UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB/A
Amendment No. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
UNITED STATES BASKETBALL LEAGUE, INC.
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(Name of Small Business Issuer in its charter)
Delaware 06-1120072
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
46 Quirk Road, Milford, Connecticut 06460
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (203) 877-9508
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Securities to be registered under Section 12(b) of
the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock $.01 par value per share
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(Title of class)
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RISK FACTORS
Prospective investors as well as Shareholders should be aware that an
investment in USBL involves a high degree of risk. Accordingly, you are urged to
carefully consider the following Risk Factors as well as all of the other
information contained in this Registration Statement and the information
contained in the Financial Statements and the notes thereto.
Forward Looking Statements
When used in this Registration Statement, the words "may", "will",
"expect", "anticipate", "estimate" and "intend" and similar expressions are
intended to identify forward looking statement within the meaning of Section 21
E of the Securities Exchange Act of 1934 regarding events, conditions, and
financial trends that may affect our future plan of operations, business
strategy, operating results and financial position. Prospective investors are
forewarned and cautioned that any forward looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within any such forward
looking statements.
Our Operating History Does Not Reflect Profitable Operations
Our operating history does not reflect a history of profitable
operations. Since our inception we have been attempting to develop the League.
Our operations 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 start-up costs to develop their respective franchises, we may
continue to operate at a loss. There can be no assurance that we will be
successful.
We May Not Be Able to Continue as a Going Concern
Because of our historically poor revenues and earnings, our auditors
have for at least the last four years qualified their opinions 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 what we perceive
to be true value for a franchise because of the League's overall poor financial
performance. As such we have sold franchises for less than we believe the true
value to be and additionally have extended terms for payment as additional
inducements to the franchisees to purchase franchises. As a result, our revenues
have been affected and will continue to be affected until such time as we are
able to realize the full value for franchises.
We Have Not Established Adequate Guidelines in Connection with the Sale of
Franchises
Historically in our dealings with prospective franchisees and in our
desire to sell franchises, we did not establish adequate guidelines to insure
that prospective franchisees have
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sufficient capital to properly finance a franchise and to be able to absorb
losses until such time as the franchise would become profitable. Starting with
the 1999 season, we have established rigorous standards to ensure the viability
of the franchise over the long term; however, there is still no assurance that
in view of our historical dealings we will be able to attract qualified
franchisees.
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 related parties, including the Meisenheimer family as well as
companies affiliated with the Meisenheimers to assist in financing. If members
of the Meisenheimer family elected not to continue to advance loans to us, our
operations could be drastically impaired. See, "Description of Business--
Dependency on Affiliates."
We Are Dependent on Corporate Sponsorships Which Have Been Negligible
The financial success of the individual franchises is dependent to a
large degree on corporate sponsorship to help defray costs. To date, corporate
sponsorship in some cities has been negligible and as a result, some of the
franchises have had to absorb expenses which would otherwise have been supported
by corporate sponsorship. As a result, profits of some of the franchises have
been affected and in many instances some of 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 comes directly after the NBA playoffs and additionally
competes with outdoor sporting events such as baseball, golf and tennis. Our
season is at a time when spectators might normally prefer to be outdoors rather
than indoors in an arena. These factors have had some impact on the League's
overall attendance, although attendance has continued to improve.
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 develop a national promotion for the League. Promotion will achieve
two objectives: (i) create more fan interest, and (ii) franchise interest. Until
such time that we can properly promote the League we do not anticipate any
significant change in the overall fan interest. While attendance has recently
improved, it is still only rather small. Additionally, interest in franchises
has increased, but without real promotional efforts, we do not anticipate any
significant increase in franchises.
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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 85% 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 over the affairs of the Company.
Dependence upon Key Individual
Our success is dependent upon the activities of Daniel T. Meisenheimer
III, Chief Executive Officer. The loss of Mr. Meisenheimer through death,
disability or resignation would have a material and adverse effect on our
business.
We Have a Limited Public Market for Our Stock
There are approximately 450,000 shares held by approximately 140 public
shareholders and as such there is a limited public market for our stock. As
such, sellers of our stock may have difficulty in selling their stock. In
addition, and until such time as we can list our Common Stock on the NASDAQ
Electronic Bulletin Board, our stock will continue to trade in the over-the-
counter market and this will make it even more difficult for individuals to sell
their stock.
Penny Stock Regulation
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the SEC. Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ System). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information regarding penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson must disclose this fact and the broker-dealer's presumed control
over the market, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, broker-dealers who sell
such securities to persons other than established customers and accredited
investors, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. Consequently, these
requirements may have the effect of reducing the level of activity, if any, in
the market for the Common Stock.
ITEM I DESCRIPTION OF BUSINESS
The United States Basketball League ("USBL", "we" or the "Company") was
incorporated in Delaware in May, 1984 as a wholly-owned subsidiary of
Meisenheimer Capital , Inc. ("MCI"). MCI was and is a publicly owned company
having made a registered public
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offering of its Common Stock in 1984. Since 1984, MCI has been under the control
of the Meisenheimer family consisting of Daniel T. Meisenheimer III, his
brother, Richard Meisenheimer, and their father and mother, Daniel Meisenheimer,
Jr. and Mary Ellen Meisenheimer. Daniel Meisenheimer, Jr. died in September,
1999.
(a) Operations
We were incorporated by MCI for the purpose of developing and managing
a professional basketball league, the United States Basketball League (the
"League"). The League was primarily conceived to provide a vehicle for college
graduates interested in going professional with an opportunity to improve their
skills and to showcase their skills in a professional environment and perhaps be
selected by one of the teams comprising the National Basketball Association
("NBA") to attend summer camp sponsored by that team. Today, players also
consist of free agents seeking to join an NBA team. USBL's season (May through
July of each year) was specifically designed to afford League players with the
chance to participate in the various summer camps run by the teams in the NBA.
Since 1984 and up to the present time there have been 125 players from the
League who also have been selected to play for teams in the NBA. Additionally,
approximately forty-five players each year were selected to play in the
Continental Basketball Association ("CBA"), the official developmental league of
the NBA; however, this league has now ceased operations.
Since the inception of the League, USBL has been engaged in selling
franchises and managing the League. From 1985 and up to the present time, USBL
has sold a total of thirty-five active franchises (teams), a vast majority of
which were terminated for non-payment of franchise obligations. For the 1999
season (ending in August, 1999) we had thirteen active franchises and two
inactive franchises. After the 1999 season, two franchises were canceled for
their failure to meet franchise obligations. For our 2000 season, which began in
May, 2000, we had eleven active franchises. For our 2001 season we had ten
active franchises.
As the League is presently constituted, each team within the League
maintains an active roster of twelve players during the season and each team
plays thirty games per season. We have playoffs at the conclusion of the regular
season. Under the terms of our Franchise Agreements, each franchise is limited
to a $47,500 salary cap for all players for each season. No player receives more
than $1,000 a week as salary.
Since the inception of the League to the present time, the number of
active franchises has fluctuated from seven to a high for the 1999 season of 13
franchises. The current active franchises, divided into the Southern,
Mid-Atlantic and Northern Divisions, are located in Sarasota, Florida (the Gulf
Coast SunDogs); Dodge City, Kansas (the Dodge City Legend); Enid, Oklahoma (the
Oklahoma Storm); Fort Myers, Florida (the Florida Sea Dragons);Salina, Kansas
(the Kansas Cagerz); Washington, DC (the Washington DC Congressionals); Atlantic
City, New Jersey (the Atlantic City Seagulls);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.
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At the present time we are offering franchises for $300,000. Our most
recent sales of franchises occurred in the 1999 and 2000 seasons and involved
the sale of two franchises for $250,000 each. In connection with the sale in
1999, we accepted a down payment of $35,000 and agreed to accept equal
installment payments of $8,950 a month for 24 months. The first installment
payment of $8,950 was originally due on or before January 31, 2001. The
franchisee has requested that installment payments commence in September, 2001
and we have agreed. This gave the franchisee the opportunity to reserve cash
during the active season. With respect to the sale of the other franchise in the
2000 season, we received a down payment of $80,000 and payments of two
installment payments amounting to $70,000. The balance of $100,000 is due in two
equal installments payments of $50,000 each, one due on July 15, 2001 and the
other due on July 15, 2002. The franchisee was unable to pay the July 15, 2001
installment and has requested additional time until January 31, 2002 to pay the
installment. We agreed to extend the time.
