SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
Form 10-KSB
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934 For the fiscal year ended February 28, 1999 or [ ] Transitional
Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-21547
MEISENHEIMER CAPITAL, INC.
Exact Name of registrant as specified in its charter)
Delaware 06-1101766
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
46 Quirk Road, Milford, Connecticut 06460
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (203) 877-9508
Securities registered pursuant to Section 12(b)of the Act:Common Stock - $.01
par value
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [ X ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in
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definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendments to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing:
$263,252.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
The number of shares of the registrant's Common stock outstanding as of June 1,
1999 was 4,477,084 shares.
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Part I
ITEM 1. DESCRIPTION OF OUR BUSINESS
General
Meisenheimer Capital, Inc. ("MCI") was organized under the laws of the State of
Delaware in December 1983. In 1984, we 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, we sold 1,130,000 units at $1.00 a unit for net proceeds of
approximately $995,000. Each unit consisted of one share of our common stock and
one warrant entitling the holder to purchase one additional share of our common
stock. The warrants expired in April 1985.
Since 1984, we have been engaged, through our 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, we 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, We established another wholly owned subsidiary, Meisenheimer
Capital Real Estate Holdings Inc. ("MCR") to acquire the office and factory that
we had been previously leasing.
We own approximately 52% of the issued and outstanding stock of our USBL
subsidiary, which consists of both common and preferred stock. Approximately 31%
of the outstanding stock of USBL is owned by the principals of MCI, members of
their immediate family (the "Meisenheimer Family"). The balance of 17% is owned
by members of the public. We own all of the issued and outstanding stock of our
Cadcom and MCR subsidiaries.
We have been delinquent in our filings of reports with the Securities and
Exchange Commission. (See "Risk Factors".) We failed to timely file the form
10-KSB for the fiscal year ending February 28, 1999 (fiscal 1999), which was due
no later than June 10, 1999. The Form 10- KSB now being filed is for fiscal
1999.
Our USBL Subsidiary
Our USBL subsidiary owns and manages the League. The League was originally
established in 1984 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 for these
players to improve their skills and further affords the players the opportunity
to showcase their professional ability and possibly to be selected by one of the
teams in the NBA. The League's season is generally from early May to early July
of each year and 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. These summer
camps are
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normally held in the latter part of July and August of each year. To date,
approximately 125 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. To date, a total of 15 people trained by our USBL subsidiary
have served as referees in the NBA.
Each team comprising the League has an active roster of twelve players during
the season, and each team plays 26 games per season. The League also has
playoffs at the conclusion of the regular season. The season ending July 1998
(fiscal 1999) marked the League's 13th season.
Since the inception of the League to the present time, the number of active
franchises has fluctuated from seven to our present high for the 1999 season of
13 franchises. The current active franchises, divided into the Southern,
Mid-Atlantic and Northern Divisions, are located in Atlanta, Georgia (the
Atlanta Trojans); Sarasota, Florida (the Gulf Coast SunDogs); Raleigh, North
Carolina (the Raleigh Cougars); Tampa, Florida (the Tampa Bay Windjammers);
Salina, Kansas (the Kansas Cagerz); Washington, DC (the Washington DC
Congressionals); Atlantic City, New Jersey (the Atlantic City Seagulls);
Franklin, New Hampshire (the New Hampshire Thunder Loons); Fairfield,
Connecticut (the Connecticut Skyhawks); Oyster Bay, New York (the Long Island
Surf); Lehigh, Pennsylvania (the Pennsylvania ValleyDawgs); Ocean, New Jersey
(the New Jersey Shorecats); and Brooklyn, New York (the Brooklyn Kings). In
addition, MCI owns two inactive franchises which pay annual royalty fees.
Since 1984 and up to the end of the fiscal year ended February 28, 1999 (fiscal
1999), our USBL subsidiary had sold a total of 33 franchises at various prices
ranging from $10,000 to $150,000. One of our affiliates also paid $100,000 for a
franchise. The current asking price for a franchise is $300,000; however, it is
not anticipated that USBL will receive the asking price of $300,000 for the near
future because generally speaking, the individual franchises have not operated
at a profit. See "Risk Factors."
During the past five fiscal years, fiscal 1995 through fiscal 1999, our USBL
subsidiary sold franchises to non-affiliates for cash as set forth below:
Franchise Sales Price Cash Received
1. Mississippi Coast Gamblers $100,000 $ 25,000
2. Florida Sharks $ 75,000 $ 75,000
3. Carolina Cardinals $250,000 $ 45,000
4. Atlantic City Seagulls $150,000 $ 50,000
5. New Hampshire Thunder Loons $300,000 $ 75,000
6. New Jersey Shorecats $150,000 $ 75,000
7. Washington DC Congressionals $300,000 $ 90,000
8. Tampa Bay Windjammers* $200,000*
9. Kansas Cagerz $ 75,000 $ 45,000
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Franchise Sales Price Cash Received
10. Raleigh Cougars - started 1997 $ 200,000 $ 50,000
11. Brooklyn Kings - started 1991 $ 150,000 $ 75,000
12. Pennsylvania ValleyDawgs - started 1999 $ 75,000 $ 50,000
*Sold to American Independent Network in return for advertising credits valued
at $200,000.
Unless the sales price has been paid in full at the time of purchase, each of
the foregoing franchises is required to pay the full sales price over time, and
in the event payments are not met, our USBL subsidiary retains the right to
repossess the franchise.
At least 17 of the 33 franchises previously sold have been terminated because of
non-payment of franchise obligations and/or the full sales price. In addition,
during the fiscal year ended February 29, 1996 (fiscal 1996), our USBL
subsidiary sold five franchises in a barter transaction, receiving in exchange
2,000,000 units of negotiable television advertising due bills. During the first
quarter of fiscal 1997, USBL also entered into an agreement with the same party
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 had originally
valued the advertising due bills received in fiscal 1996 and the first quarter
of fiscal 1997 at $500,000. For Fiscal 1998 the due bills were valued at
$684,062. During Fiscal 1999, we acquired 2,000,000 additional units from AIN in
exchange for five more franchises. We have concluded that the cumulative value
of the total of all units as of the end of Fiscal 1999 is approximately
$484,000. See "Financial Information." USBL has already used approximately
300,000 units to broadcast certain selective League games. During fiscal 1999,
USBL did not use any of the units. USBL may use the remainder of the available
television time to broadcast our games or, in the alternative, sell off the
available television time assuming that USBL can locate buyers. The barter
transaction requires that the 15 franchise teams must be established within ten
years from the date of the transactions. We have no assurance that any of the
franchises will ever be established. In addition, USBL retain the right to
approve or disapprove the ultimate franchisee.
Under the standard franchise agreement employed by our USBL subsidiary, 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, six of the
franchises are in arrears in their annual royalty fees. USBL has the right to
terminate these franchises for failure to pay the annual royalty but has elected
not to do so. In addition, because of USBL's goal to have the League expand,
USBL has waived annual royalty fees in the past under certain circumstances,
particularly situations where the franchise has not been operating profitably.
The franchise agreement employed by our USBL subsidiary also entitles USBL to
receive television revenues on a sharing basis with the teams in connection with
any television
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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 teams when they are required to travel. We believe that if the number of
franchises continues to grow, we will be able to attract some meaningful
sponsorships which would help defray the operating costs of each franchise.
From the inception of the League to date, only two of the current franchises
have operated profitably. This has been primarily due to the inability of our
USBL subsidiary, because of insufficient capital, to properly promote the
League, and USBL's inability to attract any meaningful sponsorships for the
individual teams. Likewise, gate attendance for some teams has historically been
poor. As a result, the sale of additional franchises either to maintain a
constant level of active franchises or to expand the League has historically
proven difficult for USBL.
From the inception of the League, our USBL subsidiary has generally operated at
a loss. This has been due to the poor sales of franchises and the inability of
the franchisees to pay their annual royalty fees. As a result, both MCI and USBL
have been dependent on loans and advances from officers, directors and their
affiliates to support operations. See "Financial Information" and "Certain
Relationships and Related Transactions." In addition, for fiscal years ended
1996, 1997, 1998 and 1999 our auditors and USBL's auditors have qualified their
opinions based on their concerns expressed as to the ability of both MCI and
USBL to continue as going concerns. See "Risk Factors" and "Financial
Information".
