McLAUGHLIN & STERN, LLP
260 MADISON AVENUE
NEW YORK, NEW YORK 10016
(212) 448-1100
FAX (212) 448-0066
RICHARD J. BLUMBERG Millbrook Office
DIRECT DIAL: (212) 448-6205 Franklin Avenue
P.O. Box 1369
Millbrook, N.Y. 12545
(914) 677-5700
Fax (914) 677-0097
April 16, 1997
Richard Wulff, Chief
Small Business Rev.
United States Securities and Exchange Commission
Washington, DC 20549
Re: Meisenheimer Capital, Inc. (the "Company")
Form 10-SB/A filed February 19, 1997
SEC File No.: 0-25147
Dear Mr. Wulff:
Pursuant to my telephone conversation of today with David
Burton, we are transmitting herewith Amendment No. 3 to Form 10-SB/A.
Based upon Mr. Burton's comments, we have made the following
changes to the Registration Statement:
1. Additional elaboration in the Business Section of
USBL regarding the historical sale of franchises for
cash to non-affiliates; a listing of franchises sold
for the last three fiscal years, 1994-1996, setting
forth the name of the franchise, the sales price, and
cash received;
2. Changed the valuation of the television airtime to
comport with the $50,000 value of franchises exchanged for such television
time;
3. Changed footnote 11; and
4. Changed footnote 17.
We trust that these changes are responsive to your Staff's
comments. Should you have any further questions, please do not hesitate to
communicate with me.
Many thanks for your cooperation.
Very truly yours,
/s/ Richard J. Blumberg
Richard J. Blumberg
RJB:ww
Attachments
H:\USERS\TMARBLEY\RJB\MRB.416
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
AMENDMENT No. 3
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
Meisenheimer Capital, Inc.
(Name of Small Business In It's Charter 06-110-1766
(State or Other Jurisdiction (I.R.S. Employer
Incorporation or Organization Identification No.)
46 Quirk Road, Milford, Connecticut 06460
(Address of Principal Executive Offices)
(203) 877-9508
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of
the Act:
Title of Each Class Name of Each Exchange on Which
to be Registered Each Class is to be Registered
Securities to be registered under Section 12(g) of
the Act:
Common Stock - $0.01 par value
(Title of Class)
<PAGE>
PART I
ITEM 1. General Business
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.
USBL 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 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 100 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 USBL 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 1996 season of eleven franchises. The current active franchises are located
in Atlanta, Georgia (the Atlanta Trojans); Atlantic City, New Jersey (the
Atlantic City Seagulls); Winston-Salem, North Carolina (the Carolina Cardinals);
<PAGE>
Milford, Connecticut (the Connecticut Skyhawks); Jacksonville, Florida (the
Jacksonville Barracudas); Oyster Bay, New York (the Long Island Surf); Hooksett,
New Hampshire (the New Hampshire Thunder Loons); Portland, Maine (the Portland
Mountain Cats); St. Petersburg, Florida (the Tampa Bay Windjammers); Sarasota,
Florida (The Florida Sharks); and Stuart, Florida (the Treasure Coast Tropics).
The New Hampshire team, which was formerly located in Tennessee is owned and
managed by USBL. MCI, along with another partner owns the Portland Mountain
Cats. In addition there is one inactive franchise which pays annual royalty
fees.
Since 1984, USBL has sold a total of 27 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 three fiscal years, 1994 through 1996, the
Company sold franchises to non-affiliates for cash as set forth below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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 made, USBL will repossess the franchise.
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. The barter transaction requires that the 10 franchise teams must be
established within ten years from the date of the transactions. 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.
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.
<PAGE>
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.
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 the individual teams has generally 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
prior to Fiscal 96. 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 at least the last two fiscal years, the
Company's auditors and USBL's auditors have expressed concerns in their opinion
as to the ability of both companies to continue as going concerns.
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.
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 each regional division. 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 14 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 and poor gate attendance, the Company may not be able to achieve its
long-range goals without additional capital to properly promote the League.
Cadcom, Inc.
<PAGE>
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. Cadcom's total 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'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
1996, Cadcom contributed approximately 50% 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 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. Management's Discussion and Analysis of Operations
Fiscal Year 1996 Compared to Fiscal Year 1995
Results of Operations
<PAGE>
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.
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.
Liquidity and Capital Resources
The Company's working capital deficiency decreased to $335,000
in Fiscal 96 from a deficiency of $476,000 in Fiscal 95. This decrease was
primarily due to the proceeds of $1,052,000 received by the Company's
subsidiary, USBL, in connection with an offering pursuant to Regulation D under
the Securities Act of 1933. The other items affecting this decrease were an
increase in accounts receivable and inventory in the amount of approximately
$49,900 and a decrease in accounts payable and accrued expenses of approximately
$17,000.
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 2,000,000 units of advertising credits, valued
at $250,000 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 assurance that the Company
will be successful in its efforts to reduce the working capital deficiency.
<PAGE>
Third Quarter Ended November 30, 1996. Compared to Third Quarter Ended
November 30, 1995.
Results of Operations:
The following schedule highlights key operating data:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
November 30, November 30,
1996 1995
Revenues $1,067,000 $702,000
Operating expenses $1,060,000 $69,000
Operating income (loss) $7,000 $(167,000)
Net loss $(24,000) $(180,000)
</TABLE>
For the period ended November 30, 1996 ("Nine Months 96") revenues
generated amounted to $1,067,000, an increase of $365,000 from revenues of
$702,000 for the period ended November 30, 1995 ("Nine Months 95"). This
increase was due primarily to the recognition of $250,000 by USBL of revenues
for initial franchise fees which represented an increase of $269,000 of
franchise fees for Nine Months 96 as compared to $51,000 of franchise fees for
Nine Months 95. Most of this increase was due from the sale of five USBL
franchises for 2,000,000 of advertising due bills valued by management at
$250,000. Additionally, sales by Cadcom increased by $32,000 as a result, of
price increases of various increased components. The balance of the revenue
increase was generated by the receipt by USBL of increased advertising income.
