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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended August 31, 1998
Commission File Number 33-96638-A
U S Amateur Sports, Inc.
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(Exact name of small business issuer as specified in its charter)
Florida 65-0538051
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8125 Monetary Drive, Suite H4, Riviera Beach, Florida 33404
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(Address of principal executive offices)
(561) 622-4395
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(Registrant's telephone number, including area code)
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 preceding 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 -X- No__
As of August 31, 1998, the issuer had 11,932,600 shares of common stock,
$.0001 Par Value, outstanding.
Transitional Small Business Disclosure format: Yes _ No -X-
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U S AMATEUR SPORTS, INC. Form 10-QSB
August 31, 1998
INDEX
PART I FINANCIAL INFORMATION Page No.
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets:
August 31, 1998 and May 31, 1998 3
Consolidated Statements of Operations:
Three-month Periods Ended
August 31, 1998 and 1997 4
Consolidated Statements of Cash Flows:
Three-month Periods Ended
August 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION 10
PART II OTHER INFORMATION
Items 1-6 13
2
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U S AMATEUR SPORTS, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND MAY 31, 1998
AUGUST 31, MAY 31,
1998 1998
--------- --------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 81,692 $ 89,542
Accounts and advances receivable 16,146 7,315
Inventories 89,336 85,155
Prepaid expense 26,257 34,580
-------- --------
Total current assets 213,431 216,592
Property and equipment 69,800 70,980
Rights to technology and associated trademarks 29,616 25,309
Deferred charges 2,168 2,818
Other assets 8,442 7,862
-------- --------
TOTAL ASSETS $323,457 $323,561
======== ========
LIABILITIES
Current Liabilities
Accounts payable $135,368 $131,704
Current portion of notes payable 125,897 130,214
Current portion of accrued interest 14,255 10,600
-------- --------
Total current liabilities 275,520 272,518
Loans from stockholders 133,800 101,600
Notes payable, less current portion 13,500 13,500
Accrued interest, less current portion 1,731 1,314
-------- --------
TOTAL LIABILITIES 424,551 388,932
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value:
Authorized - 50,000,000 shares;
Issued 11,934,600 shares
at August 31, 1998 and 11,894,600
shares at May 31, 1998 1,193 1,189
Additional paid-in capital 518,354 484,361
Accumulated deficit (615,641) (545,921)
Less treasury stock - At cost: 2,000 shares (5,000) (5,000)
-------- --------
TOTAL STOCKHOLDERS' EQUITY (101,094) (65,371)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $323,457 $323,561
======== ========
See notes to financial statements.
3
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U S AMATEUR SPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Month Periods Ended August 31, 1998 and 1997
(Unaudited)
Three Months
Ended August 31,
1998 1997
REVENUES -------- --------
Net sales $ 22,967 $ 21,338
Other income 0 3,259
-------- --------
TOTAL REVENUES 22,967 24,597
COSTS AND EXPENSES
Cost of products sold 9,121 3,351
Cost of event production and promotion 0 71,662
Freight 830 2,843
Professional fees 17,770 14,750
Advertising and promotion 28,072 0
Travel 0 4,603
Rent 6,993 5,904
Office, telephone and other operating expenses 17,223 12,810
Interest 4,072 1,736
Depreciation 5,583 3,940
Amortization 3,023 3,023
-------- --------
TOTAL COSTS AND EXPENSES 92,687 124,548
-------- --------
NET LOSS $(69,720) $(99,951)
======== ========
NET LOSS PER COMMON SHARE $ (.006) $ (.017)
======== ========
See notes to financial statements.
