SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THIS SECURITIES
0F THE EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999 Commission file number 1-6775
HOWARD B. WOLF, INC.
(Exact name of registrant as specified in its charter)
Texas 75-0847571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3710 Rawlins Street, Suite 970, Dallas, Texas 75219-4238
(Address of principal executive offices) (Zip Code)
(214) 252-0124
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.331/3 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 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.
The aggregate market value of Registrant's common stock held by
non-affiliates (based upon the closing sale price on the American
Stock Exchange) on August 6, 1999 was approximately $2,410,372.
As of August 6, 1999, there were 1,056,191 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting
of Stockholders on September 21, 1999 are incorporated by reference
into Part III.
<PAGE>
HOWARD B. WOLF, INC.
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED MAY 31, 1999
PART I
Item 1. Business
General
Howard B. Wolf, Inc. (the "Company") was incorporated under the
laws of the State of Texas in 1952. Prior to May 6, 1999 the Company
designed, manufactured and sold women's fashion apparel consisting of
dresses, suits, shirts and coordinated groups of sportswear. These
fashions were marketed, primarily through independent sales
representatives, under the labels: HOWARD WOLF DRESSES, HOWARD WOLF
SPORTSWEAR, HOWARD WOLF W, ERNESTO W and PRET-A-PORTE. These products
were sold principally to better women's specialty stores and
department stores throughout the United States and in Canada and
Mexico. The Company designed and manufactured its products, using
domestic independent sewing contractors for most of its sewing
operations. Strict quality control was maintained giving the Company
an industry-wide reputation for providing outstanding quality and
service.
The Company has not conducted any on-going operations since May
6, 1999, when the Company's shareholders approved a Plan of
Liquidation and Dissolution at a special shareholder meeting. The
Company is expected to be fully liquidated by September 2002. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operation-FINANCIAL CONDITION-Liquidity and Capital
Resources".
Employees
As of May 31, 1999 the Company had five full-time and three part-
time employees. From February through May 31, 1999 all other
employees severed their employment with the Company as their
particular job function was completed. One week of vacation pay was
paid to each full-time employee together with severance pay which was
based on one weeks pay for each year of service up to a maximum of
ten. In order to retain employees until their specific job function
was completed, the employee retained was paid a bonus equal to fifty
percent of their regular pay during the extended period. The total
amount paid for vacation, severance and continuing bonus to all
employees was approximately $350,000. The Company had no employees
represented by a union and believes that it always enjoyed good
relations with its employees.
<PAGE>
Item 2. Properties
On March 16, 1999 a sale of the Company's principal office and
manufacturing facility at 3809 Parry Avenue, Dallas, Texas was
executed and a leaseback of the facility was entered into for the
period March 16, 1999 through June 30, 1999. Effective June 24, 1999
an office of approximately 1,000 square feet was leased for three
years, through June 30, 2002, in order to complete the liquidation and
dissolution of the Company.
The Company sold the facility it owned in Greenville, Texas, in
February 1999 which was leased to a nonrelated entity and was shown in
the balance sheet as property, plant and equipment not used in
operations.
The Company had one short-term lease of a permanent showroom in
the Apparel Mart in Atlanta at May 31, 1999. This lease was
cancelled effective July 31, 1999 and the Company has no further
rights or liability in the lease.
All of the machinery, equipment, furniture and fixtures used in
the operation of the business were either sold or disposed of by May
31, 1999 except for three desks, eleven file cabinets and four
personal computers required in the new office in order to complete
the liquidation and dissolution of the Company.
Item 3. Legal Proceedings
The Company is not involved in any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
A special shareholders meeting was held May 6, 1999 where the
shareholders voted to adopt the Plan of Liquidation and Dissolution of
the Company. Out of the 72.7 percent of the shareholders voting,
72.4 voted FOR the adoption of the Plan and .3 percent voted AGAINST
the adoption of the Plan.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matter
The common stock of the Company is traded on the American Stock
Exchange. The following table gives the high and low sales prices and
the amount of dividends paid for the fiscal quarters indicated:
1999 Date ended High Low Dividend
First quarter August 31, 1998 $5 3/4 $5 1/4 $ .08
Second quarter November 30, 1998 5 7/16 4 3/8 .08
Third quarter February 28, 1999 4 5/8 3 1/8 -
Fourth quarter May 31, 1999 4 1/2 3 1/2 -
1998 Date ended High Low Dividend
First quarter August 31, 1997 $6 1/2 $5 3/8 $ .08
Second quarter November 30, 1997 6 1/2 5 13/16 .08
Third quarter February 28, 1998 6 1/4 5 1/2 .08
Fourth quarter May 31, 1998 6 1/4 5 1/2 .08
The Company's common stock closed at $4.00 on August 6, 1999.
As of August 6, 1999, there were 220 holders of record of the
Company's common stock. The Company paid dividends during fiscal
years 1998 and the first two quarters of 1999. There are no
restrictions on the Company's ability to pay dividends other than
those provided by statute. The payment of dividends was reviewed each
period by the Board of Directors taking into consideration earnings,
business requirements and economic conditions. No dividends were
declared during the last two quarters of the fiscal year ended May 31,
1999 nor subsequent to May 31, 1999.
Item 6. Selected Consolidated Financial Data
The following table summarizes certain information contained in
or derived from the Consolidated Financial Statements and Notes
thereto.
