<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-27842
SPORTS-GUARD, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 54-1778587
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3212 Skipwith Road, Suite G-1, Richmond, Virginia 23294
(Address of principal executive offices)
(804) 967-0500
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 No [X]
At June 30, 1996, 5,854,923 shares of the Company's common stock were
outstanding.
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PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1. Financial Statements
(a) Balance Sheets (Unaudited) - June 30, 1996 and September 30, 1995............................... 1
(b) Statements of Operations (Unaudited) - Three and Nine Month
Periods Ended June 30, 1996 and 1995 and Period from
Inception (July 11, 1994) to June 30, 1996...................................................... 2
(c) Statements of Cash Flows (Unaudited) - Nine Month
Periods Ended June 30, 1996 and 1995 and Period from
Inception (July 11, 1994) to June 30, 1996...................................................... 3
(d) Notes to Unaudited Condensed Financial Statements............................................... 4
ITEM 2. Management's Discussion and Analysis or
Plan of Operation............................................................................... 5
PART II - OTHER INFORMATION............................................................................... 7
</TABLE>
(i)
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SPORTS-GUARD, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash $ 1,403 $ 84,746
Inventory 30,800 --
Prepaid expense 150 --
Property and equipment (net of accumulated depreciation
of $3,064 and $0) 37,420 28,100
Deferred charges -- 16,284
Other assets -- 100
--------- ---------
$ 69,773 $ 129,230
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable - trade $ 46,312 $ 1,936
Accrued expenses 2,875 20,203
Notes payable 125,130 --
Accounts payable - stockholder 15,785 20,085
--------- ---------
Total liabilities 190,102 42,224
--------- ---------
Stockholders' equity
Common stock, $.01 par value 58,549 44,520
Common stock subscriptions -- 170,000
Additional paid-in capital 352,912 (30,946)
Deficit accumulated during the development stage (531,790) (96,568)
--------- ---------
Total stockholders' equity (120,329) 87,006
--------- ---------
$ 69,773 $ 129,230
========= =========
</TABLE>
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SPORTS-GUARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
July 11,
Nine Nine 1994
Months Months (Inception)
Ended Ended to
June 30, June 30, June 30,
1995 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (19,136) $(435,223) $(533,689)
Adjustments to reconcile to net cash used
in operating activities:
Depreciation -- 3,064 3,064
Waived compensation -- 24,000 48,000
Write-off of deferred charges -- 16,284 --
Changes in:
Inventory -- (30,800) (30,800)
Prepaid expenses -- (150) (150)
Accounts payable -- 44,376 46,312
Accrued expenses -- (17,328) 2,875
--------- --------- ---------
Net cash used in operating activities (19,136) (395,777) (464,388)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of equipment -- (12,383) (40,483)
Deposits (9,000) 100 --
--------- --------- ---------
Net cash used in investing activities (9,000) (12,283) (40,483)
--------- --------- ---------
Cash flows from financing activities:
Note payable - bank -- 10,000 10,000
Repayments of note payable -- (3,750) (3,750)
Issuance of notes payable - Apportum -- 118,880 118,880
Common stock subscriptions (net of syndication costs
of $516, $0, $15,941) 64,484 203,887 359,059
Issuance of common stock -- -- 6,300
Borrowings from officer/shareholder 16,189 14,100 61,685
Repayments of borrowings from officer/shareholder -- (18,400) (45,900)
--------- --------- ---------
Net cash provided by financing activities 80,673 324,717 506,274
--------- --------- ---------
Net increase (decrease) in cash 52,537 (83,343) 1,403
Cash at beginning of period -- 84,746 --
--------- --------- ---------
Cash at end of period $ 52,537 $ 1,403 $ 1,403
========= ========= =========
</TABLE>
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SPORTS-GUARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Nine Nine July 11,
Months Months Months Months 1994
Ended Ended Ended Ended (Inception) to
June 30, June 30, June 30, June 30, June 30,
1995 1996 1995 1996 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales $ 0 $ 459 $ 0 $ 1,298 $ 1,298
Cost of sales 0 95 0 225 225
--------- --------- --------- --------- ---------
Gross profit 0 364 0 1,073 1,073
--------- --------- --------- --------- ---------
Expenses:
Advertising 0 29,430 0 142,429 142,429
Legal and accounting fees 894 55,988 3,585 68,788 86,317
Consulting fees 2,500 22,136 2,500 49,752 62,752
Executive compensation 0 24,000 0 48,000 48,000
Executive compensation - waived 0 0 0 24,000 48,000
Rent 1,664 9,999 3,689 27,087 35,546
Travel 2,104 3,890 2,829 9,325 16,165
Auto expenses 1,284 30 3,346 3,232 14,770
Telephone 352 1,542 843 10,412 13,501
Office expenses 455 737 867 9,403 12,444
Contracted labor 0 5,141 0 11,298 11,716
License and fees 0 6,221 0 7,026 7,270
Printing 0 1,362 0 5,680 5,680
Meals and entertainment 125 557 489 2,055 5,089
Postage 84 1,026 309 3,088 4,015
Payroll taxes 0 2,038 0 3,874 3,874
Interest 0 2,931 0 3,260 3,260
Depreciation 0 1,576 0 3,064 3,064
Supplies 79 0 416 0 3,027
Testing 0 82 0 782 1,772
Dues and subscriptions 204 313 243 822 1,602
Equipment rental 0 0 0 1,592 1,592
Insurance 0 0 0 0 1,344
