-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HltrTUsbyXC0HdEeMs8PjwUHXMUgYrzZ4NMK9Mh2NuMngobaZrdkXLjpH/HZkXas HSe8wViIVN4Vs2+hQfvoLQ== 0001125282-02-002003.txt : 20020613 0001125282-02-002003.hdr.sgml : 20020613 20020613134840 ACCESSION NUMBER: 0001125282-02-002003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020228 FILED AS OF DATE: 20020613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES BASKETBALL LEAGUE INC CENTRAL INDEX KEY: 0000764630 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 061120072 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15913 FILM NUMBER: 02678096 BUSINESS ADDRESS: STREET 1: 46 QUIRK ROAD CITY: MILFORD STATE: CT ZIP: 06460 BUSINESS PHONE: 2038779508 MAIL ADDRESS: STREET 1: 46 QUIRE ROAD CITY: MILFORD STATE: CT ZIP: 06460 10-K 1 b318925_10k.txt ANNUAL REPORT 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. ------------------------------------- (Exact Name of registrant as specified in its charter) Delaware 06-1120072 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 46 Quirk Road, Milford, Connecticut 06460 ----------------------------------- ----- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (203) 877-9508 -------------- Securities registered pursuant to Section 12(b) of the Act: Common Stock - $.01 par value ----------------------------- Securities registered pursuant to Section 12(g) of the Act: Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ 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. F-10 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 -----END PRIVACY-ENHANCED MESSAGE-----