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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the period ended
September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from
To
- ----------------------------------- ----------------------------------
Commission File Number: 1-8984
WEDGESTONE FINANCIAL
(Exact Name of Registrant as Specified in its Charter)
Massachusetts 04-26950000
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
5200 N. Irwindale Avenue
Suite 168
Irwindale, California 91706
(818) 338-3555
(Address, including zip code and telephone number,
including area code of registrant's principal
executive offices)
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Indicate by check mark whether the registrant has (1) 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 such shorter period that the registrant was required
to file such reports and (2) has been subject to filing requirements for the
past 90 days.
[ X ] Yes [ ] No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ X ] Yes [ ] No
Shares of Beneficial Interest Outstanding as of November 10, 1995: 21,885,668
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<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1995 (unaudited) and
December 31, 1994.........................................................................2
Consolidated Statements of Operations (unaudited) for
the Three Months and Nine Months Ended September 30, 1995 and 1994........................3
Consolidated Statements of Shareholders' Equity (unaudited) for
the Nine Months Ended September 30, 1995 and 1994.........................................4
Consolidated Statements of Cash Flows (unaudited) for
the Three Months and Nine Months Ended September 30, 1995 and 1994........................5
Notes to Unaudited Consolidated Financial Statements......................................6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................8
PART II OTHER INFORMATION
Signatures...............................................................................11
</TABLE>
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<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1995 and December 31, 1994
<CAPTION>
(Unaudited)
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 178,566 $ 178,876
Accounts and other receivables - (net of allowances of $404,984 and $202,077
in 1995 and 1994, respectively) (Note 1) 6,396,390 4,451,871
Inventories (Notes 1 and 2) 4,420,784 3,610,135
Prepaid expenses and other assets 539,777 194,018
Deferred income taxes 315,946 315,946
------------ ------------
Total Current Assets 11,851,463 8,750,846
------------ ------------
Notes receivable - net (Note 1) 743,191 650,000
Mortgage notes receivable - net (Note 1) 84,243 84,874
Real estate acquired by foreclosure - net (Note 1) 1,048,344 964,766
Property, plant and equipment - net 4,691,671 2,509,979
Goodwill (Note 1) 623,248 217,268
Deferred income taxes 973,778 973,778
Other assets 1,437,064 239,148
------------ ------------
9,601,539 5,639,813
Total Assets $ 21,453,002 $ 14,390,659
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt (Note 1) $ 1,590,448 $ 1,031,978
Accounts payable 3,223,333 2,974,419
Accrued payroll and related expenses 591,736 399,730
Other accrued expenses 1,355,239 926,166
------------ ------------
Total Current Liabilities 6,760,756 5,332,293
Long-term debt (Note 1) 9,655,843 5,676,021
------------ ------------
Total liabilities 16,416,599 11,008,314
Commitments and contingencies -- --
------------ ------------
Subtotal 16,416,599 11,008,314
Shareholders' Equity:
Shares of Beneficial Interest-par value
$1.00 per share: authorized - unlimited shares:
issued and outstanding - 21,885,668 shares 21,885,668 20,385,668
Additional paid-in capital 31,396,420 32,376,419
Accumulated deficit (48,245,685) (49,379,742)
------------ ------------
Total Shareholders' Equity 5,036,403 3,382,345
------------ ------------
Total Liabilities and Shareholders' Equity $ 21,453,002 $ 14,390,659
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
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<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $10,828,503 $ 9,057,493 $35,623,822 $26,498,211
Cost of sales 7,529,157 6,324,649 24,613,956 18,119,836
----------- ----------- ----------- -----------
Gross profit 3,299,346 2,732,844 11,009,866 8,378,375
Selling, general and administrative expenses 2,583,388 2,142,892 8,639,106 6,610,484
----------- ----------- ----------- -----------
Operating income 715,958 589,952 2,370,760 1,767,891
Goodwill amortization 10,902 10,902 32,704 32,704
Interest expense 365,355 136,034 1,036,535 374,455
----------- ----------- ----------- -----------
