13
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 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)
(Each 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 15474
Point Marion, PA (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, (412) 725-5231
including area code:
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock. $1.00 Par Value
Title of Class
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or l5(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ]
The aggregate market value of the voting stock held by non-
affiliates cannot be determined since no established market
exists for the Company's common stock.
There were 3,321,039 shares of the registrant's common
stock ($l.00 par value) outstanding at March 1, 1996, of which
non-affiliates and affiliates held 1,676,386 and 1,644,653
shares, respectively, representing 50.5% and 49.5%, respectively,
of the registrant's common stock outstanding.
PART I
Item 1. Business.
General Development of Business
Wilson Brothers was incorporated in Illinois in 1898.
Reference herein to "the Company" includes collectively Wilson
Brothers and its subsidiaries unless the content indicates
otherwise. The Company's principal executive offices are located
at 902 South Main Street, Point Marion, PA 15474.
During the 1995 fiscal year, the Company had one active,
wholly-owned subsidiary - Houze Glass Corporation, a Pennsylvania
corporation ("Houze") located in Point Marion, Pennsylvania,
which is engaged in the specialty decoration of glass and ceramic
items.
At the beginning of fiscal year 1993 approximately 53.7% of
the Company's common stock was owned by DWG Corporation ("DWG").
On April 23, 1993, DWG Acquisition Group L.P. acquired 28.6% of
DWG's then outstanding shares of common stock. DWG Acquisition
Group L.P. subsequently changed its name to Triarc Companies,
Inc. ("Triarc").
On September 28, 1993, the Company's Board of Directors
authorized the sale or liquidation of all of its operating
businesses. On December 28, 1993, Triarc entered into a
Securities Purchase Agreement with Bruce Paparella and Warren B.
Kanders (the "Purchase Agreement"). Pursuant to the Purchase
Agreement, on January 10, 1994, Mr. Paparella acquired from
Triarc 1,296,436 shares of the Company's common stock, Mr.
Kanders acquired from Triarc 648,217 shares of the Company's
common stock, Triarc assigned to Mr. Paparella and Mr. Kanders
that certain note made by the Company and owned by Triarc with a
remaining principal balance of $1,500,000 which note bears
interest at the prime rate and at the time was convertible into
956,937 shares of the Company's common stock (the "Convertible
Note"), and Triarc assigned to Mr. Paparella and Mr. Kanders cer
tain accounts receivable by Triarc in the amount at September 30,
1993 of $1,230,000 (the "Accounts Receivable"). As a consequence
of said transactions, Mr. Paparella owned a 75% interest in the
Convertible Note and the Accounts Receivable and Mr. Kanders ob
tained a 25% interest in the Convertible Note and the Accounts
Receivable and, Mr. Paparella and Mr. Kanders together owned ap
proximately 59% of the Company's outstanding common stock and, as
a result of such transactions, may be deemed to have controlled
the Company. The Company has been informed that, 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,
Choate Rosemary Hall Foundation, Inc., leaving Mr. Kanders with
no remaining beneficial interest in the Company's common stock.
On April 18, 1995, John Sanford, the Company's Vice President and
Chief Financial Officer, acquired in a private transaction with
Mr. Walter Carucci, 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 addition, Mr.
Sanford also acquired, in a private transaction with Mr. Carucci,
a warrant to purchase 648,218 shares of the Company's Common
Stock from Mr. Paparella, exercisable commencing in January 1996.
As a result of these transactions, as of December 31, 1995,
Mr. Paparella beneficially owns 1,644,653 shares of the Company's
outstanding Common Stock, representing 49.5% of such Common Stock
and, in addition, Mr. Paparella and Mr. Sanford beneficially own
358,852 shares and 231,259 shares, respectively, of the Company's
common stock issuable upon conversion of their respective
interests in the Convertible Note. Assuming Mr. Paparella's and
Mr. Sanford's interests in the Convertible Note are fully
converted into such shares of common stock, Mr. Paparella and Mr.
Sanford may be deemed to beneficially own the aggregate of
2,003,505 shares and 231,259 shares of common stock,
respectively, constituting approximately 57.1% of the common
stock of the Company and may be deemed to control the Company.
From September 28, 1993 through January 9, 1994, the
Company's two wholly-owned subsidiaries, Houze and Northern
Engineering Corporation, a Delaware corporation ("Northern"),
were treated as discontinued operations. As of January 10, 1994,
however, the Company's Board of Directors deemed it in the
Company's best interest to continue the operations of Houze.
Accordingly, the consolidated financial statements for each of
the periods presented have been restated to reflect only the
operations of Northern as discontinued.
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 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 agreed to make an
additional $150,000 partial prepayment which was paid on January
15, 1995. The purchaser had the option to prepay the remaining
principal balance of the Note by June 30, 1995. Such prepayment
was not made, and therefore, the purchaser was to additionally
compensate the Company $50,000 by July 15, 1995, of which only
$10,000 has been paid. As a result, the Company believes that
the principal amount of the Note and accrued interest thereon may
not be collectible, and therefore as of September 30, 1995 made a
full valuation reserve in the financial statements of $450,000
for the principal balance and $6,000 for the accrued interest
balance on the note. The Company intends to pursue all
opportunities for collection, including repossession and
liquidation of the Mortgaged Property.
On November 16, 1995, the Company received $472,541
representing the net proceeds distributed in connection with the
resolution of all litigation claims of Northern, retained by the
Company after the sale of Northern, with Pennsylvania Engineering
Corporation. These proceeds were applied to interest and
principal under the Note. The Consolidated Financial Statements
included elsewhere in this Annual Report on Form 10-K reflect the
stock sale of Northern.
Industry Segments
The Company presently operates in one business segment.
Business
Wilson Brothers is a holding company whose business is
conducted through Houze. Through Houze, the Company is engaged
in the specialty decoration of glass and ceramic items.
Except as described below, the Company does not anticipate
that present environmental regulations will materially affect its
capital expenditures, earnings or competitive position. To date,
the Company has not been required to make significant capital
expenditures in order to meet current environmental standards.
As of December 31, 1995, the Company had approximately 108
employees of which 28 were salaried employees and the remainder
were hourly personnel. Workers are represented by the American
Flint Glass Workers Union under a contract which expires in March
1999. The Company believes its relations with its employees are
satisfactory.
Except as described below, patents, trademarks, licenses,
franchises and concessions are not material to the business of
the Company. Working capital requirements of the Company are
expected to be fulfilled from operating cash flow supplemented by
a revolving line of credit facility arranged with a bank on March
4, 1994 and extended on various dates through maturity on June
30, 1996. During the last three years, the Company has not had
any material expenditures for Company or customer sponsored
research and development activities. No single customer
accounted for more than 10% of the Company's consolidated
revenues in 1995.