Operating Expenses for Nine Months 96 amounted to $1,060,000, an increase
of $191,000 over operating expenses of $869,000 for Nine Months 95. This
increase consisted of various components: the use of $40,000 of pre-paid
advertising due bills to air several USBL games on Cable T.V.; the write-off of
$29,000 of advances to several USBL teams; an increase of $69,000 for
professional fees and associated costs; festival costs of $18,000, an increase
of $16,000, as compared to festival costs of $2,000, for Nine Months 95; an
increase in insurance expenses of $24,000 for additional liability insurance; an
increase in administrative salaries of $14,000 for additional personnel from
$36,000 for Nine Months 95 to $50,000 for Nine Months 96. Additionally, the
Company's real estate subsidiary MCR incurred operating expenses of $15,000 for
Nine Months 96, as compared to operating expenses of $5000, for Nine Months 95,
an increase of $10,000. MCR had only five months of operation for Nine Months
95, as compared to nine months for Nine Months 96
Consolidated net loss for Nine Months 96 amounted to $24,000 as compared
to a loss of $180,000 for Nine Months 95. The decrease in net loss was
attributable to the additional revenues generated by USBL for franchise fees and
increased profit margin by Cadcom.
The Company future results will continue to be effected by a variety of
factors that could have a material adverse effect on revenues and profitability
and the ability of the Company to continue as a going concern. The financial
success of USBL is dependant upon its ability to attract additional franchises
and public interest in the League. The Company hopes to increase public exposure
to the League by airing additional games on Cable T.V. which could also have the
effect of attracting additional franchise interest. However, there can be no
assurances that the Company will be successful. With respect to the Company's
subsidiary, Cadcom, its dependence upon sales to Spectrum Associates, Inc.
("Spectrum") creates a concern as to Cadcom's future viability. Which Cadcom is
attempting to enlarge its customer base to reduce its dependence on Spectrum,
there can be no assurance it will be successful.
<PAGE>
Liquidity and Capital Resources
Working capital deficiency increased from $214,000 as of November 30,
1995 to $544,000 as of November 30, 1996. The main component of this increase
was the utilization of $368,000 of cash outlays for debt reduction and operating
activities. As of the present time, the Company will be dependent upon loans
from management and affiliates to meet its working capital requirements.
However, USBL plans to raise additional equity capital, and Cadcom is attempting
to develop new customers. However, there can be no assurances that any of these
efforts will be successful.
<PAGE>
ITEM 3. Description of Property
In August, 1995, MCR, 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,
1996. 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 a $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 4. 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>
Name and Address Amount and nature of Approximate
Beneficial Owner Beneficial Ownership Percent of Class
Daniel T. Meisenheimer III 1,190,500 26.3%
c/o The United States
Basketball League
46 Quirk Road
Milford, CT 06460
Richard T. Meisenheimer 269,500 6.0%
c/o The United States
Basketball League
46 Quirk Road
Milford, CT 06460
</TABLE>
- --------
Daniel T. Meisenheimer, III is the President of MCI. The shares listed
above include shares owned by his wife and minor children. Not included are
100,000 options issued to Mr. Meisenheimer to purchase 100,000 of the Common
Stock at $0.25 per share. 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.
Richard Meisenheimer is Vice President and a Director of MCI. The shares
listed above include shares owned by his wife and minor children. 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 Meisenheimer is President, owns 207,857 shares of the common stock and
240,000 shares of preferred stock of USBL.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Daniel T. Meisenheimer, Jr.3 525,000 11.7%
c/o The United States
Basketball League
46 Quirk Road
Milford, CT 06460
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 1,985,000 66.5%
</TABLE>
ITEM 5. Directors, Executive Officers, Promoters and Control
Persons
The following persons are the current executive officers and
directors:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name Age Position
Daniel T. Meisenheimer, III 45 Chairman of the Board
President and
Treasurer
Richard Meisenheimer 42 Vice President,
Director and Secretary
Daniel T. Meisenheimer, Jr. 69 Director
</TABLE>
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 the Chairman of the Board
and President and Treasurer of MCI since its inception in 1984. Mr.
Meisenheimer is also Chairman of the Board,
President and Treasurer of the Company's subsidiaries, USBL, Cadcom and MCR.
Mr. Meisenheimer is also employed as a Vice President and serves as Cheif
Financial Officer.
Daniel T. Meisenheimer, Jr., a Director of MCI, is the father of
Daniel Meisenheimer III and Richard Meisenheimer. The shares listed above
includes shares owned by his wife, Mary Ellen
<PAGE>
Meisenheimer. Mr. Meisenheimer also owns 5,000 of common stock and 182,723
shares of preferred
stock of USBL.
Synercom is owned jointly by Daniel Meisenheimer III, Richard
Meisenheimer,
Daniel Meisenheimer, Jr. and Mary Ellen Meisenheimer. Synercom also owns all
of the stock of
Spectrum, Inc. a Director of Spectrum Associates, Inc. which positions he has
held since 1975.
Spectrum Associates, Inc. ("Spectrum") is the sole customer of MCI'ssubsidiary,
Cadcom. Between
1981 and 1984 Mr. Meisenheimer owned and operated an investment advisory firm.
From 1977 to
1981, Mr.Meisenheimer was employed as a registered representative with Merrill,
Lynch Inc.
Richard C. Meisenheimer has been Vice President, Secretary
and a Director of MCI since
its inception. Mr. Meisenheimer has been associated with Spectrum since 1976.
In 1993
he became President of Spectrum succeeding his father, Daniel T. Meisenheimer,
Jr. Mr.
