================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                           ---------------------------


                                    FORM 10-K

(Mark One)

[ X ]                ANNUAL REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                              for the period ended

                                December 31, 1996

 [   ]             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)

                           ---------------------------

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                 Shares of Beneficial Interest, $1.00 par value

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained here, and will not be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  of  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

                        [ 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 March  27,  1997,  21,885,668  shares  of  beneficial  interest  were
outstanding.  The aggregate market value of the shares held by non-affiliates of
the  registrant  on that date was  approximately  $ 2,571,000  based on the last
reported sale price of the shares at that date.

  Total number of pages in this document: 59          Exhibits at page: 35

================================================================================
<PAGE>
                                     PART I


Items 1. and 2.    Business and Properties

A.       Introduction and Background

         Wedgestone Financial  ("Wedgestone" or the "Company"),  a Massachusetts
business  trust which was  organized  in 1980,  commenced  operations  as a real
estate investment trust under the Internal Revenue Code of 1986, as amended, and
continued  those  operations  through  December  31,  1991.  On August 9,  1991,
Wedgestone  filed a petition  with the United  States  Bankruptcy  Court for the
district of  Massachusetts  Eastern  Division  (the  "Bankruptcy  Court")  under
Chapter 11 of the United States  Bankruptcy  Code,  Case No.  91-16930-WCH  (the
"Bankruptcy  Proceeding").  Wedgestone's plan of reorganization (the "Plan") was
confirmed by the Bankruptcy Court on May 5, 1992.

         Under its  current  management,  Wedgestone  operates  in two  business
segments as follows:

                  A) Automotive  Products for the light duty truck  aftermarket;
and

                  B) Real Estate and Lending activities.

         The business of the Automotive  Products segment is conducted primarily
through  Wedgestone's  wholly  owned  subsidiary,   Wedgestone  Automotive  Corp
("Wedgestone  Automotive"),  which, in turn,  wholly owns the  subsidiaries  Fey
Automotive  Products,  Inc.  ("Fey"),  St. James Automotive Corp ("St.  James"),
Sigma Plating Co., Inc. ("Sigma") and Hercules Automotive  Products,  Inc. which
was acquired on January 9, 1995 and sold on April 18,  1996.  Fey and Sigma were
acquired on November 18, 1994,  and have been  accounted for as a  put-together,
which is similar to the pooling of interest method of accounting. As a result of
this  accounting  treatment,  the table of  Financial  Information  Relating  to
Business Segments that follows and other financial  statements  contained herein
have been restated to include the balance sheets, results of operations and cash
flows for Fey and Sigma for all periods presented.

<TABLE>

                                         Financial Information Relating to Business Segments
                                                       (Amounts in Thousands)
<CAPTION>

                                                                                             For the Years Ended December 31,

                                                                                       1996               1995                1994
                                                                                     --------           --------           --------
<S>                                                                                  <C>                <C>                <C>     
Revenues:

      Automotive Products:
            Manufactured Products for Light Duty Trucks                              $ 41,452           $ 39,970           $ 28,135
            Contract Plating                                                            3,312              3,680              3,179
            All Other                                                                   1,522              2,462              3,304
                                                                                     --------           --------           --------
         Total                                                                       $ 46,286           $ 46,112           $ 34,618
                                                                                     ========           ========           ========

      Real Estate and Lending (a)                                                        --                 --                 --

Operating Income (Loss):
         Automotive Products                                                         $  2,944           $  3,259           $  2,367
         Real Estate and Lending                                                         (174)              (529)              (363)
                                                                                     --------           --------           --------

Total                                                                                $  2,770           $  2,730           $  2,004
                                                                                     ========           ========           ========

Identifiable Assets:
         Automotive Products                                                         $ 16,221           $ 17,228           $ 11,087
         Real Estate and Lending                                                        1,167              1,375              1,880
                                                                                     --------           --------           --------

         Total Identifiable Assets                                                   $ 17,388           $ 18,603           $ 12,967
                                                                                     ========           ========           ========
<FN>
(a) Real Estate and Lending revenues are immaterial and reported with operating costs.
</FN>
</TABLE>

                                        1

<PAGE>
B.        Automotive Products Business Segment

         On June 15, 1992,  Wedgestone  acquired St. James Automotive Corp. This
subsidiary  manufactures  and sells tubular  products,  consisting  primarily of
accessories for the light-duty truck market such as grille guards, push bars and
step rails. 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 the Automotive  Products business segment which,  unless the
context  requires  otherwise,  will be  hereinafter  referred  to as  Wedgestone
Automotive.

         On January 5, 1995,  Wedgestone  Automotive,  through its wholly  owned
subsidiary Hercules Automotive Products, Inc. (Hercules), 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, involved 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.  During 1995, 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
significant   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 stock  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.  There  are no  remaining  assets of
Hercules.

         Wedgestone   Automotive   manufactures   and   distributes   automotive
aftermarket products for the light duty truck market. Principal products include
rear bumpers; tubular products such as grille guards, push bars, and step rails;
and various other related  aftermarket  products.  Additionally,  Sigma provides
contract chrome plating services to other unrelated parties.  Combined sales for
all products were  $46,286,000,  $46,112,000 and $34,618,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

The Company's automotive products are sold in the following markets:

         Traditional  Aftermarket:  This market includes dealership  replacement
         parts departments,  body shops,  speed shops,  off-road specialty shops
         and van and  truck  converters.  Wedgestone  Automotive  reaches  these
         customers  through an  established  network of warehouse  distributors,
         jobbers, dealer expediters and specialty wholesalers.

         Original  Equipment   Aftermarket:   Utilizing  products   specifically
         approved by truck  manufacturers  including  General Motors,  Chrysler,
         Nissan and Subaru,  Wedgestone  Automotive  ships  directly  into their
         distribution  channels in order to take advantage of factory  supported
         sales of its truck  accessories  through  dealer  level  service  parts
         operations.

         Retail Aftermarket:  Wedgestone  Automotive reaches the retail consumer
         through  local,  regional and national  chains  dedicated to automotive
         products as well as independent  retailers whose stores support a large
         assortment of automotive product lines.

Significant Customers, Competitive Position, Intellectual Property

         There is no single customer whose purchases  exceeded 10% of Wedgestone
Automotive's  sales. The sectors of the automotive  industry in which Wedgestone
competes  are  extremely  competitive  and heavily  influenced  by policies  and
programs implemented by the OE Manufacturers. The companies servicing Wedgestone
Automotive's  markets with competing  products vary in size and capability  with
none dominating the market as a whole.  All such companies  compete on the basis
of product  design,  availability,  lead time,  price and  product  performance.
Wedgestone Automotive has no patents,  franchises or concessions. It markets its
products under various trade names  including Fey, Tuff Bar and Westin and holds
registered trademarks on the names Quad Tube, Surstep, Contour and Diamondstep.


                                        2

<PAGE>




Raw Materials, Distribution, Inventories and Seasonality

         Raw materials are purchased  under  standard  industry  terms through a
number of  vendors  located  within  the  vicinity  of the plant  being  served.
Management   does  not  anticipate   any  shortages  of  materials.   Wedgestone
Automotive's  products are distributed  through the manufacturing  facilities in
California and Minnesota and further through distribution warehouses in Utah and
Texas utilizing direct sales personnel and manufacturer's representatives.

         Sales are primarily  serviced out of finished  goods  inventories.  For
this  reason,  inventories  are a material  portion of the  company's  operating
assets.  The  Company  schedules  manufacturing  to maintain  desired  inventory
levels. Order backlogs for Wedgestone  Automotive Products totaled $2,300,000 as
of December  31,  1996,  as  compared to  $1,500,000  as of December  31,  1995.
Substantially,  all of this  growth  is due to the  growing  demand  for  Westin
products  manufactured  at St. James.  While the  automotive  aftermarket is not
considered  to be  seasonal,  it is subject  to the annual  effects of new model
introductions  and, as such,  business can increase in the fall after new models
are released and in the spring as dealers seek to move inventory in anticipation
of the next model year.

Subsidiary Operations; Employees, and Facilities

         As of March 15, 1997, Wedgestone  Automotive  manufactures its products
in several subsidiaries as follows:

         Facility                Square Footage     Employees      Products
         --------                --------------     ---------      --------
Fey Automotive Products, Inc.        89,000           180       Bumpers,    Step
                                                                Rails &  Related
                                                                Products

St. James Automotive Corp.           95,000           200       Bumpers,  Grille
                                                                Guards,     Step
                                                                Bars   &   other
                                                                Tubular Products

Sigma Plating Co., Inc.              26,000            90       Intercompany and
                                    -------           ---       outside contract
                                                                plating services

                                    210,000           470
                                    =======           ===

         The  manufacturing  employees of Fey are  represented  by a union whose
contract expires in March 1999.  Wedgestone believes that its relations with all
of its employees are satisfactory.

         Fey leases 89,000 square feet of manufacturing,  warehousing and office
space  located  in  Irwindale,  California,  approximately  30 miles east of Los
Angeles.  Fey also leases  distribution  warehouses in Salt Lake City,  Utah and
Fort Worth, Texas. The leases expire at various times through 2002.

         St. James leases a 95,000 square foot facility in St. James, Minnesota,
which is approximately 120 miles southwest of Minneapolis.  The lease obligation
extends  through  October 31, 1998. The lease contains a purchase option for the
facility.

         Sigma  owns a  26,000  square  foot  facility  on 3 acres of land in La
Puente, California, approximately 25 miles east of Los Angeles.

Environmental Matters

         St. James and Sigma operate chrome plating facilities. Hazardous wastes
generated by these operations are disposed of in the normal course for this type
of  business.  Aqueous  wastes are treated at the  facility  to meet  applicable
regulatory  standards and then discharged to the public treatment  works.  Solid
wastes  and  by-products  are  transported  to a  recycler  for  processing  and
destruction.  All current activities at the facilities are believed to be within
the  operational  parameters  of the  required  environmental  permits  and  are
monitored both internally by facility  personnel and  periodically by regulatory
agencies.   In  anticipation  of  expanding  the  St.  James  facility  and  its
operations, St. James conducted tests which revealed environmental contamination
by a previous  operator/tenant.  St. James notified the principal shareholder of
the  prior  operator,  who is also the  landlord,  and the  relevant  regulatory
authorities of the test results.  St. James has been partially  indemnified from
costs relating to potential  clean-up by the principal  shareholder of the prior
operator and the landlord.  St. James,  working in conjunction with local, state
and federal  authorities,  has performed the  remediation  work required on this
site. Post remediation site approval is pending. The Company does not anticipate
any  material   expenditures   in  1997  in  connection   with  compliance  with
environmental regulations.

                                        3

<PAGE>
C.       Real Estate and Lending Segment

         Although its primary focus has shifted toward its  Automotive  Products
business  segment,  Wedgestone's  Real Estate and Lending  business  segment has
continued since emerging from bankruptcy in 1992.

Real Estate Acquired By Foreclosure

         Wedgestone  owns three  properties  that were acquired by  foreclosure.
They include four commercial condominiums in Peabody, Massachusetts; 53 acres of
undeveloped land in Bristol,  Connecticut; and approximately 21 acres of land in
Queens,  New York,  15 acres of which  are  below  water  (the  "College  Point"
property).  The College Point Property original mortgage loan was the subject of
litigation which  Wedgestone  originated.  The nature of the litigation  stemmed
from a lawsuit  filed by the Company  against  various  parties for fraud.  This
litigation  has  been  concluded   without   recovery.   There  are  no  appeals
anticipated.

         The Company  generally holds its real estate  properties for investment
purposes but entertains  offers to sell these properties from  time-to-time.  On
January  31,  1997,  the Company  signed a contract  for the sale of its College
Point property for $1.375 million, This sale was completed on February 27, 1997.
(See Subsequent Events.) The Company owns four firstfloor units in a seven-story
condo  building  in  Peabody,  Massachusetts.   These  units  are  designed  for
commercial  use. At  present,  none of the  Company's  units are  occupied.  The
Company  does not intend to develop  the  Bristol,  Connecticut  property at the
present  time. If the Company did decide to develop this  property,  the Company
would require the assistance of a real estate development partner.

Promissory Notes and Claims Receivable

         Wedgestone has an outstanding loan receivable on one property in Sebago
Lake,  Maine,  the aggregate value of which totals  approximately  $81,000 as of
December 31, 1996, net of reserves.  Management  believes that current  reserves
recorded  against this loan are adequate.  Interest and  principal  payments are
current.

Genesis Plastics, Inc.

         On August 24, 1992,  Wedgestone  entered into a secured loan  agreement
(the "Loan") with Genesis Plastics,  Inc. ("Genesis"),  a plastics recycler. The
Loan, originally for borrowings of up to $1,000,000, was subsequently amended to
provide for  borrowings of up to $2,000,000  and over advances at the discretion
of Wedgestone.  Affiliated  parties of Wedgestone  agreed to purchase a pro rata
participation  in excess of $800,000 of the Loan.  Genesis had previously  filed
for protection  under Chapter 11 of the United States  Bankruptcy Code on August
24,  1994 and had been  unsuccessful  in its  efforts  to secure a buyer for its
Charleroi,  Pennsylvania  recycling facility.  Wedgestone held a senior security
interest in the  inventory,  receivables  and certain  equipment of Genesis.  On
November  29, 1995,  in  accordance  with its rights under the Loan,  Wedgestone
consented to the liquidation of the Genesis'  inventory and equipment  through a
public  auction.  As a result  of this  action,  Wedgestone  recorded  a loss of
$756,900 of which $697,000 was recognized in 1995.

Environmental Matters

         Under  the  Comprehensive   Environmental   Response  Compensation  and
Liability Act of 1983, as amended  ("CERCLA"),  an owner or operator of property
(including, in certain circumstances, a lender who takes title by foreclosure or
who  participates  in the management of the property) may be liable to reimburse
the  federal  government  or a third  party for the cost of  cleaning  up oil or
hazardous  substances  found on the  property.  Many states in which  Wedgestone
conducts  business,  including  Massachusetts,  have  enacted  similar  statutes
("Superfund  Laws"),  under which an owner or operator of property  (including a
foreclosing  lender or a lender who actively  participates  in the management of
the property)  may be liable to reimburse the state  government or a third party
for clean-up  costs and to compensate the state or any other person for injuries
or damages  caused by oil or  hazardous-substance  contamination.  The liability
created by CERCLA and the state Superfund Laws is joint and several subject,  in
a limited number of cases, to certain defenses.

         A number of states in which  Wedgestone  conducts  business,  including
Massachusetts, also allow the state to impose a lien on the property of a liable
party as security for the payment of clean-up costs. Many of these jurisdictions
provide that this lien, at least as it pertains to the contaminated property, is
senior to all pre-existing liens.

                                        4

<PAGE>
         Accordingly,  if real estate  securing a Wedgestone  loan were found to
contain oil or hazardous substances,  enforcement of a state Superfund Law could
significantly  reduce the value of  Wedgestone's  lien. In the event real estate
owned or controlled by Wedgestone  pursuant to  foreclosure or exercise of other
remedies under its loan documents  were found to contain  hazardous  substances,
enforcement  of a  state  Superfund  Law or  CERCLA  could  potentially  require
expenditure of funds in amounts which may have a significant adverse impact upon
Wedgestone's earnings, capital expenditure requirements and liquidity.

Subsequent Events

         On January 30, 1997, the Company  entered into an agreement to sell its
21 acres of land known as the College  Point  property for  $1,375,000.  Of this
amount,  $137,500 was tendered  upon signing of the  agreement  and the balance,
$1,237,500, was received at closing on February 27, 1997. The book value of this
property as of December 31, 1996 was $914,800. The Company will recognize a gain
of approximately $425,000 in 1997 on this transaction.


Net Operating Loss

         Wedgestone  has a net operating  loss carry forward for federal  income
tax of approximately $40,200,000.


Item 3.    Legal Proceedings

Bankruptcy Claims

         On October  30,  1992,  a group  calling  itself the  "Equity  Security
Holders Committee of Wedgestone  Financial" (the "Committee")  filed a complaint
(the  "Complaint")  commencing  an  adversary  proceeding  in the United  States
Bankruptcy Court for the District of  Massachusetts.  On May 20, 1993, the Court
dismissed the adversary proceeding.  The Committee appealed the dismissal to the
District Court. The appeal was denied on August 17, 1994. The Committee appealed
to the United  States  Court of Appeals  for the First  Circuit.  The appeal was
denied on March 1, 1995.  The  Committee  requested  a  rehearing  by the United
States  Court  of  Appeals  for the  First  Circuit.  On  March  22,  1995,  the
Committee's request was denied.

Other

         An appeal was filed against the Company on May 25, 1995, by a holder of
the Company's  formerly issued Special Income Shares (the "Income Shares").  The
Income Shares were designated to receive a distribution of any excess "profit or
appreciation"  realized by the Company on certain  specific  mortgages and notes
receivable.  The one  remaining  outstanding  loan under which income rights had
been granted  related to a loan the Company  participated  in with a bank.  This
bank  subsequently  was  liquidated  and the  FDIC  assumed  control.  The  FDIC
approached the Company to seek approval to foreclose on the note since it was in
default. Since the Company was involved in a bankruptcy proceeding,  the Company
sought  bankruptcy court approval to proceed on the foreclosure  action.  In the
motion  seeking  such  approval  was a  request  that (i) the FDIC  remit to the
Company any excess  proceeds from the note,  (ii) the Company cancel the Special
Income Shares since this note was the sole  remaining loan and (iii) the Company
pay any funds,  net of costs and fees  collected from the FDIC to the holders of
Income  Shares as a  liquidating  distribution.  This motion was approved by the
bankruptcy court and the appeal was instituted. The appeal remains pending.

         A  complaint  was filed  against  Fey,  a wholly  owned  subsidiary  of
Wedgestone Automotive Corp ("WAC"), on September 10, 1996, in the Superior Court
of Mitchell County in the state of Georgia, by Mitchell Real Estate Partnership,
C. Ray Council,  Hal A. Council,  Max R. Council,  Rex A. Council,  June Council
Hunter and Gay Council Moring (collectively, "Mitchell").

         In its complaint,  Mitchell asserts breach of contract and fraud claims
against the defendants  resulting from a Marketing  Agreement  between Mitchell,
Fey and HAP for marketing  consulting  services  relating to Hercules  products,
alleging,  among other things,  that Fey has impeded  Mitchell's ability to earn
commissions  under the Marketing  Agreement.  Mitchell seeks monetary damages in
excess of $4 million.

         Fey and the other defendants have removed the case to the United States
District Court for the Middle District of Georgia.  Fey and the other defendants
have filed a motion to dismiss the case. Fey has agreed to extend the period for
filing a responsive  pleading  pending the resolution of the procedural  issues.
Additional  named  defendants  are John C.  Shaw,  chairman  and  trustee of the
Company, Jeffrey S. Goldstein, a trustee and the President of the Company, James
J. Pinto, the President of PFG  Corporation,  which holds in excess of 5% of the
Company's shares, and David L. Sharp, the Chief Executive Officer of WAC.