Our USBL subsidiary currently employs four full-time employees, consisting of
USBL president and League commissioner Daniel T. Meisenheimer III ("D.
Meisenheimer"), a director of administration, a director of public relations and
a director of operations. During the League season, USBL also employs additional
staff, including approximately 50 referees and statisticians who are paid on a
per game basis.
Future Plans of USBL
Our USBL subsidiary has, as its ultimate goal, the establishment of at least
sixty (60) franchises throughout the United States, consisting of fifteen (15)
teams in four regional divisions. This would result in regional play-off games
and then a final championship series. USBL is also attempting to develop a
formal association with the NBA. During fiscal 1998, the NBA selected USBL to
handle a pre-draft camp for the Korean Basketball League for which it received a
nominal fee. At the present time, the Continental Basketball Association (the
"CBA"), a league consisting of nine teams, is regarded as the minor league of
the NBA, and as such, receives financial support from the NBA. USBL believes
that a formal association with the NBA would enhance the value of the franchises
and attract more significant gate attendance, but to date USBL has not been able
to promote a formal relationship with the NBA. Likewise, USBL intends to use
some of the television time available to us to broadcast more games, which USBL
believes would create additional fan
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interest and possibly serve to attract additional franchisees. However, given
the difficulties encountered by USBL to date in the sale of additional
franchises, it is doubtful that USBL will achieve its long-range goals unless
USBL can raise additional capital to properly promote the League. While gate
attendance has been poor historically, there has been some growth over the past
four seasons. For fiscal 1999, there was an increase in attendance of 16% over
fiscal 1998, and fiscal 1998 reflected a 14% increase over fiscal 1997. If gate
attendance continues to increase, this may make it easier to interest third
parties to invest in new franchises, but there can be no assurance that USBL
will be successful. See"Risk Factors."
Our Cadcom Subsidiary
Our subsidiary Cadcom, Inc. ("Cadcom") was incorporated in Connecticut in 1987.
Cadcom is wholly owned by us and was acquired by us in February 1992 from
Synercom Inc. Inc. ("Synercom"), a corporation owned and controlled by the
Meisenheimer Family, which consists of D. Meisenheimer III, Richard
Meisenheimer, D. Meisenheimer and Mary Ellen Meisenheimer, the father and mother
of D. Meisenheimer III and Richard Meisenheimer. D. Meisenheimer passed away in
September, 1999 (Fiscal 2000).
Our Cadcom subsidiary 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. Approximately ninety-eight
percent (98%) of Cadcom's business is derived from orders it receives from
Spectrum Associates Inc. ("Spectrum"), a Connecticut corporation owned and
controlled by Synercom. See "Risk Factors." Spectrum manufacturers crash
resistant breakaway valves, pressure switches, indicators and other specialized
components for the aircraft industry. Approximately fifteen (15%) percent of
Spectrum's revenues are derived from orders from Sikorsky Aircraft Inc. and
thirty (30%) 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 35% of Spectrum's requirements for aluminum and
stainless steel components and could supply Cadcom with additional business;
however, Cadcom does not presently have the capacity or work force to accept
additional business. Cadcom is presently making efforts to diversify its
customer base to eliminate its dependence upon Spectrum; however, there can be
no assurances that Cadcom will be able to diversify its customer base.
Our Cadcom subsidiary'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 thirty (30%)
percent of the equipment is rented by Cadcom under capital leases from Synercom.
In fiscal 1999, Cadcom accounted for approximately 69% of the total revenues
generated by MCI and subsidiaries. In prior years, Cadcom accounted for almost
all of our 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. See "Risk Factors." Cadcom is actively seeking other outside
business to lessen its dependency on Spectrum.
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Our Cadcom subsidiary employs ten (10) people consisting of a plant manager and
office manager and seven factory personnel.
Our Real Estate Subsidiary
We also have another wholly owned subsidiary, Meisenheimer Capital Real Estate
Holdings ("MCR"), which owns the property at 46 Quirk Road, Milford,
Connecticut, where all of our officer are located. Each of our subsidiaries pays
rent to MCR. For a description of the property, see "Description of Property."
Government Regulation
Because our USBL subsidiary 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. Our USBL subsidiary is currently in full compliance in seven states
and the District of Columbia.
Our Cadcom subsidiary 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.
RISK FACTORS.
Our operating history does not reflect profitable operations.
Our operating history does not reflect any profitable operations. Since the
inception of the Company in 1984, we have been attempting to develop the League.
Our operations to date have not been profitable and unless and until we can
increase the sale of franchises and at the same time attract franchisees who are
able or willing to incur significant costs to develop their respective
franchises, we will continue to operate at a loss.
Because of our historical poor revenue and earnings, our auditors have for the
last four years qualified their opinion and expressed their concern as to our
ability to continue to operate as a going concern. Shareholders and prospective
shareholders should weigh this factor carefully in considering the merits of our
company as an investment vehicle.
We have not been able to realize the full sales value of a franchise.
Generally speaking, we have not been able to collect the full sales price for a
franchise because of the League's overall poor historical performance. As such,
we have sold franchises for far less than what we perceive their value to be,
and additionally, been required to extend terms for payment as an inducement to
the franchisee to purchase the franchise. As a result, our revenues have
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been affected and will continue to be affected until such time as we are able to
realize the full value for these franchises.
We have been dependent on loans and revenues from affiliates to sustain our
operations.
Because our revenues from third parties have been insufficient to sustain our
operations, we have been historically dependent on revenues, loans and advances
from the Meisenheimer family to assist in financing the Company. If members of
the Meisenheimer family elected not to continue to advance loans to us or have
their affiliated company, Spectrum Inc., stop doing business with us, our
operations could be drastically impaired.
We are dependent on corporate sponsorships which have been negligible.
The financial success of the individual franchises is dependent on corporate
sponsorship to help defray costs. To date, corporate sponsorship has been
negligible and as a result the franchises have had to absorb expenses which
would have been supported by corporate sponsorship. As a result, profits of each
franchise have been affected and in many instances the franchises have been
operating at a loss. Until such time as the League can attract meaningful
sponsorship, earnings, if any, of the individual franchises will be impacted.
Our basketball season competes with other professional sporting events.
Our season from May to early July is designed to afford players with the
opportunity to showcase their professional ability to the teams comprising the
National Basketball Association ("NBA") and to be possibly selected to
participate in NBA teams' summer camps in the latter part of July and August. As
such, our schedule competes with outdoor sporting events such as baseball, golf
and tennis and our season comes at a time when spectators would prefer to be
outdoors rather than indoors in an arena. These factors have impacted the
League's overall attendance.
We lack sufficient capital to promote the League.
In order for the League to become successful, we have to promote the League.
Historically and up to the present time, we have lacked sufficient capital to
properly promote the League. Promotion will achieve two objectives: (i) create
fan interest, and (ii) franchise interest. Until such time that we can properly
promote the League we do not anticipate any significant fan interest. While
attendance has recently improved, it is still not significant. Additionally,
interest in franchises has not significantly increased and without real
promotional efforts, we do not anticipate any significant increase in
franchises.
Our Cadcom subsidiary is dependent on one customer.
Our Cadcom subsidiary is completely dependent on the business it receives from
Spectrum, an affiliated company owned and controlled by the Meisenheimer family.
Spectrum is Cadcom's sole customer and provides Cadcom with approximately
one-third of Spectrum's machine parts requirements. Spectrum could provide
additional orders to Cadcom; however, Cadcom's
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capacity is such that it is presently unable to accept additional orders because
of its limited manufacturing capacity. Unless we can raise additional monies to
augment Cadcom's manufacturing capacity, there well could be little future
growth for Cadcom. Our Cadcom subsidiary has historically provided us with
positive cash flow.
