<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1995
Commission File No. 0-18071
----------------
INDUSTRIAL FUNDING CORP.
(Exact name of registrant as specified in its charter)
OREGON 93-1013278
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2121 S.W. BROADWAY
SUITE 330
PORTLAND, OREGON 97201
(Address of principal executive offices, including zip code)
(503)228-2111
(Registrant's telephone number, including area code)
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
---- ---
----------------
Outstanding at
Class July 5, 1995
----- ------------
Class A, Without Par Value 1,977,602 shares
Class B, Without Par Value 5,625,000 shares
(The number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date)
<PAGE>
INDUSTRIAL FUNDING CORP.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements (Liquidation Basis) . . .
Consolidated Statement of Net Assets . . . . . . . . . . . . 3
Consolidated Statements of Changes in Net Assets
in liquidation. . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 9
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
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INDUSTRIAL FUNDING CORP. UNAUDITED
- - --------------------------------------------------------------------------------
Consolidated Statement of Net Assets (liquidation basis)
<TABLE>
<CAPTION>
May 31, May 31, November 30,
----------- ----------- ------------
(DOLLARS IN THOUSANDS) 1995 1994 1994
- - -------------------------------------------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION LIQUIDATION
BASIS BASIS BASIS
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $6,915 $6,155 $20,754
Restricted cash -- 810 6,175
Short-term investments 4,430 23,224 6,569
Notes receivable 6,348 12,695 9,521
Nonperforming assets -- 395 989
Prepaid and other assets 712 216 99
---------------------------------------------------
TOTAL $18,405 $43,495 $44,107
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---------------------------------------------------
LIABILITIES:
Accounts payable and accrued liabilities $171 $784 $661
Reserve for litigation settlement -- -- 5,000
Reserve for estimated costs during the period
of liquidation 984 3,631 1,427
---------------------------------------------------
Total liabilities 1,155 4,415 7,088
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK
Series A Cumulative Preferred Stock (without par value,
10,000,000 shares authorized, 134,310 shares issued and
outstanding - at redemption and liquidation value of
$100 per share and accumulated dividends). -- 19,559 20,514
---------------------------------------------------
Total Liabiliites and Redeemable Preferred Stock 1,155 23,974 27,602
SHAREHOLDERS' EQUITY:
Common stock:
Class A (20,000,000 no par value shares authorized,
1,977,602 outstanding) -- -- --
Class B (10,000,000 no par value shares authorized,
5,625,000 outstanding) -- -- --
---------------------------------------------------
Total shareholders' equity -- -- --
---------------------------------------------------
TOTAL 1,155 23,974 27,602
---------------------------------------------------
NET ASSETS IN LIQUIDATION $17,250 $19,521 $16,505
---------------------------------------------------
---------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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INDUSTRIAL FUNDING CORP. UNAUDITED
- - --------------------------------------------------------------------------------
Consolidated Statements of Changes in Net Assets in Liquidation
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
May 31, May 31, May 31, May 31,
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION LIQUIDATION LIQUIDATION
BASIS BASIS BASIS BASIS
<S> <C> <C> <C> <C>
REVENUE:
Gain on nonperforming portfolio ($21) -- ($14) --
Interest and dividend income 231 $334 523 $946
Gain (loss) on sale of short-term investments 21 10 89 (339)
Unrealized loss on short-term investments -- (162) -- (78)
Insurance recovery 591 -- 591 --
Other revenue 27 12 28 28
------------------------------- ----------------------------
Total revenue 849 194 1,217 557
------------------------------- ----------------------------
ESTIMATED COSTS DURING LIQUIDATION (175) -- (175) (5,451)
------------------------------- ----------------------------
NET INCOME (LOSS) 674 194 1,042 (4,894)
------------------------------- ----------------------------
------------------------------- ----------------------------
NET INCOME (LOSS) PER SHARE (Exhibit 11.1) $0.09 ($0.04) $0.10 ($0.78)
------------------------------- ----------------------------
------------------------------- ----------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
INDUSTRIAL FUNDING CORP. UNAUDITED
- - --------------------------------------------------------------------------------
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
For the Six Months Ended
May 31, May 31,