                                        5

<PAGE>
         This  litigation is in the initial stages and as of March  27,1997,  no
discovery  has taken  place.  Fey and the other  defendants  believe  Mitchell's
claims are without merit and intend to vigorously contest the Mitchell complaint
and pursue counter claims and affirmative  defenses.  As previously  reported in
its Form 10-Q for the  period  ended  June 30,  1996,  the  Company  has taken a
reserve  for costs  arising  from or  relating  to the  closure of the  Hercules
facility.  Management  is unable to evaluate the  likelihood  of an  unfavorable
outcome or estimate the amount or range of potential loss, if any.


Item 4.    Submission of Matters to a Vote of Security Holders

         Not applicable.



                                     PART II


Item 5.    Market for Registrant's Common Equity and Related Shareholder Matters

         Wedgestone's  shares of beneficial interest are currently traded in the
over-the-counter  market under the trading symbol  "WDGF".  The prices set forth
below represent trades between dealers,  without  adjustment for retail mark up,
mark down or commission,  and do not necessarily  represent actual transactions.
The  following  table  sets  forth the high and low bid  prices of  Wedgestone's
shares of beneficial interest for each quarter of 1996 and 1995.

                                          Market Price Range
                          ======================================================
                                   1996                           1995
                                   ----                           ----

         Quarter            High          Low              High          Low
         -------            ----          ---              ----          ---
         First               .25          .20               .48          .38
         Second              .60          .22               .56          .44
         Third               .60          .35               .52          .42
         Fourth              .45          .31               .31          .06
                          ======================================================



         On March 24, 1997, the bid price of  Wedgestone's  shares of beneficial
interest was $ .32.

Record Holders

         On March 24,  1997,  there were 2,509  record  holders of  Wedgestone's
shares of beneficial interest. Also see Note 10 of the financial statements.

Cash Dividends Declared and Paid Per Share

         There were no dividends declared or paid by Wedgestone on its shares of
beneficial  interest  for the  years  ended  December  31,  1991  through  1996.
Wedgestone  presently  intends to retain all  earnings  in  connection  with its
business.  Payment of dividends in the future will be within the  discretion  of
the Board of Trustees and will depend upon,  among other  factors,  earnings and
the operating and financial condition of the business.

                                        6

<PAGE>
<TABLE>
Item 6.    Selected Financial Data

         The following selected financial data includes the automotive  products
segment  since  1992,  and have  been  derived  from  Wedgestone's  Consolidated
Financial  Statements  and  should be read in  conjunction  with the  Management
Discussion and Analysis and the  Consolidated  Financial  Statements and related
notes.  Prior to 1992,  Wedgestone's  operations  were  limited  to real  estate
lending and investing activities.

<CAPTION>

                                                                                Year Ended December 31,
                                                 -----------------------------------------------------------------------------------
                                                      1996              1995             1994              1993             1992

<S>                                               <C>              <C>              <C>              <C>               <C>         
Operating Data: (In Thousands)

         Net sales                                $     46,286     $     46,112     $     34,618     $     29,472      $     27,040

         Income (loss) before
           extraordinary gain                     $      1,372     $      1,845     $      1,493     $       (116)     ($     1,677)

         Extraordinary gain from
           net liabilities discharged
           in bankruptcy proceeding                       --               --               --               --               9,029
                                                  ------------     ------------     ------------     ------------      ------------


         Net income (loss)                        $      1,372     $      1,845     $      1,493     ($       116)     $      7,352
                                                  ============     ============     ============     ============      ============

Per Share Data:

         Income (loss) before
           extraordinary gain                     $        .06     $        .08     $        .07     ($       .01)     ($       .10)

         Extraordinary gain                               --               --               --               --                 .52
                                                  ------------     ------------     ------------     ------------      ------------

         Net income (loss)                        $        .06     $        .08     $        .07     ($       .01)     $        .42
                                                  ============     ============     ============     ============      ============

         Weighted average
           Shares outstanding                       21,885,668       21,764,280       20,385,668       20,385,668        17,303,683
                                                  ============     ============     ============     ============      ============


Balance Sheet Data:  (In Thousands)

         Working Capital                          $      5,324     $      4,188     $      3,418     $      2,390      $      1,872
                                                  ============     ============     ============     ============      ============

         Total assets                             $     20,350     $     21,398     $     14,391     $     11,530      $     12,535
                                                  ============     ============     ============     ============      ============

         Long-term debt                           $      5,269     $      8,447     $      5,676     $      3,835      $      2,905
                                                  ============     ============     ============     ============      ============

         Total shareholders' equity               $      7,119     $      5,747     $      3,382     $      2,558      $      3,430
                                                  ============     ============     ============     ============      ============
</TABLE>


                                                                 7

<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations For the Years Ended December 31, 1996 and 1995

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 the Automotive
Products business segment which, unless the context requires otherwise,  will be
hereinafter referred to as Wedgestone Automotive.

         On January 5, 1995,  Wedgestone  Automotive,  through its wholly  owned
subsidiary  Hercules  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  that  exceeded  the
manufacturer's   alternative  in  towing  capacity.  During  1995,  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 stock ownership in Hercules to MBC Corporation of
$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. There are no remaining assets of Hercules.

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.  See  Notes 8 and 11 to the  Consolidated  Financial
Statements.

         Cash flows from operations  totaling  $2,918,000  were  supplemented by
$1,349,000 in additional advances by unsecured creditors.  These funds were used
to provide  $4,068,000 in additional working capital consisting of $2,196,000 in
advances to customers,  $1,598,000 in inventories  and $193,000 in other current
assets  resulting in net cash provided by operations  totaling  $280,000 in 1996
compared to  $1,836,000  in 1995.  Net cash flows from  operations  were further
supplemented  by collections on mortgage notes totaling  $220,000 and additional
borrowings  on revolving  debt  totaling  $1,818,000.  During 1996,  the Company
invested  $933,000 in new equipment and made payments on long term debt totaling
$1,406,000  including $729,000 in repayments on borrowings from a related party.
(The "Rockaway Loan". See Note 4 of the Consolidated Financial Statements.)

         On  November  18,  1994,  in  connection  with the  acquisition  of the
Automotive  Segment,  Wedgestone,  through  its wholly  owned  subsidiaries  Fey
Automotive  Products,  Inc.,  Sigma Plating Co., Inc., and St. James  Automotive
Corp., entered into a three-year,  $7.5 million credit facility,  which provides
for a revolving credit line and term loan with CIT / Credit Finance ("CIT"), and
is  collateralized  by  substantially  all of the assets of these  subsidiaries.
There was a  facility  fee of 1% of the  maximum  credit  line  associated  with
procurement of the loan. On March 18, 1997, the Company amended and restated the
agreement  with CIT to a  five-year  $10  million  credit  facility  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, at the lender's prime rate plus 1.375% (11% at December 31, 1996).

         In connection  with the  acquisition  of Hercules on January 9, 1995, a
wholly-owned  subsidiary of Wedgestone assumed certain debt consisting of a term
loan of $4.0 million,  and an  industrial  revenue bond of $285,000 due March 1,
1999.  On March 5, 1996,  the Company  closed the  Hercules  facility in Pelham,
Georgia,  as a result of unfavorable market  conditions.  On April 18, 1996, the
Company sold its stock  ownership in Hercules to MBC  Corporation  for $1.00 and
the assumption of certain debt and other liabilities,  including the outstanding
borrowings  on the term loan and  industrial  revenue  bond.  The total debt and
liabilities assumed by MBC Corporation approximated $4.5 million.

The  company  continues  to  actively  seek  acquisition  opportunities  in  the
Automotive Products Business Segment.  While there are no specific opportunities
identified at this time, to the extent that  Wedgestone  expands its  operations
and makes additional

                                        8

<PAGE>



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.


Results Of Operations

Current Year Performance: 1996 Compared to 1995

         Net  sales  increased  $174,000  to  $46,286,000  in 1996  compared  to
$46,112,000  in 1995.  This  reflects  a  $9,668,000  decrease  is the  sales of
Hercules  products  offset  by a  $6,592,000  or 67%  increase  in the  sales of
products  manufactured  in the Company's St. James  subsidiary  and a $3,250,000
increase  in  the  products   manufactured  in  the  Company's  Fey  subsidiary.
Contributing to the overall growth in net sales is a 44% and 43% increase in the
Company's Traditional and Retail market segments, respectively.  Growth in these
two segments totaled  $11,944,000 and were offset by a $2,102,000 or 27% decline
in  the  Company's  Original  Equipment   Manufacturer's  segment.  The  Company
continues  to pursue the OE  segment of the  light-duty  truck  aftermarket  and
considers  this segment to be an important  component of future  growth.  During
1996, the Company  secured  orders from two new OE customers  whose initial 1996
sales totaled $289,000.

         Gross margins  increased  $360,000 or 3% to $14,725,000 or 32% of sales
in 1996 compared to $14,365,000 or 31% of sales in 1995. This increase is due to
an increase in sales and a more favorable  product sales mix in 1996 compared to
1995.

         Sales and marketing  costs increased by $501,000 or 7% to $7,227,000 or
16% of sales  in 1996  compared  to  $6,726,000  or 15% of  sales  in 1995.  The
majority of this increase is selling costs  incurred to enhance and maintain the
higher sales volumes achieved in 1996. $674,000 or 39% of the increase is due to
additional  advertising and promotional costs incurred by the Company to further
penetrate the Traditional and Retail market segments.  The Company believes that
further  expenditures  in this area are required to maintain  the market  growth
achieved in 1996 and expand these markets further.

         Administrative  costs decreased by $182,000 or 3% to $4,727,000 in 1996
compared  to  $4,909,000  in 1995.  This  reflects a  decrease  of  $829,000  in
administrative  costs  attributable  to Hercules  operations  and an increase of
$658,000 in continuing  administrative  costs.  Product  design and  development
costs account for 59% or $390,000 of this increase.  Included in these costs are
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 and that overhead  expenditures in
this area totaling $390,000 in 1996 are expected to exceed $690,000 in 1997. The
remainder of the increase in  administrative  costs  include  management  labor,
insurance and other costs associated with sales growth in 1996 over 1995.

         Interest  expense  decreased  $214,000  or 16% to  $1,126,000  in  1996
compared to $1,340,000 in 1995. This decrease is attributable to the decrease in
debt  associated  with  Hercules  offset  by  additional  borrowings  under  the
Company's revolving line of credit used to finance working capital growth.

         Income taxes in 1996 reflect an $566,000  adjustment  to the  Company's
valuation  reserve compared to $1,300,000  recorded in 1995. The adjustments are
due to management's  expectations of the Company's  enhanced  ability to utilize
its  net  operating  loss  carry  forwards  due  to  its  more  recent  earnings
performance.


Prior Performance: 1995 Compared to 1994

         Operating  income grew by 36% or  $726,000 in 1995 over 1994.  Hercules
accounted  for $487,000 or 67% of this  growth.  During the latter part of 1995,
the  performance of Hercules was  significantly  impacted by declining sales and
general market conditions due to direct OEM competition.

         Sales increased over 1994 by 33% or $11,494,000. Hercules accounted for
$10,993,000  of this  increase.  Gross profit  increased by  $3,450,000 in 1995.
Gross margin as a percent of sales was comparable to 1994 at  approximately  31%
of sales.

         Sales and Marketing costs increased  $1,437,000 in 1995,  $1,408,000 or
98% of which was  attributable  to Hercules.  Administrative  costs increased by
$1,287,000 in 1995, $913,000 or 71% of which was attributable to Hercules. Legal
and other acquisition fees related to the acquisition of the Standun Automotive
Segment which were expensed for an additional $300,000 of this increase.

         Interest expense  increased by $854,000 in 1995,  $553,000 of which was
attributable to Hercules.  Amortization of loan origination fees and interest on
the note  payable  assumed in  connection  with the  acquisition  of the Standun
Automotive 

                                        9

<PAGE>
       
Segment accounted for the majority of the remainder of this increase.

         Other  expenses in 1995  include loan losses of $697,000 on the Genesis
Plastics loan.

         Income taxes in 1995  reflect a $1,258,000  benefit due to a $1,300,000
adjustment  to  the  Company's  valuation  reserve.  This  adjustment  is due to
management's expectations of the Company's ability to more fully utilize its net
operating  loss   carryforwards  due  to  the  Company's  more  recent  earnings
performance, excluding Hercules and the Genesis loan loss.


Accounting Pronouncements

         During 1996 the  Company  adopted  Statement  of  Financial  Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of. Among other  provisions,  the statement
changed  current  accounting  practices  for the  evaluation  of  impairment  of
long-lived  assets. The adoption did not have a material effect on the Company's
financial statements.

         During 1996 the Company  also  adopted  SFAS No.  123,  Accounting  for
Stock-Based  Compensation.   SFAS  No.  123  requires  expanded  disclosures  of
stock-based  compensation  arrangements  with employees and encourages (but does
not require)  compensation cost to be measured based on fair value of the equity
instrument awarded.  Companies are permitted,  however, to continue to apply APB
Opinion No. 25, which recognizes  compensation cost based on the intrinsic value
of the equity instrument  awarded.  The Company will apply APB Opinion No. 25 to
its stock based compensation  awards to employees and will disclose the required
pro forma effect on net income and earnings per share.

Forward Looking Information

         Information  contained  in this  Form  10-K  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,
particularly  dealers;  continuity of a relationship with or sales to major auto
dealers;  competitive  pressures  on sales and pricing;  and  increases in other
costs which cannot be recovered through improved pricing of merchandise.


                                       10

<PAGE>


<TABLE>

Item 8.   Consolidated Financial Statements and Supplementary Data




                                                WEDGESTONE FINANCIAL AND SUBSIDIARIES

                                                                INDEX


<CAPTION>

                                                                                                                  Page
                                                                                                                  ----
<S>                                                                                                                 <C>
         Financial Statements

                                          Independent Auditor's Report                                              11

                                          Consolidated Balance Sheets as of
                                            December 31, 1996 and 1995                                              12

                                          Consolidated Statements of Operations
                                            for the years ended December 31,
                                            1996, 1995, and 1994.                                                   13

                                          Consolidated Statements of
                                            Shareholders' Equity for the years
                                            ended December 31, 1996, 1995, and 1994.                                14

                                          Consolidated Statements of Cash
                                            Flows for the years ended
                                            December 31, 1996, 1995 and 1994.                                       15


                                          Notes to Consolidated Financial
                                            Statements.                                                             16

</TABLE>

                                                                 11

<PAGE>

INDEPENDENT AUDITORS' REPORT


To  the  Board  of  Trustees  and  Shareholders  of  Wedgestone   Financial  and
Subsidiaries:

We have  audited the  accompanying  consolidated  balance  sheets of  Wedgestone
Financial  and  Subsidiaries  as of  December  31, 1996 and 1995 and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the three years in the period ended  December 31, 1996.  Our audits also
included the consolidated  financial  statement schedules listed in the index at
Item 14. These financial  statements and financial  statement  schedules are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,   the  financial   position  of  Wedgestone   Financial  and
Subsidiaries  as of  December  31,  1996  and  1995,  and the  results  of their
operations, and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting  principles.
Also, in our opinion,  such consolidated  financial  statement  schedules,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly  in all  material  respects  the  information  set forth
therein.






Deloitte & Touche LLP
Los Angeles, California
March 26, 1997









                                       12

<PAGE>
<TABLE>

                                           WEDGESTONE FINANCIAL AND SUBSIDIARIES
                                                CONSOLIDATED BALANCE SHEETS

                                             AS OF DECEMBER 31, 1996 and 1995

                                         (Amounts in Thousands--except share data)

<CAPTION>

                                                                                                          1996                1995
                                                                                                       --------            --------
<S>                                                                                                    <C>                 <C>     
ASSETS  (Note 8)

Current Assets:
Cash                                                                                                   $    344            $    365
Accounts and other receivables - (net of allowances of $333 and
$256 in 1996 and 1995, respectively)                                                                      7,282               6,057
Inventories (Note 5)                                                                                      4,619               4,123
Prepaid expenses and other current assets                                                                   565                 371
Deferred income taxes (Note 9)                                                                              476                 476
                                                                                                       --------            --------
  Total Current Assets                                                                                   13,286              11,392

Notes receivable - net (Note 7)                                                                              81                  84
Real estate acquired by foreclosure - net (Note 7)                                                        1,086               1,091
Property, plant and equipment - net (Note 6)                                                              3,237               4,694
Goodwill - net                                                                                              130                 550
Deferred income taxes (Note 9)                                                                            2,196               2,114
Other assets                                                                                                334               1,473
                                                                                                       --------            --------
                                                                                                          7,064              10,006
                                                                                                       --------            --------

  Total Assets                                                                                         $ 20,350            $ 21,398
                                                                                                       ========            ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Revolving credit line and current portion of long-term debt (Note 8)                                   $  1,952            $  2,305
Accounts payable                                                                                          3,882               3,308
Accrued payroll and related expenses                                                                        593                 611
Other accrued expenses                                                                                    1,535                 980
                                                                                                       --------            --------
  Total Current Liabilities                                                                               7,962               7,204

Long-term debt (Note 8)                                                                                   5,269               8,447
                                                                                                       --------            --------
  Total liabilities                                                                                      13,231              15,651

Commitments and contingencies (Notes 11 and 13)

Shareholders' Equity:  (Notes 10 and 12)

Shares of Beneficial Interest - par value $1.00 per
  share:  authorized -- unlimited shares;
  issued and outstanding -- 21,885,668 shares
  at December 31, 1996 and 1995                                                                          21,886              21,886
Additional paid-in capital                                                                               31,396              31,396
Accumulated deficit                                                                                     (46,163)            (47,535)
                                                                                                       --------            --------
  Total Shareholders' Equity                                                                              7,119               5,747
                                                                                                       --------            --------

  Total  Liabilities and Shareholders' Equity                                                          $ 20,350            $ 21,398
                                                                                                       ========            ========
<FN>
                                     See notes to consolidated financial statements.
</FN>
</TABLE>

                                                            13

<PAGE>
<TABLE>

                                           WEDGESTONE FINANCIAL AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF OPERATIONS

                                   FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994

                                       (Amounts in Thousands--except per share data)

<CAPTION>
                                                                                      1996               1995               1994
                                                                                    --------           --------            --------
<S>                                                                                 <C>                <C>                 <C>     
Net sales                                                                           $ 46,286           $ 46,112            $ 34,618

Cost of sales                                                                         31,561             31,747              23,703
                                                                                    --------           --------            --------
Gross profit                                                                          14,725             14,365              10,915


Selling, general and administrative expenses (Note 4)                                 11,955             11,635               8,911
                                                                                    --------           --------            --------
Operating income                                                                       2,770              2,730               2,004


Goodwill amortization                                                                     49                106                  44
Interest expense (Note 8)                                                              1,126              1,340                 486
Other expense (Notes 3 and 7)                                                             67                697                --
                                                                                    --------           --------            --------
Income before taxes                                                                    1,528                587               1,474

Provision (benefit) for income taxes (Note 9)                                            156             (1,258)                (19)
                                                                                    --------           --------            --------

Net income                                                                          $  1,372           $  1,845            $  1,493
                                                                                    ========           ========            ========


Net income per share of beneficial interest:

   Net income                                                                       $    .06           $    .08            $    .07
                                                                                    ========           ========            ========

Weighted average number of shares outstanding:

  Shares of Beneficial Interest                                                       21,886             21,764              20,386
                                                                                    ========           ========            ========