Historically we have been dependent on Cadcom's sales to generate positive cash
flow for the Company. The operation of USBL has been unable to generate any
significant cash flow to maintain our operations. We are solely dependent on
Cadcom for cash flow and in the event Spectrum decided to withhold orders from
Cadcom, this would have a severe impact on the Company until Cadcom could find
other sources of business.
The Meisenheimer family exercises significant control over us.
The Meisenheimer family, consisting of Daniel T. Meisenheimer III, Richard C.
Meisenheimer and Mary Ellen Meisenheimer, and companies they control own
approximately 73% of our outstanding stock and as such control the daily affairs
of the business as well as significant corporate actions. Additionally, the
Meisenheimer family controls the Board of Directors and as such shareholders
have little or no influence.
Our Stock has been delisted from the over the counter bulletin board.
Because of our failure to timely file periodic reports with the Securities and
Exchange Commission (the "SEC"), our stock has been delisted by the NASD from
the Over the Counter Bulletin Board. Our stock will therefore only trade in the
"Pink Sheets" until such time that we can become compliant with our filings and
our filings are accepted by the SEC.
We may be sanctioned by the SEC
We may be sanctioned by the SEC because our failure to timely file our periodic
reports. We have no way of predicting what, if any, action the SEC might
institute; however, in the event the SEC does institute proceedings this could
have an effect on the market price of our stock.
ITEM 2. DESCRIPTION OF PROPERTY
In August 1995, we, through our other wholly-owned subsidiary, Meisenheimer
Capital Real Estate Holdings ("MCR"), acquired the real estate at 46 Quirk Road,
Milford, Connecticut, from Genvest, a limited partnership whose partners consist
of MCI president D. Meisenheimer III and the Meisenheimer Family. Prior to the
purchase, the property had formerly been leased by us and our subsidiaries from
Genvest. The property consists of a building housing office and manufacturing
space of approximately 6,000 square feet. Our USBL subsidiary currently pays a
$1,000 a month rent for approximately 1,500 square feet under a lease which
expires on December 31, 1999. Our Cadcom subsidiary pays $3,250 a month for
approximately 3,500 square feet under a lease which expires on December 31,
1999. A portion of the space is also rented to unaffiliated parties, which
provides approximately $8,400 of rental income per year. The consideration paid
to Genvest for the property consisted of the issuance of 200,978 shares of our
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common stock plus cash of $120,000. MCR borrowed funds of $120,000 from a
financial institution which loan is secured by a 20-year mortgage on the
property. The loan is guaranteed by MCI, our president D. Meisenheimer III and
Richard C. Meisenheimer ("R. Meisenheimer"), chief financial officer, vice
president and secretary of MCI.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended February 28, 1999 no matters were submitted to a
vote of security holders.
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Part II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Our common stock trades on the NASDAQ Bulletin Board under the symbol "MEIS."
The following is the range of high and low closing bid prices for each quarter
for the fiscal years ended February 28, 1998 and February 28, 1999:
Fiscal 1998
High Low
First Quarter Ended 5/31/97 $0.75 $0.4375
Second Quarter Ended 8/31/97 $0.625 $0.375
Third Quarter Ended 11/30/97 $0.625 $0.25
Fourth Quarter Ended 2/28/98 $0.4375 $0.375
Fiscal 1999
High Low
First Quarter Ended 5/31/98 $0.71875 $0.3125
Second Quarter Ended 8/31/98 $0.50 $0.375
Third Quarter Ended 11/30/98 $0.375 $0.1875
Fourth Quarter Ended 2/28/99 $0.25 $0.17
The foregoing closing bid prices (high and low) for each quarter represent
quotations between dealers without adjustments for retail markups, markdowns or
commissions and may not represent actual transactions, as reported by the
National Association of Securities Dealers Composite Feed or other qualified
inter-dealer quotation medium.(1)
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(1)Our stock was delisted from the NASDAQ Bulletin Board on February 9,
2000 because of our failure to timely file periodic reports with the SEC. The
price of our stock is now quoted in the "pink sheets."
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Approximate Number of Equity Security Holders
There were approximately 350 holders of our common stock as of May 15, 1999.
This figure is based on information supplied by our transfer agent. The
foregoing also includes shareholders whose stock is held at brokerages in
"street" name.
Dividends
We have not paid any dividends since inception of our business, and we do not
anticipate paying any dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF FINANCIAL OPERATIONS
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Results of operations
Revenues for the fiscal year ended February 28, 1999 ("Fiscal 99") were
$1,485,695 as compared to revenues of $1,379,217 for the fiscal year ended
February 28, 1998 ("Fiscal 98"). Revenues for the basketball league operations,
including franchise and royalty fees increased by approximately $74,000 after
elimination of inter-company transactions. USBL received advertising, due bills
valued at $250,000 in both Fiscal 99 and Fiscal 98. In addition, revenues from
Cadcom's manufacturing operations increased by approximately $32,000 in Fiscal
99 as compared to Fiscal 98.
Operating expenses for Fiscal 99 decreased by approximately $52,000 to
$1,275,000 compared to $1,327,000 in Fiscal 1998. The slight decrease represents
management's continued pressure to reduce its operating overhead. In addition,
management recorded an allowance of $450,000 for the impairment of its
investment in the advertising due bills that have been received in recent years
in exchange for franchises. This allowance represents the Company's best
estimate of the continuing value of the advertising due bills. The Company
continues to explore the best way to utilize these credits and has entered into
negotiations with the television network in an effort to liquidate their
investment.
Consolidated net loss for Fiscal 99 amounted to $196,188, as compared to $72,521
for Fiscal 98. The increase in the loss is primarily attributable to the
allowance for the impairment in the value of the advertising credits amounting
to $450,000 partially offset by increased revenue of $106,478, decreased
operating expenses of $51,871, decreased interest expense of $10,966 and a the
lack of a loss on the sale of investments that occurred in Fiscal 98 in the
amount of $65,019.
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Liquidity and Capital Resources
The Company's working capital deficiency decreased by approximately $28,000 to
$602,000 at February 28, 1999, as compared to $630,000 at February 28, 1998.
This decrease was caused primarily by the increase in inventories of
approximately $63,000 offset, in part, by increases in loans from stockholders
and accounts payable and accrued expenses.
The Company continues to make efforts to resolve its working capital deficiency
by seeking additional equity capital, It is anticipated that the major potential
for growth lies in the Company's investment in the USBL. Management is
endeavoring to capitalize on its investment in the advertising credits to expand
the recognition of the USBL and generate advertising income in the future.
The Company's statement of cash flows for Fiscal 99 reflects cash used in
operations of approximately $85,000, reflecting a net loss of $196,000 increased
by non-cash income sources such as advertising credits of $250,000 and minority
interest of $62,000, offset by a reduction for the impairment in the value of
the due bills amounting to $450,000. The statement also reflects the utilization
of approximately $9,000 of cash for the purchase of fixed assets. Cash amounting
to $38,000 was raised from mortgage proceeds on the real estate property and
loans from stockholders amounted to $93,000. The Company also repaid debt
related to capitalized leases in the amount of approximately $24,000.
The Company and its wholly-owned subsidiaries file a consolidated federal income
tax return, and as of February 28, 1999, they had approximately $600,000 in net
operating loss carryforwards available to offset future taxable income. USBL
files a separate federal tax return.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Results of Operations
Revenues for the fiscal year ended February 28, 1998 ("Fiscal 98") were
$1,379,217 as compared to revenues of $1,378,128 for the fiscal year ended
February 28, 1997 ("Fiscal 97"). Revenues of the basketball league operations,
including franchise and royalty fees, increased by $50,000 after elimination of
intercompany transactions. The USBL received advertising credits, valued at
$250,000, in both Fiscal 1998 and 1997 in connection with the sales of
franchises. In addition, revenues from Cadcom's manufacturing operations
remained relatively consistent with those from the prior year.
Operating expenses for Fiscal 98 decreased by $36,479 to $1,327,516, as compared
to operating expenses of $1,363,995 in Fiscal 97. The decrease represents
management's efforts to control expenditures. For example, USBL's consulting and
advertising decreased $81,000 and $12,000, respectively, between Fiscal 1997 and
Fiscal 1998.
