SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
Form 10-KSB
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ] Annual Report Pursuant to Section 13
or 15(d) of The Securities Exchange Act
of 1934
For the fiscal year ended February 28, 2002
or
[ ] Transitional Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-21547
UNITED STATES BASKETBALL LEAGUE, INC.
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(Exact Name of registrant as specified in its charter)
Delaware 06-1120072
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
46 Quirk Road, Milford, Connecticut 06460
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (203) 877-9508
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock - $.01 par value
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Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
1
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB [ X ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing: $569,240.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
The number of shares of the registrant's Common stock outstanding as of
June 3, 2002 was 3,485,502 shares.
The number of shares of the registrant's Preferred stock outstanding as
of June 3, 2002 was 1,105,679 shares.
2
ITEM I. DESCRIPTION OF BUSINESS
a) History
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 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. Members of the Meisenheimer family
also have a controlling interest in Spectrum Associates, Inc. ("Spectrum"),
which has loaned money to us and has engaged in other revenue generating
transactions with us.
b) 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 originally 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. This would
afford the players an opportunity to perhaps be selected by one of the teams
comprising the National Basketball Association ("NBA") and 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 our League players the chance to participate in the various
summer camps run by the teams in the NBA, which summer camps normally start
after the end of our season. Since 1984 and up to the present time there have
been 125 players from our League who also have been selected to play for teams
in the NBA. Additionally, approximately forty-five players were previously
selected each year 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 our League, we have been primarily engaged in
selling franchises and managing the League. From 1985 and up to the present
time, we have sold a total of thirty- five active franchises (teams), a vast
majority of which were terminated for non-payment of their respective 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 the 2001
season, which began on May 30 and ended on July 1, 2001, we had ten active
franchises. One franchise active during the 2001 season was terminated for
failure to pay its annual franchise fees. For the current season (2002) we have
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.
3
Since the inception of the League to the present time, the number of
active franchises has fluctuated from a low of seven to a high for the 1999
season of 13 franchises. The current active franchises, divided into the Eastern
and MidWest Divisions, are located in Dodge City, Kansas (the Dodge City
Legend); Enid, Oklahoma (the Oklahoma Storm); Fort Myers, Florida (the Florida
Sea Dragons);Salina, Kansas (the Kansas Cagerz); Lehigh, Pennsylvania (the
Pennsylvania ValleyDawgs); Brooklyn, New York (the Brooklyn Kings); Melbourne,
Florida (Brevard Blue Ducks); St. Joseph, Missouri (St. Joseph Express); St.
Louis, Missouri (St. Louis Hawks); and Glens Falls, NY (Adirondack Wildcats). In
addition, MCI owns two inactive franchises which pay annual royalty fees.
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 $300,000 each. In connection with the sale in the
1999 season 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 requested that installment payments commence in September, 2001 and
then requested a further extension until February 2002. To date, we have only
received $10,000 of installment payments. This gave the franchisee the
opportunity to preserve capital 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 was due in two equal installments payments of $50,000 each,
due on July 15, 2001 and July 15, 2002. The franchisee was unable to pay the
July 15, 2001 installment and requested additional time to pay. The franchisee
believes he will be able to pay the $50,000 sometime in September, 2002 and the
balance in September, 2003.
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 1984 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. Based on the uncertainty of collecting franchise fees, we record
these revenues upon receipt of cash consideration paid or the performance of
related services by the franchisee. We believe that today we are in a stronger
position and have a greater name recognition and that as a result, we are in a
better position to demand and receive 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 were
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
were 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.
4
We have only used 300,000 units of negotiable due bills for
broadcasting games which left us with a balance of 7,700,000 unused units. The
reason we did not avail 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 February 28,
2001, we valued these units at $100,000 (see "Financial Statements"). Since
these due bills expired on December 28, 2001 we adjusted the carrying value of
the due bills to zero as of November 30, 2001.
AIN has activated two of the franchises and the remainder of the
franchises available to them expired in October 2001.
We utilize 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 fee, 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. Currently there have
been no adjustments for the annual royalty fees due us.
Our franchise agreement 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 in the past 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 from
merchandise has also 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.
Our franchise agreements also require us to 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 local 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.
5
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 four franchises are operating profitably. The general lack of
marketing by the League and the teams is primarily due to insufficient capital
to properly promote and market the League, which has resulted in our inability
and the individual team's inability to attract any meaningful sponsorships. As a
result, the sale of additional franchises either to maintain a constant number
of franchises or to expand the League has historically proven difficult for us.