<FN>

                                           See notes to consolidated financial statements.
</FN>
</TABLE>

                                                            14

<PAGE>
<TABLE>

                                             WEDGESTONE FINANCIAL AND SUBSIDIARIES
                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                     FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994

                                                    (Amounts in Thousands)


<CAPTION>

                                                                                Additional
                                                       Shares of beneficial       paid-in      Accumulated
                                                             interest             capital        deficit         Total
                                                       --------------------      --------      -------------   ----------
                                                       Shares       Amount
                                                       ------      --------
<S>                                                    <C>         <C>           <C>           <C>               <C>    
Balance at January 1, 1994                             20,386      $ 20,386      $ 33,045      ($ 50,873)        $ 2,558

Distributions to Standun                                                           (1,109)                        (1,109)

Increase in tax basis of assets (Note 9)                                              440                            440

Net income                                                                                         1,493           1,493
                                                       ------      --------      --------      ---------          -------

Balance at December 31, 1994                           20,386        20,386        32,376        (49,380)          3,382

Issuance of shares of beneficial interest to
  secure third party debt guarantee (Note 1)            1,200         1,200          (840)                           360

Issuance of shares of beneficial interest in
  exchange for acquisition services (Note 4)              200           200          (140)                            60

Issuance of shares of beneficial interest to
  pay off outstanding debt (Note 1)                       100           100                                          100

Net income                                                                                         1,845           1,845
                                                       ------      --------      --------      ---------          -------

Balance at December 31, 1995                           21,886        21,886        31,396        (47,535)          5,747

Net income                                                                                         1,372           1,372
                                                       ------      --------      --------      ---------          -------

Balance at December 31, 1996                           21,886      $ 21,886      $ 31,396      ($ 46,163)        $ 7,119
                                                       ======      ========      ========      ==========         =======


<FN>

                                           See notes to consolidated financial statements.
</FN>
</TABLE>

                                                              15

<PAGE>

<TABLE>

                                           WEDGESTONE FINANCIAL AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOW

                                   FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994

                                                  (Amounts in Thousands)

<CAPTION>

                                                                                         1996              1995              1994
                                                                                        -------           -------           -------
<S>                                                                                     <C>               <C>               <C>    
Cash Flows from Operating Activities:
Net income                                                                              $ 1,372           $ 1,845           $ 1,493
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Provision for loan losses                                                              --                --                  71
    Write-off of note receivable                                                             60               697              --
    Depreciation and amortization                                                           771             1,198               829
    Deferred income taxes                                                                   (82)           (1,300)             (681)
    Gain on disposal of assets (net)                                                       --                --                 (10)
    Loss on sale of subsidiary                                                              797              --                --


Changes in assets and liabilities:
    Accounts and other receivables                                                       (2,196)             (109)             (832)
    Inventories                                                                          (1,598)              617               (25)
    Prepaid expenses and other current assets                                              (193)             (177)              (62)
    Accounts payable                                                                      1,143               333               555
    Accrued payroll and related expenses                                                     92               211                99
    Other accrued expenses                                                                  100            (1,016)              570
    Other assets                                                                             14              (463)             (153)
    Other liabilities                                                                      --                --              (1,788)
                                                                                        -------           -------           -------
Net cash provided by operating activities                                                   280             1,836                66
                                                                                        -------           -------           -------


Cash Flows from Investing Activities:
    Proceed from sale of real estate and equipment                                          217              --                  87
    Proceeds from repayment of mortgage notes receivable                                      3                 1                51
    Acquisition costs paid                                                                 --                (401)             --
    Capital expenditures                                                                   (933)             (926)             (575)
    Investment in real estate                                                              --                (126)             (172)
                                                                                        -------           -------           -------
Net cash used in investing activities                                                      (713)           (1,452)             (609)
                                                                                        -------           -------           -------

Cash Flows from Financing Activities:
    Distributions to Standun                                                               --                --                (801)
    Repayment of term debt                                                               (1,406)             (949)             (362)
    Deferred financing fees paid                                                           --                 (85)             --
    Borrowings on long-term debt                                                           --                 635               192
    Net borrowings on revolving debt                                                      1,818               201             1,666
                                                                                        -------           -------           -------
Net cash provided by (used in) financing activities                                         412              (198)              695
                                                                                        -------           -------           -------

Net Increase (Decrease) in Cash                                                             (21)              186               152

Cash at Beginning of Period                                                                 365               179                27
                                                                                        -------           -------           -------

Cash at End of Period                                                                   $   344           $   365           $   179
                                                                                        =======           =======           =======


<FN>


                                           See notes to consolidated financial statements.
</FN>
</TABLE>


                                                            16

<PAGE>





                      WEDGESTONE FINANCIAL AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Years Ended December 31, 1996, 1995 and 1994


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 operates in two business segments,  Automotive Products and
Real Estate and Lending  activities.  The automotive  segment  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 automotive  segment  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.

         Although its primary focus has shifted toward its  Automotive  Products
business  segment,  Wedgestone's  Real Estate and Lending  business  segment has
continued  since  emerging  from  bankruptcy  in  1992.  Wedgestone  owns  three
properties  that were  acquired by  foreclosure.  The  aggregate  value,  net of
reserves, is approximately  $1,086,000 as of December 31, 1996 (See Note 7: Real
Estate  and  Lending).  Wedgestone  has  outstanding  loans on one  property  of
approximately $81,000 as of December 31, 1996.

         Acquisitions   -  Since  May  1992,   Wedgestone   has  acquired  three
manufacturing  operations.  On June 15,  1992,  Wedgestone  acquired  St.  James
Automotive  Corp.  ("St.  James") in exchange for 6,795,220 shares of beneficial
interest of  Wedgestone  and accounted for this  acquisition  as a purchase.  On
November 18, 1994,  Wedgestone acquired the Automotive Segment of Standun,  Inc.
("Standun"), which consisted of the Fey Automotive Products Division ("Fey") and
Sigma Plating Co., Inc. ("Sigma") in exchange for 6,795,223 shares of beneficial
interest  of  Wedgestone  and the  assumption  of  approximately  $1,104,000  of
outstanding  debt  due to a  related  party of  Wedgestone,  and  certain  other
liabilities.   The  shareholders  of  Standun  owned,  directly  or  indirectly,
approximately 48% of Wedgestone prior to the acquisition and, as a result,  this
acquisition  was  accounted  for as a  "put-together"  which is  similar  to the
pooling  of  interest  method of  accounting.  As a result  of the  acquisition,
Standun  owned  31%  of  the  outstanding  shares  of  beneficial   interest  of
Wedgestone.  On January 9, 1995,  Wedgestone  acquired  substantially all of the
assets of Hercules Bumpers, Inc. ("Hercules"). The purchase price for the assets
acquired was the assumption of certain debt and other liabilities  approximating
$5.1 million. In addition,  certain debt was guaranteed jointly and severally by
Charles W. Brady ("Brady"),  the former principal  shareholder of Hercules,  and
Chattahoochee Leasing Corporation ("CLC"), a corporation controlled by Brady. In
exchange for this  guarantee,  Brady received a promissory note in the amount of
$300,000  and  1,200,000  shares  of  beneficial  interest  of  Wedgestone.   In
consideration  for an agreement  to pay a liability of Hercules,  CLC received a
promissory  note for $100,000  which was secured by 100,000 shares of beneficial
interest of Wedgestone. In June, 1995, the Company exercised its right under the
CLC  Agreement and acquired the note by issuing these shares to CLC. (See Note 3
- Sale of Subsidiary.)

         The following  supplemental pro forma  information has been prepared as
though the  acquisition  of  Hercules  had  occurred  at  January  1, 1994:  (In
Thousands)

                                                              Year ended
                                                           December 31, 1994
                                                           -----------------
       Net Sales                                                $46,891
       Net Income                                               $ 1,188
       Net Income per Share of Beneficial Interest              $   .05


                                       17

<PAGE>

         The pro  forma Net  Sales,  Net  Income,  and Net  Income  per Share of
Beneficial Interest for the year ended December 31, 1995 would not be materially
different than the actual results presented.


         Basis  of   Presentation   and  Principles  of   Consolidation   -  The
accompanying   consolidated  financial  statements  include  the  operations  of
Wedgestone and give  retroactive  effect to the acquisition of Fey and Sigma for
all  periods  presented.  As  a  result,  the  financial  position,  results  of
operations and cash flows are presented as if Wedgestone, Fey and Sigma had been
consolidated for all periods presented.  The consolidated  statements of changes
in Wedgestone's shareholders' equity reflect the Wedgestone shares of beneficial
interest  issued  to  effect  the  Fey and  Sigma  acquisition  as if they  were
outstanding for all periods presented.  The results of operations and cash flows
presented include the results of operations and cash flows of Hercules since its
date of acquisition.

         The  consolidated   financial   statements   include  the  accounts  of
Wedgestone  and its wholly  owned  subsidiaries.  All  significant  intercompany
transactions have been eliminated in consolidation.


NOTE 2.    Summary of Significant Accounting Policies

Inventories - Inventories  are stated at the lower of cost or market,  with cost
being determined by the FIFO (first-in, first-out) method of accounting.

Property,  Plant,  and  Equipment - Property,  plant and equipment are stated at
cost.  Expenditures that materially  increase the life of the related assets are
capitalized and  maintenance  and repairs are charged to expense.  The costs and
related  accumulated  depreciation  applicable to property,  plant and equipment
which are sold or retired are removed from the accounts, and any gain or loss is
included in income.

Depreciation  and  Amortization - Wedgestone uses the  straight-line  method for
depreciating  property,  plant and equipment over their estimated  useful lives.
Buildings and  improvements  are depreciated  from 5 to 40 years,  machinery and
equipment  from 3 to 10 years,  furniture  and fixtures  from 3 to 5 years,  and
leasehold  improvements are amortized over the terms of the respective leases or
the life of the improvements, whichever is shorter.

Goodwill - The Company  reviews the  recoverability  of goodwill to determine if
there has been any permanent  impairment.  This assessment is performed based on
the estimated  undiscounted  future cash flows (excluding interest charges) from
operating  activities  compared  with the  carrying  value of  goodwill.  If the
undiscounted  future cash flows are less than the carrying  value,  a write-down
would  be  recorded,  measured  by the  amount  of the  difference.  Accumulated
amortization   was  $132,000  and  $106,000  at  December  31,  1996  and  1995,
respectively. Goodwill is amortized over a period of seven years.

Income Taxes - Deferred tax assets and deferred tax liabilities  reflect the tax
consequences  in future  years of  differences  between  the income tax bases of
assets and liabilities and the corresponding  bases used for financial reporting
purposes.  The  measurement  of  deferred  tax assets is adjusted by a valuation
reserve,  if necessary,  so that the net tax benefits are recognized only to the
extent that they will more likely than not be realized.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments -

         Cash,  Accounts  Receivable and Accounts Payable - The carrying amounts
         approximate  fair  value  because  of the  short  maturities  of  these
         instruments.

         Revolving Line of Credit - The carrying amount  approximates fair value
         because the interest rate is based on variable reference rates.

         Long-Term  Debt  (excluding  revolving  line of credit) - The  carrying
         amount of long-term debt approximates fair value.

                                       18

<PAGE>



Concentration of Credit Risk - Financial  instruments  which subject the Company
to credit risk consist  primarily of accounts  receivable.  This risk is reduced
due to the number of  customers  and their  geographic  dispersion.  The Company
performs ongoing credit  evaluations of its customers and maintains an allowance
for potential credit losses.

Notes  Receivable  - Notes  receivable  are  recorded  at the  lower  of cost or
estimated net realizable value.

Real Estate  Acquired by Foreclosure - Real estate  acquired by foreclosure  was
initially  recorded  at the lower of cost or  estimated  net  realizable  value.
Estimated net  realizable  value is generally the estimated  selling price which
the property will bring if placed on the open market  allowing a reasonable time
to find a willing buyer.

Income/Loss  Per  Share  of  Beneficial  Interest  -  Income/loss  per  share of
beneficial interest is calculated based on weighted average outstanding shares.

Accounting  Pronouncements  -  During  1996 the  Company  adopted  Statement  of
Financial  Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to be  Disposed  of.  Among other
provisions,   the  statement  changed  current  accounting   practices  for  the
evaluation  of  impairment  of  long-lived  assets.  The adoption did not have a
material effect on the Company's financial statements.

During 1996 the Company also adopted SFAS No. 123,  Accounting  for  Stock-Based
Compensation.   SFAS  No.  123  requires  expanded  disclosures  of  stock-based
compensation  arrangements  with employees and encourages (but does not require)
compensation  cost to be measured  based on fair value of the equity  instrument
awarded. Companies are permitted,  however, to continue to apply APB Opinion No.
25,  which  recognizes  compensation  cost based on the  intrinsic  value of the
equity  instrument  awarded.  The  Company  will apply APB Opinion No. 25 to its
stock based compensation  awards to employees and will disclose the required pro
forma effect on net income and earnings per share.


NOTE 3.  Sale of Subsidiary

         On March 5, 1996,  Hercules closed its  manufacturing  plant in Pelham,
Georgia.   The  market  for  the  bumpers   produced  in  the  Pelham   facility
significantly  changed during 1995.  Historically,  a significant  percentage of
Hercules  business  was for sales to  dealers  of  domestic  original  equipment
manufacturers.  A new program  implemented by one of these manufacturers in late
1994 made it  extremely  difficult  for Hercules to remain  competitive  in this
market segment.  Hercules  incurred a net loss of $125,000 in 1995 and continued
to incur losses in 1996 through the date of sale totaling $966,000. As a result,
management determined that closing the Pelham facility was appropriate.

         On April 18, 1996, the Board of Directors  authorized and completed the
sale of the Company's  stock  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.  Included in other expense is a
loss on the sale of Hercules totaling $ 7,000.



NOTE 4.    Related Parties

         St. James has a five year consulting agreement with PSG Associates,  an
affiliate  of the  former  owners of St.  James  (who are also  affiliated  with
Wedgestone),  to provide  advisory  services  to St.  James with  respect to its
operations, expansion and financing activities at a minimum rate of $125,000 per
year plus  reimbursement of expenses.  St. James paid $125,000 to PSG Associates
for each of the years ended December 31, 1996, 1995 and 1994, respectively.

         In connection with the acquisition of the Automotive Segment of Standun
Inc.,  Resource  Holdings  Associates and PFG Corp.  ("PFG"),  both of which are
controlled by certain Wedgestone  shareholders,  received a fee of $225,000,  in
February 1995.

         In connection with the 1995 acquisition of Hercules,  Resource Holdings
Associates and PFG received a fee of $220,000 consisting of $160,000 and 200,000
shares of beneficial  interest of  Wedgestone  at a valuation  price of $.30 per
share.

         On January 25, 1995,  Hercules  entered into a five year agreement with
PFG and Wedgestone Partners, an affiliate of the aforementioned shareholders, to
provide advisory services to Hercules with respect to its operations,  expansion
and  financing  activities  at an aggregate  amount of $175,000.  Hercules  paid
$175,000 for the year ended December 31, 1995,

                                       19

<PAGE>



and $44,000 of this fee through April 18, 1996. This agreement was terminated in
connected with the sale of the Company's stock ownership in Hercules.

         On January 12,  1993,  as  amended,  Wedgestone  entered  into a credit
facility with Rockaway 605 Corp.  ("Rockaway")  pursuant to which Wedgestone was
permitted to borrow up to a maximum of $300,000  with  additional  over advances
available at the discretion of the lender to fund  Wedgestone's  working capital
needs  and those of its  subsidiaries.  As a  requirement  of the  financing  to
purchase the Automotive Segment, Wedgestone paid Rockaway $25,000 to release its
lien on the  stock  of St.  James  and  certain  of  Wedgestone's  real  estate.
Wedgestone  also  agreed to issue  Rockaway  transferable  warrants  to purchase
225,000  shares of  beneficial  interest of  Wedgestone at $.25 per share if the
loan was not paid by March 31, 1995.  These  warrants  remain  outstanding.  The
Rockaway Loan was secured by a pledge of all of the stock of Wedgestone's direct
subsidiaries  and notes  receivable.  Rockaway is a real estate holding  company
which is controlled by the former shareholders of St. James. The loan was repaid
in November, 1996.

         Effective January 1, 1996, Fey Automotive Products, Inc. entered into a
four-year  agreement  with  PFG and  Resource  Holdings  Associates  to  provide
advisory services to Fey with respect to its operations, expansion and financing
activities at an aggregate amount of $180,000 per annum.


NOTE 5.  Inventories

         Inventories consist of the following:  (In Thousands)

                                                      December 31,
                                               1996                  1995

                     Finished goods           $2,474               $1,984
                     Work in progress          1,239                1,137
                     Raw materials             1,025                1,370
                                              ------               ------
                                               4,738                4,491
                     Less allowances            (119)                (368)
                                              ------               ------
                                              $4,619               $4,123
                                              ======               ======

NOTE 6.  Property, Plant and Equipment

         The components of property, plant and equipment are as follows:
(In Thousands)

                                                               December 31,
                                                           1996           1995
                                                          ------        ------
      Buildings and leasehold improvements                $1,229        $2,331
      Land                                                   500           556
      Machinery and equipment                              8,440         8,305
      Furniture and fixtures                               1,324         1,213
                                                          ------        ------
                                                          11,493        12,405
      Accumulated depreciation and amortization           (8,256)       (7,711)
                                                          ------        ------
      Net property, plant and equipment                   $3,237        $4,694
                                                          =======       ======

NOTE 7.    Real Estate and Lending

         On January 30, 1997, the Company  entered into an agreement to sell its
21 acres of land known as the Queens  property for  $1,375,000.  Of this amount,
$137,500 was tendered upon signing of the agreement and the balance, $1,237,500,
was received upon closing on February 27, 1997.  The book value of this property
as of December  31, 1996 was  $914,800.  The  Company  will  recognize a gain of
approximately $425,000 on this transaction.

         On August 24, 1992,  Wedgestone  entered into a secured loan  agreement
(the "Loan") with  Genesis  Plastics,  Inc.  ("Genesis").  The Loan,  as amended
provided for borrowings of up to $2,000,000 with over advances at the discretion
of the lender.  As of December 31, 1992,  the former  shareholders  of St. James
indirectly agreed to purchase a pro rata  participation in the Loan in excess of
$800,000. As of December 31, 1994, $1,619,000 had been advanced to Genesis under
the participation agreement.  Genesis, had previously filed for protection under
Chapter 11 of the United States  Bankruptcy Code on August 24, 1994 and had been
unsuccessful  in its efforts to secure a buyer for its  Charleroi,  Pennsylvania
recycling 

                                       20

<PAGE>



facility.   Wedgestone  held  a  senior  security  interest  in  the  inventory,
receivables  and  certain  equipment  of  Genesis.  On  November  29,  1995,  in
accordance  with its rights under the loan  agreement  with Genesis,  Wedgestone
consented to the liquidation of the Genesis'  inventory and equipment  through a
public auction. As a result of this action,  Wedgestone recorded a loss relating
to this loan of $756,900 of which $697,000 was recognized in 1995.