13
<PAGE>
In Fiscal 98 the Company recognized a loss on investments of $65,000. This
represents the decrease in the market value of certain equity investments that,
in the opinion of management, is other than temporary.
Consolidated net loss for Fiscal 98 amounted to $72,251, as compared to a loss
of $30,863 in Fiscal 97. The increase in the loss is attributable to the loss
recognized on the valuation of investments, offset by the decrease in operating
expenses.
Liquidity and Capital Resources
The Company's working capital deficiency increased by approximately $88,000 to
$630,000 at February 28, 1998, as compared to $542,000 at February 28, 1997.
This increase was primarily due to the loss incurred in Fiscal 98.
The Company is making efforts to alleviate its working capital deficiency by
seeking additional equity capital, primarily for the USBL. The USBL is the
subsidiary that accounts for a major portion of the working capital deficiency
and, in management's opinion, has the greatest potential for future growth. The
Company believes that its units of advertising credits, valued at approximately
$684,000, will enable it 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. In addition, the USBL is considering
raising additional capital through a private placement. However, there can be no
assurances that the Company will be successful in its efforts to reduce the
working capital deficiency.
The Company's statement of cash flows for Fiscal 98 reflects cash used in
operations of approximately $2,100, reflecting the net loss ($72,500) and an
increase in prepaid advertising credits ($250,000), offset by non-cash charges
such as minority interest ($29,000), the realized loss on investment ($65,000),
and depreciation and amortization ($72,000), as well as a decrease in
inventories ($23,000) and an increase in accounts payable and accrued expenses.
The statement also reflects cash provided by financing activities of $28,700,
reflecting cash provided from net shareholder advances ($91,000) and a note
payable-bank ($25,000), offset by repayment of notes, mortgages and capital
leases ($87,000).
The Company and its wholly-owned subsidiaries file a consolidated federal income
tax return, and as of February 28, 1998, they had approximately $600,000 in net
operating loss carryforwards available to offset future taxable income. USBL
files a separate federal tax return, and as of February 28, 1998 it had
approximately $1,300,000 in net operating loss carryforwards to offset future
taxable income.
14
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ITEM 7. FINANCIAL STATEMENTS (Appearing after Index to Exhibits)
Page Report of Independent Certified Public Accountants F-1
Consolidated balance sheets as of February 28, 1999 and February 28, 1998 F-2
Consolidated statements of operations for the years ended February 28, 1999 and
February 28, 1998 F-3
Consolidated statement of stockholders' equity for the years endedFebruary 28,
1999 and February 28, 1998 F-4
Consolidated statements of cash flows for the years ended February 28, 1999 and
February 28, 1998 F-5
Notes to consolidated financial statements F-6 - F-13
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTER AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors, Executive Officers, Promoters and Control Persons
The following persons served as our directors and executive officers for the
fiscal year ending February 28, 1999.
Name Age Position
Daniel T. Meisenheimer III 48 Chairman of the Board, President
and Treasurer
Richard C. Meisenheimer 45 Vice President, Chief Financial
Officer, Secretary and Director
Daniel T. Meisenheimer, Jr. 71 Director
All directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Officers are appointed annually
by our board of directors and subject to existing employment agreements serve at
the discretion of our board. At the time of filing this Form 10-K, Mr. Daniel T.
Meisenheimer, Jr. is no longer a director, having died on September 16, 1999. We
are currently seeking another director to replace him.
15
<PAGE>
Background of Executive Officers and Directors
Daniel T. Meisenheimer III has been Chairman of the Board and President of MCI
since the inception of our business in 1984. D. Meisenheimer is also chairman of
the board, president and treasurer of our USBL, Cadcom and MCR subsidiaries.
Since 1982, D. Meisenheimer has also been employed as a vice president of
Spectrum, which is Cadcom's sole customer. D. Meisenheimer is also a shareholder
and director of Synercom Inc. ("Synercom"), a Meisenheimer family-owned holding
company which owns all of the outstanding stock of Spectrum and which owns
approximately twenty-two percent of our outstanding stock. Between 1981 and
1984, D. Meisenheimer owned and operated an investment advisory firm. Prior to
that and from 1977 to 1981, D. Meisenheimer was employed as a registered
representative with Merrill Lynch, Inc.
Richard C. Meisenheimer, brother of D. Meisenheimer, has been chief financial
officer and secretary of MCI since inception of our business. R. Meisenheimer
has also been associated with Spectrum in various capacities since 1976. In
1993, R. Meisenheimer became president of Spectrum, succeeding his father,
Daniel T. Meisenheimer, Jr. R. Meisenheimer is also vice president, secretary
and director of our USBL, Cadcom and MCR subsidiaries. R. Meisenheimer is also a
director and shareholder of Synercom.
Daniel T. Meisenheimer, Jr., father of R. Meisenheimer and D. Meisenheimer,
served as a director of MCI since inception of our business. Mr. Meisenheimer
died in September 1999. He was also a director of our USBL, Cadcom and MCR
subsidiaries. Mr. Meisenheimer was the founder of Spectrum in 1957 and served as
its chairman and president until 1993, when his son R. Meisenheimer assumed the
position of president. Mr. Meisenheimer remained chairman of Spectrum and served
as president and a director of Synercom until his death.
Compliance with Section 16(a) of the Exchange Act
All officers, directors, and beneficial owners of more than 10% of common stock
have complied with Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
MCI
Historically, our only two officers, D. Meisenheimer, Chairman and President and
treasurer, and R. Meisenheimer, Chief Financial Officer and secretary, have not
received any salaries from us. However, on March 1, 1994, we awarded D.
Meisenheimer 200,000 options to purchase 200,000 shares of our common stock in
recognition of past services to us. The options were exercisable at $0.25 a
share. On June 5, 1995, D. Meisenheimer exercised options to purchase 100,000
shares. At the time of the exercise, the bid price for our common stock was
$1.00 a share. D. Meisenheimer's remaining 100,000 unexercised options have
expired. Also on March 1, 1994, R. Meisenheimer received 100,000 options in
recognition of past services. Each option entitled R. Meisenheimer to purchase
one share of our common stock at $0.25 per share. R. Meisenheimer did
16
<PAGE>
not exercise any options before their expiration. On March 1, 1996, we entered
for the first time into employment agreements with D. Meisenheimer and R.
Meisenheimer.
The agreement with D. Meisenheimer was for a period of two years expiring on
February 28, 1998. For the first year Mr. Meisenheimer was to receive a salary
of $2,000 a month. However, if in the opinion of our board of directors the
payment of salary to Mr. Meisenheimer would have an adverse impact on our cash
flow, then we were authorized to withhold payments. The agreement further
provided that in the event any monthly salary was withheld, then for each month
of salary omitted Mr. Meisenheimer was to receive 10,000 options. Each option
entitled Mr. Meisenheimer to purchase one share of our common stock at $1.00 a
share. The options were to be issued at the end of the fiscal year. During the
second year of the employment agreement, Mr. Meisenheimer was to receive a
monthly salary of $5,000 and if we elected not to pay Mr. Meisenheimer the cash
salary, then he was to receive 10,000 options for each month of salary omitted,
which options were to be issued at the end of the fiscal year. All of the
options issued to D. Meisenheimer expire five years from the date of issue. At
the present time, we have not entered into a new employment agreement with D.
Meisenheimer. Further, D. Meisenheimer has not received any compensation for
fiscal 1999 or for the first three quarters of fiscal 2000.
R. Meisenheimer's employment agreement was also for a period of two years and
provided for a monthly salary of $400 per month. Pursuant to the agreement, our
board of directors was also authorized to withhold payment of such salary if
such payment would have an adverse impact on our cash flow. In that event, Mr.
Meisenheimer was to receive 2,000 options for each month of salary omitted. Each
option entitled Mr. Meisenheimer to purchase one share of our common stock at
$1.00 per share. In the second year, Mr. Meisenheimer was to receive $800 a
month, and if any salary was omitted, then 4,000 options would be issued for
each month of salary omitted. All options were to be issued at the end of each
fiscal year and expire five years from the date of issue.