(Not covered by Independent Auditors' Report)
<TABLE>
For the
period ended
June 1, 1998
through Fiscal years ended May 31,
May 5, 1999 1998 1997 1996 1995
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales $9,408 $14,322 $14,242 $15,213 $14,436
Income (loss) before
federal income tax (2,332) 626 1,004 1,332 1,220
Provision (credit) for
federal income tax (499) 224 370 460 431
Net income (loss) (1,833) 402 634 872 789
Basic and diluted
earnings(loss)per share (1.74) .38 .60 .83 .75
Cash dividends
per common share .16 .32 .32 .32 .30
Total assets 6,083 9,778 9,552 8,834 8,796
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
Liquidity and Capital Resources
The Plan of Liquidation and Dissolution ("the Plan") (set forth
in detail as APPENDIX A in the proxy material dated May 6, 1999 mailed
to all shareholders) was adopted by the shareholders on May 6, 1999 at
a duly called meeting.
On February 3, 1999 the Board of Directors recommended to the
shareholders that they adopt the Plan in order to preserve and
maximize shareholder value. The shareholders met May 6, 1999 and
voted to adopt the Plan as recommended by the directors. As a result
of the recommendation and approval of the Plan the Company did not
engage in any business activities except for completion of its
business and affairs and preserving the value of its assets. All
assets are to be sold under the plan, and all debts and liabilities,
whether fixed or contingent, will either be paid when due or be
provided for.
Under the Texas Business Corporation Act, Howard B. Wolf, Inc.
will continue as a corporate entity for a period of three years after
the effective date of the dissolution or for such longer period as the
Texas Court determines, for the purpose of completing its business and
affairs, but not for the purpose of continuing its business. During
this three year period the net assets will be distributed in
accordance with the Plan as soon as the Board of Directors, in its
sole judgment, deems to be prudent and in the best interests of the
shareholders.
As a result of the adoption of the Plan, after June 1, 1999 the
Company's income and expenses now consist principally of (i)
investment income on cash equivalents, (ii) collection of accounts and
notes receivable and (iii) corporate expenses, primarily salaries,
professional fees, office rent and expenses and necessary costs
related to winding up the affairs of the Company. During the period
of liquidation the directors and officers are authorized to implement
and carry out the provisions of the Plan and will receive compensation
for their services.
The Board of Directors plans to authorize a partial liquidating
distribution to shareholders of record on September 30, 1999 of $4.00
per share. This distribution is planned to be issued to shareholders
as soon as the federal income tax refund is received. At such time as
the Board has determined that all claims and liabilities have been
identified and paid or provided for, the Board will determine a record
date and issue a final liquidating distribution. As a result of the
implementation of the Plan it is probable that the American Stock
Exchange would delist the company's common stock.
<PAGE>
During the liquidating period, certain corporate expenses will
continue to be incurred and investment income will continue to be
earned on existing invested funds. The Board of Directors may
determine that the amount of funds available for ultimate distribution
to shareholders may be increased by transferring all of the Company's
remaining assets into a liquidating trust, in which case the trustees
would be responsible for liquidating all remaining assets, paying all
liabilities and making any distributions to the shareholders.
Based the following estimates the Company believes that its
future investment income and asset liquidations will exceed its
operating expenses and other costs during the liquidating period as
shown below.
<TABLE>
Proforma (unaudited)
Fiscal year ending May 31, 2000 2001 2002 Total
--------- ------- ------- ---------
<S> <C> <C> <C> <C>
Beginning cash balance $3,772,000 $339,000 $232,000 $3,772,000
Cash receipts:
Collection of receivables 575,000 75,000 25,000 675,000
Investment income 75,000 25,000 10,000 110,000
Tax refund 677,000 0 0 677,000
Miscellaneous receipts 70,000 0 0 70,000
--------- ------- ------- ---------
Total cash receipts 1,397,000 100,000 35,000 1,532,000
--------- ------- ------- ---------
Total cash available 5,169,000 439,000 267,000 5,304,000
Cash requirements:
Office operations
and expenses 70,000 40,000 32,000 142,000
Professional fees 40,000 25,000 15,000 80,000
Salaries 200,000 60,000 40,000 300,000
Shareholder/SEC/AMEX costs 20,000 10,000 10,000 40,000
Taxes and reserves 275,000 72,000 91,000 438,000
--------- ------- ------- ---------
Total cash requirements 605,000 207,000 188,000 1,000,000
--------- ------- ------- ---------
Cash available
for distribution 4,564,000 232,000 79,000 4,304,000
Distribution to shareholders 4,225,000 - 79,000 4,304,000
--------- ------- ------- ---------
Ending cash balance $ 339,000 $232,000 $ - $ -
========= ======= ======= =========
Inflation
Because of the Company's current plans to liquidate its assets,
pay all of its liabilities, distribute all of the remaining cash to
its shareholders and dissolve within the next three years, the effects
of inflation on the Company are believed to be minimal.
<PAGE>
Year 2000 Disclosure
The Company is working to resolve the potential impact of the
year 2000 on the ability of the Company's computerized information
systems to accurately process information that may be date-sensitive.
