SHOREPOWER TECHNOLOGIES INC. - Annual Report: 2011 (Form 10-K)
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET, N.W.
WASHINGTON, D.C. 20549
FORM 10-K
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x
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ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended February 28, 2011
or
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¨
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TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to _________
Commission File Number 001-15913
UNITED STATES BASKETBALL LEAGUE, INC.
(Name of small business issuer in its charter)
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Delaware
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06-1120072
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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183 Plains Road, Suite 2, Milford, Connecticut
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06461
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(Address of principal executive offices)
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(Zip Code)
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Issuer's telephone number (203) 877-9508
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
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-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
(Do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. Approximately $490,000 as of August 29, 2010.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 3,512,527 shares of common stock as of May 31, 2011.
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Item 1.
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Business.
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a)
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History
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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 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; Mary Ellen Meisenheimer died in August, 2008. 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.
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b)
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Operations
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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 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. The 2008, 2009, 2010, and 2011 seasons have been canceled. USBL is considering new team participation in a 2012 season along with some of the old teams such as Salina, Kansas; Dodge City, Kansas; Enid, Oklahoma; Brooklyn, New York; and Pennsylvania.
As the League is normally 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.
2
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. There are no current active franchises since the USBL has cancelled its 2011 season in order to restructure its operations. Many of the teams may return next year, but we do not know which ones. In addition, MCI owns two inactive franchises which pay annual royalty fees, and Spectrum Associates owns one.
At the present time we are offering franchises for $50,000. Our last sale was in 2007 at a price of $50,000, $10,000 as a down payment and the balance was to be paid over two years. We have been unable to receive more than $50,000 for a down payment on expansion teams and we require royalties 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 the stronger the League becomes.
Since 1984, we have sold franchises at various prices ranging from as little as $25,000 to $300,000. 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. Discussions are now being held for new expansion teams for 2012, with a limit of 10 teams for the 2012 season.
The franchise agreement affords us the right to terminate franchises for failure to pay the annual royalty fee, but in an effort to maintain the continuity of the League we have periodically elected not to do so in certain instances. 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. 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 have 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 (www.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.
3
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. When a season is in effect, we estimate that annual expenses for each team average approximately $250,000. 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 “Item 13 – Certain Relationships and Related Transactions, and Director Independence.” Additionally and because of our poor performance for at least the last five years, our auditors have rendered qualified opinions based on their concerns as to our ability to continue as a going concern. 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. For the 2004 season, attendance was 171,386 – 1,038 attendees per game, a decline from the prior season due to less marketing and the league mid-season took over a team and ran it with no advertising or promotions. For the 2005 season the attendance was 165,000 – 1,024 attendees per game. For the 2006 season attendance was 89,315 - 940 attendees per game. For the 2007 season attendance was 71,500 – 650 per game.
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c)
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Employees
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We have three full-time employees consisting of the chairman and League commissioner, Daniel Meisenheimer III, a director of administration, and a director of public relations. When a season is in effect, we also employ referees as independent contractors who are paid on a per game basis. From time to time we have also used independent contractors for consulting work.
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d)
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Future Plans
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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 own 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 the NBA.
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Item 1A.
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Risk Factors.
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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.
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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 weak 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
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 many of the franchises have operated at a loss. Until such time as the League can attract meaningful sponsorship, earnings, if any, of the individual franchises will be impacted.
Our Basketball Season Competes with Other Professional Sporting Events
Our season from 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.
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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. Attendance has been rather small and is not enough to support a team's operations. Without real promotional efforts, we do not anticipate any significant increase in franchises. We do occasional advertising in Barron’s.
The Meisenheimer Family Exercises Significant Control over Us
The Meisenheimer family, consisting of Daniel T. Meisenheimer III and Richard C. Meisenheimer and companies they control own approximately 80% 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 700,000 shares held by approximately 300 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.
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Meisenheimer Capital Real Estate Holdings Inc. (“MCRE”), our wholly owned subsidiary, owns the property at 46 Quirk Road, Milford, Connecticut, the former location of our corporate offices. Such property consists of three-quarters of an acre of real property and an office building of approximately 6,000 square feet. In the years ended February 29, 2008 and February 28, 2007 MCRE rented this property to USBL, Cadcom, Inc., a corporation controlled by the two officers of USBL, and other tenants under month to month agreements. Presently the property is vacant and not earning any rental income.
The Company currently leases general office space located at 183 Plains Road, Suite 2, Milford, Connecticut.
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Item 3.
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Legal Proceedings.
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On June 30, 2008, a legal action was commenced by Albany Patroons, Inc., a franchisee of USBL, against the Company in the United States District Court for the Northern District of New York. The complaint alleges breach of contract by USBL due to the suspension of the 2008 season and seeks total damages of $285,000. On September 5, 2008, the Company answered the complaint and asserted a counter-claim against plaintiff for breach of franchise agreement and/or memorandum of agreement.
