--------------------------------------------------------------------------------
STRICTLY CONFIDENTIAL
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
Fairness Opinion Presentation to the
Special Committee of the
Board of Directors
January 30, 1998
COMMONWEALTH ASSOCIATES
000 XXXXX XXXXXX
XXX XXXX, XX 00000
--------------------------------------------------------------------------------
CONFIDENTIAL
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
OUTLINE OF PRESENTATION
TAB
Executive Summary I
Background and Chronology of Events II
Summary Results of Valuation Methodologies III
Trading and Transaction Comparables IV
5-Year Business Plan, Management and Operating Assumptions V
--------------------------------------------------------------------------------
CONFIDENTIAL (i) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
OUTLINE OF PRESENTATION
EXHIBITS PAGE
--------- -----
Three Year Weekly Stock Price History 6
Analysis of Offer Premium to the Co.'s Historical Average Trading Prices 8
Valuation Results 11
Discounted Net Income Analysis 12
Derivation of Weighted Average Cost of Capital 13
(Assuming Maintenance of NOL)
Discounted Cash Flow: Stand Alone 14
(Assuming Maintenance of NOL)
Derivation of Weighted Average Cost of Capital 15
(Assuming Full Loss of NOL)
Discounted Cash Flow: Stand Alone 16
(Assuming Full Loss of NOL)
Historical P/E Ratios Applied to 1997 Estimated EPS 18
Management's Projected Financials 21-25
--------------------------------------------------------------------------------
CONFIDENTIAL (ii) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
EXECUTIVE SUMMARY
--------------------------------------------------------------------------------
CONFIDENTIAL COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
EXECUTIVE SUMMARY
Commonwealth Associates has been requested by the Special Committee to the
Board of Directors of Wedgestone Financial ("Wedgestone") to render an
opinion as to the fairness, from a financial point of view, to the
shareholders of Common Stock of Wedgestone of the proposed tender offer
("The Offer") by Wedgestone to purchase shares of Common Stock of
Wedgestone at $.65 per share, net to the seller in cash.
Wedgestone, with a current market capitalization of approximately $7.2
million and $6.8 million of net debt, is a manufacturer of Specialty
Automotive Parts including bumpers and tubing products. The Company
maintains manufacturing facilities in St. Xxxxx, Minnesota and Irwindale,
California, as well as a plating plant in Industry City, California.
The Company's "fair value" has been particularly difficult to determine due
to the lack of publicly traded comparables and the Company's decision not
to solicit third party offers. However, based on various discounted cash
flow analyses, the company's historical trading partners, and other
financial analyses, we have determined that the purchase price of $.65 is
fair.
--------------------------------------------------------------------------------
CONFIDENTIAL (2) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
ADDITIONAL DISCLOSURE
Within the past 12 months Commonwealth has conducted work for, and received
fees from, two companies for which one of Wedgestone's surviving
shareholders currently serves as a director.
--------------------------------------------------------------------------------
CONFIDENTIAL (3) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
----------------------------------------------------
BACKGROUND AND CHRONOLOGY
OF EVENTS
----------------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
CHRONOLOGY:
October 29, 1997 Initial Meeting with Xxx Xxxx, Chairman of Wedgestone
November 3, 1997 Initial Submission of Commonwealth Engagement Proposal
November 14, 1997 Resubmission of Commonwealth Engagement Proposal
December 8, 1997 Commonwealth notified that it had been selected by the
Special Committee to the Board of Directors to deliver
to the Committee an opinion as to fairness of the Offer
December 11, 1997 Commonwealth Due Diligence Trip toSt. Xxxxx, MN Factory
December 12, 0000 Xxxxxxxxxxxx Xxx Xxxxxxxxx Xxxx xx Xxxxxxxxx, XX
Facility
January 19, 1998 First Presentation to the Board's Special Committee
--------------------------------------------------------------------------------
CONFIDENTIAL (5) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
THREE YEAR WEEKLY STOCK PRICE HISTORY
Over the last three years Wedgestone's highest weekly closing trading
price of $.78125 occurred on January 9, 1995. Wedgestone's lowest
closing trading price of $.20 occurred on May 9, 1997.