Houze is engaged in the specialty decoration of glass and
ceramic items. Sales are made through sales representatives and
are generally for advertising specialties, premiums, souvenirs
and the retail trade. Houze's core business, which is highly
competitive, consists principally of the decoration of mugs which
are sold to advertising specialty distributors. Custom imprinted
tumblers or coffee mugs generally lend more exposure per
advertising dollar to customers because of their frequency of use
in the business atmosphere. From time to time, Houze also
obtains special contract orders. Such special contract orders do
no necessarily occur each year and there were no significant
contract orders in 1993, 1994 or 1995. The decorative glass
business is highly competitive, particularly in connection with
items such as tumblers, mugs and glasses. The particular markets
targeted by the ceramic mug segment are pharmaceutical companies
that utilize the "magic" process to demonstrate a change which
occurs when a particular medication is prescribed. Houze also
targets companies that desire to advertise a particular product
or perhaps a change in the company (i.e., name or logo). Houze
competes on the basis of price, quality and design. Many of its
competitors are much larger companies, with far greater
resources. Anchor Hocking Corporation and Libbey Owens Ford
Company are dominant in this industry. Using price, quality,
service and expertise of design as priorities, the Company
believes that it can maintain a competitive edge in the
advertising specialty market.
For the last three years the custom decorated ceramic mug
product line has been approximately 85% of Houze's overall
business.
Management is currently looking to expand Houze's decorative
products to include custom imprinted ceramic steins, shot
glasses, and travel mugs. The Company is currently experimenting
with the decoration of molded plastic mugs.
Houze is continuing to use the "magic" process which is a
thermal chromatic process whereby ceramic pigment is activated by
either high or low temperatures. This allows for a visual change
in the product to reveal an advertisement or artistic effect.
This process is now available through other manufacturers in
Japan. Consequently, competition in this market area is
increasing to some extent.
Houze purchases much of its raw material supplies of glass
and ceramic items from five principal suppliers. However,
management believes that such raw materials are readily available
from other sources at competitive prices.
Houze enters into licensing agreements with customers which
permit Houze to imprint specific logos or designs directly on
products.
In recent years, Houze's sales have been greatest during the
fall quarter as a result of customers' holiday programs. Backlog
or orders believed to be firm as of December 31, 1995 was
$310,000 compared to $420,000 at year end 1994. Backlog orders
are filled within the current fiscal year.
Because the ceramic mug business is dependent on imported
ware, Houze is required to maintain inventories to cover needs
for 45 - 60 days at minimum. If a shortfall occurs, inventory is
supplemented with ware purchased from a distributor located in
the United States. Houze does not offer extended payment terms
to customers.
Houze is not dependent on any single customer because of
Houze's method of distribution. Houze is a member of the
Advertising Specialty Institute and a supplier to the advertising
industry. Houze maintains a nationwide distribution network
through over 12,000 distributors offering Houze products.
As an advertising specialty supplier, no material portion of
Houze's business is affected by renegotiation of profits or
termination of contracts at the election of any governmental
agency.
In February 1993, the Company became aware that certain of
Houze's products 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. The estimated cost of the
Company's original plan of remediation was increased during 1993
by $700,000 from $200,000, based on advice from its consultant,
which was provided for in the 1993 consolidated financial
statements. On December 31, 1995, the reserve balance was
$825,000 reflecting a charge of $41,000 and $14,000 in actual
remediation expenses incurred during 1995 and 1994, respectively.
While the Company believes that the total cost of the plan
provided 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 beyond that arising
from actual remediation expenditures. The final costs to
complete the plan of remediation may be substantial in relation
to the consolidated financial position of the Company, which
could have a material adverse effect on its results of operations
and liquidity.
The Company has no foreign operations or any material export
sales.
Item 2. Properties.
Operations of Houze occupy a facility in Point Marion,
Pennsylvania which has approximately 175,000 square feet of
manufacturing and office space on a 16 acre site. Such facility
is substantially utilized.
Item 3. Legal Proceedings.
In December 1993, a civil action was brought in the United
States District Court for the Western District of Pennsylvania
against the Company, Houze and Triarc Companies, Inc. ("Triarc"),
the former parent of the Company, by the former chief operating
officer of Houze. The complaint alleged that such officer was
owed bonuses in the amount of approximately $116,000 plus
interest on said amount. The amount of the claim for bonuses had
been recorded in the consolidated financial statements of the
Company. The Company and Houze answered the claim and asserted
certain counterclaims. By agreement dated January 1, 1995, the
Company, Houze and Triarc agreed to settle the claims and
counterclaims. The agreement provides that Houze will pay the
former officer the aggregate amount of $37,500 in several
installments by December 31, 1996, of which $31,350 has been paid
as of December 31, 1995. The $116,000 reserve for this claim was
reduced accordingly as of December 31, 1994.
While the Company is not currently engaged in litigation,
the Company is from time to time involved in routine litigation
incidental to its business. The Company does not believe that
any of such routine litigation will have a material adverse
effect on its consolidated financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
There is no current established public trading market for
the Company's common stock.
Prior to September 14, 1993, the high and low sales prices
for the common stock of the Company as listed on the Pacific
Stock Exchange were as follows:
Prices
Year and Period High Low
1993
First Quarter $.75 $.50
Second Quarter .875 .50
Third Quarter .875 .125
From September 14, 1993 through December 31, 1993, the range
of high and low bid information for the common stock of the
Company was as follows:
Prices
Year and Period High Low
1993
Fourth Quarter (9/14 to 12/13) $.0625 $.03125
Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.
On September 14, 1993, the Company's common stock was
delisted from the Pacific Stock Exchange for failure to comply
with minimum listing criteria. Since that time the Company's
common stock has been traded over the counter through National
Quotation Bureau's "pink sheets". Since December 12, 1993, the
"pink sheets" has listed no bid for the Company's common stock.
As of December 31, 1995, there were 3,027 record holders of
the Company's common stock.
The Company did not declare or pay any cash dividends in
1995 or 1994. The applicable provisions of the Business
Corporation Act of Illinois, the Company's jurisdiction of
incorporation, limit the payment of dividends to an amount equal
to the difference between the assets of a corporation and its
liabilities. Under such provisions at December 31, 1995, no
dividends were permitted to be paid. The Company has no present
plans for the payment of any dividends.
On January 10, 1994, pursuant to a Securities Purchase
Agreement dated December 28, 1993 among Bruce Paparella, Warren
B. Kanders and Triarc Companies, Inc. ("Triarc"), (i) Mr.
Paparella acquired from Triarc 1,296,436 shares of the Company's
common stock, (ii) Mr. Kanders acquired from Triarc 648,217
shares of the Company's common stock, (iii) Triarc assigned to
Mr. Paparella and Mr. Kanders that certain note made by the
Company and owned by Triarc with a remaining principal balance of
$1,500,000 which note bears interest at the prime rate and at the
time was convertible into 956,937 shares of Common Stock (the
"Note"), and (iv) Triarc assigned to Mr. Paparella and Mr.
Kanders certain accounts receivable held by Triarc in the amount
at September 30, 1993 of $1,230,000 (the "Accounts Receivable").