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Item 4.
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[Removed and Reserved]
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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(a) Our Common Stock trades on the Over-the-Counter Bulletin Board under the symbol “USBL”. The following is the range of high and low closing bid prices for the Common Stock for each quarter for the Company’s fiscal years ended February 28, 2010 and February 28, 2011.
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Fiscal 2010
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Closing Bid
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High
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Low
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First Quarter Ended 5/31/09
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$ | 0.65 | $ | 0.50 | ||||
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Second Quarter Ended 8/31/09
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$ | 0.70 | $ | 0.50 | ||||
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Third Quarter Ended 11/30/09
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$ | 0.60 | $ | 0.40 | ||||
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Fourth Quarter Ended 2/28/10
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$ | 0.45 | $ | 0.35 | ||||
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Fiscal 2011
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Closing Bid
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High
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Low
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First Quarter Ended 5/31/10
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$ | 0.40 | $ | 0.50 | ||||
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Second Quarter Ended 8/31/10
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$ | 0.30 | $ | 0.50 | ||||
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Third Quarter Ended 11/30/10
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$ | 0.30 | $ | 0.50 | ||||
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Fourth Quarter Ended 2/28/11
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$ | 0.25 | $ | 0.50 | ||||
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The foregoing range of high-low closing bid prices represents quotations between dealers without adjustments for retail markups, markdowns or commissions and may not represent actual transactions. The information has been provided by the National Association of Securities Dealers Composite Feed or other qualified inter-dealer quotation medium.
Approximately 700,000 shares of our Common Stock are held by nonaffiliates as of May 30, 2010. The shares held by members of the public were issued by us in connection with a private placement over 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
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Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights (a)
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Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
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Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
(c)
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Equity compensation plans approved by security holders
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0 | N/A | 0 | |||||||||
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Equity compensation plans not approved by security holders
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0 | N/A | 0 | |||||||||
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Total
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0 | N/A | 0 | |||||||||
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Item 6.
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Selected Financial Data.
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Not applicable.
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9
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Item 7.
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Management's Discussion and Analysis of Financial Condition and Results of Operations.
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Overview
It is anticipated that the Company will continue to operate at a loss for the next twelve months. The Company anticipates continued reliance 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. The NBA has established a developmental basketball league known as the National Basketball Development League ("NBDL"). The Company believes that the establishment of this 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.
In the past, the Company has generated advertising revenue from fees for area signage, tickets and program and yearbook advertising space. Advertising revenue is recognized over the period that 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 2011 Compared To Fiscal Year 2010
For the years ended February 28, 2011 ("Fiscal 2011") and 2010 (“Fiscal 2010”), the Company had no franchise fees or advertising revenues as a result of the cancellation of the 2008, 2009, 2010, and 2011 seasons. Consulting fees revenues increased $5,333 from $14,667 in Fiscal 2010 to $20,000 in Fiscal 2011. These revenues were earned in connection with the South Korea venture (which was discontinued in August 2010).
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Operating expenses increased $27,448 from $187,619 in 2010 to $215,067 in 2011, primarily as a result of the $12,000 stock-based compensation issued to a consultant in Fiscal 2011 and higher other expenses.
Net loss decreased $1,478 from $196,309 in 2010 to $194,831 in 2011. The decrease is due primarily to the $22,502 improvement in trading account performance and the $5,333 increase in operating revenues, offset partially by the $27,448 increase in operating expenses.
Liquidity and Capital Resources
The Company had a working capital deficit of $1,854,428 at February 28, 2011. The Company's statement of cash flows reflects net cash used in operating activities of $270,983, which is due primarily to the $194,831 net loss, and the $102,983 increase in marketable equity securities. Net cash provided by financing activities was $272,787, which is due primarily to the net increase in amounts due to related parties.
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 approximately $300,000 of working capital to sustain operations over a 12-month period. 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 and revenues 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 and schedule a 2012 season.
See our index to financial statements in Item 15 and the financial statements and notes that are filed as part of this annual report following the signature page.
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
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None.
11
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Item 9A.
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Controls and Procedures.
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Based on their evaluation as of February 28, 2011, 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 as of February 28, 2011. We are continuing to take steps to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accurately recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
There were no significant changes in our internal controls over financial reporting that occurred during the quarter ended February 28, 2011 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.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company in accordance with and as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the (i) effectiveness and efficiency of operations, (ii) reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and (iii) compliance with applicable laws and regulations. Our internal controls framework is based on the criteria set forth in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s assessment of the effectiveness of the small business issuer’s internal control over financial reporting is as of February 28, 2011. We believe that internal control over financial reporting is effective. We have not identified any current material weaknesses considering the nature and extent of our current operations or any risks or errors in financial reporting under current operations.
|
Item 9B.
|
Other Information.
|
None.
