UNITED STATES BASKETBALL LEAGUE INC - 10KSB - 20040616 - PART_I
ITEM 1. 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"), a
company engaged in the manufacture of helicopter parts. From time to time,
Spectrum 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 approach
affords 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, our players also consist of free agents seeking
to join an NBA team. USBL's season (April through June 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 in August each year. Since 1984 and up to the present time there
have been approximately 150 players from our League who also have been selected
to play for teams in the NBA. A sizable number of our players were eventually
selected to play in NBA all star games. Additionally, a total of approximately
75 players were previously selected each year to play in the Continental
Basketball Association ("CBA") and the National Basketball Development League
(the "NBDL"), the official developmental league of the NBA.
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 approximately forty 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 2002 season, we had ten
active franchises. For the 2003 season we had nine active franchises and two
inactive franchises which were current in paying their franchise fees. These two
inactive
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franchises were activated for the 2004 season which began in April 2004.
Accordingly, we now have eleven active franchises.
As the League is presently constituted, each team within the League
maintains an active roster of eleven 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 can receive
more than $1,000 a week as salary.
Since the inception of the League to the present time, the number of
active franchises has fluctuated from a low of seven to a high in 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); Salina, Kansas (the Kansas
Cagerz); Lehigh, Pennsylvania (the Pennsylvania Valley Dawgs); Brooklyn, New
York (the Brooklyn Kings); Melbourne, Florida (the Brevard Blue Ducks); Glens
Falls, NY (the Adirondack Wildcats); White Plains, New York (the Westchester
Wildfire); St. Louis, Missouri (the St. Louis Skyhawks); Cedar Rapids, Iowa (the
Cedar Rapids River Raiders); and Florence, South Carolina (the Florence Flyers).
In addition, MCI owns two inactive franchises which pay annual royalty fees, and
Spectrum Associates owns one, which pays its dues.
At the present time we are offering franchises for $300,000. Our most
recent sale was in 2003 at a price of $300,000. We received $50,000 as a down
payment and the balance was to be paid over four years pursuant to a payment
schedule. The next installment of $50,000 is due on September 1, 2004. We have
been unable to receive more than $50,000 for a down payment on expansion teams
and we require dues be paid prior to the year-end. This does not always allow us
to receive all of the installments due on time. We therefore work with our
franchisees to allow them to meet their local market obligations and carry their
balance with the League until they can make payments. This is in the best
interest of the USBL and its teams. The stronger the teams are in their markets
and financially the stronger the League becomes.
Since 1984, we have sold franchises at various prices ranging from as
little as $25,000 to $300,000, our most recent sales. 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 has been
negotiated and in addition we have 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 those 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 than at any time in our history. As a result, we are in
a better position to demand and receive a large down payment and installments on
a more regular basis. Discussions are now being held for new expansion teams for
2005, with a limit of 15 teams for the 2005 season.
We utilize a standard franchise agreement which is on file in the
various states where we
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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 ranging from $20,000 to $25,000 per year.
Currently nine of the eleven active franchises are current in their payment of
annual royalty fees. One franchise owes $7,000 and one owes $10,000. The
franchise agreement affords us 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 are 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. During the 2003 season we did receive discounted air fares for team
travel from American Airlines in exchange for advertising in team programs and
signage at the arenas as well as advertising on our web site. 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. The Franchise Agreement also 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. The USBL website (usbl.com) is also a resource for the teams, the
media and the fans, with 1,000,000 hits per month. The website is updated daily
with statistical information and articles.
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 approximately $250,000. At
the present time only three 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
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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 "Item 12 - Certain Relationships and 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 (the 1998 season), 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 (the
1999 season) 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 (the 2000 season), attendance for our entire
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. For the 2002
season our attendance was 251,853-1,679 attendees per game. This represented a
10% increase over the prior year. For the 2003 season, attendance was 173,351-
1,536 attendees per game. The general recent trend of increase in attendance
over prior years has resulted in increased revenues for each team. We believe
that the increase 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 of such people 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.
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 have been 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 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. Currently, the NBA has its
development league, the NBDL. The NBDL competes against the reformed Continental
Basketball Association. Neither of these leagues competes with the USBL's
season. Notwithstanding the lack of a formal relationship, the NBA is well aware
that USBL represents a potential pool of qualified players. We will continue to
pursue a more formal relationship with
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the NBA.