Triarc is the successor to DWG Corporation ("DWG"), the former
controlling shareholder of the Company. As a consequence of said
transactions, Mr. Paparella obtained a 75% interest in the Note
and the Accounts Receivable and Mr. Kanders obtained a 25%
interest in the Note and the Accounts Receivable.
The Company has been informed that, 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, Choate
Rosemary Hall Foundation, Inc., leaving Mr. Kanders with no
remaining beneficial interest in the Company's Common Stock. On
April 18, 1995, John Sanford, the Company's Vice President and
Chief Financial Officer, acquired, in a private transaction with
Mr. Carucci, 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 addition, Mr. Sanford also
acquired, in a private transaction with Mr. Walter Carucci, a
warrant to purchase 648,218 shares of the Company's Common Stock
from Mr. Paparella, exercisable commencing in January 1996.
As a result of these transactions as of December 31, 1995,
Mr. Paparella beneficially owns 1,644,653 shares of the Company's
outstanding Common Stock, representing 49.5% of such Common Stock
and, in addition, Mr. Paparella and Mr. Sanford beneficially own
358,852 shares and 231,259 shares, respectively, of the Company's
common stock issuable upon conversion of their respective
interests in the Convertible Note. Assuming Mr. Paparella's and
Mr. Sanford's interests in the Convertible Note are fully
converted into such shares of common stock, Mr. Paparella and Mr.
Sanford may be deemed to beneficially own the aggregate of
2,003,505 shares and 231,259 shares of common stock,
respectively, constituting approximately 57.1% of the common
stock of the Company and may be deemed to control the Company.
Item 6. Selected Financial Data.(1)
For the Year 1995 1994 1993 1992 1991
Net sales $5,041 $5,495 $7,021 $8,280 $11,112
Operating profit (loss) $ (517) $(652) $(2,251) $
(1,082) $ 285
Income (loss) from
continuing operations $ (602) $(588) $(3,492) $
(1,376) $(532)
Loss from discontinued
operations, net of tax $ _- $ (161) $(1,837) $
(976) $(436)
Net loss $(602) $(749) $(5,329) $(2,352) $
(968)
Loss per common and
equivalent share:
Continuing operations $(0.18) $(0.18) $(1.05) $(0.42)
$ (0.16)
Discontinued operations - (0.05) (0.55)
(0.29) (0.13)
Net loss $(0.18) $(0.23) $(1.60) $(0.71) $(0.29)
Shares used in computing
loss per common and
equivalent share 3,321 3,321 3,321 3,321 3,321
Cash dividend per share $ - $ - $ - $ -
$ -
At Year-End
Total assets $2,095 $2,655 $3,104 $7,290 $8,374
Long-term debt $ - $ - $ 9 $ 25 $ 41
Note payable to majority owners $ 1,500 $1,500 $1,500
$ 1,500 $1,500
(1) Restated to reflect the operations of Northern Engineering
Corporation as discontinued.1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Trends
Due to continued decline in sales and the negative impact of
increased competition, the Company discontinued the operations of
Northern, which represented the Company's industrial crane
business, effective September 28, 1993, and such operations were
subsequently sold as discussed elsewhere herein.
The following discussion and analysis of financial condition
pertains primarily to Houze, which represents the remaining
business of the Company.
Houze continues to face significant competition,
particularly in its core business which consists principally of
the decoration of mugs which are sold to advertising specialty
distributors. In an effort to gain market share and to compete
with its competitors, many of which are larger companies with far
greater resources, Houze instituted price reductions for large
orders and has increased its marketing efforts to retail
distributors and holders of licensed products. Additionally,
Houze has made significant improvements to its customer services
area in response to the higher level of service demanded by its
customers.
Liquidity
The Company's consolidated cash and equivalents, were
$428,000 at December 31, 1995 compared to $136,000 at December
31, 1994. During this period, cash and equivalents increased
primarily due to collection of $150,000 on notes receivable in
connection with the sale of Northern, collection of $472,500
receivable from affiliate in connection with secured loans to
Pennsylvania Engineering Company, increased collections of
accounts receivable and maintaining lower levels of inventories,
offset by operating losses.
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 at
such time, 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. 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 Corp. 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. On September 11, 1995, the Company and the
Bankruptcy Trustee for PEC entered into a Settlement Agreement
pursuant to which the Company's claims against PEC were
recognized as an allowed, general unsecured claim in the amount
of $1,399,986 and provided for a contingent minimum distribution
to the Company in settlement of such claim in an amount equal to
at least 33 percent of its allowed claim. The Settlement
Agreement permitted the Company to withdraw from the settlement
if the Trustee's proposed distribution plan provided for
distribution to the Company of less than 33 percent of the
recognized claim. On October 16, 1995, the Bankruptcy Court
approved the Trustee's settlement with the Company and on
November 16, 1995 the Trustee made a distribution to the Company
in the amount of $472,541 in full and final settlement of the
Company's claim against PEC. 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.
On March 11, 1994, Houze entered into an agreement with a
bank for a revolving line of credit facility in an amount not to
exceed $400,000. The line of credit has since been increased to
$500,000 and extended to June 30, 1996. Advances on such line of
credit bear interest at the lending bank's prime rate plus 3.5%.
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 Messrs. Paparella and Sanford. No assurances can
be given as to the success of obtaining an extension or
refinancing subsequent to June 30, 1996. A failure by Houze to
renegotiate such credit facility beyond June 30, 1996 would have
a material adverse effect on the Company.
For the year ended December 31, 1995, the Company
compensated Mr. Paparella and Mr. Sanford $72,500 and $59,375,
respectively, for management services, of which $60,000 and
$55,000, respectively, was paid in January 1996. Mr. Paparella
and Mr. Sanford's annual compensation for 1996 will be $12,000
and $12,000, respectively.
In accordance with an agreement with the Company's former lender,
DWG made a principal payment on December 31, 1982 on the
Company's behalf and purchased interest notes which were issued
by the Company to such lender in payment of accrued interest.
Pursuant to a Conversion Rights Agreement entered into between
the Company and DWG, the obligations of the Company arising from
the principal payment by DWG and purchase of interest notes were
convertible into newly-issued shares of the Company's common
stock. In 1983, DWG converted $651,445 principal amount of
interest notes into 651,445 shares of the Company's common stock.
In November and December 1988, the Company repaid all outstanding
interest notes which aggregated $2,132,000, repaid $4.5 million
of the $6.0 million note evidencing such principal payment and
paid substantially all accrued interest owed to DWG. The
remaining principal balance of a $1.5 million note owed to Triarc
Companies, Inc., successor to DWG, as of December 31, 1993 bears
interest at the prime rate and is convertible into 956,937 shares
of the Company's common stock. Effective January 10, 1994, such
convertible note was purchased by Mr. Bruce Paparella and Mr.
Warren B. Kanders in connection with their acquisition of common
stock from Triarc Companies, Inc., as described elsewhere herein.
On December 22, 1994, Mr. Kanders donated his 25% rights in such
note to a charitable institution. 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 addition, Mr.