Meisenheimer is also Vice President, Secretary and a Director of MCI's
subsidiaries, USBL, Cadcom,
and MCR.
Daniel T. Meisenheimer, Jr. has been a Director of MCI since its inception.
He is also a Director of USBL,, Cadcom and MCR. Mr. Meisenheimer, Jr. was the
founder of Spectrum and served as President from 1957 to 1993. He is currently
Chairman of the Board of Spectrum.
ITEM 6. Executive Compensation
MCI
Historically, the only two officers of MCI, Daniel T. Meisenheimer III,
President and Treasurer, and Richard Meisenheimer, Vice President, 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 Meisenheimer 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 Meisenheimer.
The agreement with Daniel T. Meisenheimer III is for a period
of two years. 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 then receive 10,000 options. Each option
will entitle Mr. Meisenheimer to purchase one share of the Common Stock at $1.00
a share. The options are to be issued at the end of each 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 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 can also withhold payment of such salary if such payment
would have an adverse impact on the Company's cash flow.
<PAGE>
In that event, Mr. Meisenheimer is to receive 2,000 options for each month of
salary not paid. Each option will entitle 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 the months
of March and April, 1996. Mr. Richard Meisenheimer has only received a total of
$800 for March and April. The Board of Directors elected to withhold any further
payment of salaries because of the impact on cash flow. As of December 31, 1996,
because of the Company's decision not to pay salaries, Mr. Daniel T.
Meisenheimer, III is entitled to receive 80,000 options and Mr. Richard
Meisenheimer is entitled to receive 20,000 options. The Company has not as yet
issued the options.
The following tables reflect the salaries received by Daniel
T. Meisenheimer, III and Richard Meisenheimer and the options received by Daniel
T. Meisenheimer, III, and Richard Meisenheimer and the amount of options
exercised.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Long Term Compensation
Annual Compensation Awards Payouts
(d) (e) (f) (g) (h) (i)Other Security Annual Restricted
Underlying All Other
Name and Fiscal Salary Bonus Compen- Stock Options/IP
Compen-
Principal Position Year ($) ($) sation Award(s) ($) SARs (#) Payouts ($) sation
($)
- -------------------- ---------------------------- ------------------------------------------ ------------ -------------
Daniel T. 1995 -0- -0- -0- 200,000
Meisenheimer III, 5 1996 -0- -0- -0-
President 19976 $4,000 -0- -0-
Richard 1995 -0- -0- -0- 100,000
Meisenheimer 1996 -0- -0- -0-
Vice Pres. 19972 $ 800 -0- -0-
</TABLE>
- --------
Both Daniel T. Meisenheimer, III, and Richard Meisenheimer
receive salaries from Spectrum. Fiscal 97 is the first
quarter ended May 31, 1996.
Option/SAR Grants in Last Fiscal Year
Individual Grants
(a) (b) (c)
(d) (e)
Number of Securities Percent of Total Options/ Exercise or
Underlying Options/ SARs Granted to
Base Price Expiration
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Name SARs/Granted (#) Employees in Fiscal Year
($ Share) Date
- ---- ------------------- ------------------------
- ------------ --------
David T. Meisenheimer,
III -0- -0-
- -0- -0-
Richard Meisenheimer -0- -0- -0- -0-
Vice President
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at FY End In-the-Money Options/
(#) SARs at FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- ---- ---------------- ------------------------------- -------------
Daniel T. Meisenheimer, 100,000 $75,000 100,000 (Exercisable) $287,500
(Exercisable)
III
President
Richard Meisenheimer
Vice President 100,000 (Exercisable) $287,500 (Exercisable)
</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 Meisenheimer, who serves as Vice President and Chief
Financial Officer. The employment agreement 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. Mr. Meisenheimer received a total of $4,000 for
Fiscal 1996 and $4,000 during the first quarter of Fiscal 1997.
<PAGE>
In view of the fact that neither Daniel T. Meisenheimer, III,
and Richard 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. 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. The expiration date of the options was changed by agreement to
five years. On January 2, 1996 (Fiscal 1996) Daniel T. Meisenheimer, III and
Richard Meisenheimer each received 20,000 options exercisable into common stock
at $2.25 a share. On August 20, 1996, the company and the two officers agreed to
rescind the remainder of the option program.
USBL also entered into an employment agreement with Richard
Meisenheimer on January 1, 1996. The agreement is similar to Daniel T.
Meisenheimer III's, except that Richard Meisenheimer is to receive a salary of
$800 a month during the first year and $1,600 a month for the second year. For
each month's salary omitted, Richard 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 Fiscal
96 Mr. Meisenheimer received a total of $1,600 of salaries and during the first
quarter of Fiscal 97 Mr. Meisenheimer received a total of $1,600 of salaries.
The following tables reflect the salaries and options
received by Daniel T. Meisenheimer, III and Richard Meisenheimer:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
Long Term Compensation
--------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------- ------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Other Securities
Annual Restricted Underlying All Other
Name and Fiscal Salary Bonus Compen- Stock Options/ LTIP
Compen-
Principal Position Year ($) ($) sation Award(s) ($) SARs (#) Payouts ($) sation
($)
- -------------------- ---------------------------- ------------------------------------------ ------------ -------------
Daniel T. 1995 -0- -0- -0- -0- -0- -0- -0-
Meisenheimer III 1996 -0- -0- -0- 20,000 -0- -0-
President 19972 $4,000 -0- -0-
- --------
Both Daniel T. Meisenheimer, III and Richard Meisenheimer
receive salaries from Spectrum. Fiscal 1997 represents
the first quarter ended May 31, 1997.