RISK FACTORS
Prospective investors as well as shareholders should be aware that an
investment in USBL involves a high degree of risk. Accordingly, you are urged to
carefully consider the following Risk Factors as well as all of the other
information contained in this 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 21E of the
Securities Exchange Act of 1934 regarding events, conditions, and financial
trends that may affect our future plan of operations, business strategy,
operating results and financial position. Prospective investors are forewarned
and cautioned that any forward looking statements are not guarantees of future
performance and are subject to risks and uncertainties and that actual results
may differ materially from those included within any such forward looking
statements.
OUR OPERATING HISTORY DOES NOT REFLECT PROFITABLE OPERATIONS
Our operating history does not reflect a history of profitable
operations. Since our inception we have been attempting to develop the League.
Our operations have not been profitable and unless and until we can increase the
sale of franchises and at the same time attract franchisees who are able or
willing to incur start-up costs to develop their respective franchises, we may
continue to operate at a loss. There can be no assurance that we will be
successful.
WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN
Because of our historically poor revenues and earnings, our auditors
have for at least the last five 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.
OUR ESTABLISHED GUIDELINES IN CONNECTION WITH THE SALE OF FRANCHISES MAY NOT BE
SUFFICIENT TO ENSURE THE VIABILITY OF A FRANCHISE OVER THE LONG TERM
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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 inability to have any meaningful
expansion we will be able to attract qualified franchisees or that our
established guidelines will ensure the viability of a franchise over the long
term.
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.
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 been required 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 April to June 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 team's summer camps in the latter part of July and August. As
such, our schedule competes with other sporting events such as the NBA playoffs,
baseball, golf and tennis. Additionally, 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
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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 and is not enough to support a team's
operations. 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 81% of our outstanding common 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. The loss of Mr. Meisenheimer through death, disability or resignation would
have a material and adverse effect on our business.
WE HAVE A LIMITED PUBLIC MARKET FOR OUR STOCK
There are approximately 553,000 shares held by approximately 315 public
shareholders and as such there is a limited public market for our stock. As
such, holders of our stock may have difficulty in selling their shares.
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 our common
stock.
ITEM 2. PROPERTY
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MCI Capital Real Estate Inc. ("MRE"), a wholly owned subsidiary of
USBL, owns the property at 46 Quirk Road, Milford, Connecticut. Such property
consists of three-quarters of an acre of real property and an office building of
approximately 6,000 square feet. USBL maintains its offices along with other
tenants at the building. The rental income from the other two tenants is
sufficient to pay the monthly mortgage payments. The balance on the mortgage
currently amounts to approximately $112,000.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Common Stock trades on the Over-the-Counter Bulletin Board under
the symbol "USBL". The following is the range of high and low closing bid prices
for the Common Stock for each quarter for the Company's fiscal years ended
February 28, 2003 and February 29, 2004.
Fiscal 2003
Closing Bid
High Low
First Quarter Ended 5/31/02 $1.12 $.70
Second Quarter Ended 8/31/02 $1.10 $.55
Third Quarter Ended 10/31/02 $.82 $.60
Fourth Quarter Ended 2/28/03 $.78 $.65
Fiscal 2004
Closing Bid
High Low
First Quarter Ended 5/31/03 $1.05 $.67
Second Quarter Ended 8/31/03 $1.35 $1.05
Third Quarter Ended 10/31/03 $1.40 $1.25
Fourth Quarter Ended 2/29/04 $1.45 $1.30
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.
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Approximately 553,000 shares of our Common Stock are held by 315
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.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights (a) rights (b) equity compensation plans
(excluding securities
reflected in column (a))
(c)
Equity compensation
plans approved by 0 N/A 0
security holders........
Equity compensation
plans not approved by 0 N/A 0
security holders......
Total............ 0 N/A 0
ITEM 6 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
It is anticipated that the Company will continue to operate at a loss
for the next twelve months. The Company did activate a new franchise (Florence,
SC) for the 2004 season. In addition, a dormant franchise (St. Louis, MI) was
activated. It is anticipated that one team will be reactivated for the 2005
season and the Company will sell another franchise which will be activated for
the 2005 season. 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
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who enjoy high visibility in basketball - John Starks 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 other
employees for all marketing efforts. Their efforts have not resulted in any
substantial increase in 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.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
The Company generally uses the accrual method of accounting. 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 are 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.