Any of the Company's programs that recognize a date using "00" as the
year 1900 rather than the year 2000 could result in errors or system
failures. Due to the liquidation and dissolution process, the Company
now utilizes only one computer system which is year 2000 compliant and
is obtaining year 2000 certifications from companies upon which it
relies for critical information. Management does not believe that its
very limited operations will be adversely impacted by year 2000
computer problems.
RESULTS OF OPERATIONS
1999 Compared to 1998
In 1952 Howard B. Wolf, Inc. began the designing, manufacturing
and marketing of the HOWARD WOLF label, which consisted primarily of
dresses for career and professional women who demanded smart,
fashionable clothes at a competitive price. The Company developed a
design staff and production facilities to insure the look and quality
of its products. Its primary market was better women's specialty
stores and department stores. HOWARD WOLF fashions carved out a
unique niche in the market place and became a prestigious label among
discriminating consumers. As consumer demand changed in the market
place, the Company introduced the HOWARD WOLF SPORTSWEAR label in
1972. Maintaining most of their profile and marketplace, the HOWARD
WOLF labels enjoyed much success. Additional labels - PRET-A-PORTE -
dresses and sportswear and ERNESTO W. blouses - were introduced in
1969 and 1976, respectively. In 1993, the HOWARD WOLF W label,
featuring dresses and sportswear in fashionable larger sizes, was
introduced. Due to a lack of sales volume, the three latter mentioned
labels were primarily relegated to serve certain stores that placed
special request orders.
In 1994 management recognized that the Company's traditional
target distribution channels, i.e. independent retail specialty
stores, were experiencing a decline in volume and that many were
opting to close their doors. The company engaged a consulting firm to
analyze all aspects of its operations and markets with a view to
reposition itself for growth over the next decade. Management
concluded that the best course of action was to continue to broaden
the Company's market base by gaining a greater penetration in selected
geographical territories and increase its marketing in Canada and
Mexico. In addition, steps were taken to develop chain and catalogue
distribution.
The desired volume was not achieved in these geographical
territories, and initial export distribution was soon reduced
dramatically by the peso devaluation in Mexico and the economic
downturn in Canada. However, the volume of such exports never made
any material contribution to the Company. The development of chain
and catalogue sales was moderately successful, but profit margins were
unacceptably low in this segment of business.
<PAGE>
In the 1980's the Company closed all of its non-headquarters'
factories in order to gain cost efficiencies and quicker turn-around
time in production. Independent sewing contractors were utilized
together with limited offshore production. In order to gain the cost
efficiencies considered necessary to be competitive in the
marketplace, the Company sought to take advantage of offshore
production.
In the mid-1990's, the Company continued to experience the
erosion of its primary marketplace as more and more independent
women's specialty stores closed and many of the remaining stores were
placing smaller and smaller orders. Changes in generational and
societal buying habits of women were among the reasons for the stores'
lower sales. Upon continued research and study, management determined
that it would be necessary to try to find a compatible company to
acquire or to merge with in order to gain both sales volume and the
efficiencies necessary to generate acceptable profit levels. In 1996,
the number one consulting firm in the apparel industry was engaged to
explore the entire marketplace, both domestic and international, for
the best candidate for acquisition or merger. After a two-year search
a compatible partner had not been found.
In 1997, the Company did extensive research on vertical retailing
and opened two pilot HOWARD WOLF outlet mall retail stores in premium
outlet malls in Napa, California and Las Vegas, Nevada. After
approximately a year and one-half of operations in Napa and
approximately eleven months of operations in Las Vegas, profitable
sales volumes were not achieved and both stores were closed.
Sales orders booked for the Fall 1998 season and the
Holiday/Cruise 1998 season continued to be below desired levels. The
Company's operation for the first quarter ended August 31, 1998 were
at a break-even profit level. Sales orders booked for the Spring 1999
season were approximately forty percent lower than in 1998. This
lower sales volume contributed to the Company's loss of $441,000 for
the quarter ended November 30, 1998.
Management again scrutinized all of the Company's business and
concluded that in the foreseeable future little change, if any, would
be forthcoming in its niche in the fashion industry. Many department
stores and discount volume stores became deeply entrenched in
obtaining their own private label brands thus making them direct
competitors. Management also noted that several apparel manufacturers
throughout the country were closing.
<PAGE>
With the amount of 1999 Spring and Summer orders booked, the
Company's loss from operations in the third quarter was projected to
be even greater than in the second quarter. Again, one more effort
was made to find a strategic partner. When this failed, management
recommended to the Board of Directors that in the best interests of
the shareholders, the Company should meet its obligations to its loyal
customers by completing the production and shipment of the 1999 Spring
and 1999 Summer seasons and then present to the shareholders a Plan of
Liquidation and Dissolution. After intense study and research, the
Board of Directors approved a press release to inform the shareholders
and financial community of the decision to recommend a Plan to the
shareholders and to take the necessary action to call a special
shareholders meeting. The meeting was duly called and held May 6,
1999 wherein the shareholders voted to adopt the Plan of Liquidation
and Dissolution as recommended by the Board of Directors.
In February 1999, the Company sold its facility in Greenville,
Texas for $237,000. This facility had been leased to a non-related
entity and was not used in the Company's operations.
The Company entered into a contract to sell its Parry Avenue
property in Dallas, Texas in February 1999 to an unrelated buyer for
$1,700,000 cash. This transaction closed on March 16, 1999 at which
time the Company leased back the property until June 30, 1999.