12
PART III
|
Item 10.
|
Directors, Executive Officers and Corporate Governance.
|
The following persons served as our directors and executive officers for the fiscal year ended February 28, 2011. Each director holds office until the next annual meeting of the stockholders or 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
|
60
|
Chairman of the Board and President
|
||
|
Richard C. Meisenheimer
|
57
|
|
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 former 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 funds to USBL and MCREH.
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.
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) Beneficial Ownership Reporting Compliance
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 2010.
13
Code of Ethics
The Company has not adopted a Code of Ethics applicable to its principal executive officer, and principal financial officer. 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 code.
|
Item 11.
|
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 with either D. Meisenheimer III and R. Meisenheimer and they have not been paid any salary for the last five years. MCI, of which both D. Meisenheimer III and R. Meisenheimer are also senior officers and shareholders, charged us management fees of $75,000 for the year ended February 29, 2008, as consideration for the services provided by D. Meisenheimer and R. Meisenheimer.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
We have 30,000,000 shares of authorized Common Stock, of which 3,552,502 shares are currently issued and 3,512,527 shares are currently 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 May 30, 2011 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
|
425,000 Common Stock (1)
|
12.1 | % | |||
|
183 Plains Road, Suite 2
|
||||||
|
Milford, CT 06461
|
||||||
|
Estate of Daniel T. Meisenheimer, Jr.(2)
|
182,723 Preferred Stock
|
16.5 | % | |||
|
c/o Spectrum Associates
|
9,000 Common Stock
|
* | ||||
|
183 Plains Road, Suite 1
|
||||||
|
Milford, CT 06461
|
||||||
|
Richard C. Meisenheimer(3)
|
142,285 Preferred Stock
|
12.9 | % | |||
|
884 Robert Treat Ext.
|
5,000 Common Stock
|
* | ||||
|
Orange, CT 06477
|
||||||
|
Meisenheimer Capital Inc.
|
140,000 Preferred Stock
|
12.7 | % | |||
|
183 Plains Road, Suite 2
|
2,136,150 Common Stock
|
60.8 | % | |||
|
Milford, CT 06461
|
||||||
|
Spectrum Associates, Inc. (4)
|
376,673 Preferred Stock
|
34.1 | % | |||
|
183 Plains Road, Suite 2
|
228,857 Common Stock
|
6.5 | % | |||
|
Milford, CT 06461
|
||||||
|
All Officers and Directors as a Group (2 persons)
|
286,283 Preferred Stock
|
25.9 | % | |||
|
434,000 Common Stock
|
12.4 | % | ||||
* less than 1%
14
(1) Includes 20,000 shares of Preferred Stock and 100,000 shares of Common 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, who died in August, 2008, and bequeathed her stock to her two children Daniel T. Meisenheimer, III and Richard C. 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 their affiliates, Spectrum Associates, Inc. and MCI, the Meisenheimers effectively control 89% of the outstanding Preferred Stock and 80% of the outstanding Common Stock of USBL. No public shareholders own any Preferred Stock of USBL.
|
a)
|
Loans
|
For the last twelve 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, 2011, USBL and MCRE were indebted to the principals or their affiliated companies in the sum of $1,872,087. Of the foregoing amount, Spectrum is owed the sum of $1,182,457 and the principals (D. Meisenheimer III and R. Meisenheimer) are owed $625,530.
|
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, 2011 and February 28, 2010, there were no such revenues.
|
Item 14.
|
Principal Accountant Fees and Services.
|
Audit Fees
We were billed $20,000 and $20,000 by Michael T. Studer CPA P.C. (“Mike Studer”) for the years ended February 28, 2011 and February 28, 2010, respectively, for professional services rendered for the audits of our annual financial statements and reviews of our financial statements included in our Forms 10-Q and 10-K.
15
Tax Fees
We have not incurred expenses or been billed by Mike Studer for the year ended February 28, 2011 or February 28, 2010 for fees for tax compliance, tax advice or tax planning services.
All Other Fees
There were no other fees billed to us by Mike Studer for the years ended February 28, 2011 or February 28, 2010.
Pre-Approval Policies
Our Board of Directors has not adopted any blanket pre-approval policies. Instead, the Board will specifically pre-approve the provision for all audit or non-audit services.
Our Board of Directors approved all of the services provided by Mike Studer described in the preceding paragraphs.