The Company generates advertising revenue from fees for area signage,
tickets and program and yearbook 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.
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003
For the year ended February 29, 2004 ("Fiscal 2004") initial franchise
fees amounted to $155,000 as compared to $250,000 for the year ended February
28, 2003. In addition, continuing franchise fees amounted to $275,000 as
compared to $276,000 in 2003. The aggregate decrease of $96,000 (18%) is a
result of the Company's parent, MCI, having fully paid its final installment of
its initial franchise fee during 2004. Advertising and sponsorship revenue
totaled $95,000 as compared to $86,000 in 2003. The advertising fees for 2003
reflected a $50,000 promotional campaign with a major airline. The balance of
the 2003 fees and the 2004 fees were for the most
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part generated from an affiliate, Spectrum Associates, Inc., which ran
advertisements in league bulletins, programs and brochures. Other income
increased from $26,000 to $56,000, reflecting rental income generated in
connection with the acquisition of Meisenheimer Capital Real Estate Holdings in
May 2003. Approximately $240,000 and $276,000 of the 2004 and 2003 revenues,
respectively, were derived from various related parties.
Operating expenses for the years ended February 29, 2004 and February
28, 2003 approximated $690,000 and $685,000, respectively. Operating expenses
for both 2004 and 2003 reflect management fees of $180,000 to MCI for management
services, including the services provided to the Company by Daniel Meisenheimer
III and Richard Meisenheimer. The Company eliminated team and post season
festival expenses because of a restructuring in 2004 wherein these costs were
borne by the individual teams. The Company recorded lower referee fees during
2004 because of a decrease in the number of referees used in each game. Further,
travel and promotional fees increased approximately $55,000 to $211,000 for
2004. This increase reflects higher travel costs resulting from greater
distances between teams and travel to additional League meetings in connection
with new teams and anticipated expansion and reactivation. Other operating
expenses remained relatively consistent.
Net loss for the year ended February 29, 2004 approximated $129,000, as
compared to $57,000 for the year ended February 28, 2003. The increase is a
result of the lower revenues generated in 2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately $449,000 at
February 29, 2004. The Company's statement of cash flows reflects cash used in
operations of approximately $43,000, consisting principally of net loss of
$129,000 offset by a decrease in inventory ($16,000) and an increase in accounts
payable and accrued expenses ($66,000). Net cash provided by financing
activities approximated $59,000, consisting principally of a net increase in
amounts due (to) from affiliates of $65,000.
In May 2003 the Company consummated a transaction with MCI wherein MCI
assigned all of the outstanding shares of Meisenheimer Capital Real Estate
Holdings ("MCREH") to the Company in order to satisfy a certain payable due from
MCI to the Company. The assets and (liabilities) of MCREH were recorded at their
historical cost, and included land ($121,000), building ($156,000), due from
affiliates ($174,000), mortgage payable ($117,000), note payable ($50,000), and
other liabilities ($4,000).
The Company's ability to generate cash flow from franchise royalty fees
is dependent on the financial stability of the individual franchises
constituting the League. Each franchise is confronted with meeting its own fixed
costs and expenses which are primarily paid from revenues generated from
attendance. Experience has shown that USBL is generally the last creditor to be
paid by the franchise. 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
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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 again 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.
The table below summarizes aggregate maturities of future debt payments as
of February 29, 2004:
Less than 1-3 4-5 After 5
Total 1 Year Years Years Years
Mortgage payable $111,600 $8,700 $19,500 $83,400 $ -
Note payable 50,000 - 50,000 - -
Total $161,600 $8,700 $69,500 $83,400 $ -
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements appear commencing on page F-1 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
Based on their evaluation as of February 29, 2004, our management, with
the participation of our President and Chief Financial Officer, being our
principal executive and principal financial officer, respectively, conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as required by Exchange Act Rule 13a-15. Based on that
evaluation, the President and Chief Financial Officer have concluded that our
disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported with the time
periods specified by the SEC's rules and forms.
13
There were no significant changes in our internal controls over
financial reporting that occurred during the quarter ended February 29, 2004
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
We believe that a control system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The following persons served as our directors and executive officers
for the fiscal year ended February 29, 2004. Each director holds office until
the next annual meeting of the stockholders and until his successor has been
duly elected and qualified. Each executive officer serves at the discretion of
the Board of Directors of the Company.
