SHOREPOWER TECHNOLOGIES INC. - Quarter Report: 2012 August (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended August 31, 2012

For the transition period from __________ to________

Commission File Number 1-15913

UNITED STATES BASKETBALL LEAGUE, INC.

(Exact Name of Registrant as Specified in Its Charter)

183 Plains Road, Suite 2, Milford, Connecticut 06461

(Address of Principal Executive Offices)

(203) 877-9508

(Registrant’s Telephone Number, Including Area Code)

___________________________________________

(Former Name, Former Address and Former Fiscal Year, if Changed

Since Last Report)

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. As of October 11, 2012, there were 3,512,527 shares of Common Stock, $.01 par value per share, outstanding.

UNITED STATES BASKETBALL LEAGUE, INC.

INDEX

PART I

FINANCIAL INFORMATION

UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

see notes to consolidated financial statements.

UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY

Consolidated Statement of Stockholders’ Deficiency

Six Months Ended August 31, 2012

(Unaudited)

See notes to consolidated financial statements.

UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to consolidated financial statements.

UNITED STATES BASKETBALL LEAGUE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED AUGUST 31, 2012

(Unaudited)

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, 2011 and 2012 seasons.

At August 31, 2012, USBL and MCREH (collectively, the “Company”) had negative working capital of $2,239,138, a stockholders’ deficiency of $2,010,116, and accumulated losses of $4,694,099. This factor, as well as the Company’s reliance on related parties (see Notes 7 and 9), raises 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.

The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they may not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the unaudited financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation. Operating results for the six-month period ended August 31, 2012 may not necessarily be indicative of the results that may be expected for the year ending February 28, 2013. The notes to the consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s Form 10-K for the year ended February 29, 2012.

Principles of consolidation - The accompanying consolidated financial statements include the accounts of USBL and MCREH. All significant intercompany accounts and transactions have been eliminated.

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.

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.

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 three months ended August 31, 2012 and 2011 and the six months ended August 31, 2012 and 2011 was $29,253, $(86,599), $39,629, and $16,433, 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, 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 generated advertising revenue from fees for arena signage, tickets, and program and yearbook advertising space. Advertising revenue was recognized over the period that the advertising space was made available to the user.

Fees charged to teams to allow them to relocate were recognized as revenue upon collection of the fee. Souvenir sales, which were generated on the Company’s web site, were recorded upon shipment of the order. Essentially all orders were 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 $875,000 at February 29, 2012) attributable to the USBL net operating loss carryforward.

As of February 29, 2012, USBL had a net operating loss carryforward of approximately $2,500,000 available to offset future taxable income. The carryforward expires in varying amounts from 2019 to 2032. Current United States income tax laws limit the amount of loss available to 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 accounting principles generally accepted in the United States 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 2012 and 2011 and none are outstanding at August 31, 2012.

Earnings (loss) per share – ASC 260, “Earnings Per Share”, establishes standards for computing and presenting earnings (loss) per share (EPS). ASC 260 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 the three and six months ended August 31, 2012 and 2011 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’ deficiency. Comprehensive income (loss) was equivalent to net income (loss) for all periods presented.

At August 31, 2012 (unaudited), marketable equity securities consisted of:

At February 29, 2012, marketable equity securities consisted of:

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:

Commencing March 2012, the Company began the process of selling its marketable equity securities pursuant to a plan to liquidate substantially all of such securities as market conditions allow.

Due from related parties consist of:

Property, net, consists of:

The property is a commercial building owned by MCREH located in Milford, Connecticut. From June 2008 to December 2010, MCREH had no tenants at the property.

In 2011, Spectrum Associates, Inc. (“Spectrum”), a corporation controlled by the two officers of USBL, entered into an informal agreement to rent available space from MCREH for the purpose of storing surplus material. Under this agreement, Spectrum paid MCREH a total of $12,000 rent for the year ended February 29, 2012.

On February 1, 2012, MCREH executed a Lease Agreement with an unrelated entity (the “Tenant”) to rent the property (on a Net Lease basis) for a term of 11 months from February 1, 2012 to December 31, 2012 at a monthly rent of $3,000. The Tenant has an option to renew the lease for two additional periods of one year each at monthly rates of $3,150 (for the year ended December 31, 2013), and $3,300 (for the year ended December 31, 2014).

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.

