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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 June 30, 1997
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 USA, INC.
(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 September 22, 1997.
Part I. Financial Information, Item 1. Financial Statements
Wilson Brothers USA, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1997 1996
Assets (In thousands)
Current assets
Cash and equivalents $ 388 $ 170
Receivables, less allowance of $143,000 in 1997
and $160,000 in 1996 1,126 1,059
Inventories 965 332
Note receivable, less valuation reserve of $ 0 in 1997
and $490,000 in 1996 490 -
Consulting agreements, less accumulated amortization of
$25,000 375 -
Other 171 74
Total current assets 3,515 1,635
Intangible assets
Goodwill, less accumulated amortization of $1,000 123
-
Non-compete agreements, less accumulated amortization of $5,000
218 -
Properties, at cost 2,659 2,285
Less accumulated depreciation (1,958) (1,922)
Properties, net 1,042 363
$ 4,557 $1,998
Liabilities and Stockholders' Deficiency
Current liabilities:
Short term borrowings and current portion of notes payable $
408 $ 140
Accounts payable 1,736 705
Accrued salaries and other employee costs 244 259
Environmental reserve 820 820
Accrued interest due affiliates 467 415
Accrued interest due to others 118 84
Due to affiliates 1,230 1,230
Other current liabilities 161 217
Total current liabilities 5,184 3,870
Notes payable to affiliates 1,244 1,244
Notes payable to others 1,279 256
Other liabilities 639 639
3,162 2,139
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 (23) (23)
Accumulated deficit (14,551) (14,773)
Total stockholders' deficiency (3,789) (4,011)
$4,557 $1,998
See accompanying notes to consolidated financial statements.
Wilson Brothers USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(In thousands except per share amounts)
Net sales $2,370 $1,534 $3,387 $2,699
Cost of sales 1,833 1,127 2,703 2,082
Selling, general and administrative expenses 528 371 8
82 679
2,361 1,498 3,585 2,761
Income (loss) from operations 9 36 (198) (62)
Other expense (income):
Interest expense - affiliates 26 31 51
61
Interest expense 47 (7) 57 -
Other, net (510) (14) (528) (23)
(437) 10 (420) 38
Income (loss) from operations before
provision for income taxes 446 26 222
(100)
Provision for income taxes - - - -
Net income (loss) 446 26 222 (100)
Accumulated deficit - beginning (14,773) (14,841) (
14,773) (14,715)
Accumulated deficit - ending $(14,327) $ (14,815) $(
14,551) $ (14,815)
Income (loss) per share $ 0.11 $ 0.01 $0.05 $(
0.03)
See accompanying notes to consolidated financial statements.
Wilson Brothers USA, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
1997 1996
(In thousands)
Cash flows from operating activities:
Net income (loss) $222 $(100)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Reverse valuation reserve on notes receivable(490) -
Gain on sale of equipment - (6)
Depreciation and amortization 43 32
Decrease (increase) in receivables, net 193 (132)
Increase in inventories (372) (36)
Increase in other current assets (468) (23)
(Increase) decrease in accounts payable 935 (56)
(Increase) decrease in accrued salaries and
other current liabilities 15 (76)
Net cash provided by (used in) operating activities 78
(397)
Cash flows used in investing activities:
Acquisition of businesses net of cash acquired (1,089)
- -
Proceeds from sale of equipment - 6
Capital expenditures (9) (10)
Net cash used in investing activities (1,098) (4)
Cash flows from financing activities:
Repayment of long-term debt - (2)
Increase in short-term borrowings 258 98
Increase in notes payable 980
Increase in due to majority owners - 61
Net cash provided by financing activities 1,238
157
Net increase (decrease) in cash and equivalents 218
(244)
Cash and equivalents at beginning of period 170 428
Cash and equivalents at end of period $ 388$ 184
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 USA, Inc. (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, 1996.
The Company is a holding company whose business is conducted
through its wholly-owned subsidiaries, Numo Manufacturing
Acquisition, Inc. ("Numo") and Houze Glass Company
("Houze"), and its 90 percent owned subsidiary, LM Plastics,
Inc. ("LMP"). All subsidiaries operate in the specialty
advertising business and engage in the decoration of glass
and ceramic items, cloth and vinyl bags, and visor style
caps. Their 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 majority-owned subsidiaries. All
significant intercompany items and transactions have been
eliminated in consolidation.