         The balance in notes receivable is as follows:  (In Thousands)

                                                        December 31,
                                                  1996                1995
                                                --------            -------
                     Sebago Lake Note           $    81             $    84
                                                ========            =======


         The balance of real estate acquired by foreclosure is as follows:
(In Thousands)

                                                        December 31,
                                                  1996                 1995
                                                 ------               ------
                     Gross investment             7,644               $7,649
                     Write down                  (6,558)              (6,558)
                                                 ------               ------
                     Net                         $1,086               $1,091
                                                 =======              ======

<TABLE>

         NOTE 8.    Revolving Credit Line and Long-term Debt

         Revolving credit lines and long-term debt consist of the following:
(In Thousands)

<CAPTION>

                                                                                            December 31,
                                                                                          1996        1995
                                                                                        --------    --------
<S>                                                                                     <C>         <C>     
                       Revolving credit line with The CIT Group/Credit Finance,
                          interest at prime plus 2.5% (11% at December 31, 1996)        $  5,394    $  3,576

                       Revolving credit line with NationsBank of Georgia
                          interest at prime,  payable January, 2000                         --      $  3,662

                       Term loan with The CIT Group/Credit Finance, interest
                          at prime plus 2.5% (11% at December 31, 1996)                      696         935

                       Term loan with The CIT Group/Credit Finance, interest
                          at prime plus 2.5% (11% at December 31, 1996)                      351         459

                       Notes payable to Fifth  Avenue  Partners,  interest  at 9%,
                          payable in monthly installments of $22,917 through
                          December 31, 1999                                                  721         921

                       Notes payable to Rockaway 605 Corp. 
                          interest at 15%, payable July 1996 (See Note 4)                   --           729

                       Notes payable to Charles Brady, interest at 8%
                          payable in four equal installments starting in January 1997       --           300



                       Notes payable to C.E. Westin, 0% interest rate, currently due
                          and payable                                                       --            70

                       Other                                                                  59         100
                                                                                        --------    --------

                                       21
<PAGE>



                                 Total                                                     7,221      10,752

                       Less current portion of long-term debt                             (1,952)     (2,305)
                                                                                        --------    --------

                       Total long-term debt                                             $  5,269    $  8,447
                                                                                        ========    ========

</TABLE>

         The  contractual  payments of principal  on  long-term  debt are due as
follows:  $1,952,000 in 1997,  $563,000 in 1998,  $587,000 in 1999,  $115,000 in
2000, and $4,004,000 in 2001.

         On  November  18,  1994,  in  connection  with the  acquisition  of the
Automotive  Segment,  Wedgestone,  through  its wholly  owned  subsidiaries  Fey
Automotive  Products,  Inc.,  Sigma Plating Co.,  Inc. and St. James  Automotive
Corp., entered into a three-year,  $7.5 million credit facility,  which provides
for a revolving credit line and term loan with CIT/Credit  Finance ("CIT"),  and
which  is   collateralized   by  substantially   all  of  the  assets  of  these
subsidiaries.  There  was a  facility  fee  of 1% of  the  maximum  credit  line
associated with  procurement of the loan. On March 18, 1997, the Company amended
and restated the agreement with CIT to a five year $10 million  credit  facility
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,  at the  lender's  prime rate plus  1.375%  (9.875% at
December 31, 1996 and 1995).

         The agreement  contains certain covenants which require  maintenance of
minimum working capital and equity levels. There is a minimum borrowing required
of $4,000,000 under the agreement.

         Wedgestone  assumed a note associated with the termination of Standun's
management  agreement with Fifth Avenue Partners, a related party of Wedgestone,
in  the  amount  of  $1,104,000  in  conjunction  with  the  acquisition  of the
Automotive Segment (See Note 1).



NOTE 9.    Income Taxes


         Wedgestone  previously  operated  as a  real  estate  investment  trust
("REIT") under certain  sections of the Internal  Revenue Code.  Wedgestone lost
its REIT status when it emerged from  bankruptcy  in August  1992,  and as such,
income  is  taxed  at  the  Wedgestone  level.  Wedgestone  currently  has a net
operating loss carry forward of approximately $40,200,000 for federal Income tax
purposes. These losses expire in various years from 2004 to 2008.

         The  Automotive  Segment  filed a  consolidated  income tax return with
Standun for the year ended  December 31, 1993 and for the period January 1, 1994
through date of acquisition,  November 18, 1994.  Income tax expense of $385,700
and  $211,400  for the years  ended  December  31,  1994 and 1993  respectively,
represent income taxes on the Automotive  Segment's  taxable income had it filed
on a separate return basis. Had the acquisition  taken place at the beginning of
each of these years,  these taxes would have been absorbed by  Wedgestone's  net
operating  loss.  For the year ended  December  31, 1996 and 1995,  $134,000 and
$42,000, respectively, represent state income taxes currently due and payable in
the  states in which the  subsidiaries  do not file  consolidated  returns  with
Wedgestone.

         In connection  with the  acquisition of the Automotive  Segment,  a tax
benefit of $440,000 which was  attributable  to the increase in tax basis of the
Automotive Segment's assets was allocated to additional paid-in capital.


<TABLE>

         The provision for income taxes consists of the following components:
<CAPTION>
                                                                             1996                 1995                  1994
                                                                           -------               -------               -------

<S>                                                                        <C>                   <C>                   <C>    
                 Current                                                   $   238               $    42               $   662
</TABLE>
                                                                 22
<PAGE>
<TABLE>

<S>                                                                            <C>                   <C>                    <C>
                 Deferred                                                      484                   168                    76
                 Change in valuation allowance                                (566)               (1,468)                 (757)
                                                                           -------               -------               -------
             
                                                                           $   156               ($1,258)              ($   19)
                                                                           =======               =======               ======= 
             
</TABLE>
<TABLE>

                  Deferred income tax assets were comprised of the following:
<CAPTION>

                                                                                                   1996                 1995
                                                                                                 --------             --------
<S>                                                                                              <C>                  <C>     
                  Net operating loss carry forward                                               $ 13,673             $ 14,627
                  Accruals/Reserves                                                                 1,065                  476
                  Depreciation                                                                        320                  340
                  Basis difference on automotive segment assets acquired                              440                  440
                  Basis difference in real estate                                                     443                  542
                                                                                                 --------             --------
                  Total deferred tax assets                                                        15,941               16,425
                  Less valuation allowance                                                        (13,269)             (13,835)
                                                                                                 --------             --------
                  Net deferred tax assets                                                           2,672                2,590
                                                                             
                  Less current deferred tax assets                                                   (476)                (476)
                                                                                                 --------             --------
                                                                             
                  Noncurrent deferred tax assets                                                 $  2,196             $  2,114
                                                                                                 ========             ========
</TABLE>

<TABLE>
               
          The following is a reconciliation between the income taxes computed at
the Federal statutory rate and the provision for income taxes:

                                                                           1996                  1995                  1994
                                                                          ------               -------                ----- 
<S>                                                                        <C>                   <C>                  <C>   
                  Income taxes computed at the         
                      Federal statutory rate                               34.00%                34.00%               34.00%
                  State income taxes, net of           
                      Federal benefit                                      11.03%                 6.00%                6.00%
                  Other                                                     3.91%                 4.12%              (10.06%)
                  Change in valuation allowance                           (38.73%)             (215.19%)              51.34%
                                                                          ------               -------                ----- 
                                                                           10.21%              (214.31%)              (1.28%)
                                                                          ======               =======                ===== 
                                                     
</TABLE>

NOTE 10.    Special Income Shares

          Prior to 1990, in connection with  Wedgestone's  acquisition of all of
the net assets of Wedgestone  Participation Mortgage Trust ("WPMT"),  Wedgestone
issued 593,676 shares of beneficial  interest and 565,406 Special Income Shares.
The Special Income Shares  evidenced a share of all income which was earned from
the  contingent-appreciation  and grossrental-increase  portions of the mortgage
loans  acquired  from WPMT, of which none remained at December 31, 1995 and were
not entitled to share in any other  Wedgestone  income or assets.  There were no
accrued earnings associated with special income shares for 1995, 1994 or 1993.

         On May 25, 1995, the United States Bankruptcy Court for the District of
Massachusetts  issued an order establishing  rights and obligations with respect
to the then one  remaining  outstanding  loan under which income rights had been
granted to certain Special Income  Shareholders.  The order released  Wedgestone
from all  obligations  regarding the loan and authorized the Company to transfer
all loan documents to the Federal Deposit Insurance  Corporation.  In connection
with this order,  Wedgestone  was directed to cancel the Special  Income  Shares
subject to certain  future  distribution  rights.  The balance  sheet and income
statement presentation reflect this cancellation. (See Note 13.)


NOTE 11.    Commitments and Contingencies

         Wedgestone is obligated  under various  cancelable  and non  cancelable
operating leases for manufacturing  facilities,  machinery and equipment.  These
leases expire  annually  through  August 31, 2002.  Future  minimum annual lease
commitments are as follows:

                                       23

<PAGE>

                  1997                                      $   817,500
                  1998                                          831,800
                  1999                                          629,800
                  2000                                          611,800
                  2001                                          525,800
                  Thereafter                                    262,300
                                                             ----------
                  Total minimum lease payments               $3,679,000
                                                             ==========

         Total  net  rental  expense  under the terms of  various  building  and
equipment  leases was  $904,000,  $980,000  and  $1,069,000  for the years ended
December 31, 1996,  1995 and 1994,  respectively.  There is a purchase option in
the St. James manufacturing facility lease in the amount of $500,000, subject to
certain  offsets,  exercisable at any time upon repayment of the mortgages which
expire concurrently with the sub-lease on October 31, 1998.


Note 12.    Stock Option and Profit Sharing Plans

         During 1996,  Wedgestone  created the  Wedgestone  Financial 1996 Stock
Option Plan (the "Option Plan").  The Plan carries an effective date of December
31,  1996 and is  subject  to  shareholder  ratification.  Officers,  other  key
employees and significant non-employees who are responsible for or contribute to
the management,  growth and/or  profitability  of the business of Wedgestone are
eligible to be granted  stock  options  under the Option  Plan.  The Option Plan
replaces and supersedes a former stock option plan established in 1995.

         The optionees  under the Option Plan will be selected from time to time
by the Committee (a group of individuals  appointed by the Trustees).  The stock
options  granted under the Option Plan may be of two types:  (i) Incentive Stock
Options and (ii)  Non-Qualified  Stock  Options.  The option  price per share of
stock under a stock option will be  determined  by the  Committee at the time of
grant.  The option price with respect to an incentive  stock option shall not be
less than 100% of the fair market value of the  Wedgestone  stock on the date of
the option grant. The option price with respect to a non-qualified  stock option
shall not be less than 85% of the fair market  value of the stock on the date of
the option grant. The stock options can be exercised at such times as determined
by the Committee.  The stock which is acquired through the exercise of the stock
option,  is  required  to be held for  investment  and not for  resale  or other
distribution.  Wedgestone has reserved  1,000,000 shares of its stock to be used
for the Option Plan. As of December 31, 1996, 995,000 options were granted, were
immediately exercisable. None were exercised.

Changes  in the  number of shares  subject  to  options  during  the year  ended
December 31, 1996, are summarized as follows:

                                                         1996
                                                        -------
                   Outstanding at beginning of year        --

                   Options granted at $ .31 share       995,000
                   Options exercised                       --
                   Options canceled or expired             --
                                                        -------
                   Outstanding at end of year           995,000
                                                        =======

              Two outside directors were each granted 15,000 warrants to acquire
shares of beneficial  interest in  Wedgestone  at an exercise  price of $.25 per
warrant share.  The warrants may be exercised at any time from the date of grant
until October 31, 1997.  The warrants or the warrant  shares may not be disposed
of or encumbered, except in accordance with certain provisions of the Securities
Act of 1933. As of December 31, 1996, none of the warrants were exercised.


              In January 1995, the Company established the Wedgestone Automotive
Corp  Retirement  Savings Plan (the  "Retirement  Plan").  The  Retirement  Plan
provides that all eligible employees of the Company who have attained the age of
21, have  completed one year of  employment  and are not subject to a collective
bargaining  agreement  are  permitted to contribute up to 15% of their salary to
the  Retirement  Plan.  The  Company  makes  contributions  on  behalf  of  each
participant of a matching  amount up to an employee  contribution  of 2% of such
employee's  salary.  Employees are fully vested at all times with respect to all
employee contributions to the Retirement Plan.

              The contributions to Wedgestone's Retirement Plan were $20,700 and
$8,300 for the years ended December 31, 1996 and 1995, respectively.



                                       24

<PAGE>

NOTE 13.    Litigation

Bankruptcy Claims

              On October 30, 1992, a group calling  itself the "Equity  Security
Holders Committee of Wedgestone  Financial" (the "Committee")  filed a complaint
(the  "Complaint")  commencing  an  adversary  proceeding  in the United  States
Bankruptcy Court for the District of  Massachusetts.  On May 20, 1993, the Court
dismissed the adversary proceeding.  The Committee appealed the dismissal to the
District Court. The appeal was denied on August 17, 1994. The Committee appealed
to the United  States  Court of Appeals  for the First  Circuit.  The appeal was
denied on March 1, 1995.  The  Committee  requested  a  rehearing  by the United
States  Court  of  Appeals  for the  First  Circuit.  On  March  22,  1995,  the
Committee's request was denied.

Other

              An appeal was filed  against  the  Company on May 25,  1995,  by a
holder of the  Company's  formerly  issued  Special  Income  Shares (the "Income
Shares").  The Income Shares were  designated to receive a  distribution  of any
excess  "profit or  appreciation"  realized by the  Company on certain  specific
mortgages and notes receivable.  The one remaining  outstanding loan under which
income  rights had been granted  related to a loan the Company  participated  in
with a bank. This bank subsequently was liquidated and the FDIC assumed control.
The FDIC  approached the Company to seek approval to foreclose on the note since
it was in default.  Since the Company was involved in a  bankruptcy  proceeding,
the Company  sought  bankruptcy  court  approval  to proceed on the  foreclosure
action.  In the motion  seeking  such  approval  was a request that (i) the FDIC
remit to the Company any excess  proceeds from the note, (ii) the Company cancel
the Special  Income Shares since this note was the sole remaining loan and (iii)
the Company pay any funds,  net of costs and fees collected from the FDIC to the
holders of Income Shares as a liquidating distribution. This motion was approved
by the  bankruptcy  court and the appeal  was  instituted.  The  appeal  remains
pending.

              A complaint  was filed  against Fey, a wholly owned  subsidiary of
Wedgestone Automotive Corp ("WAC"), on September 10, 1996, in the Superior Court
of Mitchell County in the state of Georgia, by Mitchell Real Estate Partnership,
C. Ray Council,  Hal A. Council,  Max R. Council,  Rex A. Council,  June Council
Hunter and Gay Council Moring (collectively, "Mitchell").

              In its  complaint,  Mitchell  asserts breach of contract and fraud
claims  against the  defendants  resulting  from a Marketing  Agreement  between
Mitchell,  Fey and HAP for marketing  consulting  services  relating to Hercules
products,  alleging, among other things, that Fey has impeded Mitchell's ability
to earn  commissions  under the Marketing  Agreement.  Mitchell  seeks  monetary
damages in excess of $4 million.

              Fey and the other  defendants  have removed the case to the United
States  District  Court for the Middle  District of  Georgia.  Fey and the other
defendants have filed a motion to dismiss the case. Fey has agreed to extend the
period for filing a responsive pleading pending the resolution of the procedural
issues.  Additional named  defendants are John C. Shaw,  chairman and trustee of
the Company,  Jeffrey S. Goldstein,  a trustee and the President of the Company,
James J. Pinto, the President of PFG Corporation, which holds in excess of 5% of
the Company's shares, and David L. Sharp, the Chief Executive Officer of WAC.

              This  litigation  is in the initial  stages no discovery has taken
place. Fey and the other defendants  believe Mitchell's claims are without merit
and intend to  vigorously  contest the  Mitchell  complaint  and pursue  counter
claims and affirmative defenses. As previously reported in its Form 10-Q for the
period  ended June 30, 1996,  the Company has taken a reserve for costs  arising
from or relating to the closure of the Hercules  facility.  Management is unable
to evaluate the likelihood of an  unfavorable  outcome or estimate the amount or
range of potential loss, if any.

NOTE 14.    Segment Information

              Wedgestone   principally   operates  in  two  business   segments:
Automotive  products  and  real  estate  and  lending.  The  Automotive  Segment
manufactures  aftermarket  automotive accessories which are sold and distributed
throughout the United  States.  The real estate  activities  include the sale of
properties previously acquired by foreclosure.
<TABLE>

Financial Data By Business Segment: (In Thousands)
<CAPTION>

                                                                                       For the Years Ended December 31,
                                                                            1996                  1995                 1994
                                                                          --------              --------              --------
<S>                                                                       <C>                   <C>                   <C>     
     Revenue:

     Automotive Products                                                  $ 46,286              $ 46,112              $ 34,618
                                                                          ========              ========              ========

     Income:
</TABLE>

                                                                          25
<PAGE>
<TABLE>

<S>                                                                       <C>                   <C>                   <C>     
     Automotive Products                                                  $  2,944              $  3,259              $  2,367
     Real Estate and Lending                                                  (174)                 (529)                 (363)
                                                                          --------              --------              --------

        Total Operating Income                                               2,770                 2,730                 2,004

     Other Expenses including Taxes                                         (1,398)                 (885)                 (511)
                                                                          --------              --------              --------

     Net Income (Loss)                                                    $  1,372              $  1,845              $  1,493
                                                                          ========              ========              ========

     Identifiable Assets:

     Automotive Products                                                  $ 16,221              $ 17,228              $ 11,087
     Real Estate and Lending                                                 1,167                 1,375                 1,880
                                                                          --------              --------              --------
     Total Identifiable Assets                                              17,388                18,603                12,967

     Corporate Assets                                                        2,962                 2,795                 1,424
                                                                          --------              --------              --------

     Total Consolidated Assets                                            $ 20,350              $ 21,398              $ 14,391
                                                                          ========              ========              ========


     Capital Expenditures:

     Automotive Products                                                  $    933              $    926              $    575
                                                                          ========              ========              ========

     Depreciation:

     Automotive Products                                                  $    771              $  1,092              $    785
                                                                          ========              ========              ========

</TABLE>

<TABLE>

NOTE 16.    Supplemental Cash Flow Information

         Cash paid during the year for:
<CAPTION>

                                                                                           (In Thousands)
                                                                          1996                    1995                    1994
                                                                          ----                    ----                    ----
<S>                                                                      <C>                     <C>                     <C>   
     Interest                                                            $1,126                  $1,334                  $  561
     Income Taxes                                                        $  278                  $  287                  $  567

</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities

         During 1994, Standun  transferred land and buildings of $795,000 to the
Automotive Segment.

         In  connection  with  the  acquisition  of the  Automotive  Segment  in
November 1994,  Wedgestone  assumed a note  associated  with the  termination of
Standun's management agreement with a related party in the amount of $1,104,086.