PART VI
|
Item 15.
|
Exhibits and Financial Statements.
|
a) The following consolidated financial statements of United States Basketball League, Inc. and its subsidiary are included in this report immediately following the signature page:
|
1.
|
Financial Statements
|
|
|
·
|
Consolidated Balance Sheets
|
|
|
·
|
Consolidated Statements of Operations
|
|
|
·
|
Consolidated Statements of Stockholders' Deficiency
|
|
|
·
|
Consolidated Statements of Cash Flows
|
|
|
·
|
Notes to Consolidated Financial Statements
|
|
2.
|
Index to Financial Statement Schedules
|
Schedules are omitted because they are either not required or the required information is provided in the consolidated financial statements or notes thereof.
|
3.
|
Index to Exhibits
|
The exhibits filed herewith or incorporated by reference are set forth on the Exhibit Index below and attached hereto.
16
|
Exhibit
|
||
|
No.
|
Description
|
|
|
*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
|
Standard Franchise Agreement of USBL
|
|
|
21
|
Subsidiaries—Meisenheimer Capital Real Estate Holdings, Inc.
|
|
|
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
|
*Incorporated by reference to the Company’s Registration Statement on Form 10-SB, and amendments thereto, filed with the SEC on May 30, 2000.
+Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended February 28, 2001.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 26th day of May, 2011.
|
UNITED STATES BASKETBALL LEAGUE, INC.
|
|
|
/s/ Daniel T. Meisenheimer, III
|
|
|
Daniel T. Meisenheimer, III
|
|
|
President
|
Pursuant to the requirement of the Securities Exchange Act of 1934, 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 (principal executive officer)
|
May 26, 2011
|
||
|
/s/ Richard C. Meisenheimer
|
||||
|
Richard C. Meisenheimer
|
|
Director and Chief Financial Officer (principal financial and accounting officer)
|
|
May 26, 2011
|
18
UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY
CONTENTS
|
Years Ended February 28, 2011 and February 28, 2010
|
Pages
|
|
|
Financial Statements
|
||
|
Report of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated Balance Sheets
|
F-3
|
|
|
Consolidated Statements of Operations
|
F-4
|
|
|
Consolidated Statements of Stockholders' Deficiency
|
F-5
|
|
|
Consolidated Statements of Cash Flows
|
F-6
|
|
|
Notes to Consolidated Financial Statements
|
F-7
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
United States Basketball League, Inc.
I have audited the accompanying consolidated balance sheets of United States Basketball League, Inc. and subsidiary (the “Company”) as of February 28, 2011 and February 28, 2010, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the years ended February 28, 2011 and February 28, 2010. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit 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. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 28, 2011 and February 28, 2010, and the results of its operations and cash flows for the years ended February 28, 2011 and February 28, 2010 in conformity with accounting principles generally accepted in the United States.
The accompanying 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 present financial situation raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
|
/s/ Michael T. Studer CPA P.C.
|
Freeport, New York
May 26, 2011
F-2
UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY
|
Consolidated Balance Sheets
|
|
February 28, 2011 and February 28, 2010
|
|
|
February 28, 2011
|
February 28, 2010
|
||||||
|
Assets
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 2,465 | $ | 661 | ||||
|
Marketable equity securities
|
244,086 | 141,103 | ||||||
|
Inventory
|
5,000 | 5,000 | ||||||
|
Due from related parties
|
7,274 | 113,814 | ||||||
|
Total Current Assets
|
258,825 | 260,578 | ||||||
|
Property, net of accumulated depreciation of $40,190 and 34,998, respectively
|
236,810 | 242,002 | ||||||
|
Total Assets
|
$ | 495,635 | $ | 502,580 | ||||
|
Liabilities and Stockholders' Deficiency
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 148,766 | $ | 114,816 | ||||
|
Due in connection with South Korea venture
|
- | 20,000 | ||||||
|
Credit card obligations
|
92,400 | 96,711 | ||||||
|
Due to related parties
|
1,872,087 | 1,655,840 | ||||||
|
Total Current Liabilities
|
2,113,253 | 1,887,367 | ||||||
|
Due to related parties
|
- | 50,000 | ||||||
|
Total Liabilities
|
2,113,253 | 1,937,367 | ||||||
|
Stockholders' Deficiency:
|
||||||||
|
Common stock, $0.01 par value, 30,000,000 shares
|
||||||||
|
authorized; 3,552,502 and 3,522,502 shares issued,
|
||||||||
|
respectively
|
35,525 | 35,225 | ||||||
|
Preferred stock, $0.01 par value, 2,000,000 shares
|
||||||||
|
authorized; 1,105,679 shares issued and outstanding
|
11,057 | 11,057 | ||||||
|
Additional paid-in capital
|
2,679,855 | 2,668,155 | ||||||
|
Deficit
|
(4,301,601 | ) | (4,106,770 | ) | ||||
|
Treasury stock, at cost; 39,975 shares of common stock
|
(42,454 | ) | (42,454 | ) | ||||
|
Total Stockholders' Deficiency
|
(1,617,618 | ) | (1,434,787 | ) | ||||
|
Total Liabilities and Stockholders' Deficiency
|
$ | 495,635 | $ | 502,580 | ||||
See notes to consolidated financial statements.