NAME AGE POSITION
Daniel T. Meisenheimer III 53 Chairman of the Board and President
Richard C. Meisenheimer 50 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 Cadcom, Inc., a
subsidiary of MCI, and Meisenheimer Capital Real Estate Holdings, Inc. ("MCR").
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 34.1% 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, another company owned and
controlled by the Meisenheimer family.
The Company does not have a separate audit committee. The Board of
Directors functions as the audit committee. Richard Meisenheimer qualifies as an
audit committee financial expert.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than ten
percent of a registered class of its equity securities to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission. These persons are required by SEC regulation to furnish the
Company with copies of all Forms 3, 4 and 5 they file with the SEC. Based solely
upon our review of the copies of the forms the Company has received, we believe
that all such persons complied on a timely basis with all filing requirements
applicable to them with respect to transactions during fiscal 2004.
CODE OF ETHICS
The Company has not adopted a Code of Ethics applicable to its
principal executive officer, principal financial officer, principal accounting
officer or controller. As a small public company with limited funds and other
resources, the Company elected not to incur the time and expense of adopting
such a plan.
ITEM 10. EXECUTIVE COMPENSATION
For many years our only two officers, D. Meisenheimer III and R.
Meisenheimer, have not received or taken any salaries from USBL. There are no
formal employment agreements between D. Meisenheimer III and R. Meisenheimer and
they have not been paid any salary for the last four years. MCI, of which both
D. Meisenheimer III and R. Meisenheimer are also senior officers, charged us
management fees of $180,000 during each of the years ended February 29, 2004 and
February 28 2003, as consideration for the services provided by D. Meisenheimer
and R. Meisenheimer.
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.
The following table sets forth certain information as of June 10, 2004
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 thereof; (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 6.5%
15
c/o Spectrum Associates 12,000 Common Stock *
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 *
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 5.9%
442,400 Common Stock 12.8%
* less than 1%
(1) Includes 20,000 shares of Preferred Stock held by Mr. Meisenheimer III for
the benefit of his two minor children.
(2) Mr. Meisenheimer Jr., who died in September, 1999, bequeathed his stock to
his wife, Mary Ellen Meisenheimer.
(3) Richard Meisenheimer, an officer and director of USBL, is also the President
of Spectrum Associates, Inc., which owns both Preferred and Common Stock as set
forth herein.
(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.
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 29, 2004, USBL
was indebted to the principals or their affiliated companies in the principal
sum of $479,800. $429,800 of the outstanding debt is payable upon demand and
$50,000 is due on December 31, 2006. Of the foregoing amount, Spectrum is owed
the sum of $151,367. The principals (D. Meisenheimer III, R. Meisenheimer and
the Estate of Daniel T. Meisenheimer, Jr.) are owed $278,433 and the mother of
D. Meisenheimer and R. Meisenheimer is owed $50,000.
b) Dependency on Affiliates
16
Over the years we have received a material amount of revenues from
affiliated persons or entities. During the years ended February 29, 2004 and
February 28, 2003, initial and continuing franchise fees from companies
controlled by the Meisenheimer family, including Meisenheimer Capital and
Spectrum Associates, approximated $145,000 and $240,000 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 29, 2004 and February 28, 2003, we earned
advertising fees of $95,000 and $36,000, respectively, from Spectrum.
c) Acquisition of Meisenheimer Capital Real Estate Holdings, Inc.
On May 31, 2003, Meisenheimer Capital, Inc. ("MCI") and the Company
entered into an agreement whereby MCI agreed to assign to the Company all of the
outstanding stock of Meisenheimer Capital Real Estate Holdings, Inc. ("MCRE"), a
wholly owned subsidiary of MCI, in satisfaction of certain payables due from MCI
to the Company in the net amount of $226,000. The consummation of the
transaction was subject to MCI's obtaining an appraisal of the property from an
independent appraiser that the value of the property was equal to or greater
than $226,000, the amount of the debt of MCI then owing to the Company. Such
appraisal was received on July 7, 2003 and the shares of MCRE were transferred
to the Company in satisfaction of the debt owing from MCI to the Company.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
a) 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
17
+10.2 Standard Franchise Agreement of USBL
21 Subsidiaries
31.1 Certification of President (principal executive officer)
31.2 Certification of Chief Financial Officer (principal financial officer)
32 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
*Filed with Form 10SBA and amendments thereto.