Pursuant to the employment agreements, D. Meisenheimer only received a total of
$4,000 of salary for fiscal 1997. R. Meisenheimer only received a total of $800
for fiscal 1997. Our board of directors elected to withhold any further payment
of salaries for both individuals because of the impact it would have on our cash
flow. For fiscal 1998, because of our decision not to pay salaries, D.
Meisenheimer was entitled to receive 100,000 options and R. Meisenheimer was
entitled to receive 20,000 options and elected not to take any for fiscal 1997.
As a result of our financial condition, D. Meisenheimer and R. Meisenheimer
agreed to terminate all compensation provisions of their employment agreements
for fiscal 1998.
The following tables reflect the salaries received by D. Meisenheimer and R.
Meisenheimer for the fiscal years ended February 28, 1999, 1998 and 1997:
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities
Annual Stock Underlying LTIP All Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation($) ($) SARs (#) ($) sation ($)
Daniel T. Meisenheimer III 1999 -0- -0- -0- -0- -0- -0- -0-
President and Treasurer
1998 -0- -0- -0- -0- -0- -0- -0-
1997 $4,000 -0- -0- -0- -0- -0- -0-
Richard C. Meisenheimer 1999 -0- -0- -0- -0- -0- -0- -0-
Vice President and Secretary 1998 -0- -0- -0- -0- -0- -0- -0-
1997 $800 -0- -0- -0- -0- -0- -0-
</TABLE>
There were no options or stock appreciation grants in last fiscal year nor were
there any option exercises in last fiscal year. Likewise, since neither D.
Meisenheimer nor R. Meisenheimer elected to accept any options, they do not
currently own any options.
Our USBL Subsidiary
In view of the fact that neither D. Meisenheimer nor R. Meisenheimer had
received any compensation for services from USBL since its inception, on
September 1, 1995, the USBL board of directors adopted an option program
reserving 200,000 shares to provide each officer with 20,000 options on the
first business day of each calendar year commencing January 1, 1996 and ending
on January 1, 2000. Under the plan, each option entitled the holder to purchase
one share of USBL common stock at an exercise price equal to the closing bid
price on the date of grant. The options were to expire five years from date of
grant or nine months after retirement of either officer. On January 2, 1996
(fiscal 1996) D. Meisenheimer and R. Meisenheimer each was entitled to receive
20,000 options exercisable into common stock at $2.25 a share, the closing bid
price of USBL common stock on that date. D. Meisenheimer and R. Meisenheimer
elected not to accept the options. In addition, on August 20, 1996, USBL and the
two officers agreed to rescind the remainder of the option program.
On January 1, 1996, our USBL subsidiary entered into two-year employment
agreements with D. Meisenheimer, who serves as president and chief executive
officer of USBL, and R. Meisenheimer, who serves as vice president and chief
financial officer of USBL. The employment agreement for D. Meisenheimer provided
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 USBL board of directors, the payment of
salary would have an adverse impact on cash flow, then USBL was authorized to
18
<PAGE>
withhold the salary payments. For every month of salary omitted, D. Meisenheimer
was to receive 10,000 options. Each option entitled D. Meisenheimer to purchase
one share of USBL common stock at $1.00 a share. All options were to be issued
at the end of each 12-month period. During the calendar year ended December 31,
1996, D. Meisenheimer received a total cash salary of $4,000 and received
100,000 options in lieu of salary, which D Meisenheimer elected not to take. D.
Meisenheimer did not receive any salary for the months of January and February
1997 and as such was entitled to receive 20,000 options, which he also elected
not to take.
R. Meisenheimer's employment agreement with our USBL subsidiary was similar to
that of D. Meisenheimer, except that R. Meisenheimer was 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, R. Meisenheimer was to receive 4,000 options. Each
option entitled R. Meisenheimer to purchase one share of USBL common stock at
$1.00 a share. All options were to be awarded at the end of each year. During
the calendar year ended December 31, 1996 (fiscal 1997), R. Meisenheimer
received a total of $1,600 of salary and was entitled to receive 40,000 options
in lieu of salary. R. Meisenheimer elected not to accept the options. R.
Meisenheimer did not receive any salary for the months of January and February
1997 and was therefore entitled to receive 8,000 options, which he also elected
not to accept. On March 1, 1997, both D. Meisenheimer and R. Meisenheimer agreed
to terminate the compensation provisions of their employment agreements in view
of USBL's financial condition.
The following table reflects the salaries received by D. Meisenheimer and R.
Meisenheimer for the fiscal years ended February 28, 1997 and 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities
Annual Stock Underlying LTIP All Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation ($) ($) SARs (#) ($) sation ($)
Daniel T. Meisenheimer III 1999 -0- -0- -0- -0- -0- -0- -0-
President & Chief Executive
Officer
1998 -0- -0- -0- -0- -0- -0- -0-
1997 $4,000 -0- -0- -0- -0- -0- -0-
Richard C. Meisenheimer 1999 -0- -0- -0- -0- -0- -0- -0-
Chief Financial Officer & Vice
President 1998 -0- -0- -0- -0- -0- -0- -0-
1997 $1,600 -0- -0- -0- -0- -0- -0-
</TABLE>
19
<PAGE>
Option/SAR Grants in Last Fiscal Year and Option Exercises
There were no option or Sar grants in the last Fiscal Year, nor were there any
option exercises in last fiscal year. Likewise, neither D. Meisenheimer nor R.
Meisenheimer presently owns any stock options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of July 15, 1996 with
respect to the beneficial ownership of our outstanding common stock by (i) any
holder of more than five (5%) percent; (ii) each of our officers and directors;
and (iii) the directors and officers of the Company as a group:
Amount and Nature of Approximate
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
Daniel T. Meisenheimer III (1) 1,390,500 31%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
Richard C. Meisenheimer (2) 369,500 8.6%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
Daniel T. Meisenheimer, Jr. (3) 525,000 11.7%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
Synercom Inc. (4) 980,000 22.5%
c/o The United States Basketball League
46 Quirk Road
Milford, CT 06460
Genvest L.P. (5) 200,978 4.4%
PO Box 470
Milford, CT 06460
All Officers and Directors as a Group 3,265,000 73.4%
_________________________
(1) D. Meisenheimer is the president of MCI. The shares listed above include
shares owned by his wife and minor children. Included are 100,000 options issued
to D. Meisenheimer in June, 1995 to purchase 100,000 shares of our common stock
at $1.00 per share which D. Meisenheimer received in lieu of salary and 100,000
options awarded to D. Meisenheimer in September 1995 for past services. D.
Meisenheimer
20
<PAGE>
and his family also own 425,000 shares of USBL common stock and 136,409 shares
of USBL preferred stock.
(2) R. Meisenheimer is vice president and a director of MCI. The shares listed
above include shares owned by his wife and minor children. Also included are
100,000 options awarded to R. Meisenheimer in September 1995 for past services.
R. Meisenheimer also owns 500 shares of USBL common stock and 77,875 of USBL
preferred stock. In addition, Spectrum, of which R. Meisenheimer is president,
owns 207,857 shares of USBL common stock and 240,000 shares of USBL preferred
stock. The above figure does not include MCI shares owned by Synercom, of which
R. Meisenheimer is president.
(3) Daniel T. Meisenheimer, Jr., a director of MCI, was the father of D.
Meisenheimer and R. Meisenheimer. He died in September 1999, and as of February
2000, there has been no disposition of his estate. The shares listed above
include shares owned by his widow, Mary Ellen Meisenheimer. Mr. Meisenheimer
also owned 5,000 shares of USBL common stock and 182,723 shares of USBL
preferred stock. Mr. Meisenheimer was chairman of the board of Synercom.
(4) Synercom is owned jointly by D. Meisenheimer, R. Meisenheimer, the Estate of
Daniel Meisenheimer, Jr., and his widow, Mary Ellen Meisenheimer. Synercom also
owns all of the outstanding stock of Spectrum Associates, Inc. ("Spectrum"),
which is the sole customer of our Cadcom subsidiary. As such, Synercom's
ownership in MCI is considered as part of Management's ownership.