F-3
|
UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY
|
||||||||
|
Consolidated Statements of Operations
|
||||||||
|
Years Ended February 28, 2011 and February 28, 2010
|
2011
|
2010
|
||||||
|
Revenues:
|
||||||||
|
Initial franchise fees
|
$ | - | $ | - | ||||
|
Continuing franchise fees
|
- | - | ||||||
|
Consulting fees
|
20,000 | 14,667 | ||||||
|
Advertising
|
- | - | ||||||
|
Other
|
- | - | ||||||
| 20,000 | 14,667 | |||||||
|
Operating Expenses:
|
||||||||
|
Consulting
|
16,575 | 4,400 | ||||||
|
Salaries
|
57,847 | 58,048 | ||||||
|
Travel and promotion
|
27,991 | 25,061 | ||||||
|
Depreciation
|
5,192 | 5,192 | ||||||
|
Other
|
107,462 | 94,918 | ||||||
| 215,067 | 187,619 | |||||||
|
Loss from Operations
|
(195,067 | ) | (172,952 | ) | ||||
|
Other Income (Expenses):
|
||||||||
|
Interest expense
|
(32,950 | ) | (34,023 | ) | ||||
|
Gain (loss) on marketable equity securities
|
33,158 | 10,656 | ||||||
|
Interest income
|
28 | 10 | ||||||
| 236 | (23,357 | ) | ||||||
|
Net loss
|
$ | (194,831 | ) | $ | (196,309 | ) | ||
|
Net Loss Per Share - basic and diluted
|
$ | (0.06 | ) | $ | (0.06 | ) | ||
|
Weighted Average Number of Common Shares Outstanding:
|
||||||||
|
Basic
|
3,507,102 | 3,482,527 | ||||||
|
Diluted
|
4,612,781 | 4,588,206 | ||||||
See notes to consolidated financial statements.
F-4
UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Deficiency
Years Ended February 28, 2011 and February 28, 2010
|
Common Stock
|
Preferred Stock
|
Additional
|
Total
|
|||||||||||||||||||||||||||||||||
|
Shares
|
Shares
|
Paid-in
|
Treasury Stock
|
Stockholders’
|
||||||||||||||||||||||||||||||||
|
Outstanding
|
Amount
|
Outstanding
|
Amount
|
Capital
|
Deficit
|
Shares
|
Amount
|
Deficiency
|
||||||||||||||||||||||||||||
|
Balance, February 28, 2009
|
3,522,502 | $ | 35,225 | 1,105,679 | $ | 11,057 | $ | 2,668,155 | $ | (3,910,461 | ) | 39,975 | $ | (42,454 | ) | $ | (1,238,478 | ) | ||||||||||||||||||
|
Net Loss
|
- | - | - | - | - | (196,309 | ) | - | - | (196,309 | ) | |||||||||||||||||||||||||
|
Balance, February 28, 2010
|
3,522,502 | 35,225 | 1,105,679 | 11,057 | 2,668,155 | (4,106,770 | ) | 39,975 | (42,454 | ) | (1,434,787 | ) | ||||||||||||||||||||||||
|
Shares issued for services
|
30,000 | 300 | - | - | 11,700 | - | - | - | 12,000 | |||||||||||||||||||||||||||
|
Net Loss
|
- | - | - | - | - | (194,831 | ) | - | - | (194,831 | ) | |||||||||||||||||||||||||
|
Balance, February 28, 2011
|
3,522,502 | $ | 35,525 | 1,105,679 | $ | 11,057 | $ | 2,679,855 | $ | (4,301,601 | ) | 39,975 | $ | (42,454 | ) | $ | (1,617,618 | ) | ||||||||||||||||||
See notes to consolidated financial statement
F-5
|
UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY
|
||||||||
|
Consolidated Statements of Cash Flows
|
||||||||
|
Years Ended February 28, 2011 and February 28 ,2010
|
2011
|
2010
|
||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net Loss
|
$ | (194,831 | ) | $ | (196,309 | ) | ||
|
Adjustments to reconcile net loss to net cash
|
||||||||
|
provided by (used in) operating activities:
|
||||||||
|
Depreciation
|
5,192 | 5,192 | ||||||
|
Non-cash compensation
|
12,000 | - | ||||||
|
Change in operating assets and liabilities:
|
||||||||
|
Marketable equity securities
|
(102,983 | ) | (62,674 | ) | ||||
|
Inventory
|
- | - | ||||||
|
Accounts payable and accrued expenses
|
33,950 | 34,309 | ||||||
|
Due in connection with South Korea venture
|
(20,000 | ) | (180,000 | ) | ||||
|
Deferred revenue
|
- | (39,667 | ) | |||||
|
Credit card obligations
|
(4,311 | ) | (12,248 | ) | ||||
|
Net Cash Provided By (Used In) Operating Activities
|
(270,983 | ) | (451,397 | ) | ||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Decrease (increase) in due from related parties
|
(12,243 | ) | 50,647 | |||||
|
Increase (decrease) in due to related parties
|
285,030 | 394,178 | ||||||
|
Net Cash Provided By Financing Activities
|
272,787 | 444,825 | ||||||
|
Net Increase (Decrease) in Cash
|
