NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 2019
(Unaudited)
1. Description
of Business and Basis of Presentation
United States Basketball
League, Inc. (“USBL”) was incorporated in Delaware on May 29, 1984 as a wholly owned subsidiary of Meiseheimer Capital,
Inc. (“MCI”) for the purpose of developing and managing a professional basketball league, the United States Basketball
League (the “League”). Since the inception of the League, USBL has been primarily engaged in selling franchises and
managing the League. From 1985 and up to the present time, USBL has sold a total of approximately forty active franchises (teams),
a vast majority of which were terminated for non-payment of their respective franchise obligations. Seasons from 2008 through 2019,
inclusive, have been cancelled. At the present time, USBL does not have any definitive plans as to the scheduling of a new season.
USBL is currently in the process of exploring certain strategic alternatives, including the possible sale of the League.
On October 30, 2014, USBL dissolved
its wholly-owned subsidiary, Meisenheimer Capital Real Estate Holdings, Inc. (“MCREH”). MCREH owned a commercial building
in Milford, Connecticut until June 19, 2014.
At August 31, 2019, USBL had negative
working capital of $2,386,011, and accumulated losses of $5,069,994. These factors, as well as the Company’s reliance on
related parties (see Notes 3, 4, and 6), 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 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 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, 2019 may not necessarily be indicative of the results that may be expected for the year ending February 29, 2020. The
notes to the financial statements should be read in conjunction with the notes to the financial statements contained in the Company’s
Form 10-K for the year ended February 28, 2019.
2. Summary
of Significant Accounting Policies
Fair value disclosures –
The carrying amounts of the Company’s financial instruments, which consist of cash, 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.
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 recorded these revenues upon receipt of cash consideration paid or the performance
of related services by the franchisee. Franchise fees earned in nonmonetary transactions were recorded at the fair value of the
franchise granted or the service received, based on which value was more readily determinable. Upon the granting of the franchise,
the Company had performed essentially all material conditions related to the sale.
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 $630,000 at February 28, 2019) attributable to the
USBL net operating loss carryforward.
As of February 28, 2019, USBL had
a net operating loss carryforward of approximately $3,000,000 available to offset future taxable income. The carryforward expires
in varying amounts from 2020 to 2039. 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.
USBL files Federal and Connecticut
income tax returns using a December 31 fiscal year. The last returns filed were for the year ended December 31, 2015.
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 reported period.
Actual results could differ from those estimates.
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 for the periods presented and none are
outstanding at August 31, 2019.
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, 2019 and 2018 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 income (loss) was equivalent to net income (loss) for all periods
presented.
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3.
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Accounts Payable and Accrued Expenses
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Accounts payable and accrued
expenses consisted of:
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August 31, 2019
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February 28, 2019
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(Unaudited)
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Legal and accounting services’ vendors
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$
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63,173
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$
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66,112
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Transfer agent and EDGAR agent
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8,804
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12,462
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Rent due Genvest, LLC (an entity controlled by the
two officers of USBL)
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138,000
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132,000
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Accrued interest on MCREH note payable to
president of USBL
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13,562
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13,562
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Security deposit due CADCOM (an entity controlled by
the two officers of USBL)
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2,725
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2,725
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Other
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777
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777
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Total
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$
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227,041
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$
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227,638
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4.
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Due to Related Parties
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Due to related parties consists of:
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August 31, 2019
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February 28, 2019
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(Unaudited)
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USBL loans payable to Spectrum Associates, Inc. (“Spectrum”),
a corporation controlled by the two officers of USBL,
interest at 6%, due on demand
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$
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1,321,993
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$
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1,314,289
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USBL loans payable to the two officers of USBL,
interest at 6%, due on demand
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569,317
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558,017
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USBL loans payable to Daniel T. Meisenheimer, Jr. Trust, a trust
controlled by the two officers of USBL, non-interest bearing,
due on demand
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48,850
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48,850
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MCREH note payable to president of USBL, interest at 7% due
on
demand.
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45,000
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45,000
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MCREH loan payable to Spectrum, non-interest bearing,
due on demand
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4,500
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4,500
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MCREH loan payable to president of USBL, non-interest
bearing, due on demand
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4,000
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4,000
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MCREH loan payable to Meisenheimer Capital, Inc. (“MCI”),
non-interest bearing, due on demand
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159,723
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159,723
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Total
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2,153,384
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2,134,379
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For the six months ended August 31, 2019 and 2018, interest due under the related party loans was waived by the respective lenders.