Income (loss) per Share
Income per share has been calculated using 4,227,976
weighted average number of outstanding shares of common
stock with includes the dilutive effect of 956,937
equivalent shares issuable upon conversion of the notes
referred to in Note 6.
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.
The Financial Accounting Standards Board has issued a new standard,
"Earnings per Shar e" (SFAS 128"). SFAS 128 provides for revisions
to the current method of calculating earnings per share and for the
disclosure of certain information about the capital
structure of the reporting entity. SFAS 128 will become
effective on December 15, 1997; early adoption is not
permitted. The Company does not believe that the new
pronouncement will impact its present calculation of
earnings per share.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 129, "Disclosure of Information about Capital
Structure", which is effective for periods after December
15, 1997. The Statement established standards for
disclosing information about an entity's capital structure.
The adoption of SFAS 129 is not expected to have a material
impact on the Company's disclosures.
In June 1997, the Financial Accounting Standards Board
issued SFAS 130, "Reporting Comprehensive Income", which is
effective for periods beginning after December 15, 1997.
The Statement requires businesses to disclose comprehensive
income and its components in their general-purpose financial
statements, with reclassification of comparative (earlier
period) financial statements. The adoption of SFAS 130 is
not expected to have a material impact on the Company's
disclosures.
In June 1997, the Financial Accounting Standards Board
issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for
periods beginning after December 15, 1997. The Statement
redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information
about a company's operating segments. The adoption of SFAS
131 is not expected to have a material impact on the
Company's disclosures.
(2) Note Receivable
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 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 believed that the principal amount of
the Note and accrued interest thereon was not collectible,
and therefore had made a full valuation reserve in the March
31, 1997 and December 31, 1996 financial statements in the
amount of $490,000 for principal, plus $6,000 for accrued
interest. On July 1, 1997, the principal and accrued
interest on the Note were paid in full in the aggregate
amount of $539.700, including accrued interest of $6,200 and
$43,500 representing 30 percent of the amount that the
Company shall be entitled to receive if the Mortgaged
Property is sold in excess of $750,000. As a result, as of
June 30, 1997, the valuation reserve for principal of
$490,000 and interest of $6,000 were reversed, and included
in other income and interest income, respectively.
(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:
June 30, December 31,
1997 1996
Raw materials $ 832,000 $313,000
Work in process 70,000 -
Finished goods 63,000 19,000
$965,000 $332,000
(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 $50,000
Certificate of Deposit from Fay Penn Economic Development
Council and $160,000 of Certificates of Deposit from the
Company, and are guaranteed by the Company and Mr. Sanford,
the Company's Chief Executive Officer. The revolving line
of credit facility maturity was extended from December 31,
1995 to December 31, 1997 with a limit of $500,000. No
assurances can be given as to the success of obtaining an
extension or refinancing subsequent to December 31, 1997. A
failure by Houze to renegotiate such credit facility would
have a material adverse effect on the Company.
(6) Notes Payable to Affiliates and Others
Notes payable to majority owners as of June 30, 1997 and
December 31, 1996 in the aggregate amount of $1,500,000
bears interest at the prime rate and is convertible to
956,937 shares of the Company's common stock. In December
1994, Warren B. Kanders made a gift of his 25% interest in
the Note to a charitable foundation 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 then Vice President and Chief Financial Officer,
acquired a $362,500 interest in such convertible note. As a
result, Mr. Sanford may be deemed 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. On April 21, 1996, Mr. Bruce Paparella, the
Company's President, Chief Executive Officer and a Director
died from cancer. On September 6, 1996, in a private
transaction, the Estate of Mr. Paparella sold to Mr. Sanford
a 37.5% interest in such Note in the principal sum of
$562,500, which is convertible into 358,852 shares of the
Company's Common Stock. On November 22, 1996, in a private
transaction, Mr. Sanford made gifts to a non-affiliated
person of $56,250 principal amount and accrued interest of
the Convertible note which is convertible into 35,886 shares
of the Company's Common Stock. On February 13, 1997, in a
private transaction, Choate Rosemary Hall Foundation, Inc.
