<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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)
<TABLE>
<S> <C>
Delaware 54-1778587
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.
</TABLE>
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.
[X] Yes No [ ]
At March 31, 1997, 5,854,923 shares of the Company's common stock were
outstanding.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
(a) Balance Sheets (Unaudited) March 31, 1997 and September 30,
1996.
(b) Statements of Operations (Unaudited) - Three and Six Month
Periods Ended March 31, 1997 and 1996 and Period from
Inception (July 11 1994) to March 31, 1997
(c) Statements of Cash Flows (Unaudited) - Six Month Periods Ended
March 31, 1997 and 1996 and Period from Inception (July 11,
1994) to March 31, 1997.
(d) Notes to Unaudited condensed Financial Statements
ITEM 2. Management's Discussion and Analysis or Plan of Operation
PART II OTHER INFORMATION
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SPORTS-GUARD, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
ASSETS
March 31, September 30,
1997 1996
---------------- ----------------
<S> <C> <C>
Cash $ 47 $ 22,832
Inventory 41,010 29,744
Prepaid Expenses 5,782 75
Property and equipment (net of accumulated
depreciation of $7,922 and $4,724) 38,041 39,640
Deposits 11,670 -
---------------- ----------------
$ 96,550 $ 92,291
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable - trade $ 101,258 $ 37,030
Accrued expenses 34,357 7,809
Notes payable 118,880 118,880
Accounts payable - stockholder 178,202 126,855
---------------- ----------------
Total liabilities $ 432,697 $ 290,574
---------------- ----------------
Stockholders' equity
Common stock, $.01 par value 59,819 58,549
Additional paid-in capital 415,142 352,912
Deficit accumulated during the development stage (811,108) (609,744)
---------------- ----------------
Total deficit in stockholders' equity $ (336,147) $ (198,283)
---------------- ----------------
$ 96,550 $ 92,291
================ ================
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SPORTS-GUARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Three Six Six July 11,
Months Months Months Months 1994
Ended Ended Ended Ended (Inception) to
March 31, March 31, March 31, March 31, March 31,
1996 1997 1996 1997 1997
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales $ 839 $ 0 $ 839 $ 0 $ 1,495
Cost of sales 130 130 317
--------- --------- ---------- ---------- ----------
Gross profit 709 0 709 0 1,178
--------- --------- ---------- ---------- ----------
Expenses:
Advertising 5,388 112,999 143,087
Legal and accounting fees 6,424 18,668 11,986 30,954 121,776
Consulting Fees 7,866 27,616 58,000 133,560
Executive compensation 24,000 24,000 24,000 48,000 120,000
Executive compensation-waived 24,000 48,000
Rent 10,000 10,000 17,088 20,000 65,547
Travel 1,202 226 5,435 2,374 21,110
Auto expenses 1,936 1,155 3,202 3,619 19,463
Telephone 6,812 1,069 8,870 2,126 17,424
Contract labor 2,724 1,198 6,157 3,616 18,376
Office expenses 8,016 572 8,666 1,075 13,767
License and fees 408 3,900 805 5,885 16,404
Interest 329 7,743 329 14,272 21,208
Payroll taxes 1,836 1,892 1,836 3,151 8,861
Printing 470 4,318 5,680
Meals and entertainment 415 167 1,498 1,122 6,763
Testing 700 1,740 6,901
Depreciation 2,302 1,622 2,302 3,198 7,922
Postage 1,487 79 2,062 314 4,810
Supplies 3,027
Equipment rental 902 428 1,592 863 3,190
Dues and subscriptions 163 420 509 695 2,686
Insurance 1,344
Taxes 220 220 1,175
Miscellaneous 26 203 171 1,149
Utilities 54 235 160 770
Donations 125
Repairs 31 31 62
--------- --------- ---------- ---------- ----------
Total Expenses 82,954 73,196 266,628 201,366 814,185
--------- --------- ---------- ---------- ----------
Net loss $(82,245) $(73,196) $(265,919) $(201,366) $(813,007)
--------- --------- ---------- ---------- ----------
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SPORTS-GUARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Six July 11,
Months Months 1994
Ended Ended (Inception) to
March 31, March 31, March 31,
1996 1997 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (265,919) $ (201,366) $ (813,008)
Adjustment to reconcile to net
cash used in operating activities:
Depreciation 2,302 3,198 7,922
Waived compensation 24,000 48,000
Changes in:
Accounts payable 17,789 64,228 101,258
Other payables 10,355 10,355
Accrued expenses 200 16,194 24,003
Inventory (20,824) (11,265) (41,009)
Prepaid expenses (28,225) (5,707) (5,782)
---------------- ----------------- -----------------
NET CASHED USED IN
OPERATING ACTIVITIES $ (270,677) $ (124,363) $ (668,261)
