- 4 -
agreement, petitioner redeemed UBM's 51-percent stock interest
for a purchase price of $6,250,050, issued a note to UBM's parent
corporation for that amount (UBM note), and retired the redeemed
shares. As a result of that redemption, Mr. Neiman, Mr. Reed's
estate and/or its beneficiaries,3 and Snider Lumber (referred to
collectively as the shareholders) each owned one-third of peti-
tioner, and they were personally liable on the UBM note.
As of February 28, 1986, petitioner's liabilities exceeded
it assets and its net worth was negative $1,514,000. According
to its audited financial statement for its fiscal year ended
February 28, 1986, that was prepared by Touche Ross & Co.,
petitioner's net income after taxes (but before utilization of
net operating loss carryforwards/carrybacks) for that year was
negative $3,599,000. During that fiscal year, petitioner's
working capital decreased by $3,426,000 from $7,008,000 to
$3,582,000 and its cash balance decreased by $1,410,000 from
$2,815,000 to $1,405,000. Petitioner's long-term debt increased
from $8,723,000 as of the end of its fiscal year ended February
28, 1984, to $13,092,000 as of the end of its fiscal year ended
February 28, 1986. As of February 28, 1986, employee morale was
3 It is unclear from the record whether Mr. Reed's estate and/or
its beneficiaries owned Mr. Reed's stock from the period beginn-
ing with Mr. Reed's death in 1981 until that stock was purchased
(as discussed below) by Stanislaus Funding Corp. in December
1986. For convenience, we shall refer hereinafter to the owner
of Mr. Reed's stock during that period as Mr. Reed's estate.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011