Due to related parties consists of:

For the six months ended August 31, 2012 and 2011, interest due under the USBL loans were waived by the respective lenders.

At August 31, 2012 and February 29, 2012, accounts payable and accrued expenses included accrued interest payable on MCREH notes payable to related parties totaling $65,887 and $61,987, respectively.

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.

In the three months ended August 31, 2012 and 2011 and the six months ended August 31, 2012 and 2011, USBL included in other operating expenses, rent to Genvest, LLC of $3,000, $3,000, $6,000, and $6,000, respectively.

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 there 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 August 31, 2012 and February 29, 2012, accounts payable and accrued expenses included accrued rent payable to Genvest totaling $54,000 and $48,000, respectively.

Cancellation of 2008, 2009, 2010, 2011 and 2012 Seasons

USBL cancelled its 2008, 2009, 2010. 2011 and 2012 seasons. These cancellations may result in claims and legal actions from franchisees.

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.

OVERVIEW

It is anticipated that the Company will continue 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 T. 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 Developmental 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 a 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 relationship with the NBA.

THREE MONTHS ENDED AUGUST 31, 2012 AS COMPARED TO AUGUST 31, 2011

For the three months ended August 31, 2012 and 2011, the Company had no franchise fees or advertising revenues as a result of the cancellation of the 2008, 2009, 2010, 2011 and 2012 seasons.

Operating expenses increased $18,606 from $43,689 for the three months ended August 31, 2011 to $62,296 for the three months ended August 31, 2012. The increase in operating expenses was primarily due to increased accounting and legal fees related to quarterly filings.

Net gain from marketable equity securities increased $112,520 in 2012, from $(79,698) in 2011 to $32,822 in 2012. The change was due primarily to a decrease in the per share price of the company’s holdings in Seafarer Exploration Corporation (SFRX) in the second quarter of 2011.

Interest expense decreased to $5,386 in 2012, as compared to $8,161 in 2011.

Net loss for the three months ended August 31, 2012 was $25,859 as compared to the net loss of $131,547 for the three months ended August 31, 2011. The increase is due mainly to the $112,520 increase in net gain (loss) from marketable securities (from $(79,698) in 2011 to $32,822 in 2012) offset partially by the $18,606 decrease in operating expenses described above.

SIX MONTHS ENDED AUGUST 31, 2012 AS COMPARED TO AUGUST 31, 2011

For the six months ended August 31, 2012 and 2011, the Company had no franchise fees or advertising revenues as a result of the cancellation of the 2008, 2009, 2010, 2011 and 2012 seasons.

Operating expenses increased $12,436 from $96,189 for the six months ended August 31, 2011 to $108,625 for the six months ended August 31, 2012. The increase in operating expenses was primarily due to increase professional fees offset by decreased travel costs.

Net gain (loss) from marketable equity securities decreased $54,038 from $22,040 in 2011 to $(31,998) in 2012. The decrease was due primarily to realized losses related to the sale of the company’s holdings in Seafarer Exploration Corp. (SFRX) and Pacific Rim Mining Corporation (PMV).

Interest expense decreased to $12,959 in 2012, as compared to $16,220 in 2011.

Net loss for the six months ended August 31, 2012 was $135,582 as compared to net loss of $90,368 for the six months ended August 31, 2011. The decrease is due mainly to the $54,038 decrease in net gain (loss) from marketable securities (from $22,040 in 2011 to $(31,998 in 2012) and the $12,436 increase in operating expenses described above partially offset by a $15,000 increase in revenues.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash of $85,212 and a working capital deficit of $2,239,138 at August 31, 2012. The Company's statement of cash flows for the six months ended August 31, 2012 reflects cash used in operating activities of $16,858, which results primarily from the $135,582 net loss as well as the pay down of credit card obligations offset by the sale of marketable equity securities. Net cash provided by financing activities was $97,236 in 2012 compared to $86,300 in 2011.

The Company's ability to generate cash flow from franchise royalty fees is dependent on scheduling of a 2013 season and 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 and schedule a 2013 season within the next three 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.

Item 4. Controls and Procedures.

Under the supervision and with the participation of our management, including our principal executive and financial officers, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2012 and, based on such evaluation, our principal executive and financial officers have concluded that these controls and procedures are effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures are our controls and other procedures that are designed 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, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures.

PART II

OTHER INFORMATION

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 22^nd day of October, 2012.

EXHIBIT INDEX