FORM 10-QSB/A
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
THIS AMENDMENT IS BEING REFILED TO INCLUDE THE EXHIBITS WHICH WERE
INADVERTENTLY OMITTED IN THE FIRST FILING.
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition Period from __________ to __________
Commission file number 33-75594
MERIDIAN FINANCIAL CORPORATION
(Name of small business issuer in its charter)
Indiana 35-1894846
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
8250 Haverstick Road, Suite 110
Indianapolis, Indiana 46240-2401
(Address of principal executive offices)
(317) 722-2000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during
the past twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Number of common shares, without par value, outstanding at
February 11, 1997: 1,000
Transitional Small Business Disclosure Format: Yes [ ] No
[X]
MERIDIAN FINANCIAL CORPORATION
FORM 10-QSB
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets at December 31, 1996 and
September 30, 1996 3
Condensed Statements of Earnings (Loss) for the
three months ended December 31, 1996 and 1995 4
Condensed Statements of Cash Flows for the three
months ended December 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Index to Exhibits 13
2
<PAGE>
MERIDIAN FINANCIAL CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
December 31, September 30
ASSETS 1996 1995
<S> <C> <C>
Finance receivables, net of unearned finance charges:
Net investment in direct financing leases $ 6,065,764 $ 5,425,285
Loans receivable 781,940 781,940
Total finance receivables 6,847,704 6,207,225
Cash 66,092 115,744
Cash held in origination account 3,642 4,252
Debt service reserve funds 124,242 156,789
Debt issue costs, net 547,502 610,321
Other assets 259,533 268,483
Total assets $ 7,848,715 $ 7,362,814
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Bonds payable $ 6,212,031 $ 6,382,117
Warehouse line of credit 760,724
Accounts payble and accrued expenses 63,019 59,900
Total liabilities 7,035,774 6,442,017
SHAREHOLDERS' EQUITY:
Preferred stock 1,789,560 1,789,560
Common stock 68,533 68,533
Additional paid-in capital 37,500 37,500
Accumulated deficit (1,082,652) (974,796)
Total shareholders' equity 812,941 920,797
Total liabilties and sharehodlers' equity $ 7,848,715 $ 7,362,814
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
MERIDIAN FINANCIAL CORPORATION
CONDENSED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
<TABLE>
Three months ended
December 31,
1996 1995
<S> <C> <C>
REVENUE:
Interest income from leases and mortgage loan $ 286,277 $ 251,497
Gain from brokerage activities 5,194
Gains on early termination of leases 33,653
Investment income and other 5,869 27,062
Total Revenue 297,340 312,212
EXPENSES:
Interest expense 218,070 215,698
Legal and professional 13,090 2,050
Other general and administrative 134,036 92,363
Total expenses 365,196 310,111
NET EARNINGS (67,856) 2,101
Less - preferred stock dividends (40,000) (40,000)
EARNINGS (LOSS) TO COMMON SHAREHOLDERS $ (107,856) $ (37,899)
EARNINGS (LOSS) PER COMMON SHARE $ (107.86) $ (37.90)
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
MERIDIAN FINANCIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (67,856) $ 2,101
Adjustments to reconcile net earnings (loss)
to net cash from operating activities-
Depreciation and amortization 80,190 78,873
(Increase) decrease in other assets 6,409 (38,579)
Increase (decrease) in accounts payable
and accrued expenses 3,119 (73,827)
Net cash provided by (used in) operating activities 21,862 (31,432)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to direct financing leases (1,018,909) (961,161)
Principal payments received on direct financing leases and
loans receivable 363,600 552,438
Other (32,904)
Net cash used in investing activities (655,309) (441,627)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of bonds payable 1,375,000
Principal payments on bonds payable (170,086) (195,477)
Proceeds from bank borrowings 880,730
Principal payments on bank borrowings (120,006)
(Increase) decrease in cash held in debt service reserves
and origination accounts 33,157 (425,866)
Debt issue costs paid (129,375)
Preferred stock dividends (40,000) (40,000)
Other (48,383)
Net cash provided by financing activities 583,795 535,899
NET CHANGE IN CASH (49,652) 62,840
CASH, at beginning of period 115,744 311,701
CASH, at end of period $ 66,092 $ 374,541
</TABLE>
The accompanying notes are an integral part of these condensed financal
statements.
