<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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: COMMISSION FILE NUMBER
JUNE 30, 1996 0-23672
SPORTS SCIENCES, INC.
---------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
OHIO 34-1692323
------------------------- ------------------------------------
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
2075 CASE PARKWAY SOUTH
(216) 963-0660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
COMMON STOCK PURCHASE WARRANTS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICABLE DATE: 5,714,911 SHARES OF COMMON STOCK, NO
PAR VALUE, AT AUGUST 9, 1996.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 12 OR 15 (D) OF THE SECURITIES 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
--- ---
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
--- ---
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SPORTS SCIENCES, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
Page
----
Part 1. Financial Information
Item 1. Financial Statements
Balance Sheets as of June 30, 1996 (unaudited) and
December 31, 1995 3
Statements of Operations for the three and six month
periods ended June 30, 1996 and 1995
(unaudited) 4
Statements of Cash Flows for the six month period
ended June 30, 1996
and 1995 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 7
Part 2. Other Information 9
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 10
2
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<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
SPORTS SCIENCES, INC.
BALANCE SHEETS
(UNAUDITED)
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 21,061 $ 166,944
Accounts receivable, net 304,153 301,634
Prepaid expenses and other current assets 96,599 68,230
Inventories:
Raw Materials 379,161 497,157
Work-in-process 143,935 143,835
Finished Goods 77,467 158,722
------------- -------
Total inventories 600,563 799,714
------------- -------
Total current assets 1,022,376 1,336,522
Property and equipment, net 171,263 206,618
Other noncurrent assets
Trade Credits 672,000 672,000
Other 87,091 74,218
------------- ------
759,091 746,218
TOTAL ASSETS $ 1,952,730 $ 2,289,358
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable, current portion $ 36,635 $ -----
Accounts payable 961,582 1,423,680
Accrued compensation and related liabilities 31,721 41,387
Other accrued expenses 237,594 269,584
------------- -------
Total current liabilities 1,267,532 1,734,651
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares authorized. ---- ----
Common stock, at stated value ($0.0002), 10,000,000 shares
authorized; 1,143 1,035
5,714,911 shares issued and outstanding at
June 30, 1996 and 5,176,379 issued and outstanding
at December 31, 1995.
Paid in capital 5,174,055 4,803,192
Accumulated deficit (4,463,850) (4,249,520)
Deferred offering costs (26,150) ----
-------------- --------------
Total shareholders' equity 685,198 554,707
------------- --------------
TOTAL LIABILITIES AND EQUITY $ 1,952,730 $2,289,358
============= ==============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
SPORTS SCIENCES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 451,522 $839,490 $563,006 $1,230,679
Cost of goods sold 305,107 746,397 425,395 1,064,350
------- ------- ------- ---------
Gross Margin 146,415 93,093 137,611 166,329
32% 11% 24% 14%
Selling, general and administrative costs 113,888 500,735 281,714 997,763
Research and Development Costs 29,022 57,195 63,394 121,047
------ ------ ------ -------
Income (Loss) from operations 3,505 (464,837) (207,497) (952,481)
Other expense 5,934 30,288 6,833 52,913
----- ------ ----- ------
Net loss $(2,429) $(495,125) $(214,330) $(1,005,394)
======= ========= ========= ===========
Net loss per common share (0.00) (0.17) (0.05) (0.34)
======= ====== ====== ======
Shares used in calculation of net
loss per common share (Note 2) 5,523,433 2,963,529 4,616,115 2,943,863
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
SPORTS SCIENCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
------------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (214,330) $(1,005,394)
Adjustments to reconcile net loss to net
cash provided (used) in operating activities:
Depreciation and amortization 42,885 43,679
Accounts receivable allowances (204,435) (284,669)
Sale of inventory for trade credits, net of allowances ---- (604,800)
Cash provided (used) by the change in:
Accounts receivable 201,916 858,612
Inventories 199,150 753,434
Prepaid expenses and other assets (43,821) (36,713)
Accounts payable (75,991) 178,217
Accrued expenses (41,657) 112,672
------------ -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (136,283) 15,038
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,950) (25,890)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) proceeds on line of credit ---- (343,572)
Issuance of notes payable 36,635 150,000
Proceeds from issuance of common stock ---- 242,639
Expenditures for proposed public offering (41,285) (64,184)
------------- ------------
NET CASH USED BY FINANCING ACTIVITIES (4,650) (15,117)
------------- ------------
Net decrease in cash (145,883) (25,969)
Cash and cash equivilents at beginning of period 166,944 44,719
------------ -----------
Cash and cash equivilents at end of period $ 21,061 $ 18,750
============ ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
SPORTS SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements are unaudited but,
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 and six month periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1995 included
in the registrant's Annual Report on Form 10-KSB filed on April 12,1996.