Sanford also acquired, in a private transaction with Mr. Walter
Carucci, a warrant to purchase 648,218 shares of the Company's
Common Stock from Mr. Paparella, exercisable commencing in
January 1996.
As a result of these transactions, as of December 31, 1995,
Mr. Paparella beneficially owns 1,644,653 shares of the Company's
outstanding Common Stock, representing 49.5% of such Common Stock
and, in addition, Mr. Paparella and Mr. Sanford beneficially own
358,852 shares and 231,259 shares, respectively, of the Company's
common stock issuable upon conversion of their respective
interests in the Convertible Note. Assuming Mr. Paparella's and
Mr. Sanford's interests in the Convertible Note are fully
converted into such shares of common stock, Mr. Paparella and Mr.
Sanford may be deemed to beneficially own the aggregate of
2,003,505 shares and 231,259 shares of common stock,
respectively, constituting approximately 57.1% of the common
stock of the Company and may be deemed to control the Company.
The Company has incurred losses from operations and as of
December 31, 1995, the Company had a stockholders' deficiency of
$4.0 million and a consolidated working capital deficit of $2.2
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 renewing
its financing from its bank 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 elsewhere herein, 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.
Capital Resources
Capital expenditures of Houze, were $0, $16,000 and $9,000
in 1995, 1994 and 1993, respectively. The Company does not
anticipate any material capital expenditures in 1996, other than
expenditures by Houze for environmental remediation described
below.
As described elsewhere herein, the Company became 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 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. The estimated cost of the
Company's original plan of remediation was increased during 1993
by $700,000 from $200,000, based on advice from its consultant,
which was provided for in the consolidated financial statements.
On December 31, 1995, the reserve balance was $845,000 reflecting
a charge of $41,000 and $14,000 in actual remediation expenses
incurred during 1995 and 1994, respectively. While the Company
believes that the total cost of the plan provided 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 beyond that arising from actual
remediation expenditures. The final costs to complete the plan
of remediation may be substantial in relation to the consolidated
financial position of the Company, which could have a material
adverse effect on its results of operations and liquidity.
Inflation and Changing Prices
Management believes that inflation did not have a
significant effect on gross margins during the last three years.
Results of Operations
1995 Compared with 1994
Net sales decreased to $5.0 million in 1995 from $5.5
million in 1994. The decrease in net sales and cost of sales was
primarily due to continued erosion of market share resulting from
increased competitive pressures, decreased pricing and the lack
of special contract orders which have supported sales volumes of
Houze in prior years.
The Company sold 2.6 million units of decorative mugs and
glassware at an average price of approximately $1.91 in 1995
versus 3.1 million units sold at an average price of $1.79 in
1994. The .5 million unit decrease in sales volume reduced the
Company's sales by approximately $895,000. However, average
sales price per unit increased by $.12 which offset such reduced
unit volume sales during 1995 by approximately $312,000. In
addition, the Company sold .5 million units of "misprinted mugs"
at an average price of $.07, for which the inventory value was
reduced to zero in 1994 when such mugs were produced, because
they were deemed not salable.
The Company's general and administrative expenses were
$113,000 higher in 1995 primarily due to increased legal fees in
connection with the settlement with PEC and other litigation
described elsewhere herein.
Other income included the collection of $472,500 from the
final settlement of the Company's claims against PEC, offset by a
$457,000 allowance for principal and interest due from the sale
of Northern which the Company believes may not be collectible.
1994 Compared with 1993
Net sales decreased to $5.5 million in 1994 from $7.0
million in 1993. The decrease in net sales and cost of sales was
primarily due to continued erosion of market share resulting from
increased competitive pressures, decreased pricing and the lack
of special contract orders which have supported sales volumes of
Houze in prior years.
Loss from continuing operations decreased primarily as a
result of increased unit prices and gross margins and lower
selling, general and administrative expenses and the elimination
of affiliate charges. The Company sold 3.1 million units of
decorative mugs and glassware at an average price of
approximately $1.79 in 1994 versus 4.1 million units sold at an
average price of $1.71 in 1993. The 1 million unit decrease in
sales volume reduced the Company's sales by approximately $1.8
million. However, average sales price per unit increased by $.08
which offset such reduced unit volume sales during 1994 by
approximately $248,000. The Company's general and administrative
expenses were $461,000 lower in 1994 primarily due to tighter
cost controls. As a result of the Company's new bank financing
arrangement as of March 1994, total financing costs decreased
from $211,000 in 1993 to $50,000 in 1994.
Loss from discontinued operations relates to the operations
and the sale of Northern in May 1994 for less than originally
anticipated at the time of its discontinuance.
Item 8. Financial Statements and Supplementary Data Index.
Report of Independent Public Accountants 14
Consolidated Financial Statements:
Consolidated Balance Sheets - December 31, 1995 and
1994 16
Consolidated Statements of Operations and
Accumulated Deficit -
Three years ended December 31, 1995 17
Consolidated Statements of Cash Flows - Three years
ended December 31, 1995 18
Notes to Consolidated Financial Statements 19
Financial Statement Schedules:
Schedules included are set forth in Item 14.
Item 8. Financial Statements and Supplementary Data.
Wilson Brothers and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of December 31
1995 1994
Assets (In thousands)
Current assets
Cash and equivalents $ 428 $ 136
Receivables, less allowance of $130,000 in 1995
and $243,000 in 1994 785 915
Inventories 436 497
Other 33 10
Total current assets 1,682 1,558
Properties, at cost 2,296 2,296
Less accumulated depreciation (1,883) (1,799)
413 497
Note receivable, less valuation reserve of $450,000 in 1995
- - 600
Notes receivable from affiliate, less valuation
reserve of $2,665,000 in 1994 - -
$ 2,095 $2,655
Liabilities and Stockholders' Deficiency
Current liabilities:
Short-term borrowings $ 245 $ 307
Current portion of long-term debt 4 8
Accounts payable 621 694
Accrued salaries and other employee costs 381
312
Environmental reserve 845 886
Accrued interest due majority owners 377 251
Due to majority owners 1,230 1,230
Other current liabilities 206 179
Total current liabilities 3,909 3,867
Note payable to majority owners 1,500 1,500
Other liabilities 727 616
2,227 2,116
Commitments and Contingencies
Stockholders' deficiency:
Preferred stock, $1 par value; authorized 5,000,000
shares; none issued -
-
Common stock, $1 par 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
Minimum pension liability (111) -
Accumulated deficit (14,715) (14,113)
Total stockholders' deficiency (4,041) (3,328)
$2,095 $2,655
See accompanying notes to consolidated financial statements.
