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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
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SPORTAN UNITED INDUSTRIES, INC.
(Name of Small Business Issuer in its Charter)
TEXAS 760333165
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
3170 OLD HOUSTON ROAD
HUNTSVILLE, TEXAS 77340
(Address of principal executive offices) (Zip Code)
(409) 295-2726
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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None None
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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All references to Sportan United Industries, Inc. ("Company" or "Sportan")
common stock reflect a 41.43455 for 1 forward stock split effected March 1998
(the "Common Stock").
PART I
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Form 10-KSB, 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.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company is engaged in the distribution of sports memorabilia primarily
to retail outlets. In 1986, the Company commenced business, and in March 1991
the Company was incorporated in Texas under the name Players Texas Sports, Inc.
as a subchapter S corporation. In March 1998, the Company amended its Articles
of Incorporation to:
. change its name to Sportan United Industries, Inc.,
. increase its authorized shares of Common Stock from 1,000,000 to
50,000,000 shares,
. decrease the par value of its Common Stock from $0.10 to $0.001, and
. authorize the issuance of 10,000,000 shares of preferred stock.
Also in March 1998, the Company elected to become a C corporation.
The Company has thirteen years of experience in distributing sports
collectibles and was started by James R. Otteson in 1986. In October 1995,
James R. Otteson died from a heart attack, an event which temporarily disabled
the business of the Company. Mr. Otteson was the primary decision maker and
leader of the Company. In addition, the Company was dependent on his personal
contacts and experience. From October 1995 until January 1998, the Company was
operated by various venture capitalists, consultants, and by the trustee of Mr.
Otteson's estate. In January 1998, Mr. Otteson's son, Jason G. Otteson, assumed
the position of chief executive officer and president. Currently, the Company
is trying to implement its business strategy, while it attempts to reconcile its
relationships which were damaged due to the Company's transition period.
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BUSINESS STRATEGY
The Company's goal is to become a leading distributor of sports
collectibles in America. To accomplish this goal, management is committed to
the highest standards in distributing diversified products to the sports/hobby
industry in an aggressive, reliable, and ethical manner. The Company's strategy
involves several key business objectives. Management's strategy is to establish
the Company as the distributing firm of preference in the markets it serves, by
acquiring new product lines and expanding to reach other geographic regions.
Management believes the key factor for success will be a strong and efficient
marketing program. Management's goal is to increase market share by acquiring
companies in similar or unrelated markets that can provide solid capital returns
with opportunity for growth. The Company believes its business strategy will
result in:
. increased sales,
. increased market share,
. increased buying power,
. reduced operating expenses, and
. reduced competition resulting in more efficient and profitable
operations.
The Company may face competition for acquisition candidates which may limit
the number of acquisition opportunities and may lead to higher acquisition
prices. The Company can provide no assurance that it will be able to identify,
acquire, or manage profitably additional businesses or to integrate any acquired
businesses into the Company without substantial costs, delays, or other
operational or financial problems. Further, acquisitions involve a number of
risks, including:
. possible adverse effects on the Company's operating results,
. diversion of management's attention,
. failure to retain key personnel of the acquired business, and
. risks associated with unanticipated events or liabilities, some or all
of which could have a material adverse effect on the Company's
business.
The timing, size, and success of the Company's acquisition efforts and the
associated capital commitments cannot be readily predicted. The Company may
finance future acquisitions by using shares of its Common Stock for a portion of
the consideration to be paid. In the event that its Common Stock does not
maintain a sufficient market value, or potential acquisition candidates are
otherwise unwilling to accept Common Stock as part of the consideration for the
sale of their businesses, the Company may be required to utilize more of its
cash resources, if available, in order to initiate and maintain its acquisition
program. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional equity or debt
financing.
PRODUCTS
The Company distribute all types of sports memorabilia and collectibles.
The sports collectibles industry includes:
. Novelties, periodicals,
. apparel,
. racing items,
. autograph memorabilia,
. banners,
. posters, and
. other licensed memorabilia and collectibles.
The Company does not have any agreements with manufacturers with respect to
ordering the products it distributes. The Company orders products on an as
needed basis based on its internal estimates. Although the Company does not
foresee its inability to order products from manufacturers in the future, the
Company can provide no assurance that it will be able to continue to order
products on favorable terms from any of its manufacturers. The loss of one of
the Company's manufacturers would limit the Company's ability to offer a wide
variety of products to retailers
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which could damage the Company's trade name and have an adverse effect on its
business.
SALES AND MARKETING
The Company primarily distributes its products to retailers that sell to
the end user. The Company also distributes its products to dealers of sports
collectible shows and flea markets. Management believes that with the increased
supply of sports collectibles, retailers cannot afford to stock their inventory
with all the products produced by a manufacturer. The Company believes that
retailers are willing to pay a 15% premium for products available in smaller
quantities in order to reduce their risk exposure and protect cash flow.
