SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
Form 10-KSB
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[x] Annual Report Pursuant to Section 13
or 15(d) of The Securities Exchange Act of 1934
For the fiscal year ended February 28, 1997
or
[ ] Transitional Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-21547
MEISENHEIMER CAPITAL, INC.
(Exact Name of registrant as specified in its charter)
Delaware 06-1101766
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
46 Quirk Road, Milford, Connecticut 06460
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (203) 877-9508
Securities registered pursuant to Section 12(b) of the Act:
Common Stock - $.01 par value
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
$841,281.25
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APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
The number of shares of the registrant's Common Stock outstanding as of
May 15, 1997 was 4,471,028 shares.
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Part I
ITEM 1. DESCRIPTION OF BUSINESS
General
Meisenheimer Capital, Inc. ("MCI" or the "Company") was
organized under the laws of the State of Delaware in December, 1983. In 1984,
the company made an initial public offering pursuant to a Registration Statement
on Form S-18 which was declared effective by the Securities and Exchange
Commission on or about July 27, 1984. Pursuant to the offering, the Company sold
1,130,000 Units at $1.00 a Unit for net proceeds of approximately $995,000. Each
Unit consisted of one share of common stock (the "Common Stock") and one warrant
entitling the holder thereof to purchase one share of Common Stock. The Warrants
expired in April, 1985.
Since 1984, the Company has been engaged, through its
subsidiary, the United States Basketball League, Inc. ("USBL") in the business
of developing and managing a professional basketball league, the "United States
Basketball League" (the "League"). In 1992, the Company acquired another
subsidiary, Cadcom, Inc., ("Cadcom"), incorporated in the State of Connecticut
in 1987. Cadcom is engaged in the business of manufacturing component parts for
high tolerance aircraft parts. In August, 1995, MCI established another wholly
owned subsidiary, Meisenheimer Real Estate Holdings Inc. ("MCR") to acquire the
office and factory that it had been previously leasing.
MCI owns approximately 52% of the issued and outstanding stock
of USBL which consists of both common and preferred stock. The principals of MCI
and members of their immediate family (the "Meisenheimer Family") and affiliated
entities own approximately 31% and the balance of 17% is owned by members of the
public. MCI owns all of the issued and outstanding stock of Cadcom and MCR.
USBL Subsidiary
USBL owns and manages the United States Basketball League (the
"League"). The League was established to provide a professional summer
basketball league. The participating players are either recent college graduates
or free agents not under contract with teams in the National Basketball
Association (the "NBA") or are players under contract to foreign teams but who
are permitted to play in the United States in their off-season. The League
provides a vehicle to these players to improve their skills and further affords
the players the opportunity to showcase their professional ability and possibly
be selected by one of the teams in the NBA. The League's season, from early May
to early July of each year, was designed specifically to give the players the
opportunity to be scouted by NBA teams and possibly be selected to participate
in the various summer
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camps of the individual teams comprising the NBA, which summer camps are
normally held in the latter part of July and August of each year. To date,
approximately 107 USBL players have made NBA rosters after playing with teams in
the League. USBL also provides a training program for referees who aspire to
referee in the NBA.
Each team comprising the League has an active roster of ten
players during the season, and each team plays 26 games per season. The League
also has playoffs at the conclusion of the regular season.
Since the inception of the League to the present time, the
number of active franchises has fluctuated from seven to its present high for
the 1997 season of twelve franchises. The current active franchises, divided
into two divisions, the Southern Division and the Northern Division, are located
in Atlanta, Georgia (the Atlanta Trojans); Jacksonville, Florida (the
Jacksonville Barracudas); Raleigh, North Carolina (the Raleigh Cougars);
Sarasota, Florida (the Florida Sharks); Tampa, Florida (the Tampa Bay
Windjammers); Atlantic City, New Jersey (the Atlantic City Seagulls); Hooksett,
New Hampshire (the New Hampshire Thunder Loons); Milford, Connecticut (the
Connecticut Skyhawks); Oyster Bay, New York (the Long Island Surf);
Philadelphia, Pennsylvania (the Philadelphia Power); Portland, Maine (the
Portland Wave); and White Plains, New York (the Westchester Kings). In addition,
there are two inactive franchises owned by MCI which pay annual royalty fees.
Also, the Portland Wave franchise is owned in part (75%) by MCI.
Since 1984, USBL has sold a total of 29 franchises at various
prices ranging from $10,000 to $75,000. An affiliate of the company also paid
$100,000 for a franchise. The current asking price for a franchise is $300,000;
however, the Company has not been able to consummate a sale at that price.
During the past four fiscal years, 1994 through 1997, the
Company sold franchises to non-affiliates for cash as set forth below:
Franchise Sales Price Cash Received
1.Mississippi Coast Gamblers $100,000 $25,000
2.Memphis Fires $100,000 $15,000
3.Florida Sharks $ 75,000 $75,000
4.Carolina Cardinals $250,000 $25,000
5.Atlantic City Seagulls $150,000 $50,000
6.Philadelphia Power $300,000 $50,000
Unless the sales price has been paid in full at time of purchase, each of the
foregoing franchises is required to pay the full sales price over time, and in
the event payments are not met, USBL will repossess the franchise.
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At least 15 franchises previously sold have been terminated
because of non-payment of franchise obligations. In addition and during the
fiscal year ended February 29, 1996 ("Fiscal 1996"), USBL sold five (5)
franchises in a barter transaction receiving in exchange 2,000,000 units of
negotiable television advertising due bills, and during the first quarter of
Fiscal 1997 USBL entered into an agreement to receive an additional 2,000,000
units of negotiable television advertising due bills in exchange for five
additional franchises. The 4,000,000 units of advertising time are with American
Independent Network ("AIN") which employs satellite transmissions to certain
affiliated television stations in approximately 90 cities throughout the United
States. Management has valued the advertising due bills received in Fiscal 1996
and the first quarter of Fiscal 1997 at $500,000. (See Financial Information.)
USBL has already used approximately 300,000 units to broadcast certain selective
League games. The Company may use the remainder of the available television time
to broadcast its games or, in the alternative, sell off the available television
time assuming that USBL can locate buyers. The barter transaction requires
that the 10 franchise teams must be established within ten years from the
date of the transactions. To date, none of these franchises have been
activated. The Company has no assurance that any of the franchises will ever
be established. In addition, the Company retains the right to approve or
disapprove the ultimate franchisee.
In addition, during the fiscal year ended February 28, 1997
("Fiscal 1997"), USBL also sold the New Hampshire Thunderloons and received in
exchange 300,000 Units of negotiable credits in a barter network which entitles
USBL to receive products and services (travel, advertising and lodging).
Under the standard franchise agreement employed by USBL, the
term of the franchise is for ten (10) years with rights of renewal. In addition
to the initial purchase price for the franchise, the franchisees are currently
required to pay an annual royalty fee of $15,000 per year. Currently, four of
the franchises are in arrears in their annual royalty fees. The Company has the
right to terminate these franchises but has not elected to do so. In addition,
because of the Company's desire to have the League expand, the Company, in the
past, has waived annual royalty fees under certain circumstances.
The Franchise Agreement employed by USBL also entitles USBL to
receive television revenues on a sharing basis with the teams in connection with
any television broadcasting of national or regional games. To date, USBL has not
received any revenues. The Franchise Agreement also provides for USBL to receive
revenues from the sale of team and league merchandise. Revenues from these
sources have been negligible. The Franchise Agreement also requires USBL to use
its good faith efforts to obtain sponsorships for each team and the league. Such
sponsorship is generally from local or national corporations. The sponsorships,
which for the last several years have been negligible, have generally taken the
form of free basketballs, uniforms, air line tickets and discount accommodations
for traveling teams.
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Since the inception of the League and to date, only one of the
franchises has operated profitably. This has been primarily due to the inability
of USBL, because of insufficient capital, to properly promote the League, and
USBL's inability to attract any meaningful sponsorships for the individual
teams. Likewise, gate attendance for some teams has historically been poor. As a
result, the sale of additional franchises either to maintain a constant level of
active franchises or to enlarge the League has historically proven difficult for
USBL.
From the inception of the League, USBL has operated at a loss.
This has been due to the poor sales of franchises and the inability of the
franchisees to pay their annual royalty fees. As a result, both MCI and USBL
have been dependent on loans and advances from officers, directors and their
affiliates. (See "Financial Information" and "Certain Relationships and Related
Transactions".) For Fiscal years ended 1995, 1996 and Fiscal 1997, the
Company's auditors and USBL's auditors have expressed concerns in their opinion
as to the ability of both MCI and USBL to continue as going concerns. See
"Financial Information".
