SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Six Months Ended Commission File Number
August 31, 1998 0-21547
MEISENHEIMER CAPITAL, INC.
46 Quirk Road
Milford, Connecticut 06460
Tel: 203-877-9501
Delaware 06-1101766
(State of Incorporation) (I.R.S. Employer Identification No.)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes
No X
As of January 6, 1999, the latest practicable date, there were 4,477,084 shares
of Common Stock outstanding, $.01 par value.
<PAGE>
MEISENHEIMER CAPITAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements:
Consolidated Balance Sheet - August 31, 1998........................3
Consolidated Statement of Operations for the
Three Months and Six Months Ended
August 31, 1998 and 1997............................................4
Consolidated Statement of Stockholders' Equity for the
Six Months Ended August 31, 1998 and 1997...........................5
Condensed Statement of Cash Flows for the
Six Months Ended August 31, 1998 and 1997...........................6
Notes to Consolidated Financial Statements........................7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................9
PART II. OTHER INFORMATION..................................................10
2
<PAGE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
As of August 31, 1998
(Unaudited)
ASSETS
Current Assets:
Cash $ 3,943
Accounts receivable 55,431
Inventories 123,551
Investments 67,726
Other current assets 2,743
-----
Total Current Assets 253,394
Property and equipment, net 429,497
Goodwill, net 27,321
Prepaid advertising credits 809,062
-------
TOTAL ASSETS $1,519,274
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current Liabilities:
Accounts payable and accrued expenses $ 274,828
Note and mortgage payable - current portion 11,634
Capital lease obligations 18,922
Loans payable - stockholders 616,803
Taxes payable 4,000
-----
Total Current Liabilities 926,187
Note and mortgage payable, net of current portion 159,270
Minority interest 185,000
Total Liabilities 1,270,457
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 4,477,084 shares
issued and outstanding 44,771
Additional paid-in-capital 3,367,008
Treasury stock, at cost, 1,000 shares (686)
Unrealized loss on available for sale securities (151,800)
Deficit (3,010,476)
-----------
Total Stockholders' Equity 248,817
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,519,274
============
See Notes to Consolidated Financial Statements
3
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<TABLE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
Comparative Consolidated Statement of Operations
(Unaudited)
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
08/31/98 08/31/97 08/31/98 08/31/97
<S> <C> <C> <C> <C>
Revenues
Net sales $ 206,766 $ 190,042 $ 403,732 $ 386,176
Franchise fees and
related revenues 146,267 325,481 527,461 457,567
------- ------- ------- -------
353,033 515,523 931,193 843,743
------- ------- ------- -------
Operating Expenses
Cost of goods sold 171,704 130,634 311,893 285,855
Selling, general and
team expenses 295,279 245,571 438,328 465,786
------- ------- ------- -------
466,983 376,205 750,221 751,641
------- ------- -------
Income (loss) from operations (113,950) 139,318 180,972 92,102
-------- ------- ------- ------
Other Income (Expense) (4,644) (10,074) (7,089) (8,957)
Minority Interest 43,000 (26,000) (57,000) 4,000
Income Tax Provision - (1,750) (4,000) (3,250)
-- ------ ------ ------
Net Income (Loss) $ (75,594) $ 101,494 $ 112,883 $ 83,895
= ======= = ======= = ======= = ======
(Loss) Earnings Per Share $ (0.02) $ 0.02 $ 0.03 $ 0.02
=========== ============ ============ ============
Weighted Average Shares
Outstanding 4,477,084 5,012,690 4,477,084 5,012,690
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For Six Months Ending August 31, 1998 and 1997
(Unaudited)
<CAPTION>
Unrealized
Loss on
Common Additional Treasury Available
Stock Paid-in Stock for Sale
Shares Amount Capital Shares Amount Securities Deficit
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1997 4,477,084 $ 44,771 $ 3,367,008 - $ - $ (62,078) $ (3,050,838)
Marketable securities
valuation adjustment - - - - - 2,567 -
Net income - - - - - - 83,895
-- -- -- -- -- -- ------
Balance, August 31, 1997 4,477,084 $ 44,771 $ 3,367,008 - $ - $ (59,511) $ (2,966,943)
========= = ====== = ========= == = == = ======= = ==========