5
<PAGE>
MERIDIAN FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 1996
(Unaudited)
1. General:
The financial information included herein was prepared in conformity
with generally accepted accounting principles, and such principles were
applied on a basis consistent with those reflected in the Annual Report on Form
10-KSB for the year ended September 30, 1996.
The information furnished includes all adjustments and accruals which
are, in the opinion of management, necessary for a fair presentation of
results for the interim periods. Results for any interim period may not be
indicative of the results for the entire year.
The disclosures in the notes presume that the users of the interim
financial information have read or have access to the audited financial
statements included in the Annual Report on Form 10-KSB for the year ended
September 30, 1996.
2. Finance Receivables:
The components of the Company's net investment in direct financing
leases are as follows:
December 31, Sepember 30,
1996 1996
Minimum leaes payments to be received $ 8,395,112 $ 7,524,065
Less-Unearned Income (2,329,348) (2,098,780)
Net investment in direct financing leases $ 6,065,764 $ 5,425,285
The Company has a lease and mortgage loan outstanding to Old Indiana
Limited Liability Company, which owns a theme park in Thorntown, Indiana, in
the total amount of approximately $1.1 million as of December 31, 1996.
During the quarter ended December 31, 1996, the Company declared
the lease and mortgage loan to be in default. Management of the Company has
reviewed its collateral position on these credits and has consulted with legal
counsel and the owners of the park. Based on this review and consultation,
management believes that the Company is adequately secured and will recover
all amounts presently owed plus interest through the date of collection. The
Company has scheduled an auction of the equipment portion of the collateral
for February 22, 1997.
The Company has additional leases with a net investment balance
of approximately $1.2 million which were not performing in accordance with their
contractual terms at December 31, 1996. Management of the Company has
reviewed its collateral position on these transactions and has consulted
with legal counsel. Based on this review and consultation, management
believes that the Company is adequately secured and will recover all amounts
presently owed.
6
<PAGE>
MERIDIAN FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 1996
(Unaudited)
Management of the Company is actively pursuing the resolution of
these finance receivables, and expects during the quarter ending March 31, 1997
that all of the non-performing leases and loan will either be repaid or brought
current in accordance with their contractual provisions.
3. Bonds Payable:
At December 31, 1996, bonds payable consist of two series of bonds,
bearing interest at rates of either 9% or 10% ($2,850,615 at 9% and $3,361,416
at 10%) collateralized by equipment purchased and leases originated from
proceeds of the offerings, cash held in the origination account, and by debt
service reserve funds held by a trustee. The two series are not
cross-collateralized, but are cross-defaulted. Quarterly principal payments
are required from the principal portions of the related lease payments
received by the Company. Based on the leases in place as of December 31,
1996, quarterly principal payments for the next twelve months are expected to
total $956,937.
4. Warehouse Line of Credit:
At December 31, 1996, the Company has borrowed approximately $761,000 on
its $ 1 million warehouse line. The interest rate on this warehouse
line is 2% over prime, and it is secured by all assets of the Company, excluding
those securing bonds payable.