         On January 9, 1995 Wedgestone acquired  substantially all of the assets
of Hercules Bumpers,  Inc.  ("Hercules") which manufactures and distributes rear
bumpers for both domestic and foreign light duty trucks.  The purchase price for
the assets  acquired was the  assumption  of certain debt and other  liabilities
approximating  $5.1  million.  In  addition,  certain  debt is being  guaranteed
jointly and severally by Charles W. Brady ("Brady"),  the principal  shareholder
of Hercules,  and  Chattahoochee  Leasing  Corporation  ("CLC"),  a  corporation
controlled by Brady. In exchange for this guarantee, Brady received a promissory
note in the amount of $300,000 and 1,200,000  shares of  beneficial  interest of
Wedgestone.  In  consideration  for an agreement to pay a liability of Hercules,
CLC received a promissory  note for $100,000 which was secured by 100,000 shares
of beneficial  interest of Wedgestone.  In June 1995, the Company  exercised its
right under the CLC  Agreement  and acquired the note by issuing these shares to
CLC. See Sale of Subsidiary (Note 3).

         In  connection  with  the  Hercules   acquisition,   Resource  Holdings
Associates and PFG received a fee of $220,000 consisting of $160,000 and 200,000
shares of beneficial  interest of  Wedgestone  at a valuation  price of $.30 per
share.

                                       26

<PAGE>

         In  connection  with the  January  9,  1995  acquisition  of  Hercules,
Wedgestone assumed liabilities to acquire assets as follows:

                 Accrued expenses                                     $1,094,201
                 Revolver and other debt                               3,957,024
                                                                     -----------
                 Total liabilities assumed                            $5,051,225
                                                                      ==========

                 Receivables, inventories and other assets            $2,990,855
                 Property, Plant and Equipment                         2,060,370
                                                                      ----------
                 Total assets acquired                                $5,051,225
                                                                      ==========

         In connection  with the April 18, 1996 sale of Hercules,  $5,088,000 of
assets were sold and liabilities of $4,793,000 were assumed.

                                       27

<PAGE>



                                    PART III

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

         None.

<TABLE>
Item 10.    Trustees and Executive Officers of the Registrant

         The  following  table sets forth  certain  information  concerning  the
trustees,  executive  officers and other management  personnel of Wedgestone and
its subsidiaries as of March 28, 1997:

<CAPTION>
              Name                             Age            Position
              ----                             ---            --------
<S>                                             <C>           <C>                                                                  
              Jeffrey S. Goldstein              51            Trustee, President, Treasurer and Secretary -  Wedgestone Financial
              John C. Shaw                      43            Trustee - Wedgestone Financial
              Jeffrey A. Oberg                  42            Trustee - Wedgestone Financial
              John J. Doran                     47            Trustee - Wedgestone Financial
              David L. Sharp                    45            Chief Executive Officer - Wedgestone Automotive Corp
              Eric H. Lee                       42            Chief Financial Officer, Treasurer / Secretary - Wedgestone Automotive
                                                              Corp
</TABLE>

         Jeffrey  S.  Goldstein  has served as  President  of  Wedgestone  since
October 1, 1992, and has served as a Trustee since June 16, 1992.  Additionally,
Mr.  Goldstein has served as President of Rockaway 605 Corp.  since 1989 and MBC
Corp. as of 1996.  Mr.  Goldstein  joined  Rockaway 605 Corp. for the purpose of
reorganizing  Rockaway  and he joined MBC for the  purpose of  assisting  in its
liquidation  of Hercules,  formally  owned by  Wedgestone.  Mr.  Goldstein  also
performs consulting services for Air Wisconsin Airlines Corp. From 1985 to 1989,
Mr.  Goldstein  served  as  Executive  Vice  President  and  Treasurer  of  Kane
Industries.  From  1979 to 1985,  Mr.  Goldstein  served as Vice  President  and
Treasurer of Arkay Packaging Corp.

         John C. Shaw has served as a Trustee since November, 1992. Mr. Shaw has
served as a  Managing  Director  of  Resource  Holdings  Ltd.,  a New York based
private  merchant banking firm, since 1983. Mr. Shaw is a member of the Board of
Directors of National Capital  Management  Corp., a publicly traded  corporation
with specialty finance, real estate and industrial operations.

         Jeffrey A. Oberg has served as a Trustee since October 1994.  Mr. Oberg
has served as a Managing  Director of KPMG Peat Marwick  since August 1995.  Mr.
Oberg  previously   served  as  Senior  Vice  President  Finance  and  Corporate
Development at United States Banknote Corporation from January 1994 through July
1995, and as Vice President Finance and Corporate Development from February 1991
through  December  1993.  Prior to  February  1991,  Mr.  Oberg  served  as Vice
President in the Investment Banking Division at The First Boston Corporation.

         John J. Doran has served as a Trustee since October 1994.  For the past
ten years, Mr. Doran served as President of Citizens Medical  Corporation and as
a consultant to Medco  Containment  Services,  Inc. Mr. Doran is a member of the
Board of Directors of Sandwich CoOp. Bank, a publicly traded company.

         David L. Sharp has  served as Chief  Executive  Officer  of  Wedgestone
Automotive Corp since the acquisition of the Automotive  Segment from Standun on
November 18, 1994.  Mr.  Sharp has been with the Standun  companies  since 1979,
where he has  served  in  various  positions  with  Standun's  subsidiaries  and
divisions.  From 1989 until the  acquisition,  Mr.  Sharp served as President of
Standun and the Fey Automotive Products Division.

         Eric H.  Lee has  served  as Chief  Financial  Officer,  Treasurer  and
Secretary of Wedgestone  Automotive Corp since the acquisition of the Automotive
Segment  from  Standun  on  November  18,  1994.  From  January  1994  until the
acquisition,  Mr.  Lee  served as Chief  Financial  Officer  of  Standun  and as
Controller of the Fey Automotive  Products division from February 23, 1993 until
January  1994.  Prior to Mr. Lee's  employment at Standun,  he occupied  various
management  positions  within the  electronics  industry,  and from 1991 to 1993
served as President and Chief Operating Officer of Synthane Taylor, a subsidiary
of Alco Industries.

                                       28

<PAGE>



         Mr.  Shaw,  as  Chairman,  and Mr.  Goldstein,  as the sole  officer of
Wedgestone,  serve at the  pleasure  of the  Board of  Trustees  and each of the
Trustees  serve until their  successors  are elected and  qualified  at the next
annual meeting of Wedgestone's shareholders.

         Wedgestone's  Audit Committee is comprised of John J. Doran and Jeffrey
A. Oberg.  Wedgestone's  Compensation  Committee  is comprised of John J. Doran,
Jeffrey  A.  Oberg  and  John C.  Shaw.  Wedgestone's  Executive  Committee,  is
comprised of John C. Shaw and Jeffrey S. Goldstein.  These individuals will hold
their respective positions until the appointment of their respective successors.

         All trustees are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at Board meetings. Wedgestone compensates
its trustees who are not officers of the Company at a rate of $2,000 per quarter
and $200  per  meeting.  There  are no  family  relationships  among  any of the
executive officers or trustees of Wedgestone.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

         Section  16(a)  of  the  Securities   Exchange  Act  of  1934  requires
Wedgestone's officers and directors and persons who own more than ten percent of
a  registered  class of  Wedgestone's  equities  securities,  to file reports of
ownership on Form 3 and changes in ownership on Forms 4 or 5 with the Securities
and Exchange Commission (the "Commission") and the NASDAQ System. Such officers,
directors and ten percent  shareholders  are also  required by the  Commission's
rules to furnish Wedgestone with copies of all Section 16(a) forms they file.

         Based solely on its review of the copies of such forms  received by it,
or written  representation  from  certain  reporting  persons that no Form 5 was
required  for such  persons,  Wedgestone  believes  that  during  the year ended
December  31, 1995,  all Section  16(a) filing  requirements  applicable  to its
officers, directors and ten percent shareholders were complied with.

Item 11.  Executive Compensation

         The three components of the Company's  executive  officer  compensation
program are base salary,  annual  incentive  compensation  in the form of a cash
bonus  and  long-term  incentive  compensation  in the  form of  stock  options.
Executive officers are also entitled to various benefits including participation
in the Company's  medical,  life insurance and long-term  disability plans which
are generally available to employees of the Company. The Compensation  Committee
of the Board of Trustees  consisting  of two outside  trustees and the Company's
Chairman,  is responsible for the evaluation and approval of the compensation of
Wedgestone Financial officers.

<TABLE>
         The following tabulation gives information with respect to remuneration
paid to each of the three highest paid executive  officers of Wedgestone and its
subsidiaries for the years 1996, 1995, and 1994.
<CAPTION>
                                                        SUMMARY COMPENSATION
                                                                                                                  Long-Term
                                                                          Annual Compensation (1)               Compensation
                                                                  ------------------------------------------    -------------
                                                   Year           Salary             Bonus         Benefits         Options
                                                   ----           -------           ------         --------         -------
<S>                                                <C>           <C>           <C>              <C>                 <C>   
Jeffrey S. Goldstein, President                    1996          $175,000      $       -0-      $       -0-          85,000
 Wedgestone Financial                              1995           160,200              -0-              -0-             -0-
                                                   1994           120,000              -0-              -0-             -0-


David L. Sharp, Chief Executive Officer            1996           126,200           25,000            6,000         251,500
  Wedgestone Automotive Corp                       1995           114,750           34,000            8,712             -0-
                                                   1994           110,000           48,000           12,673             -0-

Eric H. Lee, Chief Financial Officer               1996             99,100          25,000            6,000         160,000
 Wedgestone Automotive Corp                        1995             95,000          26,000            8,678             -0-
                                                   1994            88,000           34,000            9,775             -0-

</TABLE>

                                                                 29

<PAGE>

-----------------------------------------------------

(1) Mr.  Goldstein was first employed by Wedgestone on October 1, 1992,  when he
was elected President.  Messrs.  Sharp, and Lee were hired as executive officers
of Wedgestone  Automotive Corp upon  Wedgestone's  acquisition of the Automotive
Segment from Standun on November 18, 1994.  Their salaries  above  represent the
annual compensation received as employees of Wedgestone and Standun.

<TABLE>

                 The following table shows, for those  individuals  named in the
Summary Compensation table,  information concerning stock options granted during
the year ended December 31, 1996.
<CAPTION>

                                                        Option Grants in 1995

                                  Options      % of Total        Exercise  Expiration Potential Realizable Value(2)
                                 Granted(1)    Granted in 1996   Price      Date(1)            5%         10%
                                 ----------    ---------------   -----      -------            --         ---
<S>                               <C>             <C>            <C>         <C>            <C>         <C>    
Jeffrey S. Goldstein               85,000          8.5%          $.31        9/22/99        $25,500     $31,450

David L. Sharp                    251,500         25.2%           .31        9/22/99         75,450      93,055

Eric H. Lee                       160,000         16.1%           .31        9/22/99         48,000      59,200
<FN>
--------------------------------------------
(1) Options indicated vest and become  exercisable over a two-year period ending
December 31, 1996 based on the optionee's continued employment with the Company.

(2)  Potential   Realizable  Value  at  assumed  Annual  Rates  of  Stock  Price
Appreciation for Option terms at rates of 5% and 10% is information  mandated by
the  Securities  and Exchange  Commission  and does not  represent the Company's
estimate or projection of the future price of its shares of Beneficial Interest.
</FN>
</TABLE>

<TABLE>
No executive  officer  exercised  options during 1996. The following  table sets
forth,  for each of the  executive  officers  named in the Summary  Compensation
Table, the year-end value of unexercised options.
<CAPTION>

                                                 Aggregated Option Exercises in 1996
                                                     and Year-End Option Values

                                                 Number of                              Value of Unexercised
                                            Unexercised Options                         In-The-Money Options
                                                At Year-End                                  At-Year-End
                                            -------------------                         ---------------------
                                     Exercisable        Unexercisable              Exercisable        Unexercisable
                                     -----------        -------------              -----------        -------------
<S>                                    <C>                   <C>                       <C>                <C>
Jeffrey S. Goldstein                   85,000               -0-                        $0                 $0

David L. Sharp                        251,500               -0-                         0                  0

Eric H. Lee                           160,000               -0-                         0                  0
</TABLE>
Compensation Committee Interlocks and Insider Participation                    

         During 1996, the Compensation Committee of the Board of Trustees of the
Company was comprised of John J. Doran,  Jeffrey A. Oberg and John C. Shaw. None
of the  members  of the  Compensation  Committee  has ever been an  employee  or
officer of the Company or any of its  subsidiaries,  with the  exception  of Mr.
Shaw who is the  Chairman  of the Board but does not  receive  compensation  for
acting in such capacity.  Mr. Shaw,  however,  is a significant equity holder in
PSG  Associates and Resource  Holdings  Associates,  each of which  respectively
provide  financial and advisory  services to St. James and Fey,  subsidiaries of
the Company.  In 1996,  the Company paid PSG  Associates  $125,000 in connection
with  such  services  to St.  James  and  $14,600  and  $28,000  to PFG Corp and
Wedgestone Partners,  respectively,  for such services to Hercules.  The Company
will pay PSG Associates $125,000 for financial and advisory services rendered to
St.  James for the current  year and $60,000  and  $120,000 to PFG and  Resource
Holdings Associates,  respectively for such services rendered to Fey. Otherwise,
none of the members of the Compensation Committee has any relationship requiring
disclosure  under any  paragraph of Item 404 or in Item  402(j)(3) of Regulation
S-K promulgated by the Commission.


          REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF TRUSTEES

         The  following  is the  report  of the  Compensation  Committee  of the
Company (the "Committee") on executive compensation for Fiscal 1996.

                                       30

<PAGE>

         Compensation Philosophy.  The Committee believes that it is in the best
interests of the shareholders for the Company to attract,  maintain and motivate
top quality management personnel, especially its executive officers, by offering
and maintaining a competitive  compensation package that exhibits an appropriate
relationship  between  executive pay and the creation of stockholder  value. The
general  philosophy  of the  committee  is to integrate  (i) adequate  levels of
annual base  compensation;  (ii) annual cash bonuses and equity  awards based on
achievement of short-term corporate and individual  performance goals, such that
executive compensation levels will be higher in years in which performance goals
are achieved or exceeded; and (iii) equity awards, to ensure that management has
a  continuing  stake in the long term success of the Company and return of value
to its stockholders.

         The elements of the Committee's integrated  compensation philosophy and
the application of these philosophies during 1996 are summarized as follows:

         Base  Compensation   Levels.   Although  the  Committee  believes  that
performance-based  pay  elements  should be a key  element  in the  compensation
packages for its executive officers, the Company must maintain base compensation
levels  commensurate  with other comparable  companies in its industry with whom
the Company competes for management personnel (the "Comparable Companies").

         The Comparable  Companies  selected by the Company are those automotive
supply companies that have production and marketing  strategies similar to those
of the  Company,  which  are  similar  to the  Company  and  which  compete  for
executives in the same markets as the Company.

         Although the process of setting base compensation levels often reflects
subjective factors,  such as leadership,  commitment,  attitude and motivational
effect, the Committee also considers  objective factors,  such as achievement of
performance goals (primarily profitability of the areas over which the executive
has management  responsibility),  level of responsibility  and prior experience.
The  Committee  believes  that the overall  compensation  paid to the  Company's
executive  officers for the last year was competitive with overall  compensation
paid by the Comparable Companies for similar positions.

         Performance-Based Compensation. The Company provides executive officers
with the following performance-based compensation programs:

         o        Cash Bonuses.  Cash bonuses may be earned if certain specified
                  performance goals are achieved.

         o        Stock  Options.   Options  may  be  granted  pursuant  to  the
                  Wedgestone  Financial  1996  Stock  Option  Plan (the  "Option
                  Plan") at an exercise  price equal to or greater than the fair
                  market value of the stock on the date of the grant.  The value
                  of the options is related  directly to the market price of the
                  stock and,  accordingly  to the long-term  performance  of the
                  Company.  An aggregate of 496,500  options were granted to the
                  Company's  executive  officers in 1996 under the Option  Plan.
                  The number of  options  granted  was based on the  executive's
                  length of service and level of responsibility in the Company.

         Compensation  of  Chief  Executive   Officer.   Mr.   Goldstein's  base
compensation  for 1996 was $175,000  and has been set at $175,000 for 1997.  The
Committee  believes that Mr.  Goldstein's  base salary in 1996 was comparable to
that of other chief  executives  in the industry in which the Company  competes.
Mr. Goldstein did not receive a bonus in 1996.

                                           John J. Doran, Chairman
                                           Jeffrey A. Oberg
                                           John C. Shaw

                                           Members of the Compensation Committee


                                       31

<PAGE>

Profit Sharing, Stock Option Plans and Warrants

         During 1996,  Wedgestone  created the  Wedgestone  Financial 1996 Stock
Option Plan (the "Option  Plan").  The Option Plan carries an effective  date of
December 31, 1996 and is subject to shareholder  ratification.  The total number
of shares of Wedgestone stock reserved and available for distribution  under the
Option  Plan  is  1,000,000.  Officers,  other  key  employees  and  significant
non-employees  who are responsible  for or contribute to the management,  growth
and/or  profitability  of the business of Wedgestone  are eligible to be granted
stock options under the Option Plan.  The Option Plan replaces and  supersedes a
former stock option plan  established  in 1995.  The optionees  under the Option
Plan will be selected  from time to time by the  Committee  (a group of not less
than three persons  appointed by the Trustees).  The stock options granted under
the Option  Plan may be of two  types:  (i)  Incentive  Stock  Options  and (ii)
Non-Qualified  Stock Options.  The option price per share of stock under a stock
option will be  determined  by the  Committee  at the time of grant.  The option
price with respect to an  incentive  stock option shall not be less than 100% of
the fair market value of the  Wedgestone  stock on the date of the option grant.
The option price with respect to a non-qualified  stock option shall not be less
than 85% of the fair  market  value of the  Wedgestone  stock on the date of the
option grant.  The stock options can be exercised at such times as determined by
the  Committee.  The stock which is acquired  through the  exercise of the stock
option  is  required  to be held  for  investment  and not for  resale  or other
distribution.  The options and the stock are  non-transferable.  As of March 28,
1997, 995,000 shares have been granted.

         Two outside directors, Mr. John J. Doran and Mr. Jeffrey A. Oberg, were
each  granted  15,000  warrants  to acquire  shares of  beneficial  interest  in
Wedgestone at an exercise price of $.25 per warrant  share.  The warrants may be
exercised  at any time  from  the date of grant  until  October  31,  1997.  The
warrants or the warrant shares may not be disposed of or  encumbered,  except in
accordance with certain  provisions of the Securities Act. As of March 28, 1997,
none of the warrants have been exercised.

         All former Profit Sharing, Stock Option and 401(k) Profit Sharing Plans
were terminated  pursuant to the bankruptcy plan of  reorganization in 1992. The
401(k)  Profit  Sharing Plan was  liquidated  as of July 21, 1993 and the assets
were  distributed  to the  plan  participants.  In  January  1995,  the  Company
established  the  Wedgestone   Automotive  Corp  Retirement  Savings  Plan  (the
"Retirement  Plan"). The Retirement Plan provides that all eligible employees of
the  Company  who  have  attained  the age of 21,  have  completed  one  year of
employment  and  are  not  subject  to a  collective  bargaining  agreement  are
permitted to contribute up to 15% of their salary to the  Retirement  Plan.  The
Company makes  contributions  on behalf of each participant of a matching amount
up to an employee  contribution of 2% of such employee's  salary.  Employees are
fully  vested at all times with  respect to all  employee  contributions  to the
Retirement Plan.