---------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisition) disposal of equipment (9,338) (1,599) (45,963)
Deposits 100 (11,670) (11,670)
---------------- ----------------- -----------------
NET CASHED USED IN
INVESTING ACTIVITIES (9,238) (13,269) (57,633)
---------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 10,000 10,000
Repayments of notes payable (10,000)
Proceeds from convertible notes 118,880
Common stock subscriptions (net of
syndication costs of $0 and $15,941) 203,887 359,059
Issuance of common stock 63,500 69,800
Borrowings from shareholder 56,447 230,312
Repayments of borrowings from shareholder (18,400) (5,100) (52,110)
---------------- ----------------- -----------------
NET CASHED PROVIDED BY
FINANCING ACTIVITIES 195,487 114,847 725,941
---------------- ----------------- -----------------
NET INCREASE (DECREASE) IN CASH (84,428) (22,785) 47
CASH AT BEGINNING OF PERIOD 84,746 22,832 -
---------------- ----------------- -----------------
CASH AT END OF PERIOD $ 318 $ 47 $ 47
================ ================= =================
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
The Sports-Guard, Inc. (Company) unaudited condensed balance sheet as
of March 31, 1997, and September 30, 1996, and the interim unaudited condensed
statements of operations for the three and six month periods ended March 31,
1997 and 1996, 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 March 31, 1997, and September 30, 1996, and the results of operations and
cash flows of the Company for each of the quarters and six months ended March
31, 1997 and 1996, 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 financial statements.
The financial statements and notes thereto for the period ended September 30,
1996, should be referred to by the reader.
Inventory
Inventory consisted of the following at March 31, 1997:
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<S> <C>
Raw materials $ 2,555
Finished Goods 38,455
------
$ 41,010
------
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Convertible Notes Payable
During the quarter ended June 30, 1996, 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 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. During the quarter ended December 31, 1996, 127,000 shares
of common stock were issued to individuals for 1) consulting services provided
to the Company ($58,500) and 2) as part of a prepaid marketing services
agreement ($5,000). At March 31, 1997, there were 5,981,923 shares of common
stock of the Company outstanding.
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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 period ended March
31, 1997. 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 is lighter weight and is constructed
with a clear polycarbonate
<PAGE> 8
injection molded mask which allows for clearer visibility of the player's face.
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 May 30, 1997. Management intends to
contact Reiss Corporation of Blackstone, Virginia to bid 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.
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 conducted an unsuccessful private offering of Common Stock
to raise funds necessary in order to continue its operations. The Company
offered 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 indicated that they desired 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). As of March 31, 1997, the closing date of the offering, these
persons had not notified the Company as to whether they would participate in
the offering. In order to prevent dilution to the current stockholders of the
Company as a result of this new offering, Mr. Milligan has agreed
2
<PAGE> 9
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 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.
3
<PAGE> 10
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Inapplicable.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
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: May 13, 1997 By /s/ Norman O. Milligan, Sr.
------------------------------
Norman O. Milligan, Sr.
Chief Financial Officer
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 41,010
<CURRENT-ASSETS> 46,792
<PP&E> 38,041
<DEPRECIATION> 12,646
<TOTAL-ASSETS> 96,550
<CURRENT-LIABILITIES> 432,697
<BONDS> 0
0
0
<COMMON> 59,819
<OTHER-SE> (395,966)
<TOTAL-LIABILITY-AND-EQUITY> 96,550
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 73,196
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,743
<INCOME-PRETAX> (73,196)
<INCOME-TAX> 0
<INCOME-CONTINUING> (73,196)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,196)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
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