Following is a Quarterly Management Report issued by Frank Niro, USCF Interim Executive Director.  In about six weeks as Interim ED, Niro seems to have accomplished quite a bit, including getting the federation caught up on its financial reporting and drastically reducing the number of backorders.

Note that the "$14,000 profit" for fiscal 2000-01, reported by the auditor based on erroneous information supplied under the Redman Board, ED De Feis and CFO Loomis, appears to have been overstated, and was actually a loss.  This erroneous claim of a "profit" was widely circulated during the Executive Board election, but did not succeed in electing the incumbent VP of Finance or any of the candidates supported by the 4-3 majority alliance of that Board.


United States Chess Federation
Quarterly Management Report
February 9, 2002

Financial Operations

Due to the departure of the Chief Financial Officer in late October, the USCF Financial Statements for October, November and December 2001 were not prepared on a timely basis.  The accounting records were, however, maintained on a current basis by Linda Legenos and her accounting staff with assistance from the accounting firm of Nugent and Haeussler.  In particular, the Cash Receipts, Cash Disbursements and Payroll records have been kept accurately and up-to-date.  The appropriate general journal entries and general ledger postings were made in November.  This enabled the November financial statements to be prepared retroactively without adjustment to any of the general ledger accounts.  In order to facilitate comparability of the monthly reports, some reclassification of expenses between the months of October and November were necessary.  These reclassifications did not affect the reported operating performance on a year-to-date basis through November 30, 2001.

In order to finalize the December financial statements, a closing adjustment to Cost of Sales was proposed using a formula which approximated the one utilized by the former CFO in preparation of previous monthly financial statements.  While I have problems with his methodology, I wanted to present the current financial statements on a consistent basis.  No other adjustments were made to the existing accounting records pertaining to the seven months ended December 31, 2001.

Following is a summary of the operating results reflected in the USCF financial statements through 12/31/01:

                                                                      Monthly Gain (Loss)    Year-to-date Gain (Loss)
Four months ended September 30, 2001:
(as previously reported)                                           ($10,937)                            ($161,856)
(unexplained difference)                                             ($2,270)                              ($2,270)
(as represented in the General Ledger)                     ($13,207)                            ($164,126)

Five months ended October 30, 2001                      ($27,830)                            ($191,956)
Six months ended November 30, 2001                    ($43,789)                            ($235,745)
Seven months ended December 31, 2001                  $47,001                             ($188,744)

Problems & Concerns
There are a number of problems that have been identified regarding the numbers reported during the first seven months of the fiscal year.  Additionally, there are a few concerns going forward that should be brought to the attention of the users of these financial statements.

The problems referred to above can be classified into four categories: a) unrecorded liabilities; b) accounts receivable, c) pension and d) inventory accounting.

a) Unrecorded liabilities - Based on a review of invoices processed subsequent to May 31, 2001, it appears that there were a substantial amount of unentered accounts payable at May 31, 2001.  In addition, the accounts payable subsidiary ledger was not reconciled to the general ledger at the end of the fiscal year and remained out of balance until November 30, 2001.  Finally, there were items in the general ledger on May 31, 2001 that were not included in the subsidiary ledger balance (thus increasing the discrepancy and thereby further understating the year end accounts payable balance reported in the audited financial statements).  Given the timing of the auditors' field work, which was completed July 12, 2001, coupled with the condition of the workpapers presented to them by management, it is understandable how valid liabilities could have been overlooked.  While I can't comment further on the reasons or the motives, I am confident that we now have a handle on the magnitude of the problem.  The amount of invoices clearly relating to prior years is $61,620.  Another $17,632 of questionable invoices and adjustments have been identified, bringing the total in this category to $79,252.  In other words, that is the impact of expenses related to fiscal 2001 that have been recorded in the current year.

b) Accounts Receivable - There was a difference in the total of Accounts Receivable listed in the subsidiary ledger when compared to the general ledger balance reported as of May 31, 2001.  As a result, a write down of Accounts receivable totaling $27,525 was recorded in November, 2001.  The impact was to overstate expenses in fiscal 2002 and understate expenses in 2001 by this amount.

c) Pension - There are some weaknesses in the procedures for processing pension payments for prior employees.  The result has been long delays and some minor errors in withholdings and payment amounts.  While the amounts do not appear material, the procedures need to be streamlined.  As a consequence, I have asked our auditors to perform an ERISA compliance audit of our Pension, Profit Sharing & 401K Plans, and to make specific recommendations for improvement.  Such audits are not required for organizations with less than 100 participants in the retirement plans.  Nevertheless, I feel that it is prudent to periodically perform a compliance audit in order to show due diligence in case any questions ever arise with the IRS or an aggrieved employee.  The cost of the audit will be less than $5,000 and is scheduled to take place in March.