On February 16, 1999, the Company entered into a purchase
agreement (the "Purchase Agreement") with Jean St. Germain, a
California corporation ("JSG") pursuant to which the Company agreed to
sell JSG all of the assets necessary to produce salesman's samples of
the Howard Wolf Fall 1999 collection and its intellectual property
(all trademarks and labels) for $250,000. All conditions of the sale
have been met by the company and the company has received $75,000 of
the sales price, with the remaining $175,000 to be paid by the end of
November 1999.
The Company had net sales of $9,591,388 and incurred a loss
before federal income tax of $2,754,739, and a net loss of $2,255,416,
or a basic and diluted loss per share of $2.14 during the fiscal year
ended May 31, 1999. This compares to fiscal year ending May 31,
1998 net sales of $14,321,914, income before federal income tax of
$626,398 and net income of $401,921, or basic and diluted earnings per
share of $.38. The results of operations for fiscal year ended May
31, 1999 compared to fiscal year ended May 31, 1998 reflect the
adoption and implementation of the Plan of Liquidation and Dissolution
adopted by the shareholders on May 6, 1999.
1998 Compared to 1997
Net income for the fiscal year ended May 31, 1998 was $401,921,
or $.38 per share, compared to $633,588, or $.60 per share in the
1997 fiscal year. Income before federal income tax was $626,398 in
1998 versus income before federal income tax of $1,004,079 in 1997.
<PAGE>
Net sales totaled $14,321,914 for the 1998 fiscal year,
approximately one-half of one percent over the previous year. Sales
to retail customers were $13,834,387. First year net sales in the
"factory" outlet mall stores were $487,527 and operations resulted in
a loss of $233,340.
Cost of sales increased .3 percent to 66.2 percent as a
percentage relationship to net sales. The percentage increase
resulted primarily from product sales mix and increased sales
allowances.
Selling, general and administrative expenses increased
approximately two percentage points as a percentage relationship to
net sales. The percentage increase resulted primarily from the
operations of the "factory" outlet mall stores. The provision for bad
debt expense increased to $137,969 from $127,491 in 1997.
Other income decreased approximately nineteen percent, primarily
due to lower rental income from property not used in operations.
Interest income decreased approximately twenty eight percent,
primarily due to lower average cash balances.
Interest expense increased approximately eighteen percent,
primarily due to interest costs on extended terms granted on customer
accounts.
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Management 9
Independent Auditors' Report 10
Consolidated Statement of Net Assets
in Liquidation at May 31, 1999 11
Consolidated Statement of Changes in Net
Assets in Liquidation for the period
May 6, 1999 through May 31, 1999 12
Consolidated Balance Sheet at May 31, 1998 13
Consolidated Statements of Operations and Retained
Earnings for the period June 1, 1998 through
May 5, 1999 and the years ended May 31, 1998 and 1997 14
Consolidated Statements of Cash Flows for the
period June 1, 1998 through May 5, 1999 and
the years ended May 31, 1998 and 1997 15
Notes to Consolidated Financial Statements 16-22
Consolidated Schedules for the years ended
May 31, 1999, 1998 and 1997:
II-Allowance for Collection Losses and Discounts 23
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission
of the schedule or because the information required is included in the
consolidated financial statements and notes thereto.
<PAGE>
Report of Management
Management is responsible for the consolidated financial statements
and all information in this annual report. The statements have been
prepared in conformity with generally accepted accounting principles.
Financial information elsewhere in this report is consistent with that
in the consolidated financial statements. The consolidated statements
have been audited by Lane Gorman Trubitt, L.L.P., independent
auditors. Their role is to express an opinion as to whether
management's financial statements, considered in their entirety,
present fairly the Company's financial position, operating results and
cash flows.
Management maintains and relies on systems of internal accounting
controls designed and intended to provide reasonable assurance that
assets are safeguarded from loss or unauthorized use and that
transactions are executed in accordance with management's
authorization and are properly recorded. These systems are tested and
evaluated by management as well as by the independent auditors in
connection with their annual audit.
The Board of Directors selects an Audit Committee composed of two
directors. The committee meets periodically with the independent
auditors to review the scope and results of the audit, principles
applied in financial reporting, and financial and operational
controls. The independent auditors and corporate accountants have
free access to the audit committee, who are not employees of the
company. On the recommendation of the Audit Committee, the Board of
Directors selects and engages the independent auditors.
/s/Eugene K. Friesen
Eugene K. Friesen
Senior Vice President and Treasurer
Chief Financial Officer
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Howard B. Wolf, Inc.
We have audited the accompanying consolidated statement of net
assets in liquidation of Howard B. Wolf, Inc. and subsidiaries at May
31, 1999, the related consolidated statement of changes in net assets
in liquidation for the period May 6, 1999 to May 31, 1999 and the
consolidated statements of operations and retained earnings and cash
flows for the period June 1, 1998 through May 5, 1999 (pre-
liquidation). In addition, we have audited the accompanying
consolidated balance sheet at May 31, 1998 and the related
consolidated statements of operations and retained earnings and cash
flows for each of the years in the two-year period ended May 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As described in the "Summary of Accounting Policies" footnote to the
consolidated financial statements, the shareholders of Howard B, Wolf,
Inc. approved a plan of liquidation and dissolution on May 6, 1999 and
the Company commenced liquidation on that date. As a result, the
Company has changed its basis of accounting for periods subsequent to
May 5, 1999 to the liquidation basis of accounting. Accordingly, the
carrying values of the remaining assets at May 31, 1999 are presented
at estimated realizable values and all liabilities are presented at
estimated settlement amounts.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated net
assets in liquidation of Howard B. Wolf, Inc. and subsidiaries at May
31, 1999, the changes in its consolidated net assets in liquidation
from May 6, 1999 to May 31, 1999, the results of its operations and
its cash flows for the period June 1, 1998 to May 5, 1999, the
financial position of Howard B. Wolf, Inc. and subsidiaries at May 31,
1998, and the results of its consolidated operations and its cash
flows for each of the years in the two-year period ended May 31, 1998,
in conformity with generally accepted accounting principles applied on
the bases described in the preceding paragraph.