----------- -----------
(DOLLARS IN THOUSANDS) 1995 1994
- - --------------------------------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION
BASIS BASIS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTVITIES:
Net income (loss) $1,042 ($4,894)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
(Increase) decrease in restricted cash 6,175 (10)
(Gain) loss on sale of short-term investments (89) 339
Unrealized loss on short-term investments -- 78
Increase (decrease) in reserve for estimated costs during liquid (443) 3,631
Decrease in reserve for litigation settlement (5,000) --
Increase in other assets (613) (161)
Increase (decrease) in accounts payable and other liabilities (490) 164
Other 0 (32)
----------------------------------
Total adjustments (460) 4,009
----------------------------------
Net cash used in operating activities 582 (885)
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on nonperforming assets 989 2,667
Purchase of short-term investments (6,005) (20,351)
Proceeds received on sale of short-term investments 8,233 14,964
Principal payment received on note receivable 3,173 3,174
Redemption of Series A Cumulative Preferred Stock and
accumulated dividend (20,811) --
----------------------------------
Net cash used in investing activities (14,421) 454
----------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,839) (431)
----------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,754 6,586
----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,915 $6,155
----------------------------------
----------------------------------
SUPPLEMENTAL DISCLOSURES:
Non-cash - preferred stock dividends accreted $297 $955
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Industrial Funding Corp. ("Industrial" or the "Company"), was incorporated
in October 1989, as a holding company formed for the purpose of owning
Industrial Leasing Corporation ("Industrial Leasing"). The accompanying
consolidated financial statements include all of the accounts of the Company and
its wholly owned subsidiary. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Until May 27, 1993, the business of the Company was providing capital
equipment lease financing to small businesses. At that time, the Company
completed a sale of substantially all of the assets of Industrial Leasing (the
"Asset Sale"), to ILC Acquisition Corp., a wholly owned subsidiary of Parrish
Equipment Partner L.P. ("Parrish"), in a transaction approved by shareholders of
the Company on May 17, 1993.
Subsequent to the Asset Sale, Company activities include collection of the
remaining assets, investment of its financial resources, and the management of
legal proceedings against the Company that were concluded in January 1995.
The Company has adopted the liquidation basis of accounting as of May 20,
1994. This basis of accounting is considered appropriate when the Company has
adopted a plan of liquidation and liquidation appears imminent, the Company is
no longer viewed as a going concern and the net realizable value of the
Company's assets are reasonably determinable. Under this basis of accounting,
assets and liabilities are stated at their estimated net realizable value and
estimated costs of liquidating the Company are provided to the extent they are
reasonably determinable.
The Company's Plan of Dissolution and Complete Liquidation (the "Plan of
Liquidation") (see NOTE 2. - Plan of Dissolution and Complete Liquidation)
provides for the liquidation of all of the Company's assets. In connection with
the adoption of the liquidation basis of accounting, the Company has accrued
what management believes are reasonable estimates of costs to liquidate its
remaining assets. The actual costs may differ significantly depending on a
number of factors, including the length of time it takes to dispose of and the
amount received for the remaining assets and the holding costs associated
therewith, and the resolution of the claims against the Company's insurance
carriers for reimbursement of legal fees and expenses related to the security
litigation. Estimated costs to liquidate are reflected in the Consolidated
Statement of Net Assets as "Reserve for estimated costs during the period of
liquidation".
On July 3, 1995, the Company filed form 15 with the Securities and Exchange
Commission to terminate its registration under the Securities Exchange Act of
1934 pursuant to Rule 12g-4(a)(1)(i). The decision to terminate its
registration is an effort by the Company to eliminate the substantial costs
associated with public reporting requirements. Under Rule 12g-4, termination of
registration is effective 90 days after the filing of a Form 15, unless a
shorter period is determined by the Commission. Once the termination of
registration is effective, the corporation will also voluntarily terminate its
listing on the Nasdaq Small Capitalization Market.
