<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
_______________________________________________________________________________
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1999
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
SPORTAN UNITED INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 000-25223
Nevada 760333165
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3170 Old Houston Road, Huntsville, Texas 77340
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(Address of Principal Executive Office) (Zip Code)
409-295-2726
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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 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]
As of August 20, 1999 registrant had 7,000,000 shares of Common Stock
outstanding.
<PAGE>
PART I
Item 1. Financial Statements
SPORTAN UNITED INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 September 30,
(Unaudited) 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 90,858 $ 6,663
Accounts receivable - trade, net of allowance for
doubtful accounts of $12,051at June 30, 1999
and $21,051 at September 30, 1998 137,901 123,432
Accounts receivable - stockholder and employees 2,152 433
Inventory, net of valuation allowance of $0 at
June 30, 1999 and $29,852 at September 30, 1998 152,543 525,247
Prepaids 14,942 13,292
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TOTAL CURRENT ASSETS 398,396 669,067
PROPERTY AND EQUIPMENT
Computer equipment and software 48,695 47,367
Furniture and fixtures 61,530 63,978
Transportation equipment 7,820 7,820
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118,045 119,165
Less: accumulated depreciation and amortization 85,486 78,264
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TOTAL PROPERTY AND EQUIPMENT 32,559 40,901
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TOTAL ASSETS $ 430,955 $709,968
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Drafts outstanding $ - $ 24,782
Accounts payable 148,209 226,784
Accounts payable - stockholder - 41,464
Accrued expenses 9,421 17,816
Notes payable - stockholders 53,500 63,500
Note payable - bank 10,000 95,000
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TOTAL CURRENT LIABILITIES 221,130 469,346
STOCKHOLDERS' EQUITY
Preferred stock:
No par value; 10,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, par value $.001; 50,000,000
shares authorized. Shares issued and
outstanding, 7,000,000 at June 30, 1999
and September 30, 1998 7,000 7,000
Additional paid-in capital 246,263 246,263
Accumulated deficit (43,438) (12,641)
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TOTAL STOCKHOLDERS' EQUITY 209,825 240,622
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 430,955 $709,968
========== ========
</TABLE>
See notes to financial statements.
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 2,693,116 $ 2,380,352 $ 955,181 $ 730,338
COST OF SALES 2,368,224 1,985,337 904,093 595,021
----------- ----------- ----------- -----------
GROSS PROFIT 324,892 395,015 51,088 135,317
OPERATING EXPENSES
General and administrative 467,842 427,088 145,019 184,934
Expense of private offering 86,600 9,002 44,116 4,897
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 554,442 436,090 189,135 189,831
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (229,550) (41,075) (138,047) (54,514)
OTHER EXPENSE
Interest expense (5,062) (1,730) (3,007) -
Miscellaneous expense (2,920) (4,296) (491) -
Gain on sale of assets 206,735 - 204,202 -
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE 198,753 (6,026) 200,704 -
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAXES (30,797) (47,101) 62,657 (54,514)
FEDERAL INCOME TAXES - - - -
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (30,797) $ (47,101) $ 62,657 $ (54,514)
=========== =========== =========== ===========
NET LOSS PER SHARE
Basic $ (.01) $ (.01) $ .01 $ (.01)
=========== =========== =========== ===========
Diluted $ (.01) $ (.01) $ .01 $ (.01)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 6,159,167 5,985,000 7,000,000 5,985,000
=========== =========== =========== ===========
Diluted 6,215,967 5,985,000 7,056,800 5,985,000
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------
1999 1998
(Unaudited) (Unaudited)
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (30,797) $ (47,101)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 13,748 13,557
Gain on disposal of property and equipment (206,735) (225)
Stock issued as compensation - 750
Changes in assets and liabilities:
Accounts receivable (47,928) (1,019)
Inventory 52,664 62,567
Prepaids and other assets (1,650) 44,331
Accounts payable 138,128 150,588
Accounts payable - stockholder (41,464) -
Accrued expenses (8,395) (5,356)
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(101,632) 265,193
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NET CASH PROVIDED BY OPERATING ACTIVITIES (132,429) 218,092
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 344,279 500
Cash paid for property and equipment (7,873) (8,770)
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NET CASH USED IN INVESTING ACTIVITIES 336,406 (8,270)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit (85,000) -
Principal payments on notes to stockholders (25,000) (176,032)
Net proceeds from notes to stockholders 15,000 -
Decrease in drafts outstanding (24,782) -
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NET CASH USED IN FINANCING ACTIVITIES (119,782) (176,032)
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 84,195 33,790
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,663 36,082
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 90,858 $ 69,872
========== ==========
NON-CASH FINANCING ACTIVITY
Cash paid during the period for interest $ 5,062 $ 1,730
========== ==========
</TABLE>
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND SEPTEMBER 30, 1998
NOTE A - PRESENTATION
The balance sheet of the Company as of June 30, 1999, the related statements of
operations and cash flows for the nine months ended June 30, 1999 and 1998 and
the three months ended June 30, 1999 and 1998 included in the financial
statements have been prepared by the Company without audit. In the opinion of
management, the accompanying financial statements include all adjustments
(consisting of normal, recurring adjustments) necessary to summarize fairly the
Company's financial position and results of operations. The results of
operations for the nine months ended June 30, 1999 are not necessarily
indicative of the results of operations for the full year or any other interim
period.