We have also audited Schedule II of Howard B. Wolf, Inc. and
subsidiaries for the years ended May 31, 1999, 1998 and 1997. In our
opinion, this Schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ Lane Gorman Trubitt, L.L.P.
Lane Gorman Trubitt, L.L.P., Certified Public Accountants
Dallas, Texas
July 29, 1999
<PAGE>
</TABLE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENT OF NET ASSETS
May 31, 1999
<S> <C>
ASSETS
Cash and cash equivalents $3,771,529
Accounts and note receivable - net 941,597
Prepaid expenses 34,199
Refundable federal income tax 676,624
Property and equipment - net 13,870
Other assets 51,957
---------
Total assets 5,489,776
LIABILITIES
Accounts payable and accrued liabilities 185,911
---------
Net assets in liquidation at May 31, 1999 $5,303,865
=========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
For the Period
May 6, 1999 through May 31, 1999
<S> <C>
Revenues
Net sales $ 183,266
Interest income 16,816
---------
200,082
Costs and expenses
Cost of sales 281,123
Selling, general and
administrative expenses 304,693
Provision for bad debt expense 33,349
Interest expense 2,843
---------
622,008
---------
Decrease in net assets for the period (421,926)
Net assets at May 5, 1999 5,725,791
---------
Net assets at May 31, 1999 $5,303,865
=========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED BALANCE SHEET
May 31, 1998
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $1,128,991
Accounts receivable - net 2,530,137
Inventories 4,620,568
Prepaid expenses 159,322
Refundable federal income tax 112,813
Deferred federal income tax 234,000
---------
8,785,831
---------
Property, plant and equipment 2,494,332
Less accumulated
depreciation and amortization (1,555,118)
---------
939,214
Plant and equipment
not used in operations - net 678
Other assets 51,957
---------
$9,777,680
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $1,975,408
Deferred federal income tax 74,000
Shareholders' equity:
Common stock, par $.33 1/3; 3,000,000
shares authorized; 1,081,191 shares issued 360,400
Additional paid-in capital 2,034,088
Retained earnings 5,433,784
Less common stock in treasury,
at cost, 25,000 shares (100,000)
---------
7,728,272
---------
$9,777,680
=========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
June 1, 1998
through Fiscal years ended
May 5, 1999 May 31, 1998 May 31, 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net sales $9,408,122 $14,321,914 $14,242,066
Costs and expenses:
Cost of sales 9,632,812 9,487,555 9,392,340
Selling, general and
administrative expenses 3,033,892 4,127,553 3,820,471
Provision for bad
debt expense 207,275 137,969 127,491
--------- ---------- ----------
12,873,979 13,753,077 13,340,302
--------- ---------- ----------
Income (loss) from operations (3,465,857) 568,837 901,764
Loss on abandonment of assets (9,366) - -
Gain on sale of assets 1,111,178 - -
Other income 38,023 43,881 64,591
Interest income 32,514 48,813 67,399
Interest expense (39,305) (35,133) (29,675)
--------- ---------- ----------
Income (loss) before
federal income tax (2,332,813) 626,398 1,004,079
(Provision) credit
for federal income tax 499,323 (224,477) (370,491)
--------- ---------- ----------
Net income (loss) (1,833,490) 401,921 633,588
Retained earnings-
beginning of period 5,433,784 5,369,844 5,074,237
Cash dividends (168,991) (337,981) (337,981)
--------- ---------- ----------
Retained earnings-end
of period $3,431,303 $5,433,784 $5,369,844
========= ========= =========
Average number of
shares outstanding 1,056,191 1,056,191 1,056,191
========= ========= =========
Basic and diluted
earnings (loss) per share $(1.74) $.38 $.60
========= ========= =========
Dividends paid per share $.16 $.32 $.32
========= ========= =========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
June 1, 1998
through Fiscal years
May 5, 1999 May 31, 1998 May 31, 1997
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss) $(1,833,490) $ 401,921 $ 633,588
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities-
Depreciation and amortization 170,259 174,605 150,067
Provision for losses
on accounts receivable 207,275 137,969 127,491
Change in deferred
federal income tax 160,000 (20,000) (41,000)
Abandonment of assets 9,366 8,131 -
Gain on sale of property,
plant and equipment (1,111,178) - -
Net changes in operating
assets and liabilities-
Accounts and note receivable 1,564,531 (252,862) (565,937)
Inventories 4,620,568 (804,915) 331,633
Prepaid expenses 125,123 1,671 (626)
Refundable federal income tax (563,811) (112,813) -
Accounts payable and
accrued liabilities (1,798,096) 202,421 350,163
Federal income tax payable - (40,635) 76,573
---------- --------- ---------
Net cash provided by (used in)
operating activities 1,550,547 (304,507) 1,061,952
Cash flows from investing activities:
Other assets - (860) (1,432)
Additions to property,
plant and equipment (18,200) (149,076) (63,111)
Sale of property,
plant and equipment 1,864,034 - -
---------- --------- ---------
Net cash provided by (used
in) investing activities 1,845,834 (149,936) (64,543)
<PAGE>
Cash flows from
financing activities:
Cash dividends paid (168,991) (337,981) (337,981)
---------- --------- ---------
Net cash used in
financing activities (168,991) (337,981) (337,981)
---------- --------- ---------
Net increase(decrease) in cash
and cash equivalents 3,227,390 (792,424) 659,428