Prior to the foregoing sales and since 1984, we have sold franchises at
various prices ranging from as little as $25,000 to $250,000, our most recent
sale. The price for the franchises has varied depending on the location of the
franchise, the prior history, if any, and the location of existing franchises.
Because historically most of the franchises have not operated profitably, the
asking price was negotiated and in addition we extended highly favorable
installment plans. Nearly all of the franchises sold by us since the beginning
of our operations in 1985 and up to the present time have been sold on an
installment basis and at times the purchasers of the franchises have not been
able to meet the installment terms and as a result the franchises were
terminated. We believe that today we are in a stronger position and have a
greater name recognition and that as a result we will be able to realize the
full asking purchase price in future sales.
During fiscal year ended February 29, 1996 ("Fiscal 1996") we entered
into an agreement with American Independent Television Network, Inc. ("AIN").
The agreement provided for the sale of 20 expansion franchises to AIN which are
intended to be established west of the Mississippi River. Pursuant to the terms
of the agreement, AIN contracted to purchase from us five franchises each year
for a total of 20 franchises spread over four years. In exchange for each of the
five franchises we received for each year of the four years, 2,000,000 units of
negotiable advertising due bills for a total of 8,000,000 units. These due bills
are redeemable for television air time which would enable us to have our games
televised over the AIN Network, which broadcasts through satellite transmission
to approximately 90 cities throughout the United States.
To date we have only used 300,000 units of negotiable due bills for
broadcasting games leaving us with a balance of 7,700,000 unused units. The
reason we have not availed ourselves of the additional air time is because we
were not able to locate sponsors to sponsor the broadcasting of the games. Since
fiscal 1996 we have reduced our valuation of the units and as of August 31,
2001, we are currently valuing these units at $100,000 (see "Financial
Information"). These due bills will expire on December 28, 2001. We are
currently seeking purchasers for these due bills.
To date AIN has not activated any of the franchises. Their right to activate any
of the franchises will expire in October, 2001. It is our understanding from
preliminary
6
communications with representatives of AIN that in all probability AIN will not
activate any of the franchises.
We use a standard franchise agreement which is on file in the various
states where we offer our franchises. Under this standard franchise agreement,
the term of the franchise is for ten (10) years with a right to renew for a
similar period. In addition to the initial purchase price of the franchises,
franchisees are required to pay an annual royalty fee of $20,000 per year.
Currently four of our active franchises are in arrears in their annual royalty
fees. All four are in arrears for one year. We have the right to terminate these
franchises for failure to pay the annual royalty fees, but in an effort to
maintain the continuity of the League we have elected not to do so. In addition
and because of our desire to have the League expand, historically, we have from
time to time adjusted annual royalty fees in certain situations where the
individual franchise has not been operating profitably.
The franchise agreement employed by us also entitles us to receive
television revenues on a sharing basis with the teams in connection with the
broadcasting of regional or national games. While we have broadcasted on a
regional basis, we have not received any significant revenues. We are also
entitled to receive a percentage from the sale of team and league merchandise
which is directly sold by us, primarily over the Internet. Revenues earned by us
have been insignificant. Revenues from the sale by a team of its own merchandise
is retained by the selling team. These sales have contributed to the individual
team's revenues.
The franchises agreements state that we will use our best efforts to
obtain sponsorships for each team and the League. Such sponsorships are
generally from local or national corporations. The sponsorships which for the
last few years have been negligible generally take the form of free basketballs,
uniforms, airline tickets and discount accommodations for teams when they
travel. The sponsorships generated by us are shared by all of the teams in the
League. The individual teams comprising the league are also free to seek
sponsorship for their own individual franchise. Some of the teams have been
successful in attracting sponsorships in the form of merchandise and cash and it
is these sponsorships that have helped support the ongoing operations of the
individual teams. Other teams have not been successful. The success of obtaining
sponsorship is generally a function of good attendance and good media exposure.
In some instances particular franchises cannot generate any meaningful
attendance because of a lack of media exposure.
The Franchise Agreement requires us to provide scheduling of all games
and officiating for all games. We also print a full roster book as well as a
weekly newsletter which provides information regarding the League as well as
individual players and their personal statistics.
As previously stated, very few of our franchises have operated
profitably. This is primarily due to the fact that attendance and sponsorship
has not been sufficient to sustain a team's expenses. We estimate that at the
current time annual expenses for each team average about $220,000. At the
present time only two franchises are operating profitably. The general lack of
marketing by the League and the individual teams is primarily due to
insufficient capital to properly promote and market the League, which has
resulted both in our inability and the individual team's inability to attract
any meaningful sponsorships. As a result, the sale of
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additional franchises either to maintain a constant number of franchises or to
expand the League has historically proven difficult for USBL.
From the inception of the League, USBL has generally operated at a
loss. This has been due to the poor sale of franchises and the inability of most
of the franchises to generate sufficient revenues to pay their respective annual
royalty fees. Because of the poor historical record, USBL has been dependent on
loans from the principals and their affiliated companies to defray the cost of
operations. See "Related Transactions." Additionally and because of our poor
performance for at least the last four years, our auditors have rendered
qualified opinions based on their concerns as to our ability to continue as a
going concern.
We do believe that the current mix of franchises is beginning to
reflect a greater spectator interest resulting in an increase in attendance. For
Fiscal 1999, gross attendance for the entire League was 153,115 attendees which
represented an average of 981 attendees per game. The gross attendance for
Fiscal 2000 was 162,962-1,044 attendees per game, which represented
approximately a 6 1/2 % increase over the previous year. For the fiscal year
which ended February 28, 2001, attendance for our entire season (the 2000
season) was 248,222 attendees, 1,513 attendees per game. This represented a 52%
increase over Fiscal 2000. For our 2001 season, total attendance was 209,552,
1,352 attendees per game, a decline from the prior season. However, there was
one less team. The general increase in attendance over prior years has resulted
in increased revenues for each team. We believe that the significant increase in
attendance for fiscal 2000 was a positive factor and could have an effect on the
future growth of the League and may aid in the sale of new franchises and enable
us to receive our full asking price for franchises.
(b) Employees
We currently have a staff in excess of 50 people. USBL has four
full-time employees consisting of the chairman and League commissioner, Daniel
Meisenheimer III, a director of administration, a director of public relations
and a director of operations. The balance, 46 in number, are employed as
referees and statisticians who are paid on a per game basis. From time to time
we have also used independent contractors for consulting work.
(c) Future Plans
We have, as an ultimate goal, the establishment of at least forty (40)
franchises throughout the United States, consisting of ten (10) teams in four
regional divisions. This would result in regional play-off games and then a
final championship series. We are also attempting to develop a formal
association with the National Basketball Association ("NBA"). During fiscal
1998, the NBA selected us to handle a pre-draft camp for the Korean Basketball
League for which we received a nominal fee. We continue to pursue a relationship
with the NBA and during the last six months we have had meetings with
representatives from the NBA, but nothing concrete has developed. We believe
that a formal association with the NBA would enhance the value of the franchises
and attract more significant gate attendance.
Only recently the developmental league for the NBA, the Continental
Basketball Association (the"CBA") disbanded. The Company was disappointed to
learn recently that the
8
NBA intends to have its own developmental league replace the CBA rather than
consider using the USBL as a minor league. However, and notwithstanding this,
the NBA elected not to have its development league season compete with USBL's
season. The Company believes that because of the failure of the CBA, USBL might
become more dominant, which could eventually result in a formal association of
some type with the NBA. Notwithstanding the lack of a formal relationship, the
NBA is well aware that USBL represents a potential pool of qualified players and
to date 132 USBL players have graduated to the NBA.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF
OPERATIONS
Nine Months Ended November 30, 2001 as Compared to November 30, 2000
Initial franchise fees for the nine months ended November 30, 2001 and 2000
approximated $170,000 and $251,000, respectively. In addition, continuing
franchise fees decreased from $211,500 to $187,212. The aggregate decrease of
$105,288 (23%) is a result of slower collections from certain franchises. This
reflects the sluggishness of the general economy. No new franchises were sold in
the nine months ended November 30, 2001 and 2000, respectively. Advertising and
sponsorship revenue totaled $65,000 and $27,000 for the nine months ended
November 30, 2001 and 2000, respectively. Approximately $208,000 and $204,000 of
the 2001 and 2000 revenues, respectively, were derived from various related
parties.