4
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U S AMATEUR SPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Month Periods Ended August 31, 1998 and 1997
(Unaudited)
Three Months Ended
August 31,
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (69,720) $ (99,951)
Reconciling adjustments:
Amortization 3,023 3,023
Depreciation 5,583 3,940
Decrease (increase) in receivables (8,831) 2,791
Decrease (increase) in inventories (4,181) (3,318)
Decrease (increase) in prepaid expenses 8,323 (2,944)
(Increase) in other assets (7,260) 0
Increase in accounts payable 3,664 70,263
Increase (decrease) in accrued expenses 0 (40,000)
Increase (decrease) in accrued interest 4,072 (6,509)
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NET CASH USED BY OPERATING ACTIVITIES (65,327) (72,705)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (4,403) 0
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (4,403) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 33,997 0
Notes payable (4,317) 126,387
Loans from stockholders 32,300 (47,400)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 61,880 79,987
---------- ----------
NET INCREASE (DECREASE) IN CASH (7,850) (6,282)
CASH AT BEGINNING OF PERIOD 89,542 810
---------- ----------
CASH AT END OF PERIOD $ 81,692 $ 7,092
========== ==========
See notes to financial statements.
5
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U S AMATEUR SPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1998 and 1997
(Unaudited)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended August 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending May 31, 1999. For further
information, refer to the financial statements and footnotes thereto included
in the Company's Form 10-KSB for the year ended May 31, 1998.
Consolidation
- -------------
The consolidated financial statements of the Company include the accounts of
USA Performance Products, Inc. USA Performance Products, Inc. is a wholly-owned
subsidiary responsible for the manufacture and sale of the Viper M1
paintball marker and accessories.
Depreciation
- ------------
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is computed using the straight-line
method for financial reporting purposes and an accelerated method for tax
purposes.
Amortization
- ------------
Rights to technology and associated trademarks are amortized using the
straight-line method over five years. Deferred charges are amortized using the
straight-line method over five years.
Inventories
- -----------
Inventories are stated at the lower of cost or market. See note C.
6
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NOTE B: CASH EQUIVALENTS
Cash equivalents consist of cash credits received in connection with the sale
of advertising to Itex Corporation. These cash credits will be used for the
purchase of products and services provided by other Itex clients.
NOTE C: INVENTORIES
Inventories consist of merchandise acquired for sale by the Company's USA
SportsNet business unit in addition to paintball markers and accessories.
Inventories are carried at cost which is considered to be less than market
value.
NOTE D: PREPAID EXPENSE
Prepaid expense includes amounts paid for rent, commercial insurance and
advertising which will benefit the Company during the fiscal year ending May
31, 1999.
NOTE E: PROPERTY AND EQUIPMENT
The following is a summary of property and equipment recorded in the financial
statements at cost less depreciation as of August 31, 1998 and 1997:
August 31, 1998 August 31, 1997
--------------- ---------------
Computer hardware $ 34,104 $ 10,542
Computer software 1O,564 1O,564
Furniture, fixtures and equipment 21,072 10,572
Tools, dies and fixtures 54,761 50,140
-------- --------
Total cost 120,501 81,818
Less: accumulated depreciation (50,701) (32,864)
-------- --------
Total net property and equipment $ 69,800 $ 48,954
======== ========
The useful lives assigned to property and equipment to compute depreciation
are:
Computer hardware 5 years
Computer software 5 years
Furniture, fixtures and equipment 7 years
Tools, dies and fixtures 5 years
7
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NOTE F: RIGHTS TO TECHNOLOGY AND ASSOCIATED TRADEMARKS
During the year ended May 31, 1996, the Company acquired the assets of
Performance Paintball Products, Inc. Included in the purchase were exclusive
rights to use of the Viper name and related technology used in the manufacture
of the Viper M1 paintball marker. The cost assigned to these rights increased
by $6,679 as a result of payment for certain design improvements and drawing
updates during the three months ended August 31, 1998. The rights are valued
at $54,134 less accumulated amortization of $24,518 at August 31, 1998, and
$47,455 less accumulated amortization of $15,028 at August 31, 1997.
NOTE G: DEFERRED CHARGES
Deferred charges consist of organization costs in the amount of $13,004 less
accumulated amortization of $10,836 and $8,235, at August 31, 1998 and 1997,
respectively.
NOTE H: OTHER ASSETS
Other assets include deposits and an advance to an officer of the Company.
NOTE I: ACCOUNTS PAYABLE
Accounts payable consist of professional fees, trade payables and costs
associated with event production and promotion.