[GRAPH]
--------------------------------------------------------------------------------
CONFIDENTIAL (6) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
MARKET PRICE FOR COMMON STOCK
We have reviewed the trading history of the Common Stock and
determined that the Offer represents a significant premium over the
historic average market prices for the Company's Common Stock. In
arriving at this conclusion, we examined the average daily closing
market price for various periods from April 8, 1994 to January 29,
1998. We have concluded that (i) while the single highest closing
price per share of Common Stock since April 8, 1994 was $0.875 on
November 7, 1994; the Company's average weekly closing price over this
period has been approximately $.33. Since September 14, 1996, the
closing market price has not been above $0.65 per share; and (iii) the
Offer represents an approximate 94% premium over the average weekly
closing prices for the Common Stock since April 8, 1994. Additionally,
the Offer represents a 49%, 75% and 110% premium to the average daily
closing prices in calendar year 1995, 1996, and 1997 respectively.
While acknowledging the existence of higher and lower "take-over"
premiums, we consider the Common Stock's recent trading history as
favorable to our opinion as to the fairness of the consideration to be
received by the Public Shareholders pursuant to the terms of the
Offer.
--------------------------------------------------------------------------------
CONFIDENTIAL (7) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
ANALYSIS OF OFFER PREMIUM TO THE COMPANY'S HISTORICAL AVERAGE TRADING PRICES
$0.65
Proposed Offer Price Per Share Premium
of $.65
Offer
Over
Average Average
Trading Price Per
Trading Period Price* Share
----------------------------------------------------------- -------- --------
Last reported trading price on January 28, 1998 $0.35 86%
December 29, 1997 to January 28, 1998 (last month) $0.31 110%
October 27, 1997 to January 28, 1998 (last three months) $0.36 81%
July 25, 1997 to January 28, 1998 (last six months) $0.31 107%
January 27, 1997 to January 28, 1998 (last twelve months) $0.31 111%
Average Daily Closing Price in Calendar Year 1997 $0.31 110%
Average Daily Closing Price in Calendar Year 1996 $0.37 75%
Average Daily Closing Price in Calendar Year 1995 $0.44 49%
April 8, 1994 to December 30, 1994 $0.18 265%
Average Weekly Closing Trade Price: April 8, 1994 to $0.33 94%
January 23, 1998
* Data represents the average daily closing trade prices as reported by
Bloomberg Financial, LLP.
N.B. -- as indicated on previous charts, the Company's stock price has closed at
prices above $.65. The last time this occurred was on September 13,1996 when
the closing trade price was $68.
--------------------------------------------------------------------------------
CONFIDENTIAL (8) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
--------------------------------------------
SUMMARY RESULTS OF
VALUATION METHODOLOGIES
-------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL (8) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
VALUATION PROCESS
We have estimated Wedgestone's potential value using the following
financial methodologies:
- Stand Alone Discounted Net Income
- Stand Alone Discounted Cash Flow (assuming maintenance of NOL)
- Stand Alone Discounted Cash Flow (assuming full loss of NOL)
- Historical P/E Ratios Applied to 1997 Estimated EPS
--------------------------------------------------------------------------------
CONFIDENTIAL (10) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
VALUATION RESULTS
Based on our analysis, the following range of values per Wedgestone
share was obtained:
INDICATED RANGE
VALUATION METHODOLOGY OF VALUE PER SHARE
--------------------------------- ------------------
Stand Alone Discounted Net Income $.58 - $.74
Stand Alone Discounted Cash Flow $.51 - $.81
(assuming maintenance of NOL)
Stand Alone Discounted Cash Flow $.37 - $.61
(assuming full loss of NOL)
Historical P/E Ratios Applied to 1997 Estimated EPS $.26 -$1.01
--------------------------------------------------------------------------------
CONFIDENTIAL (11) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
DISCOUNTED NET INCOME ANALYSIS (1)
(In thousands, except per share amounts)
ACTUAL FORECAST
-------- -------------------------------------
1996 1997 1998* 1999 2000 2001
-------- -------- ------ ----- ------ ------
Net Income 1,373 2,752 2,344 2,516 2,352 1,942
Total Equity Value
-------------------
Terminal Net Income Multiple
-----------------------------
6x 7x 8x 9x
-----------------------------
Discount Rate* 12.36% 13,047 14,265 15,483 16,702
-------------
Implied Per Share Value(2)
---------------------------
-----------------------------
Terminal Net Income Multiple
-----------------------------
6x 7x 8x 9x
Discount Rate* 12.36% $0.58 $0.64 $0.69 $0.74
-------------
--------------------------------
(1) Valuation calculations performed using 1998-2001 projections
(2) Shares outstanding are fully diluted, including 995,000 options,
exercisable at $.31, accounted for using Treasury Methodology.