5. Subsequent Event:
Subsequent to December 31, 1996, the Company executed a commitment
letter with a group of venture capital funds which would result in a net
additional investment in the Company of approximately $5 million in the form
of subordinated debt and convertible preferred stock. Funding of this
transaction is subject to final due diligence, and the execution of
definitive agreements and certain other conditions. In connection with this
anticipated capital infusion, the Company is finalizing negotiations with a
group of banks to provide a senior credit facility of $12-15 million. The
Company expects to close both the capital financing transaction and senior
credit facility during the quarter ending March 31, 1997.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview:
The Company's cash in-flows consist primarily of lease
payments from lessees. The Company's cash out-flows
consist primarily of investments in leases, debt service
obligations, dividend payments on the Company's preferred
stock, and general and administrative expenses. The
profitability of the Company depends largely on the
Company's ability to enter into suitable leases, to
realize an adequate spread between the interest rate paid
by the Company on its borrowings and the implicit interest
rate charged on the leases, and to avoid defaults by the
lessees.
Liquidity and Capital Resources:
With the expiration of the Company's public offering of
bonds on December 31, 1995, the Company began to explore
various other sources of funding, with the intention to
ultimately reduce the Company's borrowing costs, and to
provide the Company with an adequate source of funding to
grow the lease portfolio. On January 15, 1997, the Company
executed a commitment letter with a group of venture
capital funds which would, upon consummation, result in a net
additional investment in the Company of approximately $5 million
in the form of subordinated debt and convertible preferred stock.
Funding of this transaction is subject to final due
diligence, the execution of definitive agreements and certain other
conditions. In connection with this anticipated capital infusion, the
Company is finalizing negotiations with a group of banks
to provide a senior credit facility of $12-15 million.
The Company expects to close both the capital financing
transaction and senior credit facility during the quarter
ending March 31, 1997.
The Company also entered into an agreement on September
18, 1996 to sell leases to a third party from time to time
on a non-recourse basis. In addition to generating
current income recognition, this method of financing
transactions also allows the Company to consider deals
which it previously might have rejected, such as deals too
large that would cause a concentration issue or deals with
smaller interest spreads. It is the Company's intention
to continue the sale of future lease portfolio to third
parties as part of the Company's overall financial plan.
With the anticipated closing of the capital financing
transaction and senior credit facility, the Company expects to
have access to significant amounts of capital which
previously had not been available. Assuming the
anticipated transactions described above are consummated,
the Company anticipates a significant increase in leasing
transactions in the future.
On July 1, 1996, the Company entered into an agreement
with a bank for a $1 million warehouse line of credit. As
of December 31, 1996, the Company had borrowed
approximately $761,000 under this facility. The bank which
provides this line of credit is also a member of the proposed bank group
described above, and it is the Company's intention to pay
off and remove this warehouse line once the above-
described senior credit facility is put in place.
Management believes that its overall sources of liquidity
will continue to be sufficient to satisfy the foreseeable
financial obligations of the Company. Management of the
Company knows of no material requirements for capital
expenditures other than to enter into leases.
8
<PAGE>
Analysis of Cash Flows:
Net cash flows from operating activities result primarily
from net earnings or losses, adjusted for non-cash items
such as depreciation and amortization of assets and from
changes in working capital. The Company experienced net
cash inflows from operations of $21,862 for the three
months ended December 31, 1996, compared to a net cash
outflow of $31,432 for the three months ended December 31,
1995. The improvement in cash flows from operations from
period to period is due to paydowns in accounts payable
and increase in other assets during the 1995 period,
partially offset by a decrease in net earnings during the
1996 period. Net earnings from operations before non-cash
charges of depreciation and amortization were $12,334 in
the 1996 period, compared with $80,974 in the 1995 period.
The 1995 period includes a gain from the early termination
of leases of $33,653.
Net cash flows used in investing activities consist
primarily of investments in leases, which is the Company's
primary requirement for cash, and principal payments
received from lessees, which is currently the Company's
principal source of cash. During the three months ended
December 31, 1996, the Company invested $1,018,909 in
ten leases, compared to $961,161 in eight leases for the
same period in 1995. Principal payments received on
leases and loans receivable totaled $363,600 for the three
months ended December 31, 1996 compared to $552,438 for
the same period in 1995. Principal payments received in
the 1996 period include approximately $145,000 from
brokerage activity, and the 1995 period includes
approximately $360,000 from the early terminations of
leases. Investments in leases and principal payments
received on leases and the mortgage loan are expected to
grow in future periods.