NOTE J: NOTES PAYABLE AND LOANS FROM STOCKHOLDERS
Notes payable include balances remaining under a note agreement with Stratex
Corporation and a note recorded in connection with the purchase of certain
assets of Performance Paintball Products. The remaining balances of notes
payable and loans from stockholders consist of miscellaneous amounts borrowed
to finance the Company's operations.
NOTE K: SUBSEQUENT EVENT
On September 23, 1998, the Company entered into an agreement with the North
American Youth Sport Institute (NAYSI) and NAYSI's founder and director, Dr.
Jack Hutslar. In return for 100,000 shares of the Company's restricted common
stock, the Company receives exclusive rights to present the NAYSI Course on
Coaching on the Company's Internet Amateur Sports Network. In connection with
a profit-sharing arrangement, NAYSI and Dr. Hutslar will provide consulting
services to ensure that the content of the course and its related text is
adequate and current.
8
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NOTE L: RECOVERABILITY OF ASSETS AND GOING CONCERN
The Company's financial statements have been presented on the basis that it is
a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's continued existence is dependent upon its ability to secure
financing or its ability to generate sufficient cash flows through operations
to meet its operating costs and repay current obligations as they come due.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the accompanying
consolidated financial statements for the three month periods ended August 31,
1998 and 1997 and the Form 10-KSB for the fiscal year ended May 31, 1998.
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
Certain statements in this report and elsewhere (such as in other filings by
the Company with the Securities and Exchange Commission ("SEC"), press
releases, presentations by the Company of its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended
to identify these forward-looking statements. The Company 's actual results
could differ materially from those anticipated in these forward-looking
statements. Factors that might cause or contribute to such differences
include, among others, competitive pressures, the growth rate of the paintball
industry and electronic commerce, constantly changing technology and market
acceptance of the Company 's products and services. The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
Overview
- --------
USA Performance Products
During the three months ended August 31, 1998, the Company commenced transfer
of production of the Viper M1 paintball marker from the Company's
subcontractor, Micro Tool Engineering, Inc., to in-house facilities. Having
determined that Micro Tool would not be able to boost production of the Viper
M1 in quantities sufficient to meet demand, management decided to shift away
from reliance on this subcontractor even though the transition to other
sources would depress current production even further. On June 15, the Company
moved its headquarters from Palm Beach Gardens, Florida to approximately 6,000
square feet of leased commercial space in Riviera Beach, Florida. Management
believes that this new facility will allow the Company to conduct its own
manufacturing operation, satisfy demand for its paintball products for the
foreseeable future and ensure the quality of its products by in-house
implementation of a comprehensive quality control program. Management also
believes that the resulting control over production will make it possible to
cut costs to increase profit margins. In-house production is expected to
commence by the end of October.
USA SportsNet
Work continued on transformation of USA SportsNet from a web site used to
market the Viper M1 to being the first amateur sports Internet network
("Amateur Sports Network") serving amateur athletes and their organizations.
10
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(The following paragraph addresses a material subsequent event.)
On September 23, 1998, the Company entered into an agreement with the North
American Youth Sport Institute (NAYSI) and its founder and director, Dr. Jack
Hutslar, under which NAYSI granted exclusive rights to the Company to present
the NAYSI coaches course on the Amateur Sports Network in return for 100,000
shares of restricted common stock. In connection with a profit-sharing
agreement, Dr. Hutslar will provide consultation services to ensure that the
content of the course and its related text is kept current. Founded in 1979,
NAYSI has developed curricula for national training programs that enroll over
one million youngsters annually, and it has trained more than 30,000 coaches
and teachers in live training sessions. Management considers the agreement
with NAYSI to be an important step to provide the means to identify
individuals who are not suited for coaching positions and to strengthen the
abilities of those who do coach young athletes.