* Using the Compound Annual Return for Small Company Stocks, 1926-1990, as
published STOCKS, BONDS, BILLS, AND INFLATION 1994
Yearbook, published by Ibbotson Associates
--------------------------------------------------------------------------------
CONFIDENTIAL (12) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: ASSUMING MAINTENANCE OF NOL
Assumptions: Wedgestone
--------------------------------- --------------
Pre-tax cost of debt (1) 13.59%
Rf (Risk Free Rate) (2) 5.75%
Rm (Market Return) - Rf (3) 12.25%
T (Effective Tax Rate) (4) 10.00%
Beta (Equity) (5) 0.58
Cost of Equity = Rf + Beta * (Rm - Rf)
COST OF EQUITY 12.86%
Debt/Capitalization 51.16%
Equity/Capitalization 48.84%
WACC (6) 12.53%
--------------------------------- --------------
------------------------------------------------------
(1) Represents current pre-tax cost of debt (LTM Interest Expense/Average
Total Debt).
(2) Based on 10 year treasury @ 12/19/97.
(3) Reflective of a required Mezzanine Financing return of 18%.
(4) Accounting for NOL carryforwards.
(5) Long term Beta vs. the S&P 500 as per Bloomberg @ 12/19/97
(6) WACC = (Debt/Capitalization) * After Tax Cost of Debt +
(Equity/Capitalization) * Cost of Equity.
--------------------------------------------------------------------------------
CONFIDENTIAL (13) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS: ASSUMING MAINTENANCE OF NOL (1)
(In thousands, except per share amounts)
Actual Forecast
--------- -----------------------------------------------------------
1996 1997 1998 1999 2000 2001
--------- -------- -------- --------- -------- ---------
Net Income 1,373 2,752 2,344 2,516 2,352 1,942
Plus: Interest 1,126 849 602 349 152 124
Less: Other Expense (Income) (116) 374 (44) (43) - -
Plus: Deferred Income Taxes (82) (439) (45) 1,167 1,090 900
Plus: Depreciation & Amortization 771 911 773 723 471 466
Less: Increase/(Decrease) in (2,638) (1,209) (263) 201 746 710
Working Capital
Less: Capital Expenditures (933) (1,032) (500) (500) (500) (500)
Free Cash Flow 4,787 2,206 2,867 4,413 4,311 3,642
Total Equity Value*
-------------------
-------------------------------
Terminal Cash Flow Multiple
-------------------------------
4x 5x 6x 7x
Discount Rate 12.53% 11,319 13,590 15,862 18,133
(WACC)
Implied Per Share Value(2)
---------------------------
--------------------------------------
Terminal Cash Flow Multiple
--------------------------------------
4x 5x 6x 7x
Discount Rate 12.53% $0.51 $0.61 $0.71 $0.81
(WACC)
----------------------------------------
(1) Valuation calculations performed using Wedgestone management's
1998-2001 projections
(2) Shares outstanding are fully diluted, including 995,000 options,
exercisable at $.31, accounted for using Treasury Methodology.