Balance, March 1, 1998 4,477,084 $ 44,771 $ 3,367,008 1,000 $ 686 $ - $ (3,123,359)
Marketable securities
valuation adjustment - - - - - (151,800) -
Net income - - - - - - 112,883
-- -- -- -- -- -- -------
Balance, August 31, 1997 4,477,084 $ 44,771 $ 3,367,008 1,000 $ 686 $ (151,800) $ (3,010,476)
========= = ====== = ========= ===== = === = ======== = ==========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
<TABLE>
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
<CAPTION>
Six Months Six Months
Ended Ended
08/31/98 08/31/97
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 112,883 $ 83,895
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Minority interest 57,000 (4,000)
Loss on Partnership investment - 18,750
Depreciation and amortization 31,068 35,350
(Increase) decrease in assets:
Accounts receivable 35,710 18,402
Inventories (29,935) (2,991)
Other current assets 3,344 (8,342)
Prepaid advertising credits (125,000) (223,750)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses 48,865 83,457
Taxes payable 4,000 -
----- --
Net cash provided by operations 137,935 771
------- ---
Cash Flows From Investing Activities:
Purchase of property and equipment (7,785) -
Purchase of investments (43,200) (920)
------- ----
Net cash (used) in investing activities (50,985) (920)
------- ----
Cash Flows From Financing Activities:
Payments on note and mortgage payable (106,751) (1,781)
Proceeds from mortgage 150,000
Advances on credit line 25,000
Payments on capital lease obligations (19,766) (66,838)
Payments from shareholders, net 8,750 45,499
Unrealized loss on available for sale securities (151,800) -
-------- --
Net cash (used) in financing activities (119,567) 1,880
-------- -----
Net (decrease) increase in cash (32,617) 1,731
Cash, beginning of period 36,560 11,371
------ ------
Cash, end of period $ 3,943 $ 13,102
= ===== = ======
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
Meisenheimer Capital, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended August 31, 1998
Note 1 Basis of Presentation
The interim financial statements furnished reflect all adjustments which, in the
opinion of management, are necessary to present a fair presentation of the
financial position at August 31, 1998 and cash flows and results of operations
for the six month period ended August 31, 1998 and 1997. The financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to financial statements included in the company's
form 10 - KSB for the fiscal year ended February 28, 1998. The results of
operations for the six months ended August 31, 1998 and 1997 are not necessarily
indicative of the results to be expected for the year.
Note 2 Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Meisenheimer Capital, Inc. (MCI) and its subsidiaries Cadcom, Inc. (Cadcom),
Meisenheimer Capital Real Estate Holdings, Inc (MCREHI), and the United States
Basketball League, Inc. (USBL) (collectively the Company). All subsidiaries,
except the USBL, are 100% owned by MCI. The USBL is a 61.55% owned subsidiary.
All intercompany accounts and balances have been eliminated.
Note 3 Investment in Marketable Securities
The Company has adopted FASB statement number 115, Accounting for Certain
Investments in Debt and Equity Securities. This statement requires that
investments in debt and equity securities be designated as trading, held to
maturity, or available for sale. Management considers the Company's marketable
securities to be available for sale. Available for sale securities are reported
at approximate market value. The Company recorded a charge to operations of
$151,800 for the six months ended August 31, 1998.
Note 4 Inventories
As of August 31, 1998, inventories have been estimated (based upon gross profit
method for manufacturing inventories and upon perpetual inventory records for
USBL inventory).
Inventories consisted of the following as of August 31, 1998:
Raw Materials $ 2,660
Work in Process 32,580
Finished Goods 68,211
Manufacturing Inventory 103,451
USBL Inventory 20,100
------
Total $ 123,551
= =======
7
<PAGE>
Meisenheimer Capital, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended August 31, 1998
Note 5 Earnings Per Share
Earnings per share were computed by dividing net earnings by the weighted number
of shares of common and common stock equivalents outstanding during the period.