The accompanying Unaudited Consolidated Financial Statements were prepared
on the liquidation basis of accounting in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
While management believes these statements reflect all necessary, normal, and
recurring adjustments, including those required to present fairly, in all
material respects, the financial position, results of operations and cash flows
of the Company and its subsidiary at May 31, 1995 and 1994, and for the three
and six
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
month periods then ended, they do not include all information and notes required
by generally accepted accounting principles for complete financial statements.
Further information is contained in the annual financial statements of the
Company and notes thereto, for the year ended November 30, 1994, contained in
the Company's Form 10-K/A, filed with the SEC pursuant to the Securities
Exchange Act of 1934. Operating results for the three and six month periods
ended May 31, 1995, are not necessarily indicative of the results that may be
expected for the full year. The effects of adopting the Plan of Liquidation are
explained in NOTE 2. - Plan of Dissolution and Complete Liquidation.
NOTE 2. PLAN OF DISSOLUTION AND COMPLETE LIQUIDATION
The Board of Directors of the Company approved the Plan of Liquidation, on
May 20, 1994, for submission to the shareholders of the Company. A Special
Meeting of Shareholders was scheduled for August 18, 1994, for shareholders to
consider approval of the Plan of Liquidation. However, on August 15, 1994, the
Company reached a preliminary agreement to settle the securities class action
lawsuits pending against the Company (see NOTE 3. - Commitments and
Contingencies). Due to the material financial implications of this proposed
settlement, the Special Meeting was adjourned. A date has not been set for the
continuation of the Special Meeting.
On April 3, 1995, a change in control of the Company occurred pursuant to
the closing of the sale of 5,625,000 shares of Class B Common Stock of the
Company by IFC Holdings, Inc. under the terms of a Stock Purchase Agreement,
dated as of April 3, 1995, to Fir Tree Industrial, L.P., a Delaware limited
partnership ("FTI"), Fir Tree Value Fund, L.P., a Delaware limited partnership
("FTV"), F/B/O Jeffrey D. Tannenbaum IRA Neuberger & Berman Custodian ("IRA"),
and Quota Fund, N.V., a foreign investment company ("Quota"). FTI, FTV, IRA and
Quota purchased 3,135,000, 1,125,000, 72,500 and 1,292,500 shares of the
Company's Class B Common Stock, respectively.
The Plan of Liquidation will be effective the date on which it is approved
by the shareholders. FTI, FTV, IRA and Quota, are record owners, in the
aggregate, of 100 percent of the Company's Class B Common Stock, which
represents 75 percent of the ownership of the Company and 96.8 percent of the
outstanding Common Stock voting rights. FTV and Quota are beneficial owners, in
the aggregate, of 72.7 percent of the Company's Class A Common Stock, which
represents 18.2 percent of the ownership of the Company and 2.3 percent of the
outstanding Common Stock voting rights. FTI, FTV, IRA and Quota accordingly
have a sufficient number of votes to approve the Plan of Liquidation, regardless
of the votes of any other shareholders.
As a result of the Board's approval of the Plan of Liquidation, the
Company's Consolidated Financial Statements are prepared on the liquidation
basis of accounting. Accordingly, assets are valued at their estimated net
realizable value, and liabilities include the estimated costs to carry out the
Plan of Liquidation. The Company's financial statements for the three and six
months ended May 31, 1994, has been restated to reflect the liquidation basis of
accounting as of December 1, 1993.
The net adjustment required to convert from the going concern (historical
cost) basis to the liquidation basis of accounting as of December 1, 1993, was a
decrease in the carrying value of net assets of $5.5 million that was included
in the Consolidated Statement of Changes in Net Assets in Liquidation. This
decrease in the carrying value of net assets is principally a result of
recording estimated costs associated with carrying out the Plan of Liquidation.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the liquidation basis, the Company has accrued future liabilities
associated with carrying out the Plan of Liquidation (see assumptions below).
The Company has not estimated any future revenues from interest income or income
associated with investment activities as such income will be recognized when
realized.