NOTE 2. NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
shares of common stock and common equivalent shares outstanding.
NOTE 3. CONSIGNED INVENTORY, WARRANTY AND RIGHT OF RETURN POLICIES
Inventory consigned to customers is included in the Company's finished goods
valuation. Revenue from these consignments is recognized when the consignee
sells the product to individual consumers. All products carry a minimum ninety
day manufacturer's warranty. The warranty period begins on the date of purchase
by the individual consumer. Consumers, who purchase product from the Company,
have a right to return the product for either merchandise, credit or refund
(within thirty days of purchase) provided the product is free of damage or abuse
not consistent with the normal use of the product.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 Compared to the Three Months Ended June 30,
1995
- ----------------------------------------------------------------------------
Net sales for the three months ended June 30, 1996 were $452,000 as compared to
net sales of $839,000 for the same period in 1995. Net consumer product sales,
excluding accessories, totaled $447,000 for the three months ended June 30,
1996, a decrease of $390,000 or 47%, over the same period in 1995. This decrease
in net sales is attributable to the Company's inability, due to lack of capital
resources, to satisfactorily market its products and to offer the extended terms
that are demanded by retail distribution channels. International sales,
including Canada, for the three month period ended June 30, 1996 were $7,000 as
compared to $69,000 for the same period in 1995. Product return accruals for the
three months ended June 30, 1996 were $14,000 compared to $149,000 during the
same period in 1995.
Gross margin percentage for the three months ended June 30, 1996 was 32% as
compared to 11% for the same period in 1995. This improvement in gross margin
percentage was due to the decrease in fixed manufacturing overhead expenditures,
which totaled $32,000 for the three months ended June 30, 1996, a decrease of
$80,000 from the same period in 1995.
Total operating expenses for the three months ended June 30, 1996 were $143,000,
consisting of selling, general and administrative costs of $114,000 and research
and development costs of $29,000 compared to total operating expenses of
$558,000 for the same period in 1995 consisting of selling, general and
administrative costs of $501,000, and research and development costs of $57,000.
During the second quarter of 1996 the Company's baseball products, Batter Up(R)
and PC Batter Up, were approved by Little League(R) Baseball which will allow
the Company to use the Little League(R) logo in all advertising. The Company
hopes that this affiliation with Little League(R) Baseball will help create wide
spread awareness of the Company's Batter Up(R) baseball games which operate with
a Sega(R) Genesis, Super Nintendo(R) or personal computer.
For the three months ended June 30, 1996 other expense was $6,000 compared to
$30,000 during the same period in 1995. Other expense for the 1995 period
consists of primarily interest expense and bank charges relating to the
Company's now expired line of credit with Comerica Bank.
Six Months Ended June 30, 1996 Compared to the Six Months Ended June 30,1995
- ----------------------------------------------------------------------------
Net sales for the six months ended June 30, 1996 were $563,000 as compared to
net sales of $1,231,000 for the same period in 1995, a decrease of approximately
54%. Net consumer product sales, excluding accessories, decreased $666,000 or
55% during the first half of 1996 compared to the first half of 1995. This
decrease in net sales is attributable to the Company's inability, due to lack of
capital resources, to satisfactorily market its products and to offer the
extended terms that are demanded by retail distribution channels. International
sales, including Canada, for the six month period ended June 30, 1996 were
$23,000 as compared to $93,000 over the same period in 1995. Product return
accruals for the six months ended June 30, 1996 were $14,000 compared to
$194,000 during the same period in 1995.