Income before taxes 339,701 443,016 1,301,521 1,360,732
Provision for income taxes 76,200 279,962 167,464 611,654
----------- ----------- ----------- -----------
Net income $ 263,501 $ 163,054 $ 1,134,057 $ 749,078
=========== =========== =========== ===========
Net income per share: (Note 1)
Shares of Beneficial Interest $ 0.01 $ 0.01 $ 0.05 $ 0.04
=========== =========== =========== ===========
Weighted average number of shares outstanding:
Shares of Beneficial Interest 21,885,668 20,385,668 21,790,296 20,385,668
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
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<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<CAPTION>
Additional
Shares of Beneficial paid-in Accumulated
Interest capital deficit Total
------------------------- ------------ ------------ ------------
Shares Amount
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 20,385,668 $ 20,385,668 $ 33,045,539 ($50,872,794) $ 2,558,413
Distributions from Standun (Note 1) 456,614 456,614
Net Income 749,078 749,078
---------- ------------ ------------ ------------ ------------
Balance at September 30, 1994 20,385,668 $ 20,385,668 $ 33,502,153 ($50,123,716) $ 3,764,105
========== ============ ============ ============ ============
Balance at January 1, 1995 20,385,668 $ 20,385,668 $ 32,376,420 ($49,379,742) $ 3,382,346
Issuance of shares of beneficial interest to
secure third party debt guarantee (Note 1) 1,200,000 1,200,000 (840,000) 360,000
Issuance of shares of beneficial interest in
exchange for acquisition services (Note 1) 200,000 200,000 (140,000) 60,000
Issuance of shares of beneficial interest to
payoff outstanding debt (Note 1) 100,000 100,000 100,000
Net income 1,134,057 1,134,057
---------- ------------ ------------ ------------ ------------
Balance at September 30, 1995 21,885,668 $ 21,885,668 $ 31,396,420 ($48,245,685) $ 5,036,403
========== ============ ============ ============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
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<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months and Nine Months Ended September 30, 1995 and 1994
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 263,501 $ 163,054 $ 1,134,057 $ 749,078
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 333,022 188,087 849,794 544,589
Changes in operating assets and liabilities:
Accounts and other receivables 1,367,719 52,119 (648,320) (1,169,620)
Inventories 145,025 594,456 318,806 (200,458)
Prepaid expenses and other current assets (228,285) (5,922) (345,759) (151,935)
Accrued payroll and related expenses 128,859 (32,596) 192,006 66,260
Other accrued expenses (674,786) 373,439 (640,163) 1,148,380
Accounts payable (710,372) (441,960) 248,914 380,667
Other assets 23,644 (1,400) (106,998) 658
Other liabilities 0 (1,218,792) 0 (1,400,693)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 648,327 (329,515) 1,002,337 (33,074)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of real estate and equipment 0 0 0 74,985
Proceeds from repayment of mortgage notes receivable 0 565 743 51,143
Notes receivable (92,191) 17,500 (92,191) 52,500
Investment in subsidiary (27,795) 0 (485,730) 0
Capital expenditures (317,525) (112,995) (722,867) (262,719)
Investment in real estate (32,000) (43,974) (83,690) (84,073)
----------- ----------- ----------- -----------
Net cash (used in) investing activities (469,511) (138,904) (1,383,735) (168,164)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Distributions to (from) Standun 0 653,386 0 (180,441)
Repayment of term debt (25,383) (41,415) (297,000) (210,396)
Net borrowings (repayments) on revolving debt (243,576) (204,745) 678,088 800,287
----------- ----------- ----------- -----------
Net cash provided by used in financing activities (268,959) 407,226 381,088 409,450
----------- ----------- ----------- -----------
Net decrease in cash (90,143) (61,193) (310) 208,212
Cash at beginning of period 268,709 296,110 178,876 26,705
----------- ----------- ----------- -----------
Cash at end of period $ 178,566 $ 234,917 $ 178,566 $ 234,917
=========== =========== =========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
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<PAGE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 1995
and the Twelve Months Ended December 31, 1994
NOTE 1. Background and Basis of Presentation
History of the Company - Wedgestone Financial ("Wedgestone" or the
"Company") was formed in 1980 as a real estate investment trust ("REIT") and, on
August 9, 1991, filed for bankruptcy. Wedgestone's plan of reorganization (the
"Plan") became effective on August 3, 1992.