Operating expenses for the nine months ended November 30, 2001 and 2000
approximated $505,000 and $417,000, respectively. The increase of $88,000
principally reflects the recognition of an asset impairment on the value of
prepaid advertising credits. It also reflects higher team expenses, resulting
from higher insurance and travel costs, incurred during the six months ended
August 31, 2001, offset by reductions in other operating expenses as a result of
the Company's efforts to control costs.
Net loss for the nine months ended November 30, 2001 approximated $77,800, as
compared to net income of $97,300 for the nine months ended November 30, 2000.
The decrease reflects the decline in revenues generated, as discussed above, and
the charge for the asset impairment.
Three Months Ended November 30, 2001 as Compared to November 30, 2000
Initial franchise fees for the three months ended November 30, 2001 approximated
$20,000. There were no initial franchise fees recorded in the three months ended
November 30, 2000. Continuing franchise fees decreased from $88,500 to $71,900.
The decrease of $3,400 reflects slower collections from certain franchises. This
reflects the sluggishness of the general economy. No new franchises were sold in
the three months ended November 30, 2001 and 2000, respectively. No advertising
or sponsorship revenue was recorded in the three months ended November 30, 2001
and 2000, respectively. Approximately $10,000 and $42,000 of the 2001 and 2000
revenues, respectively, were derived from various related parties.
Operating expenses for the three months ended November 30, 2001 and 2000
approximated $146,000 and $103,000, respectively. The increase of $43,000
principally reflects the
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recognition of a $100,000 impairment in the value of prepaid advertising
credits. It also reflects lower team expenses, advertising, travel, and other
operating expenses, a result of the Company's efforts to control costs and the
decision in the third quarter to cease supporting team operations.
As a result of operations for the nine and three months ended November 30, 2001,
it is anticipated that the Company will continue to operate at a loss for the
next twelve months. The Company has not been able to attract any new franchises
for the forthcoming 2002 season, which starts in May. While there was some
interest by third parties, no sales were consummated, primarily due to current
general economic conditions. Further, the Company is unable to predict whether
there will be any marked increase in attendance at games. If attendance falls
off, this could impair the ability of the franchises to pay their annual
franchise fees and other charges, which would then result in the Company having
to rely on affiliates for loans and revenue- generating transactions. The
Meisenheimer family is fully committed to making the Company a profitable
operation and also making the League a viable one.
Given the current lack of capital, the Company has not been able to develop any
new programs to revitalize the League, nor has it been able to hire additional
sales and promotional personnel. As a result, the Company is currently dependent
on the efforts of Daniel Meisenheimer, III and two existing employees for all
marketing efforts. Their efforts have not resulted in increasing the number of
franchises.
Recently, the NBA established a developmental basketball league known as the
National Basketball Development League ("NBDL"). The Company believes that the
establishment of this new league, consisting of eight teams, will have no effect
on the Company's season, since the NBDL season as presently constituted runs
from November through March. Further, nothing prohibits an NBDL player from
playing in the USBL. Accordingly, and as of the present time, the Company does
not perceive the NBDL as a competitor. However, with the establishment of the
NBDL it is unlikely that at least for the present time the Company can develop
any meaningful working relationship with the NBA.
Net loss for the three months ended November 30, 2001 approximated $49,200, as
compared to net income of $4,800 for the three months ended November 30, 2000.
The decrease reflects the charge for the asset impairment, offset by the
reduction in operating costs.
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
For the year ended February 28, 2001 ("Fiscal 2001") initial franchise
fees amounted to $251,000 as compared to $335,000 for the year ended February
29, 2000. This represents a decrease of 25% over the prior period and was due to
both the extended payment terms granted by the Company to certain franchises and
the sale of fewer franchises. Continuing franchise fees for Fiscal 2001 amounted
to $242,500 as compared to $167,404 for Fiscal 2000. This represents an increase
of 45% over the prior year and was due to the ability of certain franchises to
pay their annual franchise fee payments. The increase in attendance of certain
franchises provided those franchises with available cash to meet their
obligations. Advertising fees were $57,500 for Fiscal 2001 as compared to
$30,603 for Fiscal 2000, an increase of approximately 88% over the prior
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year. The advertising fees for the most part were generated from an affiliate,
Spectrum Associates, Inc., which ran advertisements in league bulletins,
programs and brochures.
Operating expenses for Fiscal 2001 amounted to $639,935 as compared to
$516,303 in the prior year, an increase of 24%. The increase reflects the
recognition of an impairment in the value of the Company's prepaid advertising
credits of $192,000. Historically the Company had been carrying advertising
credits which they had received as consideration for the reservation of 20
franchises. The Company has not used any significant portion of the credits and
the credits are due to expire in Fiscal 2002. For this reason the Company has
concluded that it was appropriate to adjust the carrying value of the
advertising credits to better reflect their fair value. As a result, the Company
presently values these credits at $292,062. Another significant increase in the
operating expenses was represented in consulting fees. For Fiscal 2001,
consulting fees amounted to $120,229 as compared to $37,486 in Fiscal 2000,
resulting in an increase of $82,473. This increase was due to a $90,000
consulting fee paid to MCI, an affiliate, for management services rendered to
the League. Additionally, there was a decrease in team and post season festival
expenses for Fiscal 2001. That expense was $45,466 as compared to $166,748 for
Fiscal 2000, a decrease of $121,282. This decrease resulted from the fact that
in Fiscal 2001, the individual teams paid for most of the post season festival
costs.
Fiscal 2000 Compared to Fiscal 1999
Revenues for the fiscal year ended February 29, 2000 ("Fiscal 00")
were $553,021 as compared to revenues of $806,552 for the fiscal year ended
February 28, 1999 ("Fiscal 99"). Revenues from initial franchise fees decreased
by $103,754 or 24%, primarily because of the terms extended to new franchisees.
A total of 2 and 1 new franchises were sold in fiscal 00 and fiscal 1999
respectively. Continuing franchise fees, however, increased $62,225 or 59% as a
result of the increased success of some of the USBL franchisees. Advertising
income amounted to $30,603 in Fiscal 00 compared to advertising revenue of
$112,500 in Fiscal 99. The advertising income received in Fiscal 99 was from a
related party, Spectrum, which significantly decreased its level of advertising
in Fiscal 2000. Further, other income in Fiscal 1999 reflected a team management
fee of $120,000 received from MCI for the Company's assistance in managing MCI's
teams. This one-time arrangement did not continue into Fiscal 2000.
Operating expenses for Fiscal 00 decreased by approximately $479,000 to
$516,000 compared to $995,000 in Fiscal 1999. In Fiscal 99, 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.
The slight decrease in the remaining operating expenses of approximately $29,000
represent management's continued emphasis on having the Company reduce its
operating overhead. The Company recorded a loss on the impairment of certain
investments it has held in common stocks in the amount of approximately $20,000.
This represents management's recognition of a permanent impairment in the value
of these investments.
The net income for Fiscal 00 amounted to $14,888, as compared to net
loss of $190,965 for Fiscal 99. The change from the previous year's loss is
primarily attributable to the allowance for the impairment in the value of the
advertising credits amounting to $450,000 in Fiscal 99.
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This reduction was partially offset by decreased total revenue of $253,531, in
Fiscal 99 as compared to Fiscal 00.
Liquidity and Capital Resources
The Company had a working capital deficit of approximately $139,000 at November
30, 2001.
The Company's statement of cash flows reflects cash provided by operations of
approximately $13,400, consisting principally of net loss of $77,800 offset by
the non-cash charges of an asset impairment ($100,000) and contributed services
($7,500). Net cash used in financing activities approximated $4,600, consisting
of a decrease in loans to stockholder loans ($11,600) offset by a net decrease
in amounts due from (to) affiliates ($7,000).
The Company's ability to generate cash flow from franchise royalty fees is
dependent on the financial stability of the individual franchises constituting
the League. Each franchise is confronted with meeting its own fixed costs and
expenses which are primarily paid from revenues generated from attendance.