USBL currently employs four full time employees consisting of
the President, Daniel T. Meisenheimer III, who also acts as Commissioner of the
League; a Director of Administration; a Director of Public Relations, and a
Director of Operations. During the League season, the Company employs additional
staff including approximately 50 referees who are paid on a per game basis. In
addition, USBL plans to establish an advisory board consisting of former
basketball stars and franchise owners.
Future Plans of USBL
USBL has, as its ultimate goal, the establishment of at least
sixty (60) franchises throughout the United States, consisting of fifteen (15)
teams in four regional divisions. This would result in regional play-off games
and then a final championship series. The Company is also attempting to develop
a formal association with the NBA. At the present time, the Continental
Basketball Association (the "CBA"), a league consisting of 13 teams, is regarded
as the minor league of the NBA, and as such, receives financial support from the
NBA. The Company believes that a formal association with the NBA would enhance
the value of the franchises and attract more significant gate attendance.
Likewise, the Company intends to use some of the television time available to it
to broadcast more games which the Company believes would create additional fan
interest and serve to attract additional franchisees. However and given the
difficulties encountered by the Company to date in the sale of additional
franchises, the Company may not be able to achieve its long-range goals without
additional capital to properly promote the League. While gate attendance has
been poor historically, there has been steady growth over the past three
seasons. If gate attendance continues to increase, the Company believes that
this will facilitate franchise sales.
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Cadcom, Inc.
MCI's other operating subsidiary is Cadcom Inc. ("Cadcom")
which was incorporated in Connecticut in 1987. Cadcom is wholly owned by MCI and
was acquired by MCI in February, 1992 from Synercom Inc. ("Synercom"), a
corporation owned and controlled by the President of MCI and members of the
Meisenheimer Family.
Cadcom operates as a subcontractor manufacturing aluminum and
stainless steel components for high tolerance aircraft parts for both fixed wing
aircraft and helicopters which components are mainly used in pressure switches,
fuel valves and various indicators and instruments. Ninety-nine percent (99%) of
Cadcom's business is derived from orders it receives from Spectrum Associates
Inc. ("Spectrum"), a Connecticut corporation owned and controlled by Synercom.
Spectrum manufacturers crash resistant breakaway valves, pressure switches,
indicators and other specialized components for the aircraft industry.
Approximately twenty-five (25%) percent of Spectrum's revenues are derived from
orders from Sikorsky Aircraft Inc. and thirty-five (35%) percent is derived from
orders from various divisions of the U.S. Armed Forces and the Department of
Defense. The balance of Spectrum's orders are from other major aircraft
manufacturers. Spectrum contracts with Cadcom as a subcontractor for
approximately 70% of Spectrum's requirements for aluminum and stainless steel
components. Cadcom is presently making efforts to diversify its customer base to
eliminate its dependence upon Spectrum; however, there can be no assurances that
Cadcom will be able to diversify its customer base.
Cadcom's manufacturing process is controlled by rigid
standards established by both the Federal Aviation Authority ("FAA") and the
Department of Defense. The manufacturing process utilizes highly sophisticated
computer-controlled turning and milling machinery. Approximately sixty (60%) of
the equipment is rented by Cadcom under capital leases from Synercom. In Fiscal
1997, Cadcom contributed approximately 58% of the total revenues generated by
MCI. In prior years, Cadcom accounted for almost all of MCI's revenues. Because
of Cadcom's dependency on Spectrum, any decline in Spectrum's business would
have an adverse impact on Cadcom's results of operations. Cadcom is actively
seeking other outside business to lessen its dependency on Spectrum.
Cadcom employs nine (9) people consisting of a plant manager
and office manager and seven factory personnel.
Government Regulation
Because USBL is actively engaged in the sale of franchises, it
is required to comply with the laws established by those states in which it has
offered and currently offers franchises. Such compliance includes registering as
a franchisor and approval of the
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Franchise Agreement with appropriate State agencies. USBL is currently in full
compliance.
Cadcom is subject to manufacturing standards established by
both the FAA and the Department of Defense. As such, it is subject to inspection
by the FAA and the Department of Defense to insure that the manufacturing
process and the end products comply with such regulations. Likewise, Cadcom is
subject to both local and state environmental regulations. As of this date,
Cadcom is in full compliance with all local and state regulations.
ITEM 2. DESCRIPTION OF PROPERTY
In August, 1995, MCI, through its wholly-owned subsidiary,
Meisenheimer Capital Real Estate Holdings Inc. ("MCR") acquired the real estate
at 46 Quirk Road, Milford, Connecticut, from Genvest, a limited partnership
whose partners consist of the President of MCI and the Meisenheimer Family. The
property was formerly leased by MCI and its subsidiaries from Genvest. The
property consists of a building housing office and manufacturing space of
approximately 6,000 square feet. USBL currently pays a $1,000 a month rent for
approximately 1,500 square feet under a lease which expires on December 31,
1997. Cadcom pays $3,000 a month for approximately 3,500 square feet under a
lease which expires on December 31, 1999. A portion of the space is rented to
unaffiliated parties. The consideration paid to Genvest by MCI consisted of the
issuance of 200,978 shares of the Common Stock of MCI plus cash of $120,000.
MCR borrowed funds of $120,000 from a financial institution which loan is
secured by a 20 year mortgage on the property. The loan is guaranteed by MCI.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the Fiscal Year ended February 28, 1997 no matters were
submitted to a vote of security holders.
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Part II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock trades on the non-NASDAQ
over-the-counter market (Bulletin Board) under the symbol "MEIS."
The following is the range of high and low bid prices for each
quarter for the fiscal years ended February 29, 1996 and February 28, 1997:
Fiscal 1996
High Low
First Quarter Ended 5/31/95 $1.125 $0.875
Second Quarter Ended 8/31/95 $2.00 $1.00
Third Quarter Ended 11/30/95 $3.187 $0.875
Fourth Quarter Ended 2/29/96 $3.25 $2.185
Fiscal 1997
High Low
First Quarter Ended 5/31/96 $3.125 $2.00
Second Quarter Ended 8/31/96 $2.875 $1.0625
Third Quarter Ended 11/30/97 $1.21875 $0.625
Fourth Quarter Ended 2/28/97 $1.3125 $0.75
The foregoing bid prices (high and low) for each quarter
represent quotations between dealers without adjustments for retail markups,
markdowns or commissions and may not represent actual transactions, as reported
by the National Association of Securities Dealers Composite Feed or other
qualified inter-dealer quotation medium.
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Approximate Number of Equity Security Holders
There were approximately 350 holders of MCI Common Stock as
of May 15, 1997.
Dividends
The Company has not paid any dividends since its inception,
and it does not anticipate paying any dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF FINANCIAL OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Results of Operations
Revenues for the fiscal year ended February 29, 1996 ("Fiscal
96") were $1,119,000 as compared to revenues of $896,000 for the fiscal year
ended February 28, 1995 ("Fiscal 95"). This increase of $223,000 was due to the
substantial increase of franchise fees generated by the Company's subsidiary,
USBL. During Fiscal 96 USBL sold five franchises in exchange for $2,000,000 of
advertising credits which have been valued by the Company at $250,000. The
Company's other operating subsidiary, Cadcom, also increased its revenues to
$735,000 in Fiscal 96 as compared to $654,000 in Fiscal 95.
Operating expenses for Fiscal 96 increased by $321,000 to
$1,248,000 as compared to operating expenses of $927,000 in Fiscal 95. This
increase was due in part to increased costs of sales for Cadcom commensurate
with its increase in revenues. Likewise, USBL's team expenses increased
approximately $36,000 for Fiscal 96 primarily as a result of the increase in
teams operated by the League as compared to prior years.
Administrative salaries for USBL also increased by $39,000 for
Fiscal 96 as a result of one additional part-time administrator to assist in
team scheduling and one part-time clerical person to assist in general clerical
work in the office.
Advertising, consulting and travel expenses of $191,000,
primarily for USBL, increased in Fiscal 96 by $108,000 as compared to
advertising and travel expenses of $83,000 in Fiscal 95. The advertising
expenses and consulting fees increased because of increased marketing efforts to
sell franchises, raise additional capital and team travel expenses incurred by
the Company-owned franchise and for travel expenses for playoffs which the
company funds.
