquisition of Hercules while sales of
all other products increased 8%.
Gross Margin: Gross margin decreased to 31% for the first six 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 turn, led to price
increases by the Company in June and July of 1995. These cost increases have
been offset by improvements made in the cost structure of all manufacturing
entities. Most recent are refinements at Fey and St. James resulting in 1995
scrap and warranty cost reductions of 34% and 45%, respectively. These
improvements, along with declared dividends on workers compensation policies
resulting from a 75% reduction in worker injury claims, have enhanced the
Company's six month operating income by $290,100 in 1995.
Distribution, Sales and Marketing Expenses: Compared to 1994, the
acquisition of Hercules has added $733,900 to 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 $109,000. Offsetting both of these increases are initial six month
savings totaling $129,600 from restructuring the Company's distribution system.
These savings are net of distribution restructuring costs totaling $60,000.
Administrative Expenses: Hercules administrative expenses for the six
months ended June 30, 1995 were $660,400 or 76% of the Company's $874,000
increase in administrative expenses over the same period in 1994. The increase
in non-Hercules administrative expenses is due to a one time charge for $225,000
in consulting fees associated with the Company's 1994 acquisition of Fey and
Sigma.
Operating Income: Total operating income grew by 40% to $1,654,800 from
$1,177,930 for the six months ended June 30, 1995 and 1994, respectively. 1995
includes $82,200 in operating losses incurred at the Hercules subsidiary.
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 $432,800 for the six months
ended June 30, 1995 over the same period in 1994 of which $273,800 is
attributable to financing the Hercules acquisition. The remaining increase of
$159,000 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 48% to $870,600 from $586,000 for the six
months ended June 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 $285,000 due March 1, 1999; and iv) certain
other liabilities totalling $300,000.
-9-
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 totalling $400,000 which were subsequently re-financed on
March 31, 1995.
For the six months ended June 30, 1995, the Company invested $358,000 in
organizational costs associated with the acquisition of Hercules, $51,700 in
real estate acquired by foreclosure and $405,300 in capital equipment. These
investments were funded through $354,100 in net cash flows from operating
activities and $550,000 in borrowings under the Company's revolving credit
agreements. Net cash flows from operating activities and revolver borrowings for
the comparable period in 1994 were $349,600 and $1,005,000, 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 $2.3 million at June 30, 1995. Interest on the outstanding
borrowing accrues at prime plus 2.5%. At June 30, 1995, the interest rate on the
revolver was 11.5% 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 $717,800
as of June 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.
-10-
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Bankruptcy Claims
On May 25, 1995, the United States Bankruptcy Court for the District of
Massachusetts issued an order establishing rights and obligations with respect
to an outstanding loan under which income rights had been granted to certain
Special Income Shareholders. The order released Wedgestone from all obligations
regarding the loan and authorized the Company to transfer all loan documents to
the Federal Deposit Insurance Corporation. In connection with this order,
Wedgestone was directed to cancel the Special Income Shares subject to certain
future distribution rights. The balance sheet and income statement presentation
included in this registration has been changed to reflect this cancellation.
-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: /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.
-12-