Richard 1995 -0- -0- -0- -0- -0- -0- -0-
Meisenheimer 1996 $1,600 -0- -0- -0- 20,000 -0- -0-
Vice Pres. 19972 $1,600 -0- -0- -0- -0- -0- -0-
Option/SAR Grants in Last Fiscal Year
<PAGE>
Individual Grants
(a) (b) (c) (d) (e)
Number of Securities Percent of Total Options/ Exercise or
Underlying Options/ SARs Granted to Base Price Expiration
Name SARs/Granted (#) Employees in Fiscal Year ($ Share) Date
- ---- ------------------- ------------------------ ------------ --------
David T. Meisenheimer,
III 20,000 50% -0- 1/2/2001
Richard Meisenheimer 20,000 50% -0- 1/2//2001
Vice President
Aggregated Options/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at FY End In-the-Money Options/
(#) SARs at FY-End ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- ---- ---------------- ------------------------------- -------------
Daniel T. Meisenheimer, -0- -0- 20,000 (Exercisable) $_______
(Exercisable)
III
President
Richard Meisenheimer -0- -0- 20,000 (Exercisable) $_______
(Exercisable)
Vice President
</TABLE>
ITEM 7. Certain Relationships and Related Transactions
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, 1995 ("Fiscal 1995"), USBL was indebted to the principals or their
affiliated companies in the principal sum of $601,984 together with accrued
interest at six percent (6%) per annum of $207,744. All of the outstanding debt
is payable upon demand. Of the foregoing amount, Spectrum was owed the principle
sum of $132,743 plus accrued interest of $113,930. The principals were owed
$225,579 plus accrued interest of $77,427. The remaining indebtedness of
$243,662 was due to MCI, the parent, which is eliminated on the accompanying
consolidated financial statements. During Fiscal 1996, the
<PAGE>
indebtedness to Spectrum including interest was reduced by $146,673 through the
issuance of preferred stock of USBL. During both Fiscal 95 and 96, loans due the
principals were reduced by $233,006 through the issuance of Preferred Stock of
USBL. As of February 29, 1996 ("Fiscal 1996"), USBL is indebted to Spectrum and
the principals in the total sum, including interest of $215,469 ($107,289 to
Spectrum and $108,180 to the principals). In all of the foregoing transactions,
the preferred stock of USBL was valued at $1.00 per share.
Cadcom which was acquired by MCI in February 1992 from Synercom, Inc.,
a company owned and controlled by the Meisenheimer Family, is totally dependent
upon orders received from Spectrum, a privately held company, also owned by the
Meisenheimer Family. 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.
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.
In 1988, Richard 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.
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.
ITEM 8. Description of Securities
<PAGE>
The Company completed a public offering of Units in August 1984. Each
Unit consisted of one share of Common Stock, $0.01 par value and one warrant to
purchase one share of Common Stock at $1.25 per share from three to six months
after the effective date of the offering (July 27, 1984) and at $1.50 per share
from six to nine months after the effective date. All of the unexercised
warrants expired on April 29, 1985.
The Company is presently authorized to issue 10,000,000 shares of
Common Stock, $0.01 par value. As of May 31, 1996, there were 4,469,528 shares
issued and outstanding. Of that amount, approximately 2,965,000 are owned by the
officers, directors and their affiliates and as such may be deemed to be
"restricted shares" as that term is described under the Securities Act of 1933
(the "Act"), as amended, and may only be sold in compliance with Rule 144 of the
Act or pursuant to a registration statement under the Act. With the exception of
100,000 shares acquired by Daniel T. Meisenheimer through the exercise of
options, the officers, directors and their affiliates have held their shares for
more than two years as required by Rule 144 and thus could avail themselves of
Rule 144 at any time.
The holders of the Common Stock (I) have equal ratable rights to
dividends from funds legally available therefor, when, as and if declared by the
Board of Directors of the Company; (ii) are entitled to share ratably in all of
the assets of the Company available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have preemptive, subscription or conversion rights or redemption or
sinking funds applicable thereto; and (iv) are entitled to one cumulative vote
per share on all matters on which stockholders may vote at all meetings of
stockholders. Therefore, the holders of more than fifty percent (50%) of the
outstanding shares, voting for the election of directors can elect all of the
directors if they so choose.
PART II
ITEM 1. Market Price of and Dividends on the Registrant's
Common Stock
The Company's Common Stock trades on the non-NASDAQ
over-the-counter market ("Bulletin Board") under the symbol "MEIS".
The following table indicates the high and low bid prices as reported
by the National Daily Quotation Service, Inc. for the Company's fiscal year
commencing March 1, 1994 through February 28, 1995 and the closing high and low
bid price from March 1, 1995 through July 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1995 High-Low Bid Price
High Low
First Quarter Ended 3/31/94 $0.75 $0.25
<PAGE>
Second Quarter Ended 8/31/94 $1.25 $0.50
Third Quarter Ended 11/30/94 $1.125 $0.56
Fourth Quarter Ended 2/28/95 $1.25 $0.75
Fiscal 1996 Closing Bid Price
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 2/28/96 $3.25 $2.185
Fiscal 1997
First Quarter Ended 5/31/96 $3.125 $2.00
Period 6/1/96 through 7/31/96 $2.875 $1.062
</TABLE>
The foregoing prices 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.
ITEM 2. Legal Proceedings
There are no legal proceedings pending or threatened.
<PAGE>
ITEM 3. Changes in and Disagreements with Accountants
For the last four fiscal years, the Company and its subsidiaries have
utilized the services of Michael Racaniello, C.P.A. to prepare its annual
audits. On April 15, 1996, the Company retained the accounting firm of Holtz,
Rubenstein & Co., LLP to prepare annual audits of the Company and its
subsidiaries. Mr. Racaniello continues to perform internal accounting services
for the Company and its subsidiaries. There have been no disagreements between
the Company and Mr. Racaniello or between the Company and Holtz, Rubenstein &
Co., LLP.