* After subtracting net debt of $6.823m from the implied total
enterprise value
--------------------------------------------------------------------------------
CONFIDENTIAL (14) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
DERIVATION OF WEIGHTED AVERAGE COST OF CAPITAL: ASSUMING FULL LOSS OF NOL
Assumptions: Wedgestone
--------------------------------- -----------
Pre-tax cost of debt (1) 13.59%
Rf (Risk Free Rate) (2) 5.75%
Rm (Market Return) - Rf (3) 12.25%
T (Effective Tax Rate) (4) 40.00%
Beta (Equity) (5) 0.58
Cost of Equity = Rf + Beta * (Rm - Rf)
COST OF EQUITY 12.86%
Debt/Capitalization 51.16%
Equity/Capitalization 48.84%
--------------------------------- -----------
WACC (6) 12.53%
------------------------------------------------
(1) Represents current pre-tax cost of debt (LTM Interest Expense/Average
Total Debt).
(2) Based on 10 year treasury @ 12/19/97.
(3) Reflective of a required Mezzanine Financing return of 18%.
(4) Accounting for the loss of NOL carryforwards.
(5) Long term Beta vs. the S&P 500 as per Bloomberg @ 12/19/97
(6) WACC = (Debt/Capitalization) * After Tax Cost of Debt +
(Equity/Capitalization) * Cost of Equity.
--------------------------------------------------------------------------------
CONFIDENTIAL (15) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS: Assuming Full Loss of NOL (1)
(In thousands except per share amounts)
Actual Forecast
-------- -------------------------------------
1996 1997 1998 1999 2000 2001
-------- ------ ------ ------ ----- -------
Net Income 1,373 2,752 2,344 2,516 2,352 1,942
Plus: Interest 1,126 849 602 349 152 124
Less: Other (116) 374 (44) (43) - -
Expense
Plus: Deferred (82) (439) - - - -
Income Taxes
Plus: Depreciation & 771 911 773 723 471 466
Amortization
Less: Increase/ (2,638) (1,000 (000) 000 000 010
(Decrease) in
Working Capital
Less: Capital (933) (1,032 (500) (500) (500) (500)
Expenditures
Free Cash Flow (499) 2,206 2,912 3,246 3,221 2,742
Total Equity Value *
---------------------
------------------------------
Terminal Cash Flow Multiple
------------------------------
4x 5x 6x 7x
Discount Rate 10.45% 8,234 10,077 11,919 13,762
-------------
(WACC)
Implied Per Share Value(2)
---------------------------
---------------------------------
Terminal Cash Flow Multiple
---------------------------------
4x 5x 6x 7x
Discount Rate 10.45% $0.37 $0.45 $0.53 $0.61
-------------
(WACC)
----------------------------------
(1 ) Valuation calculations performed using Wedgestone management's 1998-2001
projections
(2 ) Shares outstanding are fully diluted, including 995,000 options,
exercisable at $.31, accounted for using Treasury Methodology.
*After subtracting net debt of $6.823m from the implied total enterprise value
--------------------------------------------------------------------------------
CONFIDENTIAL (16) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL (17) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL: HISTORICAL P/E RATIOS APPLIED TO 1997 ESTIMATED EARNINGS
(In thousands, except per share amounts)
Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96 Sep-96 Dec-96 Mar-97 Jun-97 Sep-97 Dec-97
-------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Price/Earnings Multiple 5.19x 5.58x 4.85x 2.48x 3.30x 7.75x 5.90x 5.58x 4.57x 2.69x 1.98x 2.15x
Price based on 1997 Estimated Earnings $0.68 $0.73 $0.63 $0.32 $0.43 $1.01 $0.77 $0.73 $0.59 $0.35 $0.26 $0.28
----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL (18) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
-------------------------------------------------------
TRADING AND TRANSACTION
COMPARABLES
-------------------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
PUBLIC TRADING COMPARABLES
Commonwealth Associates has been unable to identify any public company that
could be considered a trading comparable for Wedgestone.
Among the factors considered in determining comparability have been the
Company's market value, management's characterization of the dynamics of
the markets in which the Company's products compete, and the specific
products manufactured and sold by the Company.
We have provided a summary analysis of the trading shares of 50 different
automotive parts companies that list as their primary Standard Industry
Classification Code. We arbitrarily choose to remove all companies with
market capitalization of over $2 Billion (these Companies were Allied
Signal, Inc., Autoliv Inc., Xxxx Corp., Echlin Inc., ITT Industries, Inc.,
Magma Intl., Tenneco, Inc., TRW, Inc.). The high, low and average multiples
for Companies are attached.