sold to Mr. Sanford pursuant to a Note and Accounts
Receivable Purchase Agreement (i) their interest of
$375,000 principal amount of the Convertible Note, which is
convertible into 239,234 shares of the Company's Common
Stock, and (ii) their interest in the Accounts Receivable
for an aggregate purchase price of $200,000. On August 12,
1997, in private transactions, Mr. Sanford pursuant to
separate Note and Accounts Receivable Purchase Agreements
sold his interest in $375,000 principal amount and accrued
interest of the Convertible Note and $307,500 in the
Accounts Receivable for an aggregate amount of $113,227. Of
this amount, $187,000 principal amount and accrued interest
on the Convertible Note and 12.5% interest in the Accounts
Receivable were purchased by Carucci Family Partners, (the
"Partnership" ) in which Mr. Walter P. Carucci is a general
partner, for $55,222. As a result of the above transaction,
Mr. Carucci may be considered the beneficial owner of an
aggregate of $387,500 of the Convertible Note convertible
at any time into 247,209 shares of the Company's Common
Stock, constituting 6.9% of the Company's Common Stock,
consisting of (i) $200,000 of the Convertible Note
convertible into 127,592 shares of Common Stock previously
owned by Mr. Carucci, and (ii) $187,500 of the Convertible
Note convertible into 119,617 shares of Common Stock owned
by the Partnership. As a result of the above transactions,
as of August 12, 1997, Mr. Sanford is the beneficial holder
of (i) $868,750 of the Convertible Note convertible at any
time into approximately 554,226 shares of Common Stock, and
(ii) 1,544,653 shares of the Company's Common Stock,
constituting approximately 49.6 percent of the Company's
outstanding Common Stock.
In connection with the acquisition of certain assets and
liabilities of Numo Manufacturing Company, Inc. and Diamond
Cap Company, Numo entered into promissory notes ("Purchase
Notes") in the aggregate principal amount of $855,000 and
$200,000 payable pursuant to non-compete agreements,
described as follows. The Purchase Notes and amounts
payable under the non-compete agreements bear interest
initially at the rate of 8% per annum subject to adjustment
on each April 1 and October 1, with the first adjustment to
occur on October 1, 1997. On the first adjustment date
(October 1, 1997), the interest rate will be adjusted by an
amount equal to 50% of the increase, if any, between the
prime rate published in The Wall Street Journal on October
1, 1997 and May 1, 1997. On each adjustment date
thereafter, the interest rate shall be increased or
decreased (but not below 8% per annum or above 11% per
annum) by an amount equal to 50% of the difference between
the prime rate published by The Wall Street Journal on the
adjustment date in question and the immediately preceding
adjustment date. Principal and interest payable on the
Purchase Notes and under the non-compete agreements will be
paid on the first day of each January, April, July and
October, commencing on July 1, 1997. The entire unpaid
principal balance on all such obligations shall be due and
payable April 1, 2004. The Purchase Notes are secured by a
pledge of substantially all of the acquired assets. In
addition, payment of the Purchase Notes is guaranteed by the
Company.
In order to finance the cash portion of the purchase price
and the consulting fees paid at the time of the closing, the
Company borrowed $550,000 from an entity which is wholly-
owned by members of the family of John Sanford, the
Company's President, of which Mr. Sanford is a less than 1%
owner. The loan bore interest at the annual rate of 10
percent and the outstanding principal balance was repaid in
full, with interest on July 9, 1997 using the proceeds
collected from the Northern Note.
LMP has a promissory note payable to a bank in the original
principal amount of $70,000, repayable over 7 years with
interest calculated at 1 percent over the bank's prime
interest rate, the payment of principal of which is
indemnified by Mr. Sanford. The note is due on February 22,
2002.
(7) Commitments and Contingencies
The Company has incurred losses from operations and as of
June 30, 1997, the Company had an accumulated deficit of
$14.6 million and a consolidated working capital deficit of
$1.7 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, integrating its
acquisitions effectively, 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. On July 1, 1997,
PDER granted Houze an extension in the consent order until
September 30, 1997. The Company is currently negotiating
with PDER further extension in 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 June 30, 1997 the reserve balance was
$820,000.