(5) Genvest L.P. is a limited partnership consisting of R. Meisenheimer as
general partner and D. Meisenheimer, the Estate of Daniel T. Meisenheimer, Jr.
and Mary Ellen Meisenheimer as limited partners.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans
For at least the last ten years, the principals of MCI and their affiliated
companies have made loans to our USBL subsidiary. As of February 28, 1999
(Fiscal 1999), USBL was indebted to the principals or their affiliated companies
in the principal sum of $298,045 together with accrued interest at six percent
(6%) per annum of $121,299. All of the outstanding debt is payable upon demand.
Of the foregoing amount, Spectrum is owed the principal sum of $123,752 plus
accrued interest of $68,615. The principals (D. Meisenheimer, R. Meisenheimer
and the Estate of Daniel T. Meisenheimer, Jr.) are owed $128,293 plus accrued
interest of $52,684. The remainder of $46,000 is due from USBL to MCR, our real
estate subsidiary, which is eliminated on the accompanying consolidated
financial statements. See "Financial Information."
Our Cadcom Subsidiary
We acquired our Cadcom subsidiary in February 1992 from Synercom Inc., a company
owned and controlled by the Meisenheimer Family. Cadcom is totally dependent
upon orders received from Spectrum, a privately held company, also owned by the
Meisenheimer Family. Currently, all of Cadcom's business is derived from
Spectrum. See "Risk Factors." 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
21
<PAGE>
credit terms. In addition, when Cadcom was acquired by us from Synercom Inc., we
granted Synercom Inc. the right of first refusal to reacquire Cadcom in the
event we ultimately determined to sell Cadcom.
Capital Leases
In fiscal 1995, our Cadcom subsidiary 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 balance of outstanding lease payments as of
February, 1999 due Synercom is $14,835. Monthly payments to Synercom for the
leased equipment amounted to $4,300.
Ownership of Franchise
In 1988, our chief financial officer, vice president and secretary, R.
Meisenheimer and several other individuals purchased, through a corporation, the
active Connecticut Skyhawks franchise from our USBL subsidiary. 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, also purchased a franchise from USBL for $100,000. The
franchise is not currently active but pays the annual royalty fee of $15,000.
Purchase of Real Estate
Prior to August 1995, we and our USBL and Cadcom subsidiaries had been renting
office and manufacturing facilities from Genvest L.P., a limited partnership
consisting of members of the Meisenheimer Family. See "Property." In August 1995
we, through our MCR subsidiary, purchased the property from Genvest, L.P., for
$340,000 through the issuance of 200,978 shares of our common stock to Genvest,
L.P., and borrowed the sum of $120,000 from a financial institution secured by a
20-year mortgage on the property. R. Meisenheimer has personally guaranteed the
mortgage.
22
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Financial Statements
All financial statements as set forth under Item 7
Exhibits
The following exhibits are incorporated by reference to the Exhibit bearing the
same number on the Registrant's Registration Statement on Form 10-SB filed with
the Commission on October 15,1996, effective March 24, 1997. Commission File No.
0-25147:
3.1 Certificate of Incorporation of Meisenheimer Capital, Inc. ("MCI")
3.2 Certificate of Renewal of Certificate of Incorporation of MCI
3.3 By-Laws of MCI
4.1 Form of Stock Certificate
4.2 Form of Option
10.1 Employment Agreement of Daniel T. Meisenheimer III with MCI
10.2 Employment Agreement of Richard C. Meisenheimer with MCI
10.3 Employment Agreement of Daniel T. Meisenheimer III with our subsidiary, The
United States Basketball League, Inc. ("USBL")
10.4 Employment Agreement of Richard C. Meisenheimer with USBL
10.5 Mortgage Note between Fleet Bank, National Association and Meisenheimer
Capital Real Estate Holdings, Inc. and Guaranty of MCI
10.6 Lease between Meisenheimer Capital Real Estate Holdings, Inc. and Cadcom,
Inc.
10.7 Lease between Meisenheimer Capital Real Estate Holdings, Inc. and USBL
10.8 Equipment Lease Agreement between Synercom Inc. and our subsidiary, Cadcom,
Inc., dated September 11, 1992
23
<PAGE>
10.9 Equipment Lease Agreement between Synercom Inc. and our 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
Index to Financial Information
F-1 Report of Independent Auditors
F-2 Consolidated Balance Sheets
F-3 Consolidated Statements of Operations
F-4 Consolidated Statement of Stockholders' Equity
F-5 Consolidated Statements of Cash Flows
F-6--F-13 Notes to Consolidated Financial Statements
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Independent Auditors' Report
Board of Directors
Meisenheimer Capital, Inc.
Milford, Connecticut
We have audited the consolidated balance sheets of Meisenheimer Capital, Inc.
and Subsidiaries as of February 28, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meisenheimer
Capital, Inc. and Subsidiaries as of February 28, 1999 and 1998 and the results
of their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations, its
inability to collect annual franchise fees and its reliance on related party
revenue transactions raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Holtz Rubenstein & Co., LLP
Holtz Rubenstein & Co., LLP
Melville, New York
May 27, 1999
F-1
<PAGE>
-2-
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28,
ASSETS (Note 9) 1999 1998
CURRENT ASSETS:
Cash $ 47,881 $ 36,560
Accounts receivable (Note 10) 74,786 91,141
Inventories (Note 5) 156,531 93,616
Investments (Note 4) 24,526 24,526
Other current assets 600 6,087
Total current assets 304,324 251,930
PROPERTY AND EQUIPMENT, net (Notes 6, 8 and 9) 400,137 452,372
GOODWILL (Note 6) 26,913 27,729
PREPAID ADVERTISING CREDITS (Note 11) 484,062 684,062
$ 1,215,436 $ 1,416,093
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses
(Notes 10 and 12) $ 259,448 $ 225,963
Capital lease obligation 14,834 38,688
Loans payable - stockholders (Note 10) 620,049 608,053
Note and mortgage payable - current portion
(Note 9) 12,118 9,504
Total current liabilities 906,449 882,208
NOTE AND MORTGAGE PAYABLE,
net of current portion (Note 9) 153,134 118,151
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 72,000 128,000
COMMITMENT (Note 10)
STOCKHOLDERS' EQUITY (Note 12):
Common stock, $0.01 par value, 10,000,000
shares authorized; 4,477,084 shares
issued and outstanding 44,771 44,771
Additional paid-in capital 3,361,008 3,367,008
Deficit (3,319,547) (3,123,359)
Treasury stock, at cost, 7,500 and 1,000
shares (2,379) (686)
Total stockholders' equity 83,853 287,734
$ 1,215,436 $ 1,416,093
F-2
See notes to consolidated financial statements
<PAGE>
-3-
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
February 28,
1999 1998
REVENUES: (Notes 9 and 11)
Net sales $ 788,743 $ 756,191
Franchise fees and related revenue 696,952 623,026
Total revenues 1,485,695 1,379,217
OPERATING EXPENSES: (Notes 9 and 11)
Cost of goods sold 2,694 609,392
Selling, general and team expenses 653,204 718,377
Asset impairment 450,000 -
Total operating expenses 1,725,898 1,327,769
(Loss) income from operations 240,203) 51,448
OTHER INCOME (EXPENSE):
Realized loss on available-for-sale investments (Note 4) - (65,019)
Interest expense (19,566) (30,532)
Interest and other income 1,581 582
Total other income (expense) (17,985) (94,969)
LOSS BEFORE MINORITY INTEREST (258,188) (43,521)
MINORITY INTEREST IN NET (LOSS)
INCOME OF SUBSIDIARY (62,000) 29,000
NET LOSS $ (196,188) $ (72,521)
NET LOSS PER SHARE $(.04) $(.01)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,474,495 4,476,084
F-3
See notes to consolidated financial statements
<PAGE>
-4-
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Note 12)
Unrealized
Loss on
Additional Available-
Common Stock Paid-in For-Sale Treasury Stock
Total Shares Amount Capital Investments Shares Amount Deficit
Balance, March 1, 1997 $ 298,863 4,477,084 $ 44,771 $ 3,367,008 $ (62,078) - $ - $(3,050,838)
Comprehensive income (loss):
Net loss (72,521) - - - - - - (72,521)
Marketable securities
valuation adjustment 62,078 - - - 62,078 - - -
Comprehensive loss (10,443)
Purchase of treasury stock, net (686) - - - - 1,000 (686) -
Balance, February 28, 1998 287,734 4,477,084 44,771 3,367,008 - 1,000 (686) (3,123,359)
Net loss/comprehensive loss (196,188) - - - - - - (196,188)
Purchase of treasury stock (1,693) - - - - 6,500 (1,693) -
Other (5,000) - - (5,000) - - - -
Balance, February 28, 1999 84,853 4,477,084 $44,771 $3,362,008 $ - 7,500 $ (2,379) $ (3,319,547)
F-4
See notes to consolidated financial statements
<PAGE>
-5-
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
February 28,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (196,188) $ (72,521)