Management's strategy is to enable manufactures to depend on the Company for a
more efficient and responsible system of distribution and reduce the need for
manufacturers to offer direct distribution services.
Currently, the Company has no retail agreements. The Company's business is
service-oriented, and its primary marketing focus is on responding rapidly to
customer requirements. The Company conducts limited advertising in the trade
magazine Card Trade. The Company does little other advertising, and depends on
its personal contacts and reputation within the industry to market its products
to retailers. As such, the Company is dependent on its key personnel to sell its
products to retailers. The loss of any of the Company's key personnel would
have an adverse effect on the Company's business. The Company does not have any
employment agreements with its officers, directors, or employees.
Although the Company currently conducts limited marketing activity, it
intends to implement the following marketing activities:
. The Company intends to create an Internet on-line distribution service
for both its retailers and for end-users through the creation of a
Company web-site. The Company expects to complete the web site by July
1999.
. The Company intends to begin conducting catalog sales to both
retailers and to other wholesalers. The Company expects to begin its
catalog sales business by August 1999.
The Company can provide no assurance that it will be able to timely implement
its above marketing plan. The ability and timing of such implementation is
dependent on the Company's financial position and on future market events over
which the Company has no control.
Sales of sports memorabilia and collectibles in general are influenced by
the popularity of the sports to which the products or memorabilia relate.
During 1994, Major League Baseball experienced a strike and the National Hockey
League experienced a work stoppage. In 1998, the National Basketball
Association also experienced a work stoppage. These labor disputes resulted in
a loss of interest in these sports by many fans, which in turn triggered a
significant and immediate reduction in memorabilia sales. There can be no
assurance that similar labor disputes will not occur again or that the
popularity of the sports for which the Company distributes sports memorabilia
will not decline for other reasons. Further labor disputes or any such decline
in popularity could have a material adverse effect on the Company's business.
COMPETITION
The Company competes with numerous large and small distribution companies,
as well as large manufacturers. The Company believes that retailers purchasing
directly from manufacturers are forced to purchase a larger volume of products
in order to receive lower prices. The Company believes that retailers will not
choose to purchase directly from manufacturers due to the increased fixed costs
that such purchases entail. There is no assurance that manufacturers will not
allow retailers to purchase smaller quantities of product in the future, which
would reduce or eliminate the Company's advantage over such manufacturers.
The Company competes based on a number of factors, such as:
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. customer service and support,
. product diversification,
. timely and reliable delivery, and
. price.
Of these factors, the Company believes that product diversification is the
most important factor in attracting new customers, while service is the most
important factor in retaining customers. The Company believes that its ability
to compete effectively in the industry requires sales and support organizations
that are well versed in the various products distributed by the Company.
Management's business strategy is to acquire a multitude of product lines,
forming a one-stop distributor of novelty products, while expanding its reach to
a national level through the Internet. The Company's ability to adequately
execute its business strategy will be directly related to its level of capital.
There is no assurance that the Company will be able to raise sufficient capital
to fully execute its strategy. See "Item 1. Description of Business --
Business Strategy."
INSURANCE
The Company has insurance covering risks incurred in the ordinary course of
business, covering fire, theft and other destruction, in amounts management
believes adequate for its needs. The Company does not maintain key-man life
insurance on the life of Jason G. Otteson, president and chief executive officer
of the Company. The Company believes its insurance coverage is adequate, but
the loss of Mr. Otteson, for any reason, could have a material adverse effect on
the prospects of the Company.
FACILITIES
The Company's headquarters facility, which includes its principal
administrative offices, is located at 3170 Old Houston Road, Huntsville, Texas
77340. These premises are leased from Jason G. Otteson and Connie L. Logan and
consist of approximately 12,000 square feet. The lease expires in October 1999
and the monthly rental is $1,845. The Company has an option to renew the lease
for a five year period at a rental rate of 90% of the market value of such
similar property, but not to exceed $2,045.
EMPLOYEES
As of August 11, 1999, the Company employed ten persons, eight of whom were
full-time employees, and two of whom were part-time employees. No employees are
covered by a collective bargaining agreement. Management considers relations
with its employees to be satisfactory.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The financial statements for Sportan are unaudited for the nine months
ended September 30, 1997, and audited for the year ended September 30, 1998. The
financial statements with respect to the period ended March 31, 1999 and 1998
have been prepared by the Company and are unaudited.