Wilson Brothers and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Three years ended December 31
1995 1994 1993
(In thousands except per share
amounts)
Net sales $5,041 $5,495 $7,021
Cost of sales 4,109 4,811 6,636
Selling, general and administrative expenses 1,449
1,336 1,787
Charges from affiliates - - 849
5,558 6,147 9,272
Loss from continuing operations (517) (652)
(2,251)
Other expense (income):
Interest expense 38 52 170
Interest expense - majority owners 127 105 97
Interest income (39) (38) -
Provision for doubtful notes and interest
receivable from affiliate 457 - 1,000
Other income (498) (183) (26)
85 (64) 1,241
Loss from continuing operations before
provision for income taxes (602) (588)
(3,492)
Provision for income taxes - - -
Loss from discontinued
operations - (161) (1,837)
Net loss (602) (749) (5,329)
Accumulated deficit - beginning of year (14,113) (13,364)
(8,035)
Accumulated deficit - end of year $ (14,715) $(14,113) $
(13,364)
Loss per share:
Continuing operations $(0.18) $(.018) $(1.05)
Discontinued operations - (0.05) (0.55)
$(0.18) $(0.23) $(1.60)
See accompanying notes to consolidated financial statements.
Wilson Brothers and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three years ended December 31
1995 1994 1993
(In thousands)
Cash flows from operating activities:
Net loss from continuing operations $ (602)$ (588)$(3,
492)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 84 124 151
Gain on sale of assets - (29) -
Provision on uncollectible notes
receivable from former affiliate 450 - 1,0
00
Decrease in receivables, net 130 116 520
Decrease in inventories 61 49 923
Increase in other current assets (23) (10) -
(Decrease) increase in accounts payable (73) 116
(324)
Increase (decrease) in accrued salaries and
other employee costs 109 (140) 76
Increase in accrued interest due majority owners 126
107 144
Increase in other current liabilities 27 48
- -
(Decrease) increase in environmental reserve (41)
(14) 700
Net cash provided by (used in) operating activities 208
(221) (302)
Cash flows from investing activities:
Capital expenditures - (16) (9)
Proceeds from sale of properties - 30 -
Proceeds from sale of discontinued operations - 10
- -
Decrease in net assets of discontinued operations -
- - (352)
Net cash provided by (used in) investing activities -
24 (361)
Cash flows from financing activities:
Repayment of long-term debt (4) (18) (40)
Increase (decrease) in short-term borrowings (62) 201
(643)
Repayment of note receivable 150 150 -
Increase in due to majority owners - -
1,230
Net cash provided by financing activities 84 333
547
Net increase (decrease) in cash and equivalents 292
136 (116)
Cash and equivalents at beginning of period 136 -
116
Cash and equivalents at end of period $ 428 $ 136
$ -
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 38 $ 29 $ 177
Income taxes $ - $ - $ -
See accompanying notes to consolidated financial statements.
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
(1) Basis of Presentation
Wilson Brothers (the "Company") is a holding company whose
business is conducted through its wholly-owned subsidiary
Houze Glass Company ("Houze"). Houze operates in the
specialty advertising business and engages in the decoration
of glass and ceramic items. Houze's products are primarily
distributed throughout the United States through sales
representatives.
Principles of Consolidation
All significant intercompany items and transactions have
been eliminated in consolidation.
On April 23, 1993, DWG Acquisition Group L.P. acquired
shares of DWG Corporation ("DWG"), representing 28.6% of
DWG's then outstanding shares of common stock. DWG
subsequently changed its name to Triarc Companies, Inc.
("Triarc"). DWG owned at the time approximately 53.7% of
the Company's outstanding common stock.
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.
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. 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 addition,
Mr. Sanford also acquired, in a private transaction with Mr.
Walter Carucci, a warrant to purchase 648,218 shares of the
Company's Common Stock from Mr. Paparella, exercisable
commencing in January 1996.
As a result of these transactions as of December 31, 1995,
Mr. Paparella beneficially owns 1,644,653 shares of the
Company's outstanding Common Stock, representing 49.5% of
such Common Stock and, in addition, Mr. Paparella and Mr.
Sanford beneficially own 358,852 shares and 231,259 shares,
respectively, of the Company's common stock issuable upon
conversion of their respective interests in the Convertible
Note. Assuming Mr. Paparella's and Mr. Sanford's interests
in the Convertible Note are fully converted into such shares
of common stock, Mr. Paparella and Mr. Sanford may be deemed
to beneficially own the aggregate of 2,003,505 shares and
231,259 shares of common stock, respectively, constituting
approximately 57.1% of the common stock of the Company and
may be deemed to control the Company.
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ
from those estimates.
Properties
Properties are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line
method over the estimated useful lives of the assets ranging
from four to forty years.
Assets which have been fully depreciated are retained in the
accounts for as long as they are useful to operations. Upon
disposition, it is the Company's policy to eliminate from
the accounts the carrying value of the asset and the related
accumulated depreciation or amortization and to credit or
charge the resulting profit or loss to operations.
Effective for fiscal years beginning after December 15,
1995, the Company adopted SFAS No. 121 - "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of", which is not expected to have a material
effect on the Company's reported financial position or
results of operations.
Income Taxes
Effective January 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes", which had no effect on the
Company's reported financial position or results of
operations.
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 year), since the inclusion of
common stock equivalents (shares issuable upon conversion of
the note referred to in Note 9) would be antidilutive.
Concentration of Credit Risk
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and
accounts and notes receivable. The Company places its cash
with high quality financial institutions.
Cash and Equivalents
The Company classifies as cash and equivalents all highly
liquid investments with a maturity of three months or less
when purchased.
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) 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. Accordingly, the consolidated financial statements
for each of the periods presented have been restated to
reflect such business segment as discontinued. 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 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 had the option to prepay
the remaining principal balance of the Note by June 30,
1995. Such prepayment was not made, and therefore, the
purchaser was to additionally compensate the Company $50,000
by July 15, 1995, of which $10,000 has been paid. As a
result, the Company believes that the principal amount of
the Note and accrued interest thereon may not be
collectible, and therefore has made a full valuation reserve
in the December 31, 1995 financial statements in the amount
of $450,000 for principal, plus $6,000 for accrued interest.
The Company intends to pursue all opportunities for
collection, including repossession and liquidation of the
Mortgaged Property.
Sales of Northern were $662,000 and $2,134,000 for each of the
years ended December 31, 1994 and 1993.
(4) Inventories
Inventories, stated at the lower of cost (first-in, first-
out basis) or market, consisting of materials, labor and
overhead, are as follows:
December 31,
1995 1994
Raw materials $365,000 $477,000
Work in process 1,000 -
Finished goods 70,000 20,000
$436,000 $497,000
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Properties
The following is a summary of the major classifications of
properties:
December 31
1995 1994
Classification
Land $18,000 $18,000
Buildings and improvements 678,000 678,000
Machinery and equipment 1,600,000 1,600,000
2,296,000 2,296,000
Less: accumulated depreciation 1,883,000 1,799,000
$413,000 $497,000
(6) 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. In connection therewith, as of 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. PEC 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. On September 11, 1995, the Company and the
Bankruptcy Trustee for PEC entered into a Settlement
Agreement pursuant to which the Company's claims against PEC
were recognized as an allowed, general unsecured claim in
the amount of $1,399,986 and provided for a contingent
minimum distribution to the Company in settlement of such
claim in an amount equal to at least 33 percent of its
allowed claim. The Settlement Agreement permitted the
Company to withdraw from the settlement if the Trustee's
proposed distribution plan provided for distribution to the
Company of less than 33 percent of the recognized claim. On
October 16, 1995, the Bankruptcy Court approved the
Trustee's settlement with the Company and on November 16,
1995 the Trustee made a distribution to the Company in the
amount of $472,541 in full and final settlement of the
Company's claim against PEC. 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.