Adjustments to reconcile net loss to net
cash used in operating activities:
Minority interest (62,000) 29,000
Prepaid barter credits - 50,000
Prepaid advertising credits (250,000) (250,000)
Realized loss on investment - 65,019
Depreciation and amortization expense 62,116 72,303
Asset impairment 450,000 -
(Increase) decrease in assets:
Accounts receivable 16,355 (13,729)
Inventories (62,915) 22,984
Other current assets 5,487 43,508
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (48,282) 51,344
110,761 70,429
Net cash used in operating activities (85,427) (2,092)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,065) (528)
Purchase of investments - (920)
Net cash used in investing activities (9,065) (1,448)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage payable 150,000 -
Payments on note and mortgage payable (112,403) (4,905)
Proceeds from note payable - bank - 25,000
Payments on capital lease obligation (23,854) (81,875)
Advances from shareholders, net 93,763 91,195
Purchase of treasury stock (1,693) (686)
Net cash provided by financing activities 105,813 28,729
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,321 25,189
CASH AND CASH EQUIVALENTS, beginning of year 36,560 11,371
CASH AND CASH EQUIVALENTS, end of year $ 47,881 $ 36,560
SUPPLEMENTAL DISCLOSURES:
Cash payments made during the year:
Interest $ 16,412 $ 22,910
Taxes $ 3,852 $ 12,550
F-5
See notes to consolidated financial statements
<PAGE>
-6-
MEISENHEIMER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
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") (60.71% 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 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 $3,320,000. This factor,
as well as the Company's reliance on related parties and significant non-cash
transactions (see Notes 10 and 11) create an uncertainty as to the Company's
ability to continue as a going concern. The Company is making efforts to
revitalize the USBL by raising equity capital and marketing new franchises and
Cadcom is trying to expand its machine shop business by seeking new customers
for its services. However, there can be no assurance that the Company will be
successful in accomplishing these objectives. Because of the uncertainties
surrounding the ability of the Company to continue its operations, there is
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
The consolidated financial statements include the accounts of MCI and its three
operating subsidiaries. All significant intercompany balances and transactions
have been eliminated and applicable minority interests have been reflected in
consolidation.
b. Cash and cash equivalents
For purposes of the cash flow statement, the Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
and cash equivalents.
c. Revenue recognition
The Company and its subsidiaries generally use the accrual method of accounting.
However, due to the uncertainty of collecting royalty and franchise fees from
its franchisees, the USBL recognizes revenue when it is received. As described
more fully in Note 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.
F-6
<PAGE>
-7-
2. Summary of Significant Accounting Policies: (Cont'd)
d. Available-for-sale investments
Available-for-sale securities are carried at fair value with the unrealized
holding gain (loss), net of deferred income taxes, included in stockholders'
equity. A decline in the market value of any available-for-sale security below
cost that is deemed other than temporary is charged to operations resulting in
the establishment of a new cost basis for the security.
e. Inventories
Manufacturing inventories (Cadcom) are stated at the lower of cost, on the
first-in, first-out method or market. The USBL's inventory consists of USBL
trading cards, basketball uniforms, sporting equipment and printed promotional
material. Most of the USBL's inventory was obtained through barter transactions
whereby the USBL granted suppliers with advertising space or air time in return
for the supplier's products. These transactions were accounted for based upon
the fair values of the assets and services involved in the transactions.
f. Property and equipment
Property and equipment are recorded at cost. Major additions are capitalized
while minor improvements, which do not extend the useful life of an asset, are
expensed in the period incurred.
Depreciation has been provided utilizing both the straight-line and accelerated
cost recovery systems. Assets are depreciated over their estimated useful life
or at the statutory rate provided (predominantly 7 years for equipment and 39
years for real estate).
g. Income taxes
MCI, MCREHI and Cadcom file a consolidated federal income tax return. As of
February 28, 1999, MCI and Cadcom had approximately $597,000 in net operating
loss carryforwards available and the USBL had a net operating loss carryforward
of approximately $1,403,000. Both loss carryforwards are available through
February 28, 2017, to offset future taxable income
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. A valuation allowance has been fully provided for the
aggregate deferred tax asset (approximately $800,000) resulting from the net
operating loss carryforwards.
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 $88,000 and
$74,000 for the years ended February 28, 1999 and 1998, respectively.
F-7
<PAGE>
-8-
2. Summary of Significant Accounting Policies: (Cont'd)
j. Loss per share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128) establishes standards for computing and presenting earnings (loss) per
share (EPS). SFAS No. 128 requires dual presentation of basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
stock options or convertible securities were exercised or converted into common
stock.
Basic and diluted loss per share amounts were equivalent for the years ended
February 28, 1999 and 1998.
k. Stock based compensation
The Company applies APB Opinion No. 25 and related interpretations in accounting
for stock-based compensation to employees. Stock compensation to non-employees
is accounted for at fair value in accordance with FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
l. Comprehensive income (loss)
Other comprehensive income refers to revenues, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but are excluded from net income as these amounts are recorded directly
as an adjustment to stockholders' equity. The Company's other comprehensive
income is comprises of net unrealized gain (loss) on marketable securities. The
tax benefit or expense, as well as any reclassifications related to the
components of other comprehensive income were not significant.
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.
Year ended February 28, 1999:
MCI USBL MCREHI Cadcom Total
Revenues from external
customers $ 12,000 $ 426,552 $ 8,400 $ 788,743 $ 1,235,695
Intersegment revenues - 130,000 63,500 - 193,500
Interest and other revenue - 1,572 - 9 1,581
Interest expense - 3,801 12,100 3,957 19,858
Depreciation and
amortization expense 31,250 4,573 5,028 42,704 83,555
Segment (loss) profit (208,201) (310,965) 54,182 57,612 (407,372)
Segment assets 795,356 752,447 347,486 547,126 2,442,415
F-8
<PAGE>
-9-
3. Segment Information: (Cont'd)
Year ended February 28, 1998:
MCI USBL MCREHI Cadcom Total
Revenues from external
customers $ - $ 686,676 $ 11,350 $ 756,191 $ 1,454,217
Intersegment revenues 213,000 217,000 49,500 - 479,500
Interest revenue 396 145 4 37 582
Interest expense 196 9,548 11,791 8,997 30,532
Depreciation and
amortization expense - 4,573 5,072 62,658 72,303
Segment (loss) profit (221,812) 57,516 (17,075) (22,106) (203,477)
Segment assets 902,974 835,467 308,518 523,355 2,570,314
Reconciliation of Segment Information to Consolidated Amounts:
Years Ended
February 28,
1999 1998
Revenues:
Revenues $ 1,429,195 $1,933,717
Elimination of intersegment revenues (193,500) (479,500)
Total consolidated revenue $ 1,235,695 $1,454,217
Profit or loss:
Total loss from reportable segments $ (407,372) $ (203,477)
Elimination of intersegment profits 149,184 (159,956)
Minority interest in net loss (income)
of subsidiary 62,000 (29,000)
Net income $ (196,188) $ (72,521)
Assets:
Total assets for reportable segments $ 2,442,415 $2,570,314
Elimination of intercompany balances (507,990) (403,982)
Elimination of intercompany investments (718,989) (750,982)
Total consolidated assets $ 1,215,436 $1,416,093
4. Investments in Marketable Securities:
Investments in available for sale securities consist of investments in equity
securities. During 1998, the investments were written down to their estimated
realized value for declines in their market value which, in the opinion of
management, were other than temporary. The Company recorded a charge to
operations of approximately $65,000 for this impairment.