- --------
The closing high and low bid prices were not available from the National
Daily Quotation Service, Inc. before March, 1995.
ITEM 4. Recent Sales of Unregistered Securities
MCI
On August 16, 1995, the Company, through its subsidiary, MCR, purchased
the real estate at 46 Quirk Road, Milford, Connecticut. As part of the
consideration paid by the Company for the property, the Company issued 200,978
shares of its Common Stock to the seller, Genvest, a limited partnership whose
partners consist of the president of MCI and the Meisenheimer Family. The shares
were issued pursuant to the private placement exemption provided by Section 4(2)
of the Securities Act of 1933 (the "Act").
USBL
On February 28, 1995, the Company's subsidiary USBL issued 319,679
unregistered shares of its Preferred Stock valued at $1.00 per share as partial
payment of outstanding indebtedness due Daniel T. Meisenheimer III, Daniel T.
Meisenheimer Jr., Richard Meisenheimer, and Spectrum Associates, Inc. USBL
relied on the exemption provided by Section 4(2) of the Act.
On October 23, 1995, USBL completed an offering of 268,501 shares of
its Common Stock for total proceeds of $604,127 to 12 accredited investors. The
offering was made pursuant to Rule 504 of Regulation D promulgated under the
Act. Brookehill Equities, Inc., a registered broker-dealer, and members of the
National Association of Securities Dealers, Inc. ("NASD") acted as placement
agent and received a commission for the placement of said shares.
On February 29, 1996, USBL issued 360,000 shares of unregistered
Preferred Stock, valued at $1.00 per share, as partial payment of outstanding
indebtedness due Daniel T. Meisenheimer III, Daniel T. Meisenheimer Jr., Richard
Meisenheimer, Spectrum Associates, Inc., and MCI. USBL relied on the exemption
provided by Section 4(2) of the Act.
On September 6, 1995, USBL issued 22,500 shares of unregistered USBL
Common Stock pursuant to exercise of outstanding options granted to a third
party for consulting services. The exercise price of the options was $.01 a
share. USBL relied upon the exemption provided by Section 4(2) of the Act. On
May 12, 1995, USBL issued 100,000 warrants to three individuals in consideration
for a "bridge loan." The warrants entitled the holder to purchase shares of USBL
Common Stock at an exercise price of $1.00 per share. On July 7 and July 23,
1996, two of the individuals exercised a total of 60,000 warrants and received
60,000 shares of unregistered USBL Common Stock. USBL relied upon the exemption
provided by Section 4(2) of
<PAGE>
the Act. All of the foregoing individuals who exercised their options are
sophisticated investors and had access to complete information regarding USBL.
ITEM 5. Indemnification of Directors and Officers
Article X of the Company's By-Laws provides the following:
(a) Any person made a party to any action, suit or proceeding, by
reason of the fact that he, his testator or intestate representative is
or was a director, officer or employee of the Corporation, or of any
Corporation in which he served as such at the request of the
Corporation, shall be indemnified by the Corporation against the
reasonable expenses, including attorney's fees, actually and
necessarily incurred by him in connection with the defense of such
action, suit or proceedings, or in connection with any appeal therein,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding, or in connection with any appeal therein
that such officer, director or employee is liable for negligence or
misconduct in the performance of his duties.
(b) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or
employee may be entitled apart from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors, except that in any
case where there is no disinterested majority of the Board available,
the amount shall be fixed by arbitration pursuant to the then existing
rules of the American Arbitration Association.
<PAGE>
PART F/S
TABLE OF CONTENTS OF FINANCIAL STATEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Page
Independent Auditors' Reports..................................................................35
Financial Statements:
Consolidated Balance Sheet for the
Year Ended February 29, 1996 and
Three Months Ended May 31, 1996.................................................37
Consolidated Statement of Operations
for Years Ended February 29, 1996
and February 28, 1995 and Three Months
Ended May 31, 1996 and May 31, 1995.............................................38
Consolidated Statements of
Stockholders' Equity for the Years Ended
February 29, 1996 and February 28, 1995..........................................40
Consolidated Statements of Cash Flow for the Years Ended February 29,
1996 and February 28, 1995 and for the Three
Months Ended May 31, 1996 and May 31, 1995................................42
Notes to Financial Statements.............................................................41-49
</TABLE>
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED
FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 29, 1996
<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 29, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 29, 1996 and the results of their
operations and their cash flows for the year 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, inability
to collect annual franchise fees and 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.
Holtz Rubenstein & Co., LLP
Melville, New York
May 30, 1996
<PAGE>
MICHAEL RACANIELLO, CPA
170 POST ROAD, SUITE 204
FAIRFIELD, CONNECTICUT 06430
To the Board of Directors
Meisenheimer Capital, Inc.
Milford, Connecticut
I have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Meisenheimer Capital, Inc. and
Subsidiaries for the year ended February 28, 1995. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statements of operations, stockholders' equity and
cash flows 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
presentation of the statements of income and retained earnings and cash flows. I
believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Meisenheimer Capital, Inc. and Subsidiaries for the year ended
February 28, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As explained in Note 1, the Company has
suffered substantial losses that raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that may result from the outcome of this uncertainty.
As discussed in Note 1, the Company changed its method of accounting for
investment securities as was required by Statement of Financial Accounting
Standards Board No. 115, " Accounting for Certain Investments in Debt and Equity
Securities".