NOTE B - NATURE OF OPERATIONS AND ORGANIZATION
Sportan United Industries, Inc. (formerly Players Texas Sports, Inc.) (the
Company) was incorporated on March 15, 1991 as Players Texas Sports, Inc., a
subchapter S corporation. On March 30, 1998, the Board of Directors of Players
Texas Sports, Inc. voted to change the name of the company to Sportan United
Industries, Inc. and change the federal income tax filing status to a C
corporation. The Company is a distributor of sports cards and memorabilia. The
Company markets its distribution services primarily to retail outlets in the
United States.
NOTE C - PREFERRED STOCK AND OUTSTANDING STOCK WARRANTS
Preferred Stock: The Company is authorized to issue up to 10,000,000 shares of
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preferred stock, no par value per share. The preferred stock may be issued in
one or more series, the terms of which may be determined at the time of issuance
by the Board of Directors, without further action by stockholders, and may
include voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion, redemption
rights and sinking fund provisions. The issuance of any such preferred stock
could adversely affect the rights of the holders of Common Stock and, therefore,
reduce the value of the Common Stock.
Outstanding Stock Warrants: At September 30, 1998 and June 30, 1999, the
- --------------------------
Company had outstanding warrants to purchase 171,000 shares of the Company's
common stock at prices ranging from $.01 to $.06 per share. The warrants became
exercisable in 1998 and expire at various dates through 2003. At September 30,
1998 and June 30, 1999, 171,000 shares of common stock were reserved for that
purpose.
NOTE D - SALE OF ASSETS
Historically, the Company has concentrated on the distribution of sports cards
and memorabilia. In June 1999, the Company sold the sports cards and supplies
segment of its product line. The Company: (i) sold its current inventory in
sports cards and supplies at cost of $320,040, (ii) sold a portion of its
accounts receivables of $31,741 (which includes a payment of $4,500 representing
the purchase of $9,000 of past due accounts receivables), (iii) sold certain
equipment for $5,000, (iv) transferred liabilities in the amount of $216,703 to
the buyer, and (v) entered into a non-compete agreement for three years. The
Company also received a payment of $344,279 in cash as consideration for the
transaction. The Company utilized approximately $85,000 of the proceeds from the
sale to repay a portion of its outstanding on its line of credit, approximately
$25,000 to repay a loan, and utilized approximately $31,000 to repay certain
accounts payable. The Company realized a gain on the sale of the product line of
$204,201. Management estimates that the sold product line represents
approximately 80% of its revenues.
<PAGE>
Item 2. Management's Discussion and Analysis
Some of the statements contained in this Form 10-QSB, discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. These statements are
subject to known and unknown risks, uncertainties, and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and is
derived using numerous assumptions. Important factors that may cause actual
results to differ from projections include, for example:
. the success or failure of management's efforts to implement their
business strategy;
. the ability of the Company to raise sufficient capital to meet
operating requirements;
. the ability of the Company to protect its intellectual property
rights;
. the ability of the Company to compete with major established
companies;
. the effect of changing economic conditions;
. the ability of the Company to attract and retain quality employees;
and
. other risks which may be described in future filings with the SEC.