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
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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 for on or about cost, (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, and (iv) transferred liabilities in the
amount of $216,703 to the buyer. The Company also received a payment of
$272,000 in cash for a non-compete agreement, 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 utilized approximately
$85,000 of the proceeds from the sale to repay a portion of its outstanding
balance 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
revenue.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Due to the disparate period terms presented in the financial statements,
the following unaudited results of operations for the years ended December 31,
1998 and 1997 are used for comparative purposes:
<TABLE>
<CAPTION>
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Year Ended December 31, 1998 Year Ended December 31, 1997
<S> <C> <C>
Sales $3,175,943 $4,445,791
Cost of goods sold $2,644,378 $4,064,720
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Gross profit $ 531,565 $ 381,071
General and administrative $ 570,880 $ 610,897
expenses
Interest expense $ 5,466 $ 11,718
Miscellaneous expense $ 8,246 $ 945
Expenses of private offering $ 55,456 --
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Net loss ($108,483) ($242,489)
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</TABLE>
Sales. Sales decreased to $3,175,943 for the year ended December 31, 1998
from $4,445,791 for the year ended December 31, 1997, a decrease of $1,269,848
or 28.6%. Cost of sales decreased to $2,644,378 for the year ended December 31,
1998 from $4,064,720 for the year ended December 31, 1997, a decrease of
$1,420,342 or 34.9%. Gross profit increased to $531,565 for the year ended
December 31, 1998 from $381,071 for the year ended December 31, 1997, an
increase of $150,494 or 39.5%. The decrease in sales resulted from the
divestiture of certain of the Company's product lines. More specifically, the
Company divested certain brands of its trading card lines (including its Upper
Deck and Topps card lines). Management believes these divested product lines did
not produce sufficient gross margins, and believes the increase in gross profit
for the year is attributable to the Company concentration on fewer product lines
with greater gross margins.
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General and Administrative Expenses. General and administrative expenses
decreased to $570,880 for the year ended December 31, 1998 from $610,897 for the
year ended December 31, 1997, a decrease of $40,017 or 6.6%. 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.
Interest Expense. Interest expense decreased to $5,466 for the year ended
December 31, 1998 from $11,718 for the year ended December 31, 1997. The
decrease of $6,252 or 53.4% was largely due to the payment of $176,032 of the
Company's long-term debt to stockholders.
Other Expenses. Miscellaneous expense increased to $8,246 for the year
ended December 31, 1998 from $945 for the year ended December 31, 1997. The
increase of $7,301 or 772.6% was due to expense incurred by the Company in
connection with it closing operations in Denver, Colorado and the transfer of
its assets to other locations. In addition, the Company expended $55,456 in
connection with the private offering of its common stock during the year ended
December 31, 1998.
Net Loss. Net loss decreased to $108,483 for the year ended December 31,
1998 from $242,489 for the year ended December 31, 1997, a decrease of $134,006
or 55.3%. Management believes the decrease in net loss is attributable to the
Company's increased gross profits derived from its concentration on the sale of
products with greater gross margins.
Six Months Ended March 31, 1999 Compared to the Six Months Ended March 31, 1998
Sales. Sales increased to $1,737,935 for the six months ended March 31,
1999 from $1,650,014 for the six months ended March 31, 1998, an increase of
$87,921 or 5.3%. Cost of sales increased to $1,464,131 for the six months ended
March 31, 1999 from $1,390,316 for the six months ended March 31, 1998, a
decrease of $73,815 or 5.3%. Gross profit increased from $273,804 to $259,698,
an increase of $14,106 or 5.4%. The increases are a result of the Company
adding additional novelty product lines, which tend to sell better during the
holiday season.
General and Administrative Expenses. General and administrative expenses
increased to $362,774 for the six months ended March 31, 1999 from $246,259 for
the six months ended March 31, 1998, an increase of $116,515 or 47.3%. 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 $2,055 for the six months
ended March 31, 1999 from $1,730 for the six months ended March 31, 1998, an
increase of $325 or 19%. The increase is due to the Company's increased
borrowings under the Company's line of credit in the aggregate amount of $95,000
as a result of the additional sales experienced by the Company in the period.
Other Expenses. Miscellaneous expense decreased to $1,746 for the six
months ended March 31, 1999 from $4,296 for the six months ended March 31, 1998.
The decrease of $1,867 or 43.5% was due to expense incurred by the Company in
connection with it closing operations in Denver, Colorado and the transfer of
its assets to other locations during the six months ended March 31, 1998. In
addition, the Company expended $42,484 in connection with the private offering
of its common stock during the six months ended March 31, 1999, as compared to
$4,105 during the six months ended March 31, 1998. The increase was due to the
fact that a greater portion of the activities associated with the offering took
place during the six months ended March 31, 1999.
Net Loss. Net loss increased to $93,454 for the six months ended March 31,
1999 from a net profit of $7,413 for the six months ended March 31, 1998. The
increase of $100,867 was primarily attributable to the increase in general and
administrative expenses discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Provided from Operating Activities. The Company's net cash flow from
operating activities resulted in cash used in operations of $82,774 for the year
ended December 31, 1998 and cash provided of $176,545 for the year ended
December 31, 1997. The $259,319 decrease is due primarily to an increase
accounts receivable due to the slower receipt of cash payments from customers.