Results of Operations
- ---------------------
Comparison of the three months ended August 31, 1998 with the three
months ended August 31, 1997
-------------------------------------------------------------------
Revenue for the three-month period ended August 31, 1998 was $22,967 compared
to $24,597 recorded during the same time period of the prior year. All current
period revenue consisted of sales of the Viper M1 paintball marker. The
majority of prior period revenues were derived from the sale of advertising,
tickets and memorabilia connected with the All American Bowl. Total costs and
expenses declined from $124,548 during the prior period to $92,687 during the
current period. This decrease reflected elimination of the prior year cost of
producing and promoting the All American Bowl offset by increases in all other
expense categories except travel and freight. Relocation of Company
headquarters contributed to these increases. However, the most significant
increase was $28,072 in advertising related to promotion of the Viper M1 in
anticipation of the Company's ability to satisfy greater demand once transfer
of production to in-house facilities is complete. The overall expense decrease
of $31,861 translated into a reduction of net loss from $99,951 in the prior
year period to $69,720 for the three months ended August 31, 1998.
Liquidity and Capital Resources
- -------------------------------
At August 31, 1998, current assets totaled $213,431 compared to $216,592 at
the prior year end. The decrease of $3,161 was the net result of a $7,850
decrease in cash and cash equivalents and an $8,323 decrease in prepaid
expense offset by increases of $8,831 in accounts and advances receivable and
$4,181 in inventories. Current liabilities increased to $275,520 from $272,518
at the prior year end. Accounts payable grew from $131,704 to $135,368 during
the same time period. Remaining current liabilities consist of the current
portion of long-term debt discussed below.
11
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Net cash used by operating activities during the three months ended August 31,
1998 was $65,327. The principal use of cash was to fund the Company's net loss
from operations. Cash used to increase accounts receivable, inventories and
other assets was offset by decreases in prepaid expenses and increases in
accounts payable and accrued interest.
Net cash used by investing activities consisted of $4,403 used for acquisition
of tools, dies and fixtures and computer hardware.
Net cash provided by financing activities was $61,880 derived from $33,997 in
capital contributions and $32,300 in loans from stockholders offset by a
$4,317 decrease in notes payable. Of the capital contributions, $19,000 was
recorded from a private sale of restricted stock, and the remainder resulted
from the exchange of stock for services. Loans from stockholders, which bear
no interest, continued to be a significant source of capital to fund the
Company's operations during the three-month period ended August 31, 1998.
Notes payable included balances remaining under a note agreement with Stratex
Corporation and a note recorded in connection with the purchase of certain
assets of Performance Paintball Products.
Management believes that the combination of revenues, loans from stockholders
and capital contributions will be sufficient to fund operations for the
remainder of the current fiscal year. To the extent that the Company requires
additional funds to support its operations or the expansion of its business,
the Company may sell additional equity, issue debt or obtain credit facilities
through financial institutions. Any sale of additional equity securities will
result in dilution to the Company's shareholders. There can be no assurance
that additional financing, if required, will be available to the Company in
amounts or on terms acceptable to the Company.
Market for Common Equity
- ------------------------
The Company's common stock continues to trade on the OTC Bulletin Board under
the symbol USSP. Equitrade Securities Corporation of Lake Forest, California
continues to serve as the lead market maker for the stock.
12
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OTHER INFORMATION
PART II
ITEM 1. Legal Proceedings.
The Company is not involved in any material legal proceedings or litigation,
and the officers and directors are aware of no other pending litigation which
would have a material, adverse effect on the Company.
ITEM 2. Changes in Securities.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
None
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports - None
13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
U S Amateur Sports, Inc.
October 14, 1998 By /s/ Guy T. Lindley
Guy T. Lindley, Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages 3 and 4 of the Company's Form 10-QSB for the quarter ended August 31,
1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 81,692
<SECURITIES> 0
<RECEIVABLES> 16,146
<ALLOWANCES> 0
<INVENTORY> 89,336
<CURRENT-ASSETS> 213,431
<PP&E> 120,501
<DEPRECIATION> 50,701
<TOTAL-ASSETS> 323,457
<CURRENT-LIABILITIES> 275,520
<BONDS> 0
0
0
<COMMON> 1,193
<OTHER-SE> (102,287)
<TOTAL-LIABILITY-AND-EQUITY> 323,457
<SALES> 22,967
<TOTAL-REVENUES> 22,967
<CGS> 9,121
<TOTAL-COSTS> 92,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,072
<INCOME-PRETAX> (69,720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (69,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (69,720)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