The conversion of the Company's assets and liabilities from the going
concern (historical cost) basis to the liquidation basis of accounting has
required the determination of significant estimates and judgments by management
of the Company. A summary of the Plan of Liquidation, and of the significant
estimates and judgments made, are described below.
The Plan of Liquidation calls for an orderly liquidation of the Company
over a five year period from the effective date of the Plan. This period may be
shortened or lengthened if it is deemed to be in the best interest of the
shareholders. The Company may engage in transactions as may be appropriate to
complete its liquidation, including the sale, exchange, or other disposition of
all or part of its remaining assets for cash, shares, bonds, or other security
or property, or any combination of the foregoing. Prior to distributions of the
assets of the Company to its shareholders, the Company will invest its financial
resources and will discharge or otherwise provide for all of its known
liabilities and obligations.
The Company has made the following assumptions in the valuation of the
assets and liabilities of the Company on the liquidation basis of accounting:
1) SHORT-TERM INVESTMENTS are carried at their estimated market
value. No accrual has been made for future income or loss
on investments.
2) NOTE RECEIVABLE. The Company has the intent and ability to hold
this receivable, acquired in connection with the Asset Sale,
to maturity, which is May 27, 1996. No valuation allowance
is deemed necessary. Interest income will be recognized
when earned, calculated at the stated rate of 6% per annum.
3) THE RESERVE FOR ESTIMATED COSTS DURING THE PERIOD OF LIQUIDATION
represents management estimates of costs to be incurred in
the future to liquidate the company. Administrative costs
have been accrued through May 31, 1996, the anticipated date
of the final payment on the note receivable. No costs have
been accrued subsequent to May 1996, as the Company
currently anticipates that all significant outstanding
matters will be resolved by that time.
All of the above assumptions may be subject to change as facts emerge and
circumstances change.
NOTE 3. COMMITMENTS AND CONTINGENCIES
On August 15, 1994, a preliminary agreement was reached to settle the class
action lawsuits. A settlement agreement was executed by the parties on October
7, 1994. The settlement was approved by the Court on December 19, 1994, and
became effective January 19, 1995, at which time all claims were fully settled.
Under the terms of the settlement, the Company contributed $5 million,
without any presumption or admission of liability, of a total settlement of $10
million. The Company maintains that its litigation positions had merit, but
agreed to the settlement to avoid the risk, exposure, and costs of further legal
proceedings.
8
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the securities litigation, the Company had filed a
lawsuit against two insurance companies, demanding coverage against American
Home Assurance Company under a directors and officers liability policy in the
amount of approximately $5.0 million (Canadian), and against The Continental
Insurance Company (Continental Insurance) under a general liability policy and
umbrella policy of approximately $4.0 million (Canadian) and $16.0 million
(Canadian), respectively.
Continental Insurance has agreed to reimburse the Company for reasonable
defense fees and expenses. The Company has submitted approximately $5.9 million
of fees and expenses for reimbursement to Continental Insurance. As of May 31,
1995, Continental Insurance has reimbursed $2.2 million of legal costs which
represents approximately 37 percent of the total legal costs incurred to date by
the Company in defense of the class action lawsuit. The Company and Continental
Insurance have agreed to negotiate the amount of the remaining reimbursement.
Both parties have further agreed to submit the matter to binding arbitration if
negotiations are not successful. Any additional reimbursements from Continental
Insurance will be recorded as income when received.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Subsequent to the Asset Sale on May 27, 1993, the Company has made
collections on its nonperforming assets and the Purchase Note, has invested its
financial resources, and managed the legal proceedings against the Company. On
December 6, 1994 the remaining nonperforming assets were sold at public auction.