(7) Income Taxes and Other Liabilities
As a result of the change in ownership effective January 10,
1994 as described in Note 1, substantially all of the
Company's pre-acquisition Federal income tax loss
carryforwards and tax credit carryforwards have been
eliminated. As of December 31, 1995 and 1994, the Company
provided a full valuation allowance for the net deferred tax
assets of $1,005,000 and $792,000, respectively. The
deferred tax assets primarily result from the 1995 and 1994
net losses and certain differences in the tax basis and book
basis of inventories, receivables and liabilities.
The reported tax provision and a computed tax benefit based
on the loss from continuing operations before income taxes
are reconciled as follows:
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year ended December 31,
1995 1994 1993
(In thousands)
Loss from continuing operations before
income taxes $(602) $(588) $(3,492)
Statutory rate 35% 35% 35%
Computed tax benefit from continuing operations (211) (206)
(1,222)
Computed tax benefit from discontinued operations - (56) (643)
Total computed tax benefit (211) (262) (1,865)
Increase in taxes resulting from:
Effect of net operating losses for which
no tax benefit is available 211 262 1,860
Other - - 5
$ - $ - $ -
"Other liabilities" consist of estimated accruals for
the final resolution of income tax audits relating to prior
years.
(8) Short-term Borrowings
In November 1991, the Company's wholly-owned subsidiary
Houze Glass Corporation ("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 3.5%.
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 and Mr. Sanford, the
Company's Vice President and Chief Financial Officer. 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 maturity was extended from December 30, 1994
to June 30, 1996 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, 1996. A failure by Houze
to renegotiate such credit facility would have a material
adverse effect on the Company.
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The short-term borrowings of Houze as of and for the years
ended December 31 are as follows:
1995 1994 1993
End of year balance $245,0 $307, $106,0
00 000 00
Maximum amount
outstanding during the $380,0 $349, $749,0
year 00 000 00
Average balance $171, $380,0
outstanding during the $280,0 000 00
year 00
Weighted average 11.8% 15.9% 8.9%
interest rate during
the year
Interest rate at year 11.5% 11.5% 7.0%
end
(9) Note Payable to Majority Owners
Note payable to majority owners as of December 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 is the owner of a
37.5% 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. In December 1994, Mr. Kanders made a
gift of his 25% interest in the Note to a charitable
foundation and such 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. On
April 18, 1995, John Sanford, the Company's Vice President
and Chief Financial Officer, acquired a $362,500 interest in
such convertible note. As a result, Mr. Sanford is the
beneficial owner of 231,259 shares issuable to him upon his
election to convert his interest in the notes. Conversion
by the majority owners would be dilutive of their individual
percentage ownership of the Company's aggregate outstanding
common stock.
(10) Pension Plan
Houze has a defined benefit plan covering hourly-paid
employees. Contributions are computed using the projected
unit credit method of funding, the objective of which is to
fund each participant's benefits under the plan as they
accrue. Houze's funding policy is to contribute the minimum
amount required by the Employee Retirement Income Security
Act of 1974. During 1995, 1994 and 1993, no contributions
were required to be made under the plan.
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net periodic pension cost for the plan in 1995, 1994 and
1993 was $45,000, $42,000 and $40,000, respectively. The
components of the net periodic pension cost are as follows:
Year ended December 31,
1995 1994 1993
(In thousands)
Current service cost $ 52 $ 55 $ 55
Interest cost on projected benefit obligation 43 43 41
Actual return on assets (3) (10) (41)
Unrealized (gain) loss on plan experience (38) (37) (9)
Amortization of unrecognized net asset at transition (9) (9)
(6)
Net periodic pension cost $ 45 $ 42 $ 40
The following table sets forth the plans' projected funded
status:
December 31,
1995 1994
(In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $657,000 in 1995 and $578,000 in 1994 $ 676$ 597
Reconciliation of funded status:
Plan assets at fair value $ 565 $598
Projected benefit obligation 676 597
Plan assets in excess (short) of projected benefit
obligation (111) 1
Unrecognized net (gain) loss from plan experience 53 (8)
Unrecognized prior service cost 37 40
Unrecognized net asset at January 1, 1987,
amortized over 13 to 17 years (72) (81)
Prepaid (accrued) pension cost $(93) $(48)
An assumed discount rate of 7% for 1995 and 1994, and
long-term rate of return on assets of 8% for 1995 and 1994,
were used in developing this data. Plan assets are invested
in a managed portfolio, consisting primarily of corporate
bonds and common stock.
(11)
Related Party Transactions
There were no charges from affiliates for the year ended
December 31, 1995. The Company was charged $19,000 during
1994 for consulting services provided by a firm of which an
officer of the Company is a partner. Charges from
affiliates for the year ended December 31, 1993 include
$751,000 of non-recurring charges to the Company by Triarc
for the Company's allocated portion of costs to terminate
the lease on Triarc's corporate headquarters ($157,000) as
well as the allocated costs related to a five-year
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
consulting agreement between Triarc and the former Vice
Chairman of Triarc and the Company ($594,000).
In addition, DWG charged approximately $98,000 to the
Company for the period January 1993 through April 1993 for
management services, allocations of certain reserves on
amounts owed to DWG, and costs of allocated leased space and
equipment.
The Company leased transportation and other equipment for
$17,000 from a subsidiary of DWG in 1993.
The Company and its subsidiaries maintained certain
insurance coverage with Chesapeake Insurance Company Limited
("Chesapeake Insurance"), a subsidiary of DWG which may have
been deemed to be an affiliate of the Company. Premiums
attributable to such insurance coverage, which consisted
principally of property coverage, amounted to approximately
$4,000 in 1993. In addition, the Company and its
subsidiaries maintained certain insurance coverage with
unaffiliated insurance companies for which Chesapeake
Insurance reinsured a portion of the risk. Net premiums
attributable to such reinsurance were approximately $89,000
in 1993.
For information concerning certain other transactions
between the Company and other corporations which may be
deemed to be affiliates of the Company, see other Notes
included elsewhere herein.
(12) Business Segments
Continuing operations comprise one business segment: the
decorative glass segment. No single customer accounted for
10% or more of consolidated net sales in 1995, 1994 or 1993.