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Consolidated net loss for Fiscal 96 amounted to $161,000 a
compared to a loss of $20,000 in Fiscal 95. In addition to the items enumerated
above, net loss was adversely affected by final legal settlement costs of two
outstanding litigation matters amounting to $32,000. The Company does not have
any other pending litigation. The Company incurred income taxes of $16,000 and a
credit of $24,000 to net loss representing the minority interest's share in the
net loss of its USBL subsidiary.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Results of Operations
Revenues for the fiscal year ended February 28, 1997 ("Fiscal
97") were $1,378,128 as compared to revenues of $1,118,969 for the fiscal year
ended February 29, 1996 ("Fiscal 96"). This increase of $259,159 was due to an
increase of franchise fees generated by the Company's subsidiary, USBL. During
Fiscal 97 USBL sold eight franchises in exchange for $2,000,000 of advertising
credits which have been valued by the Company at $250,000 together with receipt
of cash proceeds of initial franchise fees of $105,000. The Company also
received $300,000 of barter units valued by the Company at $50,000. The
Company's other operating subsidiary, Cadcom, also increased its revenues to
$780,903 in Fiscal 97 as compared to $735,013 in Fiscal 96.
Operating expenses for Fiscal 97 increased by $116,109 to
$363,995 as compared to operating expenses of $1,247,886 in Fiscal 96. This
increase was due in part to an increase in costs of sales for Cadcom of $44,000
and other operational expenses of $42,000. Likewise, USBL's operating expenses
increased approximately $26,000 for Fiscal 97 primarily as a result of the
payment of consulting fees in connection with the expansion of the League.
Advertising and travel expenses for USBL approximated prior
years.
Consolidated net loss for Fiscal 97 amounted to $30,863 as
compared to a loss of $160,721 in Fiscal 96. Although revenues for Fiscal 97
were greater than for Fiscal 96, the Company continues to incur losses. The loss
is attributable to the inability of USBL to generate franchise fees and royalty
fees from third parties. The Company also incurred income taxes of $10,000 for
Fiscal 97 as compared to $16,000 in Fiscal 96.
Liquidity and Capital Resources
The Company's working capital deficiency increased by $257,000
to $592,000 in Fiscal 97 from a prior deficiency of $335,000 in Fiscal 96. This
increase was
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primarily due to the utilization of the Company's cash reserves at the beginning
of the fiscal year to fund operating deficits.
The Company is making efforts to alleviate its working capital
deficiency by seeking additional equity capital primarily for USBL which
subsidiary accounts for a major portion of the working capital deficiency and
which subsidiary, in management's opinion, has the greatest potential for future
growth. The Company believes the 4,000,000 units of advertising credits, valued
at $500,000 will enable the Company to attract more interest in the League for
both fans and potential franchisees by utilization of the advertising credits
for free television broadcasting of League games. Additionally, Cadcom is
actively soliciting additional customers to increase its revenues and diminish
its reliance on Spectrum. However, there can be no assurances that the Company
will be successful in its efforts to reduce the working capital deficiency.
ITEM 7. FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheet as of February 28, 1997 and February 29, 1996 F-3
Consolidated Statements of Operations for the years ended F-5
February 28, 1997 and February 29, 1996
Consolidated Statement of Stockholders' Equity for the years ended F-6
February 28, 1997 and February 29, 1996
Consolidated Statements of Cash Flows for the years ended F-7
February 28, 1997 and February 29, 1996
Notes to financial statements F-8 - F-17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Up and until April 15, 1996 the Company and its subsidiaries
had utilized the services of Michael Racaniello, C.P.A. to prepare its annual
audits. On April 15, 1996, the Company's Board of Directors voted to retain the
accounting firm of Holtz, Rubenstein & Co., LLP to prepare its annual audits.
Mr. Racaniello was still retained by the Company and continues to perform
internal accounting services for the Company and it subsidiaries. There were no
disagreements between the Company and Mr. Racaniello or between Mr.
Racaniello and Holtz, Rubenstein & Co., LLP.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTER AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Directors, Executive Officers, Promoters and Control Persons.
The following persons are the current directors and executive
officers.
Name Age Position
Daniel T. Meisenheimer III 46 Chairman of the Board
President and Treasurer
Richard C. Meisenheimer 43 Vice President, Director and
Secretary
Daniel T. Meisenheimer, Jr. 69 Director
All directors hold office until the next annual meeting of Stockholders and the
election and qualification of their successors. Officers are appointed annually
by the Board of Directors and subject to existing employment agreements serve at
the discretion of the Board.
Background of Executive Officers and Directors
Daniel T. Meisenheimer III has been President and Treasurer of
MCI since the inception of MCI in 1984. Mr. Meisenheimer is also Chairman of the
Board, President and Treasurer of the Company's subsidiaries, USBL, Cadcom, and
MCR. Since 1982 Mr. Meisenheimer has also been employed as a Vice President of
Spectrum, which is Cadcom's sole customer. Mr. Meisenheimer is also a
shareholder and Director of Synercom Inc. ("Synercom"), a family-owned holding
company which owns all of the outstanding stock of Spectrum and which owns
approximately twenty-two percent of the outstanding stock of MCI. Between 1981
and 1984, Mr. Meisenheimer owned and operated an investment advisory firm. Prior
to that and from 1977 to 1981, Mr. Meisenheimer was employed as a registered
representative with Merrill Lynch, Inc.
Richard C. Meisenheimer, brother of Daniel T. Meisenheimer III, has been
Vice President, Secretary and Chief Financial Officer of MCI since its
inception. Mr. Meisenheimer has also been associated with Spectrum in various
capacities since 1976. In 1993, Mr. Meisenheimer became President of Spectrum,
succeeding his father, Daniel T. Meisenheimer, Jr. Mr. Meisenheimer is also Vice
President, Secretary and Director of
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MCI's subsidiaries, USBL, Cadcom and MCR. Mr. Meisenheimer is also a Director
and shareholder of Synercom.
Daniel T. Meisenheimer, Jr., father of Richard C. Meisenheimer and Daniel
T. Meisenheimer III, has served as a Director of MCI since its inception. He is
also a Director of MCI's subsidiaries, USBL, Cadcom and MCR. Mr. Meisenheimer
was the founder of Spectrum which began operations in 1957. He served as
Chairman and President of that company until 1993, when his son Richard C.
Meisenheimer assumed the position of President. Mr. Meisenheimer is still
Chairman of Spectrum. Mr. Meisenheimer is also President and a Director of
Synercom.
Compliance with Section 16(a) of the Exchange Act
All officers, directors, and beneficial owners of more than
10% of MCI's Common Stock have complied with Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
MCI
Historically, the only two officers of MCI, Daniel T.
Meisenheimer III, President and Treasurer, and Richard C. Meisenheimer, Vice
President and Secretary, have not received any salaries from MCI. However, on
March 1, 1994, the Company awarded Mr. Daniel T. Meisenheimer III, 200,000
options to purchase 200,000 shares of the Common Stock in recognition of past
services to MCI. The options are exercisable at $0.25 a share. On June 5, 1995,
Mr. Meisenheimer exercised options to purchase 100,000 shares. At the time of
the exercise, the bid price for MCI Common Stock was $1.00 a share. Richard C.
Meisenheimer also received 100,000 options in recognition of past services. Each
option entitles Mr. Meisenheimer to purchase one share of the Common Stock at
$0.25 per share. Mr. Meisenheimer has not exercised any options. On March 1,
1996 the Company entered into employment agreements with Daniel T.
Meisenheimer III and Richard C. Meisenheimer.
The agreement with Daniel T. Meisenheimer III is for a period
of two years expiring on February 28, 1998. For the first year Mr. Meisenheimer
is to receive a salary of $2,000 a month. However, if in the opinion of the
Board of Directors the payment of salary to Mr. Meisenheimer would have an
adverse impact on the Company's cash flow then the Company is authorized to
withhold payments. The agreement further provides that in the event any monthly
salary is withheld then for each month of salary omitted Mr. Meisenheimer is to
receive 10,000 options. Each option entitles Mr. Meisenheimer to purchase one
share of Common Stock at $1.00 a share. The options are to be issued at
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the end of the fiscal year. During the second year of the employment agreement,
Mr. Meisenheimer is to receive a monthly salary of $5,000 and if the Company
elects not to pay Mr. Meisenheimer the cash salary, then he is to receive 10,000
options for each month of salary omitted which are to be issued at the end of
the fiscal year.