Cash and cash equivalents
at beginning of period 1,128,991 1,921,415 1,261,987
---------- --------- ---------
Cash and cash equivalents
at end of period $ 4,356,381 $1,128,991 $1,921,415
========== ========= =========
See accompanying notes
</TABLE>
<PAGE>
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business
Prior to May 6, 1999 the Company designed, manufactured and sold
women's fashion apparel primarily to retail clothing stores in the
United States. On February 3, 1999 the Board of Directors recommended
a Plan of Liquidation and Dissolution to the shareholders who adopted
the Plan at a duly called meeting on May 6, 1999. Subsequent to May
6, 1999 the Company has not engaged in any business activities except
to complete the affairs of the Company, liquidate the assets, provide
for the liabilities and maximize shareholder value.
Summary of significant accounting policies
In connection with the shareholder approval of the Plan of
Liquidation and Dissolution on May 6, 1999 the Company adopted the
liquidation basis of accounting. Under this basis of accounting,
assets and liabilities are stated at their net realizable value and
settlement amounts and estimated costs through the liquidation are
provided to the extent reasonably determinable. The Company will be
liquidated and dissolved, all liabilities and operating costs to carry
out the liquidation and dissolution will be paid, and all remaining
assets distributed to the shareholders.
The consolidated financial statements include the accounts of
the Company and all subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Inventories have been totally liquidated as of May 31, 1999. Raw
materials were priced at the lower of cost (identified unit basis) or
market and work-in-process and finished goods were priced at the lower
of average cost or market.
All property, plant and equipment used in the operations of the
Company, with the exception of immaterial computer and office
equipment, have been sold or disposed of. Loss on abandonment of
assets (unamortized leasehold improvements) and gain on the sale of
assets reflect the difference between the book value of the assets and
their net selling price.
Refundable federal income tax is calculated on the basis of
applying the tax net operating loss against the two previous years'
taxable income and taxes paid. Deferred income taxes result from
temporary differences between pre-tax earnings reported in the
consolidated financial statements and taxable income. No deferred
taxes were reflected on the balance sheet at May 31, 1999 since it is
highly improbable that the Company will generate any taxable income in
order to utilize the deferred tax benefits.
<PAGE>
Basic and diluted earnings (loss) per share is computed on the
weighted average number of common shares outstanding during the
period.
In June 1997, the FASB released Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-
purpose financial statements and is effective for the Company's fiscal
year 1999. SFAS 130 did not have an impact on the Company's
consolidated financial statements.
In preparing the Company's financial statements, management is
required to make estimates and assumptions that effect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ form these estimates. Estimates used in
the liquidation basis of accounting are forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of
1934 and there are a number of important factors that could cause
actual results to differ from these estimates including the Company's
ability to collect accounts receivable and amounts to be received when
assets are sold.
Fair value of financial instruments are estimated to approximate
the related book values, unless otherwise indicated, based on market
information available to the Company.
Cash flow information
The consolidated statements of cash flows provide information
about changes in cash and cash equivalents. Cash equivalents consist
of highly liquid debt instruments with a maturity, when purchased, of
three months or less.
Cash payments for interest were: 1999-$42,148; 1998-$35,133 and
1997-$29,675. Cash payments for federal income taxes were: 1999-$-0-;
1998-$387,925 and 1997-$341,854.
Cash and cash equivalents
Cash and cash equivalents consist of:
1999 1998
--------- ---------
Cash $ 383,130 $ 290,833
Money market funds 366,297 207,461
Matured funds at factor 25,791 630,697
U.S. Treasury bills 2,996,311 -
--------- ---------
$3,771,529 $1,128,991
<PAGE> ========= =========
Credit risk
The Company and its subsidiaries maintain cash balances at
several financial institutions located in Texas, California and
Nevada. Accounts in each institution (except U. S. Treasury Bills,
which are secured by the United States Government) are insured by the
Federal Deposit Insurance Corporation up to $100,000. Uninsured
balances aggregate to approximately $512,000 at May 31, 1999,
($855,000 at May 31, 1998). The Company has not experienced any
losses in such accounts and believes it is not exposed to any
significant credit risk.
The balance of accounts receivable factored and matured funds
with a commercial factor of approximately $482,000 at May 31, 1999 are
uninsured ($2,172,000 at May 31, 1998).
Accounts receivable
Accounts receivable are net of allowances for collection losses
and discounts of $39,112 in 1999 and $132,546 in 1998.