The Board of Directors of the Company approved the Plan of Liquidation, on
May 20, 1994, for submission to the shareholders of the Company. A Special
Meeting of Shareholders was scheduled for August 18, 1994, for shareholders to
consider approval of the Plan of Liquidation. However, on August 15, 1994, the
Company reached a preliminary agreement to settle the securities class action
lawsuits pending against the Company. (See NOTE 3. - Commitments and
Contingencies). Due to the material financial implications of this proposed
settlement, the Special Meeting was adjourned to enable the Company to revise
the Proxy Statement, and provide its shareholders with additional information
concerning the terms of the proposed settlement. A date has not been set for
the continuation of the Special Meeting.
On April 3, 1995, a change in control of the Company occurred pursuant to
the closing of the sale of 5,625,000 shares of Class B Common Stock of the
Company by IFC Holdings, Inc. under the terms of a Stock Purchase Agreement,
dated as of April 3, 1995, to Fir Tree Industrial, L.P., a Delaware limited
partnership ("FTI"), Fir Tree Value Fund, L.P., a Delaware limited partnership
("FTV"), F/B/O Jeffrey D. Tannenbaum IRA Neuberger & Berman Custodian ("IRA"),
and Quota Fund, N.V., a foreign investment company ("Quota"). FTI, FTV, IRA and
Quota purchased 3,135,000, 1,125,000, 72,500 and 1,292,500 shares of the
Company's Class B Common Stock, respectively.
The Plan of Liquidation will be effective the date on which it is approved
by the shareholders. FTI, FTV, IRA and Quota, are record owners, in the
aggregate, of 100 percent of the Company's Class B Common Stock, which
represents 75 percent of the ownership of the Company and 96.8 percent of the
outstanding Common Stock voting rights. FTV and Quota are beneficial owners, in
the aggregate, of 72.7 percent of the Company's Class A Common Stock, which
represents 18.2 percent of the ownership of the Company and 2.3 percent of the
outstanding Common Stock voting rights. FTI, FTV, IRA and Quota accordingly
have a sufficient number of votes to approve the Plan of Liquidation, regardless
of the votes of any other shareholders. FTI, FTV, IRA and Quota have advised
the Company that they will provide the Company with a proxy for those shares, to
be voted by management in favor of the proposed Plan of Liquidation, and,
consequently, approval of the Plan of Liquidation is assured.
9
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As a result of the Board's approval to adopt the Plan of Liquidation, the
Financial Statements have been prepared on a liquidation basis of accounting.
Accordingly, assets have been valued at their estimated net realizable value and
liabilities include estimated costs to carry out the Plan of Liquidation. The
net adjustment required to convert from a going concern (historical cost) basis
to a liquidation basis of accounting at December 1, 1993, was a decrease in the
carrying value of net assets of $5.5 million that is included in the
Consolidated Statement of Changes in Net Assets in Liquidation. This decrease
in the carrying value of net assets is a result of recording estimated costs to
carry out the Plan. In compliance with generally accepted accounting
principles, the Company has not included in this reserve future revenues from
interest, investment income, or any other miscellaneous income.
The conversion of the Company's assets and liabilities to the liquidation
basis of accounting requires significant estimates and judgments by management
of the Company. A summary of the Plan of Liquidation, and the significant
judgments and estimates made, are described below.
The Plan calls for the orderly liquidation of the Company over a five year
period from the effective date of the Plan. The period may be shortened or
lengthened if it is deemed to be in the best interest of the shareholders. The
Company may engage in transactions as may be appropriate to its complete
liquidation, including the sale, exchange, or other disposition of all or any
part of its remaining assets for cash, shares, bonds, or other securities or
property, or any combination of the foregoing. Prior to distributions of the
assets of the Company to its shareholders, the Company will invest its financial
resources and will discharge or otherwise provide for its liabilities and
obligations.
The Company has made the following assumptions in the valuation of the
assets and liabilities of the Company on the liquidation basis of accounting.
1. Short-term investments are carried at their estimated net realizable
value. No accrual has been made for future income or loss on
investments.
2. Notes Receivable. The Company has the intent and ability to hold this
receivable, acquired in connection with the Asset Sale, to maturity,
which is May 27, 1996. No valuation allowance is deemed necessary.
Interest income will be recognized when earned, calculated at the
stated rate of 6 percent per annum.