Experience has shown that USBL is generally the last creditor to be paid by the
franchise and if attendance has been poor, USBL has from time to time only
received partial payment and in some cases, no payments at all.
The Company estimates that it requires at least $300,000 of working capital to
sustain operations over a 12 month period. Assuming that all of the teams pay
their annual royalty fees, this would only amount to $240,000. However, the
Company believes that given prior experience it is more realistic to anticipate
royalty fees of approximately $120,000 because some of these teams are simply
not able to generate significant attendance at games. Additionally, some of the
teams owe back franchise fees. The Company anticipates that it will receive at
least $100,000 of back franchise fees during the next 12 months. Adding this to
the $120,000 of anticipated royalty fees, this could amount to $220,000 of
revenues. Accordingly, if the Company is unable to generate additional sales of
franchises within the next 12 months it will have to rely on affiliates for
loans to assist it in meeting its current obligations.
With respect to long term needs, the Company recognizes that in order for the
League and USBL to be successful, USBL has to develop a meaningful sales and
promotional program. This will require an investment of additional capital.
Given the Company's current financial condition, the ability of the Company to
raise additional capital other than from affiliates is questionable. At the
current time the Company has no definitive plan as to how to raise additional
capital.
ITEM 3 DESCRIPTION OF PROPERTY
We rent approximately 2,000 square feet under a lease with Meisenheimer
Capital Real Estate Holdings, Inc. ("MCR"), an affiliated company and another
subsidiary of MCI. Our space is in a building which also houses other tenants.
Our space consists of four offices, a common area and a conference room. The
existing lease has been extended to December 31, 2003. We paid an annual rent of
$29,682 for the fiscal year ended February 28, 2001. The property is located at
46 Quirk Road, Milford, Connecticut 06460.
12
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
We have 30,000,000 shares of authorized Common Stock, of which
3,478,502 shares are currently issued and outstanding. We also have 2,000,000
authorized shares of Convertible Preferred Stock, of which 1,105,679 shares are
currently issued and outstanding.
The following table sets forth certain information as of April 30, 2001
with respect to the beneficial ownership of both our outstanding Convertible
Preferred Stock (the "Preferred Stock") and Common Stock by (i) any holder of
more than five (5%) percent ; (ii) each of our officers and directors and (iii)
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) 143,998 Preferred Stock (1) 13.0%
c/o The United States Basketball League 437,400 Common Stock 12.7%
46 Quirk Road
Milford, CT 06460
Estate of Daniel T. Meisenheimer, Jr.(2) 182,723 Preferred Stock 16.5%
c/o Spectrum Associates 12,000 Common Stock -0-
440 New Haven Avenue
Milford, CT 06460
Richard C. Meisenheimer(3) 142,285 Preferred Stock 12.9%
884 Robert Treat Ext. 5,000 Common Stock -0-
Orange, CT 06477
Meisenheimer Capital Corp. 140,000 Preferred Stock 12.7%
46 Quirk Road 2,095,000 Common Stock 60.8%
Milford, CT 06460
Spectrum Associates, Inc. (4) 376,673 Preferred Stock 34.1%
440 New Haven Avenue 231,857 Common Stock 6.7%
Milford, CT 06460
All Officers and Directors as a Group 286,283 Preferred Stock 25.9%
437,400 Common Stock 12.8%
- -------------------------
(1) Includes 20,000 shares of Preferred Stock held by Mr. Meisenheimer III for
the benefit of his two minor children.
(2) Mr. Meisenheimer Jr., who died in September, 1999, bequeathed his stock to
his wife, Mary Ellen Meisenheimer.
(3) Richard Meisenheimer, an officer and director of USBL, is also the President
of Spectrum Associates, Inc., which owns both Preferred and Common Stock as set
forth herein.
13
(4) Between the various members of the Meisenheimer family and an affiliated
company, Spectrum Associates, Inc., the Meisenheimers effectively control 77% of
the outstanding Preferred Stock and 20% of the outstanding Common Stock.
Including the ownership of MCI by the Meisenheimer family, they effectively
control 81% of the outstanding Common Stock of USBL. No public shareholders own
any Preferred Stock of USBL (see "Description of Securities").
14
ITEM 5 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following persons served as our directors and executive officers
for the fiscal year ending February 28, 2000:
Name Age Position
Daniel T. Meisenheimer III 50 Chairman of the Board and President
Richard C. Meisenheimer 47 Chief Financial Officer and Director
Daniel T. Meisenheimer, Jr. 71 Director (deceased on September 16, 1999)
Background of Executive Officers and Directors
Daniel T. Meisenheimer III ("Mr. Meisenheimer III") has been Chairman of the
Board and President of the Company since its inception in 1984. Mr. Meisenheimer
III has also been the Chairman of the Board and President of MCI, USBL's parent,
since 1983 and occupies the same positions in Cadcom and MCR, the other
subsidiaries of MCI. Mr. Meisenheimer III is also a shareholder and director of
Synercom, Inc. ("Synercom"), a Meisenheimer family-owned holding company which
owns Spectrum Associates, Inc., a shareholder of USBL.
Richard C. Meisenheimer ("R. Meisenheimer"), brother of Mr.
Meisenheimer III, has acted as Chief Financial Officer and a Director of USBL
since the inception of the business in 1983. R. Meisenheimer has also been
associated with Spectrum Associates, Inc. ("Spectrum") since 1976 and is now the
President of that Company. Spectrum owns 37.7% of the Preferred Stock and 6.7 %
of our Common Stock. Spectrum is the main customer of Cadcom, MCI's other
subsidiary.
Daniel T. Meisenheimer, Jr. ("D. Meisenheimer, Jr.") was the father of Mr.
Meisenheimer III and R. Meisenheimer and the husband of Mary Ellen Meisenheimer.
D. Meisenheimer, Jr. served as a director of USBL from its inception to
September, 1999, when he died. We have not replaced D. Meisenheimer Jr. with
another director.
ITEM 6 EXECUTIVE COMPENSATION
For many years our only two officers, D. Meisenheimer III and Richard
Meisenheimer, have not received or taken any salaries from USBL. However, in
September, 1995, our Board of Directors adopted an option program reserving for
each officer 200,000 options exercisable at a price equal to the closing bid
price on the date of grant. In August, 1996, the directors with the consent of
the two officers elected to rescind the option program. No options were awarded
under the Plan.
15
There are no formal employment agreements between Daniel Meisenheimer
III and Richard Meisenheimer and they have not been paid any salary for the last
three years. MCI, of which both Daniel Meisenheimer III and Richard Meisenheimer
are also senior officers, did receive management fees of $90,000 during the year
ended February 28, 2001 as consideration for the services provided by Daniel
Meisenheimer and Richard Meisenheimer. Neither Daniel Meisenheimer III nor
Richard Meisenheimer have received any salary from MCI for the last three years.
In Fiscal 2000 and Fiscal 1999, Daniel Meisenheimer III and Richard Meisenheimer
have rendered management services to us for no consideration. For accounting
purposes we have elected to recognize a charge to our operations of $30,000 of
management fees for each of the years ended February 29, 2000 and February 28,
1999. See "Financial Statements." The increase in management fees in Fiscal 2001
reflects additional efforts and services required in developing the League west
of the Mississippi.
The following table reflects the salaries received by D. Meisenheimer
III and R. Meisenheimer for the fiscal years ended February 28, 2001, February
29, 2000 and February 28, 1999:
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities
Annual Stock Underlying LTIP All Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation ($) ($) SARs (#) ($) sation ($)
- --------------------------- ---- --------- -------- ---------- ----- -------- ----- ----------
Daniel T. Meisenheimer III 2000 -0- -0- -0- -0- -0- -0- -0-
President & Chief Executive
Officer
1999 -0- -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
Richard C. Meisenheimer 2000 -0- -0- -0- -0- -0- -0- -0-
Chief Financial Officer & Vice
President
1999 -0- -0- -0- -0- -0- -0- -0-
1998 -0- -0- -0- -0- -0- -0- -0-
There were no option/SAR grants or exercises in last fiscal year.