Mr. Richard C. Meisenheimer's employment agreement is also for
a period of two years and provides for a monthly salary of $400 per month. The
Board of Directors may also withhold payment of such salary if such payment
would have an adverse impact on the Company's cash flow. In that event, Mr.
Meisenheimer is to receive 2,000 options for each month of salary omitted. Each
option entitles Mr. Meisenheimer to purchase one share of the Company's Common
Stock at $1.00 per share. In the second year, Mr. Meisenheimer is to receive
$800 a month and if any salary is omitted then 4,000 options will be issued for
each month of salary omitted. All options are issued at the end of each fiscal
year.
Pursuant to the employment agreements, Mr. Daniel T.
Meisenheimer III has only received a total of $4,000 of salary for Fiscal 97.
Mr. Richard C. Meisenheimer has only received a total of $800 for Fiscal 97. The
Board of Directors elected to withhold any further payment of salaries because
of the impact on cash flow. For Fiscal 1997, because of the Company's decision
not to pay salaries, Mr. Daniel T. Meisenheimer III received 100,000 options and
Mr. Richard C. Meisenheimer received 20,000 options. The Company has not as yet
issued the options.
The following tables reflect the salaries received by Daniel
T. Meisenheimer III and Richard C. Meisenheimer and the options received by
Daniel T. Meisenheimer III, and Richard C. Meisenheimer and the amount of
options exercised for the fiscal year ended February 28, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards Payout
Other Restricted All
Name and Annual Stock Options LTIP Other
Principal Position Year Salary Bonus Compensation Awards /SAR's Payout Compensation
Meisenheimer III
President 1997 $21,000 (1) $0 $0 $0 -0- $0 $0
Richard C. Meisenheimer
Vice President 1997 $ 4,200 (2) $0 $0 $0 -0- $0 $0
- ---------------
</TABLE>
(1) Includes 100,000 options in lieu of cash salary. Each option is
exercisable into one share of Common Stock at $1.00 per share. The options have
been valued at $17,000.
(2) Includes 20,000 options in lieu of cash salary. Each option is
exercisable into one share of Common Stock at $1.00 per share. The options have
been valued at $3,400.
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Option/SAR Grants in Last Fiscal Year
Number of Securities Percent of Total Exercise or
Underlying Options/ Options/SARs Granted to Base Price
Name SARs Granted (#) Employees in Fiscal Year ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
Daniel T. Meisenheimer III 100,000 83% $1.00 3/1/2001
Richard C. Meisenheimer 20,000 17% $1.00 3/1/2001
</TABLE>
USBL
On January 1, 1996, USBL entered into employment agreements
with Daniel T. Meisenheimer III who serves as President and Chief Executive
Officer, and Richard C. Meisenheimer, who serves as Vice President and Chief
Financial Officer. The employment agreement for Daniel T. Meisenheimer III
provides for a monthly salary of $2,000 during the first year and $5,000 a month
for the second year. If, in the opinion of the Board of Directors of USBL, the
payment of salary would have an adverse impact on the Company's cash flow, then
the Company is authorized to withhold payments. For every month of salary
omitted, Mr. Meisenheimer is to receive 10,000 options. Each option entitles Mr.
Meisenheimer to purchase one share of USBL Common Stock at $1.00 a share. All
options are to be issued at the end of each 12 month period. During the calendar
year ended December 31, 1996, Mr. Meisenheimer received a total cash salary of
$4,000 and received 100,000 options in lieu of salary. Mr. Meisenheimer did not
receive any salaries for the months of January and February 1997 and as such is
presently entitled to receive 20,000 options.
In view of the fact that neither Daniel T. Meisenheimer III
nor Richard C. Meisenheimer had received any compensation for services from USBL
since the inception of the company, on September 1, 1995, the Board of Directors
adopted an option program reserving 200,000 shares to provide each officer with
20,000 options on the first business day of each calendar year commencing
January 1, 1996. Under the plan, each option entitles the holder to purchase one
share of common stock at an exercise price equal to the closing bid price on the
date of grant. The options were to expire five years from date of grant or nine
months after retirement of either officer. On January 2, 1996 (Fiscal 1996)
Daniel T. Meisenheimer III and Richard C. Meisenheimer each received 20,000
options exercisable into common stock at $2.25 a share, the closing bid price of
USBL Common Stock on that date. On August 20, 1996, the company and the two
officers agreed to rescind the remainder of the option program.
With respect to the employment agreement with Richard C.
Meisenheimer, the agreement is similar to that of Daniel T.
Meisenheimer III, except that Richard C. Meisenheimer is to receive a salary of
$800 a
15
<PAGE>
month during the first year and $1,600 a month for the second year. For each
month's salary omitted, Richard C. Meisenheimer is to receive 4,000 options.
Each option entitles Mr. Meisenheimer to purchase one share of USBL Common Stock
at $1.00 a share. All options are awarded at the end of each year. During the
calendar year ended December 31, 1996 (Fiscal 97) Mr. Meisenheimer received a
total of $1,600 of salary and received 40,000 options in lieu of salary. Mr.
Richard C. Meisenheimer did not receive any salary for the months of January and
February 1997 and is presently entitled to receive 8,000 options.
The following tables reflect the salaries and options received by Daniel T.
Meisenheimer III and Richard C. Meisenheimer:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards Payout
Other Restricted All
Name and Annual Stock Options LTIP Other
Principal Position Year Salary Bonus Compensation Awards /SAR's Payout Compensation
Daniel T.
Meisenheimer III
President 1997 $45,000 (1) $0 $0 $0 -0- $0 $0
<S> <C> <C> <C> <C> <C> <C>
Richard C. Meisenheimer
Vice President 1997 $18,000 (2) $0 $0 $0 -0- $0 $0
</TABLE>
- ---------------
(1) Includes 100,000 options to purchase 100,000 shares of the Common Stock
of USBL. The options are valued at $41,000.
(2) Includes 40,000 options to purchase 40,000 shares of the Common
Stock of USBL. The options are valued at $16,400.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Option/SAR Grants in Last Fiscal Year
Number of Securities Percent of Total Exercise or
Underlying Options/ Options/SARs Granted to Base Price
Name SARs Granted (#) Employees in Fiscal Year ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
Daniel T. Meisenheimer III 100,000 71% $1.00 12/31/2001
Richard C. Meisenheimer 40,000 29% $1.00 12/31/2001
</TABLE>
16
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of July
15, 1996 with respect to the beneficial ownership of the outstanding Common
Stock of the Company by (i) any holder of more than five (5%) percent; (ii) each
of the Company's officers and directors; and (iii) the directors and officers of
the Company as a group:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Amount and Nature of Approximate
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
Daniel T. Meisenheimer III (1) 1,390,500 31%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
Richard C. Meisenheimer (2) 389,500 8.7%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
Daniel T. Meisenheimer, Jr. (3) 525,000 11.7%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
</TABLE>
- --------
(1) Daniel T. Meisenheimer III is the President of MCI. The shares
listed above include shares owned by his wife and minor children. Included are
100,000 options issued to Mr. Meisenheimer to purchase 100,000 of the Common
Stock at $1.00 per share which Mr. Meisenheimer received in lieu of salary and
100,000 options awarded to Mr. Meisenheimer in September 1995 for past services.
Mr. Meisenheimer and his family also own 425,000 shares of the common stock and
136,409 shares of the preferred stock of MCI's subsidiary, USBL.
(2) Richard C. Meisenheimer is Vice President and a Director of MCI.
The shares listed above include shares owned by his wife and minor children and
20,000 options which Mr. Meisenheimer received in lieu of salary. Also included
are 100,000 options awarded to Mr. Meisenheimer in September 1995 for past
services. Mr. Meisenheimer also owns 500 shares of the common stock and 77,875
of the preferred stock of MCI's subsidiary, USBL. In addition, Spectrum, of
which Richard C. Meisenheimer is President, owns 207,857 shares of the common
stock and 240,000 shares of preferred stock of USBL. Also, Synercom, of which
Mr. Meisenheimer is President, owns 22.5% of the outstanding stock of MCI.
(3) Daniel T. Meisenheimer, Jr., a Director of MCI, is the father of Daniel
T. Meisenheimer III and Richard C. Meisenheimer. The shares listed above include
shares owned by his wife, Mary Ellen Meisenheimer. Mr. Meisenheimer also owns
5,000 shares of USBL common stock and 182,723 shares of USBL preferred stock.