As discussed in Note 20 to the financial statements, certain errors resulting in
the understatement of previously reported net loss and overstatement of deficit
and minority interest, were discovered by management of the Company during the
current year. Accordingly, adjustments have been made to net loss, deficit and
minority interest to correct the error.
s/Michael Racaniello, CPA
May 30, 1996
May 30, 1996 as to Note 14(b) and Note 20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 29, November 30,
ASSETS 1996 1996
------ -------- ----
(Unaudited)
CURRENT ASSETS:
Cash $ 278,188 $ 33,603
Accounts receivable (Note 10) 103,017 79,370
Inventories (Note 4) 92,370 157,801
Investments 47,597 32,672
Other current assets 6,000 32,718
-------------- --------------
Total current assets 527,172 336,164
PROPERTY AND EQUIPMENT, net (Notes 5, 8 and 9) 613,301 549,136
GOODWILL (Note 7) 29,361 28,749
PREPAID ADVERTISING CREDITS (Note 11) 225,000 435,312
-------------- --------------
$1,394,834 $1,349,361
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Notes 10 and 12)$ 243,407 $ 353,196
Notes payable - bank (Note 9) 25,900 4,600
Capital lease obligation - current portion (Note 8) 83,180 87,972
Notes payable - stockholders (Note 10) 506,064 430,494
Mortgage payable - current portion (Note 9) 3,165 3,250
-------------- --------------
Total current liabilities 861,716 879,512
CAPITAL LEASE OBLIGATION, net of
current portion (Note 8) 120,561 53,790
MORTGAGE PAYABLE, net of current portion (Note 9) 110,570 105,138
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 50,000 61,000
COMMITMENT AND CONTINGENCIES (Notes 16 and 18)
STOCKHOLDERS' EQUITY (Notes 12 and 14):
Common stock, $0.01 par value, 10,000,000 shares
authorized; 4,469,528 shares and 4,471,028 shares
issued and outstanding 44,695 44,710
Additional paid-in capital 3,236,908 3,300,268
Unrealized loss on available-for-sale investments (9,641) (50,909)
Deficit (3,019,975) (3,044,148)
----------- ----------
Total stockholders' equity 251,987 249,921
-------------- --------------
$ 1,394,834 $ 1,349,361
============== ==============
See notes to consolidated financial statements
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended Nine Months Ended
February 29, February 28, November 30, November 30,
1996 1995 1996 1995
------- ---------- --------- -----
(Unaudited) (Unaudited)
REVENUES: (Note 10)
Net sales $ 735,013 $ 651,324 $ 584,762 $ 553,211
Franchise fees and related revenue 383,956 244,500 481,977 148,444
------------- ----------- ------------- -------------
Total revenues 1,118,969 895,824 1,066,739 701,655
OPERATING EXPENSES: (Note 8)
Cost of goods sold 566,332 517,466 417,436 431,404
Selling, general and team expenses 681,554 409,478 642,526 437,470
------------- ----------- ------------- -------------
Total operating expenses 1,247,886 926,944 1,059,962 868,874
Income (loss) from operations (128,917) (31,120) 6,777 (167,219)
OTHER INCOME AND EXPENSE:
Realized gain on available-for-sale
investments 7,668 41,044 - 7,668
Interest expense (47,796) (54,531) (31,845) (35,928)
Interest income 8,324 - 3,620 3,949
Other income 24,000 23,960 19,100 18,028
Settlements (32,000) - - -
------------- ----------- ------------- ------------
Total other income and expense (39,804) 10,473 (9,125) (6,283)
LOSS BEFORE MINORITY
INTEREST AND TAXES (168,721) (20,647) (2,348) (173,502)
MINORITY INTEREST IN NET
EARNINGS OF SUBSIDIARY (24,000) - 11,000 -
PROVISION FOR INCOME
TAX (Note 19) 16,000 - 10,825 6,000
------------- ----------- ------------- -------------
NET LOSS $ (160,721) $ (20,647) $ (24,173) $ (179,502)
============= =========== ============= =============
NET LOSS PER SHARE $(.03) $(.00) $(.00) $(.04)
===== ======= ====== ======
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,846,883 4,268,550 5,005,384 4,846,883
========= ========= ========= =========
See notes to consolidated financial statements
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
Additional
Common Stock Paid-in
Shares Amount Capital Deficit
Balance, March 1, 1994 (as restated)
(Note 20) 4,268,550 $ 42,686 $ 1,966,675 $ (2,838,607)
Net loss - - - (20,647)
------------ --------- ------------- --------------
Balance, February 28, 1995 4,268,550 42,686 1,966,675 (2,859,254)
Issuance of shares 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 shares in connection
with warrant exercise (unaudited) 1,500 15 3,360 -
Issuance of stock by subsidiary
to minority holders - - 60,000 -
Net loss (unaudited) - - - (24,173)
------------ --------- ------------- --------------
Balance, November 30, 1996
(unaudited) 4,471,028 $ 44,710 $ 3,300,268 $ (3,044,148)
============ ========= ============= ==============
See notes to consolidated financial statements
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended Nine Months Ended
February 29, February 28, November 30, November 30,
1996199519961995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (160,721) $ (20,647) $ (24,173) $ (179,502)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Issuance of stock options for services 13,750 - - -
Minority interest (24,000) - 11,000 -
Prepaid advertising credits (250,000) - (250,000) -
Realization of prepaid advertising credits 25,000 - 39,688 -
Realized gains on investment sales (7,668) (41,044) - (7,668)
Depreciation and amortization expense 79,301 72,039 64,777 61,331
(Increase) decrease in assets:
Accounts receivable (19,790) (43,454) 23,647 31,894
Inventories (29,066) 9,201 (65,431) (37,367)
Other (214) 404 (26,718) (11,685)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses (17,111) 42,986 109,789 (40,460)
------------ ------------ ------------- ------------
(229,798) 40,132 (93,248) (3,955)
Net cash (used in) provided by operating
activities (390,519) 19,485 (117,421) (183,457)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,221) (10,461) - (18,121)
Purchase of investments (54,258) (32,227) (26,343) (46,132)
Proceeds from sales of investments 40,099 64,563 3,375 40,099
Trademark costs (203) (826) - -
------------ ------------ ------------- -----------
Net cash (used in) provided by investing
activities (64,583) 21,049 (22,968) (24,154)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 33,400 - - 13,125
Payments on notes payable (7,500) (32,435) (21,300) -
Payments on mortgage payable (6,265) - (5,347) (2,629)
Reduction of long-term obligation (35,000) - - (35,000)
Proceeds from bridge loan payable 100,000 - - 100,000
Payment of bridge loan payable (100,000) - - (100,000)
Payments on capital lease obligation (65,975) (37,398) (61,979) (52,824)
Proceeds from minority shareholders
for subsidiary stock 1,051,957 - 60,000 1,051,957
Advances to shareholders, net (257,228) (26,179) (75,570) (384,841)
------------ ------------ ------------- ------------
Net cash provided by (used in)
financing activities 713,389 (96,012) (104,196) 589,788
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 258,287 (55,478) (244,585) 382,177
CASH AND CASH EQUIVALENTS,
beginning of period 19,901 75,379 278,188 19,901
------------ ------------ ------------- ------------
CASH AND CASH EQUIVALENTS,
end of period $ 278,188 $ 19,901 $ 33,603 $ 402,078
============ ============ ============= ============
SUPPLEMENTAL DISCLOSURES:
Cash payments made during the period:
Interest $ 30,120 $ 35,370 $ 17,457 $ 22,425
============ ============ ============= ============
Taxes $ - $ - $ 825 $ -
============ ============ ============= ===========
See notes to consolidated financial statements
</TABLE>
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED 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 $3,020,000. 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 seeking 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.