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans
For at least the last ten years, the principals of MCI consisting of Daniel
Meisenheimer III, Richard Meisenheimer and Daniel Meisenheimer, Jr. and their
affiliated companies have made loans to us. As of February 28, 2001 (Fiscal
2001), USBL was indebted to the principals or their affiliated companies in the
principal sum of $406,931, which includes accrued interest at six percent (6%)
per annum of $41,538. All of the outstanding debt is payable upon demand. Of the
foregoing amount, Spectrum is owed the principal sum of $39,867, including
accrued interest of $8,615. The principals (D. Meisenheimer III, R. Meisenheimer
and the Estate of Daniel T. Meisenheimer, Jr.) are owed $237,141 plus accrued
interest of $32,923. The remainder of $106,000 is due from USBL to Meisenheimer
Capital Real Estate Holdings, Inc., another subsidiary of MCI. See "Financial
Information."
16
b) Dependency on Affiliates
Over the years we have received a material amount of revenues from
affiliated persons or entities.
During the years ended February 28, 2001 and February 28, 2000, initial
and continuing franchise fees from companies controlled by the Meisenheimer
family, including Meisenheimer Capital and Spectrum Associates, approximated
$174,000 and $183,000, respectively.
In addition, Spectrum has purchased advertising from us in the form of
arena signage, TV commercials, tickets, and program and year book advertising
space. For the years ended February 28, 2001 and February 29, 2000, we earned
advertising fees of $57,500 and $25,500, respectively, from Spectrum.
ITEM 8 LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against USBL.
ITEM 9 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock traded during calendar years 1998 and 1999 on the
NASDAQ SmallCap Market under the symbol "USBL." On May 3, 2000, USBL was
delisted from the SmallCap Market because of the failure to have a registration
statement on file with the Securities and Exchange Commission. This Registration
Statement on Form 10KSB is being filed to cure the deficiency. Our stock now
trades on the over-the-counter market and is quoted in the National Quotation
Bureau Pink Sheets. The following is the range of high and low bid information
for each quarter for the fiscal years ended February 28, 1999 and February 29,
2000 and for the first and second quarters for the fiscal year ending February
29, 2002:
Fiscal 2000
Closing Bid
High Low
First Quarter Ended 5/29/99 $1.625 $1.125
Second Quarter Ended 8/31/99 $1.25 $.90625
Third Quarter Ended 11/30/99 $.9375 $.75
Fourth Quarter Ended 2/29/00 $1.3125 $.84375
17
Fiscal 2001
Closing Bid
High Low
First Quarter Ended 5/31/00 $1.125 $.50
Second Quarter Ended 8/31/00 $.86 $.52
Third Quarter Ended 10/30/00 $1.03 $.61
Fourth Quarter Ended 2/28/01 $.95 $.75
Fiscal 2002
High Low
First Quarter Ended 5/31/01 $.87 $.65
Second Quarter Ended 8/31/01 $.95 $.80
Third Quarter Ended 10/30/01 $.92 $.75
The foregoing range of high-low closing bid prices represents
quotations between dealers without adjustments for retail markups, markdowns or
commissions and may not represent actual transactions. The information has been
provided by the National Association of Securities Dealers Composite Feed or
other qualified inter-dealer quotation medium.
Approximately 450,000 of our Common Stock shares are held by 140
shareholders. The shares held by members of the public were issued by us in
connection with a private placement at least ten years ago and also in
connection with an offering in 1995 under Rule 504 of Regulation D of the
Securities Act of 1933.
We have not paid any dividends and do not anticipate paying dividends
in the future.
Our Preferred Stock is held by our officers and directors and
affiliates. No member of the public holds any Preferred Stock.
ITEM 10 RECENT SALES OF UNREGISTERED SECURITIES
FOR FISCAL YEAR ENDED FEBRUARY 28, 2001
The Company issued 2,000 shares to an employee.
ITEM 11 DESCRIPTION OF SECURITIES
(a) Common Stock. We are authorized to issue 30,000,000 shares of Common Stock,
$.01 par value per share. There are currently 3,485,502 shares of Common Stock
outstanding. Each share of the Common Stock entitles the holder thereof to one
vote on each matter submitted
18
to the stockholders of the Company for a vote thereon. The holders of Common
Stock (i) have equal ratable rights to dividends from funds legally available
therefor when and as if declared by the Board of Directors; (ii) are entitled to
share ratably in all of the assets of the Company available for distribution to
holders of Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive subscription or conversion
rights, or redemption or sinking fund provisions applicable thereto; and (iv) as
noted above, are entitled to one non-cumulative vote on all matters submitted
stockholders for a vote at any meeting of stockholders. We have not paid any
dividend on our Common Stock to date. The Company anticipates that, for the
foreseeable future, it will retain earnings, if any, to finance continuing
operations.
(b) Preferred Stock
The certificate of incorporation authorizes the issuance of up to
2,000,000 shares of Convertible Preferred Stock ("Preferred Stock") $.01 par
value per share. Each share of Preferred Stock is convertible at any time at the
discretion of the holder thereof upon written notice to the Corporation into one
share of Common Stock. Each share of Preferred Stock entitles the holder thereof
to five (5) votes per share on all matters submitted to shareholders for vote.
The Preferred Stock bears a two percent (2%) non-cumulative annual dividend. No
dividends have ever been paid on the Preferred Stock. At the present time there
are 1,105,679 shares of Preferred Stock outstanding. None of the shares are held
by members of the public. The company's Certificate of Amendment filed with the
State of Delaware on June 30, 1995 authorizing the establishment of the
Preferred stock did not create any other preferences for the Preferred Stock and
consequently the Preferred Stock shares equally with the Common Stock in
connection with a liquidation of the Corporation's assets.
(c) Transfer Agent. Continental Stock Transfer & Trust Co. is the Company's
Registrar and Transfer Agent for the Common Stock.
ITEM 12 INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to USBL's Certificate of Incorporation, all directors of USBL
will be indemnified by USBL against expenses actually and necessarily incurred
with the defense of any action, suit or proceedings to which they are made a
party by reason of their being or having been elected to serve as directors of
USBL and against claims, losses, damages and judgments against them by reason of
any act performed by them in their capacity as directors, except for any act in
which they are adjudged liable for misconduct in the performance of their duties
as directors. The effect is to eliminate liability of a director for monetary
damages except for any act where the directors have been adjudged liable for
misconduct in the performance of their duties as a director. Stockholder actions
can only be maintained against a director upon a showing of a breach of the
individual director's loyalty to the Company, a failure to act in good faith,
intentional misconduct, a knowing violation of the law, improper personal
benefit or an illegal dividend or stock purchase, and not for a director's
negligence or gross negligence in satisfying his duty of care.
19
ITEM 13 FINANCIAL STATEMENTS
The Financial Statements include audited statements for the years ended
February 28, 2001 and February 29, 2000 and unaudited statements for the nine
months ended November 30 2001 and 2000. They appear after the Signature Page.
ITEM 14 CHANGES IN AND DISAGREEMENTS IN ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in and disagreements in accounting and Financial
Disclosure.
ITEM 15 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
I. For Years Ended February 28, 2001 and 2000
(1) Independent Auditor's Report.
(2) Balance Sheet for USBL as of February 28, 2001.
(3) Statements of Operations for USBL as of Februar 28, 2001 and February
29, 2000.
(4) Statement of Stockholders' Equity for years Ended February 28, 2001
and February 29, 2000.
(5) Statements of Cash Flows for Years Ended February 28, 2001 and February
29, 2000. (6) Notes to Financial Statements for Years Ended February
28, 2001 and February 29, 2000.
II. Financial Statements for the Nine Months Ended November 30, 2001
(unaudited)
(1) Unaudited Financial Statements:
(2) Balance Sheets - November 30, 2001 and February 28, 2001
(3) Statements of Operations for the Three Months and Nine Months
Ended November 30, 2001 and 2000
(4) Statement of Stockholders' Deficiency for the Nine Months
Ended November 30, 2001
20
(5) Consolidated Statements of Cash Flow for the Nine Months
Ended November 30, 2001 and 2000
(6) Notes to Consolidated Financial Statements
(b) Exhibits
*3(i) Certificate of Incorporation (May 29, 1984)
*3(i)a Amended Certificate of Incorporation (Sept. 4, 1984)
*3(i)b Amended Certificate of Incorporation (March 5, 1986)
*3(i)c Amended Certificate of Incorporation (Feb. 19, 1987)
*3(i)d Amended Certificate of Incorporation (June 30, 1995)
*3(i)e Amended Certificate of Incorporation (January 12, 1996)
*3(i)f Certificate of Renewal (June 23, 1995)
*3(i)g Certificate of Renewal (May 22, 2000)
*3.9 By-Laws of USBL
*3.10 Amended By-Laws
**10.1 Lease between Meisenheimer Capital Real Estate Holdings, Inc. and USBL
**10.2 Standard Franchise Agreement of USBL
**10.3 Agreement between USBL and Topaz Selections Ltd for Barter Transac-
tions for Acquisition of Advertising Due Bills in Exchange for
Franchises
- --------------------------------
*Filed with Form 10-SB on May 30, 2000. **Filed herewith.