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, we have 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 gross attendees - 1,513 attendees per game. This represented
a 52% increase over Fiscal 2000. For our 2001 season, attendance was only
225,791- 1,446 attendees per game, a decline from the prior season. However,
there was one less team. Preliminary indications reflect that we will have an
increase in attendance for the 2002 season. The recent trend of increases in
attendance over prior years has resulted in increased revenues for each team. We
believe that the increases in attendance is 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.
c) Employees
We currently have a staff in excess of 50 people. We have 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 independent
contractors and consist of referees who are paid on a per game basis. From time
to time we have also used independent contractors for consulting work.
6
d) 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 our franchises
and attract more significant gate attendance, but there can be no assurances
that we will ever be able to develop a formal working relationship.
Only recently the developmental league for the NBA, the Continental
Basketball Association (the"CBA") disbanded. The Company was disappointed
recently to learn that the NBA intends to have its own developmental league
replace the CBA rather than consider using the USBL as a developmental 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. 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.
RISK FACTORS
Preliminary Statement
Only recently USBL filed a registration statement on Form 10-SB. As
such, USBL has become a reporting company. In view of this, USBL believes that
prospective investors as well as existing shareholders should be aware of the
risk factors associated with an investment in USBL.
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 Annual Report and the information contained in the
Financial Statements and the notes thereto.
Forward Looking Statements
When used in this report, 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.
7
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
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 an additional
inducement to the franchisees to purchase the franchise. 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 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 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."
8
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 small losses. Until such time as the League can attract meaningful
sponsorship, earnings, if any, of the individual franchises will be impacted.
Our Basketball Season Competes with Other Professional Sporting Events
Our season from May to early July is designed to afford players with
the opportunity to showcase their professional ability to the teams comprising
the National Basketball Association ("NBA") and to be possibly selected to
participate in NBA teams' summer camps in the latter part of July and August. As
such, our schedule competes with outdoor sporting events such as baseball, golf
and tennis and our season comes at a time when spectators 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, and consequently no significant
change in sales of franchises. While attendance has recently improved, it is
still rather small. Additionally, interest in franchises has increased, but
without real promotional efforts, we do not anticipate any significant increase
in franchises.
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.
9
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, 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 2 PROPERTY
USBL rents office space from Meisenheimer Capital Real Estate, Inc., a company
wholly owned by MCI. USBL occupies approximately 2,000 square feet of office
space in a building which houses other tenants. USBL has a two year lease which
expires in December, 2003. USBL paid an annual rent of $29,682 in the year ended
February 28, 2002. There are no escalation clauses.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to security holders to the fiscal year ended
February 28, 2002.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK 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. The Registration Statement on
Form 10SB was filed to cure the deficiency. Our stock now trades on the Small
Cap Market. The following is the range of high and low bid information for each
quarter for the Company's fiscal years ended February 28, 2001 and February 28,
2002 when it traded in the over-the-counter market:
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
-----------
Closing Bid
High Low
---- ---
First Quarter Ended 5/31/01 $.87 $.65
Second Quarter Ended 8/31/01 $.95 $.80
Third Quarter Ended 10/31/01 $.82 $.76
Fourth Quarter Ended 2/28/02 $.82 $.70
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.
11
Approximately 450,000 shares of our Common Stock 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. The existing holders of shares issued pursuant to the
private placement would have available to them the exemption provided by Rule
144 and thus would be able to sell all of their shares if they so elected.
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 6. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF
OPERATIONS
a) FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
For the year ended February 28, 2002 ("Fiscal 2002") initial franchise
fees amounted to $175,000 as compared to $251,000 for the year ended February
28, 2001. In addition, continuing franchise fees decreased from $242,500 to
$221,212. The aggregate decrease of $97,288 (20%) is a result of slower
collections from certain franchises and extensions by USBL of additional time
for franchisees to pay installments. This reflects the sluggishness of the
general economy. Advertising and sponsorship revenue totaled $45,000 and $57,500
for the years ended February 28, 2002 and 2001, respectively. The advertising
fees for the most part were generated from an affiliate, Spectrum Associates,
Inc., which ran advertisements in league bulletins, programs and brochures.
Approximately $190,000 and $233,000 of the 2002 and 2001 revenues, respectively,
were derived from various related parties.
Operating expenses for the years ended February 28, 2002 and 2001
approximated $543,000 and $832,000, respectively. Approximately $100,000 and
$384,000 of the operating expenses for 2002 and 2001, respectively, reflect the
recognition of asset impairments on the value of prepaid advertising credits.
