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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number 1-3329
WILSON BROTHERS
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1971260
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
902 South Main Street
Point Marion, PA 15474
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 725-
5231
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
There were 3,321,039 shares of Common Stock ($1.00 par
value) outstanding at May 8, 1995.
Part I. Financial Information, Item 1. Financial Statements
Wilson Brothers and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1995 1994
Assets (In thousands)
Current assets
Cash and equivalents $ 92 $ 136
Receivables, less allowances of $104,000 in 1995
and $243,000 in 1994 590 915
Inventories 472 497
Other 52 10
Total current assets 1,206 1,558
Properties, at cost 2,296 2,296
Less accumulated depreciation (1,823) (1,799)
473 497
Note receivable 450 600
Notes receivable from affiliate, less valuation
reserve of $2,665,000 in 1995 and 1994 - -
$ 2,129 $2,655
Liabilities and Stockholders' Deficiency
Current liabilities:
Current portion of long-term debt $ 6 $ 8
Short-term borrowings 339 307
Accounts payable 451 694
Accrued salaries and other employee costs 370
312
Environmental reserve 842 886
Due to majority owners 1,513 1,481
Other current liabilities 136 179
Total current liabilities 3,657 3,867
Note payable to majority owners 1,500 1,500
Other liabilities 616 616
2,116 2,116
Commitments and Contingencies
Stockholders' deficiency:
Preferred stock, $1 par value; authorized 5,000,000
shares; none issued -
-
Common stock, $1 per value; authorized 10,000,000
shares; issued and outstanding 3,321,039 shares 3,321
3,321
Capital in excess of par value 7,464 7,464
Accumulated deficit (14,429) (14,113)
Total stockholders' deficiency (3,644) (3,328)
$2,129 $2,655
See accompanying notes to consolidated financial statements.
Wilson Brothers and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
For the Three Months
Ended March 31,
1995 1994
(In thousands except per share amounts)
Net sales $1,096 $1,199
Cost of sales 1,038 1,143
Selling, general and administrative expenses 336 357
1,374 1,500
Loss from continuing operations (278) (301)
Other expense (income):
Interest expense - majority owners 32 41
Interest expense 6 27
Other, net - (1)
38 67
Loss from continuing operations before
provision for income taxes (316) (368)
Provision for income taxes - -
Loss from discontinued operations - (161)
Net loss (316) (529)
Accumulated deficit - beginning (14,113) (13,364)
Accumulated deficit - ending $(14,429) $(13,893)
Loss per share:
Continuing operations $(0.10) $(0.11)
Discontinued operations - (0.05)
$(0.10) $(0.16)
See accompanying notes to consolidated financial statements.
Wilson Brothers and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
1995 1994
(In thousands except per share
amounts)
Cash flows from operating activities:
Net loss from continuing operations $ (316) $
(368)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 24 31
Decrease in receivables, net 325 373
Decrease (increase) in inventories 25 (42)
(Increase) in other current assets(42) (69)
(Decrease) increase in accounts payable (243) 80
Increase in accrued salaries and
other current liabilities (29) 40
Net cash provided by (used in)
operating activities (256) 45
Cash flows from investing activities:
Collection of note receivable 150 -
Net cash provided by investing activities 150 -
Cash flows from financing activities:
Repayment of long-term debt (2) (9)
Increase (decrease) in short-term borrowings 32
(78)
Increase in due to majority owners 32 43
Net cash provided by (used in) financing activities
62 (44)
Net decrease in cash and equivalents (44) 1
Cash and equivalents at beginning of period 136 -
Cash and equivalents at end of period $ 92$ 1
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 11 $ 27
See accompanying notes to consolidated financial statements.
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
(1) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated information included herein has been
prepared by Wilson Brothers (the "Company") without audit
for filing with the Securities and Exchange Commission
pursuant to the rules and regulations of the Commission.
The financial information presented herein, while not
necessarily indicative of results to be expected for the
year, reflects all normal and recurring adjustments, which
in the opinion of the Company are necessary for fair
presentation of the financial results for the periods shown.
This financial information should be read in conjunction
with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly-
owned. All significant intercompany items and transactions
have been eliminated in consolidation
Loss per Share
Loss per share has been computed using only the weighted
average number of outstanding shares of common stock
(3,321,039 shares in each period), since the inclusion of
common stock equivalents (shares issuable upon conversion of
the note referred to in Note 6) would be antidilutive.