Cash inflows from financing activities have consisted of
bank borrowings and proceeds from the sale of equity and
debt securities. Cash outflows consist of costs incurred
in the sale of the securities, principal payments on
borrowings and debt securities, preferred stock dividends,
and amounts deposited in the debt service reserve and
origination accounts. During the three months ended
December 31, 1996, the Company borrowed $880,730 and
repaid $120,006 in connection with its warehouse line of
credit. In the 1995
period, the Company sold $1,375,000 of bonds prior to the
expiration of the offering on December 31, 1995.
Management anticipates that the Company's primary cash
inflows from financing activities in the future will be
from the anticipated capital financing transaction and
senior credit facility as described in Liquidity and
Capital Resources, and that the amount of borrowings will
continue to grow as the Company's growth in leasing
transactions continues.
Results of Operations:
For the three months ended December 31, 1996, the Company
reflected an operating loss, before preferred dividend
requirements, of $67,856 compared to income for the same
period in 1995 of $2,101. Preferred dividend requirements
totaled $40,000 in each reporting period. Included in
operating earnings for the 1996 and 1995 reporting periods
are gains of $5,194 from brokerage activity and $33,653,
from the early termination of leases, respectively.
Interest income from leases, loans receivable and invested
funds for the three months ended December 31, 1996 was
$292,146 and interest expense was $218,070 in the same
period, or a net interest spread of $74,076, compared to
$278,559 of interest income, $215,698 of interest expense,
and a net interest spread of $62,861 in the comparable
period in 1995. In future periods, management expects
the interest spread to increase as the Company continues
to invest in new leases and initiates the new funding
arrangements as described in Liquidity and Capital
Resources, which should lower the Company's overall cost
of funds.
9
<PAGE>
Other general and administrative expenses increased
approximately $41,000 during the three months ended
December 31, 1996 compared to the same period in 1995.
This increase reflects the increased travel and marketing
efforts to generate new business, in anticipation of the
capital infusion and senior credit facility as described
in Liquidity and Capital Resources. As previously discussed, the Company
anticipates a significant increase in the amount of lease
transactions in the future. However, with its management
team and systems in place, general and administrative
costs going forward should be relatively fixed, with the
exception of a limited number of personnel additions
required by anticipated growth in the Company's lease
portfolio. Therefore, interest earned on leases is
expected to grow at a much faster pace than the related
general and administrative expenses.
Impact of Interest Rate Changes and the Restaurant
Industry:
The overall strength of the U.S. economy and the general
interest rate environment have remained relatively stable
during the past few years. To date the Company has funded
its fixed rate leases with fixed rate debt, with similar
duration, thereby avoiding any interest rate risk. While
a dramatic rise in future interest rates would not have a
direct impact on leases booked to date, it may have an
impact on the restaurant industry's growth rate. A rising
interest rate environment may also impact the Company's
future gains on brokerage activities. It is the Company's
intention to structure future funding arrangements so as
to
minimize interest rate risk.
The Company's primary focus involves the leasing of
complete packages of restaurant equipment for restaurant
franchises. The franchise restaurant industry has
experienced rapid growth as the number of franchise
concepts and units continues to grow. As large
metropolitan areas in some geographic areas begin to reach
saturation points from the standpoint of restaurant
locations, the Company is seeing an increasing number of leasing
opportunities in more rural locations, which would tend to be the smaller
type franchisee that the Company targets. In addition,
the Company is seeing some consolidation in the
marketplace as franchisees purchase other franchisees'
operations. While these types of transactions are
generally larger in size than the Company's typical lease
deal, the Company expects this consolidation to present
opportunities to utilize the Company's third party
brokerage source.