Historically the Company had been carrying advertising credits which they had
received as consideration for the reservation of 20 franchises. The Company had
not used any significant portion of the credits and the credits expired in
Fiscal 2002. For this reason the Company has concluded that it was appropriate
to adjust the carrying value of the advertising credits to reflect their fair
value. As a result, the Company wrote off the value of these credits as of
February 28, 2002. Consulting fees for each year include $90,000 for management
services rendered by MCI to the League. Other operating expenses remained
relatively consistent, reflecting the Company's efforts in 2001 to control
costs.
Net loss for the year ended February 28, 2002 approximated $93,000, as
compared to $277,000 for the year ended February 28, 2001. The decrease reflects
the decrease in the charge for the asset impairment (advertising credits) offset
by the decline in revenues generated, as discussed above.
12
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 2002 season, which started in May 2002. While there was some
interest by third parties, no sales were consummated, primarily due to current
general economic conditions. However, the Company is anticipating an increase in
attendance based on higher visibility of coaches and players in the League. Two
franchises are now using coaches who enjoy high visibility in basketball -
Kareem Abdul Jabbar and Darryl Dawkins. Notwithstanding an anticipated increase
in attendance, the Company will still have to rely on financial assistance from
affiliates. 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.
b) 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 10
year. The advertising fees for the most part were generated from an affiliate,
Spectrum Associates, Inc.
Operating expenses for Fiscal 2001 amounted to $832,000 as compared to
$516,300 in the prior year, an increase of 61%. The increase reflects the
recognition of an impairment in the value of the Company's prepaid advertising
credits of $384,000. Historically the Company had been carrying advertising
credits which they had received as consideration for the reservation of 20
franchises. The Company had not used any significant portion of the credits and
the credits were 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
valued these credits at $100,000 at February 28, 2001. Another significant
increase in the operating expenses was represented in consulting fees. For
Fiscal 2001, consulting fees amounted to $120,200 as compared to $37,500 in
Fiscal 2000, resulting in an increase of $82,700. 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 $45,500 as compared
to $166,700 for Fiscal 2000, a decrease of $121,200. This decrease resulted from
the fact that in Fiscal 2001, the individual teams paid for most of the post
season festival costs.
13
c) LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately $145,000 at
February 28, 2002. The Company's statement of cash flows reflects cash provided
by operations of approximately $13,400, consisting principally of net loss of
$93,000 and a decrease in accounts payable and accrued expenses ($13,700) offset
by the non-cash charges of an asset impairment ($100,000) and contributed
services ($15,000). Net cash used in financing activities approximated $8,300,
consisting principally of a net decrease in amounts due from (to) affiliates
($9,800). 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 $170,000 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 $170,000 of anticipated royalty fees, this could amount to $270,000 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 7. FINANCIAL STATEMENTS
The Financial Statements appear herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in accountants nor were there any disagreements.
14
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS--COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The following persons served as our directors and executive officers
for the fiscal year ending February 28, 2002:
Name Age Position
Daniel T. Meisenheimer III 50 Chairman of the Board and President
Richard C. Meisenheimer 47 Chief Financial Officer and Director
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 Meisenheimer
Capital Real Estate Holdings, Inc. ("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 and which company has loaned USBL funds.
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. since 1976 and is now the President of
that Company. Spectrum owns 37.7% of USBL Preferred Stock and 6.7 % of USBL
Common Stock. Spectrum was the main customer of Cadcom, MCI's other subsidiary
until December, 2000 when Cadcom was sold to Synercom Inc., another company
owned and controlled by the Meisenheimer family.
Section 16(a) Compliance
The Company's registration statement on Form 10-SB became effective on
July 30, 2000. Mr. Daniel Meisenheimer, III, Richard Meisenheimer, Mary Ellen
Meisenheimer and Spectrum were thereafter required to file ownership reports on
Form 3 and Form 5. These reports were not filed with the Securities and Exchange
Commission until July 17, 2001. accordingly, the aforesaid individuals were
delinquent in filing their respective ownership reports. However, there was no
disposition of any common stock held by them.
ITEM 10. 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.
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 each of
the years ended February 28, 2001 and February 28, 2002 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 2002, Daniel Meisenheimer III and
Richard Meisenheimer have rendered management services to us for no
consideration. For accounting purposes we recognized a charge to our operations
of $15,000 of management fees for the year ended February 28, 2002. See
"Financial Statements." The increase in management fees in Fiscal 2002 reflects
additional efforts and services rendered to the League.