(2) Discontinued Operations
On September 28, 1993, the Company's Board of Directors
authorized the sale or liquidation of its wholly-owned
subsidiary Northern Engineering Corporation ("Northern"),
the Company's crane business segment. On May 12, 1994, the
Company sold all of the outstanding shares of Northern to a
corporation controlled by a former director of the Company.
Accordingly, the consolidated financial statements for each
of the 1994 periods presented have been restated to reflect
such business segment as discontinued.
In consideration for the sale of the Northern shares, the
Company received $10,000, plus a secured promissory note
(the "Note") in the principal amount of $750,000 repayable
on or before May 1, 1999, which bears interest payable
quarterly at 8 percent per annum. Such note is
collateralized by certain real property of Northern (the
"Mortgaged Property"). The Mortgaged Property was not
appraised in connection with the transaction. If the
Mortgaged Property is sold, all of the principal and
interest is immediately due and payable.
Effective October 28, 1994, the Company agreed to reduce the
percentage from 50 percent to 30 percent of the amount that
the Company shall be entitled to receive if the Mortgaged
Property is
sold in excess of $750,000. In exchange, the purchaser made
a partial prepayment of the principal of the Note in the
amount of $150,000 which was paid by November 7, 1994, and
has made an additional $150,000 partial prepayment on
January 15, 1995. The purchaser has the option to prepay
the remaining principal balance of the Note by June 30, 1995
together with an additional premium payment of $150,000. If
such prepayment is made, the Company loses its entitlement
to participate in the proceeds of the sale of the Mortgaged
Property in excess of $750,000. If such prepayment is not
made, the purchaser will additionally compensate the Company
$50,000 by July 15, 1995. The Company believes that the
principal amount of the Note is collectible. The Company is
also entitled to receive all proceeds received by Northern
in connection with the settlement of all litigation claims
of Northern with Pennsylvania Engineering Corporation, which
proceeds if and when received will be applied to interest
and principal under this Note.
(3) Inventories
Inventories, stated at the lower of cost (first-in, first-
out basis) or market, consisting of materials, labor and
overhead, are as follows:
March 31,
December 31,
1995 1994
(In thousands)
Raw materials $ 405,000 $ 477,000
Work in process 17,000 -
Finished goods 50,000 20,000
$472 ,000 $497,000
(4) Notes Receivable from Affiliates
From June 1987 through May 1989, the Company made certain
secured loans to Pennsylvania Engineering Corp. ("PEC"),
which may be deemed to have been an affiliate of the
Company, and in connection therewith, at the balance sheet
dates included herein the Company was owed a principal
balance of $1,555,000 on its outstanding loans to PEC and
$1,032,000 as of March 31, 1995 and December 31, 1994 of
accrued interest and $78,000 of fees. PEC has filed for
bankruptcy. On December 28, 1994, the Company received
$60,000 in satisfaction of the mortgage from the sale of
certain real property owned by PEC's subsidiary, Lectromelt
Corporation. Such proceeds were applied to accrued interest
receivable, and a comparable amount was charged against the
valuation reserve and recorded as other income in the
statement of operations. While the Company intends to
continue collection proceedings for the balance due from
PEC, such loans were fully reserved for as of March 31,
1995 and December 31, 1994.
(5) Short-term Borrowings
On March 4, 1994, Houze entered into an agreement with a
bank for a revolving line of credit facility in an amount
not to exceed $400,000. Advances on such line of credit
bear interest at the lending bank's prime rate plus 3%. In
addition, the bank is entitled to reimbursement of fees for
auditing Houze's accounts receivable during the term of the
commitment. Advances are collateralized by accounts
receivable, inventory and an assignment of a $100,000
Certificate of Deposit from Fay Penn Economic Development
Council and are guaranteed by the Company and Mr. Bruce
Paparella, the Company's president. In December 1994, the
revolving line of credit facility maturity was extended from
its original maturity date of December 30, 1994 to June 30,
1995 with a limit of $500,000. No assurances can be given
as to the success of obtaining an extension or refinancing
subsequent to June 30, 1995. A failure by Houze to
renegotiate such credit facility would have a material
adverse effect on the Company.