Acquisitions - Since May 1992, Wedgestone has acquired three
manufacturing operations. In September 1992, Wedgestone acquired St. James
Automotive Corp. ("St. James") in exchange for 6,795,220 shares of beneficial
interest of Wedgestone and accounted for this acquisition as a purchase. On
November 18, 1994, Wedgestone acquired the "Automotive Segment" of Standun, Inc.
("Standun"), which consisted of the Fey Automotive Products Division ("Fey") and
Sigma Plating Co., Inc. ("Sigma") in exchange for 6,795,223 shares of beneficial
interest of Wedgestone and the assumption of approximately $1,104,000 of
outstanding debt due to related parties of both Wedgestone and Standun, and
certain other liabilities. The shareholders of Standun owned, directly or
indirectly, approximately 48% of Wedgestone prior to the acquisition and, as a
result, this acquisition has been accounted for as a "put-together" which is
similar to the pooling of interest method of accounting. On January 9, 1995
Wedgestone acquired substantially all of the assets of Hercules Bumpers, Inc.
("Hercules") which manufactures and distributes rear bumpers for both domestic
and foreign light duty trucks. The purchase price for the assets acquired was
the assumption of certain debt and other liabilities approximating $5.1 million.
In addition, certain debt is being guaranteed jointly and severally by Charles
W. Brady ("Brady"), the principal shareholder of Hercules, and Chattahoochee
Leasing Corporation ("CLC"), a corporation controlled by Brady. In exchange for
this guarantee, Brady received a promissory note in the amount of $300,000 and
1,200,000 shares of beneficial interest of Wedgestone. In consideration for an
agreement to pay a liability of Hercules, CLC received a promissory note for
$100,000 which was secured by 100,000 shares of beneficial interest of
Wedgestone. In June, 1995, the Company exercised its right under the CLC
Agreement and acquired the note by issuing these shares to CLC.
Basis of Presentation and Principles of Consolidation - The
accompanying consolidated financial statements include the operations of
Wedgestone and give retroactive effect to the acquisition of Fey and Sigma for
all periods presented. As a result, the financial position, results of
operations and cash flows are presented as if Wedgestone, Fey and Sigma had been
consolidated for all periods presented. The consolidated statements of changes
in Wedgestone's shareholders' equity reflect the Wedgestone shares of beneficial
interest issued to effect the Fey and Sigma acquisition as if they were
outstanding for all periods presented. The results of operations and cash flows
presented include the results of operations and cash flows of Hercules since its
date of acquisition.
The consolidated financial statements include the accounts of
Wedgestone and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. The consolidated financial
statements do not include the operations of IRP. IRP is a wholly-owned
subsidiary of the Company established for the sole purpose of liquidating the
transferred assets for the benefit of Wedgestone's creditors pursuant to the
Plan. Wedgestone has no control or influence over the operational decisions of
IRP, and has no representation on the Board of Directors or management of IRP.
In addition, at this time, management believes Wedgestone will receive no
benefit or incur any liability from the liquidation of IRP.
The financial statements included in this Form 10-Q have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed, or omitted, pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1994.
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<PAGE>
The results of operations for the interim periods shown in this report
are not necessarily indicative of results to be expected for the fiscal year. In
the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations.
During the quarter ended September 30, 1995, the Company has performed
an analysis of the assets acquired and liabilities assumed in connection with
the acquisition of Hercules. As a result of this analysis, the Company has
determined that its initial estimates of provisions for warranty costs, bad
debts, inventory obsolescence and other liabilities were understated by
approximately $994,000. In addition, based upon a valuation performed, the
Company increased the carrying amount of property, plant and equipment by
approximately $555,000. The net effect of the above adjustments was to increase
goodwill from $0 to $439,000.
Furthermore, the Company reversed expenses of approximately $257,900
during the quarter ended September 30, 1995, which related to the above matters
which were expensed during the prior six month period.
Income Per Share of Beneficial Interest - Income per share of
beneficial interest is calculated based on weighted average outstanding shares
of beneficial interest.