15
The following table reflects the salaries received by D. Meisenheimer
III and R. Meisenheimer for the fiscal years ended February 28, 2002, February
29, 2001, and February 28, 2000:
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities
Annual Stock Underlying LTIP All Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation ($) ($) SARs (#) ($) sation ($)
- --------------------------- ---- --------- -------- ---------- ----- -------- ----- ----------
Daniel T. Meisenheimer III 2002 -0- -0- -0- -0- -0- -0- -0-
President
2001 -0- -0- -0- -0- -0- -0- -0-
2000 -0- -0- -0- -0- -0- -0- -0-
Richard C. Meisenheimer 2002 -0- -0- -0- -0- -0- -0- -0-
2001 -0- -0- -0- -0- -0- -0- -0-
Chief Financial Officer &
Vice President
2000 -0- -0- -0- -0- -0- -0- -0-
There were no option/SAR grants or exercises in last fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
We have 30,000,000 shares of authorized Common Stock, of which
3,485,502 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.
16
The following table sets forth certain information as of July 31, 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%
442,400 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, i also the
President of Spectrum Associates, Inc., which owns both Preferred and
Common Stock as set forth herein.
(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").
17
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
a) 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, 2002
(Fiscal 2002), USBL was indebted to the principals or their affiliated companies
in the principal sum of $490,931, which includes accrued interest at six percent
(6%) per annum of $43,038. All of the outstanding debt is payable upon demand.
Of the foregoing amount, Spectrum is owed the principal sum of $83,367,
including accrued interest of $8,615. The principals (D. Meisenheimer III, R.
Meisenheimer and the Estate of Daniel T. Meisenheimer, Jr.) are owed $271,564
which includes accrued interest of $34,423. The remainder of $136,000 is due
from USBL to Meisenheimer Capital Real Estate Holdings, Inc., another subsidiary
of MCI. See "Financial Information."
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, 2002 and February 28, 2001, initial
and continuing franchise fees from companies controlled by the Meisenheimer
family, including Meisenheimer Capital and Spectrum Associates, approximated
$145,000 and $174,000 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, 2002 and February 28, 2001, we earned
advertising fees of $45,000 and $57,500, respectively, from Spectrum.
ITEM 12 EXHIBITS AND REPORTS ON FORM 8-K
a) Financial Statements (2002 and 2001)
(1) Independent Auditors' Report.
(2) Balance Sheet for USBL as of February 28, 2002.
(3) Statements of Operations for USBL for Years Ended February 28,
2002 and February 28, 2001.
(4) Statement of Stockholders' Equity [Deficiency] for Years Ended
February 28, 2002 and February 28, 2001.
(5) Statements of Cash Flows for Years Ended February 28, 2002 and
February 28, 2001.
(6) Notes to Financial Statements for Two Years Ended February 28,
2002.
18
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(3)
+10.2 Standard Franchise Agreement of USBL(4)
+10.3 Agreement between USBL and Topaz Selections Ltd for Barter Transactions
for Acquisition of Advertising Due Bills in Exchange for Franchises (5)
- --------------------
*Filed with Form 10SBA and amendments thereto.
+Filed with Form 10-KSB for Fiscal Year ended February 28, 2001.
c) Reports
There were no reports filed on From 8-K
19
UNITED STATES BASKETBALL LEAGUE, INC.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 28, 2002
CONTENTS
Page
----
FINANCIAL STATEMENTS:
Independent auditors' report F-1
Balance sheet F-2
Statements of operations F-3
Statement of stockholders' equity (deficiency) F-4
Statements of cash flows F-5
Notes to financial statements F-6 - F-10
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, 2002 and the related statements of operations, stockholders' equity
(deficiency) and cash flows for each of the two years in the period ended
February 28, 2002. 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, 2002 and the results of its operations and its
cash flows for each of the two years in the period ended February 28, 2002 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
May 15, 2002
F-1
UNITED STATES BASKETBALL LEAGUE, INC.
