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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
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
March 31, 1998
[ ] 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)
---------------------------
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
As of May 13, 1998, 21,885,668 shares of beneficial interest were outstanding.
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<PAGE>
WEDGESTONE FINANCIAL & SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - March 31, 1998 (unaudited) and
December 31, 1997..................................................2
Consolidated Statements of Income (unaudited) for
the Three Months Ended March 31, 1998 and 1997.....................3
Consolidated Statements of Shareholders' Equity (unaudited) for
the Three Months Ended March 31, 1998 and 1997.....................4
Consolidated Statements of Cash Flows (unaudited) for
the Three Months Ended March 31, 1998 and 1997.....................5
Notes to Unaudited Consolidated Financial Statements...............6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................7
PART II OTHER INFORMATION
Item 1 Legal Proceedings.................................................11
Item 2 Changes in Securities.............................................11
Item 3 Defaults upon Senior Securities...................................11
Item 4 Submission of Matters to a Vote of Security Holders...............11
Item 5 Other Information.................................................11
Item 6 Exhibits and Reports on Form 8-K..................................11
Signatures....................................................................12
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<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 1998 and December 31, 1997
(Amounts in Thousands - except share data)
<CAPTION>
(Unaudited)
ASSETS 1998 1997
-------- --------
<S> <C> <C>
Current Assets:
Cash $ 1,162 $ 902
Accounts and other receivables - (net of allowances of $410 and $344
in 1998 and 1997, respectively) 7,530 8,751
Inventories 6,104 5,983
Prepaid expenses and other current assets 720 654
Deferred income taxes 842 1,107
-------- --------
Total Current Assets 16,358 17,397
-------- --------
Real estate acquired by foreclosure - net 176 176
Property, plant and equipment - net 3,284 3,342
Goodwill 76 87
Deferred income taxes 1,420 1,420
Other assets 121 121
-------- --------
5,077 5,146
-------- --------
Total Assets $ 21,435 $ 22,543
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit line and current portion of long-term debt $ 558 $ 2,194
Accounts payable 5,782 4,488
Accrued payroll and related expenses 749 809
Other accrued expenses 1,479 1,395
-------- --------
Total Current Liabilities 8,568 8,886
Long-term debt 3,739 5,364
-------- --------
Total Liabilities $ 12,307 $ 14,250
Commitments and contingencies
Shareholders' Equity:
Shares of Beneficial Interest-par value
$1.00 per share: authorized - unlimited shares:
issued and outstanding - 21,885,668 shares 21,886 21,886
Additional paid-in capital 31,396 31,396
Notes receivable from shareholders (1,821) (1,772)
Accumulated deficit (42,333) (43,217)
-------- --------
Total Shareholders' Equity 9,128 8,293
-------- --------
Total Liabilities and Shareholders' Equity $ 21,435 $ 22,543
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
(Amounts in Thousands - except per share data)
1998 1997
-------- --------
Net sales $ 15,138 $ 11,556
Cost of sales 9,836 7,807
-------- --------
Gross profit 5,302 3,749
Selling, general and administrative expenses 3,857 3,464
-------- --------
Operating income 1,445 285
Goodwill amortization 11 11
Other expense (income) -- (418)
Interest expense 130 285
-------- --------
Income before taxes 1,304 407
Provision for income taxes 420 145
-------- --------
Net income $ 884 $ 262
======== ========
Net income per share of beneficial interest
Basic and fully diluted $ .04 $ .01
======== ========
Weighted average number of shares outstanding 21,886 21,886
======== ========
See notes to consolidated financial statements.