At May 31, 1999 and 1998 approximately $457,000 and $1,542,000,
respectively, of accounts receivable were factored with a commercial
factor. Approximately $145,000 and $707,000 were factored with
recourse at May 31, 1999 and 1998, respectively.
Inventories
Inventories consist of: 1999 1998
----- ---------
Raw materials - $ 991,748
Work-in-process - 1,067,345
Finished goods - 2,561,475
----- ---------
- $4,620,568
<PAGE> ===== =========
Property, plant and equipment
Details of property, plant and equipment at cost and the
estimated useful lives used in computing depreciation and amortization
are:
<TABLE>
Estimated
useful lives 1999 1998
------------ --------- ---------
<S> <C> <C> <C>
Property, plant and equipment:
Land - $ - $ 109,846
Buildings 25 years - 661,727
Machinery and
equipment 3-10 years 55,232 1,027,109
Building and lease
hold improvements 4-10 years - 695,650
--------- ---------
$ 55,232 $2,494,332
========= =========
Plant and equipment not used
in operations:
Buildings 25 years $ - $ 137,005
Less accumulated depreciation - (136,327)
--------- ---------
$ - $ 678
========= =========
</TABLE>
Depreciation expense for the period May 6, 1999 through May 31,
1999 was $11,741.
Accounts payable and accrued liabilities
<TABLE>
Accounts payable and accrued
liabilities consist of:
1999 1998
------- ---------
<S> <C> <C>
Accounts payable-trade $ 60,001 $1,667,482
Accrued compensation 5,291 191,390
Accrued taxes 119,400 100,207
Other accrued liabilities 1,219 16,329
------- ---------
$185,911 $1,975,408
</TABLE> ======= =========
<PAGE>
Line of credit
The Company has an oral agreement for a line of credit with a
bank in the amount of $100,000 bearing no interest. The line is
collateralized by the general assets of the company. As of May 31,
1999, amounts available under this line were $100,000. No amounts were
drawn under this line of credit as of May 31, 1999.
Leases
Certain equipment, manufacturing facilities, showrooms and
factory outlet mall stores were leased for periods expiring at
various dates through fiscal 2003, at aggregate annual rentals of
approximately $223,000 in 1999, $159,000 in 1998 and $103,000 in 1997,
which consisted entirely of minimum rentals. Management does not
expect to renew or replace terminated or expired leases as it
completes the liquidation and dissolution process of the Company.
As of May 31, 1999 there is only one lease for office space which
expires in 2003 and one lease for office equipment which expires in
2001. Included in the 1999 rent expense is approximately $110,000
related to buy-out of certain facility operating leases.
The future minimum lease payments required under operating leases
that have an initial or remaining lease term in excess of one year
at May 31, 1999 were as follows:
Operating
leases
------
2001 $36,000
2002 31,000
2003 11,000
------
$78,000
======
<PAGE>
Federal Income Tax
Income taxes receivable at May 31, 1999 consists primarily of
federal income taxes recoverable through carryback of net operating
losses. The detail of the provision for federal income tax follows:
<TABLE>
For the period
June 1, 1998
through For the years ended May 31,
May 5, 1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Current tax payable (receivable) $(659,323) $244,477 $411,491
Deferred tax
(benefit) expense 160,000 (20,000) (41,000)
-------- ------- -------
Provision (credit)
for income tax $(499,323) $224,477 $370,491
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. As a result of the Plan of Liquidation and Dissolution, all
deferred tax assets have been allowed for since they are not expected
to be realized. Net operating losses available for carryforward at
May 31, 1999 were approximately $1,263,000 expiring May 31, 2119.
Total deferred tax assets and liabilities in the consolidated
statement of net assets and balance sheet are as follows at May 31,:
<TABLE>
Assets 1999 1998
-------- -------
<S> <C> <C>
Bad debt reserve $ 13,300 $ 40,000
Discount reserve - 5,000
Inventory capitalization
of selling, general and
administrative costs - 189,000
Net operating
loss carryforward 429,551
-------- -------
$ 442,851 $234,000
Less valuation allowance (442,851) -
-------- -------
$ - $234,000
======== =======
Liabilities
Depreciation $ - $ 74,000
======== =======
<PAGE>
The income tax provision reconciled to the tax computed at federal
statutory rates is as follows:
For the years ended May 31,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Tax at statutory rates $(936,611) $212,975 $341,387
Tax effect of net operating
loss carryforward 429,551 - -
Tax effect on non-
deductible items 11,848 14,620 13,472
Other-net (164,111) 16,882 56,632
-------- ------- -------
$(659,323) $244,477 $411,491
Deferred tax (benefit) expense 160,000 (20,000) (41,000)
-------- ------- -------
$(499,323) $224,477 $370,491
======== ======= =======
The components of deferred income tax (benefit) expense are as follows:
For the years ended May 31,
1999 1998 1997
-------- ------- -------
Difference between tax
and book depreciation $ (74,000) $ 282 $ (3,400)
Difference between tax
and book allowance for
doubtful accounts 26,945 (810) (13,430)
Difference between tax
and book basis of
merchandise inventories 189,018 (20,072) (21,809)
Reserve for discounts 4,738 600 (2,361)
Net operating
loss carryforward (429,551) - -
Valuation allowance 442,850 - -
-------- ------- -------
Deferred tax (benefit) expense $ 160,000 $(20,000) $(41,000)
======== ======= =======
</TABLE>
<PAGE>
Advertising costs
The Company's policy is to expense all advertising costs in the
period in which the advertising first takes place. Advertising
expense was approximately $111,000, $208,000 and $122,000 for the
years ended May 31, 1999, 1998 and 1997, respectively.