1,804 | (6,572 | ) | |||||
|
Cash and Cash Equivalents, beginning of year
|
661 | 7,233 | ||||||
|
Cash and Cash Equivalents, end of year
|
$ | 2,465 | $ | 661 | ||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Interest paid
|
$ | 16,900 | $ | 18,423 | ||||
|
Income tax paid
|
$ | - | $ | - | ||||
|
Non-cash financing activity: Transfer of amounts due from related parties to USBL president in partial satisfaction of amount due to USBL president
|
$ | 118,783 | $ | - | ||||
See notes to consolidated financial statements.
F-6
UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
Description of Business and Basis of Presentation
|
United States Basketball League, Inc. ("USBL"), incorporated in Delaware on May 29, 1984, has operated a professional summer basketball league through franchises located in the United States. Its wholly owned subsidiary Meisenheimer Capital Real Estate Holdings, Inc. (“MCREH”) owns a commercial building in Milford, Connecticut. USBL cancelled its 2008, 2009, 2010, and 2011 seasons.
At February 28, 2011, USBL and MCREH (collectively, the “Company”) had negative working capital of $1,854,428, a stockholders’ deficiency of $1,617,618, and accumulated losses of $4,301,601. This factor, as well as the Company’s reliance on related parties (see notes 8 and 10) raise substantial doubt as to the Company'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 Company will be successful in accomplishing its objectives. The consolidated financial statements do not include any adjustments that might be necessary should the Company 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 USBL and MCREH. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Fair value disclosures – The carrying amounts of the Company’s financial instruments, which consist of cash and cash equivalents, marketable equity securities, due from related parties, accounts payable and accrued expenses, credit card obligations, and due to related parties, approximate their fair value due to their short term nature or based upon values of comparable instruments.
Marketable equity securities – Marketable equity securities are recorded at fair value with unrealized gains and losses included in income. The Company has classified its investment in marketable equity securities as trading securities. The change in net unrealized holding gain (loss) included in earnings for the years ended February 28, 2011 and 2010 was $45,372 and $(44,704), respectively.
Inventory - Inventory consists of USBL trading cards, basketball uniforms, sporting equipment and printed promotional material and is stated at the lower of cost or market. 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 (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.
F-7
The Company generates advertising revenue from fees for area signage, tickets, and program and year book advertising space. Advertising revenue is recognized over the period that 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 (approximately $805,000) attributable to the USBL net operating loss carryforward.
As of February 28, 2011, USBL had a net operating loss carryforward of approximately $2,300,000 available to offset future taxable income. The carryforward expires in varying amounts from 2019 to 2031. Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.
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.
Stock-based compensation – Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation”. No stock options were granted during the years ended February 28, 2011 and February 28, 2010 and none are outstanding at February 28, 2011.
Earnings (loss) per share – ASC 260, "Earnings Per Share”, 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. The Company did not include the 1,105,679 shares of convertible preferred stock in its calculation of diluted loss per share for all periods presented as the result would have been antidilutive.
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.
F-8
|
3.