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<PAGE>
<TABLE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 and 1997
(Unaudited)
(Amounts in Thousands)
<CAPTION>
Additional
Shares of Beneficial paid-in Shareholder Accumulated
Interest capital Loans deficit Total
------------------------------------------------------------------------
Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 21,886 $ 21,886 $ 31,396 $ (46,163) $ 7,119
Net income 262 262
-------- --------- -------- ---------- --------
Balance at March 31, 1997 21,886 $ 21,886 $ 31,396 $ (45,901) $ 7,381
======== ========= ======== ========== ========
Balance at December 31, 1997 21,886 $ 21,886 $ 31,396 $ (1,772) $ (43,217) $ 8,293
Interest earned on shareholder notes (49) (49)
Net income 884 884
-------- --------- -------- ---------- ---------- --------
Balance at March 31, 1997 21,886 $ 21,886 $ 31,396 $ (1,821) $ (42,333) $ 9,128
======== ========= ======== ========== ========== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
(Amounts in Thousands)
1998 1997
------- -------
Cash Flows from Operating Activities:
Net income $ 884 $ 262
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 210 208
Gain on sale of real estate -- (418)
Deferred income taxes 265 129
Deferred interest (49) --
Changes in operating assets and liabilities:
Accounts and other receivables 1,221 898
Inventories (121) (395)
Prepaid expenses and other current assets (66) 43
Accounts payable 1,294 77
Accrued payroll and related expenses (60) (150)
Other accrued expenses 84 (50)
Other assets -- 26
------- -------
Net cash provided by operating activities 3,662 630
------- -------
Cash Flows from Investing Activities:
Proceeds from sale of real estate -- 1,328
Capital expenditures (141) (233)
------- -------
Net cash provided by (used in) investing activities (141) 1,095
------- -------
Cash Flows from Financing Activities:
Borrowings of term debt -- 841
Repayments of term debt (139) (110)
Net borrowings (repayments) on revolving debt (3,122) (1,220)
------- -------
Net cash used in financing activities (3,261) (489)
------- -------
Net increase in cash 260 1,236
Cash at beginning of period 902 344
------- -------
Cash at end of period $ 1,162 $ 1,580
======= =======
See notes to consolidated financial statements.
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<PAGE>
WEDGESTONE FINANCIAL AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1996 and 1995
NOTE 1. Background and Basis of Presentation
Background - 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.
Wedgestone, since emerging from bankruptcy in 1992, manufactures and
distributes automotive aftermarket products for the light duty truck market. Its
principal products include rear bumpers; tubular products such as grille guards,
push bars, and step rails; and various other related aftermarket products. The
Company's automotive products are marketed in traditional, original equipment
and retail automotive aftermarkets. The Company manufactures and sells its
products at two locations in California, and one in Minnesota. Sales are also
made from distribution centers in Texas and Utah.
Basis of Presentation and Principles of Consolidation The consolidated
financial statements include the accounts of Wedgestone and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.
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 for the fiscal year ended December
31, 1997.
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.
Income/Loss Per Share of Beneficial Interest - During 1997, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share. The Statement replaces the presentation of primary EPS with a
presentation of basic EPS, which excludes dilution and is computed by dividing
income available to shareholders of beneficial interest by the weighted average
number of shares outstanding for the period. The Statement also requires the
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of diluted EPS computation. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB Opinion No. 15. The adoption of SFAS No. 128
did not have an effect on the Company's financial statements as other
potentially dilutive securities issued in 1997 were not dilutive. In addition,
it was not necessary to restate prior periods presented.
NOTE 2. Inventories
Inventories consist of the following: (In Thousands)
March 31, December 31,
1998 1997
------- -------
Finished goods $ 3,534 $ 3,056
Work in progress 1,577 1,528
Raw materials 1,367 1,531
------- -------
6,478 6,115
Less allowances (374) (132)
------- -------
$ 6,104 $ 5,983
======= =======
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background:
On June 15, 1992, Wedgestone acquired St. James Automotive Corp. This
subsidiary manufactures and sells tubular products for the light-duty truck
market such as grille guards, push bars and step bars. On November 18, 1994,
Wedgestone acquired the Automotive Segment of Standun, Inc. ("Standun") which
consisted of Sigma and the Fey Automotive Products division. The assets of the
Fey division, which included the stock of Sigma, were merged into Wedgestone's
wholly owned subsidiary Fey Automotive Products, Inc. In conjunction with the
acquisition of the Automotive Segment of Standun, Wedgestone placed St. James,
Fey and Sigma under the common ownership of its wholly owned subsidiary,
Wedgestone Automotive. Collectively, these companies comprise Wedgestone
Automotive.
On January 5, 1995, Wedgestone Automotive, through its wholly owned
subsidiary Hercules Automotive Products, Inc. acquired substantially all of the
assets of Hercules Bumpers, Inc., a Georgia company. This acquisition was
intended to provide access to a new business segment for Wedgestone Automotive.