(6) Note Payable to Majority Owners
Note payable to majority owners as of March 31, 1995 and
December 31, 1994 in the amount of $1,500,000 bears interest
at the prime rate and is convertible to 956,937 shares of
the Company's common stock. Mr. Paparella, the Company's
Chief Executive Officer, is the owner of a 75% interest in
such Note and, as such, is the beneficial owner of 358,852
shares of the Company's Common Stock issuable to Mr.
Paparella upon his election to convert his interest in the
Note. On April 18, 1995, John Sanford, the Company's Vice
President and Chief Financial Officer, acquired a $362,500
interest in such convertible note which is convertible into
231,259 shares of the Company's Common Stock and, as such,
Mr. Sanford may be deemed to be the beneficial owner of
231,259 shares issuable to him upon his election to convert
his interest in the notes. In addtion, Mr. Sanford also
acquired a warrant to purchase 648,218 shares of the
Company's Common Stock from Mr. Paparella, exercisable
commencing in January 1996. A charitable foundation is the
beneficial owner of 239,234 shares of the Company's Common
Stock issuable upon conversion of its interest in the Note.
Conversion by the majority owners would be dilutive of their
individual percentage ownership of the Company's aggregate
outstanding common stock.
(7) Commitments and Contingencies
The Company has incurred losses from operations and as of
March 31, 1995, the Company had a stockholders' deficiency
of $3.6 million and a consolidated working capital deficit
of $2.5 million.
The Company's ability to meet its cash requirements in the
next year is dependent upon substantial improvement in the
results of operations and cash flows, maintaining and
obtaining new financing from banks or others. If these
conditions are not satisfactorily achieved, the Company may
be unable to generate sufficient cash flow to meet its
requirements, including payments of amounts which may be
expended for environmental remediation described below, and
therefore, may be unable to continue operations.
The financial statements have been prepared on a going
concern basis, and accordingly, do not include any
adjustments relating to the recoverability and
classification of recorded asset amounts nor the amounts and
classification of liabilities that might be necessary should
the Company be unable to continue in existence or be
required to sell its assets.
The Company has become aware that certain of the products of
Houze may have concentrations of lead and cadmium at levels
which might constitute hazardous waste. While after
testing, it was ascertained that products currently being
produced are within acceptable levels, certain products,
generally those produced prior to 1980, had unacceptable
levels of lead and cadmium. These products had been
disposed of in a disposal site located on Houze's property.
The Pennsylvania Department of Environmental Regulation
("PDER") and the Company agreed to a consent order on
September 22, 1994, which outlines a plan for Houze to
remove and encapsulate all of the hazardous waste and
thereby comply with residual waste pile closure
requirements. The Company intends to fully comply with the
requirements of the consent order.
While the Company believes that the total cost of the plan
agreed to by the PDER in the consent order discussed above
will not exceed the amount reserved, the Company is unable
at this time to make a final determination of the cost of
implementation, and therefore, has not adjusted such
reserve. During the period ended March 31, 1995, $44,000
was charged to the reserve for costs incurred in connection
with the Company's compliance with the PDER's plan to
encapsulate all of the hazardous waste.
By agreement dated January 1, 1995, the Company, Houze and
Triarc agreed to settle an outstanding claim by a former
officer of Houze for bonuses owed. The agreement provides
that Houze will pay to the former officer the aggregate
amount of $37,500 in several installments by December 31,
1996 of which $20,000 was paid in February 1995. The
original amount of such claim previously recorded in the
financial statements of approximately $116,000 plus interest
was reduced accordingly on December 31, 1994.
In addition to the litigation noted above, the Company is
from time to time involved in other routine litigation
incidental to its business, the outcome of which in the
opinion of management will not have a material adverse
effect on the Company's consolidated financial position or
results of operations.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition and Liquidity
As previously reported in the Company's Annual Report on Form 10-
K, on January 10, 1994, pursuant to a Securities Purchase
Agreement dated December 28, 1993 among Bruce Paparella, Warren
B. Kanders and Triarc, Mr. Paparella acquired from Triarc
1,296,436 shares of the Company's common stock, and Mr. Kanders
acquired from Triarc 648,217 shares of the Company's common
stock, collectively replacing Triarc as 59 percent ownership of
the Company's outstanding common stock. In addition, Triarc
assigned to Mr. Paparella (75 percent) and Mr. Kanders (25
percent) the $l,500,000 outstanding balance of note payable to
parent ("Convertible Note") and certain accounts receivable
("Accounts Receivable") held by Triarc in the amount at September
30, 1993 of $l,230,000. As of December 31, 1994 such Accounts
Receivable was $l,572,000. The loan to Mr. Paparella bears
interest at the rate of 7.5 percent per annum, is payable on or
before December 28, 1995 and is evidenced by a promissory note.