(13) Commitments and Contingencies
The Company has incurred losses from operations and as of
December 31, 1995, the Company had a stockholders'
deficiency of $4.0 million and a consolidated working
capital deficit of $2.2 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
renewing its financing from its bank 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 the property of
the decorative glass segment. 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
Wilson Brothers and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
comply with the requirements of the consent order. The
estimated cost of the Company's original plan of
remediation was increased during 1993 by $700,000 from
$200,000, based on advice from its outside consultant. The
additional costs were provided for in the 1993 consolidated
financial statements. At December 31, 1995 the reserve
balance was $825,000.
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 years ended December 31, 1995 and 1994,
$41,000 and $14,000, respectively, 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 $31,350 was paid in 1995. The original amount
of such claim previously recorded in the financial
statements of approximately $116,000 plus interest was
reduced accordingly.
In addition to the litigation noted above, and as discussed
under Item 3 Legal Proceedings, 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 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The table below sets forth the names, ages and positions of
the Company's directors and executive officers:
Name Age Position
Bruce Paparella 40 President, Chief
Executive Officer and
Director
John Sanford 30 Vice President, Chief
Financial Officer,
Treasurer and Director
The Board of Directors currently consist of two directors.
Mr. Williams, Vice President and Secretary resigned on April 4,
1995 and Mr. Nicholson resigned on May 12, 1994, which was
concurrent with the purchase of Northern by a company under his
control. Mr. Nicholson was paid $10,000 during the period he was
a director. Mr. Sanford was appointed to the Board of Directors
in April 1995 filling the vacancy of Mr. Nicholson. Directors
are elected at the annual meeting of shareholders, and hold
office until the next succeeding annual meeting of shareholders
or until their successors are elected and qualified. Mr.
Paparella was appointed to the Board of Directors on January 10,
1994 to fill vacancies created by the resignation of members of
the Board of Directors who were elected by the former controlling
shareholder of the Company. Directors who are employees of the
Company do not receive an annual retainer or meeting attendance
fees. Non-employee directors are paid an annual meeting fee of
$10,000.
The Company's officers are elected by the Board of Directors
and hold office at the discretion of the Board.
Bruce Paparella has been President, Chief Executive Officer
and a Director of the Company since January 10, 1994. Since
1991, Mr. Paparella has been Research Director for Carr
Securities Corp., a New York brokerage firm. From August 1988
through 1990, Mr. Paparella was special situations and portfolio
manager for Great Pacific Capital, a New York investment firm.
From 1987 until 1988, he was an equity research analyst at Lazard
Freres, a New York investment banking firm.
John Sanford has been Vice President, Treasurer and Chief
Financial Officer of the Company since March 7, 1994. He also
became Secretary and Director in April 1995. Since September
1993, Mr. Sanford has been an equity trader for Carr Securities
Corp., a New York brokerage firm. From August 1991 through
September 1993, Mr. Sanford was earning his M.B.A. degree at the
University of North Carolina at Chapel Hill. Mr. Sanford was the
President of Fortress Marine Construction from August 1990
through August 1991. From July 1988 through August 1990, Mr.
Sanford was a commercial lender for the First Union National Bank
of Florida.
Item 11. Executive Compensation.
During the year ended December 31, 1995, the Company
compensated Bruce Paparella $72,500 and John Sanford $59,375 for
management services. During 1996, the Company will pay annual
salaries to the Company's Chief Executive Officer and Chief
Financial Officer in the annual amounts of $12,000 and $12,000,
respectively, for management services.
All of the Company's executive officers hold positions with
non-affiliated companies (see Item 10) that pay compensation to
such officers. Each such officer devotes the time necessary to
the Company and to his non-affiliated employer as is necessary
for the effective discharge of his duties. The Company is unable
to estimate the approximate amount of time spent by the officers
listed in Item 10 on the affairs of the Company and its
subsidiaries. No minimum amount of time is required to be
devoted to such affairs by any such officers.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth information regarding the
beneficial ownership of shares of the Company's Common Stock, as
of March 1, 1996, by each person who beneficially owns more than
five percent of such shares, by each director of the Company, by
each executive officer named in Item 10 and by all directors and
executive officers of the Company as a group. Each person named
in the table has sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by him or
it, except as otherwise set forth in the notes to the table.
Name and Address Amount of
of Beneficial Owner Beneficial Percent
Ownership
Bruce Paparella
17 Battery Place
New York, NY 2,003,505(1) 41%
10004
John Sanford
17 Battery Place
New York, NY 879,477(2) 18%
10004
Choate Rosemary
Hall
Foundation, 239,235(3) 5%
Inc.
Wallingford, CT
All Directors and
Executive 2,882,982 59%
Officers (2
persons)
(1) Includes 1,644,653 shares as to which Mr. Paparella has sole
voting and dispositive power and 358,852 shares issuable upon
conversion of that certain promissory note made by the Company in
the principal amount of $1,500,000 as to which Mr. Paparella has
a 37.5 percent interest.
(2) Includes 648,218 shares issuable pursuant to a Warrant
purchased from Mr. Carucci by Mr. Sanford. Such warrant became
exercisable on January 10, 1996 and the exercise price per share
is $0.001. Also includes 231,259 shares issuable upon conversion
of a promissory note made by the Company in the principal amount
of $1,500,000 of which Mr. Sanford has a 24.2 percent interest in
such note.
(3) Includes 239,234 shares issuable upon conversion of a
promissory note made by the Company in the principal amount
of $1,500,000 of which such foundation has a 25 percent
interest in such note.
Item 13. Certain Relationships and Transactions.
In connection with the sale of control of the Company
pursuant to a Securities Purchase Agreement dated December 28,
1993, Triarc Companies, Inc. ("Triarc"), the former controlling
shareholder of the Company, assigned to Bruce Paparella,
President and Chief Executive Officer of the Company and Warren
B. Kanders, a beneficial owner of more than 5% of the Company's
common stock, the $1,500,000 outstanding balance of a note (the
"Note") by the Company and certain accounts receivable (the
"Accounts Receivable") of the Company held by Triarc in the
amount, at September 30, 1993, of $1,230,000.
Effective December 30, 1994, Mr. Kanders entered into three
separate stock purchase agreements, whereby Mr. Kanders
transferred all of his shares of the Company's common stock to
four individuals, including Mr. Paparella who purchased 348,217
shares for $5,000. In addition, on December 22, 1994, Mr.
Kanders made a gift of his portion of the Note and Accounts
Receivable to a charitable foundation, leaving him with no
remaining beneficial interest in the Company's common stock. 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 addition,
Mr. Sanford also acquired, in a private transaction with Mr.
Walter Carucci, a warrant to purchase 648,218 shares of the
Company's Common Stock from Mr. Paparella, exercisable commencing
in January 1996.
As a result of these transactions as of December 31, 1995,
Mr. Paparella beneficially owns 1,644,653 shares of the Company's
outstanding Common Stock, representing 49.5% of such Common Stock
and, in addition, Mr. Paparella and Mr. Sanford beneficially own
358,852 shares and 231,259 shares, respectively, of the Company's
common stock issuable upon conversion of their respective
interests in the Convertible Note. Assuming Mr. Paparella's and
Mr. Sanford's interests in the Convertible Note are fully
converted into such shares of common stock, Mr. Paparella and Mr.