The accompanying consolidated financial statements, as of November 30,
1996 and for the nine months ended November 30, 1996 and 1995, are unaudited and
have been prepared by the Company. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. In the opinion of
the Company's management, the disclosures made are adequate to make the
information presented not misleading, and the consolidated financial statements
contain all adjustments necessary to present fairly the financial position as of
November 31, 1996, results of operations for the nine months ended November 30,
1996 and 1995.
The results of operations for the nine months ended November 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
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.
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
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 nine 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 11, 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.
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
The Company adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," effective as of the beginning of the fiscal year
ended February 28, 1995. As of February 29, 1996, available-for-sale investments
were composed of common stocks with a historical cost basis (average cost) of
$57,241 and an approximate market value of $48,000. Unrealized loss, which is
reported as a part of stockholders' equity, was approximately $10,000 as of
February 29, 1996. As of November 30, 1996, the historical cost basis was
approximately $84,000 and its approximate market value was $33,000.
e. Inventories
Manufacturing inventories (Cadcom) are stated at cost on the first-in,
first-out method. 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 29, 1996, MCI and Cadcom had approximately $415,000 in net
operating loss carryforwards available and the USBL had a net operating loss
carryforward of approximately $1,787,000. Both loss carryforwards are available
through February 28, 2009, to offset future taxable income. Utilization of these
operating losses eliminated substantially all federal income tax expense for the
year ended February 29, 1996.
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
g. Income taxes (Cont'd)
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.
i. Advertising costs
Advertising costs are expensed as incurred, and were approximately
$57,000 and $19,700 for the years ended February 29, 1996 and February 28, 1995.
These expenses were approximately $67,000 and $24,000 for the nine months ended
November 30, 1996 and 1995, 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.
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 transactions and minority
interest).
Year ended February 29, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
Year ended February 28, 1995:
MCI MCREH I Cadcom USBL Total
Revenues $ - $ - $ 654,148 $ 241,676 $ 895,824
Operating expenses 73,150 - 573,760 280,034 926,944
Operating profit (loss) (73,150) - 80,388 (38,358) (31,120)
Net income (loss) (14,089) - 66,105 (72,663) (20,647)
<PAGE>
4. Inventories:
Inventories consist of the following:
February 29, November 30,
1996 1996
(Unaudited)
Cadcom:
Raw materials $ 26,870 $ 33,000
Finished goods 57,000 101,301
USBL inventory 8,500 23,500
---------- -----------
$ 92,370 $ 157,801
========== ===========
5. Property and Equipment:
Property and equipment, at cost, consists of the following:
February 29, November 30,
1996 1996
(Unaudited)
Land $ 121,253 $ 121,253
Building 197,836 197,836
Equipment 729,016 729,016
Transportation equipment 52,090 52,090
------------- -------------
1,100,195 1,100,195
Less accumulated depreciation 486,894 551,059
------------- -------------
$ 613,301 $ 549,136
============= =============
6. Trademark Costs:
Trademark costs totaling $10,488 were fully amortized at February 29,
1996.
7. Goodwill:
Goodwill arising from the acquisition of Cadcom is being amortized over
40 years and consisted of the following:
February 29, November 30,
1996 1996
(Unaudited)
Excess of cost over net assets $ 32,625 $ 32,625
Less accumulated amortization 3,264 3,876
---------- ----------
$ 29,361 $ 28,749
========== ==========
8. 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 29, 1996 was $174,021.
The future minimum lease payments required under capital leases are:
<PAGE>
8. Lease Commitments: (Cont'd)
Capital leases (Cont'd)
Years Ending
February 28,
1997 $ 106,300
1998 100,400
1999 40,800
----------
247,500
Less interest and taxes 43,759
Present value of net minimum lease payments $ 203,741
==========
</TABLE>
Operating leases
As of February 28, 1995, Cadcom was renting its Milford, Connecticut
facility under a non-cancellable operating lease that was to expire February
1997. 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. Subsequently, MCREHI purchased the building that Cadcom
leased. Accordingly, the rent charges have been eliminated in consolidation.
Rent expense for the fiscal year 1996 and the nine months ended November
30, 1996 was eliminated in consolidation. Rent expense for fiscal 1995 was
approximately $44,700. Rent expense for the nine months ended November 30, 1995
was approximately $22,500.