21
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act
of 1934, the Registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED STATES BASKETBALL LEAGUE, INC.
Registrant
By: Daniel T. Meiseheimer, III
----------------------------------------
Daniel T. Meisenheimer, III
Chief Executive Officer
Date: March 25, 2002
22
UNITED STATES BASKETBALL LEAGUE, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
INDEX TO FINANCIAL STATEMENTS
(1) Independent Auditor's Report F-1
(2) Balance Sheets for USBL as of February 28, 2001 F-2
(3) Statements of Operations for USBL for Years Ended
February 28, 2001 and February 29, 2000 F-3
(4) Statement of Stockholders' Equity for years Ended
February 28, 2001 and February 29, 2000 F-4
(5) Statements of Cash Flows for Years Ended February 28,
2001 and February 29, 2000 F-5
(6) Notes to Financial Statements for Years Ended
February 28, 2001 and February 29, 2000 F-6--F-8
23
Independent Auditors' Report
Board of Directors
United States Basketball League, Inc.
Milford, Connecticut
We have audited the balance sheet of United States Basketball League, Inc. as of
February 28, 2001 and the related statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended February 28, 2001.
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 auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of United States Basketball
League, Inc. as of February 28, 2001 and the results of its operations and its
cash flows for each of the two years in the period ended February 28, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying 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 cash flow deficiencies 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
June 13, 2001
F-1
UNITED STATES BASKETBALL LEAGUE, INC.
BALANCE SHEET
FEBRUARY 28, 2001
ASSETS
CURRENT ASSETS:
Cash $ 587
Due from affiliates 277,058
Inventory 29,534
Prepaid advertising credits (Note 5) 100,000
Other current assets 600
---
Total current assets 407,779
8,918
-----
$ 416,697
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 74,981
Due to affiliates 136,867
Loans payable - stockholders (Note 4) 270,064
-------
Total current liabilities 481,912
-------
STOCKHOLDERS' EQUITY: (Notes 4, 5 and 6)
Common stock, $0.01 par value, 30,000,000
shares authorized 3,485,502 shares issued
and outstanding 34,855
Preferred stock, $0.01 par value, 2,000,000
shares authorized; 1,105,679 shares issued
and outstanding 11,057
Additional paid-in capital 2,612,192
Deficit (2,680,865)
Treasury stock, at cost; 39,975 shares (42,454)
-------
Total stockholders' equity (65,215)
--------
$ 416,697
See notes to financial statements
F-2
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENTS OF OPERATIONS
Years Ended
February 28, February 29,
2001 2000
---- ----
REVENUES:
Initial franchise fees (Note 4) $ 251,000 $ 335,000
Continuing franchise fees 242,500 167,404
Advertising 57,500 30,603
Other (Note 9) 12,450 20,014
------ ------
563,450 553,021
------- -------
OPERATING EXPENSES (Notes 4 and 5)
Consulting 120,229 37,486
Team and post season festival expenses 45,466 166,748
Referee fees 55,690 39,635
Advertising 20,034 43,137
Salaries 50,000 98,183
Travel 54,692 24,730
Depreciation 6,456 6,455
Professional fees 9,795 10,534
Asset impairment (Note 5) 384,062 -
Other 85,573 89,395
------ ------
831,997 516,303
------- -------
(Loss) income from operations (268,547) 36,718
-------- ------
OTHER INCOME: (EXPENSES)
Loss on impairment of investments - (20,420)
Interest expense 8,600 (4,500)
Interest income (210) 541
Other - 2,549
---- -----
8,390 (21,830)
----- -------
NET (LOSS) INCOME $ (276,937) $ 14,888
= ======== = ======
NET (LOSS) INCOME PER SHARE $ (.08) $ -
= ==== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,444,519 3,455,425
========= =========
See notes to financial statements
F-3
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Notes 5, 7 and 8)
Common Stock Preferred Stock Additional Treasury Total
------------ ---------------
Shares Shares Paid-in Stock Stockholders'
Outstanding Amount Outstanding Amount Capital Deficit Shares Amount Equity
----------- ------ ----------- ------ ------- ------- ------ ------ ------
Balance, March 1, 1999 3,478,502 $34,785 1,105,679 $11,057 $ 2,576,112 $(2,418,816) 14,425 $(20,098) $ 183,040
Common stock issued for
services 5,000 50 - - 4,200 - - - 4,250
Contributed services - - - - 30,000 - - - 30,000
Acquisition of treasury stock - - - - - 25,550 25,550 (22,356) (22,356)
Net income - - - - - 14,888 - - 14,888
------- ------- -------- ------- ------ ------ ------ ------ ------
Balance, February 29, 2000 3,483,502 34,835 1,105,679 11,057 2,610,312 (2,403,928) 39,975 (42,454) 209,822
Common stock issued for
services 2,000 20 - - 1,880 - - - 1,900
Net loss - - - - - (276,937) - - (276,937)
------- ------- ------- ------- ------ ---------- ------- ------- --------
Balance, February 28, 2001 3,485,502 $34,855 1,105,679 $11,057 $ 2,612,192 $(2,680,865) 39,975 $(42,454) $ (65,215)
======= ======= ========= ======= ========= =========== ====== ======= =========
See notes to financial statements
F-4
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENTS OF CASH FLOWS
Years Ended
February 28, February 29,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (276,937) $ 14,888
- -------- - ------
Adjustments to reconcile net (loss)
income to net cash provided by (used in)
operating activities:
Depreciation 6,456 6,455
Asset impairment 384,062 20,420
Gain on disposal of asset - (2,549)
Non-cash revenue - (5,103)
Non-cash compensation 1,900 34,250
(Increase) decrease in assets:
Franchise fee receivable - 15,000
Inventory (5,836) (95)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 8,510 (83,592)
----- -------
395,092 (15,214)
------- -------
Net cash provided by (used in)
operating activities 118,155 (326)
------- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (14,323)
------- -------
Net cash used in investing activities - (14,323)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from (to) affiliates (92,264) (142,920)
Increase in stockholders' loans - 120,587
Decrease in stockholders' loans (31,500) -
------- -------
Net cash used in financing activities (123,764) (22,333)
-------- -------
NET DECREASE IN CASH (5,609) (36,982)
CASH AND CASH EQUIVALENTS, beginning of year 6,196 43,178
----- ------
CASH AND CASH EQUIVALENTS, end of year $ 587 $ 6,196
= === = =====
See notes to financial statements
F-5
UNITED STATES BASKETBALL LEAGUE, INC.
NOTES TO FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 28, 2001
1. Description of Business and Basis of Presentation:
-------------------------------------------------
The United States Basketball League, Inc. (the "USBL" or the "Company") operates
a professional summer basketball league through franchises located in the
eastern part of the United States.
The Company has incurred an accumulated deficit of approximately $2,681,000. In
addition, the USBL's reliance on both substantial non-cash transactions and
related parties (Notes 4 and 5) create an uncertainty as to the USBL's ability
to continue as a going concern.