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 six months ended June 30, 1997 and the
years ended December 31, 1996 and 1995, $ 0, $25,000 and
$41,000, 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.
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.
(8) Acquisitions
On April 9, 1997, the Company entered into a stock purchase
agreement with G&L Consultants, Inc. to purchase a 90
percent ownership, represented by 171,000 shares of the
outstanding common stock of LMP, a North Carolina
corporation with its principal office in Shelby, North
Carolina. The purchase price for the common stock consisted
of the payment of $1, plus a personal indemnity by Mr.
Sanford to G&L Consultants, Inc. for the payment of a
promissory note from LMP to a bank in the original principal
amount of $70,000. The Company has the option to purchase
at any time, or after 3 years is obliged to purchase at the
request of G&L Consultants, Inc., the remaining 10 percent
outstanding shares for the amount of $10,450, with such
price increasing at an annual rate of 20 percent for each
month after April 9, 1997. The acquisition is accounted for
using the purchase method of accounting, of which the
purchase price over net assets acquired is expected to be
insignificant. The pro forma effect on prior periods'
results of operations is not material.
On April 30, 1997, Numo, a newly formed wholly-owned
subsidiary of the Company, purchased certain assets and
assumed certain liabilities of Numo Manufacturing Company,
Inc. and its wholly-owned subsidiary Diamond Cap Company,
Inc. (the "Seller"), each of which has principal offices in
Mesquite, Texas. The aggregate purchase price for the
acquired assets of both companies and covenants not to
compete given by the Seller and their shareholders, was
$1,100,000 consisting of $45,000 paid in cash and the
execution and delivery of promissory notes ("Purchase
Notes") in the aggregate principal amount of $855,000 and
$200,000 payable pursuant to non-compete agreements,
described as follows. The Purchase Notes and amounts
payable under the non-compete agreements bear interest
initially at the rate of 8% per annum subject to adjustment
on each April 1 and October 1, with the first adjustment to
occur on October 1, 1997. On the first adjustment date
(October 1, 1997), the interest rate will be increased by an
amount equal to 50% of the increase, if any, between the
prime rate published in The Wall Street Journal on October
1, 1997 and May 1, 1997. On each adjustment date
thereafter, the interest rate shall be increased or
decreased (but not below 8% per annum or above 11% per
annum) by an amount equal to 50% of the difference between
the prime rate published by The Wall Street Journal on the
adjustment date in question and the immediately preceding
adjustment date. Principal and interest payable on the
Purchase Notes and under the non-compete agreements will be
paid on the first day of each January, April, July and
October, commencing on July 1, 1997. The entire unpaid
principal balance on all such obligations shall be due and
payable April 1, 2004. The Purchase Notes are secured by a
pledge of substantially all of the acquired assets. In
addition, payment of the Purchase Notes is guaranteed by the
Company. Numo also entered into consulting agreements with
the two shareholders of the Seller for a term of one year
pursuant to which Numo paid each of such consultants
$224,000 on May 1, 1997.
In order to finance the cash portion of the purchase price
and the consulting fees paid at the time of the closing, the
Company borrowed $550,000 from an entity which is wholly-
owned by members of the family of John Sanford, the
Company's President, of which Mr. Sanford is a less than 1%
owner. The loan bore interest at the annual rate of 10
percent and the outstanding principal balance was repaid in
full, with interest on July 9, 1997. The Company paid an
origination fee to the lender in the amount of $3,500 and an
additional loan origination fee in the amount of $30,000 is
payable on or before May 1, 1998. At the option of the
lender exercisable before May 1, 1998, in lieu of receiving
payment of the $30,000 additional origination fee, the
lender shall have the right to purchase the number of shares
of Common Stock of the Company equal to 3% of the Company's
fully diluted shares of Common Stock at the time of such
election or a cash fee of $10,000 and 2% of the Company's
fully diluted shares of Common Stock at the time of such
election or a cash fee of $20,000 and 1% of the Company's
fully diluted shares of Common Stock at the time of such
election, provided the Company has sufficient shares of
Common Stock which are then authorized and unissued
available for purchase by the lender.