General
The Company is a developing company incorporated in March 1991, but has
experienced significant changes in its management and operations since the death
of its founder, James R. Otteson, in October 1995. The Company's operating
results have been declining since 1995. The Company's fiscal year was changed
from December 31 to September 30 in 1997.
The Company recognizes revenues from sales of sports memorabilia at the
time of shipment. General and administrative costs are charged to expense as
incurred. Property, plant and equipment are recorded at cost and depreciated
using an appropriate accounting method over the estimated useful lives of the
assets. Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized and
depreciated over the estimated useful lives. The cost and related accumulated
depreciation of the assets are removed from the accounts upon disposition.
Recent Developments
Historically the Company has concentrated on the distribution of sports
cards and memorabilia. In June 1999, the Company sold the sports cards and
supplies segment of its product line. The Company: (i) sold its current
inventory in sports cards and supplies at cost of $320,040, (ii) sold a portion
of its accounts receivables of $31,741 (which includes a payment of $4,500
representing the purchase of $9,000 of past due accounts receivables), (iii)
sold certain equipment for $5,000, (iv) transferred liabilities in the amount of
$216,703 to the buyer, and (v) entered into a non-compete agreement for three
years, which prevents the Company from purchasing sports cards directly from
wholesalers for a period of 3 years, and Jason G. Otteson, Jason R. Otteson, II,
and Connie L. Logan each received $1,000 for an identical non-compete agreement.
The Company also received a payment of $344,279 in cash as consideration for the
transaction. The Company utilized approximately $85,000 of the proceeds from the
sale to repay a portion of its outstanding on its line of credit, approximately
$25,000 to repay a loan, and utilized approximately $31,000 to repay certain
accounts payable. The Company realized a gain on the sale of the product line of
$204,202. Management estimates that the sold product line represents
approximately 80% of its revenues.
<PAGE>
Results of Operations
Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30,
1998
Sales. Sales increased to $955,181 for the three months ended June 30, 1999
from $730,338 for the three months ended June 30, 1998, an increase of $224,843
or 31%. Cost of sales increased to $904,093 for the three months ended June 30,
1999 from $595,021 for the three months ended June 30, 1998, an increase of
$309,072 or 52%. Gross profit decreased from $135,317 to $51,088, a decrease of
$84,229 or 62%. The decrease in gross margins was attributable to the Company's
sale discussed in "Recent Developments," in which the Company sold approximately
$320,040 of merchandise at its cost.
General and Administrative Expenses. General and administrative expenses
decreased to $145,019 for the three months ended June 30, 1999 from $184,934 for
the three months ended June 30, 1998, an decrease of $39,915 or 22%. Management
believes the reduction in general and administrative expenses is due to reduced
overhead expenses in connection with the Company divesting certain of its
trading card product lines.
Expense of Private Offering. The Company incurred expenses of $44,116 in
connection with a private placement of common stock during the three months
ended June 30, 1999 from $4,897 for the three months ended June 30, 1998, an
increase of $39,219. The increase was due to the majority of the expenses in
connection with the private placement occurring during the three months ended
June 30, 1999.
Other Income (Expense). The Company realized revenue from its covenant not
to compete from its sale described in "Recent Developments" of $204,202, during
the three months ended June 30, 1999.
Net Income (Loss). The Company had net income of $62,657 for the three
months ended June 30, 1999, as compared to a net loss of $54,514 for the three
months ended June 30, 1998. The gain was due to the $204,202 of income realized
from the Company's covenant not to compete discussed above, and the gain was
realized despite an increase in operating losses realized during the three
months ended June 30, 1999.
Nine Months Ended June 30, 1999 Compared to the Nine Months Ended June 30, 1998
Sales. Sales increased to $2,693,116 for the nine months ended June 30,
1999 from $2,380,352 for the nine months ended June 30, 1998, an increase of
$312,764 or 13%. Cost of sales increased to $2,368,224 for the nine months ended
June 30, 1999 from $1,985,337 for the nine months ended June 30, 1998, an
increase of $382,887 or 19%. Gross profit decreased from $395,015 to $324,892, a
decrease of $70,123 or 18%. The decrease in gross margins was attributable to
the Company's sale discussed in "Recent Developments," in which the Company sold
approximately $320,040 of merchandise at its cost.