                                       32

<PAGE>
<TABLE>
Item 12.    Security Ownership of Certain Beneficial Owners and Management

         The following table shows, as of December 31, 1996, certain information
known to Wedgestone  regarding  security holders of Wedgestone who may be deemed
to be the beneficial owners of 5% or more of each class of Wedgestone's shares.
<CAPTION>

                                                                                      Beneficial Shares
                                                                     ----------------------------------------------
                                                                     Amount and Nature of              Percent of
Name and Address of Beneficial Owners                                Beneficial Ownership                 Class
-------------------------------------                                --------------------              -----------
<S>                                                                     <C>                                <C>  
Stockwood LLC                                                           6,795,223                          31.0%
520 Madison Avenue, 40th Floor
New York, NY 10022

JCS Management Co., Inc.                                                8,525,756(1)                       39.0%
520 Madison Avenue, 40th Floor
New York, NY  10022

PFG Corporation                                                         1,863,865(2)                        8.5%
235 Sunrise Boulevard
Palm Beach, FL  33480

RAB Management Corp.                                                    1,730,531(3)                        7.9%
520 Madison Avenue, 40th Floor
New York, NY  10022

JMS Holdings Co., Inc.                                                  1,730,531(4)                        7.9%
520 Madison Avenue, 40th Floor
New York, NY  10022

Charles Brady                                                           1,300,000(5)                        5.9%
1315 Peachtree Street N.E. Suite 300
Atlanta, GA  30309

<FN>
------------------------------------------------
(1)   Mr. John C. Shaw is the president and sole shareholder of this company.  6,795,223 of these shares are held by Stockwood LLC.
Resource Holdings Associates owns 62.5% of the stock of Stockwood LLC and Mr. Shaw is managing director of the general partner of
Resource Holdings Associates.
(2)   Mr. James J. Pinto is the president and sole shareholder of this company.  PFG owns 37.5% of Stockwood LLC.
(3)   Mr Richard A. Bartlett is the president and sole shareholder of this company.
(4)   Mr. Jerry M. Seslowe is the president and sole shareholder of this company.
(5)   Includes 100,000 shares held by Chattahoochee Leasing Corporation, an affiliate of Mr. Brady.

</FN>
</TABLE>

                                                                 33

<PAGE>

<TABLE>
Security Ownership of Management

         The  following  table  shows,  as of  December  31,  1996,  based  upon
information  supplied  by the  Trustees  and  officers  of  Wedgestone  and  its
Subsidiaries,  the amount and nature of ownership of  Wedgestone  shares of each
Trustee of Wedgestone and of all Trustees and officers as a group.
<CAPTION>

         Amount and Nature of                                          Percent of
Name and Address of Beneficial Owners                             Beneficial Ownership                    Class
-------------------------------------                             --------------------                    ------
<S>                                                                     <C>                                <C>  
John C. Shaw                                                            8,525,756 (1)                      39.0%
Jeffrey A. Oberg                                                           15,000 (2)                          *
John J Doran                                                               15,000 (2)                          *
Jeffrey S. Goldstein                                                       85,000 (3)                          *
David L. Sharp                                                            251,500 (3)                       1.1%
Eric H. Lee                                                               160,000 (3)                          *
<FN>
------------------------------------
* Represents less than 1%
(1) See Footnote (1) under Security Ownership of Certain Beneficial Owners.
(2) Represents a Warrant that is immediately exercisable to purchase 15,000 shares.
(3) Represents options  that are immediately exercisable to purchase shares indicated.
</FN>
</TABLE>

ITEM 13.  Certain Relationships and Related Transactions

         The Automotive Segment was purchased from Standun,  which is indirectly
owned  and/or  controlled  by Resource  Holdings  Associates  and PFG Corp.  The
managing  directors of Resource  Holdings Ltd. (The general  partner of Resource
Holdings  Associates) and PFG Corp are former shareholders of St. James. Each of
the  managing  directors  owns  directly  or  indirectly  in excess of 5% of the
outstanding shares of Wedgestone. Stockwood owns 31.0% of Wedgestone. Wedgestone
assumed a note associated with the termination of Standun's management agreement
with Fifth  Avenue  Partners,  a related  party of  Wedgestone  in the amount of
$1,104,086 in conjunction with the acquisition. The note is payable monthly with
interest  calculated  in  arrears  at 9% per annum  over the five  years  ending
December 31, 1999. In 1996  Wedgestone  paid $ 275,000 in principal and interest
on this loan.

         St. James has a Consulting  Agreement with PSG Associates  entered into
on January 10, 1992 (prior to its acquisition by  Wedgestone).  Pursuant to this
Agreement,  PSG Associates has agreed to provide advisory  services to St. James
with respect to its operations,  expansion and financing activities at a minimum
rate of $125,000 per year plus reimbursement of expenses. Mr. Shaw, a trustee of
the Company,  is a  significant  equity  holder in PSG  Associates,  through JCS
Holdings  Corp.  ("JCS") as is each of PFG Corp.,  JMS Holdings  Corp.,  and RAB
Management  Corp.  (the former St. James  shareholders).  During 1996,  1995 and
1994,  St. James paid $125,000 per year to PSG  Associates  under this contract.
For 1997,  St.  James is required to pay to PSG  Associates  $125,000  annually,
pursuant to this Agreement.

         Effective January 1, 1996, Fey Automotive Products, Inc. entered into a
four-year  agreement  with  PFG and  Resource  Holdings  Associates  to  provide
advisory services to Fey with respect to its operations, expansion and financing
activities  at an  aggregate  amount  of  $180,000.  Amounts  owing  under  this
agreement have been accrued for in 1996.

         On January 12, 1993, as amended, Wedgestone entered into a secured, one
year credit  facility due July 1996 with Rockaway  pursuant to which  Wedgestone
was  permitted  to borrow up to a  maximum  to  $300,000  with  additional  over
advances available at the discretion of the lender to fund Wedgestone's  working
capital needs and those of its subsidiaries. The contractual rate of interest on
this facility was fifteen percent (15%) per annum and there was a commitment fee
of $4,500,  payable  upon  initial  funding  and an  extension  fee of $5,000 in
connection with the amendment in 1994. The Rockaway Loan was secured by a pledge
of  substantially  all of the stock of Wedgestone's  subsidiaries,  its personal
assets and notes receivables.  As of December 31, 1995,  Wedgestone had borrowed
$300,000  pursuant to this facility and Rockaway  advanced  amounts in excess of
the agreement of $429,000.  In 1996, the Company paid $ 717,800 in principal and
interest on this credit  facility.  Rockaway  is a real estate  holding  company
which is  controlled  by former St.  James  shareholders.  The former St.  James
shareholders  are  entitled to  substantially  all of the  economic  benefits of
Rockaway.  Mr. Goldstein,  who is president and a trustee of Wedgestone,  is the
president of Rockaway. This credit facility was repaid in 1996.


                                       34

<PAGE>
                                     PART IV

Item 14.    Exhibits, Financial Statements, Schedules, and Reports on Form 10-K

         (a) Set forth below are consolidated  financial  statements,  financial
statement  schedules  and exhibits  filed as part of this Annual  Report on Form
10-K.

           1.      Consolidated Financial Statements

                   Reference  is made to the  index  of  consolidated  financial
                   statements and supplementary data on page 11.

           2.      Financial Statement Schedules

                   Schedule II, Valuation and Qualifying Accounts, Schedule III,
                   Real Estate and  Accumulated  Depreciation  and  Schedule IV,
                   Mortgage  Loans on Real Estate  appear on pages 40 through 42
                   hereof. All other schedules are not included because they are
                   not applicable.

<TABLE>
           3.      Exhibits

                   The following  Exhibits are filed as part of, or incorporated
                   by reference into this report:


<CAPTION>
           Exhibit No.
          -------------
<S>                              <C>
           (2)            (i)     The  Merger  Agreement  with  St. James  Automotive Corp.  into  a  subsidiary  of  Wedgestone  as
                                 contemplated in Wedgestone's Plan of Reorganization  dated May 29, 1992 (Filed as Exhibit 2 to Form
                                 8-K filed June 15, 1992 and incorporated herein by reference).

                         (ii)    The Asset Sale Agreement between Wedgestone Financial,  Wedgestone Automotive Corp., Fey Automotive
                                 Products,  Inc.  and  Standun,  Inc.  dated  October 28, 1994 (Filed as Exhibit 1 to Form 8-K filed
                                 October 28, 1994 and incorporated herein by reference).

                         (iii)   First Amendment to Asset Sale Agreement  between Fey Automotive  Products,  Inc. and Standun,  Inc.
                                 dated  November  17, 1994 (Filed as Exhibit 2 to Form 8-K filed  December 1, 1994 and  incorporated
                                 herein by reference).

                         (iv)    Asset Sale  Agreement  between  Hercules  Automotive  Products,  Inc. (a  subsidiary  of Wedgestone
                                 Financial) and Hercules Bumpers, Inc. dated December 23, 1994 (Filed as Exhibit 1 to Form 8-K filed
                                 January 23, 1995 and incorporated herein by reference).

                         (v)     Letter Amendment to Asset Sale Agreement between Hercules  Automotive  Products,  Inc. and Hercules
                                 Bumpers,  Inc.  dated  December 23, 1994 (Filed as Exhibit 2 to Form 8-K filed January 23, 1995 and
                                 incorporated herein by reference).

           (3)            (i)    Amendment and  Restatement of Declaration of   Trust and Appointment of  Trustees and Acceptance of
                                 Appointment  of  Trustees  dated June 15, 1992 (Filed as Exhibit 3 to Form 8-K on June 26, 1992 and
                                 incorporated herein by reference).

           (4)            (i)    Specimen  certificate for  shares of beneficial interest,  $1.00  par value (Filed  as Exhibit 1 to
                                 Form S-11 Registration Statement No. 2-66921 and incorporated herein by reference).

                         (ii)    Specimen  certificate  for Special  Income Shares (Filed as Exhibit 4(b) to Form S-14  Registration
                                 Statement No. 2-98006 and incorporated herein by reference).

          (10)            (i)    Letter  of  Intent   between   Wedgestone  Financial  and  PSG  Holdings  Corp.,  d/b/a  St.  James
                                 Automotive (Filed as Exhibit C to First Amended of Reorganization  which was filed as Exhibit 2(ii)
                                 to Form 8-K filed February 12, 1992 and incorporated herein by reference).

                                                                 35

<PAGE>

                         (ii)    Term note for $1,000,000 from Genesis Plastics,  Inc., to Wedgestone Financial (Filed as an exhibit
                                 to Form 8-K Report dated August 24, 1992 and incorporated herein by reference).

                         (iii)   Loan and Security  Agreement dated August 24, 1992 between Genesis  Plastics,  Inc., and Wedgestone
                                 Financial  for loan (Filed as an exhibit to Form 8-K Report dated August 24, 1992 and  incorporated
                                 herein by reference).

                         (iv)    Unconditional  Secured Guaranty dated August 24, 1992 between Nicon Holdings,  Inc., and Wedgestone
                                 Financial  for loan (Filed as an exhibit to Form 8-K Report dated August 24, 1992 and  incorporated
                                 herein by reference).

                         (v)     Unconditional Guaranty dated August 24, 1992 between Nicon Holdings, Inc., and Wedgestone Financial
                                 for loan (Filed as an exhibit to Form 8-K Report dated August 24, 1992 and  incorporated  herein by
                                 reference).

                         (vi)    Stock Exchange  Agreement and Plan of Reorganization  dated August 24, 1992 between Nicon Plastics,
                                 Inc.,  and Wedgestone  Financial  (Filed as an exhibit to Form 8-K Report dated August 24, 1992 and
                                 incorporated herein by reference).

                         (vii)   Loan Participation and Sharing Agreement dated December 17, 1992 between  Wedgestone  Financial and
                                 JCS Holdings Corp., RAB Management Corp., JMS Holdings Corp., and PFG Corp. (Filed as an exhibit to
                                 Form 10-K filed March 31, 1993 and incorporated herein by reference).

                         (viii)  Loan and Security  Agreement dated January 12, 1993 between  Wedgestone  Financial and Rockaway 605
                                 Corp. (Filed as an exhibit to Form 10-K filed March 31, 1993 and incorporated herein by reference).

                         (ix)    Amendment  dated January 15, 1994 of Loan  Participation  and Security  Agreement dated January 12,
                                 1993 between  Wedgestone  Financial and Rockaway 605 Corp.  (Filed as an exhibit to Form 10-K filed
                                 April 13, 1994 and incorporated herein by reference).

                         (x)     Court  approved  motion by IRP  releasing  guarantee of  indebtedness  owed to Charles  Sullivan in
                                 exchange for the right to purchase  Wedgestone's  one acre parcel and IRP's  assignment of it's 50%
                                 interest in Wedgestone's  New York property to Wedgestone.  (Filed as an exhibit to Form 10-K filed
                                 April 13, 1994 and incorporated herein by reference).

                         (xi)    Amendment  dated  November 1, 1994 of Loan and Security  Agreement  dated  January 12, 1993 between
                                 Wedgestone Financial and Rockaway 605 Corp. (Filed as an exhibit to Form 10- K filed March 30, 1995
                                 and incorporated herein by reference).

                         (xii)   Registration  Rights Agreement  between Standun,  Inc. and Wedgestone  Financial dated November 18,
                                 1994 (Filed as Exhibit 3 to Form 8-K filed December 1, 1994 and incorporated herein by reference).

                         (xiii)  The Wedgestone  Financial 1994 Stock Option Plan effective September 24, 1994. (Filed as an exhibit
                                 to Form 10-K filed March 30, 1995 and incorporated herein by reference).

                         (xiv)   Promissory  Note  between  Standun,  Inc.  and 5th Avenue  Partners  dated  November  17,  1994 and
                                 Assignment Agreement,  assigning the note to Fey Automotive Products,  Inc. (Filed as an exhibit to
                                 Form 10-K filed March 30, 1995 and incorporated herein by reference).

                         (xv)    Revolving Credit Line between Fey Automotive Products,  Inc., Sigma Plating Co., Inc. and St. James
                                 Automotive Corp. and The CIT Group, Inc. dated November 18,  1994.(Filed as an exhibit to Form 10-K
                                 filed March 30, 1995 and incorporated herein by reference).


                                                                 36

<PAGE>



                         (xvi)   Credit Enhancement  Agreement of Charles Brady,  Chattahoochee  Leasing  Corporation and Wedgestone
                                 Financial  dated  January  8, 1995  (Filed as  Exhibit 3 to Form 8-K  filed  January  23,  1995 and
                                 incorporated herein by reference).

                         (xvii)  Promissory Note between Charles W. Brady and Hercules  Automotive  Products,  Inc. dated January 8,
                                 1995 (Filed as Exhibit 4 to Form 8-K filed January 23, 1995 and incorporated herein by reference).

                         (xviii) Promissory Note between  Chattahoochee  Leasing Corporation and Hercules Automotive Products,  Inc.
                                 dated  January 8, 1995  (Filed as Exhibit 5 to Form 8-K filed  January  23,  1995 and  incorporated
                                 herein by reference).

                         (xix)   The Wedgestone Financial 1996 Stock Option Plan effective December 31, 1996 (Filed herewith).

                         (xx)    The Management Agreement between Fey Automotive  Products,  Inc. and PFG Corp. effective January 1,
                                 1996 (Filed herewith).

                         (xxi)   The Management  Agreement between Fey Automotive  Products,  Inc. and Resource Holdings  Associates
                                 effective January 1, 1996 (Filed herewith).

         (21)                    Subsidiaries of Registrant:  Wedgestone College Point Corp., a New York corporation Bristol Village
                                 Inc., a Connecticut  corporation  MWF Corp.,  a Delaware  corporation  LIP Corp.,  a  Massachusetts
                                 corporation St. James Automotive,  a Delaware corporation  Wedgestone  Automotive Corp., a Delaware
                                 corporation  Fey  Automotive  Products,  Inc., a Delaware  corporation  Sigma Plating Co.,  Inc., a
                                 California corporation

         Note:                   Wedgestone  Financial  has seven  consolidated  wholly owned  subsidiaries  operating in the United
                                 States.  Wedgestone  College Point Corp.,  Bristol Village Inc., MWF Corp.,  and LIP Corp. own real
                                 estate  acquired  from a borrower.  See Schedule III to this report for a  description  of the real
                                 estate so acquired.  St. James Automotive  Corp.,  Wedgestone  Automotive Corp., and Fey Automotive
                                 Products,  Inc.,  manufacture  light duty truck  aftermarket  accessories.  Sigma Plating Co., Inc.
                                 operates an electroplating facility.

         (27)                    Financial Data Schedule (Filed herewith).

         (b)  Reports on Form 8-K


                             NONE


</TABLE>

                                 SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                           WEDGESTONE FINANCIAL

                                       37

<PAGE>



Date:    March 27, 1996
                                       By: /s/   Jeffrey S. Goldstein,
                                          --------------------------------------
                                          President and Chief Accounting Officer


Pursuant to the  requirements  of the Securities and Exchange Act of 1934,  this
report has been signed below the following  persons on behalf of the  registrant
and in the capacities and on the dates indicated.



Date:    March 27, 1996                                By: /s/ John C. Shaw
                                                           ---------------------
                                                                 Trustee


Date:    March 27, 1996                                By:/s/ Jeffrey A. Oberg
                                                           ---------------------
                                                                  Trustee


Date:    March 27, 1996                                By:/s/ John J. Doran
                                                           ---------------------
                                                                  Trustee


Date:    March 27, 1996                                By:/s/ Jeffrey Goldstein
                                                           ---------------------
                                                                  Trustee



The name "Wedgestone  Financial" (formally 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 Wedgestone  property
for the enforcement of any claims against Wedgestone  Financial and that neither
The Trustees,  officers,  employees, agents nor shareholders assume any personal
liability for claims against Wedgestone or obligations entered into on behalf of
Wedgestone Financial, and that the respective properties shall not be subject to
claims of any other person in respect of any such liability.