Numo continues the pre-existing business activities of Numo
Manufacturing Company, Inc. and Diamond Cap Company, Inc. at
the same premises in Mesquite, Texas for which it entered
into a lease agreement with one of the selling entities for
a term of 7 years at an annual base rent of $76,000.
Numo's primary business activity is custom manufacturing,
sewing and decorating of a variety of cloth and vinyl bags
and related accessories and visor style caps. Similarly to
Houze Glass Corporation, Numo's sales are made through sales
representatives and are generally for advertising
specialties, premiums, souvenirs and the retail trade.
The acquisition was accounted for using the purchase method
of accounting and, accordingly, the consolidated financial
statements include Numo's operations from the date of
acquisition. The amounts paid in connection with consulting
agreements of $448,000 are being amortized over the terms of
such agreements, which is 12 months. The amounts paid for
covenants not to compete of $224,000 are being amortized
over the terms of those agreements, which is 7 years. The
Company allocated the remaining excess of purchase price
over net assets acquired, which is approximately $95,000 to
goodwill which is being amortized over 20 years.
Acquisition costs incurred in connection with this purchase
transaction which consisted principally of professional and
borrowing fees, were not material. The following table sets
forth the unaudited pro forma combined condensed results of
operations for the year ended December 31, 1996 and for the
six months ended June 30, 1997, and assumes that the
foregoing purchase transaction had been consummated as of
January 1, 1996 and 1997, respectively. These pro forma
results are not necessarily indicative of the results that
would have been achieved had these acquisitions occurred on
the dates indicated or that may occur in the future.
6 months ended Year ended
June 30, 1997 December 31, 1996
Revenues $ 4,454 $9,315
Income (loss) $(104) $ 617
Net income (loss) $(104) $ 617
Income (loss) per share $(0.03) $(0.19)
(8) Other Matters
In May 1997, the Company learned that its state of
incorporation, Illinois, administratively dissolved the
Company for failure to file the State of Illinois Domestic
Corporation Annual Report for 1995 and 1996. In July 1997,
the Company filed with the Secretary of State of Illinois
for reinstatement retroactive to June 1, 1995, and amended
its name to Wilson Brothers USA, Inc. Effective August 20,
1997, the Company was notified by the State of Illinois that
its certificate of incorporation was reinstated.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition and Liquidity
Forward-Looking Statements
The following discussion contains certain forward-looking
statements with respect to anticipated results which are subject
to a number of risks and uncertainties. From time to time, the
Company may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects,
technological developments, new products, research and
development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provides safe harbor for
forward-looking statements. In order to comply with the terms of
the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. The risks
and uncertainties that may effect the operations, performance,
development and results of the Company's business include, among
other things, the following: business conditions and growth in
the Company's industry; general economic conditions; the addition
or loss of significant customers; the loss of key personnel;
product development; business acquisitions and joint ventures;
competition; fluctuations in foreign currency exchange rates;
rising costs of raw materials and the unavailability of sources
of supply; the timing of orders placed by the Company's
customers; failure by the Company's subsidiary, Houze, to
renegotiate its credit facility beyond the current expiry date of
December 31, 1997; and other risk factors listed from time to
time in the Company's quarterly reports.
The following discussion and analysis of financial condition
pertains primarily to Houze and Numo, 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 December 31, 1997. 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 $50,000 Certificate
of Deposit from Fay Penn Economic Development Council and
$100,000 Certificate of Deposit from the Company, and are
guaranteed by the Company and Mr. Sanford, the Company's Chief
Executive Officer. No assurances can be given as to the success
of obtaining an extension or refinancing subsequent to December
31, 1997. A failure by Houze to renegotiate such credit facility
beyond December 31, 1997 would have a material adverse effect on
the Company.