9. Notes and Mortgage Payable:
The Company had the following loan obligations outstanding:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
February 29, November 30,
1996 1996
Mortgage, dated August 16, 1995 secured by a commercial
(Unaudited) 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. $ 113,735 $ 108,388
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 4,600
----------- -----------
139,635 112,988
Less current portion 29,065 7,850
----------- -----------
$ 110,570 $ 105,138
=========== ===========
Maturities of notes and mortgages are as follows:
Years Ending
February 29/28,
1997 $ 29,065
1998 2,500
1999 2,600
2000 2,800
Thereafter 102,670
$ 139,635
</TABLE>
<PAGE>
10. 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 8) 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
Meisenheimer Capital, Inc. (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.
The Company 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.
Revenues recorded from related parties (mainly Spectrum Associates)
approximated $823,000, or 56% of total revenues for the current year.
Loans payable to shareholders plus an additional $192,000 included in
accounts payable and accrued expenses are due to related parties as of February
29, 1996. 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 29, 1996 and November 30, 1996 all of the Company's accounts receivable
are due from Spectrum Associates.
11. Non-Cash Transactions:
The Company entered into the following non-cash transactions during the
year ended February 29, 1996 and the nine months ended November 30, 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. This value was determined based upon recent
cash sales of franchises to unaffiliated franchises. The deferred charge on the
balance sheet of $225,000, 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 2,000,000 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 In the nine months ended November 30, 1996, the USBL sold an
additional 5 franchises under the same terms and conditions as above.
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 The Company, purchased $141,450 in equipment by incurring an
additional capital lease payable of $141,450.
<PAGE>
11. Non-Cash Transactions: (Cont'd)
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.
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.
In December 1994, the Company granted its underwriter 200,000 options to
purchase common stock at $.35 per share as compensation for services in
connection with an equity offering. These options expire in February 1997.
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 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.
13. Concentration of Credit Risk:
As of February 29, 1996, the Company maintained balances at a bank in
excess of the federally insured amount.
14. Stockholders' Equity:
a. 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.
b. The accumulated deficit for the year ended February 28, 1995 was
restated from ($2,078,552) to ($2,838,607) and additional paid-in capital was
restated from $1,104,777 to $1,966,675 to correct for the recording of minority
interests in a consolidated subsidiary in prior years.
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.
<PAGE>
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
excercisable at $1.00 per share.
The Company's USBL subsidiary has entered into employment agreements with
two of its officers who are also officers of the Company. The agreements are for
a term of three years and call for annual combined salaries of $150,000 per year
plus an additional amount of stock in the USBL equal to the cash value paid.
However, these agreements also allow for the reduction and deferral of the cash
portion of the compensation if the payment of the compensation would negatively
impact the cash flow of the USBL. The USBL's president received no compensation
from the USBL during the year ended February 29, 1996.
17. Fair Value of Financial Instruments:
In 1996, the Company adopted Financial Accounting Standards Board
Statement No. 107, which requires disclosures about the fair value of the
Company's 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 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 11.)
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 29, 1996 are as follows: Carrying Fair
Amount Value
Cash $ 278,188 $ 278,188
Investments 47,597 47,597
Prepaid advertising credits 225,000 225,000
Notes payable, bank 25,900 25,900
Notes payable, stockholders 506,064 506,064
Mortgages payable 113,735 113,735
Capital lease obligation 203,741 203,741
18. Contingencies:
During the year ended February 29, 1996, the Company has paid and accrued
for several legal actions which have been brought against it. The net expense of
$32,000 is estimated based on inquiry of legal counsel.
<PAGE>
19. Income Taxes:
MCI, MCREHI and Cadcom file consolidated federal income tax returns. The
provision for income taxes consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Years Ended Nine months Ended
February 29, February 28, November 30, November 30,
1996199519961995
(Unaudited) (Unaudited)
Current:
Federal $ - $ - $ - $ -
State and local 16,000 - 10,825 6,000
--------- ----------- --------- ---------
16,000 - 10,825 6,000
--------- ----------- --------- ---------
Deferred:
Federal - - - -
State and local - - - -
--------- ----------- --------- --------
- - - -
--------- ----------- --------- --------
$ 16,000 $ - $ 10,825 $ 6,000
========= =========== ========= =========
The components of the net deferred taxes as of February 29, 1996 are as
follows:
Deferred tax assets:
Net operating loss carryforward $ 141,100
Allowance for realization of assets (141,100)
-----------
$ -
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:
Years Ended
February 29, February 28,
1996 1995
---------------- ----------
Computed income tax credit at 34% $ (49,205) $ -
Increase (decrease) in taxes resulting from:
Addition to allowance for realization of
deferred tax asset NOL carryforward (49,205) -
State and local taxes 16,000 -
---------- ----------
$ 16,000 $ -
========== ==========
</TABLE>
20. Correction of an Error:
The accompanying financial statements for the year ended February 28,
1995 have been restated to correct an error in the calculation of minority
interest and net income for the year ended February 28, 1995. The effect of the
error was to increase the net loss by $16,413.
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Intentionally deleted.
<PAGE>
PART III
**INDEX TO EXHIBITS
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 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 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
Cadom, Inc.
10.7 Lease between Meisenheimer Capital Real Estate Holdings, Inc. and USBL
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
27.0 Financial Data Schedules
** Included in, incorporated by reference to, the Registrant's
Registration Statement on Form 10SB12G filed on October 15, 1996
<PAGE>
SIGNATURE PAGE
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
MEISENHEIMER CAPITAL, INC.
By: /s/Daniel T. Meisenheimer
Daniel T. Meisenheimer, PRESIDENT
Dated: October 7, 1996
<PAGE>