5. Inventories:
Inventories consist of the following:
February 28,
1999 1998
Cadcom:
Raw materials $ 14,124 $ 6,816
Work in process 36,208 9,300
Finished goods 87,699 59,000
USBL inventory 18,500 18,500
$ 156,531 $ 93,616
F-9
<PAGE>
-10-
6. Property and Equipment:
Property and equipment, at cost, consists of the following:
February 28,
1999 1998
Land $ 121,253 $ 121,253
Building 197,836 197,836
Equipment 743,079 733,993
Transportation equipment 52,090 52,090
1,114,258 1,105,172
Less accumulated depreciation 714,121 652,800
$ 400,137 $ 452,372
7. Goodwill:
Goodwill arising from the acquisition of Cadcom is being amortized over 40 years
and consisted of the following:
February 28,
1999 1998
Excess of cost over net assets $ 32,625 $ 32,625
Less accumulated amortization 5,712 4,896
$ 26,913 $ 27,729
8. Lease Commitments:
Cadcom rents its Milford, Connecticut facility under a non-cancellable operating
lease from MCREHI. The minimum annual lease payments under this lease were
$41,400. MCI and USBL leased office space in the same building on a
month-to-month basis for $1,000 per month. Accordingly, the rent charges have
been eliminated in consolidation.
9. Note and Mortgage Payable:
The Company had the following loan obligations outstanding:
February 28,
1999 1998
Mortgage, dated August 10, 1998, secured by a commercial
building, interest at 7.06%, with monthly payments of
principal and interest of $1,362 through August 2008
and a balloon payment of approximately $68,200
payable in September 2008. $ 147,202 $ -
Mortgage payable - 103,975
Term bank loan, secured by Company assets, with interest
at 8.06%, with monthly payments of $612, including
interest, through November 2001, collateralized by
Cadcom's assets. 18,050 23,680
165,252 127,655
Less current portion 12,118 9,504
$ 153,134 $ 118,151
F-10
<PAGE>
-11-
9. Note and Mortgage Payable: (Cont'd)
Maturities of notes and mortgages are as follows:
Years Ending
February 28,
2000 $ 12,100
2001 13,700
2002 12,900
2003 8,200
2004 8,700
Thereafter 109,700
$ 165,300
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 are payable to Spectrum
Associates. Until 1992, Cadcom was a 100% owned subsidiary of Synercom, Inc.
Synercom, Inc. sold its 100% interest in Cadcom to MCI. As part of this
agreement MCI granted to Synercom a right of first refusal to purchase all of
the Cadcom shares sold to MCI should MCI propose to transfer said shares to a
third party. This right of first refusal is effective through February 28, 2002,
and is collateralized by all of Cadcom's assets.
Substantially all of the notes due to shareholders carry an interest rate of 6%
per year.
Substantially all of Cadcom's sales are to Spectrum Associates and as of
February 28, 1999 and 1998 all of the Company's accounts receivable are due from
Spectrum Associates.
MCI, through its subsidiary, MCREHI, purchased from Genvest, a partnership
controlled by the Company's president and his immediate family, a commercial
building in Milford, Connecticut for $320,000 in 1996.
11. Non-Cash Transactions:
The USBL entered into the following non-cash transactions during the fiscal year
ended February 28, 1999:
o The Company received $66,000 of advertising and promotional services in lieu
of cash, as consideration for franchise fees.
o The Company issued 20,000 shares of its stock to a consultant in exchange for
his services during fiscal 1998. The value of the shares were charged to
earnings based upon their fair market value on September 1, 1997 of $23,563.
o The Company recognized advertising income in exchange for airline tickets and
merchandise value at $30,000 during fiscal year ended February 28, 1998.
o The sale of an additional five franchises for 2,000,000 negotiable advertising
due bills from an independent cable television network.
F-11
<PAGE>
-12-
11. Non-Cash Transactions: (Cont'd)
The USBL entered into the following non-cash transactions during the fiscal year
ended February 28, 1998:
o The sale of an additional five franchises for 2,000,000 negotiable advertising
due bills from an independent cable television network. The USBL has valued
these due bills at $250,000.
o The Company issued 20,000 shares of its stock to a consultant in exchange for
his services during fiscal 1998. The value of the shares were charged to
earnings based upon their fair market value on September 1, 1997 of $23,563.
The deferred charge on the balance sheet at February 28, 1999 of $484,062
represents the unused amount of the deferred advertising expense relating to the
advertising due bills earned through fiscal 1999. 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 credit will be amortized at the time
the advertising is utilized. The total of $8,000,000 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.
During the year ended February 28, 1999, the Company adjusted the carrying value
of the due bills to their estimated fair value, resulting in a noncash
impairment loss of $200,000.
12. Stock Options:
During the 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. On February 28, 1998, the remaining 300,000 options were extended
through February 28, 2005.
During the year ended February 28, 1997, two officers were granted options to
purchase 168,000 shares of common stock at an exercise price of $1 per share.
The excess of the trading value of the stock on the date of grant over the
exercise price of the options ($21,000) was recorded as compensation expense in
1997.
If the Company accounted for its stock options under the fair value method of
SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss
and loss per share for the year ended February 28, 1998 would have increased to
the pro forma amounts indicated below:
1998
Net loss:
As reported $ (72,521)
Pro forma (159,521)
Loss per share:
As reported $(.01)
Pro forma $(.04)
F-12
<PAGE>
-13-
12. Stock Options: (Cont'd)
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants:
1998
Dividend yield -
Expected volatility 90.29%
Risk free interest rate 5.5%
Expected lives 5 years
During the year ended February 28, 1999, no additional options were issued. As
of July 1998, all options have expired and no additional have been granted.
13. Savings Plan:
The Company has an employee savings plan that qualifies as a deferred salary
arrangement under Section 401(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.
14. Fair Value of Financial Instruments:
The methods and assumptions used to estimate the fair value of the following
classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash, current
receivables and payables and certain other short-term financial instruments
approximate their fair value.
Prepaid Advertising and Barter Credits: The carrying amount of prepaid
advertising credits approximate their fair value based upon the value of
franchises exchanged for the advertising credits (see Note 11).
Long-Term Liabilities: The carrying amounts of the capital lease obligations and
the mortgage payable approximate their fair value.
F-13
</TABLE>
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Act of 1934,
the Registrant has duly caused this Annual Report and any subsequent amendments
thereto to be signed on its behalf by the undersigned, thereunto duly
authorized.
April 10, 2000
MEISENHEIMER CAPITAL, INC.
/s/ Daniel T. Meisenheimer III
Daniel T. Meisenheimer III
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons in their respective capacities with the
Registrant and on the dates indicated.
April 10, 2000 /s/ Daniel T. Meisenheimer III
Daniel T. Meisenheimer III
Chairman of the Board and President
April 10, 2000 /s/ Richard C. Meisenheimer
Richard C. Meisenheimer
Vice President, Chief Financial
Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 47,881
<SECURITIES> 24,526
<RECEIVABLES> 74,786
<ALLOWANCES> 0
<INVENTORY> 156,531
<CURRENT-ASSETS> 304,324
<PP&E> 1,114,258
<DEPRECIATION> 714,121
<TOTAL-ASSETS> 1,215,436
<CURRENT-LIABILITIES> 906,449
<BONDS> 153,134
0
0
<COMMON> 44,771
<OTHER-SE> 39,082
<TOTAL-LIABILITY-AND-EQUITY> 1,216,436
<SALES> 1,485,695
<TOTAL-REVENUES> 1,485,695
<CGS> 622,694
<TOTAL-COSTS> 622,694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,566
<INCOME-PRETAX> (196,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (196,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (196,188)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