In consideration for the loan, Mr. Paparella 1) issued to Mr.
Carucci a warrant which may be exercised after two years to
acquire up to 648,218 shares of the Company's common stock and 2)
transferred to Mr. Carucci 50 percent of his 75 percent interest
in the Note and Accounts Receivable.
Effective December 30, 1994, Mr. Kanders entered into three
separate stock purchase agreements pursuant to which Mr. Kanders
transferred the aggregate of 648,217 shares of the Company's
Common Stock owned by him to four individuals, including Mr.
Paparella who purchased 348,217 shares for $5,000. The remainder
of these shares were sold by Mr. Kanders to three individuals who
are not related to Mr. Paparella. In addition, the Company has
been informed that, on December 22, 1994 Mr. Kanders made a gift
of his 25% portion of the Convertible Note which was convertible
into 239,234 shares of Common Stock (representing 6.9% of the
Common Stock on a fully diluted basis assuming the Convertible
Note was fully converted into such shares of Common Stock) and
Mr. Kanders' 25% interest in the Accounts Receivable to a
charitable foundation, leaving Mr. Kanders with no remaining
beneficial interest in the Company's Common Stock.
As a result of these transactions as of December 30, 1994, Mr.
Paparella beneficially owns 1,644,653 shares of the Company's out
standing Common Stock, representing 49.5% of such Common Stock
and, in addition, Mr. Paparella beneficially owns 358,852 shares
of the Company's common stock issuable to Mr. Paparella upon
conversion of his interest in the Convertible Note. Assuming Mr.
Paparella's interest in the Convertible Note is fully converted
into such shares of common stock, Mr. Paparella may be deemed to
beneficially own the aggregate of 2,003,505 shares of common
stock constituting approximately 54.4% of the common stock of the
Company and may be deemed to control the Company.
As previously reported in the Company's Annual Report on Form 10-
K, effective September 28, 1993, the Company discontinued the
operations of its wholly-owned subsidiary Northern Engineering
Corporation ("Northern"). On May 12, 1994, the Company sold all
of the outstanding shares of Northern to a corporation controlled
by a former director of the Company. In consideration for the
sale of the Northern shares, the Company received $10,000, plus a
secured promissory note (the "Note") in the principal amount of
$750,000 repayable on or before May 1, 1999, which bears interest
payable quarterly at 8 percent per anum. Such note is
collateralized by certain real property of Northern (the
"Mortgaged Property"). The Morgaged Property was not appraised
in connection with the transaction. If the Mortgaged Property is
sold, all of the principal and interest is immediately due and
payable. Effective October 28, 1994, the Company agreed to reduce
the percentage from 50 percent to 30 percent of the amount that
the Company shall be entitled to receive if the Mortgaged
Property is sold in excess of $750,000. In exchange, the
purchaser made a partial prepayment of the principal of the Note
in the amount of $150,000 which was paid by November 7, 1994, and
agreed to make an additional $150,000 partial prepayment which
was paid on January 15, 1995. The purchaser has the option to
prepay the remaining principal balance of the Note by June 30,
1995 together with an additional premium payment of $150,000. If
such prepayment is made, the Company loses its entitlement to
participate in the proceeds of the sale of the Mortgaged Property
in excess of $750,000. If such prepayment is not made, the
purchaser will additionally compensate the Company $50,000 by
July 15, 1995. The Company believes that the principal amount of
the Note is collectible. The Company is also entitled to receive
all proceeds, if any, received by Northern in connection with the
resolution of all litigation claims of Northern with Pennsylvania
Engineering Corporation, which proceeds if and when received will
be applied to interest and principal under the Note. The
Consolidated Financial Statements included elsewhere in this
Quarterly Report on Form 10-Q reflect the stock sale of Northern.
The following discussion and analysis of financial condition
pertains primarily to Houze, which represents the remaining
business of the Company.