+Filed with Form 10-KSB for Fiscal Year ended February 28, 2001.
b) Reports on Form 8-K
None
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
We were billed by Holtz Rubenstein & Co., LLP ("Holtz Rubenstein") the
aggregate amount of approximately $32,650 and $26,000 in respect of the year
ended February 29, 2004 and February 28, 2003, respectively, for fees for
professional services rendered for the audit of our annual financial statements
and review of our financial statements included in our Forms 10-QSB.
AUDIT-RELATED FEES
We were billed by Holtz Rubenstein the aggregate amount of
approximately $2,790 in respect of the year ended February 29, 2004 for fees for
assurance and related services in fiscal 2004 that were reasonably related to
the performance of the audit review of our financial statements that are not
reported under the preceding paragraph. These services consisted primarily of
assistance with the acquisition of Meisenheimer Capital Real Estate Holdings,
Inc. No such fees were billed to us by Holtz Rubenstein in respect of the year
ended February 28, 2003.
TAX FEES
We have not incurred expenses or been billed by Holtz Rubenstein for
the year ended February 29, 2004 or February 28, 2003 for fees for tax
compliance, tax advice or tax planning services.
18
ALL OTHER FEES
There were no other fees billed to us by Holtz Rubenstein for the years
ended February 29, 2004 or February 28, 2003.
PRE-APPROVAL POLICIES
Our Board of Directors has not adopted any blanket pre-approval
policies. Instead, the Board will specifically pre-approve the provision by
Holtz Rubenstein of all audit or non-audit services.
Our Board of Directors approved all of the services provided by Holtz
Rubenstein and described in the preceding paragraphs.
19
UNITED STATES BASKETBALL
LEAGUE, INC.
CONTENTS
================================================================================
YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 PAGES
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Stockholders' Deficiency F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-10
INDEPENDENT AUDITORS' REPORT
Board of Directors
United States Basketball League, Inc.
Milford, Connecticut
We have audited the consolidated balance sheet of United States Basketball
League, Inc. as of February 29, 2004 and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the years ended February
29, 2004 and February 28, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United States
Basketball League, Inc. as of February 29, 2004 and the results of its
operations and its cash flows for the years ended February 29, 2004 and February
28, 2003 in conformity with accounting principles generally accepted in the
United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated 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 consolidated 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 18, 2004
F-1
UNITED STATES BASKETBALL
LEAGUE, INC.
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FEBRUARY 29, 2004
--------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 16,098
Due from affiliate 101,751
Inventory 17,147
Prepaid expenses and other current assets 600
----------------
Total Current Assets 135,596
Property and Plant, net of accumulated
depreciation of $3,846 273,154
----------------
Total Assets $ 408,750
================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses $ 146,310
Due to affiliates 151,367
Due to stockholders 278,433
Current portion of mortgage payable 8,746
----------------
Total Current Liabilities 584,856
----------------
Mortgage Payable 102,895
----------------
Note Payable 50,000
----------------
Commitments and Contingencies
Stockholders' Deficiency:
Common stock, $0.01 par value, 30,000,000 shares
authorized; 3,485,502 shares issued 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 (2,959,651)
Treasury stock, at cost; 39,975 shares (42,454)
----------------
Total Stockholders' Deficiency (329,001)
---------------
Total Liabilities and Stockholders' Deficiency $ 408,750
===============
See notes to consolidated financial statements. F-2
UNITED STATES BASKETBALL
LEAGUE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 2004 2003
--------------------------------------------------------------------------------
Revenues:
Initial franchise fees $ 155,000 $ 250,000
Continuing franchise fees 275,007 275,695
Advertising 95,000 86,000
Other 56,080 25,738
----------------------
581,087 637,433
----------------------
Operating Expenses:
Consulting 236,022 216,716
Team and post season festival expenses - 56,916
Referee fees 54,100 89,858
Salaries 57,453 58,800
Travel and promotion 211,406 155,827
Depreciation 3,846 2,462
Other 126,980 104,857
-----------------------
689,807 685,436
-----------------------
Loss from Operations (108,720) (48,003)
-----------------------
Other Income (Expenses):
Interest expense (20,635) (8,637)
Interest income 74 94
-----------------------
(20,561) (8,543)
-----------------------
Net Loss (129,281) $ (56,546)
=======================
Net Loss Per Share $ (0.04) $ (0.02)