|
Marketable Equity Securities
|
At February 28, 2011, marketable equity securities consisted of:
|
Fair
|
||||||||||||
|
Value and
|
||||||||||||
|
Carrying
|
||||||||||||
|
Security
|
Shares
|
Cost
|
Value
|
|||||||||
|
Pacific Rim Mining Corp. (PFRMF)
|
385,360 | $ | 91,889 | $ | 87,901 | |||||||
|
Seafarer Exploration Corp. (SFRX)
|
6,937,064 | 92,980 | 30,767 | |||||||||
|
Caledonia Mining Corp. (CALVF)
|
505,000 | 42,000 | 66,660 | |||||||||
|
Apex Resources Group Inc. (APXR)
|
480,000 | 17,385 | 31,200 | |||||||||
|
Other
|
54,749 | 27,558 | ||||||||||
|
Total
|
$ | 299,003 | $ | 244,086 | ||||||||
At February 28, 2010, marketable equity securities consisted of:
|
Fair
|
||||||||||||
|
Value and
|
||||||||||||
|
Carrying
|
||||||||||||
|
Security
|
Shares
|
Cost
|
Value
|
|||||||||
|
Caledonia Mining Corp. (CALVF)
|
539,413 | $ | 44,862 | $ | 33,713 | |||||||
|
Pacific Rim Mining Corp. (PMV)
|
182,270 | 48,762 | 32,809 | |||||||||
|
Seafarer Exploration Corp. (SFRX)
|
2,978,564 | 57,191 | 25,318 | |||||||||
|
Gold Crest Mines Inc. (GCMN)
|
300,000 | 10,537 | 8,700 | |||||||||
|
Other
|
80,040 | 40,563 | ||||||||||
|
Total
|
$ | 241,392 | $ | 141,103 | ||||||||
As discussed in Note 2, the Company has classified its investment in marketable equity securities as trading securities. All fair value measurements are based on Level 1 inputs (i.e. closing trading prices of respective marketable equity securities).
Gain (loss) on marketable equity securities consisted of:
|
Year Ended February 28,
|
||||||||
|
2011
|
2010
|
|||||||
|
Realized net gain (loss)
|
$ | (12,214 | ) | $ | 55,360 | |||
|
Unrealized net gain (loss)
|
45,372 | (44,704 | ) | |||||
|
Net gain (loss)
|
$ | 33,158 | $ | 10,656 | ||||
F-9
|
4.
|
Due from Related Parties
|
|
Due from related parties consist of:
|
||||||||
|
|
February 28,
|
February 28,
|
||||||
|
2011
|
2010
|
|||||||
|
USBL receivable from Meisenheimer Capital, Inc.
|
||||||||
|
(“MCI”), controlling stockholder of USBL,
|
||||||||
|
non-interest bearing, due on demand
|
$ | 7,274 | $ | 111,814 | ||||
|
USBL receivable from Synercom, Inc. (“Synercom”),
|
||||||||
|
a corporation controlled by the two officers
|
||||||||
|
of USBL, non-interest bearing, due on demand
|
- | 2,000 | ||||||
|
Total
|
$ | 7,274 | $ | 113,814 | ||||
Effective May 31, 2010, the president of USBL was transferred the then $118,783 balance due from related parties in satisfaction of $118,783 loans payable due to him from the Company.
|
5.
|
Property, Net
|
Property, net, consists of:
|
February 28,
|
February 28,
|
|||||||
|
2011
|
2010
|
|||||||
|
Land
|
$ | 121,253 | $ | 121,253 | ||||
|
Building
|
155,747 | 155,747 | ||||||
|
Total
|
277,000 | 277,000 | ||||||
|
Less accumulated depreciation
|
(40,190 | ) | (34,998 | ) | ||||
|
Property, net
|
$ | 236,810 | $ | 242,002 | ||||
Since June 2008, MCREH has had no tenants at the property.
|
6.
|
Due In Connection With South Korea Venture
|
In August 2008, the Company received $170,667 from a third party to investigate business opportunities with the South Korean Basketball League and with prospective South Korea sponsors. Pursuant to the related verbal agreement, USBL paid a total of $160,000 to a consulting firm approved by the third party and recognized the remaining $10,667 as consulting fees revenue in the year ended February 28, 2009.
F-10
In January 2009, the Company received an additional $256,000 from the third party. Under the related verbal agreement, USBL paid a total of $240,000 ($40,000 in Fiscal 2009, $180,000 in Fiscal 2010, $20,000 in Fiscal 2011) to the consulting firm approved by the third party and recognized the remaining $16,000 as consulting fees revenue in the year ended February 28, 2010.
In April and May 2010, the Company received an additional $157,667 relating to the South Korea venture. In the six months ended August 31, 2010, USBL paid a total of $137,667 to the consulting firm approved by the third party and recognized the remaining $20,000 as consulting fees revenue in the three months ended August 31, 2010.