General and Administrative Expenses. General and administrative expenses
increased to $465,842 for the nine months ended June 30, 1999 from $427,088 for
the nine months ended June 30, 1998, an increase of $38,754 or 9%. This increase
is the result of increased legal and accounting fees incurred in connection with
and in preparation for the Company's initial public filing with the Securities
and Exchange Commission.
Interest Expense. Interest expense increased to $5,062 for the nine months
ended June 30, 1999 from $1,730 for the nine months ended June 30, 1998, an
increase of $3,332 or 193%. The increase is due to the Company's increased
borrowings under the Company's line of credit during the nine months ended June
30, 1999.
Expense of Private Offering. The Company incurred expenses of $86,600 in
connection with a private placement of common stock during the nine months ended
June 30, 1999 from $9,002 for the nine months ended June 30, 1998, an increase
of $77,598. The increase was due to the majority of the expenses in connection
with the private
<PAGE>
placement occurring during the nine months ended June 30, 1999.
Other Income (Expense). The Company realized revenue from its covenant not
to compete from its sale described in "Recent Developments" of $204,202, during
the nine months ended June 30, 1999.
Net Loss. Net loss decreased to $30,797 for the nine months ended June 30,
1999 from $47,101 for the nine months ended June 30, 1998. The decrease of
$16,304 was attributable to the factors discussed above.
Liquidity and Capital Resources
Cash Flow from Operating Activities. The Company's net cash flow from
operating activities resulted in cash used by operations of $132,429 for the
nine months ended June 30, 1999, from cash provided by operations of $218,092
for the nine months ended June 30, 1998. The decrease is related to the sale
discussed in "Recent Developments."
Cash Flow from Investing Activities. The Company's net cash provided from
investing activities during the nine months ended June 30, 1999 increased to
$336,406 from $8,270 for the nine months ended June 30, 1998 due to the
Company's sale of property and equipment during the nine months ended June 30,
1999 in connection with the transaction discussed in "Recent Developments".
Cash Flow from Financing Activities. The Company's net cash flows used in
financing activities for the nine months ended June 30, 1999 decreased to
$119,782 from $176,032 for the nine months ended June 30, 1998. The decrease is
due to the repayment of loans to stockholders during the nine months ended June
30, 1998 of $176,032, although the Company did make payments on its line of
credit of $85,000 during the nine months ended June 30, 1999.
Management believes that its working capital as of June 30, 1999, of
$177,266 should enable the Company to continue its current operations for a
period of more than one year. However, unforeseen costs could shorten the period
during which the current working capital may be expected to satisfy the
Company's capital requirements. Management estimates its current monthly
operating costs after the sale of its sports card product line are approximately
$20,000. The Company does not have any other material commitments for capital
expenditures. Management estimates that its current product sales will not raise
sufficient profits to meet such operating costs, and the Company believes it
will need to add additional product lines to increase revenues. In addition,
unless the Company raises additional capital or realizes significant growth in
its net income from the sale of sports memorabilia, its expansion plans will be
materially impaired. The Company may raise additional capital through equity
sales to fund its expansion plans in the last quarter of calendar year 1999. The
Company can provide no assurance that it will be able to make such equity sales
on terms favorable to the Company, if at all.
The Company has established a line of credit in the amount of $100,000 with
First National Bank of Huntsville. At June 30, 1999, the Company had a balance
of approximately $10,000 on the line of credit. There can be no assurance that
the Company will be able to obtain additional funding from other external
sources on suitable terms, if at all.
The Company has borrowed from its stockholders $53,500 in the form of a
note payable due on demand, at an annual interest rate of 5% with principal plus
accrued interest to be paid on repayment. Presently, the stockholders do not
intend to demand payment of the loan, which at June 1, 1999 had a balance of
$59,965. The Company also borrowed from its stockholders an additional $10,000
in the form of a non-interest bearing note payable which was repaid in November
1998. There can be no assurance that these stockholder funds will be available
in the future.