Mr. Meisenheimer is Chairman of the Board of Synercom.
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Amount and Nature of Approximate
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
Synercom Inc. (4) 980,000 22.5%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
All Officers and Directors as a Group 3,285,000 73.5%
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans
For at least the last ten years the principals of MCI and
their affiliated companies have made loans to USBL, MCI's subsidiary. As of
February 28, 1997 ("Fiscal 1997"), USBL was indebted to the principals or their
affiliated companies in the principal sum of $225,486 together with accrued
interest at six percent (6%) per annum of $24,535. All of the outstanding debt
is payable upon demand. Of the foregoing amount, Spectrum was owed the principle
sum of $71,432 plus accrued interest of $59,197. The principals (Daniel T.
Meisenheimer III, Richard C. Meisenheimer and Daniel T. Meisenheimer, Jr.) were
owed $510,454 plus accrued interest of $44,403. The $24,535 was due from USBL to
MCI, the parent, which is eliminated on the accompanying consolidated financial
statements.
Cadcom
Cadcom was acquired by MCI in February 1992 from Synercom,
Inc., a company owned and controlled by the Meisenheimer Family. Cadcom is
totally dependent upon orders received from Spectrum, a privately held company,
also owned by the Meisenheimer Family. As such, substantially all of Cadcom's
business is derived from Spectrum. Intercompany pricing is done on "an arm's
length" basis and with respect to orders from the military or the defense
department is subject to competitive bid. Cadcom is paid by Spectrum in
accordance with normal credit terms. In addition and when Cadcom was acquired by
MCI from Synercom, Inc., MCI granted Synercom, Inc. the right of first refusal
to buy the Cadcom common stock in the event MCI determined to sell Cadcom.
- --------
(4) Synercom is owned jointly by Daniel T. Meisenheimer III, Richard C.
Meisenheimer, Daniel Meisenheimer, Jr., and his wife, Mary Ellen Meisenheimer.
Synercom also owns all of the outstanding stock of Spectrum Associates, Inc.
("Spectrum"), which is the sole customer of MCI's subsidiary, Cadcom. As such,
Synercom's ownership in MCI is considered as part of Management's ownership.
18
<PAGE>
Capital Leases
In fiscal 1995, Cadcom entered into capital leases for new
machinery. Cadcom is leasing the equipment from Synercom, Inc. During fiscal
1996 Cadcom also entered into capital leases with Synercom for additional
manufacturing equipment. The total amount of outstanding lease payments amounts
to $203,741. Monthly payments to Synercom for the leased equipment amount to
$8,950.
Ownership of Franchise
In 1988, Richard C. Meisenheimer, Vice President, and several
other individuals purchased, through a corporation, a franchise from USBL, the
Connecticut Skyhawks. The purchase price was $50,000 and annual royalty payments
have been made to USBL for each year to date. On August 31, 1996, Spectrum, a
company owned and controlled by the Meisenheimer Family purchased a franchise
from USBL for $100,000. The franchise is not currently active but pays the
annual royalty fee.
Purchase of Real Estate
Prior to August 1995, MCI, USBL and Cadcom had been renting
office and manufacturing facilities from Genvest L.P., a limited partnership
consisting of members of the Meisenheimer Family. In August, 1995 MCI, through
its subsidiary MCR, purchased the facilities from Genvest, L.P., for $340,000
through the issuance of 200,978 shares of the Common Stock of MCI to Genvest,
L.P., and borrowed the sum of $120,000 from a financial institution secured by a
20-year mortgage on the property. Richard C.
Meisenheimer has personally guaranteed the mortgage.
19
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Financial Statements
All financial statements as set forth under Item 7
Exhibits
The following exhibits are incorporated by reference to the
Exhibit bearing the same number on the Registrant's Registration Statement on
Form 10-SB filed with the Commission on October 15,1996, effective March 24,
1997. Commission File No.
0-25147:
3.1 Certificate of Incorporation of Meisenheimer Capital, Inc. ("MCI")
3.2 Certificate of Renewal of Certificate of Incorporation of MCI
3.3 By-Laws of MCI
4.1 Form of Stock Certificate
4.2 Form of Option
10.1 Employment Agreement of Daniel T. Meisenheimer III with MCI
10.2 Employment Agreement of Richard C. Meisenheimer with MCI
10.3 Employment Agreement of Daniel T. Meisenheimer III with MCI's
subsidiary, The United States Basketball League, Inc. ("USBL")
10.4 Employment Agreement of Richard C. Meisenheimer with USBL
10.5 Mortgage Note between Fleet Bank, National Association and Meisenheimer
Capital Real Estate Holdings, Inc. and Guaranty of MCI
10.6 Lease between Meisenheimer Capital Real Estate Holdings, Inc. and
Cadcom, Inc.
10.7 Lease between Meisenheimer Capital Real Estate Holdings, Inc. and USBL
20
<PAGE>
10.8 Equipment Lease Agreement between Synercom, Inc. and MCI's subsidiary,
Cadcom, Inc., dated September 11, 1992
10.9 Equipment Lease Agreement between Synercom, Inc. and MCI's subsidiary,
Cadcom, Inc., dated July 1, 1995
10.10 Standard Franchise Agreement of USBL
10.11 Agreement between USBL and Topaz Selections Ltd. for Barter Transaction
for acquisition of advertising due bills in exchange for franchises
11.0 Statement of Computations of Earnings Per Share
16.0 Letter of Accountant Pursuant to Item 304 (a)(3) of Reg.S-B
21.0 List of Subsidiaries
21
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this Annual Report and
any subsequent amendments thereto to be singed on its behalf by the undersigned,
thereunto duly authorized.
June 12, 1997
MEISENHEIMER CAPITAL, INC.
/s/Daniel T. Meisenheimer III
Daniel T. Meisenheimer III
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons in their respective capacities
with the Registrant and on the dates indicated.
June 12, 1997 /s/Daniel T. Meisenheimer III
Daniel T. Meisenheimer III
Chairman of the Board and President
June 12, 1997 /s/Richard C. Meisenheimer
Richard C. Meisenheimer
Director and Vice President
ORIGINAL: H:\USERS\WENDY\WP\BLUMBERG\USBL\10KSB
THIS PRINT-OUT: H:\USERS\WENDY\WP\BLUMBERG\USBL\10KSB
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
REPORT ON AUDITS OF CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997
AND FEBRUARY 29, 1996
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Consolidated balance sheet as of February 28, 1997 and February 29, 1996 F-3
Consolidated statements of operations for the years ended
February 28, 1997 and February 29, 1996 F-5
Consolidated statement of stockholders' equity for the years
ended February 28, 1997 and February 29, 1996 F-6
Consolidated statements of cash flows for the years
ended February 28, 1997 and February 29, 1996 F-7
Notes to financial statements F-8 - F-17
<PAGE>
Independent Auditors' Report
Board of Directors
Meisenheimer Capital, Inc.