NOTE 2. Inventories
Inventories consist of the following:
September 30, December 31,
1995 1994
----------- -----------
Finished goods $ 2,367,603 $ 2,397,771
Work in progress 1,015,699 783,303
Raw materials 1,459,617 711,648
----------- -----------
Subtotal 4,842,919 3,892,722
Less Reserves (422,135) (282,587)
----------- -----------
Net Total $ 4,420,784 $ 3,610,135
=========== ===========
NOTE 3. Related Parties
Subsequent to the year ended December 31, 1994, in connection with the
acquisition of the Automotive Segment of Standun Inc., Resource Holdings
Associates and PFG Corp. ("PFG"), both of which are controlled by certain
Wedgestone shareholders, received a fee of $225,000.
In connection with the Hercules acquisition, Resource Holdings
Associates and PFG received a fee of $220,000 consisting of $160,000 and 200,000
shares of beneficial interest of Wedgestone at a valuation price of $.30 per
share.
On January 25, 1995, Wedgestone entered into a five year agreement with
PFG and Wedgestone Partners, an affiliate of the aforementioned shareholders, to
provide advisory services to Hercules with respect to its operations, expansion
and financing activities at an aggregate amount of $175,000 per year.
NOTE 4. Supplemental Schedule of Non-cash Investing Activities
In connection with the January 9, 1995 acquisition of Hercules,
Wedgestone assumed liabilities to acquire assets as follows:
Accrued expenses $1,094,021
Revolver and other debt 3,957,204
----------
Total liabilities assumed $5,051,225
==========
Receivables, inventories and
other assets $2,990,855
Property, Plant and Equipment 2,060,370
----------
Total assets acquired $5,051,225
==========
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
Wedgestone (the "Company") is primarily engaged in the business of
manufacturing automotive products for the light duty truck aftermarket. The
Company has three manufacturing plants located in Irwindale, California, St.
James, Minnesota and Pelham, Georgia.
Results of Operations
In general, the light duty truck market remains strong and continues to
show growth over 1994. While total year-to-date Company sales perform ahead of
1994, sales of its more traditional product, Fey rear step bumpers for light
duty pickup trucks, have slowed to 66% of 1994 levels. Management believes that
this is primarily due to the Company's alignment with a major domestic
manufacturer of light duty trucks. As a result, difficulties experienced by this
manufacturer in meeting on-going demand for light duty vehicles has directly
impacted the Company's sales of Fey's rear step bumpers for the second and third
quarters of 1995. By the close of the third quarter, most of the difficulties
restricting the delivery of light duty trucks by this manufacturer were
resolved. Shipments of Fey rear step bumpers in October exceeded October 1994
levels.
The Company's alignment with this manufacturer represents an effort to
enhance product sales by both developing new OEM relationships and strengthening
the Company's long standing relationship with this manufacturer's products in
the aftermarket. Management remains committed to this strategy. During this
period management has continued to cultivate relationships with other domestic
and foreign OEM's.
Offsetting the forgoing has been a 72% growth in year-to-date sales of
the Company's Westin line of tubular products manufactured by its St. James
subsidiary. Sales of the Westin line are expected to continue to be strong
reflecting the public's desire for tubular truck accessories and acceptance of
the line as representing both quality and style.
Three Months Ended September 30, 1995 compared to Three Months Ended
September 30, 1994
Revenues: Net sales increased 20% to $10,828,500 for the third quarter
of 1995 from net sales of $9,057,500 for the same period last year. On January
9, 1995, the Company, through a wholly owned subsidiary ("Hercules") purchased
substantially all of the assets of Hercules Bumpers, Inc. Hercules sales for the
three months ended September 30, 1995 were $2,832,200. Westin sales increased by
84% over the third quarter of 1994, while Fey sales, as discussed above,
decreased by 44%.
Gross Margin: Gross margin on non-Hercules manufactured products
increased to 31% for the third quarter of 1995 from 30% a year earlier. This
increase is net of significant increases in the Company's cost of steel and
other materials incurred during the period. These cost increases were partially
offset by improvements made in the cost structure of all manufacturing entities.