Miscellaneous 0 455 0 658 658
Utilities 0 214 0 449 449
Taxes 0 0 0 220 370
Donations 20 0 20 0 25
Repairs 0 0 0 0 31
--------- --------- --------- --------- ---------
Total expenses 9,765 169,668 19,136 436,296 534,762
--------- --------- --------- --------- ---------
Net loss $ (9,765) $(169,304) $ (19,136) $(435,223) $(533,689)
========= ========= ========= ========= =========
</TABLE>
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
The Sports-Guard, Inc. (Company) unaudited condensed balance sheets as
of June 30, 1996, and September 30, 1995, and the interim unaudited condensed
statements of operations for the three and nine month periods ended June 30,
1996 and 1995, and the related unaudited condensed statements of cash flows have
been prepared by the Company without audit. In the opinion of management, all
adjustments considered necessary to present fairly the financial position at
June 30, 1996, and September 30, 1995, and the results of operations and cash
flows of the Company for each of the quarters and nine months ended June 30,
1996 and 1995, have been made.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been omitted from the Company's unaudited condensed financial
statements. The financial statements and notes thereto for the period ended
September 30, 1995, should be referred to by the reader.
Inventory
Inventory consisted of the following at June 30, 1996:
<TABLE>
<S> <C>
Raw materials $ 21,206
Finished goods 9,594
-------------
$ 30, 800
=============
</TABLE>
Convertible Notes Payable
During the third quarter, the Company issued convertible promissory
notes in the amount of $118,880 to an accredited investor in a private offering.
The notes bear interest at the rate of 10% per annum and are due 24 months from
the date of issuance. Interest is payable on the notes quarterly and in arrears
beginning on June 30, 1996. The notes are convertible, at the option of the
holder, into the Company's $.01 par value common stock, at an initial conversion
price of $1.00 per share. The Company used the entire proceeds for working
capital purposes, including payment of advertising and marketing expenses, and
general and administrative expenses.
Shareholders' Equity
The Company has the authority to issue 20,000,000 shares of common
stock, $.01 par value. At February 2, 1996, the Company issued 1,027,923 shares
of its common stock for all of the outstanding shares of Skate Publishing Corp.,
a Delaware corporation. Skate Publishing Corp. had been inactive since its
formation, had never conducted any business and had no significant assets at the
time of the merger. The estimated fair value of the net assets acquired with
Skate Publishing Corp. was used to determine the cost assigned to stock issued.
The Company acquired Skate Publishing Corp. in order to increase its shareholder
base. At June 30, 1996, there were 5,854,923 shares of common stock of the
Company outstanding.
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ITEM 2. Management's Discussion and Analysis or Plan of Operation.
The Company is a development stage entity engaged in the design and
distribution of sports safety equipment. The Company's first product, known as
the Fielders-Guard, is a polycarbonate face guard for use primarily by defensive
players in the sports of baseball and softball.
Historically, the Company's operations have been financed by advances
from the Company's principal stockholder and sales of common stock, including
the private offering of units at $1.00 per unit, each unit consisting of one
share of common stock and a warrant to purchase one share of common stock at
$1.00 per share, between August and November 1995, which resulted in gross
proceeds of $375,000 (the "Unit Offering"). The proceeds of the Unit Offering
were used primarily to complete production of an injection mold for the
Fielders-Guard, to manufacture prototypes and inventory, for research and
development of improvements on the Fielders-Guard product, for the payment of
advertising and marketing expenses and general operating expenses. In addition,
the proceeds were used for legal and accounting fees related to initiating
Securities and Exchange Commission reporting by the Company.
The Company was unsuccessful in generating any significant level of
sales of the Fielders-Guard as a result of its initial marketing efforts.
Management concluded that the proceeds of the Unit Offering were not sufficient
to permit the Company to fully implement its marketing campaign or complete a
roll out of its Fielders-Guard product. Between March and June of 1996, the
Company raised gross proceeds of $118,880 from the private offering of
convertible notes in order to provide working capital for the wholesale and
retail marketing of its product and the continuation of its business. The notes
have a term of two years and are convertible into shares of the Company's common
stock at the election of the holder at a price of $1.00 per share.
Despite the Company's continued marketing efforts, the Company achieved
only minimal sales of the Fielders-Guard during the nine month period ended June
30, 1996. Management determined, based upon various factors, including customer
feedback, that the design of the Fielders-Guard was a significant factor in the
lack of market acceptance of the product. The Company received positive feedback
on the safety related goals of its product, but a negative response to the
actual design. As a result, since June 30, 1996, the Company has developed a
plan to redesign its product in order to attempt to attain market acceptance.