3. Preferred stock dividends were accreted through January 26, 1995. The
Company redeemed the preferred stock and accumulated dividends on
January 26, 1995 for a total of $20.8 million, including $297,000 in
dividends accreted subsequent to November 30, 1994.
4. The Reserve for estimated costs during the period of liquidation
represents management's estimate of costs to be incurred to liquidate
the Company. Estimated administrative costs have been accrued through
May 31, 1996, the anticipated date of the final payment on the note
receivable. No costs have been accrued subsequent to May 1996, as the
Company currently anticipates all significant outstanding matters will
be resolved by that time.
All of the above assumptions are subject to change should facts and
circumstances change.
On July 3, 1995, the Company filed form 15 with the Securities and Exchange
Commission to terminate its registration under the Securities Exchange Act of
1934 pursuant to Rule 12g-4(a)(1)(i). The decision to terminate its
registration is an effort by the Company to eliminate the substantial costs
associated with public reporting requirements. Once the termination of
registration is effective, the corporation will also voluntarily terminate its
listing on the Nasdaq Small Capitalization Market.
10
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1995 COMPARED TO MAY 31, 1994
As a result of the Board's approval of the Plan of Liquidation, the
Company's financial statements, for the three months ended May 31, 1995 and
1994, have been prepared on the liquidation basis of accounting. Accordingly,
assets have been valued at their estimated net realizable value and the
liabilities include estimated costs to carry out the Plan of Liquidation. The
Company's Net Assets in Liquidation were reduced by $5.5 million for the
estimated costs to implement the Plan of Liquidation as of December 1, 1993.
This amount is included in the consolidated statement of changes in net assets
in liquidation.
Revenue for the three months ended May 31, 1995, was $849,000 which
consisted primarily of $591,000 from the Continental Insurance Company for the
recovery of lawsuit costs as well as interest income and gains on sale of
investments. This compared to $194,000 for the three months ended May 31, 1994,
that consisted primarily of interest income and losses on investments
Liquidation costs were $297,000 for the three months ended May 31, 1995,
compared to $876,000 for the same period the previous year. The reserve for
estimated costs during the period of liquidation at May 31, 1995, was increased
$175,000 for additional insurance, estimated taxes, and operating expenses all
relating to the change in ownership.
The Company reported net income of $674,000 for the quarter ended May 31,
1995, or $.09 per common share, compared to a net income of $194,000, or $.03
per common share before dividend accretion for the same period a year ago.
There was a net loss of $.04 per common share after the dividend accretion for
the quarter ended May 31, 1994. (Perferred stock dividends were accreted
through January 26, 1995.)
SIX MONTHS ENDED MAY 31, 1995 COMPARED TO MAY 31, 1994
As a result of the Board's approval of the Plan of Liquidation, the
Company's financial statements, for the six months ended May 31, 1995 and 1994,
have been prepared on the liquidation basis of accounting. Accordingly, assets
have been valued at their estimated net realizable value and the liabilities
include estimated costs to carry out the Plan of Liquidation. The Company's Net
Assets in Liquidation were reduced by $5.5 million for the estimated costs to
implement the Plan of Liquidation as of December 1, 1993. This amount is
included in the consolidated statement of changes in net assets in liquidation.
Revenue for the six months ended May 31, 1995, was $1.2 million which
consisted primarily of $591,000 from the Continental Insurance company for the
recovery of lawsuit costs as well as interest income and gains on sale of
investments. This compared to $557,000 for the six months ended May 31, 1994,
that consisted primarily of interest income and losses on investments.
Liquidation costs were $619,000 for the six months ended May 31, 1995,
compared to $1.8 million for the same period the previous year. The reserve for
estimated costs during the period of liquidation at May 31, 1995, was increased
$175,000 for additional insurance, estimated taxes and operating expenses all
relating to the change in ownership.