=======================
Weighted Average Number of Common Shares Outstanding 3,445,527 3,445,527
=======================
See notes to consolidated financial statements. F-3
UNITED STATES BASKETBALL
LEAGUE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Years Ended February 29, 2004 and February 28, 2003
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Preferred Stock
------------ ---------------
Shares Shares
Outstanding Amount Outstanding Amount
----------- ------ ----------- ------
Balance, March 1, 2002 3,485,502 $ 34,855 1,105,679 $ 11,057
Net Loss -- -- -- --
---------- ---------- ---------- ---------
Balance, February 28, 2003 3,485,502 34,855 1,105,679 11,057
Net Loss -- -- -- --
---------- ---------- ---------- ---------
Balance, February 29, 2004 3,485,502 $ 34,855 1,105,679 $ 11,057
========== =========== =========== ==========
Additional Treasury Total
Paid-In Stock Stockholders'
Captial Deficit Shares Amount Deficiency
------- ------- ------ ------ ----------
Balance, March 1, 2002 $ 2,627,192 $ (2,773,824) 39,975 $ (42,454) $ (143,174)
Net Loss -- (56,546) -- -- (56,546)
-----------------------------------------------------------------------
Balance, February 28, 2003 2,627,192 (2,830,370) 39,975 (42,454) (199,720)
Net Loss -- (129,281) -- -- (129,281)
-----------------------------------------------------------------------
Balance, February 29, 2004 $ 2,627,192 $ (2,959,651) 39,975 $ (42,454) $ (329,001)
=======================================================================
See notes to consolidated financial statements. F-4
UNITED STATES BASKETBALL
LEAGUE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Years Ended February 29, 2004 and February 28, 2003 2004 2003
----------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (129,281) $ (56,546)
--------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 3,846 2,462
Increase) decrease in assets:
Inventory 16,470 (2,966)
Prepaid expenses and other current assets - 4,700
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 65,656 14,413
--------------------------------------
Total adjustments 85,972 18,609
--------------------------------------
Net Cash Used In Operating Activities (43,309) (37,937)
--------------------------------------
Cash Flows from Financing Activities:
Due (to) from affiliates 64,926 25,686
Payments on mortgage (6,030) -
(Decrease) increase in stockholders' loans (357) 7,226
--------------------------------------
Net Cash Provided by Financing Activities 58,539 32,912
--------------------------------------
Net Increase (Decrease) in Cash 15,230 (5,025)
Cash and Cash Equivalents, beginning of year 868 5,893
--------------------------------------
Cash and Cash Equivalents, end of year $ 16,098 $ 868
======================================
See notes to consolidated financial statements. F-5
UNITED STATES BASKETBALL
LEAGUE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
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
$2,960,000. In addition, the USBL's reliance on both substantial
non-cash transactions and related parties (Notes 6 and 7) 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 consolidated 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
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of all subsidiaries in which the
Company has a majority voting interest or voting control. All
significant intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to
be cash and/or cash equivalents.
INVENTORY - Inventory consists of USBL trading cards, basketball
uniforms, sporting equipment and printed promotional material. Certain
inventory was obtained through barter transactions whereby the USBL
granted suppliers various advertising space (print) and airtime
(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.
DEPRECIATION EXPENSE - Depreciation is computed using the straight-line
method over the building's estimated useful life (approximately 30
years).
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 are
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. The offering price of a new
franchise at February 29, 2004 and February 28, 2003 was $300,000.
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.
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 $670,000) resulting from the net operating loss
carryforward.
F-6
UNITED STATES BASKETBALL
LEAGUE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
As of February 29, 2004, a net operating loss carryforward of
approximately $1,675,000 is available through February 28, 2024 to
offset future taxable income.
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.
ADVERTISING COSTS - Advertising costs are expensed as incurred and were
approximately $63,000 and $56,000 for the years ended February 29, 2004
and February 28, 2003, 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 standard market price
of air time available to third party entities.
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"). No options were issued during
2004 and 2003.
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.
