NOTES
TO FINANCIAL STATEMENTS
FEBRUARY
28, 2022
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
United
States Basketball League, Inc. (“USBL”) is a holding company currently evaluating and assessing new business opportunities.
The Company was incorporated in Delaware on May 29, 1984 as a wholly owned subsidiary of Meisenheimer 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 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 2018, inclusive, have been cancelled.
On
April 7, 2021, through a series of Stock Purchase Agreements (the “Purchase Agreements”), the majority owners of the Company,
Richard C. Meisenheimer, Daniel T. Meisenheimer, III, James Meisenheimer, Meisenheimer Capital, Inc. and Spectrum Associates, Inc. (the
“Sellers”) sold 2,704,007 common shares which it held, to a new investor group. The Sellers also sold 1,105,644 of USBL’s
preferred stock at a per share price of $.057 per share to EROP Enterprises, LLC. As a result of the sale of common and preferred stock
by the Sellers, the Company experienced a change in control.
World
Equity Markets acted in the capacity of a broker/dealer for the Purchase Agreements and was issued 125,000 shares of common stock for
its services, and Verde Capital was issued 150,000 shares for Consulting Services. Effective April 7, 2021, the Board of Directors accepted
the resignation of Daniel T. Meisenheimer, III as Chairman of the Board of Directors and President of the Company. Effective April 7,
2021, Saeb Jannoun was appointed to fill the vacancy following the resignation of Daniel T. Meisenheimer, III as Chairman of the Board
of Directors and President of the Company. Mr. Michael Pruitt also joined the Board.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The
Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP 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. The
Company’s accounting estimates include the collectability of receivables, useful lives of long-lived assets and recoverability
of those assets, impairment in fair value of goodwill, valuation allowances for income taxes, stock-based compensation.
Concentration of Credit Risk
We
maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor
our banking relationships and consequently have not experienced any losses in our accounts. We believe we are not exposed to any significant
credit risk on cash.
Stock-based
Compensation
In
June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. ASU 2018-07 allows companies to account for nonemployee awards in the same manner as employee awards. The guidance
is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods. We adopted this ASU
on January 1, 2019.
Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There
were no cash equivalents for the years ended February 28, 2022 or 2021.
Fair Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure
the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles
generally accepted in the United States of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency
and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level
1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level
2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
Level
3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.
The
carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses and accrued expenses approximate
their fair value because of the short maturity of those instruments. The Company’s notes payable approximates the fair value of
such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial
arrangements on February 28, 2022 and 2021.
Net Income (Loss) Per Common Share
Net
income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income
(loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number
of shares of common stock and potentially outstanding shares of common stock during the period. The weighted average number of common
shares outstanding and potentially outstanding common shares assumes that the Company incorporated as of the beginning of the first period
presented.
Income
Taxes
Income
taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to tax net operating loss carryforwards. The deferred tax assets and liabilities represent the future
tax return consequences of these differences, which will either be taxable or deductible when assets and liabilities are recovered or
settled, as well as operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation
allowance is established against deferred tax assets when in the judgment of management, it is more likely than not that such deferred
tax assets will not become available. Because the judgment about the level of future taxable income is dependent to a great extent on
matters that may, at least in part, be beyond the Company’s control, it is at least reasonably possible that management’s
judgment about the need for a valuation allowance for deferred taxes could change in the near term.
Tax
benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The
amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement.
A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that
do not meet these recognition and measurement standards. As of February 28, 2022, and 2021, no liability for unrecognized tax benefits
was required to be reported.
Revenue
Recognition
In
2014, the FASB issued guidance on revenue recognition (“ASC 606”), with final amendments issued in 2016. The underlying principle
of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC
606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1)
identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3)
determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing
revenue as each performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that
the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients. The Company has
concluded that the new guidance did not require any significant change to its revenue recognition processes.
Recently Issued Accounting Pronouncements
In
August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in
an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible
preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under
Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded
conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered
in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own
Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related
to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity. ASU 2020-06 is
effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities
eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15,
2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after
December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance
as of the beginning of its annual fiscal year. The Company has chosen the early adoption of ASU 2020-06. The adoption of ASU 2020-06,
had a material effect on the Company’s financial statements. If the standard was not early adopted the Company would have recognize
s full OID on its convertible notes.
The
Company has implemented all new applicable accounting pronouncements that are in effect. These pronouncements did not have any material
impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE
3 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity
of operations, realization of assets, and liquidation of liabilities in the normal course of business. As shown in the accompanying financial
statements, the Company has an accumulated deficit of $7,193,214, and few sources of revenue. Due to these conditions, it raises substantial
doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that may result should
the Company be unable to continue as a going concern.