Note 6 Related Party Transactions
Spectrum Associates, Spectrum's parent company Synercom, Inc. and MCI are
entities controlled 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 are payable to Spectrum Associates. Until February
28, 1992, Cadcom was a 100% subsidiary of Synercom, Inc. Synercom sold its 100%
interest in Cadcom to MCI. As part of this agreement, MCI granted Synercom a
right of first refusal to purchase all of the shares of Cadcom should MCI
purpose 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
$371,809 or 39% of total revenue for the six month period ended August 31, 1998.
Note 7 Income Taxes
Effective December 1, 1993, the Company has adopted FASB Statement number 109,
Accounting for Income Taxes, which requires a liability approach to financial
accounting and reporting for income taxes.
As of August 31, 1998, the Company had available approximately $1,300,000 in net
operating losses available as an offset to future taxable income. A deferred tax
asset has been reduced to zero by an allowance for realization of assets.
Note 8 Mortgage and Notes Payable
On August 16, 1995 the Company secured a mortgage with Fleet Bank as collateral
for a 20 year term loan of $120,000 on a commercial building that the Company
acquired. Monthly payments are approximately $1,000, including interest at
7.98%. During August 1998 the Company refinanced the mortgage for $150,000 for
15 years at 7.06%. The monthly payments are approximately $1,362 including
interest. On August 12, 1997, the company negotiated a $25,000 credit line with
Fleet Bank at a rate of prime plus 1.5%. The company used the proceeds to retire
a capital lease obligation.
Note 9 Lease Commitments
Cadcom leases certain manufacturing equipment under capital leases. The company
has capitalized manufacturing equipment in the amount of $365,100. Future
minimum lease payments, net of interest and taxes are $18,922 as of August 31,
1998.
Cadcom and the USBL lease space in a building owned by MCREHI. All rent charges,
and income, from these intercompany dealings have been eliminated in
consolidation.
8
<PAGE>
Meisenheimer Capital, Inc. and Subsidiaries
Management Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Revenues for the six month period ended August 31, 1998, totaled $931,193. This
represented a 10% increase from the corresponding period ended August 31, 1997.
This increase was due, mainly, to the increase of USBL revenues from non cash
transactions consisting of initial franchise fees amounting to $125,000 for
advertising credits. Machined parts sales by the Company's Cadcom subsidiary
remained substantially, the same as in prior year period.
Gross Profit from machined parts amounted to $91,839 for the six months ended
August 31, 1998, (23% of sales) compared to $100,321 (26% of sales) in the
corresponding period in the prior year.
Selling, general and team expenses were $27,458 less than the same six month
period last year. The decrease is mainly attributed to management reducing
overhead expenses.
Interest Expense, net of interest income, decreased by approximately $500 for
the six month period ended August 31, 1998, as compared to the comparable period
in 1997. This reflects decreases in debt obligations.
Consolidated net income increased from the six month period ending August 31,
1997, from a net income of $83,895 to the same six month period ending August
31, 1998, of a net income of $112,883.
Liquidity and Capital Resources
The Company had a net working capital deficit of $672,793 at August 31, 1998.
The Company's statement of cash flows reflects an overall decrease in cash of
$32,617 for the six month period ended August 31, 1998.
The Company is making efforts to revitalize the USBL by seeking additional
equity capital and making new USBL franchisees. In addition, the Company is
seeking to expand its machine shop business (Cadcom) by finding new customers
for its services. The Company also hopes to increase exposure to the USBL to new
potential fans and franchise owners by airing additional games on cable
television. However, there can be no assurance that the Company will be
successful in these efforts.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities
None
Item 3 Defaults on Senior Securities
None
Item 4 Submission of Matters to a Vote of Shareholders
During the six months ended August 31, 1998, there were no
matters submitted to a vote of security holders through the
solicitation of proxies or otherwise.
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
There were no reports filed on Form 8-K.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MEISENHEIMER CAPITAL, INC.
(Registrant)
/s/ Daniel T. Meisenheimer III
Daniel T. Meisenheimer III
Chairman and President
/s/ Richard C. Meisenheimer
Richard C. Meisenheimer
Vice President, Secretary and Director
Date: January 8, 1999
