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UNITED STATES
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 quarterly period ended March 31, 1995 .
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[ ] 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 2-97923C
WELLSTEAD INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 35-1636466
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
581 BOYLSTON STREET, SUITE 500, BOSTON, MA 02116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 424-8090
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports). and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding or each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at May 5, 1995
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Common Stock 1,184,040
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PART 1 -- FINANCIAL INFORMATION
This report is filed for Wellstead Industries, Inc. The interim financial
statements have not been examined by independent accountants, but in the opinion
of management, include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation.
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ITEM 1 -- FINANCIAL STATEMENTS
WELLSTEAD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 508 $ 109
Receivables:
Trade, less allowance for doubtful
accounts of $2,008 and
$1,977 respectively. . . . . . . . . . . . . . 3,823 4,456
Inventories. . . . . . . . . . . . . . . . . . . . 4,401 5,085
Prepaids . . . . . . . . . . . . . . . . . . . . . 120 145
Other. . . . . . . . . . . . . . . . . . . . . . . 46 58
------- -------
Total current assets . . . . . . . . . . . . . . . 8,898 9,853
------- -------
Land & Buildings held for sale, less valuation
allowance of $765. . . . . . . . . . . . . . . . . 1,135 1,135
Property, plant and equipment, at cost:
Building and improvements. . . . . . . . . . . . . 0 399
Machinery and equipment. . . . . . . . . . . . . . 1,957 2,583
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Less accumulated depreciation. . . . . . . . . . . 1,595 1,743
------- -------
362 1,239
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Other assets:
Cost in excess of net assets
of businesses acquired . . . . . . . . . . . . 5,311 5,341
Other intangibles, net . . . . . . . . . . . . . . 560 809
Other. . . . . . . . . . . . . . . . . . . . . . . 427 226
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6,298 6,376
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Total assets . . . . . . . . . . . . . . . . . . . $16,693 $18,603
------- -------
------- -------
</TABLE>
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The accompanying notes are an integral part of the consolidated financial
statements.
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WELLSTEAD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---- ----
<S> <C> <C>
Current Liabilities:
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . . $ 4,734 $ 5,450
Current maturities of long-term obligations. . . . . . . . . . . . . 3,089 3,110
Accounts payable, trade. . . . . . . . . . . . . . . . . . . . . . . 4,057 4,014
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,963 2,764
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 13,843 15,338
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Long term debt, less current portion . . . . . . . . . . . . . . . . . 1,914 2,053
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Redeemable preferred stock, $.01 par value;
Series A; 58,824 shares authorized; none issued;
Series B; 7,500 shares authorized; issued and
outstanding 3,975 shares; Series C; 20,000
shares authorized; issued and outstanding
16,500 shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,047 2,047
Stockholders' (deficiency) equity:
Preferred stock, $.01 par value, 913,676
shares authorized; none issued
Common stock, $.01 par value; 4,000,000 shares
authorized; 1,356,380 shares and 1,282,380
shares issued in 1994 and 1993, respectively . . . . . . . . . . . . 64 64
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 37,707 37,707
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . (35,600) (35,324)
Common stock held in treasury, at cost,
172,334 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,282) (3,282)
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Total stockholders' (deficiency) . . . . . . . . . . . . . . . . . . (1,111) (835)
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . . . $16,693 $18,603
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-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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WELLSTEAD INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1995
(in thousands except for per share amounts)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $ 8,616 $13,101
Cost of sales. . . . . . . . . . . . . . . . 6,996 10,268
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Gross profit . . . . . . . . . . . . . . . . 1,620 2,833
Selling, general and administrative expenses 1,597 2,704
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Income from operations . . . . . . . . . . . 23 129
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Nonoperating (income) expense:
Interest expense . . . . . . . . . . . . . 319 280
Other, net . . . . . . . . . . . . . . . . (20) (5)
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299 275
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Net (Loss) . . . . . . . . . . . . . . . . . $ (276) $ (146)
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Per share data:
Net Income (Loss). . . . . . . . . . . . . $ (.23) $ (.13)
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Weighted average shares outstanding. . . . 1,184 1,109
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------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statement.