BALANCE SHEET
FEBRUARY 28, 2002
ASSETS
CURRENT ASSETS:
Cash $ 5,893
Due from affiliate (Note 3) 364,692
Inventory 30,651
Prepaid expenses and other current assets 5,300
---------------
Total current assets 406,536
EQUIPMENT, net of accumulated depreciation of $52,264 2,462
---------------
$ 408,998
===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 61,241
Due to affiliates (Note 3) 219,367
Loans payable - stockholders (Note 3) 271,564
---------------
Total current liabilities 552,172
---------------
STOCKHOLDERS' DEFICIENCY: (Notes 3, 4 and 5)
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 2,627,192
Deficit (2,773,824)
Treasury stock, at cost; 39,975 shares (42,454)
---------------
Total stockholders' deficiency (143,174)
---------------
$ 408,998
===============
See notes to financial statements
F-2
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENTS OF OPERATIONS
Years Ended
February 28,
-----------------------------------
2002 2001
--------------- ---------------
REVENUES (Note 3):
Initial franchise fees $ 175,000 $ 251,000
Continuing franchise fees 221,212 242,500
Advertising 45,000 57,500
Other (Note 8) 17,642 12,450
--------------- ---------------
458,854 563,450
--------------- ---------------
OPERATING EXPENSES (Notes 3 and 4):
Consulting 118,384 120,229
Team and post season festival expenses 76,289 45,466
Referee fees 40,990 55,690
Advertising 5,038 20,034
Salaries 58,710 50,000
Travel 53,481 54,692
Depreciation 6,456 6,456
Professional fees 4,940 9,795
Asset impairment 100,000 384,062
Other 79,050 85,573
--------------- ---------------
543,338 831,997
--------------- ---------------
Loss from operations (84,484) (268,547)
--------------- ---------------
OTHER INCOME (EXPENSES):
Interest expense (8,600) (8,600)
Interest income 125 210
--------------- ---------------
(8,475) (8,390)
--------------- ---------------
NET LOSS $ (92,959) $ (276,937)
=============== ===============
NET LOSS PER SHARE $ (.03) $ (.08)
=============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 3,445,527 3,444,519
=============== ===============
See notes to financial statements
F-3
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Note 5)
Common Stock Preferred Stock
----------------------------------- ---------------------------------- Additional
Shares Shares Paid-in
Outstanding Amount Outstanding Amount Capital
--------------- --------------- --------------- --------------- ---------------
Balance, March 1, 2000 3,483,502 $ 34,835 1,105,679 $ 11,057 $ 2,610,312
Common stock issued for services 2,000 20 -- -- 1,880
Net loss -- -- -- -- --
--------------- --------------- --------------- --------------- ---------------
Balance, February 28, 2001 3,485,502 34,855 1,105,679 11,057 2,612,192
Contributed services -- -- -- -- 15,000
Net loss -- -- -- -- --
--------------- --------------- --------------- --------------- ---------------
Balance, February 28, 2002 3,485,502 $ 34,855 1,105,679 $ 11,057 $ 2,627,192
=============== =============== =============== =============== ===============
Total
Treasury Stockholders'
Stock Equity
Deficit Shares Amount (Deficiency)
--------------- --------------- --------------- ---------------
Balance, March 1, 2000 $ (2,403,928) 39,975 $ (42,454) $ 209,822
Common stock issued for services -- -- -- 1,900
Net loss (276,937) -- -- (276,937)
--------------- --------------- --------------- ---------------
Balance, February 28, 2001 (2,680,865) 39,975 (42,454) (65,215)
Contributed services -- -- -- 15,000
Net loss (92,959) -- -- (92,959)
--------------- --------------- --------------- ---------------
Balance, February 28, 2002 $ (2,773,824) 39,975 $ (42,454) $ (143,174)
=============== =============== =============== ===============
See notes to financial statements
F-4
UNITED STATES BASKETBALL LEAGUE, INC.
STATEMENTS OF CASH FLOWS
Years Ended
February 28,
-----------------------------------
2002 2001
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (92,959) $ (276,937)
--------------- ---------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 6,456 6,456
Asset impairment 100,000 384,062
Non-cash compensation 15,000 1,900
Increase in assets:
Inventory (1,117) (5,836)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (13,740) 8,510
--------------- ---------------
106,599 395,092
--------------- ---------------
Net cash provided by operating activities 13,640 118,155
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due from (to) affiliates (9,834) (92,264)
Increase in stockholders' loans 1,500 --
Decrease in stockholders' loans -- (31,500)
--------------- ---------------
Net cash used in financing activities (8,334) (123,764)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 5,306 (5,609)
CASH AND CASH EQUIVALENTS, beginning of year 587 6,196
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 5,893 $ 587
=============== ===============
See notes to financial statements
F-5
UNITED STATES BASKETBALL LEAGUE, INC.
NOTES TO FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 28, 2002
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
$2,774,000. In addition, the USBL's reliance on both substantial non-cash
transactions and related parties (Notes 3 and 4) 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. Franchise fees earned in nonmonetary transactions is recorded at the
fair value of the franchise granted or the service received, based on which
value is more readily determinable. Upon the granting of the franchise, the
Company has performed essentially all material conditions related to the sale.