d) Inventory - The methodology used by prior management for calculating Cost of Sales on an interim basis seems incomplete.  It is important to note that the annual computation reflected in the audited financial statements appears reasonable but the monthly reports may be distorted.  The reason for the distortion is related to changes in Inventory levels on a month to month basis.  For example, the net Inventory balance reflected in the September 30, 2001 internal financial statements prepared by management is almost identical to the amount at May 31, 2001.  This seems unlikely given the reduction in books & equipment activity between May and September.  Monthly calculations of Cost of Sales apparently do not reflect the changes in inventory levels.  The methodology was not changed in preparing the October, November and December financial statements.  However, a complete physical inventory was taken at January 31, 2002 to validate the existing perpetual inventory system and to provide a basis for monthly inventory adjustments in the future.  Based on a quick review of the gross margin data presented below, I anticipate that the impact of reflecting inventory changes on a year-to-date basis will be between $40,000 and $100,000 (increase in Cost of Sales) through January.  The preliminary count of the January 31, 2002 inventory shows a reduction of approximately $74,000 since May 31, 2001.  The final impact will not be known until the January financial statements are fully prepared.


                           SALES          COST OF SALES   GROSS MARGIN  GROSS MARGIN %
           Jun-99     247,242             157,359              89,883             36.35%
           Jul-99      211,411             121,101              90,311             42.72%
           Aug-99    228,869             149,202              79,667             34.81%
           Sep-99    208,888              118,301              90,588            43.37%
           Oct-99    265,582              162,753             102,828            38.72%
           Nov-99   370,100              206,489             163,611            44.21%
           Dec-99    323,491              244.385              79,106             24.45%
           Jan-00     182,359                21,015             161,344            88.48%
           Feb-00    290,961               177,683             113,279           38.93%
           Mar-00    282,641              197,597               85,043            30.09%
           Apr-00    177,769               123,355               54,414            30.61%
           May-00   211,484               171,193               40,291            19.05%
           Jun-00     171,753               104,354               67,399            39.24%
           Jul-00      144,598                 90,170               54,428             37.64%
           Aug-00    200,567                 71,449              129,118            64.38%
           Sep-00    161,853                 79,330                 82,523            50.99%
           Oct-00     226,471               118,938              107,533            47.48%
           Nov-00    264,651               138,125              126,526            47.81%
           Dec-00    337,441                173,427              164,014            48.61%
           Jan-01     179,638                111,484                68,155            37.94%   
           Feb-01    175,940                110,088                65,851            37.43%
           Mar-01    252,202                171,521                80,682            31.99%
           Apr-01    269,281                 163,963              105,318            39.11%
           May-01   149,939                 118,361                 31,578           21.06%
           Jun-01     155,799                   69,640                 86,159           55.30%
           Jul-01      124,560                   59,789                 64,771           52.00%
           Aug-01    160,226                   78,371                 81,854           51.09%
           Sep-01    106,349                   43,267                 63,081            59.32%
           Oct-01     136,261                  58,160                  78,101           57.32%
           Nov-01    134,102                  57,133                  76,969           57.40%
           Dec-01     150,409                  66,133                  84,276           56.03%

YTD This Yr.       968,780                 433,244               535,536           55.27%
   % Change        <35.7%>               <44.2%>             <26.8%>
YTD Last Yr.    1,507,334                 775,793                731,541          48.53%
YTD Prior Yr.   1,855,583              1,159,590                695,993          37.51%

Among the financial statement concerns going forward are a) Due to/from LMA & Chess Trust, b) Building Repairs and c) budget information.

a) Due to/from LMA (Life Member Assets) & Chess Trust - These accounts have not been routinely reconciled, nor have the amounts for rent, recognition of life member revenue, chess trust administrative fees, or the schoolmates subsidy been transferred on a regular basis.  As a consequence, there may be adjustments to these accounts required during the balance of the fiscal year which may affect the results of operations.  Furthermore, I believe the internal reporting, particularly related to LMA assets, should be consistent with the presentation in the annual audited financial statements.

b) Building repairs - There is work needed to be done on the building (ceiling tiles, painting, carpeting, internal moves, etc.) that has been deferred due to cash flow problems.  It is my understanding that LMA assets should be utilized for this purpose since the LMA is technically the "landlord".

c) Budget Information - There is no FY 2002 budget information in the Peachtree Accounting System.  USCF staff members are apparently not aware of their current operating budgets.  This needs to be addressed from both a managerial and financial reporting point of view.