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WELLSTEAD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (276) $ (146)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 139 308
Provision for losses on accounts receivable. . . . . . . . . . 31 30
Provision for losses on inventory. . . . . . . . . . . . . . . 12
Valuation allowance on fixed assets held for sale,
net of gain on disposals . . . . . . . . . . . . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . 3
Write-down of investment in PPI. . . . . . . . . . . . . . . . 2
Changes in operating assets and liabilities, net of effects
from sale of investment interest in PPI in 1995:
Lockbox cash . . . . . . . . . . . . . . . . . . . . . . . . . (265)
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . (203) (879)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . (412) (104)
Prepaids and other . . . . . . . . . . . . . . . . . . . . . . (44) (220)
Cost and estimated earnings in excess of related billings. . . 773
Accounts payable and accrued expenses. . . . . . . . . . . . . (98) (62)
Billings in excess of costs and estimated earnings . . . . . . (690)
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Net cash provided (used in) by operating activities. . . . . . . (1,111) (990)
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Cash flows from investing activities:
Purchase of property, plant and equipment. . . . . . . . . . . (16)
Proceeds from sales of property, plant and equipment . . . . . 9 (74)
Proceeds from sale of investment interest in PPI . . . . . . . 1,500
(Increase) decrease in other assets. . . . . . . . . . . . . . (3)
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Net cash used in investing activities. . . . . . . . . . . . . . 1,506 (90)
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Cash flows from financing activities:
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Proceeds from (payments of) notes payable to bank, net . . . . 34 1,205
Payments of long-term obligations. . . . . . . . . . . . . . . (33) (323)
(Increase) decrease in long-term payables. . . . . . . . . . . ------- -------
Net cash provided (used in) by financing activities. . . . . . . 1 882
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</TABLE>
WELLSTEAD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1995 (continued.)
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Increase (decrease) in cash and cash equivalents . . . . . . . . 395 (198)
Cash and cash equivalents at beginning of year . . . . . . . . . 25 410
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Cash and cash equivalents at end of period . . . . . . . . . . . $ 420 $ 212
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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WELLSTEAD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statements (unaudited)
The consolidated financial statements have been prepared without audit and
include all normal recurring adjustments, necessary to present fairly the
consolidated balance sheets, consolidated statements of operations and
consolidated statements of cash flows. Operating results for interim periods
are not necessarily indicative of the results expected for the full year. The
consolidated financial statements should be read in conjunction with the Annual
Report to stockholders and the Annual Report on Form 10-K.
2. Inventories
Inventories are comprised of the following amounts:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials component parts. . . . . . . . $ 119,678 $ 415,240 $ 410,846
Resale merchandise . . . . . . . . . . . . . 5,042,367 4,602,056 6,224,076
Less allowance for slow moving
inventory. . . . . . . . . . . . . . . . (761,452) (802,175) (410,228)
---------- ---------- ----------
$4,400,593 $4,215,121 $6,224,694
</TABLE>
3. Segment Information
In 1994, the Company operated through two wholly-owned subsidiaries in two
business segments. The first segment was the distribution of industrial,
health, fire and safety supplies for worker and facilities protection carried
out through Control Resource Systems, Inc.("CRSI"). The second segment was the
design, fabrication, and installation of custom exhibits for corporate trade
show, museums, and parks carried out through Promotion Products, Inc. ("PPI").
In late December 1994, CRSI faced an acute shortage of working capital. In
order to raise cash promptly to meet CRSI's need for working capital, on January
9, 1995, the Company sold 86% of its investment in PPI for $1,500,000 to a
corporation formed by a group of the Company's shareholders. The value was
determined by a valuation conducted by an independent firm selected by the
Company's outside unrelated director. The Company holds an option expiring
January 31, 1996 to repurchase the equity interest sold in PPI at the same price
plus interest and transaction expenses. As a result of the sale, the Company
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recognized a loss of $3,063,000 in the fourth quarter of 1994 from the write off
of PPI goodwill.
In 1995, the Company will no longer consolidate PPI and will begin to account
for its remaining investment using the equity method of accounting.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales for the first quarter ended March 31, 1995, were
$8,615,000; which represents a decrease of $4,485,000 or 34.2%. This
decrease is primarily a result of PPI sales which are no longer included in
the Company's consolidated sales and the exit by the Company during the
fourth quarter of 1994 from the asbestos abatement supply business. The
industrial safety supply business experienced a 12% decrease in sales as
the Company tightened its customer credit standards and refused certain low
profit margin orders.