HOWARD B. WOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
Selected quarterly financial data (UNAUDITED)
First Quarter Second Quarter Third Quarter Fourth Quarter
Ended Ended Ended Ended
Aug 31,1998 Nov 30,1998 Feb 28,1999 May 5,1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $3,148,230 $2,641,063 $ 2,491,598 $ 1,127,231
Gross profit(loss) 992,183 286,070 (1,272,663) (3,471,447)
Income (loss)
before federal
income tax 6,309 (624,618) (2,042,448) 327,944
Net income (loss) 5,233 (441,463) (1,317,661) (79,599)
Basic and diluted
earnings (loss)
per share .01 (0.42) (l.25) (.08)
Average number
of shares
outstanding 1,056,191 1,056,191 1,056,191 1,056,191
Aug 31,1997 Nov 30,1997 Feb 28,1998 May 31,1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $3,680,093 $3,861,720 $ 3,276,419 $ 3,503,682
Gross profit 1,299,050 1,460,640 1,028,199 1,046,470
Income before
federal
income tax 265,460 259,988 80,217 20,733
Net income 170,196 168,996 43,682 19,047
Basic and diluted
earnings per share .16 .16 .04 .02
Average number
of shares
outstanding 1,056,191 1,056,191 1,056,191 1,056,191
</TABLE>
<PAGE>
Item 9. Changes in and disagreements with accountants
on accounting and financial disclosure matters
None
PART III
The information required by items 10, 11, 12 and 13 of Part
III is incorporated by reference from the indicated pages in
the Company's definitive proxy statement for its annual meeting of
shareholders to be held September 21, 1999.
Pages of Proxy
Statement
Item 10. Directors and Executive
Officers of the Registrant 3-4
Item 11. Executive Compensation 5
Item 12. Executive Ownership of Certain
Beneficial Owners and Management 2-3
Item 15. Certain Relationships and Related Transactions 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements and financial statement schedules
The financial statements and schedules listed in the
accompanying index to consolidated financial statements are
filed as part of this annual report.
3. Exhibits
None
(b) Report on Form 8-K
One Form 8-K was filed in the fourth quarter ended May 31,
1999 on May 6, 1999.
<PAGE>
<TABLE>
HOWARD B. WOLF, INC.
SCHEDULE II-ALLOWANCE FOR COLLECTION LOSSES AND DISCOUNTS
Years ended May 31, 1999, 1998 and 1997
000's Omitted
Balance at Additions Amount Balance
beginning charged charged Discounts at end
of year to income off(2) allowed of year
---- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C>
Year ended
May 31, 1999
Collection losses $119 $ 241 $321 $ - $ 39
Discounts 14 509(1) - 523 -
---- ------ ---- ------ -------
$133 $ 750 $321 $ 523 $ 39
Year ended
May 31,1998
Collection losses $116 $ 138 $136 $ - $ 119
Discounts 16 857(1) 1 857 14
---- ------ ---- ------ -------
$132 $ 995 $137 $ 857 $ 133
Year ended
May 31, 1997
Collection losses $ 77 $ 127 $ 88 $ - $ 116
Discounts 9 1,048(1) (7) 1,048 16
---- ------ ---- ------ -------
$ 86 $1,175 $ 81 $1,048 $ 13
</TABLE>
(1) Charged to net sales.
(2) Net of recoveries.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Howard B. Wolf, Inc.
By:/s/ Robert D. Wolf
Robert D. Wolf
President
(Chief Executive Officer)
August 27,1999
By:/s/ Eugene K. Friesen
Eugene K. Friesen
Senior Vice President and Treasurer
(Principal Accounting Officer)
August 27,1999
Pursuant of 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 and on the dates indicated:
Creed L. Ford III
Director
August 27,1999
/s/Eugene K. Friesen
Eugene K. Friesen
Senior Vice President, Treasurer and Director
August 27,1999
/s/Joel Held
Joel Held
Director
August 27,1999
Juan Villamizar
Director
August 27,1999
/s/Howard B. Wolf
Howard B. Wolf
Chairman of the Board, Secretary and Director
August 27,1999
/s/Robert D. Wolf
Robert D. Wolf
President, Chief Executive Officer and Director
August 27,1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 3,772
<SECURITIES> 0
<RECEIVABLES> 981
<ALLOWANCES> 39
<INVENTORY> 0
<CURRENT-ASSETS> 4,792
<PP&E> 55
<DEPRECIATION> 42
<TOTAL-ASSETS> 5,490
<CURRENT-LIABILITIES> 186
<BONDS> 0
0
0
<COMMON> 360
<OTHER-SE> 4,944
<TOTAL-LIABILITY-AND-EQUITY> 5,490
<SALES> 9,408
<TOTAL-REVENUES> 9,479
<CGS> 9,632
<TOTAL-COSTS> 12,874
<OTHER-EXPENSES> (1,102)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (2,332)
<INCOME-TAX> (499)
<INCOME-CONTINUING> (1,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,833)
<EPS-BASIC> (1.74)
<EPS-DILUTED> (1.74)
</TABLE>