Management implemented price increases for its Fey and Hercules products which
became effective on June 1, 1995 and July 1, 1995, respectively.
Distribution, Sales and Marketing Expenses: During the three months
ended March 31, 1995, the Company started a process of restructuring its
distribution system to enhance both profitability and customer service through
the consolidation of inventories. This process has resulted in the closure of
one distribution facility and the consolidation of another with the newly
acquired Hercules facility. Hercules sales and marketing costs for the three
months ended September 30, 1995 were $123,500 and comprise a significant portion
of the Company's $187,700 increase in sales and marketing costs over the same
period in 1994.
Administrative Expenses: Hercules administrative expenses for the three
months ended September 30, 1995 were $259,200 and comprised all of the increase
in administrative expenses over the same period in 1994.
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<PAGE>
Operating Income: Total operating income grew by 21% to $716,000 from
$590,000 for the three months ended September 30, 1995 and 1994, respectively.
Interest Expense: Interest expense increased $229,300 for the three
months ended September 30, 1995 over the same period in 1994 of which 65% or
$150,600 is attributable to financing the Hercules operations.
Net Income: Net income grew by 62% to $263,500 from $163,100 for the
three months ended September 30, 1995 and 1994, respectively.
Nine Months Ended September 30, 1995 compared to Nine Months Ended
September 30, 1994
Revenues: Net sales increased 34% to $35,623,800 for the nine months
ended September 30, 1995 from net sales of $26,498,200 for the same period last
year. Hercules sales for the nine months ended September 30, 1995 were
$8,698,400. Westin sales increased 72% over 1994, while Fey sales decreased by
18%.
Gross Margin: Gross margin decreased to 31% for the first nine months
of 1995 compared to 32% a year earlier. This decrease is due to increases in the
Company's cost of steel and other materials which in part were offset by
improvements made in the cost structure of all manufacturing entities, and, in
turn, led to price increases by the Company in June and July of 1995.
Distribution, Sales and Marketing Expenses: Compared to 1994, the
acquisition of Hercules has added $1,084,300 in total distribution, sales and
marketing costs while growth in the sales of other products and continuing
efforts to enhance the visibility of the Fey and Westin lines have added an
additional $44,500.
Administrative Expenses: Hercules administrative expenses for the nine
months ended September 30, 1995 were $692,600 or 77% of the Company's $899,000
increase in administrative expenses over the same period in 1994. The increase
in non-Hercules administrative expenses is due to a one time charge of $225,000
in consulting fees associated with the Company's 1994 acquisition of Fey and
Sigma.
Operating Income: Total operating income grew by 34% to $2,370,800 from
$1,767,900 for the nine months ended September 30, 1995 and 1994, respectively.
Of this increase, Hercules accounted for $397,700. Management is continuing to
modify the Hercules operations and is unable to forecast the effect of these
changes at this time.
Interest Expense: Interest expense increased $662,100 for the nine
months ended September 30, 1995 over the same period in 1994 of which $424,300
is attributable to financing the Hercules operations. The remaining increase of
$237,800 is due to increased working capital requirements and the amortization
of deferred financing costs associated with the November 1994 acquisition of Fey
and Sigma.
Net Income: Net income grew by 51% to $1,134,100 from $749,000 for the
nine months ended September 30, 1995 and 1994, respectively.
Liquidity and Capital Resources
The Company finances its business activities through the cash flow from
operations with additional debt obtained primarily for working capital and
acquisitions. In connection with the acquisition of substantially all of the
assets of Hercules Bumpers, Inc. on January 9, 1995, a wholly owned subsidiary
of the Company assumed certain debt consisting of i) a revolving credit note of
$3.7 million; ii) an industrial revenue bond of $112,000 due January 1, 1996;
iii) an industrial revenue bond of $61,000 due March 1, 1999; and iv) certain
other liabilities totaling $1,100,000. In addition, the Company issued 1,200,000
shares of beneficial interest to the guarantor of the acquired indebtedness and
his related company and Hercules issued notes payable totaling $300,000.