In order to finance the cash portion of the purchase price of
certain assets of Numo Manufacturing Company, Inc. and Diamond
Cap Company, Inc. and amounts for covenants not to compete and
the consulting fees paid at the time of the closing, the Company
borrowed $550,000 from an entity which is wholly-owned by members
of the family of John Sanford, the Company's President, of which
Mr. Sanford is a less than 1% owner. The loan bore interest at
the annual rate of 10 percent and the outstanding principal
balance was repaid in full, with interest on July 9, 1997. The
Company paid an origination fee to the lender in the amount of
$3,500 and an additional loan origination fee in the amount of
$30,000 is payable on or before May 1, 1998. At the option of
the lender exercisable before May 1, 1998, in lieu of receiving
payment of the $30,000 additional origination fee, the lender
shall have the right to purchase the number of shares of Common
Stock of the Company equal to 3% of the Company's fully diluted
shares of Common Stock at the time of such election or a cash fee
of $10,000 and 2% of the Company's fully diluted shares of Common
Stock at the time of such election or a cash fee of $20,000 and
1% of the Company's fully diluted shares of Common Stock at the
time of such election, provided the Company has sufficient shares
of Common Stock which are then authorized and unissued available
for purchase by the lender. The Company advanced the full amount
of the proceeds of such loan to Numo. In addition, Numo entered
into a lease agreement with one of the selling entities for a
manufacturing facility located at 700 Hickory Tree Road,
Mesquite, Texas for a term of 7 years at an annual base rent of
$76,000.
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, integrating its
acquisitions effectively, 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
The results of operations for the six months ended June 30, 1997
include the operations of two newly acquired subsidiaries, Numo
and LMP since their respective dates of acquisition of April 30,
1997 and April 9, 1997.
Six Months Ended June 30, 1997 Compared with the Six Months Ended
June 30, 1996
Sales during the six month period increased $688,000 of which
$589,000 is attributable to Numo and LMP. Cost of sales and
selling, general and administrative expenses increased
approximately $621,000 and $203,000, of which $450,000 is
attributable to the respective cost of sales, and $182,000 is
attributable to the respective selling, general and
administrative expenses of Numo and LMP.
Net sales of Houze increased $99,000 in the six months ended June
30, 1997, as compared with the six months ended June 30, 1996.
This increase was due to a volume increase of mug unit sales of
540,000 and a price per unit decrease of $.17.
Other income includes the reversal of a $490,000 note valuation
reserve provision resulting from the collection of such principal
amount and interest thereon in July 1997.
Interest expense increased during the period resulting from
additional acquisition related indebtedness.
Three Months Ended June 30, 1997 Compared with the Three Months
Ended June 30, 1996
Sales during the three month period increased $836,000 of which
$589,000 is attributable to the sales of Numo and LMP. Cost of
sales and selling, general and administrative expenses increased
approximately $706,000 and $157,000, of which $450,000 is
attributable to the respective cost of sales, and $182,000 is
attributable to the respective selling, general and
administrative expenses of Numo and LMP.
Net sales of Houze increase $247,000 in the three months ended
June 30, 1997, as compared with the three months ended June 30,
1996. This increase was due to a volume increase of mug unit
sales of 550,000 and a price per unit decrease of $.34.
Other income includes the reversal of a $490,000 note valuation
reserve provision resulting from the collection of such principal
amount and interest thereon in July 1997.
Interest expense increased during the period resulting from
additional acquisition related indebtedness.
Wilson Brothers USA, Inc. and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Certificate of Resolution to Amend the Articles of
Incorporation as to change of name from Wilson Brothers to Wilson
Brothers USA, Inc.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during
the three months ended June 30, 1997.
Wilson Brothers USA, Inc. 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 USA, Inc.
Date: October 23, 1997By: /s/
John Sanford
John Sanford
President
Item 6. Exhibit
CERTIFICATE OF RESOLUTION
The undersigned, acting as a secretary of the meeting of a
Board of Directors of Wilson Brothers, certifies that the
following action was taken at such meeting.
RESOLVED, that the name of the corporation be changed from
Wilson Brothers to Wilson Brothers USA, Inc. and that Articles of
Amendment be filed with the State of Illinois to effect such a
name change; and further, that John H. Sanford is authorized to
execute said Articles on behalf of the corporation.
Dated as of: July 31, 1997 _________________________
JOHN H. SANFORD,
Secretary of Meeting
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