The segment, known as dealer direct, involves the sale of rear step bumpers for
light-duty trucks to new vehicle dealers as an alternative to the factory
supplied bumper. Hercules Bumpers, Inc., was the largest domestic supplier in
this dealer direct segment offering dealers a line of specialty bumpers. During
1994, a major OE manufacturer initiated a program to secure a greater portion of
rear step bumper sales. The program, which involved severe price competition and
program buying, eroded a substantial portion of Hercules' sales base and placed
Hercules in a loss position for the fourth quarter of 1995. In response to the
likely prospect of continued losses, Wedgestone Automotive ceased manufacturing
operations at Hercules on March 5, 1996. In a further decision to exit this
segment, Wedgestone Automotive sold its ownership in Hercules to MBC Corporation
for $1.00 and the assumption of certain debt and other liabilities approximating
$4.5 million pursuant to a Stock Purchase Agreement. The Pelham manufacturing
plant along with its inventory and accounts receivable constituted all of the
material assets of Hercules.
The Company operates solely within the automotive aftermarket, serving
both OE manufacturers and aftermarket customers with bumpers and tubular steel
accessories. Sales of the Company's bumper products have been to both the Crash
Replacement market and the Traditional Market involving dealers, jobbers,
warehouse distributors and others. Since 1995, an erosion of Wedgestone's bumper
sales has occurred due to a desire on the part of truck manufacturers to
integrate the design of rear step bumpers into their current designs for light
duty pick-up trucks and sport utility vehicles. New vehicle dealers who might
choose Wedgestone's bumpers instead of the factory equivalent due to advantages
in either price or greater tow capacity have been returning to the factory
bumper due to the incompatibility of the Company's current bumper line with
current vehicle designs. This trend is continuing as overall sales of bumpers
for the three months ended March 31, 1998 has fallen 8.1% or $406,000 over the
same period in 1997.
For the near term, sales of Wedgestone bumpers to the crash replacement
market will continue, however, unless the Company invests in new designs, its
current line will not support the long term demands of the crash replacement
market for aftermarket bumpers. In the past, the expected return on investment
for updating the Company's bumper line was based on both crash replacement and
aftermarket sales for new vehicles. Sales in both of these markets is required
to justify the cost of new tooling. Since 1995, however, there has been a
significant effort on the part of the OE manufacturers to improve dealer loyalty
for their products. These efforts, which have been promoted through the use of
pricing strategies designed to enhance dealer profits, have significantly eroded
the Company's sales of bumpers to new vehicle dealers. As a result of the
success of OE campaigns to enhance dealer loyalty, the Company does not believe
there would be a sufficient return on investment to support the estimated $2
million required to develop new tooling to replicate current OE bumper designs.
The Company is looking at alternative methods to lower the cost of this
investment, including avoiding the investment through the import of components
that more closely conform to the appearance of the new OE bumpers.
In recent years, particulary with the development of their new truck
designs, the OE manufacturers have increased their own line of aftermarket truck
accessories. These accessories are being offered to their dealer networks in an
effort to enhance OE profitability by participating in the more profitable
aspects of the accessory aftermarket for their light duty trucks and sport
utility vehicles. The sale of OE accessories has significantly benefitted from
the OE programs designed to promote dealer loyalty. Wedgestone's line of tubular
accessories has also benefitted from the OE accessory programs in that the
Company has been able to secure supplier agreements from several OE
manufacturers for Step Bars, Grille Guards, Light Bars, Push Bars and Combo
Bars. These accessories are all tubular
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<PAGE>
in nature and represent one consistent style of product. The Company's ability
to rely on the sales of these products in the future is entirely dependant on
the consumer's continued acceptance of these types of accessories.
Due to the vulnerability of continued earnings stemming from a decline
in bumper sales and the Company's dependancy on tubular products for its OE
programs, Wedgestone intends to seek additional products and markets. While
remaining committed to its core competency of metal fabrication and finishing,
and maintaining its commitment to the light duty pickup and sport utility
aftermarket, Wedgestone intends to reduce its dependancy on this market as the
sole source of return on invested capital. This expansion of product and markets
will require significant investments in tooling, processes and product design.
The Company expects this expansion to take several years and will involve a
significant financial commitment to procure equipment and finance the
acquisition of companies that would assist and accelerate Wedgestone's
penetration of market segments compatible with its core competency.
Since emerging from bankruptcy, the Company has been unable to utilize
its SBI effectively for acquisitions, financing, or employee incentives because
of (i) its low market price and low trading volume and (ii) limitations that
would be imposed on the use of net operating loss carryforwards after the
issuance of additional shares, and so has been unable to realize the principal
benefits of public ownership. In light of the costs of remaining public without
the benefits thereof, the Company's Board of Trustees agreed to explore the
feasibility of a "going private" transaction proposed by the majority owners of
the Company. On October 15, 1997 an independent committee of the Board was
formed to review the transaction. In response, (i) to this review, (ii) a
fairness opinion obtained by the independent committee indicating a $.65 price
per share of beneficial interest as a fair representation of value, and (iii)
additional negotiations leading to a $.67 per share price with a one year
clawback privilege, the Board on February 9, 1998, by a unanimous vote of all
Trustees present and voting recommended that all Public Shareholders accept the
offer and tender their Shares pursuant to the offer.