-9-
<PAGE>
During the quarter ended September 30, 1995, the Company has performed
an analysis of the assets acquired and liabilities assumed in connection with
the acquisition of Hercules. As a result of this analysis, the Company has
determined that its initial estimates of provisions for warranty costs, bad
debts, inventory obsolescence and other liabilities were understated by
approximately $994,000. The understated liabilities have been included in the
certain other liabilities mentioned above. In addition, based upon a valuation
performed, the Company increased the carrying amount of property, plant and
equipment by approximately $555,000. The net effect of the above adjustments was
to increase goodwill from $0 to $439,000.
For the nine months ended September 30, 1995, the Company invested
$485,700 in organizational costs associated with the acquisitions of Fey and
Hercules, $83,700 in real estate acquired by foreclosure and $722,900 in capital
equipment. These investments were funded through $1,002,300 in net cash flows
from operating activities and $381,100 in borrowings under the Company's
revolving credit agreements. Net cash used in operating activities and cash
flows from revolver borrowings for the comparable period in 1994 were ($33,100)
and $589,900 respectively.
In connection with the acquisition of certain assets of Fey and Sigma,
the Company, through certain wholly-owned subsidiaries, entered into a
three-year $7.5 million revolving credit line (the "revolver") with a financial
institution. The revolver provides for borrowing based on a percentage of
inventory and accounts receivable. The revolver also includes equipment term
loans approximating $1.5 million at September 30, 1995. Interest on the
outstanding borrowing accrues at prime plus 2.5%. At September 30, 1995, the
interest rate on the revolver was 11.25% The revolver contains certain covenants
which, among other things, requires the maintenance of minimum working capital
and equity.
The Company has a loan outstanding from a related party totalling
$729,000 as of September 30, 1995 (the "Rockaway Loan") which matures in
January, 1997. Borrowings under this credit agreement are collateralized by
substantially all of the assets of the Company.
To the extent that the Company expands its operations and makes
additional acquisitions, it will need to obtain additional funding from
institutional lenders and other sources. The Company's ability to use equity in
obtaining funding may be limited by its desire to preserve certain tax
attributes including its net operating loss carry forwards.
Management is continuing to modify the Hercules operations and
implement operational and quality control systems that it has established at its
Fey and St. James subsidiaries. The company continues to evaluate the most
efficient use of its various facilities and cost effective and productive use of
its assets and personnel. This evaluation includes the possible consolidation of
the company's facilities and/or the exchange of assets between the company's
facilities.
-10-
<PAGE>
PART II
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Wedgestone Financial
Date: By: /s/ Jeffrey S. Goldstein
----------------------------
President and Treasurer
(Principal Executive and Financial
Officer)
The name "Wedgestone Financial" (Formerly Wedgestone Realty Investors Trust) is
the designation of the Trustees under a Declaration of Trust dated March 12,
1980, as amended, and in accordance with such Declaration of Trust notice is
hereby given that all persons dealing with Wedgestone Financial by so acting
acknowledge and agree that such persons must look solely to the Trust property
for the enforcement of any claims against Wedgestone Financial and that neither
Trustees, Officers, employees, agents nor shareholders assume any personal
liability for claims against the Trust or obligations entered into on behalf of
Wedgestone Financial, and that respective properties shall not be subject to
claims of any other person in respect of any such liability.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Wedgestone Financial
Date:
By:
---------------------------
Jeffrey S. Goldstein,
President and Treasurer
(Principal Executive and Financial
Officer)
The name "Wedgestone Financial" (Formerly Wedgestone Realty Investors Trust) is
the designation of the Trustees under a Declaration of Trust dated March 12,
1980, as amended, and in accordance with such Declaration of Trust notice is
hereby given that all persons dealing with Wedgestone Financial by so acting
acknowledge and agree that such persons must look solely to the Trust property
for the enforcement of any claims against Wedgestone Financial and that neither
Trustees, Officers, employees, agents nor shareholders assume any personal
liability for claims against the Trust or obligations entered into on behalf of
Wedgestone Financial, and that respective properties shall not be subject to
claims of any other person in respect of any such liability.
-11-
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
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<SECURITIES> 0
<RECEIVABLES> 6,801,374
<ALLOWANCES> 404,984
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0
0
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