The Company reported net income of $1 million for the six months ended May
31, 1995, or $.14 per common share before dividend accretion, compared to a net
loss of $4.9 million, or a loss of $.65 per common share before dividend
accretion for the same period a year ago. After dividend accretion, the Company
had net income of $.10 per common share for the six months ended May 31, 1995,
compared to a loss of $.78 per common share for the six months ended May 31,
1994.
11
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LIQUIDITY AND CAPITAL RESOURCES
The Company has no available short-term or long-term debt facilities. The
Company believes that its present cash and cash equivalents, short-term
investments, together with the future collection of its Notes Receivable will
allow it to implement the Plan of Liquidation and manage the collection of its
claims against Continental Insurance for the recovery of legal costs.
DISTRIBUTIONS TO SHAREHOLDERS
Although it is unable to predict the amount or timing of distributions to
holders of the Company's Common Stock if the Plan of Liquidation is approved by
the Company's shareholders, the Company presently estimates the total
distributions may range from $2.29 to $2.76 per share based upon an analysis of
the presently known assets and estimated liabilities of the Company. The
distribution estimate range assumes the collection by the Company of all
principal and interest under the Purchase Note, and the accuracy of the
Company's assumptions regarding its reserve for estimated costs during the
period of liquidation.
The timing and amounts of such distributions will depend upon the receipt
by the Company of payments of principal and interest under the Purchase Note.
As of May 31, 1995, the Purchase Note had a remaining principal balance of $6.3
million. In accordance with its terms, the remaining principal balance and
interest are payable on November 27, 1995, and May 27, 1996. Additionally, the
timing and amounts will be affected by the amount of defense costs reimbursed by
Continental Insurance, the accuracy of the Company's assumptions regarding its
Reserve for estimated costs during the period of liquidation, the absence of
additional liabilities, and determinations regarding reserves to be established
in connection with unknown liabilities. The amount of any distribution may vary
from current estimates and the timing of any distribution may depend upon a
number of factors beyond the control of the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 3, Commitments and Contingencies, in Notes to the Consolidated
Financial Statements, beginning on Page 8.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
8-K The Company filed a Form 8-K, related to the change in ownership, on April
14, 1995.
8-K The Company filed a Form 8-K, related to the change in its certifying
accountants and a change in the board of directors, on June 14, 1995.
11.1 Exhibit 11.1 is a statement of computation of per share earnings that
includes the preferred stock dividend.
27. Financial Data Schedule
12
<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.
INDUSTRIAL FUNDING CORP.
(Registrant)
Date: July 10, 1995 By: /s/ John W. Pitt
---------------- -------------------------
John W. Pitt
Vice-President - Finance and Secretary
13
<PAGE>
INDUSTRIAL FUNDING CORP.
- - --------------------------------------------------------------------------------
Exhibit 11.1
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
May 31, May 31,
--------------------------- ----------------------------
(Amounts In Thousands Except Per Share Data) 1995 1994 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------
LIQUIDATION LIQUIDATION LIQUIDATION LIQUIDATION
BASIS BASIS BASIS BASIS
<S> <C> <C> <C> <C>
Net income (loss) $ 674 $ 194 $ 1,042 $ (4,894)
Cumulative preferred stock dividend - (477) (297) (955)
------------------------------------------------------------
Earnings (loss) on common stock $ 674 $ (283) $ 745 $ (5,849)
Average number of common
shares outstanding 7,602,602 7,500,000 7,602,602 7,500,000
------------------------------------------------------------
Earnings (loss) per common share $ 0.09 $ (0.04) $ 0.10 $ (0.78)
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF NET ASSETS AS OF FEBRUARY 28, 1995 AND THE
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE THREE
MONTHS ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 6,915
<SECURITIES> 4,430
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,405
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,405
<CURRENT-LIABILITIES> 1,155
<BONDS> 0
<COMMON> 0<F1>
0
0
<OTHER-SE> 17,250<F1>
<TOTAL-LIABILITY-AND-EQUITY> 18,405
<SALES> 0
<TOTAL-REVENUES> 1,217
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,042
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,042
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<FN>
<F1>The Company is filing under the liquidation basis of accounting.
</FN>
</TABLE>