COST OF SALES/GROSS PROFIT
Gross profit for the first quarter of $1,620,000 was a decrease of
$1,213,000 or 42.8% as compared to the first quarter of 1994. The
exclusion of PPI from the gross profit numbers along with the exit from the
asbestos abatement business was the main reason for the decline. The
safety supply business experienced a slight decline in gross profit from
19.4% in 1994 to 18.9% in 1995 as the Company attempted to liquidate slow
moving and excess inventory.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $1,628,000 or a decrease
of $1,075,000 or 39.7% as compared to the first quarter 1994. Not included
in the 1995 numbers are the expenses from PPI and the asbestos abatement
business. As a percentage of net sales, selling, general and
administrative costs decreased to 18.9% as compared to 20.6%. The Company
continues to examine all opportunities to decrease operating costs.
NON-OPERATING (INCOME) AND EXPENSE
Non-operating expenses increased $22,000 or 7.9% during the first quarter.
Interest expense increased by $40,000 or 14.2%. This increase was
partially offset by rent income from the Michigan City facility and the
gain from the sale of assets.
NET LOSS
The Company reported a net loss of $276,000 for the first quarter. As a
result of
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actions to improve margins and to reduce operating expenses the Company
expects improved results in the second quarter and for the remainder of the
year.
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
FINANCIAL CONDITION
Liquidity
Working capital at March 31, 1995 was a deficit of $4,877,000 compared to a
deficit of $5,484,000 as of December 31, 1994. Working capital increased
for the quarter primarily as a result of the sale of PPI and a decrease in
accounts payable and notes payable to the bank.
In January, the Company completed the sale of 86% of its investment in PPI
for $1,500,000 in cash. In addition, CRSI's primary lender provided a
$300,000 overline advance. A portion of the proceeds of the sale and the
advance were used for working capital during the first quarter. On March
31, the Company had remaining approximately $700,000 of these cash proceeds
in separate accounts to fund CRSI's working capital needs.
The Company has a revolving credit agreement, which contains a borrowing
formula, with a financial subsidiary of a bank. This agreement allows the
distribution business to borrow 85% of the eligible accounts receivable
plus 50% of the eligible inventory, not to exceed $5,000,000; subject to an
overall limitation of $8,500,000. Based on this borrowing formula, the
Company had borrowed nearly the maximum allowable amounts as of March 31,
1995. The agreement contains numerous provisions limiting the activities
of the Company (see Form 10-K). As of March 31, 1994, the Company was not
in compliance with these financial covenants.
The Company has issued $3,000,000 Secured Subordinated 12% promissory notes
due December 31, 1997, with interest due monthly beginning January 1, 1994.
These notes contain restrictive covenants similar to the covenants under
the revolving credit agreement covenants mentioned above. Since the
Company is in default on these covenants, the amount of these notes has
been classified as current.
The Company has placed properties in Indiana and Alabama for sale with an
approximate value of $1,100,000. Interest in the properties has been shown
by prospective buyers, but no offers have yet been received by the Company.
The proceeds from the sale of these properties will be used to reduce debt.
The Company has not paid dividends, which are due on its Series B and
Series C Preferred Stock. The unpaid dividends amount to $190,000 and are
cumulative.
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OPERATIONS
The Company's distribution segment has achieved break even on its operating
results in the first quarter, which is an improvement over the fourth
quarter. The Company is continuing to take active steps to reduce its
operating expenses and working capital. Management intends to carry out
further reductions in personnel, operating costs, and inventory. It has
tightened credit standards, accelerated collection of past due accounts,
and increased prices to low margin accounts. The effect of these actions
are expected to result in improved results for CRSI for the remainder of
the year.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLSTEAD INDUSTRIES, INC.
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(Registrant)
Date: May 22, 1995 /s/: John W. Burkhart
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John W. Burkhart
Chairman of the Board,
Chief Executive Officer,
President
Date: May 22, 1995 /s/: Carmen J. DiCioccio
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Carmen J. DiCioccio
Assistant Treasurer & Secretary
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