On February 9, 1998 the Company announced the Tender Offer (the "Offer"
or "Tender Offer") to acquire all of the issued and outstanding shares of the
Company not owned by certain majority shareholders which include Stockwood LLC,
JCS Management Co. Inc., PFG Corporation, RAB Management Corp., and JMS Holdings
Co., Inc. whom collectively own 62.1% of the current issued and outstanding
shares. The Offer price is $ .67 net per share to sellers in cash. Shares not
tendered will be converted into the right to receive $ .67 per share in a merger
to be consummated as soon as practical after the tender offer. The Company has
arranged for financing the Offer through its primary lender, The CIT Group /
Credit Finance. The arrangements include additional borrowings under the
Company's current revolver loan approximating $3,000,000, additional advances
under equipment financing term notes approximating $500,000 and an 18 month term
note for $1,500,000. The Company will use approximately $1,000,000 of existing
cash to fund the balance of the $6,000,000 estimated costs associated with the
Tender Offer.
Liquidity and Capital Resources
To date, Wedgestone has financed its business activities through cash
flows from operations. Additional debt has been incurred primarily for working
capital and acquisitions.
Cash flows from operations totaling $1,359,000 were supplemented by a
$1,221,000 reduction in advances to customers and $1,318,000 in additional
advances by unsecured creditors. These funds were used to provide $235,000 in
additional working capital consisting of $121,000 in inventories and $65,000 in
other current assets and $49,000 in other assets, resulting in net cash provided
by operations totaling $3,662,000 for the three months ended March 31, 1998
compared to $630,000 for the same period in 1997. During the quarter, the
Company invested $141,000 in new equipment, made payments on long term debt
totaling $139,000 and reduced revolving debt $3,122,000 for a net increase in
cash of $260,000 in 1998 compared to $1,236,000 in 1997
On May 20, 1997 Wedgestone advanced Stockwood, LLC. ("Stockwood")
$1,650,000 under a one year secured note with interest at 12 percent. The note
is secured by 3,500,000 shares of beneficial interest of Wedgestone Financial
with principal and interest due at maturity. Stockwood is a related party
through common ownership by certain Wedgestone Financial shareholders.
On February 9, 1998, the Company signed a commitment letter with The
CIT Group / Credit Finance ("CIT") in connection with its Tender Offer. The
agreement provides additional term loans on equipment totaling approximately
$500,000, an 18 month term loan for $1,500,000, and raises the Company's overall
credit line with CIT to $13,000,000.
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<PAGE>
Interest on the new loans are unchanged for the Company's current rates which
are prime plus 1.375%. (Aggregating 9.75% as of May 12, 1998.)
On March 18, 1997, the Company amended and restated the agreement with
CIT to a five-year $10 million credit facility collateralized by substantially
all of the assets of the Company's wholly owned subsidiaries, providing a
revolving credit line and term loan under terms substantially similar to the
original agreement. The amended and restated agreement provides for borrowings
based on a percentage of inventory and receivables and includes an equipment
term loan. All loans are stated at the lender's prime rate plus 1.375% (9.75% at
March 31, 1998).
The company continues to actively seek acquisition opportunities in the
Automotive Products Business Segment. To the extent that Wedgestone expands its
operations and makes additional acquisitions, it will need to obtain additional
funding from institutional lenders and other sources. Wedgestone'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.
The Company is currently addressing its computer systems and business
processes to ensure that its systems will be capable of processing periods for
the year 2000 and beyond as well as ensure that its business processes will be
able to support current and anticipated growth projections. The Company does not
anticipate the costs associated with ensuring the capabilities will have a
material adverse impact on the Company's financial position or results of
operations.
Results Of Operations
Current Year Performance: 1998 Compared to 1997
Net sales increased $3,582,000 to $15,138,000 for the three months
ended March 31, 1998 compared to $11,556,000 for the same period in 1997. Sales
under supplier agreements to Original Equipment manufacturers increased
$1,329,000 or 223% to $1,925,000 in the three months ended March 31, 1998
compared $596,000 for the same period in 1997. Sales of the Company's tubular
accessories increased $2,659,000 or 54% to 7,502,000 in the quarter compared to
$4,855,000 in 1997. Sales of the Company's bumper products decreased $406,000 or
8% to $4,579,000 for the quarter compared to $4,986,000 in 1997.