As described more fully in Note 4, 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, 2002 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 $691,000) resulting from the
net operating loss carryforward.
As of February 28, 2002, a net operating loss carryforward of
approximately $1,728,000 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
$5,000 and $20,000 for the years ended February 28, 2002 and 2001, 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. Referee fees
The Company's principal obligation under the franchise agreements is to
provide referees for the league.
k. Other accounting pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards Statement No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets." The
statements eliminate the pooling-of-interest method of accounting for business
combinations and require that goodwill and certain intangible assets not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized in earnings when incurred. Statement No. 141 is
effective for the Company July 1, 2001. Statement No. 142 will be effective for
the Company March 1, 2002. In July 2001, the FASB issued Statement No. 143,
"Accounting for Asset Retirement Obligations" which requires the recognition of
a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the carrying amount of the
related long-lived asset is correspondingly increased. Over time, the liability
is accreted to its present value and the related capitalized charge is
depreciated over the useful life of the asset. Statement No. 143 is effective
for fiscal years beginning after June 15, 2002. In August 2001, the FASB issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" which is effective for fiscal periods beginning after December 15, 2001
and interim periods within those fiscal years. Statement No. 144 establishes an
accounting model for impairment or disposal of long-lived assets including
discontinued operations. The Company is currently evaluating the impact of
Statement Nos. 141, 142, 143 and 144. The Company does not believe that these
pronouncements will have a material effect on the financial statements.
3. 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, 2002, loans payable to stockholders, including
interest, approximated $271,000. 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 $190,000 in 2002 and
$233,000 in 2001, respectively. These revenues include initial franchise fees,
continuing franchise fees, and advertising fees.
d. Consulting fees for each of the years ended February 28, 2002 and
2001 included $90,000 for consulting services provided by Meisenheimer Capital,
Inc. ("MCI").
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 for each of the years ended
February 28, 2002 and 2001. In December 2000 the Company entered into a two year
lease extension with MCREH, which provides for monthly lease payments of $2,500.
F-8
3. Related Party Transactions: (Cont'd)
At February 28, 2002, the Company is in negotiations wherein MCREH
would transfer this property, and an assignment of the underlying mortgage
payable, in order to reduce the net amount due from the Meisenheimer Group.
f. Amounts included in due to affiliates in the accompanying balance
sheet 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.
g. An officer/shareholder contributed management services to the
Company for no consideration during the period September 1, 2001 through
February 28, 2002. The Company recorded a charge to operations for these
services of $15,000. Prior to September 1, 2001 management services were
recorded under management agreement with Meisenheimer Capital, Inc.
4. Non-Cash Transactions:
The USBL entered into the following non-cash transactions during the
fiscal year ended February 28, 2002:
o The Company received $165,000 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, 2001:
o The Company received $132,000 of consulting services and promotional
services, in lieu of cash, as consideration for franchise fees.
In prior periods the Company received advertising due bills as
consideration for the sale of rights to franchises. The advertising due bills
can be traded for various goods and services and can be assigned, sold, or
transferred, but are not recognized as currency in the United States. The
Company adjusted the carrying value of the due bills, resulting in noncash
impairment losses approximating $100,000 and $384,000 during the years ended
February 28, 2002 and 2001, respectively.
5. 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, 2002, 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.
F-9
5. Stockholders' Equity: (Cont'd)
c. Stock/warrant issuances
During the year ended February 28, 2001, the Company granted 2000
shares (valued at $1,900) of common stock, to employees for services. The value
of these shares was charged to operations in the year 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, 2002. This
Plan was terminated during the fiscal year ended February 28, 1998.
6. Supplementary Cash Flow Information:
No cash was paid for interest for the years ended February 28, 2002 and
2001.
During the years ended February 28, 2002 and 2001, the Company incurred
noncash charges to operations in connection with impairment losses on
advertising due bills of $100,000 and $384,062, respectively.
7. 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 current payables approximate their fair value.
8. Other Revenues:
Other revenues consist principally of souvenir sales and miscellaneous
fees charged to team owners.
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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.
/S/ UNITED STATES BASKETBALL LEAGUE, INC..
---------------------------------------------
Registrant
By: /S/ Daniel T. Meisenheimer, III
----------------------------------------------------
Daniel T. Meisenheimer, III, Chief Executive Officer
Date: June 10, 2002