The Company engaged Advanced Design Corporation of Newington, Virginia, to
develop structural improvements in the Fielders-Guard while reducing the overall
size and thickness of the polycarbonate mask and impact pads. The redesigned
Fielders-Guard has a projection for the nose area and a more open design
allowing more ventilation and easier communication between players. The
redesigned Fielders-Guard is lighter-weight and is constructed with a clear
polycarbonate injection molded mask which allows for clearer visibility of the
player's face.
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<PAGE> 8
The Company has produced approximately 25 prototypes of the redesigned
Fielders-Guard, using a vacuum mold, for use in obtaining a preliminary
indication of market acceptance and establishing relationships with potential
dealers. The Company has received confirmation from its patent counsel that the
redesigned Fielders-Guard is protected by the existing patent for the
Fielders-Guard. The Company also entered into an agreement with Revere Mold and
Engineering of Chester, Virginia, for production of the injection mold for the
redesigned Fielders-Guard. The new injection mold will cost $35,000 and is
expected to be completed approximately January 15, 1997. Management intends to
engage Reiss Corporation of Blackstone, Virginia, to begin contract
manufacturing of the Fielders-Guard mask immediately following completion of the
new injection mold. The redesigned pads for the Fielders-Guard will be produced
by Rubatex Corporation of Bedford, Virginia, using the Company's existing
inventory of pads for initial production. Product assembly and packaging
services will continue to be provided on a contract basis by Reiss Corporation.
The Company's current cash position is not sufficient to fund redesign
of the product or continued operations, including the advertising and marketing
expenses which management believes will be necessary to introduce the redesigned
product. Management believes that an aggregate of approximately $410,000,
exclusive of product costs, will be required to fund operations for the next
twelve months. The Company believes that profitable operations can be achieved
if a fiscal 1997 sales volume of 13,000 units ($585,000) is achieved as a result
of implementation of the Company's current marketing plan. There can be no
assurance that the redesigned product will result in market acceptance or any
meaningful level of sales.
The Company plans to conduct a private offering of Common Stock to
raise funds necessary in order to continue its operations. The Company intends
to offer an aggregate of 1,000,000 shares of its Common Stock to accredited
investors only at a price of $.50 per share. From June 30, 1996 to the date of
this report, operations were funded by advances aggregating $125,000 from Norman
O. Milligan, Sr., the Company's president and principal stockholder. Mr.
Milligan received the funds he advanced to the Company as loans from business
associates. These persons have indicated that they desire to participate in the
private offering by assigning Mr. Milligan's loan obligations to the Company
(with the result that the Company's obligation to Mr. Milligan will be
extinguished). In order to prevent dilution to the current stockholders of the
Company as a result of this new offering, Mr. Milligan has agreed to contribute
to capital a number of shares of Common Stock held by him equal to the number of
shares sold in the private offering (up to 1,000,000 shares).
During the next twelve months, general and administrative expenses are
expected to substantially increase due to product development costs, advertising
costs related to continuation of the Company's marketing plan, legal and
accounting fees related to maintaining the Company reporting status with the
Securities and Exchange Commission and other expenses related to the Company's
marketing efforts. Management does not expect to engage any significant
additional personnel until such time as sales of the
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<PAGE> 9
Company's product will support the current level of operating expenses. In
addition, if the Company generates large sales volumes of the Fielders-Guard,
the Company may require additional working capital to finance increased
inventory requirements.
The Company does not anticipate incurring any significant research and
development activities, other than the redesign of the Fielders-Guard, until
such time as revenues from operations will support such activities. Absent
receipt of additional financing, the Company will not make any significant
capital expenditures for plant or equipment during the next twelve months.
There is no assurance that the Company will be successful in raising
additional capital, that the redesigned Fielders-Guard will result in market
acceptance, that the Company will be able to generate any meaningful level of
sales of the redesigned Fielders-Guard product or that the Company will be able
to continue its ongoing operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Inapplicable
Item 2. Changes in Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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<PAGE> 10
Inapplicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
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<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPORTS-GUARD, INC.
(Registrant)
Dated: December 11, 1996 By: /s/ NORMAN O. MILLIGAN, SR.
-----------------------------
Norman O. Milligan, Sr.,
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,403
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 30,800
<CURRENT-ASSETS> 32,353
<PP&E> 37,420
<DEPRECIATION> 3,064
<TOTAL-ASSETS> 69,773
<CURRENT-LIABILITIES> 190,102
<BONDS> 0
0
0
<COMMON> 58,549
<OTHER-SE> (178,878)
<TOTAL-LIABILITY-AND-EQUITY> 69,773
<SALES> 1,298
<TOTAL-REVENUES> 1,298
<CGS> 225
<TOTAL-COSTS> 435,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,260
<INCOME-PRETAX> (435,223)
<INCOME-TAX> 0
<INCOME-CONTINUING> (435,223)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (435,223)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