NOTE
4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of:
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
| |
February 28, | | |
February 28, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Legal and accounting services’ vendors | |
$ | 13,478 | | |
$ | 101,424 | |
Transfer agent and EDGAR agent | |
| — | | |
| 8,660 | |
Rent due Genvest, LLC (an entity controlled by the two officers of USBL) | |
| — | | |
| 144,000 | |
Accrued interest on MCREH note payable to president of USBL | |
| — | | |
| 13,562 | |
Security deposit due CADCOM (an entity controlled by the two officers of USBL) | |
| — | | |
| 2,725 | |
Other | |
| — | | |
| 777 | |
Total | |
$ | 13,478 | | |
$ | 271,158 | |
NOTE
5 – DUE TO PRIOR RELATED PARTIES
Due
to related parties consist of:
SCHEDULE
OF DUE TO PRIOR RELATED PARTIES
| |
February 28, | | |
February 28, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
USBL loans payable to Spectrum Associates, Inc. (“Spectrum”), a corporation controlled by the two officers of USBL, interest at 6%, due on demand | |
$ | — | | |
$ | 1,324,689 | |
USBL loans payable to the two officers of USBL, interest at 6%, due on demand | |
| — | | |
| 569,317 | |
USBL loans payable to Daniel T. Meisenheimer, Jr. Trust, a trust controlled by the two officers of USBL, non-interest bearing, due on demand | |
| — | | |
| 48,850 | |
MCREH note payable to president of USBL, interest at 7%, due on demand | |
| — | | |
| 48,000 | |
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 | |
| — | | |
| 5,000 | |
MCREH loan payable to Meisenheimer Capital, Inc., non-interest bearing, due on demand | |
| — | | |
| 159,275 | |
Total | |
$ | — | | |
$ | 2,159,631 | |
On
April 7, 2021, as part of the purchase and sale agreement, the principals of MCI consisting of Daniel Meisenheimer III, Richard Meisenheimer
and their affiliated entities have agreed to cancel previously issued and outstanding loans made to the Company.
Spectrum
Associates agreed to cancel indebtedness in the amount of $1,318,789 and the principals (D. Meisenheimer III and R. Meisenheimer) and
their other affiliates agreed to cancel indebtedness in the amount of $815,590.
As
a result of the debt cancellation the Company recognized a gain on the forgiveness of debt of $55,270 and credited $2,346,971 to additional
paid in capital.
NOTE 6 – RELATED PARTY TRANSACTIONS
During
the year ended February 28, 2022, Saeb Jannoun, CEO advanced the Company $3,000 for general operating expense. The advance was non-interest
bearing and due on demand. On July 26, 2021, Mr. Jannoun converted the $3,000 into 30,000 shares of common stock. The shares were valued
at $0.50, the closing stock price on the date of conversion, for a loss on conversion of debt of $12,000.
During
the year ended February 28, 2022, EROP Enterprises LLC (“EROP”), a significant shareholder, advanced the Company $28,870
for general operating expense. The advance was non-interest bearing and due on demand. On July 26, 2021, EROP converted the $28,870 into
288,700 shares of common stock. The shares were valued at $0.50, the closing stock price on the date of conversion, for a loss on conversion
of debt of $115,480.
On
April 7, 2021, the Company issued 200,000 restricted shares of common stock each to two of its directors for services. The shares were
valued at $0.12, the closing stock price on the date of grant, for total non-cash expense of $48,000.
During
the year ended February 28, 2022, EROP purchased 1,475,000 shares of common stock for $147,500. In addition, the Company granted 200,000
shares of common stock to EROP for services per the terms of a consulting agreement. The shares were valued at $0.52, the closing stock
price on the date of grant, for total non-cash expense of $104,000. The expense is being amortized over the one-year term of the service
agreement with EROP. As of February 28, 2022, the Company recognized $73,667 of the expense.
During
the year ended February 28, 2022, the Company was engaged by a relative of a shareholder to provide consulting services. As of February
28, 2022, the Company has recorded $5,000 of consulting revenue for services provided.
During
the year ended February 28, 2022, an individual of EROP, advanced the Company $3,581 for general operating expenses. The advance was
non-interest bearing and due on demand. The advance was repaid in July 2021.
From
February 1, 2022 through February 28, 2022, EROP provided consutling services for total cash compensation of $7,000.
NOTE
7 – PREFERRED STOCK
On
May 18, 2021, the Company increased its authorized shares of Preferred Stock from 2,000,000 to 10,000,000 shares.
Each
share of preferred stock has five votes, is entitled to a 2% cumulative annual dividend, and is convertible at any time into one share
of common stock. On February 28, 2022, EROP converted its 1,105,679 shares of Series A Preferred stock into 1,699,146 shares of common
stock. As a result of the conversion the Company recognized interest expense of $1,699,145. The conversion was not processed by the transfer
agent until March 4, 2022, therefore, although the expense has been recognized as of February 28, 2022, the conversion is not reflected
in the shares outstanding.
NOTE
8 – COMMON STOCK TRANSACTIONS
On
April 29, 2021, the Company issued 125,000 shares of common stock to World Equity Markets who acted in the capacity of a broker/dealer
for the Purchase Agreements (Note 1). The shares were valued at $0.71, the closing stock price on the date of grant, for total non-cash
expense of $88,750. The expense is being amortized over the six-month term of the service agreement with World Equity Markets. As of
February 28, 2022, the Company recognized $88,750 of the expense.