As previously reported in the Company's Annual Report on Form 10-
K, from June 1987 through May 1989, the Company made certain
secured loans to Pennsylvania Engineering Corporation ("PEC")
which may be deemed to have been an affiliate of the Company, and
in connection therewith, at December 31, 1994 the Company was
owed a principal balance of $1,555,000 on its outstanding loans
to PEC and $1,032,000 of accrued interest and $78,000 of fees.
Such outstanding loans to PEC were payable on demand, bore
interest at the prime rate plus 3% and are collateralized by a
mortgage on certain real property owned by PEC's subsidiary,
Lectromelt Corporation. On February 4, 1992, PEC and its
subsidiaries, Birdsboro Corporation and Lectromelt Corporation,
filed petitions for relief under Chapter 7 of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Pennsylvania. A trustee was appointed in
such proceedings on February 7, 1992. In accordance with Chapter
7 of the Code, upon such appointment the trustee assumed
jurisdiction over the assets and all powers with respect to the
business of PEC and such subsidiary. At March 31, 1995 and
December 31, 1994, the Company had a 100 percent valuation
reserve of $2,665,000 in connection with such loans due to
substantial doubts as to the realizability of the underlying
collateral.
As previously reported in the Company's Annual Report on Form 10-
K, in November 1991, Houze entered into an accounts receivable
financing arrangement with a commercial lender. Such arrangement
provided for advances to be made against accounts receivable sold
thereunder of up to 75% of the full net amount thereof, interest
on such advances at the prime rate plus 1%, the payment of a
commission of 1.25% of the full amount of all accounts receivable
for which advances were made and the payment of an administrative
fee of $50,000 per year. Pursuant to the arrangement, all
accounts receivable of Houze were pledged as additional
collateral. On March 4, 1994, Houze entered into an agreement
with a bank for a revolving line of credit facility in an amount
not to exceed $400,000. Advances on such line of credit bear
interest at the lending bank's prime rate plus 3%. In addition,
the bank is entitled reimbursement of fees for auditing Houze's
accounts receivable twice during the term of the commitment.
Advances are collateralized by accounts receivable, inventory and
an assignment of a $100,000 Certificate of Deposit from Fay Penn
Economic Development Council and are guaranteed by the Company
and Mr. Bruce Paparella. On March 11, 1994, Houze was advanced
$160,000 of the revolving line of credit and used the proceeds to
repay the then outstanding borrowings under the aforementioned
accounts receivable financing arrangement. The revolving line of
credit facility matures on June 30, 1995. A failure by Houze to
renegotiate such credit facility would have a material adverse
effect on the Company. The balance outstanding as of March 31,
1995 was $339,000 under this line of credit.
As previously reported in the Company's Annual Report on Form 10-
K, the Company's ability to meet its cash requirements in the
next year is dependent upon substantial improvement in the
results of operations and cash flows, maintaining and obtaining
new financing from banks or others. If these conditions are not
satisfactorily achieved, the Company may be unable to generate
sufficient cash flow to meet its requirements, including payments
of amounts which may be expended for environmental remediation,
and therefore, may be unable to continue operations.
The financial statements have been prepared on a going concern
basis, and accordingly, do not include any adjustments relating
to the recoverability and classification of recorded asset
amounts nor the amounts and classification of liabilities that
might be necessary should the Company be unable to continue in
existence or be required to sell its assets.
Results of Operations
Three Months Ended March 31, 1995 Compared with the
Three Months Ended March 31, 1994
Net sales decreased to $1.1 million in three months ended March
31, 1995 from $1.2 million in the comparable period in 1994. The
decrease in net sales was due to decreased volume of mug units of
approximatley 78,000 offset by an increase average sales price
per unit of approximately $.07. Decreased cost of sales was
primarily due to decreased production volume, plus increased
operational efficiency, including significant reduction in units
lost during production.
Effective January 1, 1995, the Company instituted a cost
reduction program primarily targeted to reduce cost of sales and
administrative expenses. The decrease in selling, general and
administrative expenses for the three months ended March 31, 1995
compared to March 31, 1994, is attributable primarily to
favorable reductions in administrative salaries and other
administrative costs.
The decrease in interest expense is due primarily to lower
average borrowings and improved interest rate terms under the new
line of credit financing arrangement described elsewhere herein.
Wilson Brothers and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during
the three months ended March 31, 1995.
Wilson Brothers and Subsidiaries
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Wilson Brothers
Date: ____________ By:
___________________________
John Sanford
Vice President and Chief
Financial Officer