COMPREHENSIVE INCOME - Other comprehensive income (loss) refers to
revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are
excluded from net income (loss) as these amounts are recorded directly
as an adjustment to stockholders' equity. Comprehensive loss was
equivalent to net loss for all periods presented.
REFEREE FEES - The Company's principal obligation under the franchise
agreements is to provide referees for the league.
RECENT ACCOUNTING PRONOUNCEMENTS - Effective January 1, 2003, the
Company adopted SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)". SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal plan be recognized when the
liability is incurred. Under SFAS No. 146, an exit or disposal plan
exists when the following criteria are met:
Management, having the authority to approve the action, commits
to a plan of termination.
The plan identifies the number of employees to be terminated,
their job classifications or functions and their locations, and
the expected completion date.
The plan establishes the terms of the benefit arrangement,
including the benefits that employees will receive upon
termination (including but not limited to cash payments), in
sufficient detail to enable employees to determine the type and
amount of benefits they will receive if they are involuntarily
terminated.
Actions required to complete the plan indicate that it is
unlikely that significant changes to the plan will be made or
that the plan will be withdrawn.
F-7
UNITED STATES BASKETBALL
LEAGUE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability. In cases where employees are required to
render service beyond a minimum retention period until they are
terminated in order to receive termination benefits, a liability for
termination benefits is recognized ratably over the future service
period. The adoption of SFAS No. 146 did not have a material impact on
our financial statements.
Effective March 1, 2003, the Company adopted the recognition and
measurement provisions of Financial Accounting Standards Board ("FASB")
Interpretation No. 45 ("Interpretation 45"), "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". This interpretation elaborates
on the disclosures to be made by a guarantor in interim and annual
financial statements about the obligations under certain guarantees.
Interpretation 45 also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The Company does not
currently provide significant guarantees on a routine basis. As a
result, this interpretation has not had a material impact on our
financial statements.
In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003) ("Interpretation 46"), "Consolidation of Variable
Interest Entities". Application of this interpretation is required in
the Company's financial statements for the year ended February 29,
2004. Interpretation 46 addresses the consolidation of business
enterprises to which the usual condition (ownership of a majority
voting interest) of consolidation does not apply. This interpretation
focuses on controlling financial interests that may be achieved through
arrangements that do not involve voting interests. It concludes that in
the absence of clear control through voting interests, a company's
exposure (variable interest) to the economic risks and potential
rewards from the variable interest entity's assets and activities are
the best evidence of control. If an enterprise holds a majority of the
variable interests of an entity, it would be considered the primary
beneficiary. The primary beneficiary is required to include assets,
liabilities and the results of operations of the variable interest
entity in its financial statements. The Company determined that it does
not have any arrangements or relationships with special-purpose
entities.
3. PROPERTY AND PLANT
Effective May 31, 2003, a transaction was consummated wherein
Meisenheimer Captial, Inc. ("MCI"), the Company's majority shareholder,
assigned all of the outstanding shares of Meisenheimer Capital Real
Estate Holdings, Inc. ("MCREH") to the Company in order to satisfy a
certain payable due from MCI to the Company. The assets and
(liabilities) of MCREH were recorded at their historical cost as of May
31, 2003, and included the following:
Land $ 121,253
Building 155,747
Due From (to) Affiliates 173,500
Mortgage Payable (117,700)
Note Payable (50,000)
Other (4,300)
------------------
Net Assets Recorded $ 278,500
==================
The real estate has a fair value of $440,000, based on a recent
appraisal. Depreciation expense was $3,846 for the year ended February
29, 2004.
The Company leases a portion of its office space to unrelated third
parties on a month-to-month basis. Rental income was $27,700 for the
year ended February 29, 2004.
F-8
UNITED STATES BASKETBALL
LEAGUE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
4. MORTGAGE PAYABLE
The mortgage bears interest at 7.06% per annum, payable in monthly
installments of $1,362 through July 2008, and provides for a balloon
payment approximating $67,800 in August 2008.
The mortgage is guaranteed by the Company's officers. Future maturities
of the mortgage are as follows:
YEAR ENDING FEBRUARY 28,
-----------------------------------------------------------------------
2005 $ 8,700
2006 9,400
2007 10,100
2008 10,800
2009 72,500
5. NOTE PAYABLE
The note payable, due to a member of the Meisenheimer family, bears
interest at 6% per annum, payable annually, with principal due on
December 31, 2006.