Line of Credit

A credit facility which provides for a revolving $300,000 Line of Credit was executed at the end of December.  Due to the annual requirement to maintain a zero balance for 30 days in each calendar year, management decided (in consultation with Frank Camaratta, Treasurer) not to utilize the Line of Credit until January 31, 2002.  As a result, total pay down of the loan for 30 days will not be required until December, 2003.

The first $150,000 of the Line of Credit was drawn down on January 31, 2002.  This amount was used to pay vendors who were holding shipment of items needed to fill back orders.  An additional $20,000 was taken on February 7, 2002 in order to finance legal & accounting fees as well as payments necessary to retroactively reinstate expired insurance policies.  The remainder of the Line of Credit will be used as needed to eliminate Accounts Payable balances over 90 days old, pay customer refunds, and to provide funding for an increase in books & equipment available for resale.


Backorders as of February 8, 2002 are $86,457.  This amount has been reduced significantly since December 21, 2001 when the total back orders exceeded $149,000.  More than $100,000 of the outstanding orders as of that date have subsequently been shipped.  As of February 8, 2002, $16,899 of backorders are over 90 days.

Along with this Quarterly Management Report are unaudited financial statements prepared by Linda Legenos and Frank Niro for the months ending Oct 31, Nov 30, and Dec 31 of 2001.  The monthly statements show a loss of $27,829.78 for October, a loss of $43,788.58 for November and a gain of $47,000.75 for December. 

Also following are an updated Income Statement and Balance Sheet.

Income Statement for the Seven Months ending December 31, 2001
Figures for fiscal year to date

TOTAL REVENUE-MEMBERSHIPS                $1,081,414.83
NET SALES REVENUE                                            968,780.12
TOTAL WEB SERVICE REVENUE                                   0.00
TOTAL MAGAZINE REVENUE                              166,489.43
TOTAL OTHER SERVICES REVENUE                   60,479.55
TOTAL TOURNAMENT REVENUE                          2,218.69
TOTAL OTHER REVENUE                                       25,907.84

TOTAL REVENUE                                                 2,305,356.90

COST OF SALES                                        
PURCHASES                                                              347,992.20
INDIRECT SALES OTHER                                        12,439.22
DELIVERY                                                                    72,812.51

TOTAL COST OF SALES                                          433,243.93

GROSS PROFIT                                                       1,872,112.97

TOTAL MAGAZINE EXPENSES                              399,031.16
TOTAL WEB SERVICE EXPENSES                           59,629.22
TOTAL PROMOTIONS EXPENSES                           59,038.19
TOTAL TOURNAMENT EXPENSES                          33,763.05
TOTAL PERSONNEL EXPENSES                             805,143.11
TOTAL OVERHEAD EXPENSES                               296,923.87
TOTAL GOVERNANCE EXPENSES                           21,468.09

TOTAL EXPENSES                                                    2,060,857.05

NET INCOME                                                              -188,744.08


Intermediate Balance Sheet for Operations as of December 31, 2001:


Current Assets
CASH                                                $173,558.60
RECEIVABLES                                   170,920.78
DUE FROM LMA                               101,537.18
DUE FROM CHESS TRUST                23,007.58
EXCHANGE ACCOUNTS                     2,577.02
OTHER ASSETS                                   10,191.64 
PREPAIDS                                           130,864.73
INVENTORY-NET                              387,101.80
DEFERRED ASSETS                           <1,650.00>
OTHER FUNDS                                   132,993.88
MISCELLANEOUS ASSETS                17,216.29

 Total Current Assets                       1,148,319.50

Property and Equipment
FIXED ASSETS: TELEPHONE              62,566.65
FIXED ASSETS: COMPUTER             419,238.18
FIXED ASSETS: EDITORIAL                  5,895.00
FIXED ASSETS: FURN & EQUIP       119,049.25
FIXED ASSETS: AUTO                         15,680.00

Total Property and Equipment             131,862.76

TOTAL ASSETS                                1,280,182.26


Current Liabilities
ACCOUNTS PAYABLE                        507,050.66
DUE TO CHESS TRUST                            3,865.00
DUE TO LMA                                         112,701.32
TAXES PAYABLE                                         769.31
CHESS INFORMANT ACCOUNT                 10.00
DEFERRED REVENUES                         295,157.68

Total Current Liabilities                       1,189.343.09

Long-Term Liabilities
DUE TO LMA-LOAN                              737,869.74
NOTES PAYABLE                                          131.75

Total Long-Term Liabilities                     738,001.49

FUND BALANCE                                   <458,418.24>
Net Income                                               <188,744.08>

Total Capital                                            <647,162.32>

Total Liabilities & Capital                    $1,280,182.26 homepage