A summary of the changes in the liability account follows:
|
Year Ended February 28,
|
||||||||
|
2011
|
2010
|
|||||||
|
Balance, beginning of year
|
$ | 20,000 | $ | 200,000 | ||||
|
Amounts received from third party
|
157,667 | - | ||||||
|
Amounts allocated to revenue
|
(20,000 | ) | - | |||||
|
Amounts paid to consulting firm approved by third party
|
(157,667 | ) | (180,000 | ) | ||||
|
Balance, end of year
|
$ | - | $ | 20,000 | ||||
|
7.
|
Credit Card Obligations
|
USBL uses credit cards of related parties to pay for certain travel and promotion expenses. USBL has agreed to pay the credit card balances, including related interest. The credit card obligations bear interest at rates ranging up to 30% and are due in monthly installments of principal and interest.
|
8.
|
Due to Related Parties
|
Due to related parties consist of:
|
February 28,
2011
|
February 28,
2010
|
|||||||
|
USBL loans payable to Spectrum Associates, Inc. (“Spectrum”), a corporation controlled by the two officers of USBL, interest at 6%, due on demand
|
$ | 1,152,957 | $ | 911,957 | ||||
|
USBL loans payable to the two officers of USBL, interest at 6%, due on demand
|
386,530 | 465,783 | ||||||
|
USBL loan payable to Genvest, LLC (“Genvest”), an organization controlled by the two officers of USBL, non-interest bearing, due on demand
|
20,000 | 20,000 | ||||||
|
USBL loans to Daniel T. Meisenheimer, Jr. Trust, a trust controlled by the two officers of USBL, non-interest bearing, due on demand
|
44,100 | 44,100 | ||||||
|
MCREH note payable to the two officers of USBL, interest at 6%, due December 31, 2011
|
50,000 | 50,000 | ||||||
|
MCREH note payable to Spectrum, interest at 7%, due on demand, secured by MCREH property
|
25,000 | 25,000 | ||||||
|
MCREH note payable to president of USBL, interest at 7%, due on demand, secured by MCREH property
|
45,000 | 45,000 | ||||||
|
MCREH note payable to the two officers of USBL, interest at 7%, due on demand, secured by MCREH property
|
70,000 | 70,000 | ||||||
|
MCREH note payable to the two officers of USBL, interest at 4%, due October 22, 2009, secured by MCREH property
|
70,000 | 70,000 | ||||||
|
MCREH loan payable to Spectrum, non-interest bearing, due on demand
|
4,500 | - | ||||||
|
MCREH loan payable to president of USBL, non-interest bearing, due on demand
|
4,000 | 4,000 | ||||||
|
Total
|
1,872,087 | 1,705,840 | ||||||
|
Less current portion
|
(1,872,087 | ) | (1,655,840 | ) | ||||
|
Non current portion
|
$ | - | $ | 50,000 | ||||
F-11
For the years ended February 28, 2011 and 2010, interest due under the USBL loans were waived by the respective lenders.
At February 28, 2011 and 2010, accounts payable and accrued expenses included accrued interest payable to related parties totaling $51,587 and $35,987, respectively.
|
9.
|
Stockholders’ Equity
|
Each share of common stock has one vote. Each share of preferred stock has five votes, is entitled to a 2% non-cumulative annual dividend, and is convertible at any time into one share of common stock.
On May 6, 2010, the Company issued 30,000 shares of Company common stock (valued at $12,000) to a consultant for services rendered.
|
10.
|
Related Party Transactions
|
In the years ended February 28, 2011 and 2010, USBL included in other operating expenses rent payable to Genvest, LLC totaling $12,000 and $12,000 respectively.
|
11.
|
Commitment and Contingencies
|
Occupancy Agreement
In September 2007, the Company moved its office from the MCREH building to a building owned by Genvest, LLC, an organization controlled by the two officers of USBL. Improvements to the Company’s space were completed in February 2008. Pursuant to a verbal agreement, the Company is to pay Genvest monthly rentals of $1,000 commencing March 2008. At February 28, 2011 and 2010, accounts payable and accrued expenses included accrued rent payable to Genvest totaling $36,000 and $24,000, respectively.
Cancellation of 2008, 2009, 2010, and 2011 Seasons
USBL cancelled its 2008, 2009, 2010, and 2011 seasons. These cancellations may result in claims and legal actions from franchisees.
F-12
Litigation
On June 30, 2008, a legal action was commenced by Albany Patroons, Inc., a franchisee of USBL, against the Company in the United States District Court for the Northern District of New York. The complaint alleges breach of contract by USBL due to the suspension of the 2008 season and seeks total damages of $285,000. On September 5, 2008, the Company answered the complaint and asserted a counter-claim against plaintiff for breach of franchise agreement and/or memorandum of agreement. This action was discontinued and the parties agreed to proceed with binding arbitration. The Company believes that it has a meritorious defense to the action and does not expect the ultimate resolution of this matter to have a material adverse effect on its consolidated financial condition or results of operations.
F-13
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—Meisenheimer Capital Real Estate Holdings, Inc.
|
|
|
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
|
*Incorporated by reference to the Company’s Registration Statement on Form 10-SB, and amendments thereto, filed with the SEC on May 30, 2000.
+Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended February 28, 2001.
19