Milford, Connecticut
We have audited the consolidated balance sheet of Meisenheimer Capital, Inc. and
Subsidiaries as of February 28, 1997 and February 29, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meisenheimer
Capital, Inc. and Subsidiaries as of February 28, 1997 and February 29, 1996 and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations, its
inability to collect annual franchise fees and its reliance on related party
revenue transactions raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/Holtz Rubenstein & Co.,LLP
Holtz Rubenstein & Co., LLP
Melville, New York
May 21, 1997
F-2
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
February 28, February 29,
ASSETS 1997 1996
------
CURRENT ASSETS:
Cash $ 11,371 $ 278,188
Accounts receivable (Note 9) 77,412 103,017
Inventories (Note 4) 116,600 92,370
Investments 26,547 47,597
Other current assets 10,095 6,000
-------------- --------------
Total current assets 242,025 527,172
PROPERTY AND EQUIPMENT, net
(Notes 5, 7 and 8) 523,331 613,301
GOODWILL (Note 6) 28,545 29,361
PREPAID BARTER UNITS (Note 10) 50,000 -
PREPAID ADVERTISING CREDITS (Note 10) 434,062 225,000
INVESTMENT IN PARTNERSHIP (Note 11) 39,500 -
-------------- -------------
$ 1,317,463 $ 1,394,834
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses
(Notes 9 and 12) $ 174,619 $ 243,407
Notes payable - bank (Note 8) - 25,900
Capital lease obligation - current
portion (Note 7) 89,649 83,180
Loans payable - stockholders (Note 9) 516,858 506,064
Mortgage payable - current portion
(Note 8) 3,184 3,165
-------------- -----------
Total current liabilities 784,310 861,716
-------------- --------------
CAPITAL LEASE OBLIGATION, net of
current portion (Note 7) 30,914 120,561
-------------- --------------
MORTGAGE PAYABLE, net of current
portion (Note 8) 104,376 110,570
-------------- --------------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 99,000 50,000
-------------- --------------
COMMITMENT AND CONTINGENCIES (Notes 16 and 18)
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY (Notes 14):
Common stock, $0.01 par value, 10,000,000 shares
authorized; 4,477,084 shares and
4,469,528 shares
issued and outstanding 44,771 44,695
Additional paid-in capital 3,367,008 3,236,908
Unrealized loss on available-for-
sale investments (62,078) (9,641)
Deficit (3,050,838) (3,019,975)
---------- ----------
Total stockholders' equity 298,863 251,987
-------------- --------------
$ 1,317,463 $ 1,394,834
============== ==============
See notes to consolidated financial statements
F-4
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
February 28, February 29,
1997 1996
--------------- ----------
REVENUES: (Notes 8 and 10)
Net sales $ 780,903 $ 735,013
Franchise fees and related
revenue 597,225 383,956
------------- -------------
Total revenues 1,378,128 1,118,969
------------- -------------
OPERATING EXPENSES: (Note 8)
Cost of goods sold 611,001 566,332
Selling, general and team expenses 752,994 681,554
------------- -------------
Total operating expenses 1,363,995 1,247,886
------------- -------------
Income (loss) from operations 14,133 (128,917)
------------- -------------
OTHER INCOME AND EXPENSE:
Realized gain on available-for-sale
investments - 7,668
Interest expense (40,899) (47,796)
Interest income 1,942 8,324
Other income - 24,000
Settlements (10,000) (32,000)
------------- -------------
Total other income and expense (48,957) (39,804)
------------- -------------
LOSS BEFORE MINORITY INTEREST AND TAXES (34,824) (168,721)
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY (14,000) (24,000)
PROVISION FOR INCOME TAX (Note 19) 10,039 16,000
------------- -------------
NET LOSS $ (30,863) $ (160,721)
============= =============
NET LOSS PER SHARE $(.01) $(.03)
===== =====
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,470,158 4,846,883
========= =========
See notes to consolidated financial statements
</TABLE>
F-5
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Additional
Common Stock Paid-in
Shares Amount Capital Deficit
Balance, March 1, 1995 4,268,550 $ 42,686 $ 1,966,675 ($2,859,254)
Issuance of stock in connection
with the purchase of building 200,978 2,009 167,990 -
Issuance of stock options - - 13,750 -
Issuance of stock by subsidiary
to minority holders - - 1,088,493 -
Net loss - - - (160,721)
------------ --------- ------------- --------------
Balance, February 29, 1996 4,469,528 44,695 3,236,908 (3,019,975)
Issuance of stock in connection
with warrant exercise 3,500 35 4,340 -
Issuance of stock, options and warrants
by subsidiary to minority holders - - 97,000 -
Issuance of stock for services 4,056 41 7,760 -
Issuance of options for services - - 21,000 -
Net loss - - - (30,863)
------------ --------- ------------- --------------
Balance, February 28, 1997 4,477,084 $ 44,771 $ 3,367,008 ($3,050,838)
============ ========= ============= ==============
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Years Ended
February 28, February 29,
1997 1996
--------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (30,863) $ (160,721)
----------- ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Issuance of stock options for services 7,801 13,750
Minority interest (14,000) (24,000)
Stock options issued as compensation 21,000 -
Stock received for franchise revenue (19,500) -
Services exchanged for inventory (11,000) -
Inventory allowance 2,500 -
Prepaid barter credits (50,000) -
Prepaid advertising credits (250,000) (250,000)
Realization of prepaid advertising credits 40,938 25,000
Realized gains on investment sales - (7,668)
Depreciation and amortization expense 82,120 79,301
(Increase) decrease in assets:
Accounts receivable 25,605 (19,790)
Inventories (15,730) (29,066)
Other (4,095) (214)
Decrease in liabilities:
Accounts payable and accrued expenses (68,788) (17,111)
----------- ------------
(253,149) (229,798)
----------- ------------
Net cash used in operating activities (284,012) (390,519)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,340) (50,221)
Disposition of property and equipment 15,006 -
Purchase of investments (11,887) (54,258)
Proceeds from sales of investments - 40,099
Trademark costs - (203)
Investment in partnership (39,500) -
----------- -----------
Net cash used in investing activities (42,721) (64,583)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock warrants 4,375 -
Proceeds from notes payable - 33,400
Payments on notes payable (25,900) (7,500)
Payments on mortgage payable (6,175) (6,265)
Reduction of long-term obligation - (35,000)
Proceeds from bridge loan payable - 100,000
Payment of bridge loan payable - (100,000)
Payments on capital lease obligation (83,178) (65,975)
Proceeds from minority shareholders for subsidiary stock 160,000 1,051,957
Advances to/(payment from) shareholders, net 10,794 (257,228)
----------- ------------
Net cash provided by financing activities 59,916 713,389
----------- ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (266,817) 258,287
CASH AND CASH EQUIVALENTS, beginning of year 278,188 19,901
----------- ------------
CASH AND CASH EQUIVALENTS, end of year $ 11,371 $ 278,188
=========== ============
SUPPLEMENTAL DISCLOSURES:
Cash payments made during the year:
Interest $ 40,999 $ 30,120
============= =============
Taxes $ 15,996 $ -
============= ============
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
1. Description of Business and Basis of Presentation:
Meisenheimer Capital, Inc. ("MCI") is a holding company, with three
operating subsidiaries: Cadcom, Inc. ("Cadcom") (100% owned by MCI),
Meisenheimer Capital Real Estate Holdings, Inc. ("MCREHI") (100% owned by MCI),
and the United States Basketball League, Inc. ("USBL") (61.55% owned by MCI).
Cadcom, Inc. is a machine shop which manufactures aluminum and stainless
steel aircraft parts. Substantially all of Cadcom's sales were to one customer,
Spectrum Associates, an affiliate of MCI.
MCREHI was incorporated during the fiscal year ended February 29, 1996
and owns a commercial building in Milford, Connecticut.
The USBL operates a professional summer basketball league through
franchises located in the eastern part of the United States.
The Company has a consolidated deficit of approximately $3,000,000. This
factor, as well as the Company's reliance on related parties and significant
non-cash transactions (see Notes 10 and 11) create an uncertainty as to the
Company's ability to continue as a going concern. The Company is making efforts
to revitalize the USBL by raising equity capital and marketing new franchises
and Cadcom is trying to expand its machine shop business by seeking new
customers for its services. However, there can be no assurance that the Company
will be successful in accomplishing these objectives. Because of the
uncertainties surrounding the ability of the Company to continue its operations,
there is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
The consolidated financial statement includes the accounts of MCI and
its three operating subsidiaries. All significant intercompany balances and
transactions have been eliminated and applicable minority interests have been
reflected in consolidation.
b. Cash and cash equivalents
For purposes of the cash flow statement, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash and cash equivalents.
c. Revenue recognition
The Company and its subsidiaries generally use the accrual method of
accounting. However, due to the uncertainty of collecting royalty and franchise
fees from its franchisees, the USBL recognizes revenue when it is received. As
described more fully in Note 10, management recorded the advertising due bills
received in exchange for initial franchise fees based upon the fair market value
of such due bills. The fair market value was determined based upon the value of
the franchises sold as there is no ready active market to convert the due bills
to cash.
F-8
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
c. Revenue recognition (Cont'd)
Cadcom recognizes revenue on the accrual method based upon the
shipping date of orders in process which are of a short-term nature.
d. Available-for-sale investments
As of February 28, 1997, available-for-sale investments were composed
of common stocks with a historical cost basis (average cost) of $88,625 and an
approximate market value of $26,000. Unrealized loss, which is reported as a
part of stockholders' equity, was approximately $62,000 as of February 28, 1997.
e. Inventories
Manufacturing inventories (Cadcom) are stated at the lower of cost, on
the first-in, first-out method or market. The USBL's inventory consists of USBL
trading cards, basketball uniforms, sporting equipment and printed promotional
material. Most of the USBL's inventory was obtained through barter transactions
whereby the USBL granted suppliers with advertising space or air time in return
for the supplier's products. These transactions were accounted for based upon
the fair values of the assets and services involved in the transactions.
f. Property and equipment
Property and equipment are recorded at cost. Major additions are
capitalized while minor improvements, which do not extend the useful life of an
asset, are expensed in the period incurred.
