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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, 1996
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, 1996.
Part I. Financial Information, Item 1. Financial Statements
Wilson Brothers and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
Assets (In thousands)
Current assets
Cash and equivalents $ 190 $ 428
Receivables, less allowances of $127,000 in 1996
and $130,000 in 1995 675 785
Inventories 523 436
Other 102 33
Total current assets 1,490 1,682
Properties, at cost 2,305 2,296
Less accumulated depreciation (1,898) (1,883)
407 413
Note receivable, less valuation reserve of $450,000 as of
March 31, 1996 and December 31, 1995 - -
$ 1,897 $2,095
Liabilities and Stockholders' Deficiency
Current liabilities:
Short-term borrowings $ 291 $ 245
Current portion of long-term debt 3 4
Accounts payable 575 621
Accrued salaries and other employee costs 325
381
Environmental reserve 845 845
Accrued interest due majority owners 408 377
Due to majority owners 1,230 1,230
Other current liabilities 160 206
Total current liabilities 3,837 3,909
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 (14,841) (14,715)
Total stockholders' deficiency (4,056) (3,930)
$1,897 $2,095
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,
1996 1995
(In thousands except per share amounts)
Net sales $1,165 $1,096
Cost of sales 955 1,038
Selling, general and administrative expenses 308 336
1,263 1,374
Loss from operations (98) (278)
Other expense (income):
Interest expense - majority owners 30 32
Interest expense 7 6
Other, net (9) -
28 38
Loss from operations before
provision for income taxes (126) (316)
Provision for income taxes - -
Net loss (126) (316)
Accumulated deficit - beginning (14,715) (14,113)
Accumulated deficit - ending $(14,841) $(14,429)
Loss per share $(0.04) $(0.10)
See accompanying notes to consolidated financial statements.
Wilson Brothers and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
1996 1995
(In thousands except per share
amounts)
Cash flows from operating activities:
Net loss from operations $(126) $(316)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 15 24
Decrease in receivables, net 110 325
Decrease (increase) in inventories(87) 25
(Increase) in other current assets(69) (42)
Decrease in accounts payable (46) (243)
(Decrease) increase in accrued salaries and
other current liabilities (71) 3
Net cash (used in)
operating activities (274) (224)
Cash flows from (used in) investing activities:
Collection of note receivable - 150
Capital expenditures (9) -
Net cash provided by investing activities (9) 150
Cash flows from financing activities:
Repayment of long-term debt (1) (2)
Increase in short-term borrowings 46 32
Net cash provided by financing activities 45
30
Net decrease in cash and equivalents (238) (44)
Cash and equivalents at beginning of period 428 136
Cash and equivalents at end of period $ 190$ 92
See accompanying notes to consolidated financial statements.
(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, 1995.
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
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.
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 March 31, 1996 and 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.
(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,
1996 1995
(In thousands)
Raw materials $ 406,000 $365,000
Work in process 10,000 1,000
Finished goods 107,000 70,000
$523,000 $436,000
(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. 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.
(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 3.5%.
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. 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.
(6) Note Payable to Majority Owners
Note payable to majority owners as of March 31, 1996 and
December 31, 1995 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. On April 21, 1996, Mr.
Paparella, the Company's President, Chief Executive Officer
and A Director, died from Cancer. Mr. Paparella's estate 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 upon the election of Mr. Paparella's
estate to convert such 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.
(7) Commitments and Contingencies
The Company has incurred losses from operations and as of
March 31, 1996, the Company had a stockholders' deficiency
of $4.0 million and a consolidated working capital deficit
of $2.3 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 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 March 31, 1996 the reserve balance
was $845,000.
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, 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, 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.
On April 21, 1996, Mr. Bruce Paparella, the Company's President,
Chief Executive Officer and a Director died from cancer. Mr.
John Sanford, the Company's Vice President, Chief Financial
Officer, Secretary and a Director is the acting Chief Executive
Officer of the Company.
As a result of these transactions, as of March 31, 1996, Mr.
Paparella's estate 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's estate and Mr.
Sanford beneficially own 358,852 shares and 231,259 shares,
respectively, of the Company's common stock issuable upon conver
sion of their respective interests in the Convertible Note.
Assuming Mr. Paparella's estate and Mr. Sanford's interests in
the Convertible Note are fully converted into such shares of
common stock, Mr. Paparella's estate 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.
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 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 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 principal
business of the Company.
As previously reported in the Company's Annual Report on Form 10-
K, 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.
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, 1996 Compared with the
Three Months Ended March 31, 1995
Net sales increased $69,000 in the three months ended March 31,
1996 as compared to the three months ended March 31, 1995. The
increase in net sales was due to an increased volume of mug units
sales of approximately 115,000 offset by a decreased average
sales price per unit of approximately $.22. Decreased cost of
sales was primarily due to increased operational efficiency,
including significant reduction in units lost during production
and better utilization of labor shift capacity.
The Company has continued refining its cost reduction program
instituted in January 1, 1995 which was 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, 1996 compared to March 31, 1995, is
attributable primarily to favorable reductions in administrative
salaries and other administrative costs.
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, 1996.
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
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] MAR-31-1996
[CASH] 190
[SECURITIES] 0
[RECEIVABLES] 802
[ALLOWANCES] 127
[INVENTORY] 523
[CURRENT-ASSETS] 1490
[PP&E] 2305
[DEPRECIATION] 1898
[TOTAL-ASSETS] 1897
[CURRENT-LIABILITIES] 3837
[BONDS] 0
[COMMON] 3321
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] (7377)
[TOTAL-LIABILITY-AND-EQUITY] 1897
[SALES] 1165
[TOTAL-REVENUES] 1165
[CGS] 955
[TOTAL-COSTS] 1263
[OTHER-EXPENSES] (9)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 37
[INCOME-PRETAX] (126)
[INCOME-TAX] 0
[INCOME-CONTINUING] (126)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (126)
[EPS-PRIMARY] (.04)
[EPS-DILUTED] (.04)
</TABLE>