                                       38

<PAGE>


<TABLE>
Schedule II - Valuation and Qualifying Accounts: (Amounts in Thousands)

<CAPTION>

                                                               Additions
                                                               ---------
                                          Balance        Charged      Charged                      Balance
                                       at beginning      to costs &    to other                     at end
        Description         Year       of the Year       expenses     accounts    Deductions      of the year
        -----------         ----       -------------     ----------  -----------  ---------       ------------
<S>                         <C>             <C>             <C>       <C>          <C>                <C>
Allowance for
 Doubtful Accounts          1994            128             94                     (20)(1)            202
                            1995            202             21          272(6)    (239)(1)            256
                            1996            256            190         (60)(6)     (53)(1)            333



Inventory Reserve           1994            105            187          83(5)     (113)(4)            283
                                                                                    21 (3)
                            1995            283            (16)        230(6)      (22)(2)            368
                                                                                  (107)(4)

                            1996            368             24        (231)(6)     (42)(2)            119

<FN>
-------------------------------------
(1)     Net Charge-off of bad debts
(2)     Write off of obsolete inventory
(3)     Sale of obsolete inventory for scrap
(4)     Physical inventory adjustment
(5)     Transfer to Warranty Accrual to bring account to zero
(5)     Assumed and subsequently disposed of in connection with the 1995 purchase and 1996 sale of Hercules.
</FN>
</TABLE>

                                                                 39

<PAGE>

<TABLE>

Schedule III - Real Estate and Accumulated Depreciation:  (Amounts in Thousands)
<CAPTION>

                                                   Gross Amount at End of Period
                                                  --------------------------------
                                                              Buildings &                        Date
    Description                                 Land          Improvements     Total           Acquired
    -----------                                 ----         -------------    --------         ---------
<S>                                         <C>                 <C>           <C>               <C>  
    Land

       Connecticut                          $     27            $0            $    27           10/88
       New York                                  915             0                915            5/90


    Residential Properties

       Northeastern Massachusetts                494                              494           10/89
                                              ------         ------            ------

         Total Real Estate                    $1,086            $0             $1,086
                                              ======        ========           ======



                                               1996           1995              1994
                                              ------         ------            ------

    Balance at beginning of period             $1,091           $  965          $1,347

    Additions during the period:
       Improvements/Carrying costs                ---              126             174
                                                 ------         ------          ------

                                                  ---              126             174
                                                 ------         ------          ------

                                                 1,091           1,091           1,521


    Deductions during the period
       Sales                                                         ---           556
       Write-off of real estate held                 5
       Depreciation
       Legal Settlement
       Transferred to IRP

                                                  ---            ---               556
                                                 ------         ------          ------         ------

    Balance at end of year                       $1,086         $1,091          $  965
                                                 ======         ======          ======


<FN>

    See Note 6.
</FN>
</TABLE>

                                                                 40

<PAGE>

<TABLE>
Schedule IV -- Mortgage Loans on Real Estate: (Amounts in Thousands)

<CAPTION>

                                                                                                      Principal
                                                                                                      Amount of
                                  Interest      Final        Periodic       Face        Carrying    Loans Subject
                                  Rate At      Maturity       Payment     Amount of     Amount of   to Delinquent
          Property Type           12/31/96       Date          Term        Mortgages     Mortgages  Prin/Interest
------------------------------    --------     --------      --------     ----------    ----------  ----------------
<S>                                <C>        <C>                <C>       <C>            <C>            <C>
MORTGAGE LOANS
Earning:
   First Mortgage Loans:
      Residential                  8.00%      June, 2011         (1)          165           81(2)          $0
                                                                           --------     --------       ------
TOTAL MORTGAGE LOANS                                                          165           81             $0
                                                                           ========     ========       ======

LONG TERM NOTES
TOTAL LONG TERM NOTES                                                         ---          ---            $0
                                                                           =========    ========       ======
<FN>
--------------------------------------------
(1)   Interest due monthly, principal due monthly over 15 years starting June 1996.
(2)   A reserve of $85,000 has been applied against this loan

</FN>
</TABLE>

<TABLE>

Changes in Mortgage Loans and Long Term Notes:
<CAPTION>
                                                                1996          1995          1994
                                                              --------      --------      ------
<S>                                                            <C>           <C>           <C> 
Balance at beginning of period                                 $   84        $735          $857
Additions during period
   New Mortgage Loans
   Increase to existing mortgage loans                                                      ---
                                                                  ---         ---           ---
                                                              --------      --------      ------
                                                                 $ 84          $735        $857

Deductions during period
   Collections of principal                                         3             1          51
   Cost of mortgages transferred to IRP
   Reserve for loan loss                                          ---           650          71
                                                              --------      --------      ------
                                                             $      3          $651         122
                                                              --------      --------      ------

Balance at end of year                                       $     81       $    84          $735
                                                             ========       =======          ====


</TABLE>

                                                                 41

<PAGE>



                              WEDGESTONE FINANCIAL

                             1996 STOCK OPTION PLAN




                                       42

<PAGE>


<TABLE>

                                                          TABLE OF CONTENTS
                                                          -----------------
<CAPTION>

                                                                                                        Page
<S>                                                                                                     <C>
SECTION  1.         General Purpose of Plan;
                    Definitions..........................................................................1

SECTION  2.         Administration.......................................................................2

SECTION  3.         Stock Subject to Plan................................................................3

SECTION  4.         Eligibility..........................................................................3

SECTION  5.         Stock Options........................................................................3

SECTION  6.         Amendments and Termination...........................................................7

SECTION  7.         Unfunded Status of Plan..............................................................7

SECTION  8.         General Provisions...................................................................7

SECTION  9.         Effective Date of Plan...............................................................8

SECTION 10.         Long-Term Capital Gains..............................................................8

</TABLE>


                                                                 43

<PAGE>



                              WEDGESTONE FINANCIAL

                             1996 STOCK OPTION PLAN

SECTION 1.        General Purpose of Plan; Definitions.

              The  name of this  plan is the  Wedgestone  Financial  1996  Stock
Option  Plan (the  "Plan").  The  purpose  of the Plan is to  enable  Wedgestone
Financial (the "Company") to retain and attract  employees and other significant
non-employees  who  contribute  to  the  Company's  success  by  their  ability,
ingenuity and industry,  and to enable such  individuals  to  participate in the
long-term  success  and  growth  of the  Company  by giving  them a  proprietary
interest in the Company.

              For purposes of the Plan, the following  terms shall be defined as
set forth below:

       a.     "Board" means the Board of Directors of the Company.

       b.     "Cause" means a felony  conviction of a participant or the failure
              of a  participant  to  contest  prosecution  for  a  felony,  or a
              participant's willful misconduct or dishonesty,  which is directly
              and  materially  harmful  to the  business  or  reputation  of the
              Company.

       c.     "Code" means the Internal Revenue Code of 1986, as amended.

       d.     "Committee"  means the  Committee  referred to in Section 2 of the
              Plan.  If at any time no  Committee  shall be in office,  then the
              functions  of  the  Committee  specified  in  the  Plan  shall  be
              exercised by the Board.

       e.     "Company" means Wedgestone  Financial,  a business trust organized
              under the laws of the State of Massachusetts.

       f.     "Disability"  means permanent and total disability under standards
              established by the Committee.

       g.     "Disinterested  Person"  shall have the  meaning set forth in Rule
              16b-3(d)  (3)  as  promulgated  by  the  Securities  and  Exchange
              Commission  under  the  Securities  Exchange  Act of 1934,  or any
              successor definition adopted by the Commission.

       h.     "Early Retirement" means retirement, with consent of the Committee
              at the  time  of  retirement,  from  active  employment  with  the
              Company.

       i.     "Fair  Market  Value" means the value of the Stock on a given date
              as determined by the Committee in accordance  with the  applicable
              Treasury Department regulations under Section 422 of the Code with
              respect to "incentive stock portions."

       j.     "Incentive Stock Option" means any Stock Option intended to be and
              designated  as an "Incentive  Stock Option"  within the meaning of
              Section 422 of the Code.

       k.     "Non-Qualified Stock Option" means any Stock Option that is not an
              Incentive Stock Option, and is intended to be and is designated as
              a "Non-Qualified Stock Option."

                                       44

<PAGE>



       l.     "Normal  Retirement"  means retirement from active employment with
              the  Company  and any  Subsidiary  or  Parent  Corporation  of the
              Company on or after age 65.

       m.     "Retirement" means Normal Retirement or Early Retirement.

       n.     "Stock" means the Common Stock of the Company.

       o.     "Stock  Option"  means  any  option  to  purchase  shares of stock
              granted pursuant to Section 5 below. 

SECTION 2.          Administration.

              The Plan shall be  administered  by the Board of Directors or by a
Committee of not less than three Disinterested  Persons,  who shall be appointed
by the Board of  Directors of the Company and who shall serve at the pleasure of
the Board.

              The Committee  shall, to the extent  delegated by the Board,  have
the power and  authority  to grant  Stock  Options,  to eligible  employees  and
non-employees, pursuant to the terms of the Plan.

              In particular, the Committee shall have the authority:

       (a)    to select the  officers,  key  employees  of the  Company  and key
              non-employees  to whom  Stock  Options  from  time to time  may be
              granted hereunder;

       (b)    to determine whether and to what extent Incentive Stock Options or
              Non-Qualified Stock Options or a combination of the two, are to be
              granted hereunder;

       (c)    to determine the number of shares to be covered by each such award
              granted hereunder;

       (d)    to determine the terms and conditions,  not inconsistent  with the
              terms of the Plan, of any award granted hereunder (including,  but
              not limited to, any  restriction  on any Stock  Option  and/or the
              shares of Stock relating thereto);

       (e)    to determine whether,  to what extent and under what circumstances
              Stock and other  amounts  payable  with  respect to an award under
              this  Plan  shall  be  deferred  either  automatically  or at  the
              election of the participant.

              The Committee shall have the authority to adopt,  alter and repeal
such  administrative  rules,  guidelines and practices  governing the Plan as it
shall, from time to time, deem advisable;  to interpret the terms and provisions
of the Plan and any award  issued  under the Plan (and any  agreements  relating
thereto); and to otherwise supervise the administration of the Plan.

              All decisions made by the Committee  pursuant to the provisions of
the Plan shall be final and binding on all  persons,  including  the Company and
Plan participants.


                                       45

<PAGE>



SECTION 3.          Stock Subject to Plan.

              The total  number of shares of Stock  reserved and  available  for
distribution  under the Plan shall be  1,000,000.  Such shares may  consist,  in
whole or in part, of authorized and unissued shares.

              If any  shares  that have been  optioned  cease to be  subject  to
Options,  such shares shall again be available  for  distribution  in connection
with future awards under the Plan.

              In  the  event  of  any  merger,  reorganization,   consolidation,
recapitalization,  stock dividend, other change in corporate structure affecting
the Stock,  or spin-off or other  distribution of assets to  shareholders,  such
substitution  or  adjustment  shall be made in the  aggregate  number  of shares
reserved  for  issuance  under the Plan,  and in the number and option  price of
shares  subject  to  outstanding  options  granted  under  the  Plan,  as may be
determined to be appropriate by the Committee, in its sole discretion,  provided
that the number of shares subject to any award shall always be a whole number.

SECTION 4.          Eligibility.

              Officers, other key employees of the Company and other significant
non-employees  who are responsible  for or contribute to the management,  growth
and/or  profitability  of the business of the Company are eligible to be granted
Stock  Options under the Plan.  The  optionees  under the Plan shall be selected
from time to time by the  Committee,  in its sole  discretion,  from among those
eligible, and the Committee shall determine, in its sole discretion,  the number
of shares covered by each award.

SECTION 5.          Stock Options.

              Any Stock Option  granted  under the Plan shall be in such form as
the Committee may from time to time approve.

              The Stock Options granted under the Plan may be of two types:  (i)
Incentive Stock Options and (ii) NonQualified Stock Options.  No Incentive Stock
Options shall be granted under the Plan ten (10) years from the date the Plan is
adopted by the Board of Directors.

              The  Committee  shall  have the  authority  to grant any  optionee
Incentive Stock Options,  Non-Qualified Stock Options, or both types of options.
To the extent that any option does not qualify as an Incentive Stock Option,  it
shall constitute a separate Non-Qualified Stock Option.

              Anything in the Plan to the contrary  notwithstanding,  no term of
this Plan relating to Incentive Stock Options shall be  interpreted,  amended or
altered,  nor shall any  discretion  or authority  granted  under the Plan be so
exercised,  so as to disqualify  either the Plan or any  Incentive  Stock Option
under  Section 422 of the Code.  The preceding  sentence  shall not preclude any
modification or amendment to an outstanding  Incentive Stock Option,  whether or
not such modification or amendment results in disqualification of such Option as
an Incentive  Stock  Option,  provided  the optionee  consents in writing to the
modification or amendment.

              Options  granted  under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.


                                       46

<PAGE>



       (a)    Option  Price.  The  option  price per share of Stock  purchasable
              under a Stock Option shall be  determined  by the Committee at the
              time of grant.  In no event  shall the  option  price per share of
              Stock  purchasable  under an  Incentive  Stock Option be less than
              100% of the  Fair  Market  Value  of the  Stock on the date of the
              grant of the option.  In no event shall the option price per share
              of a  Non-Qualified  Stock  Option  be less  than  85% of the Fair
              Market  Value of the Stock on the date of the grant of the option.
              If an  employee  owns  or is  deemed  to  own  (by  reason  of the
              attribution  rules  applicable  under Section 425 (d) or the Code)
              more than 10% of the combined voting power of all classes of stock
              of the Company and an  Incentive  Stock  Option is granted to such
              employee,  the option price shall be no less than 110% of the Fair
              Market  Value of the Stock on the date the option is granted.  The
              Fair Market Value of the shares of Stock of the Company  means the
              average  of the  closing  prices  of the sales of the Stock on any
              securities  exchange on which the stock may at the time be listed,
              or the average of the  representative  bid and asked prices quoted
              in the NASDAQ  Small-Cap  Market.  If at any time the Stock is not
              listed on a Securities  Exchange or quoted on the NASDAQ Small-Cap
              Market,  the Fair Market Value of the Stock shall be determined by
              the Committee.

       (b)    Option  Term.  The term of each Stock Option shall be fixed by the
              Committee, but no Incentive Stock Option shall be exercisable more
              than ten (10) years  after the date the option is  granted.  If an
              employee  owns or is deemed to own (by  reason of the  attribution
              rules of Section 425(d) of the Code) more than 10% of the combined
              voting  power  of all  classes  of  stock  of the  Company  and an
              Incentive  Stock Option is granted to such  employee,  the term of
              such option  shall be no more than five (5) years from the date of
              grant.

       (c)    Exercisability. Stock Options shall be exercisable at such time or
              times as determined by the Committee.  If the Committee  provides,
              in  its  discretion,  that  any  option  is  exercisable  only  in
              installments,  the Committee may waive such  installment  exercise
              provisions at any time. Notwithstanding the foregoing,  unless the
              Stock  Option  Agreement  provides  otherwise,  any  Stock  Option
              granted  under this Plan  shall be  exercisable  in full,  without
              regard  to  any  installment  exercise  provisions,  for a  period
              specified by the Company, but not to exceed sixty (60) days, prior
              to the occurrence of any of the following events:  (i) dissolution
              or  liquidation  of the Company other than in  conjunction  with a
              bankruptcy  of the  Company or any  similar  occurrence,  (ii) any
              merger, consolidation, acquisition, separation, reorganization, or
              similar  occurrence,  where the Company will not be the  surviving
              entity or (iii) the transfer of substantially all of the assets of
              the  Company  or  51% or  more  of the  outstanding  Stock  of the
              Company.

       (d)    Methods  of  Exercise.   Subject  to  any   installment   exercise
              provisions  to  which  they  are  subject,  Stock  Options  may be
              exercised in whole or in part at any time during the option period
              by giving written notice of exercise to the Company specifying the
              number of shares to be purchased. Such notice shall be accompanied
              by payment in full of the purchase  price,  either by certified or
              bank  check,  or by any other form of legal  consideration  deemed
              sufficient by the Committee and consistent with the Plan's purpose
              and  applicable  law,  including  promissory  notes or a  properly
              executed exercise notice together with irrevocable instructions to
              a broker  acceptable  to the  Company to  promptly  deliver to the
              Company the amount of sale or loan  proceeds  to pay the  exercise
              price.  As determined by the  Committee,  in its sole  discretion,
              payment  in  full  or in part  may  also  be  made in the  form of
              unrestricted  Stock already owned by the optionee  (based,  on the
              Fair  Market  Value  of  the  Stock  on the  date  the  option  is
              exercised,  as determined by the  Committee),  provided,  however,
              that, in the case of an Incentive Stock Option,  the right to make
              a payment in the form of already  owned  shares may be  authorized
              only at the time the option is granted.  If the terms of an option
              so permit, an optionee may elect to pay all or part of the

                                       47

<PAGE>



              option  exercise  price by having the  Company  withhold  from the
              shares of Stock that would  otherwise be issued upon exercise that
              number of shares of Stock  having a Fair Market Value equal to the
              aggregate  option  exercise  price for the shares with  respect to
              which such  election  is made.  No shares of Stock shall be issued
              until  full  payment  therefor  has  been  made.  Unless  provided
              otherwise  in  the  Stock  Option  Agreement,  an  optionee  shall
              generally  have the  right to  dividends  and  other  rights  of a
              shareholder  with  respect to shares  subject to the Stock  Option
              when the optionee has given written  notice of exercise,  has paid
              in full  for  such  shares,  and,  if  requested,  has  given  the
              representation described in Section 8(a).

       (e)    Non-transferability   of  Options.   No  Stock   Option  shall  be
              transferable by the optionee otherwise than by will or by the laws
              of  descent  and  distribution,  and all  Stock  Options  shall be
              exercisable, during the optionee's lifetime, only by the optionee.

       (f)    Termination by Death.  If an optionee's  employment by the Company
              terminates by reason of death,  the Stock Option may thereafter be
              immediately exercised,  to the extent then exercisable (or on such
              accelerated basis as the Committee shall determine),  by the legal
              representative  of the estate or by the  legatee  of the  optionee
              under the will of the  optionee,  for a period of three  years (or
              such shorter period as the Committee  shall specify at grant) from
              the date of such death or until the  expiration of the stated term
              of the option, whichever period is shorter.

       (g)    Termination by Reason of Disability.  If an optionee's  employment
              by the  Company  terminates  by  reason of  Disability,  any Stock
              Option held by such optionee may  thereafter be exercised,  to the
              extent  it was  exercisable  at the  time  of  termination  due to
              Disability (or on such  accelerated  basis as the Committee  shall
              determine),  but may not be  exercised  after three years (or such
              shorter  period as the Committee  shall specify at grant) from the
              date of such  termination of employment by reason of Disability or
              the expiration of the stated term of the option,  whichever period
              is the  shorter.  In the event of  termination  of  employment  by
              reason of  Disability,  if an Incentive  Stock Option is exercised
              after  the  expiration  of the  exercise  periods  that  apply for
              purposes of Section 422 of the Code, the option will thereafter be
              treated as a Non-Qualified Stock Option.

       (h)    Termination by Reason of Retirement.  If an optionee's  employment
              by the  Company  terminates  by  reason of  Retirement,  any Stock
              Option held by such  optionee may  thereafter  be exercised to the
              extent it was  exercisable  at the time of such  Retirement (or on
              such accelerated basis as the Committee shall determine),  but may
              not be  exercised  after  three years (or such  shorter  period as
              Committee   shall   specify  at  grant)  from  the  date  of  such
              termination  of employment or the expiration of the stated term of
              the  option,  whichever  period  is the  shorter.  In the event of
              termination of employment by reason of Retirement, if an Incentive
              Stock Option is  exercised  after the  expiration  of the exercise
              periods  that apply for  purposes  of Section  422 of the Code the
              option will thereafter be treated as a Non-Qualified Stock Option.

       (i)    Other Termination.  Unless otherwise  determined by the Committee,
              if an  optionee's  employment  by the Company  terminates  for any
              reason  other than  death,  Disability  or  Retirement,  the Stock
              Option shall  thereupon  terminate,  except that the option may be
              exercised to the extent it was exercisable at such termination for
              the lesser of three months or the balance of the option's  term if
              the  optionee is  involuntarily  terminated  without  Cause by the
              Company.


                                       48

<PAGE>



       (j)    Annual Limit on Incentive Stock Options. The aggregate Fair Market
              Value  (determined  as of the time the Stock Option is granted) of
              the common Stock with  respect to which an Incentive  Stock Option
              under  this Plan or any other plan of the  Company is  exercisable
              for the first time by an optionee  during any calendar  year shall
              not exceed $100,000.