Depreciation has been provided utilizing both the straight-line and
accelerated cost recovery systems. Assets are depreciated over their estimated
useful life or at the statutory rate provided (predominantly 7 years for
equipment and 39 years for real estate).
g. Income taxes
MCI, MCREHI and Cadcom file a consolidated federal income tax return.
As of February 28, 1997, MCI and Cadcom had approximately $400,000 in net
operating loss carryforwards available and the USBL had a net operating loss
carryforward of approximately $1,500,000. Both loss carryforwards are available
through February 28, 2010, to offset future taxable income.
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. A valuation allowance has been
provided for the deferred tax asset resulting from the net operating loss
carryforward.
h. 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.
F-9
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
i. Advertising costs
Advertising costs are expensed as incurred, and were approximately
$87,000 and $57,000 for the years ended February 28, 1997 and February 29, 1996,
respectively.
j. Earnings per share
Earnings per common share were computed by dividing net earnings by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Options and warrants were excluded
from the computation since they are anti-dilutive.
k. Stock based compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation to employees. Stock compensation to
non-employees is accounted for at fair value in accordance with FASB Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
3. Segment Information:
The consolidated financial statements include the accounts of Meisenheimer
Capital, Inc. and its three operating subsidiaries: Cadcom, Inc., Meisenheimer
Capital Real Estate Holdings, Inc. and the United States Basketball League, Inc.
The following summarizes the contribution to consolidated revenues and expenses
by each company (after elimination of intercompany trans actions and minority
interest).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year ended February 28, 1997:
MCI MCREHI Cadcom USBL Total
Revenues $ 12,000 $ 8,925 $ 795,634 $ 561,569 $ 1,378,128
Operating expenses 90,157 15,305 667,389 591,144 1,363,995
Operating profit (loss) (78,157) (6,380) 128,245 (29,575) 14,133
Net income (loss) (69,362) (17,978) 96,217 (39,740) (30,863)
Identifiable assets 130,985 315,628 325,573 545,277 1,317,463
Year ended February 29, 1996:
MCI MCREHI Cadcom USBL Total
Revenues $ $ 27,350 $ 4,200 $ 735,014 $ 352,405 $ 1,118,969
Operating expenses 90,350 11,007 581,721 564,808 1,247,886
Operating profit (loss) (63,000) (6,807) 153,293 (212,403) (128,917)
Net income (loss) (69,234) (25,655) 106,424 (172,256) (160,721)
Identifiable assets 107,021 325,632 449,420 512,761 1,394,834
</TABLE>
F-10
<PAGE>
4. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
February 28, February 29,
1997 1996
Cadcom:
Raw materials $ 7,600 $ 26,870
Work in process 21,000 -
Finished goods 71,000 57,000
USBL inventory 17,000 8,500
----------- ----------
$ 116,600 $ 92,370
=========== ==========
5. Property and Equipment:
Property and equipment, at cost, consists of the following:
February 28, February 29,
1997 1996
Land $ 121,253 $ 121,253
Building 197,836 197,836
Equipment 728,777 737,443
Transportation equipment 52,090 52,090
------------- -------------
1,099,956 1,108,622
Less accumulated depreciation 576,625 495,321
------------- -------------
$ 523,331 $ 613,301
============= =============
6. Goodwill:
Goodwill arising from the acquisition of Cadcom is being amortized over
40 years and consisted of the following:
February 28, February 29,
1997 1996
Excess of cost over net assets $ 32,625 $ 32,625
Less accumulated amortization 4,080 3,264
---------- ----------
$ 28,545 $ 29,361
========== ==========
</TABLE>
7. Lease Commitments:
Capital leases
Cadcom leases certain manufacturing equipment under capital leases. The
Company has capitalized manufacturing machinery in the amount of $365,100.
Accumulated depreciation on this machinery at February 28, 1997 and February 29,
1996 was $228,615 and $174,021, respectively.
F-11
<PAGE>
7. Lease Commitments: (Cont'd)
Capital leases (Cont'd)
The future minimum lease payments required under capital leases are:
Years Ending
February 28,
1998 $ 97,117
1999 32,200
----------
129,317
Less interest and taxes 8,754
Present value of net minimum
lease payments $ 120,563
==========
Operating leases
Cadcom rents its Milford, Connecticut facility under a non-cancellable
operating lease from MCREHI. The minimum annual lease payments under this lease
were $41,400. MCI and USBL leased office space in the same building on a
month-to-month basis for $1,000 per month.
Accordingly, the rent charges have been eliminated in consolidation.
8. Notes and Mortgage Payable:
The Company had the following loan obligations outstanding:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
February 28, February 29,
1997 1996
Mortgage, dated August 16, 1995 secured by a commercial
building, interest at 7.98%, with monthly payments over
20 years of approximately $1,000 per month. The
Company's president has guaranteed the mortgage. $ 107,560 $ 113,735
Term bank loans, secured by Company assets, with interest at annual rates
of 8.25% and 10.25%, with approximate
monthly payments of $3,300 per month. - 25,900
----------- -----------
107,560 139,635
Less current portion 3,184 29,065
----------- -----------
$ 104,376 $ 110,570
=========== ===========
</TABLE>
Maturities of notes and mortgages are as follows:
Years Ending
February 28/29,
1998 $ 3,184
1999 3,767
2000 4,080
2001 4,417
Thereafter 92,112
$ 107,560
F-12
<PAGE>
9. Related Party Transactions:
Spectrum Associates, Spectrum Associates' parent company, Synercom, Inc.
and MCI are entities controlled and operated by MCI's president and members of
his immediate family. This group also owns a significant portion of the minority
interest in the USBL. In addition, the capital leases (see Note 7) are payable
to Spectrum Associates. Until February 28, 1992, Cadcom was a 100% owned
subsidiary of Synercom, Inc. Synercom, Inc. sold its 100% interest in Cadcom to
MCI. As part of this agreement MCI granted to Synercom a right of first refusal
to purchase all of the Cadcom shares sold to MCI should MCI propose to transfer
said shares to a third party. This right of first refusal is effective through
February 28, 2002, and is collateralized by all of Cadcom's assets.
Revenues recorded from related parties (mainly Spectrum Associates)
approximated $942,000, or 68% and $823,000 or 56% of total revenues for the
years ended February 28, 1997 and February 29, 1996, respectively.
Substantially all of the notes due to shareholders carry an interest rate
of 6% per year.
Substantially all of Cadcom's sales are to Spectrum Associates and as of
February 28, 1997 and 1996 all of the Company's accounts receivable are due from
Spectrum Associates.
MCI, through its subsidiary, MCREHI, purchased from Genvest, a
partnership controlled by the Company's president and his immediate family, a
commercial building in Milford, Connecticut for $320,000 during the fiscal year
ended February 29, 1996.
10. Non-Cash Transactions:
The USBL entered into non-cash transactions during the fiscal year ended
February 29, 1997 including:
o The sale of 5 franchises for 2,000,000 negotiable advertising due bills
from an independent cable television network. The USBL has valued these due
bills at $250,000. The deferred charge on the balance sheet of $434,062,
represents the unused amount of deferred advertising expense relating to
advertising due bills. These advertising due bills can be traded for various
goods and services and they can be assigned, sold or transferred. However, they
are not recognized as currency in the United States although they can be traded
as such. The credits will be amortized at the time the advertising is utilized.
The total of 4,000,000 advertising due bills were recorded at a substantial
discount from their face value. However, if the Company is unable to realize the
recorded value of this asset a significant reduction in overall equity may
result.
o USBL issued warrants to purchase 30,000 shares of USBL common stock at
$3.00 per share in exchange for consulting services. The value of these
warrants, $9,000, has been recorded in accordance with FASB 123.
o USBL sold a franchise in exchange for 300,000 negotiable Itex Barter
Units. The USBL has valued these barter units at $50,000. The deferred charge on
the balance sheet of $50,000 represents the unused amount of the deferred
expenses relating to the barter units. These barter units can be traded for
various goods and services and they can be assigned, sold or transferred.