Inflation has not had a material effect on the Company's
operations.
Credit Risk:
The Company has a lease and mortgage
loan outstanding to Old Indiana Limited Liability Company,
which owns a theme park in Thorntown, Indiana, in the total
amount of approximately $1.1 million as of December 31 1996.
During the quarter ended December 31, 1996, the
Company declared the lease and mortgage loan to be in
default. Management of the Company has reviewed its
collateral position on these credits and has consulted
with legal counsel and the owners of the park. Based on
this review and consultation, management believes that the
Company is adequately secured and will recover all amounts
presently owed plus interest through the date of
collection. The Company has scheduled an auction of the equipment portion
of the collateral for February 22, 1997.
The Company has additional leases with a net investment
balance of approximately $1.2 million which are not
performing in accordance with their contractual terms at
December 31, 1996. Management of the Company has reviewed
its collateral position on these transactions and has
consulted with legal counsel. Based on this review and
consultation, management believes that the Company is
adequately secured and will recover all amounts presently
owed.
Management of the Company is actively pursuing the
resolution of these finance receivables, and expects
during the quarter ending March 31, 1997 that all of the
nonperforming leases and loan will either be repaid or
brought current in accordance with their contractual
provisions.
10
<PAGE>
Forward-looking Statements:
The statements contained in this filing on Form 10-QSB
that are not historical facts are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act. Actual results may differ
materially from those included in the forward-looking
statements. These forwardlooking statements involve risks
and uncertainties
including, but not limited to, the following: changes in
general economic conditions, including changes in interest
rates and spending on food prepared outside the home;
competitive or regulatory changes that affect the cost of
or demand for the Company's lease product; and the
availability of funds or third-party financing sources to
allow the Company to purchase equipment and enter into new
leases. The Company's future results also could be
adversely affected if it is unable to resolve the current
defaults in its portfolio without significant loss.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the Index to Exhibits appearing on
page 13 are filed herewith.
(b) On October 25, 1996, the Company filed a Form 8-K indicating
a change in its certifying accountant from Arthur Andersen LLP
to Crowe Chizek and Company, LLP.
11
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MERIDIAN FINANCIAL CORPORATION
By: /s/ Michael F. McCoy
Michael F. McCoy
President
By: /s/ Gerald W. Gerichs
Gerald W. Gerichs
Vice President, Secretary
and Treasurer
(Principal Financial Officer)
Date: February 13, 1997
12
<PAGE>
INDEX TO EXHIBITS
Page No.
In this
Exhibit No. Description Filing
11 Statement re: Computation of Per Share Earnings (Loss)
27 Financial Data Schedule
COMPUTATION OF PER SHARE EARNINGS (LOSS)
Earnings (loss) per common share is calculated by
subtracting preferred stock dividends from net earnings
(loss) and dividing that amount by the weighted average
shares outstanding for the period. Weighted average shares
outstanding for the three month period ending December 31,
1996 and 1995 were 1,000. The weighted average shares
outstanding in both periods exclude 333 shares relating to
warrants outstanding, which entitle the holders to purchase,
at a nominal exercise price, a number of common shares equal
in the aggregate to 25% of the total number of common shares
that would be outstanding immediately after issuance of all
such common shares, since these warrants are antidilutive.
Exhibit 11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000917214
<NAME> MERIDIAN FINANCIAL CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 193,976
<SECURITIES> 0
<RECEIVABLES> 6,847,704
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,848,715
<CURRENT-LIABILITIES> 0
<BONDS> 6,212,031
0
1,789,560
<COMMON> 68,553
<OTHER-SE> (1,045,152)
<TOTAL-LIABILITY-AND-EQUITY> 7,848,715
<SALES> 0
<TOTAL-REVENUES> 297,340
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 147,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,070
<INCOME-PRETAX> (67,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (107,856)
<EPS-PRIMARY> (107.86)
<EPS-DILUTED> 0
</TABLE>