The Company is making efforts to raise equity capital, revitalize the
league and market new franchises, however, there can be no assurance that the
USBL will be successful in accomplishing its 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 USBL be unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
------------------------------------------
a. 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/or cash equivalents.
b. Inventory
Inventory consists of USBL trading cards, basketball uniforms,
sporting equipment and printed promotional material. Most of the inventory was
obtained through barter transactions whereby the USBL granted suppliers various
advertising space (print) and air time (television) 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.
c. Depreciation and amortization expense
-------------------------------------
Depreciation is computed using the straight-line method over an
asset's estimated useful life.
d. Revenue recognition
The Company generally uses the accrual method of accounting in these
financial statements. However, due to the uncertainty of collecting royalty and
franchise fees from the franchisees, the USBL records these revenues upon
receipt of cash consideration paid or the performance of related services by the
franchisee. Upon the granting of the franchise, the Company has performed
essentially all material conditions related to the sale. As described more fully
in Note 7, management recorded the advertising due bills received in exchange
for initial franchise fees based upon the value of the franchises sold. The
offering price of a new franchise at February 28, 2001 was $300,000.
F-6
2. Summary of Significant Accounting Policies: (Cont'd)
------------------------------------------
d. Revenue recognition (cont'd)
-------------------
The Company generates advertising revenue from fees for area signage,
tickets, and program and year book advertising space. Advertising revenue is
recognized at the time the advertising space is made available to the user.
Fees charged to teams to allow them to relocate are recognized as revenue
upon collection of the fee. Souvenir sales, which are generated on the Company's
web site, are recorded upon shipment of the order. Essentially all orders are
paid by credit card.
e. Income taxes
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 deferred tax asset (approximating $660,000) resulting
from the net operating loss carryforward.
As of February 28, 2001, a net operating loss carryforward of
approximately $1,650,000 is available through February 28, 2020 to offset future
taxable income.
f. 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.
g. Advertising costs
Advertising costs are expensed as incurred and were approximately $20,000
and $43,000 for the years ended February 28, 2001 and February 29, 2000,
respectively. Advertising costs include the value of radio air time received as
consideration for franchise fees. The value of this advertising is based upon
the standards market price of air time available to third party entities.
h. 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").
i. Earnings (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 dilutive EPS were equivalent
for all periods presented as the effect of common stock equivalents was
antidilutive or immaterial.
F-7
2. Summary of Significant Accounting Policies: (cont'd)
------------------------------------------
j. Investment in marketable securities
-----------------------------------
Investments in debt and equity securities are designated as trading,
held-to-maturity or available-for-sale. Management considers the Company's
marketable securities, consisting principally of public equity securities, to be
available-for-sale. Available-for-sale securities are reported at amounts which
approximate fair value. A decline in the market value of any available-for-sale
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
During the year ended February 29, 2000, the Company recorded a charge
to operations of $20,420 in connection with an other than temporary decline in
the value of marketable securities. The carrying value of these securities is $0
of February 28, 2001.
k. Referee fees
The Company's principal obligation under the franchise agreements is
to provide referees for the league.
3. Equipment:
---------
Equipment, at cost, consists of the following at February 28, 2001:
Equipment $ 8,606
Transportation equipment 46,120
------
54,726
Less accumulated depreciation 45,808
------
$ 8,918
4. Related Party Transactions:
--------------------------
The Company has entered into the following transactions with related
parties:
a. The USBL's president, personally, through family members and other
entities controlled by the family (the "Meisenheimer Group"), controls
approximately 81% of the USBL's common stock and 100% of the Company's preferred
stock.
b. As of February 28, 2001, loans payable to stockholders, including
interest, approximated $270,000. Interest rates on these obligations are 6%
per annum.
c. Included in revenues are amounts from various related parties
affiliated with the Meisenheimer Group approximating $233,000 in 2001 and
$208,000 in 2000, respectively. These revenues include initial franchise fees,
continuing franchise fees, and advertising fees.
d. Consulting fees for the year ended February 28, 2001 included $90,000 for
consulting services provided by Meisenheimer Capital, Inc. ("MCI"). No
consulting fees to MCI were incurred in 2000.
F-8
4. Related Party Transactions: (Cont'd)
--------------------------
e. The Company leases its office space from Meisenheimer Capital Real
Estate Holdings, Inc., ("MCREH") a wholly-owned subsidiary of MCI. Rent expense
on this operating lease approximated $30,000 and $12,000 for the years ended
February 28, 2001 and February 29, 2000, respectively. In December 2000 the
Company entered into a two year lease extension with MCREH, which provides for
monthly lease payments of $2,500.
f. During 2000 the Company received 25,550 shares of its common stock,
with a fair value approximating $22,400, to reduce the balance due from MCI by
an equivalent amount. These shares are included in treasury stock in the
accompanying balance sheet as of February 28, 2001.
g. Amounts included in due to affiliates in the accompanying balance
sheets represent advances from and accrued charges due to members of the
Meisenheimer Group. Such amounts are non-interest bearing and have no specified
due date.
h. An officer/shareholder contributed management services to the Company
for no consideration. The Company recorded a charge to operations for these
services of $30,000 for the year ended February 29, 2000.
5. Non-Cash Transactions:
---------------------
The USBL entered into the following non-cash transactions during the
fiscal year ended February 28, 2001:
o The Company received $132,000 of consulting fees, promotional services, and
expense reimbursements in lieu of cash, as consideration for franchise fees.
The USBL entered into the following non-cash transactions during the
fiscal year ended February 29, 2000:
o The Company recognized advertising income in exchange for merchandise valued
at $5,100 during fiscal year ended February 28, 2000.
o The Company received $105,000 of consulting services and promotional services,
in lieu of cash, as consideration for franchise fees.
The deferred charge on the balance sheet at February 28, 2001 of $100,000
represents the unused amount of the deferred advertising expense relating to the
advertising due bills earned through fiscal 2001. 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 advertising due bills are recorded at
management's estimate of the fair value of the due bills. However, if the
Company is unable to realize the recorded value of this asset, a significant
reduction in overall equity may result. The due bills expire in December 2001.
F-9
During the year ended February 28, 2001, the Company adjusted the
carrying value of he due bills to their estimated fair value, resulting in a
noncash impairment loss of approximately $384,000.
6. Stockholders' Equity:
a. Capitalization
The Company's authorized capital consists of 30,000,000 shares of
common stock and 2,000,000 shares of preferred stock. All stock has a $.01 par
value. Each share of common stock has one vote, and each share of preferred
stock has five votes and is entitled to a 2% non- cumulative annual dividend.
b. Treasury stock
As of February 28, 2001, the Company has acquired 39,975 shares of its
own stock, valued at approximately $42,400, in order to facilitate compensatory
stock grants to employees. These shares are considered treasury and have been
valued at cost.
c. Stock/warrant issuances
During the years ended February 28, 2001 and February 29, 2000, the
Company granted 2000 shares (valued at $1,900) and 5,000 shares (valued at
$4,250) of common stock, respectively, to employees for services. The value of
these shares was charged to operations in the years of issuance.
d. Stock/warrants
The Company provided each of its two officers options to purchase 20,000
shares annually. These options were granted on the first of each year and have
an exercise price equal to the fair market value on the date of grant. These
options expire January 2006 or nine months after the retirement of the officer.
There are 40,000 such options outstanding as of February 28, 2001. This Plan was
terminated during the fiscal year ended February 28, 1998.
7. Supplementary Cash Flow Information:
No cash was paid for interest for the years ended February 28, 2001 and
February 29, 2000.
During the year ended February 28, 2001, the Company incurred a $384,062
noncash charge to operations in connection with an impairment loss on
advertising due bills.
8. 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.
9. Other Revenues:
Other revenues consist principally of souvenir sales and miscellaneous
fees charged to team owners.
F-10
II
UNITED STATES BASKETBALL LEAGUE, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 2001
AND NOVEMBER 30, 2000
TABLE OF CONTENTS
Unaudited Financial Statements:
(1) Balance Sheets - November 30, 2001 and
February 28, 2001 F-10
(2) Statements of Operations for the Three Months
and Nine Months Ended November 30, 2001 and 2000 F-11
(3) Statement of Stockholders' Deficiency fo Nine Months
Ended November 30, 2001 F-12
(4) Consolidated Statements of Cash Flow for the Nine
Months Ended November 30, 2001 and 2000 F-13
(5) Notes to Consolidated Financial Statements F-14-16
F-9
UNITED STATES BASKETBALL LEAGUE, INC.