6. 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 29, 2004, amounts due to stockholders, including
interest, approximated $278,000. This amount includes loans of
$144,000, bearing interest at 6% per annum.
c. Included in revenues are amounts from various related parties
affiliated with the Meisenheimer Group approximating $240,000 in
2004 and $276,000 in 2003, respectively. These revenues include
initial franchise fees, continuing franchise fees, and
advertising fees.
d. Consulting fees included $180,000 for both the years ended
February 29, 2004 and February 28, 2003, for consulting and
management services provided by Meisenheimer Capital, Inc.
("MCI").
e. The Company leased its office space from Meisenheimer Capital
Real Estate Holdings, Inc. ("MCREH"), a wholly-owned subsidiary
of MCI, until May 2003 (Note 3). Rent expense on this operating
lease approximated $7,500 and $30,000 for the years ended
February 29, 2004 and February 28, 2003, respectively.
f. Amounts included in due to affiliates in the accompanying
consolidated 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.
F-9
UNITED STATES BASKETBALL
LEAGUE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003
7. NON-CASH TRANSACTIONS
The USBL entered into the following non-cash transactions during the
fiscal year ended February 29, 2004:
o The Company received $203,000 of consulting fees, promotional
services, and expense reimbursements in lieu of cash, as
consideration for franchise fees and advertising.
The USBL entered into the following non-cash transactions during the
fiscal year ended February 28, 2003:
o The Company received $306,000 of consulting fees, promotional
services, and expense reimbursements in lieu of cash, as
consideration for franchise fees. In addition, advertising income
includes $50,000 related to a promotional campaign with a major
airline.
8. STOCKHOLDERS' EQUITY
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.
TREASURY STOCK - 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.
9. SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest was approximately $5,800 and $0 for the years
ended February 29, 2004 and February 28, 2003, respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
It is management's belief that the carrying amounts of the Company's
financial instruments approximate their fair value at February 29,
2004.
11. OTHER REVENUES
Other revenues consist principally of rental income, souvenir sales and
miscellaneous fees charged to team owners.
F-10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITED STATES BASKETBALL LEAGUE, INC.
/s/ Daniel T. Meisenheimer, III
--------------------------
Daniel T. Meisenheimer, III
President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
NAME CAPACITY DATE
---- -------- ----
/s/ Daniel T. Meisenheimer, III
-------------------------
Daniel T. Meisenheimer, III Director and President June 16, 2004
(principal executive officer)
/s/ Richard Meisenheimer
-------------------------
Richard Meisenheimer Director and Chief Financial June 16, 2004
Officer (principal financial
and accounting officer)
20
EXHIBIT INDEX
*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
+10.2 Standard Franchise Agreement of USBL
21 Subsidiaries
31.1 Certification of President (principal executive officer)
31.2 Certification of Chief Financial Officer (principal financial officer)
32 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
--------------------
*Filed with Form 10SBA and amendments thereto.
+Filed with Form 10-KSB for Fiscal Year ended February 28, 2001.
21
Exhibit 21
Subsidiaries
NAME STATE OF INCORPORATION
Meisenheimer Capital Real Delaware
Estate Holdings, Inc.
Exhibit 31.1
I, Daniel T. Meisenheimer, III, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of United States Basketball
League, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the small
business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business
issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
small business issuer's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: June 16, 2004
/s/ Daniel T. Meisenheimer, III
---------------------------------------
Daniel T. Meisenheimer, III
President (principal executive officer)
Exhibit 31.2
I, Richard C. Meisenheimer, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of United States Basketball
League, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the small
business issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business
issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
small business issuer's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: June 16, 2004
/s/ Richard C. Meisenheimer
------------------------------
Richard C. Meisenheimer
Chief Financial Officer (principal
financial officer)
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of United States Basketball League, Inc. on Form 10-KSB for the annual
period ended February 29, 2004 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in such Annual Report on Form 10-KSB fairly presents in all material
respects the financial condition and results of operation of United States
Basketball League, Inc.
Date: June 16, 2004
/s/ Daniel T. Meisenheimer, III
---------------------------------
Daniel T. Meisenheimer, III
President
Date: June 16, 2004
/s/ Richard C. Meisenheimer
---------------------------------
Richard C. Meisenheimer
Chief Financial Officer
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