       (k)    No Equity  Interest.  An optionee shall have no equity interest in
              the Company or any voting, dividend,  liquidation,  or dissolution
              rights with  respect to any Stock of the Company  solely by reason
              of having a Stock Option. Furthermore, prior to the exercise of an
              optionee's Stock Option,  that optionee shall have no interest in,
              or any voting,  dividend,  liquidation or dissolution  rights with
              respect to, the Common Stock relating to that Stock Option.

SECTION 6.          Amendments and Termination.

              The  Board may  amend,  alter,  or  discontinue  the Plan,  but no
amendment,  alteration,  or discontinuation  shall be made (i) which impairs the
rights of an optionee or participant  under a Stock Option granted,  without the
optionee's  consent,  or (ii) which without the approval of the  stockholders of
the  Company  would cause the Plan to no longer  comply with  Section 422 of the
Code or any other regulatory requirements.

              The  Committee  may  amend  the  terms  of  any  award  or  option
theretofore granted,  prospectively or retroactively,  but, subject to Section 3
above,  no such  amendment  shall impair the rights of any holder without his or
her consent.  The Committee may also substitute new Stock Options for previously
granted  options,  including  previously  granted  options  having higher option
prices.

SECTION 7.          Unfunded Status of Plan.

              The  Plan  is  intended  to  constitute  an  "unfunded"  plan  for
incentive  compensation.  With  respect  to  any  payments  not  yet  made  to a
participant or optionee by the Company,  nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other  arrangements to meet the obligations  created under
the Plan to  deliver  Stock or  payments  in lieu of or with  respect  to awards
hereunder,  provided,  however,  that  the  existence  of such  trusts  or other
arrangements is consistent with the unfunded status of the Plan.

SECTION 8.          General Provisions.

       (a)    The Committee may require each person  purchasing  shares pursuant
              to a Stock  Option  under the Plan to  represent to and agree with
              the Company in writing that the  optionee is acquiring  the shares
              without a view to distribution  thereof. The certificates for such
              shares  may  include  any  legend   which  the   Committee   deems
              appropriate to reflect any restrictions on transfer.

              All  certificates  for  shares of Stock  delivered  under the Plan
              pursuant  to any  Stock  Option  shall be  subject  to such  stock
              transfer  orders and other  restrictions as the Committee may deem
              advisable under the rules, regulations,  and other requirements of
              the  Securities and Exchange  Commission,  any stock exchange upon
              which the Stock is then  listed,  and any  applicable  Federal  or
              state  securities  laws,  and the  Committee may cause a legend or
              legends  to be put on any such  certificates  to make  appropriate
              reference to such restrictions.


                                       49

<PAGE>



       (b)    Nothing  contained  in this Plan  shall  prevent  the  Board  from
              adopting other or additional compensation arrangements, subject to
              stockholder  approval  if such  approval  is  required;  and  such
              arrangements may be either generally applicable or applicable only
              in specific cases.  The adoption of the Plan shall not confer upon
              any employee of the Company any right to continued employment with
              the Company, as the case may be, nor shall it interfere in any way
              with the right of the Company to terminate  the  employment of any
              of its employees at any time.

       (c)    Each  participant  shall,  no later  than the date as of which any
              part  of  the  value  of an  award  first  becomes  includable  as
              compensation  in the gross income of the  participant  for Federal
              income tax  purposes,  pay to the  Company,  or make  arrangements
              satisfactory to the Committee  regarding  payment of, any Federal,
              state,  or local taxes of any kind  required by law to be withheld
              with respect to the award.  The  obligations  of the Company under
              the Plan shall be conditional on such payment or arrangements  and
              the Company shall, to the extent  permitted by law, have the right
              to deduct any such taxes  from any  payment of any kind  otherwise
              due to the participant.  With respect to any award under the Plan,
              if the terms of such award so permit,  a participant  may elect by
              written  notice  to the  Company  to  satisfy  part  or all of the
              withholding  tax  requirements  associated  with the  award by (i)
              authorizing  the  Company  to retain  from the number of shares of
              Stock that would otherwise be deliverable to the  participant,  or
              (ii)  delivering to the Company from shares of Stock already owned
              by the participant, that number of shares having an aggregate Fair
              Market  Value  equal  to  part or all of the  tax  payable  by the
              participant under this Section 8(c). Any such election shall be in
              accordance  with,  and subject to,  applicable  tax and securities
              laws, regulations and rulings.

SECTION 9.          Effective Date of Plan.

              The Plan shall be  effective  on the date it is approved by a vote
of the holders of a majority of the Stock  present and entitled to vote (whether
in person or by proxy) at a meeting of the Company's shareholders.

SECTION 10.         Long-Term Capital Gains.

              Incentive Stock Options granted pursuant to this Plan are intended
to qualify for long-term capital gains treatment available, under the provisions
of Sections  421(a) and 422 of the Code. As of January 1, 1994,  eligibility for
such tax treatment  required that no  disposition  of shares of Stock be made by
the optionee (i) within two (2) years from the date the  Incentive  Stock Option
is  granted,  or (ii) within one (1) year of the date the Stock  underlying  the
Incentive Stock Option is transferred to him.

                                       50

<PAGE>


                              MANAGEMENT AGREEMENT

       THIS   MANAGEMENT   AGREEMENT   is   effective  as  of  January  1,  1996
("Agreement"),  by  and  between  Fey  Automotive  Products,  Inc.,  a  Delaware
corporation (the "Company") and PFG Corp. (the "Advisors").

       WHEREAS, the company and the advisors desire to enter into this Agreement
pursuant  to which  Advisors  agree  to  provide  the  company  with  consulting
services.

       The Company and the Advisors hereby agree as follows:

Section 1     Engagement of Advisors

        The Company  hereby retains the Advisors to provide the Company with the
advice and services  described  in Section 2 during the term of this  Agreement.
Subject  to the  terms  of  this  Agreement,  the  Advisors  hereby  accept  the
engagement.

Section 2     Advisors' Advice and Services

         2.1 During  the Term (as  defined in  Section  3), the  Advisors  shall
provide such advisory, consultation and other services as herein described or as
the Board of  Directors  may  request  and they shall  agree from  time-to-time.
Without  limiting the generality of the foregoing,  the Advisors hereby agree to
use their  skill and  abilities  in a good and  businesslike  manner to  provide
transactional  and general  business  consulting  services and will, among other
things (I) advise on a  business  plan for the  Company's  future  growth;  (ii)
provide  financial  advice with respect to internal  growth,  projects,  capital
expenditures and financing requirements;  and (iii) perform such other duties as
may be requested by the Company or its Board of Directors from time-to-time.

              2.2 All  actions  of the  Advisors  on behalf of the  Company  are
     subject to the  direction,  control and approval of the Company's  Board of
     Directors.  The  Advisors as such shall have no authority or power to enter
     into any contract or  commitment  on the  Company's  behalf,  nor shall the
     Advisors  have the  authority  or  power to  alter,  amend,  terminate,  or
     otherwise change any contract or other document issued by the Company.  The
     Advisors shall be considered  independent  contractors and not employees or
     agents of the Company.

              2.3 In accordance with the terms hereof, the Advisors shall devote
     such  portion  of their time and  effort to the  affairs of the  Company as
     described  herein  or as they  deem  necessary  to assist  the  Company  in
     fulfilling its corporate  objectives.  It is expressly agreed that, subject
     to the preceding  sentence,  the Advisors may participate (in any capacity)
     in any other activities.

Section 3      Term

        This  Agreement  shall  commence on the date  hereof and shall  continue
until  December 30, 1999,  unless  otherwise  extended or sooner  terminated  by
mutual agreement (the "Term").



                                       51

<PAGE>
Section 4        Compensation

     In consideration for the Advisors'  agreement to enter into this Agreement,
     the Company  shall pay Advisors (in addition to amounts due under Section 5
     hereof) a monthly fee of $5,000 which fee shall be paid in advance.

Section 5        Expenses

     The Company shall pay or reimburse the Advisors for all expenses reasonably
     incurred by them  during the Term in  connection  with the  business of the
     Company.  All  such  reimbursements  must  be  supported  by  documentation
     specifying the business purpose.

Section 6        Indemnification

     The Company shall indemnify the Advisors to the fullest extent permitted by
     the laws of the State of Delaware  (or any other state in which the Company
     may at any time otherwise be  incorporated)  and the existing Bylaws of the
     Company.  The Advisors  shall be entitled to  protection  of any  insurance
     policies  the Company may elect to  maintain  generally  for the benefit of
     members of its Board of  Directors  and for the  benefits of other  persons
     acting at the direction of the Board of Directors.

Section 7        Notices

     Any notice, request or other communication required or permitted under this
     Agreement  shall be in  writing  and  given or made by  physical  delivery,
     electronic  transmissions  or by  registered  or  certified  mail,  postage
     prepaid,  return receipt requested or by overnight carrier addressed to the
     other party. All such notices shall be addressed as follows:

     If to the Advisors:                PFG Corp.
                                        520 Madison Avenue (40th Floor)
                                        New York, New York  10022
                                        Attention:  James J. Pinto

     If to the Company:                 Fey Automotive Products, Inc.
                                        5200 N. Irwindale Avenue
                                        Suite 168
                                        Irwindale, California  91706
                                        Attention:  President

     Any party may change the persons and addresses to which  notices,  requests
     or other  communications  are to be sent by giving  written  notice of such
     change to the other party in the manner  provided herein for giving notice.
     Notices shall be effective  upon receipt in the case of physical  delivery,
     overnight  carrier  or  electronic  transmission  and three (3) days  after
     deposit in the U.S. mails in the case of mailing.


                                       52

<PAGE>


Section 8         Arbitration

         Any dispute  between the parties hereto arising out of or in connection
with this  Agreement or any breach of this  Agreement,  will be  determined  and
settled by arbitration in the State of New York and in accordance with the rules
then in effect of the American Arbitration Association.

Section 9         Miscellaneous

         9.1 This  Agreement  shall be binding  upon and inure to the benefit of
any successors of the Company,  including any corporation into or with which the
Company  shall  consolidate  or merge or to  which  it shall  sell or  otherwise
transfer substantially all of its assets, properties and business.

         9.2 This Agreement  may not be assigned by the Company or the  Advisors
except in the case of merger.

         9.3 This  Agreement is o be governed by and  interpreted  in accordance
with the laws of the State of New York (or any other  state in which the company
may at any time otherwise be incorporated)  applicable to agreements made and to
be performed within that State.

         9.4  This  Agreement  may not be  amended,  supplemented,  canceled  or
discharged except by written instrument executed by both parties hereto.

         9.5 If any provision of this  Agreement,  as applied to either party or
to any  circumstances,  shall be adjudged by a court or an arbitrator to be void
or  unenforceable,  the same shall be deemed  stricken  from this  Agreement and
shall in no way affect any other  provision of this Agreement or the validity or
enforceability of this Agreement.  Notwithstanding the foregoing,  if a court or
an arbitrator holds that the provisions  hereof that relate to compensation paid
or to be paid to the  Advisors  by the Company  are void or  unenforceable,  the
Advisors may terminate this Agreement at his option.

         9.6 The  waiver  by the  Company  or the  Advisors  of a breach  of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the other party.

         9.7  Expiration  of the Term shall not impair or  otherwise  affect any
obligations  which have accrued  prior thereto  (including  any right to sue for
damages). The provisions of Sections 4, 5, 6 and 8 shall survive the termination
of this Agreement.

         9.8  The  section   headings   contained  in  this  agreement  are  for
convenience  of  reference  only and shall not  affect the  construction  of any
provision of this agreement.

         9.9 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original,  but all of which together  shall  constitute
one and the same instrument.


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<PAGE>



         9.10 This Agreement  represents the final agreement between the parties
and supersedes all prior agreements and  understandings  relating to the subject
matter hereof.


              IN  WITNESS  WHEREOF,   the  parties  hereto  have  executed  this
Agreement as of the date first above written.

                                       FEY AUTOMOTIVE PRODUCTS, INC.



                                       By___________________________
                                            David S. Sharp, President




                                       PRG CORP.


                                       By____________________________
                                            James J. Pinto


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<PAGE>



                              MANAGEMENT AGREEMENT

     THIS MANAGEMENT AGREEMENT is effective as of January 1, 1996 ("Agreement"),
     by and between Fey Automotive  Products,  Inc., a Delaware corporation (the
     "Company") and Resource Holdings Associates. (the "Advisors").

     WHEREAS,  the company and the advisors  desire to enter into this Agreement
     pursuant to which  Advisors  agree to provide the company  with  consulting
     services.

              The Company and the Advisors hereby agree as follows:

Section 1        Engagement of Advisors

              The Company  hereby  retains  the  Advisors to provide the Company
     with the advice and services described in Section 2 during the term of this
     Agreement.  Subject to the terms of this  Agreement,  the  Advisors  hereby
     accept the engagement.

Section 2        Advisors' Advice and Services

              2.1 During the Term (as defined in Section 3), the Advisors  shall
     provide such advisory,  consultation and other services as herein described
     or as the  Board of  Directors  may  request  and  they  shall  agree  from
     time-to-time.  Without  limiting  the  generality  of  the  foregoing,  the
     Advisors  hereby  agree to use  their  skill  and  abilities  in a good and
     businesslike   manner  to  provide   transactional   and  general  business
     consulting  services and will,  among other things (I) advise on a business
     plan for the Company's  future growth;  (ii) provide  financial advice with
     respect to internal growth,  projects,  capital  expenditures and financing
     requirements;  and (iii)  perform  such other duties as may be requested by
     the Company or its Board of Directors from time-to-time.

              2.2 All  actions  of the  Advisors  on behalf of the  Company  are
     subject to the  direction,  control and approval of the Company's  Board of
     Directors.  The  Advisors as such shall have no authority or power to enter
     into any contract or  commitment  on the  Company's  behalf,  nor shall the
     Advisors  have the  authority  or  power to  alter,  amend,  terminate,  or
     otherwise change any contract or other document issued by the Company.  The
     Advisors shall be considered  independent  contractors and not employees or
     agents of the Company.

              2.3 In accordance with the terms hereof, the Advisors shall devote
     such  portion  of their time and  effort to the  affairs of the  Company as
     described  herein  or as they  deem  necessary  to assist  the  Company  in
     fulfilling its corporate  objectives.  It is expressly agreed that, subject
     to the preceding  sentence,  the Advisors may participate (in any capacity)
     in any other activities.

Section 3        Term

     This  Agreement  shall commence on the date hereof and shall continue until
     December 30, 1999, unless otherwise extended or sooner terminated by mutual
     agreement (the "Term").

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<PAGE>



Section 4        Compensation

     In consideration for the Advisors'  agreement to enter into this Agreement,
     the Company  shall pay Advisors (in addition to amounts due under Section 5
     hereof) a monthly fee of $10,000 which fee shall be paid in advance.

Section 5        Expenses

     The Company shall pay or reimburse the Advisors for all expenses reasonably
     incurred by them  during the Term in  connection  with the  business of the
     Company.  All  such  reimbursements  must  be  supported  by  documentation
     specifying the business purpose.

Section 6        Indemnification

     The Company shall indemnify the Advisors to the fullest extent permitted by
     the laws of the State of Delaware  (or any other state in which the Company
     may at any time otherwise be  incorporated)  and the existing Bylaws of the
     Company.  The Advisors  shall be entitled to  protection  of any  insurance
     policies  the Company may elect to  maintain  generally  for the benefit of
     members of its Board of  Directors  and for the  benefits of other  persons
     acting at the direction of the Board of Directors.

Section 7        Notices

     Any notice, request or other communication required or permitted under this
     Agreement  shall be in  writing  and  given or made by  physical  delivery,
     electronic  transmissions  or by  registered  or  certified  mail,  postage
     prepaid,  return receipt requested or by overnight carrier addressed to the
     other party. All such notices shall be addressed as follows:

    If to the Advisors:                Resource Holdings Associates.
                                       520 Madison Avenue (40th Floor)
                                       New York, New York  10022
                                       Attention:  John C. Shaw

    If to the Company:                 Fey Automotive Products, Inc.
                                       5200 N. Irwindale Avenue
                                       Suite 168
                                       Irwindale, California  91706
                                       Attention:  President

     Any party may change the persons and addresses to which  notices,  requests
     or other  communications  are to be sent by giving  written  notice of such
     change to the other party in the manner  provided herein for giving notice.
     Notices shall be effective  upon receipt in the case of physical  delivery,
     overnight  carrier  or  electronic  transmission  and three (3) days  after
     deposit in the U.S. mails in the case of; mailing.


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<PAGE>

Section 8         Arbitration

         Any dispute  between the parties hereto arising out of or in connection
with this  Agreement or any breach of this  Agreement,  will be  determined  and
settled by arbitration in the State of New York and in accordance with the rules
then in effect of the American Arbitration Association.

Section 9         Miscellaneous

         9.1 This  Agreement  shall be binding  upon and inure to the benefit of
any successors of the Company,  including any corporation into or with which the
Company  shall  consolidate  or merge or to  which  it shall  sell or  otherwise
transfer substantially all of its assets, properties and business.

         9.2 This  Agreement  may not be assigned by the Company or the Advisors
except in the case of merger.

         9.3 This  Agreement is o be governed by and  interpreted  in accordance
with the laws of the State of New York (or any other  state in which the company
may at any time otherwise be incorporated)  applicable to agreements made and to
be performed within that State.

         9.4  This  Agreement  may not be  amended,  supplemented,  canceled  or
discharged except by written instrument executed by both parties hereto.

         9.5 If any provision of this  Agreement,  as applied to either party or
to any  circumstances,  shall be adjudged by a court or an arbitrator to be void
or  unenforceable,  the same shall be deemed  stricken  from this  Agreement and
shall in no way affect any other  provision of this Agreement or the validity or
enforceability of this Agreement.  Notwithstanding the foregoing,  if a court or
an arbitrator holds that the provisions  hereof that relate to compensation paid
or to be paid to the  Advisors  by the Company  are void or  unenforceable,  the
Advisors may terminate this Agreement at his option.

         9.6 The  waiver  by the  Company  or the  Advisors  of a breach  of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach by the other party.

         9.7  Expiration  of the Term shall not impair or  otherwise  affect any
obligations  which have accrued  prior thereto  (including  any right to sue for
damages). The provisions of Sections 4, 5, 6 and 8 shall survive the termination
of this Agreement.

         9.8  The  section   headings   contained  in  this  agreement  are  for
convenience  of  reference  only and shall not  affect the  construction  of any
provision of this agreement.

         9.9 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original,  but all of which together  shall  constitute
one and the same instrument.







                                       57

<PAGE>




         9.10 This Agreement  represents the final agreement between the parties
and supersedes all prior agreements and  understandings  relating to the subject
matter hereof.


              IN  WITNESS  WHEREOF,   the  parties  hereto  have  executed  this
Agreement as of the date first above written.

                                     FEY AUTOMOTIVE PRODUCTS, INC.



                                     By________________________
                                          David S. Sharp, President



                                     RESOURCE HOLDINGS ASSOCIATES.


                                     By_________________________
                                          John C. Shaw


                                       58