However, they are not recognized as currency in the United States, although they
can be traded as such. The credits will be amortized at the time they are
utilized. The 300,000 barter units were recorded at a substantial discount from
their face value. If the Company is unable to realize the recorded value of this
asset a reduction in overall equity may result.
F-13
<PAGE>
10. Non-Cash Transactions: (Cont'd)
o USBL sold a franchise to MCI in exchange for a promissory note of $100,000.
o During the year USBL sold a franchise for $50,000 and 450,000 shares of
USA Sports Group, Inc. common stock, valued at $4,500.
The Company entered into the following non-cash transactions during the
year ended February 29, 1996:
o The sale of 5 franchises in fiscal 1996 for 2,000,000 negotiable
advertising due bills from an independent cable television network.
The USBL has valued these due bills at $250,000.
o A long-term obligation of the USBL of approximately $117,000 was
repaid by Spectrum Associates, a stockholder that is also controlled
by the Meisenheimer group, in exchange for a note. This note was
partially repaid with $35,000 in cash and USBL preferred stock valued
at $20,000 in fiscal 1996. The remaining $56,536 of debt was forgiven
by Spectrum Associates and has been reflected as additional paid-in
capital.
o Cadcom purchased $141,450 in equipment by incurring an additional
capital lease payable of $141,450.
o MCREHI acquired the commercial building in Milford, Connecticut by
incurring a mortgage payable of $120,000 plus the issuance of 200,978
shares of MCI stock, which were valued at $169,990.
11. Investment in Partnership:
During fiscal year ended February 28, 1997, MCI acquired a 75% interest
in a partnership which owns a USBL franchise. The interest was acquired from
third parties and is valued at MCI's cost.
12. Stock Options:
During the fiscal year ended February 28, 1995, the Company granted its
officers options to purchase 400,000 shares of common stock at $.25 per share.
100,000 of these options were exercised in June 1995, however, the shares have
not been issued and, accordingly, a liability of $25,000 has been included in
accrued expenses. The remaining 300,000 options expire February 28, 1998.
The USBL issued 168,000 options to its officers as compensation. At the
time of issuance, the value of the stock exceeded the exercise price. In
accordance with APB No. 25, compensation expense is recorded and accordingly,
additional paid in capital was increased by $71,000, the value of the options.
As compensation for marketing services, the Company granted its advisor
12,500 options to purchase common stock at $4.50 per share, expiring August 1997
and 10,000 options to purchase common stock at $7.50 per share, expiring
February 1998.
As compensation for marketing services, relating to future equity
offerings, the Company granted its advisor 25,000 options to purchase common
stock at the market value on the date of the contract (February 1996) per share.
These options are exercisable between July 1996 and July 1998. An additional
25,000 options, with similar terms, will be granted contingent upon successful
future equity offerings.
F-14
<PAGE>
13. Concentration of Credit Risk:
As of February 28, 1997, the Company maintained balances at a bank in
excess of the federally insured amount.
14. Stockholders' Equity:
a. MCI issued 148,000 options to its officers as compensation, in
accordance with APB No. 25 compensation expense is recorded and accordingly,
additional paid in capital was increased by $21,000, the value of the options.
b. During the fiscal year ended February 29, 1996, the USBL completed a
private placement for 268,501 shares of stock, and had 22,500 shares issued
under warrants. Since the shares were sold to minority shareholders, the effect
on the consolidated financial statements was to increase consolidated additional
paid-in capital by $1,051,957.
c. MCI's majority owned subsidiary issued stock and recorded increased
additional paid in capital of approximately $140,000. Approximately 65% of this
increase is attributable to the majority shareholder and has been recorded as an
increase in the consolidated financial statements.
d. The USBL has acquired 5,000 shares of its own stock, valued at $7,757,
in order to facilitate compensatory stock grants to employees. These shares are
considered treasury and have been valued at cost.
15. Savings Plan:
The Company has an employee savings plan that qualifies as a deferred
salary arrangement under Section 403(k) of the Internal Revenue Code. Under the
Savings Plan, participating employees may defer a portion of their pretax
earnings, up to the Internal Revenue Service annual contribution limit.
Management has elected not to contribute discretionary employer matching.
16. Commitment:
Two officers of the Corporation have entered into employment agreements
for a period of two years. For the first year, the combined monthly salary is to
equal $2,400. The Board of Directors may withhold payment of the salaries if
such payment would have an adverse impact on the Company's cash flow. In that
event, the Company would issue to the officers 12,000 options to purchase the
Company's common stock for each month the salary is not paid. In the second year
of the agreements, the officers are to receive a combined monthly salary of
$5,800. As in the first year, if the salaries are not paid, the Company will
issue to the officers 14,000 options to purchase the Company's common stock for
each month the salary is not paid. All options under these agreements would be
exercisable at $1.00 per share.
Two officers of the Company's USBL subsidiary have entered into
employment agreements for a period of two years. For the first year, the
combined monthly salary is to equal $2,800. The Board of Directors may withhold
payment of the salaries if such payment would have an adverse impact on the
USBL's cash flow. In the event, the USBL would issue to the officers 14,000
options to purchase the USBL's common stock for each month the salary is not
paid. In the second year of the agreements, the officers are to receive a
combined monthly salary of $6,600. As in the first year, if the salaries are not
paid, the USBL will issue to the officers 14,000 options to purchase the USBL's
common stock for each month the salary is not paid. All options under these
agreements would be exercisable at $1.00 per share.
F-15
<PAGE>
16. Commitment: (Cont'd)
The President of the Company received $4,000 in cash compensation and, in
lieu of cash, options to purchase 120,000 shares of stock, value at $17,000
during the fiscal year ended February 28, 1997. 20,000 of these options were
issued subsequent to year end.
The Vice President of the Company received $800 in cash compensation and,
in lieu of cash, options to purchase 48,000 shares of stock, valued at $4,000
during the fiscal year ended February 28, 1997. 8,000 of these options were
issued subsequent to year end.
17. Fair Value of Financial Instruments:
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash,
current receivables and payables and certain other short-term financial
instruments approximate their fair value.
Prepaid Advertising and Barter Credits: The carrying amount of prepaid
advertising credits approximate their fair value based upon the value of
franchises exchanged for the advertising credits (see Note 10).
Long-Term Liabilities: The carrying amounts of the capital lease
obligations and the mortgage payable approximate their fair value.
The carrying amount and the fair value of the Company's financial
instruments at February 28, 1997 are as follows:
Carrying Fair
Amount Value
Cash $ 11,371 $ 11,371
Investments 26,547 26,547
Prepaid barter units 50,000 50,000
Prepaid advertising credits 434,062 434,062
Notes payable, stockholders 516,858 516,858
Mortgages payable 107,560 107,560
Capital lease obligation 120,563 120,563
The carrying amount and the fair value of the Company's financial
instruments at February 29, 1996 are as follows:
Carrying Fair
Amount Value
Cash $ 278,188 $ 278,188
Investments 47,597 47,597
Prepaid barter units 225,000 225,000
Prepaid advertising credits 25,900 25,900
Notes payable, stockholders 506,064 506,064
Mortgages payable 113,735 113,735
Capital lease obligation 203,741 203,741
F-16
<PAGE>
18. Contingencies:
During the years ended February 28, 1997 and February 29, 1996, the
Company has paid and accrued for several legal actions which have been brought
against it. The net expense of $10,000 and $32,000, respectively are estimated
based on inquiry of legal counsel.
19. Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Years Ended
February 28, February 29,
1997 1996
--------------- -----------
Current:
Federal $ - $ -
State and local 10,039 16,000
---------- ----------
10,039 16,000
---------- ----------
Deferred:
Federal - -
State and local - -
---------- ---------
- -
---------- ---------
$ 10,039 $ 16,000
========== ==========
</TABLE>
The components of the net deferred taxes as of February 28, 1997 are as
follows:
Deferred tax assets:
Net operating loss carryforward $ 120,000
Allowance for realization of assets (120,000)
------------
$ -
A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory federal income tax rate to income before
taxes is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Years Ended
February 28, February 29,
1997 1996
--------------- -----------
Computed income tax (credit) at 34% $ 12,000 $ 49,205
Increase (decrease) in taxes resulting from:
Addition to allowance for realization of
deferred tax asset NOL carryforward (12,000) (49,205)
State and local taxes 10,039 16,000
---------- -----------
$ 10,039 $ 16,000
========== ===========
</TABLE>
F-17
<PAGE>