--------------------------------------------------------------------------------
CONFIDENTIAL (20) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
----------------------------------------------------
5-YEAR BUSINESS PLAN
MANAGEMENT'S AND OPERATING
ASSUMPTIONS
----------------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
SALES AND COST OF SALES:
Values are the result of product line forecasts that reflect units, sales
and gross margin percents. Sales assumptions are as follows:
Bumpers (35%) decline in 1998: (20%) decline per year thereafter
Drop Centers (35%) decline in 1998: (20%) decline per year thereafter
Mount Kits (35%) decline in 1998: (20%) decline per year thereafter
Ford 25% of take rate estimate
GM 25% of take rate estimate
The heavy decline in bumper, drop centers and mount kits in 1998 and 1999
reflect the remainder of the dealers who are likely to cease buying bumpers
due to model year changeovers planned in 1998.
SELLING COSTS:
Since 1997 sales costs are mostly after-market related, they are used as a
base for 1998 thru 2001. Added to this selling cost base are variable sales
costs equal to 8% of incremental sales above 1997 levels. This variable
factor is lower than historical due to the lower sales and marketing costs
associated with OE sales.
ADMINISTRATIVE COSTS:
Administrative costs are based on 1997 levels. Added to this base, are
variable administrative costs with a growth component of 3% on incremental
sales above 1997 levels. Administrative costs have also been increased by a
one time $250,000 to account for salary and fringe benefit growth.
--------------------------------------------------------------------------------
CONFIDENTIAL (22) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
SUMMARY INCOME STATEMENT (1)(2)
-----------------------------------------------------------------------------------------------------------------------------------
1996A 1997P 1998P 1999P 2000P 2001P
-----------------------------------------------------------------------------------------------------------------------------------
Revenues:
Sales: 46, 286 50,340 52,180 51,020 46,730 42,640
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total Revenues 46,286 50,340 52,180 51,020 46,730 42,640
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
CGS 31,560 32,787 33,987 33,336 30,569 27,934
-----------------------------------------------------------------------------------------------------------------------------------
Sales & Marketing 7,228 7,386 7,533 7,440 7,097 6,770
General Administrative 4,727 5,986 5,994 5,568 4,909 4,506
-----------------------------------------------------------------------------------------------------------------------------------
Total Expenses 11,955 13,372 13,527 13,008 12,006 11,276
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Income from Operations 2,771 4,181 4,666 4,676 4,155 3,430
-----------------------------------------------------------------------------------------------------------------------------------
Goodwill 49 44 44 43 - -
-----------------------------------------------------------------------------------------------------------------------------------
Other expense (income) 67 (418) - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Interest Expense 1,126 849 602 349 152 124
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Pre-Tax Income 1,529 3,706 4,020 4,284 4,003 3,306
-----------------------------------------------------------------------------------------------------------------------------------
Tax 156 954 1,676 1,768 1,651 1,364
-----------------------------------------------------------------------------------------------------------------------------------
Tax Rate % 10% 26% 42% 41% 41% 41%
-----------------------------------------------------------------------------------------------------------------------------------
Net Income 1,373 2,752 2,344 2,516 2,352 1,942
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
EPS $0.06 $0.13 $0.11 $0.11 $0.11 $0.09
SHARES OUT* 21,886 21,886 21,886 21,886 21,886 21,886
-----------------------------------------------------------------------------------------------------------------------------------