Sanford may be deemed to beneficially own the aggregate of
2,003,505 shares and 231,259 shares of common stock,
respectively, constituting approximately 57.1% of the common
stock of the Company and may be deemed to control the Company.
In connection with the change of control of DWG, Steven
Posner, who was Vice Chairman of the Board of the Company prior
to April 23, 1993, entered into a five-year consulting agreement
with DWG providing for an initial payment of $1.0 million at the
commencement of the term of such agreement and an annual
consulting fee of $1.0 million per annum for the performance of
his duties under such consulting agreement. After the change of
control of DWG on April 23, 1993, Triarc allocated the costs of
Mr. Posner's consulting agreement to its subsidiaries, including
the company. The Company was allocated $594,000 in connection
with such consulting agreement, although no payment was made by
the Company to Triarc during 1993 with respect to the consulting
agreement.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports
on Form K.
(A) 1. Financial Statements:
See Index to Financial Statements (Item 8)
2. Financial Statement Schedule:
II. Valuation and Qualifying Accounts -
Three years ended December 31, 1995.
All other schedules are omitted as the
required information is inapplicable or the
information is presented in the financial
statements or the notes thereto.
3. Exhibits:
Copies of the following exhibits are available at a
charge of $.25 per page upon written request to the
Secretary of the Company at 902 South Main Street,
Point Marion, PA 15474.
3.1 Articles of Incorporation (including all
amendments thereto) of Wilson Brothers,
incorporated herein by reference to Wilson
Brothers Form 10-K for the year ended December 31,
1980, Exhibit 3.1.
3.2 By-Laws of Wilson Brothers, incorporated herein by
reference to Wilson Brothers Form 10-K for the
year ended December 31, 1980, Exhibit 3.2.
4.1 Conversion Rights Agreement dated as of April 1,
1982 by and between Wilson Brothers and DWG
Corporation, incorporated herein by reference to
Wilson Brothers Form 10-Q for the quarter ended
June 30, 1982, Exhibit 4.2.
4.2 Amendment to Conversion Rights Agreement dated
April 1, 1982, incorporated herein by reference to
Wilson Brothers Form 10-K for the year ended
December 31, 1984, Exhibit 4.1.
10.1 Loan Agreement dated March 11, 1994 by and between
Houze Glass Corporation and Integra Bank/South,
incorporated by reference to Wilson Brothers Form
10-K for the year ended December 31, 1993, Exhibit
10.1.
10.2 Security Agreement dated March 11, 1994, by and between
Houze Glass Corporation and Integra Bank/South, incorporated by
reference to Wilson Brothers Form 10-K for the year ended
December 31, 1993, Exhibit 10.2.
10.3 Revolving Credit Note dated September 14, 1994 between
Houze Glass Corporation and Integra Bank/South, incorporated by
reference to Wilson Brothers Form 10-K for the year ended
December 31, 1994, Exhibit 10.3.
10.4 First Amendment to Loan Agreement and Note Modification
Agreement dated September 14, 1994 between Houze Glass
Corporation and Integra Bank/South, incorporated by reference to
Wilson Brothers Form 10-K for the year ended December 31, 1994,
Exhibit 10.4.
10.5 Amended and Restated Security Agreement dated December
30, 1994 between Houze Glass Corporation and Integra/Bank
Pittsburgh, incorporated by reference to Wilson Brothers Form 10-
K for the year ended December 31, 1994, Exhibit 10.5.
11.1 Computation of Earnings (Loss) per Common and
Equivalent Share - Five Years Ended , December 31,
1995.*
__________________
* being filed herewith.
(B) Reports on Form 8-K
The registrant did not file any reports on Form 8-K
during the three months ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: April 11, 1996 By:
John Sanford
Vice President, Chief
Financial Officer,
Treasurer, Secretary and
Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated and on the dates indicated.
Signature Titles
Bruce Paparella President, Chief Executive
Officer and Director
(Principal Executive Officer)
John Sanford Vice President, Chief Financial
Officer, Treasurer, Secretary
and Director (Principal
Accounting Officer)
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
II. Valuation and Qualifying Accounts - Three 34
years ended December 31, 1995
Schedule II
WILSON BROTHERS AND SUBSIDIARIES
Valuation and Qualifying Accounts
Three years ended December 31, 1995
Additions
Balance charged Deduction Balance
at to s at
Description beginnin costs and from end
g expenses reserves of year
of year
Year ended December 31, 1995:
Receivables - allowance
for $243,000 $96,000 $210,000 $130,000
doubtful
accounts
Notes receivable $2,665,0 $ $2,665,00 $ -
from affiliate- 00 -- 0 -
valuation reserve
Note receivable - $ $450,000 $ $450,000
valuation reserve -- --
Accrued interest - $ $6,000 $ $6,000
valuation reserve -- --
Year ended December 31, 1994:
Receivables - allowance $220,000 $58,000 $35,000 $243,000
for
doubtful accounts
Notes receivable from $2,725,0 $ $60,000 $2,665,00
affiliate - 00 -- 0
valuation reserve
Year ended December 31, 1993:
Receivables - allowance
for $120,000 $156,000 $56,000 $220,000
doubtful accounts
Notes receivable from
affiliate - $1,725,0 $1,000,00 $ $2,725,00
valuation reserve 00 0 -- 0
EXHIBIT INDEX
Pa
ge
10.7 Third Amendment to Loan 36
Agreement and Note
Modification Agreement
between Houze Glass
Corporation and Integra
Bank/South dated July 21,
1995
10.8 Fourth Amendment to Loan 46
Agreement and Note
Modification Agreement
between Houze Glass
Corporation and Integra
Bank/South dated July 21,
1995
11.1 Computation of Earnings 55
(Loss) per Common and
Equivalent Share - five
years ended December 31,
1995
Exhibit 11.1
WILSON BROTHERS AND SUBSIDIARIES
Computation of Earnings (Loss) per Common and Equivalent Share
Five Years Ended December 31, 1995
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
Loss from continuing operations$(602)$ (588)$(3,492)$(1,376)$ (
532)
Loss from discontinued operations, net of tax - (161)(1,837)
(976) (436)
Add: Interest on note payable
to majority owner * * * *
*
(602) (749) (2,352) (968) (782)
- - - -
- -
Adjusted net loss $(602)$ (749)$(2,352)$(968)$ (782)
Average common stock and common
equivalents:
Common stock 3,321 3,321 3,321 3,321 3,321
Note payable to majority owner,
including interest thereon * * * *
*
3,321 3,321 3,321 3,321 3,321
Loss per common and
equivalent share:
Continuing operations $(0.18)$(0.18) $(1.05)$(0.42)$(
0.16)
Discontinuing operations - (0.05) (0.55)
(0.29) (0.13)
Net loss $(0.18)$(0.23) $(1.60)$(0.71)$(
0.29)
*Antidilutive
_______________________________
1
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