Gross margins increased $1,553,000 or 41% to $5,302,000 or 35% of sales
in 1998 compared to $3,749,000 or 32% of sales in 1997. The increase in sales
volume and the related efficiencies in 1998 are responsible for this increase.
Sales and marketing costs increased by $130,000 or 7% to $2,042,000 or
13% of sales in 1998 compared to $1,912,000 or 17% of sales in 1997.
Administrative costs increased by $263,000 or 17% to $1,815,000 in 1998
compared to $1,552,000 in 1997. This reflects an increase in the Company's
reserves for bad debt totaling $100,000, increases in the Company's product
design and development costs totaling $153,000 and increases in other
administrative costs totaling $10,000. Product design and development costs
include salaries, benefits and overhead costs for additions to the Company's
engineering staff. The Company believes that its future competitive position in
the automotive aftermarket will require significant increases in engineering and
development costs over the next several years. Legal, accounting, insurance and
other administrative costs make up the balance of this increase.
Other income for the three months ended March 31, 1997 consists of the
gain on the sale of the Company's 21 acres of land known as the College Point
property.
Interest expense decreased $155,000 or 54% to $130,000 in 1998 compared
to $285,000 in 1997. This decrease is attributable to the decrease in revolving
debt over the period ended March 31, 1998, the March 18, 1997 reduction in the
Company's borrowing rate with its primary lender and the inclusion in 1998 of
$49,000 in interest income associated with the Stockwood note.
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<PAGE>
Forward Looking Information
Information contained in this Form 10-Q contains "forward-looking
statements" within the meaning of the private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate or "continue" or the
negative thereof or other variations thereon or comparable terminology. There
are certain important factors that could cause results to differ materially from
those anticipated by some of these forward-looking statements. Investors are
cautioned that all forward-looking statements involve risks and uncertainty. The
factors, among others, that could cause actual results to differ materially
include: pricing and merchandising policies from the major automotive
manufacturers; the Company's ability to execute its business plan; the
acceptance of the Company's merchandising strategies by its target customers;
competitive pressures on sales and pricing; and increases in other costs which
cannot be recovered through improved pricing of merchandise.
-10-
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On April 18, 1998, J. Coleman Tidwell, as Trustee and Plaintiff filed
an Adversary Proceeding (Adversary Proceeding No. 98-1019) in connection with
the Bankruptcy proceedings of Hercules Automotive Products, Inc.("HAP") in US
Bankruptcy Court in the Middle District of Georgia (the "Proceeding").
Defendants listed in the filing are; MBC Corporation; Wedgestone Financial and
its subsidiaries Wedgestone Automotive Corp and Fey Automotive Products Inc.;
related parties of Wedgestone Financial, Wedgestone Partners, Resource Holdings
Associates, and PFG Corporation; Trustee, John C. Shaw, current Trustee and
former President of Wedgestone, Jeffrey S. Goldstein; and current Wedgestone
officers David Sharp and Eric Lee; and, as individuals, James Pinto, Richard
Bartlett and Jerry Seslowe. Among other matters, the Proceeding alleges that the
defendants conspired to acquire the customer base and assets of HAP which the
Complaint contends the defendants did not otherwise rightfully own. Damages
sought in the claim approximate $6,000,000. The Company believes that it has
good defenses with which to refute the Trustee's claim.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
-11-
<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: May 12, 1998 By: /s/ Eric H. Lee
-----------------
Chief Financial Officer
(Principal 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.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000315621
<NAME> WEDGESTONE FINANCIAL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,162
<SECURITIES> 0
<RECEIVABLES> 7,530
<ALLOWANCES> 410
<INVENTORY> 6,104
<CURRENT-ASSETS> 16,358
<PP&E> 12,460
<DEPRECIATION> 9,176
<TOTAL-ASSETS> 21,435
<CURRENT-LIABILITIES> 8,568
<BONDS> 0
0
0
<COMMON> 21,886
<OTHER-SE> (12,758)
<TOTAL-LIABILITY-AND-EQUITY> 21,435
<SALES> 15,138
<TOTAL-REVENUES> 15,138
<CGS> 9,836
<TOTAL-COSTS> 3,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130
<INCOME-PRETAX> 1,304
<INCOME-TAX> 420
<INCOME-CONTINUING> 884
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 884
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