BALANCE SHEETS
November 30, February 28,
2001 2001
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 9,397 $ 587
Due from affiliates 330,063 277,058
Inventory 30,651 29,534
Prepaid Advertising Credits -0- 100,000
Other current assets 600 600
-------- ------
Total current assets 370,711 407,779
EQUIPMENT, net 4,076 8,918
------- ---------
$ 374,787 $ 416,697
======= ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 54,983 $ 74,981
Due to affiliates 196,867 136,867
Loans payable -
stockholders 258,498 270,064
------- -------
Total current liabilities 510,348 481,912
------- -------
STOCKHOLDERS' DEFICIENCY
Common stock, $0.01 par value
30,000,000 shares authorized;
3,485,502 shares issued
and outstanding 34,855 34,855
Preferred stock $0.01 par value
2,000,000 shares authorized;
1,105,679 shares issued and
outstanding 11,057 11,057
Additional paid-in-capital 2,619,692 2,612,192
Deficit (2,758,711) (2,680,865)
Treasury stock, at cost;
39,975 shares (42,454) (42,454)
--------- ----------
Total stockholders'deficiency (135,561) (65,215)
-------- ---------
$ 374,787 $ 416,697
========= ==========
See notes to financial statements
F-10
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
November 30, November 30, November 30, November 30,
2001 2000 2001 2000
REVENUES:
Initial franchise fees $ 20,000 $ -0- $ 170,000 $ 251,000
Continuing franchise fees 71,935 88,500 187,212 211,500
Sponsorship/Advertising -0- -0- 65,000 27,000
Other 6,302 21,071 9,875 28,208
------- ------- ------- -------
98,237 109,571 432,087 517,708
------- ------- ------- -------
OPERATING EXPENSES:
Consulting 5,900 9,400 111,984 111,121
Team expenses -0- 19,369 80,248 59,466
Advertising 1,510 9.961 23,761 22,349
Salaries 17,525 10,500 40,525 37,700
Travel 6,356 18,615 36,325 47,468
Depreciation 1,614 1,614 4,842 4,842
Professional fees 2,700 1,385 5,840 11,945
Asset Impairment 100,000 -0- 100,000 -0-
Other 10,561 32,455 101,958 121,988
------- ------ ------- -------
146,166 103,299 505,483 416,879
------- ------- ------- -------
(LOSS) Income from operations (47,929) 6,272 (73,396) 100,829
-------- ------- ------- -------
OTHER INCOME (EXPENSES):
Interest expense (1,334) (1,535) (4,534) (3,710)
Interest income 41 32 84 186
-------- ------- ------- -------
(1,293) (1,503) (4,450) (3,524)
NET (LOSS) INCOME $ (49,222) $ 4,769 $ (77,846) $ 97,305
-------- ------ ------- -------
NET (LOSS) INCOME
PER SHARE $ (.01) $ -0- $ (.02) $ .03
WEIGHTED AVERAGE -------- ------ ------- --------
NUMBER OF COMMON
SHARES OUTSTANDING 3,445,527 3,443,527 3,445,527 3,443,527
========= ========= ========== =========
See notes to financial statements
F-11
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Common Stock Preferred Stock Additional Total
Shares Shares Paid-in Treasury Stockholders'
Outstanding Amount Outstanding Amount Capital Deficit Stock Deficiency
Balance,
March 1, 2001 3,485,502 $34,855 1,105,679 $11,057 $2,612,192 $(2,680,865) $(42,454) $ (65,215)
Contributed Services - - - - 7,500 - - 7,500
Net Loss - - - - - (77,846) - (77,846)
--------- ------- --------- ------- ---------- ------------ ------- ---------
Balance,
November 30, 2001 3,485,502 $34,855 1,105,679 $11,057 $2,619,692 $(2,758,711) $(42,454) $(135,561)
========= ======= ========= ======= ========== ============ ======= ========
See notes to financial statements
F-12
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
November 30, November 30,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) Income $ (77,846) $ 97,305
--------- -------
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 4,842 4,842
Asset Impairment 100,000 -0-
Contributed Services 7,500 -0-
(Increase) in assets
Inventory (1,117) (5,836)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (19,998) 37,519
-------- ------
91,227 36,525
------- -------
Net cash provided by operating activities 13,381 133,830
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) due from (to) affiliates 6,995 (73,672)
(Decrease) in stockholders' loans (11,566) (40,075)
Net cash used in financing ------ --------
activities (4,571) (113,747)
------ --------
NET INCREASE IN CASH 8,810 20,083
CASH AND CASH EQUIVALENTS, beginning of period 587 6,196
------ ----------
CASH AND CASH EQUIVALENTS, end of period $ 9,397 $ 26,279
======== =========
See notes to financial statements
F-13
UNITED STATES BASKETBALL LEAGUE, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 2001
1) Description of Business and Basis of Presentation:
The United States Basketball League, Inc. (the "USBL" or the "Company") operates
a professional summer basketball league through franchises located in the United
States.
The Company has incurred an accumulated deficit of approximately $2,759,000. In
addition, the USBL's reliance on both substantial non-cash transactions and
related parties (see Notes 4 and 5) create an uncertainty as to the USBL's
ability to continue as a going concern.
The Company is making efforts to raise equity capital, revitalize the league and
market new franchises, however, there can be no assurance that the USBL will be
successful in accomplishing its 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 USBL to unable to continue as a going concern.
2) Summary of Significant Accounting Policies:
a. Income taxes
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
deferred tax assets (approximating $688,000) resulting from the net operating
loss carryforward.
As of November 30, 2001, a net operating loss carryforward of approximately
$1,720,000 is available through November 30, 2020 to offset future taxable
income.
b. Advertising costs
Advertising costs are expensed as incurred and were approximately $23,800 and
$22,300 for the nine months ended November 30, 2001 and November 30, 2000
respectively.
F-14
2. Summary of Significant Accounting Policies: (Cont'd)
c. Earnings (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 dilutive EPS were equivalent for all periods presented as the
effect of common stock equivalents was antidilutive or immaterial.
3. Equipment:
Equipment, at cost, consists of the following
November 30, February 28,
2001 2001
(Unaudited)
Equipment $ 8,606 $ 8,606
Transportation equipment 46,120 46,120
54,726 54,726
Less accumulated depreciation 50,650 45,808
$ 4,076 $ 8,918
4. Related Party Transactions:
The Company has entered into the following transactions with related parties:
a. The USBL's president, personally, through family members and other entities
controlled by the family (the "Meisenheimer Group"), controls approximately 81%
of the USBL's common stock and 100% of the Company's preferred stock.
The Company is a majority-owned subsidiary (60.6%) of Meisenheimer Capital, Inc.
Meisenheimer Capital, Inc. is an entity in the Meisenheimer Group.
b. As of November 30, 2001, loans payable to stockholders, including interest,
approximated $258,000. As of February 28, 2001, loans payable to stockholders
approximated $270,000. Interest rates on these obligations are 6% per annum.
F-15
4. Related Party Transactions: (Cont'd)
with the Meisenheimer Group approximating $208,000 and $204,000 for the nine
months ended November 30, 2001 and November 30, 2000 respectively.
d. The Company leases its office from Meisenheimer Capital Real Estate Holdings,
Inc., a wholly-owned subsidiary of Meisenheimer Capital, Inc. Rent expense on
this operating lease totaled $22,500 for the nine months ended November 30, 2001
and November 30, 2000.
e. An officer/shareholder contributed management services to the Company for no
consideration during the period September 1, 2001 through November 30, 2001. The
Company recorded a charge to operations for these services of $7,500. Prior to
September 1, 2001, management services were recorded under a management
agreement with Meisenheimer Capital, Inc., which provided for an annual
consulting fee of $90.000.
5. Non-Cash Transactions:
The Company receives consulting fees, promotional services, and expense
reimbursements in lieu of cash, as consideration for franchise and advertising
fees. The value of this consideration approximated $110,000 and $130,000 for the
nine months ended November 30, 2001 and 2000, respectively.
The deferred charge on the balance sheet at February 28, 2001 of $100,000
represents the unused amount of the deferred advertising expense relating to the
advertising due bills earned through fiscal 2001. 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 advertising credits were recorded at
management's estimate of the fair value of the due bills. During the quarter
ended November 30, 2001, based on the December 2001 expiration date of the due
bills, and its inability to find a buyer for them, the Company adjusted the
carrying value of the due bills to $-0-, resulting in a noncash impairment loss
of $100,000.
F-16