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5.
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Stockholders’ Equity
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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.
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6.
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Related Party Transactions
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For the
three months ended August 31, 2019 and 2018 and the six months ended August 31, 2019 and 2018, USBL included in operating expenses,
rent incurred to Genvest, LLC (an entity controlled by the two officers of USBL) totaling $3,000, $3,000, $6,000, and $6,000, respectively.
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7.
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Commitments and Contingencies
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Occupancy
Agreement
In September
2007, the Company moved its office to a building owned by Genvest LLC, an entity 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, 2019 and February 28, 2019, accounts payable and accrued expenses
included accrued rent payable to Genvest totaling $138,000 and $132,000, respectively.
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Item
2. Management’s Discussion and Analysis
of financial condition and results of operations.
OVERVIEW
The Company anticipates continued reliance
on financial assistance from affiliates. 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 sales and promotional personnel or schedule a season. As a result, the Company
is currently dependent on the efforts of its officers for all marketing efforts. Their efforts have not resulted in any franchises.
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, USBL recorded these
revenues upon receipt of cash consideration paid or the performance of related services by the franchisee. Franchise fees earned
in nonmonetary transactions were recorded at the fair value of the franchise granted or the service received, based on which value
was more readily determinable. Upon the granting of the franchise, the Company had performed essentially all material conditions
related to the sale.
THREE MONTHS ENDED AUGUST 31, 2019 AS COMPARED
TO AUGUST 31, 2018
For the three months ended
August 31, 2019 and 2018, the Company had no franchise fees or advertising revenues as a result of the cancellation of its seasons
from 2008 through 2019.
Operating expenses decreased
$7,072 from $17,984 for the three months ended August 31, 2018 to $10,912 for the three months ended August 31, 2019. The decrease
in operating expenses was primarily due to lower professional fees ($7,500) and lower transfer agent and EDGAR agent fees ($809)
in 2019 as compared to 2018. In the three months ended August 31, 2019, there were charges relating to filing of one Form 10-K;
there were charges relating to filing of one Form 10-Q.
Other expenses, net, was
nil for the three months ended August 31, 2019 as compared to nil for the three months ended August 31, 2018.
Net loss for the three
months ended August 31, 2019 was $10,912 as compared to net loss of $17,984 for the three months ended August 31, 2018. The $7,072
decrease in net loss was due to the $7,072 decrease in operating expenses.
SIX MONTHS ENDED AUGUST 31, 2019 AS COMPARED
TO AUGUST 31, 2018
For the six months ended
August 31, 2019 and 2018, the Company had no franchise fees or advertising revenues as a result of the cancellation of its seasons
from 2008 through 2019.
Operating expenses decreased
$18,384 from $36,459 for the six months ended August 31, 2018 to $18,075 for the six months ended August 31, 2019. The decrease
in operating expenses was primarily due to lower professional fees ($10,902) and lower transfer agent and EDGAR agent fees ($1,468)
in 2019 as compared to 2018. In the six months ended August 31, 2019, there were charges relating to filings on one Form 10-K and
on Forms 10-Q; in the six months ended August 31, 2018, there were charges to filings on one Form 10-K and three Forms 10-Q.
Other expenses, net, was
nil in 2019 compared to $175 in 2018.
Net loss for the six months
ended August 31, 2019 was $18,075 as compared to net loss of $36,634 for the six months ended August 31, 2018. The $18,559 decrease
in net loss was due to the $18,384 decrease in operating expenses, and the $175 decrease in other expenses, net.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash of
$40 and a working capital deficit of $2,386,011 at August 31, 2019. The Company's statement of cash flows for the six months ended
August 31, 2019 reflects cash used in operating activities of $19,260, which results primarily from the $18,075 net loss increased
by the $597 decrease in accounts payable and accrued expenses, and by the $588 decrease credit card obligation. Net cash provided
by financing activities was $19,005 in 2019 compared to $31,750 in 2018.
The Company expects it
will continue to have to rely on affiliates for loans to assist it in meeting its current obligations. With respect to long term
needs, the Company recognizes that in order for USBL and the League 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 Company’s ability 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 2020 season.