Gross margin percentage for the six months ended June 30, 1996 was 24% compared
to a 14% gross margin during the same period in 1995. This improvement in gross
margin percentage was due to the decrease in fixed manufacturing overhead
expenditures, which totaled $90,000 for the six months ended June 30, 1996, a
decrease of $135,000 over the same period in 1995.
7
<PAGE> 8
Total operating expenses for the six months ended June 30, 1996 were $345,000,
consisting of selling, general and administrative costs of $282,000 and research
and development costs of $63,000 compared to total operating expenses of
$1,119,000 for the same period in 1995 consisting of selling, general and
administrative costs of $998,000 and research and development costs of $121,000.
Other expense for the six months ended June 30, 1996 was $7,000 as compared to
$53,000 in the same period of 1995. Other expense for the 1995 period consists
of primarily interest expense and bank charges relating to the Company's now
expired line of credit with Comerica Bank.
Financial Condition and Liquidity
- ---------------------------------
Cash flow used by operations was $136,283 for the six month period ended June
30, 1996 compared to cash flow provided by operations of $15,038 for the six
month period ended June 30, 1995. During May 1996, the Company issued and sold
538,532 shares of its common stock to several creditors of the Company, in
consideration for their cancellation of trade payable indebtedness owed by the
Company in the aggregate amount of $386,106.
Management believes that cash flow generated from operations during 1996 will
not be sufficient to maintain minimum levels of operations or to effectively
create market awareness for the Company's products. The Company expects that
promotional and marketing expenditures, and as a result expected sales levels,
will be significantly reduced from the levels of previous years until the
Company is able to successfully complete long-term debt financing and/or private
placements of equity and/or debt securities. To address its ongoing serious cash
flow problems, the Company is attempting to obtain sufficient funds through
long-term debt financing and/or private placements of equity and/or debt
securities to provide adequate cash flow to sustain operations. The Company
entered into a letter of agreement dated July 25, 1996 with Taglich Brothers,
D'Amadeo, Wagner & Company, Inc. ("Taglich Brothers") pursuant to which Taglich
Brothers will use its best efforts to sell $1,100,000 of the Company's equity
securities. There can be no assurance that this proposed transaction will be
consummated.
The principal market maker of the Company's stock was prohibited from trading on
the NASDAQ in March, 1995 due to its failure to maintain capital requirements.
While the Company expected to engage a new market maker sometime during 1995,
it's failure to do so has adversely affected the Company's ability to
successfully complete equity financing. There can be no assurance that the
Company will obtain a market maker in the near future.
There can be no assurance that the Company will be able to generate or raise
sufficient funds to meet minimum liquidity needs in 1996,
8
<PAGE> 9
PART 2. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
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 REPORTS ON FORM 8-K
The issuer filed two reports on Form 8-K during the second
quarter of the fiscal year ended December 31, 1996.
** Current Report on Form 8-K dated May 14, 1996.
** Current Report on Form 8-K dated June 5, 1996.
9
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized:
SPORTS SCIENCES, INC.
--------------------------
Date: August 12, 1996 /S/ John D. Lipps
--------------- -------------------------------------
John D. Lipps, Chairman of the Board,
President, Chief Executive Officer
/S/ Nicholas J. Chuma
-------------------------------------
Nicholas J. Chuma, Executive Vice
President, Treasurer
Chief Financial Officer and Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,061
<SECURITIES> 0
<RECEIVABLES> 304,153
<ALLOWANCES> 0
<INVENTORY> 600,563
<CURRENT-ASSETS> 1,022,376
<PP&E> 171,263
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,952,730
<CURRENT-LIABILITIES> 1,267,532
<BONDS> 0
<COMMON> 1,143
0
0
<OTHER-SE> 684,055
<TOTAL-LIABILITY-AND-EQUITY> 1,952,730
<SALES> 563,006
<TOTAL-REVENUES> 563,006
<CGS> 425,395
<TOTAL-COSTS> 281,714
<OTHER-EXPENSES> 63,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,833
<INCOME-PRETAX> (214,330)
<INCOME-TAX> 0
<INCOME-CONTINUING> (214,330)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,330)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