On
April 6, 2021, the Company issued 150,000 shares of common stock to Verde Capital, LLC for consulting services. The shares were valued
at $0.15, the closing stock price on the date of grant, for total non-cash expense of $22,500. The expense is being amortized over the
one-year term of the service agreement with Verde Capital, LLC. As of February 28, 2022, the Company recognized $20,625 of the expense.
During
the year ended February 28, 2022, the Company sold 2,400,000 shares of common stock for total cash proceeds of $240,000.
On
May 18, 2021, the Company increased its authorized shares of Common Stock to 100,000,000 shares.
Refer
to Note 6 for common stock issued to related parties.
NOTE
9 – INCOME TAXES
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The Company has evaluated Staff Accounting Bulletin No. 118 regarding the impact of the decreased tax rates of
the Tax Cuts & Jobs Act. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. The U.S. federal income tax rate of 21% is being used.
Net
deferred tax assets consist of the following components as of February:
SCHEDULE
OF DEFERRED TAX ASSETS AND LIABILITIES
| |
2022 | | |
2021 | |
Deferred tax assets: | |
| | | |
| | |
NOL Carryover | |
$ | (295,000 | ) | |
$ | (279,500 | ) |
Related Party Accruals | |
| — | | |
| 561,500 | |
Less: valuation allowance | |
| (295,000 | ) | |
| (282,000 | ) |
Net deferred tax asset | |
$ | — | | |
$ | — | |
The
income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from
continuing operations for the period ended February 28, due to the following:
SCHEDULE
OF INCOME TAX PROVISION
| |
2022 | | |
2021 | |
Deferred Tax Assets: | |
| | | |
| | |
Book Loss | |
$ | (435,400 | ) | |
$ | (5,600 | ) |
Related Party Accruals | |
| (453,500 | ) | |
| 200 | |
Other nondeductible expenses | |
| 341,700 | | |
| | |
Less valuation allowance | |
| 547,200 | | |
| 5,400 | |
Net deferred tax provision | |
$ | — | | |
$ | — | |
At
February 28, 2022, the Company had net operating loss carry forwards of approximately $1,135,000 that may be offset against future taxable
income. NOLs from tax years up to 2017 can be carried forward twenty years. Under the CARES Act, the Company carry forward NOLs indefinitely
for NOLs generated in a tax year beginning after 2017, that remain after they are carried back to tax years in the five-year carryback
period. No tax benefit has been reported in the February 28, 2022 financial statements since the potential tax benefit is offset by a
valuation allowance of the same amount.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal Income tax reporting
purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to
use in future years. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by
tax authorities for years before 2016.
NOTE
10 – RESTATEMENT
The
balance sheet as of February 28, 2022, is being restated to correctly present the shares of Series A preferred stock that were converted
into shares of common stock. The conversion, although effective on February 28, 2022, was not processed by the transfer agent until March
4, 2022.
SCHEDULE
OF RESTATED BALANCE SHEET
| |
As Reported | | |
Adjusted | | |
As Restated | |
As of February 28, 2022 |
| |
As Reported | | |
Adjusted | | |
As Restated | |
| |
| | |
| | |
| |
Current Assets: | |
| | | |
| | | |
| | |
Cash | |
$ | 180,756 | | |
$ | — | | |
$ | 180,756 | |
Prepaid stock for services | |
| 32,208 | | |
| — | | |
| 32,208 | |
Total Assets | |
$ | 212,964 | | |
$ | — | | |
$ | 212,964 | |
| |
| | | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | | |
| | |
Accounts payable | |
$ | 13,478 | | |
$ | — | | |
$ | 13,478 | |
Total Current Liabilities | |
| 13,478 | | |
| — | | |
| 13,478 | |
| |
| | | |
| | | |
| | |
Stockholders’ Equity (Deficit): | |
| | | |
| | | |
| | |
Series A preferred stock, $0.01 par value, 1,105,644 shares issued and outstanding | |
| — | | |
| 11,057 | | |
| 11,057 | |
Common stock, $0.01 par value, 100,000,000 shares authorized; 7,146,202 | |
| 88,453 | | |
| (16,991 | ) | |
| 71,462 | |
Additional paid-in capital | |
| 7,346,701 | | |
| (1,693,212 | ) | |
| 5,653,489 | |
Shares to be issued | |
| — | | |
| 1,699,146 | | |
| 1,699,146 | |
Accumulated deficit | |
| (7,193,214 | ) | |
| — | | |
| (7,193,214 | ) |
Treasury stock, at cost; 39,975 shares of common stock | |
| (42,454 | ) | |
| — | | |
| (42,454 | ) |
Total Stockholders’ Equity | |
| 199,486 | | |
| — | | |
| 199,486 | |
Total Liabilities and Stockholders’ Deficit | |
$ | 212,964 | | |
$ | — | | |
$ | 212,964 | |
NOTE
11 – SUBSEQUENT EVENTS
On
March 4, 2022, per EROP’s conversion (Note 7) 1,105,679 shares of Series A Preferred stock were cancelled and 1,699,146 shares
of common stock were issued.