1 Company projections are modified to reflect that no transaction had occurred.
2 These projections have been provided to Commonwealth Associates by Management
of Wedgestone Financial
--------------------------------------------------------------------------------
CONFIDENTIAL (23) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
SUMMARY BALANCE SHEET
--------------------------------------------------------------------------------
1996A 1997P 1998P 1999P 2000P 2001P
--------------------------------------------------------------------------------
ASSETS:
---------------------
---------------------
Cash Equivalents 344 979 693 1,275 5,143 8,371
Receivables 7,282 7,650 7,930 7,753 7,101 6,480
Current Inventory 4,619 5,800 6,012 5,879 5,384 4,913
Other Assets 565 500 550 550 550 550
Deferred Income Taxes 477 1,066 1,167 1,090 900 0
Land 500 500 500 500 500 500
Buildings and Improvements 1,229 1,275 1,575 1,575 1,575 1,575
Machinery, Equipment and Tooling 8,440 9,300 9,500 10,000 10,500 11,000
Furniture and Office Equipment 1,324 1,450 1,450 1,450 1,450 1,450
Accumulated Depreciation 8,256 9,124 9,853 10,533 11,004 11,470
Net Property Plant and Equipment 3,237 3,401 3,172 2,992 3,021 3,055
Deposits 253 207 100 100 100 100
Non Cash investments 82 0 0 0 0 0
Long Term Notes Receivable 81 1,900 1,900 1,900 1,900 1,900
Real Estate Held for Investment 1,086 196 210 210 210 210
Deferred Income Taxes 2,196 2,046 1,990 900 0 0
Goodwill & Other Intangibles 130 87 43 0 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Total Assets 20,352 23,832 23,767 23,649 24,309 25,579
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
-------------------------
-------------------------
Current Portion of Long-term Debt 558 540 234 290 290 116
Revolver 5,394 5,970 4,000 1,000 1,000 1,000
Accounts Payable 3,882 4,707 4,879 4,770 4,369 3,987
Other liabilities 2,128 1,450 1,450 1,450 1,450 1,450
-----------------------------------------------------------------------------------------------------------------------------------
Long Term Debt 1,269 1,292 987 406 116 0
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 13,231 13,959 11,550 7,916 7,225 6,553
-----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY
-------------------------
-------------------------
Common Stock 21,886 21,886 21,886 21,886 21,886 21,886
Paid-in capital 31,396 31,396 31,396 31,396 31,396 31,396
Retained earnings (46,163) (43,411) (41,067) (38,551) (36,200) (34,258)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 7,119 9,871 12,215 14,731 17,082 19,024
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity 20,350 23,830 23,765 22,647 24,307 25,577
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONFIDENTIAL (24) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
SUMMARY CASH FLOW STATEMENT
--------------------------------------------------------------------------------
1996A 1997P 1998P 1999P 2000P 2001P
--------------------------------------------------------------------------------
Net Income 2,752 2,344 2,516 2,352 1,942
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and Amortization 911 773 723 471 466
Deferred Income Taxes (439) (45) 1,167 1,090 900
Changes in working capital:
Accounts Receivable (368) (280) 177 652 621
Inventories (1,181) (212) 133 495 471
Prepaid expenses and other current assets 65 (50) - - -
Accounts payable 825 172 (109) (401) (382)
Other accrued liabilities (678) - - - -
Other assets and liabilities 128 107 - - -
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Op. Activities 2,015 2,809 4,607 4,659 4,018
Cash Flows From Investing Activities
Proceeds from sale of real estate and equipment 890 (14) - - -
Investment in notes receivable (1,819) - - - -
Acquisition costs paid & Stock repurchased - - -
Capital expenditures (1,032) (500) (500) (500) (500)
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (1,961) (514) (500) (500) (500)
Cash Flows From Financing Activities
Borrowings on long-term debt 5 (611) (525) (290) (290)
Net borrowings on revolving debt 576 (1,970) (3,000) - -
-----------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 581 (2,581) (3,525) (290) (290)
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease in Cash) 635 (286) 582 3,869 3,228
Beginning Cash Balance* 344 979 693 1,275 5,143
Ending Cash Balance 979 693 1,275 5,143 8,371
--------------------------------------------------------------------------------
Average Cash Balance 661 836 984 3,209 6,757
--------------------------------------------------------------------------------
CONFIDENTIAL (25) COMMONWEALTH ASSOCIATES
--------------------------------------------------------------------------------
WEDGESTONE FINANCIAL
--------------------------------------------------------------------------------
BOOK VALUE PER SHARE
Book Value: 9.184mm
Shares Outstanding: 21.886mm
Book Value per Share: $.42
* Based on Wedgestone Financial's unaudited financials for the quarter
ended September 30, 1997.
--------------------------------------------------------------------------------
CONFIDENTIAL (26) COMMONWEALTH ASSOCIATES