The Company may in the future experience significant fluctuations in its
results of operations. Such fluctuations may result in volatility in the price
and/or value of the Company's common stock if any market develops. Results of
operations may fluctuate as a result of a variety of factors, including demand
for the Company's products, introduction of new products by the Company or its
competitors, the variety of products distributed by the Company, the number and
timing of the hiring of additional personnel, the timing of acquisitions,
general competitive conditions
<PAGE>
in the industry and general economic conditions. Shortfalls in revenues may
adversely and disproportionately affect the Company's results of operations
because a high percentage of the Company's operating expenses are relatively
fixed. Accordingly, the Company believes that period to period comparisons of
results of operations are not necessarily meaningful and should not be relied
upon as an indication of future results of operations. Due to the foregoing
factors, it is likely that in one or more future periods the Company's operating
results will be below the expectations of the investor.
Seasonality
Sales of sports-related memorabilia products tend to be more constant, with
sales peaks during holiday seasons and the then current sport season.
Year 2000 Compliance
The year 2000 poses certain issues for business and consumer computing,
particularly the functionality of software for two-digit storage of dates and
special meanings for certain dates such as 9/9/99. The year 2000 is also a leap
year, which may also lead to incorrect calculations, functions, or system
failure. The problem exists for many kinds of software, including software for
mainframes, PCs, and embedded systems.
In assessing the effect of the Year 2000 Problem, management determined
that there existed two general areas that needed to be evaluated:
. Internal infrastructure and
. Supplier/third-party relationships.
A discussion of the various activities related to assessment and actions
resulting from those evaluations is set forth below.
Internal Infrastructure.
The Company is in the process of verifying that all of its personal
computers and software are Year 2000 compliant. The Company is in the process of
replacing or upgrading all items that have been found not to be Year 2000
compliant. The Company intends to determine if the software vendors of all of
our critical applications have represented that their products are Year 2000
compliant. The costs related to these efforts are not expected to be in excess
of $30,000.
Suppliers/Third-Party Relationships.
As mentioned above, the Company will be gathering information from vendor
web sites and available compliance statements to identify and, to the extent
possible, resolve issues involving the Year 2000 Problem. The Company relies on
its outside vendors for water, electrical, and telecommunications services as
well as climate control, building access, and other infrastructure services. The
Company does not intend to independently evaluate the Year 2000 compliance of
the systems utilized to supply these services. The Company has received no
assurance of compliance from the providers of these services. There can be no
assurance that these suppliers will resolve any or all Year 2000 Problems with
these systems before the occurrence of a material disruption to the Company's
business. Any failure of these third-parties to resolve Year 2000 problems with
their systems in a timely manner could have a material adverse effect on the
Company's business.
Contingency Plans.
The Company has not currently developed a formal contingency plan to be
implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. However, if it deems necessary, the Company may
take the following actions:
<PAGE>
. Accelerated replacement of affected equipment or software;
. Short to medium-term use of backup equipment and software;
. Increased work hours for Company personnel;
. Other similar approaches.
If the Company is required to implement any of these contingency plans,
such plans could have a material adverse effect on its business.
Based on the actions taken to date as discussed above, the Company is
reasonably certain that it has or will identify and resolve all Year 2000
Problems that could materially adversely affect its business and operations.
PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 1-5 are
omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are to be filed as part of this Form 10-QSB:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 3.1/(1)/ Amended and Restated Articles of Incorporation
of Sportan United Industries, Inc.
Exhibit 3.2/(1)/ Bylaws of Sportan United Industries, Inc.
Exhibit 3.3/(1)/ Common Stock Certificate, Sportan United
Industries, Inc.
Exhibit 10.1/(1)/ Sportan United Industries, Inc. 1999 Stock
Option Plan
(1) Filed previously on registration statement Form 10-SB SEC File No. 000-
25513.
(b) There have been no reports filed on Form 8-K.
<PAGE>
SIGNATURES
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In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the undersigned, thereunto duly authorized.
Sportan United Industries, Inc.
Date: August 26, 1999 /s/ Jason G. Otteson
--------------------
Jason G. Otteson, Chief Executive
Officer