In response to the slower receipt of cash payments, the Company has attempted to
focus its sales efforts on more established vendors, as the Company believes it
will be better able to timely realize a greater percentage of its receivables.
The Company's net cash flow from operating activities resulted in cash provided
of $15,234 and $271,486 for the six month periods ended March 31, 1999 and 1998,
respectively. The $256,252 decrease is due primarily to decreases in accounts
payable and net income for the six month period ended March 31, 1999.
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Cash Used in Investing Activities. The Company's net cash used in investing
activities during the year ended December 31, 1998 increased by $16,638 to
$16,138 from net cash provided of $500 during the year ended December 31, 1997
due primarily to the Company's increased purchases of capital equipment. The
Company's net cash used in investing activities during the six month period
ended March 31, 1999 increased by $4,152 to $7,873 from $3,721 during the six
month period ended March 31, 1998 due primarily to the Company's increased
purchases of capital equipment.
Cash Flow Used in Financing Activities. The Company's net cash flows
provided from financing activities during the year ended December 31, 1998
increased by $254,742 to $50,000 from net cash flows used of $204,742 during the
year ended December 31, 1997 due primarily to the sale of Company common stock
during the year ended December 31, 1998 and the repayment of loans to
stockholders during the year ended December 31, 1997. The Company's net cash
flows used in financing activities during the six month period ended March 31,
1999 decreased by $166,250 to $9,782 from $176,032 during the six months ended
March 31, 1998 due primarily to payments of $176,032 on notes to stockholders
during the six month period ending March 31, 1998.
Management believes that current working capital of $107,559 should enable
the Company to continue its current operations for a period of approximately 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 14, 1999, the Company had a balance
of approximately $10,000 on the line of credit. At October 31, 1998, the
Company had borrowed $90,000 in the form of a note payable due on demand, at an
annual interest rate of 9.5% with principal plus accrued interest payments
beginning March 1999. The note payable is collateralized by all accounts
receivable and inventory of the Company. 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 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.
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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:
. 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.
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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.
ITEM 3. DESCRIPTION OF PROPERTY
See "Item 1. Description of Business -- Facilities" for a description of
the Company's properties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 11, 1999, the number and
percentage of outstanding shares of Company Common Stock owned by (i) each
person known to the Company to beneficially own more than 5% of its outstanding
Common Stock, (ii) each director, (iii) each named executive officer, and (iv)
all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF OF COMMON STOCK PERCENTAGE OF OWNERSHIP
BENEFICIAL OWNER BENEFICIALLY OWNED /(1)/ ------------------------
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<S> <C> <C>
Jason G. Otteson/(2)/ 3,095,497/(6)/ 44.2%
Connie L. Logan/(3)/ 2,394,006 34.2%
James R. Otteson, II/(4)/ 1,795,497 25.6%
Brian E. Rodriguez/(5)/ 5,000 *
W.G. Westbrook, Jr./(2)/ 5,000 *
All officers and directors/(7)/
as a group (3 persons) 3,105,497 /(6)/ 44.3%
</TABLE>
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*Less than 1%
(1) Does not include warrants to purchase 71,000 shares of Common Stock at an
exercise price of $0.01 per share issued to Brewer & Pritchard, P.C. See
"Item 7. Certain Relationships and Related Transactions." Does not include
warrants to purchase 100,000 shares of Common Stock at an exercise price of
$0.06 per share vesting in August 1999 issued in connection with an exempt
placement of Common Stock.
(2) Business address is the same as the address of the Company's principal
executive offices which are located at 3170 Old Houston Road, Huntsville,
Texas 77340.
(3) Business address is 3388 I-45, Huntsville, Texas 77340.
(4) Business address is Department of Philosophy, University of Alabama,
Tuscaloosa, Alabama 35487.
(5) Business address is 1125 Longpoint Drive, Dallas, Texas 75247.
(6) Includes an option from James R. Otteson, II to purchase 1,300,000 shares
of Common Stock at an exercise price of $0.056923 per share, expiring
August 1999.
(7) Includes Jason G. Otteson, Brian E. Rodriguez, and W.G.Westbrook, Jr.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Company's directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Jason G. Otteson 25 Chairman, Chief Executive Officer, President and Treasurer
W.G. Westbrook, Jr. 41 Vice President of Operations
Brian E. Rodriguez 29 Secretary and Director
</TABLE>
Jason G. Otteson has served as chief executive officer and a consultant of
the Company since January 1998. Since February 1997, Mr. Otteson has served as
director of the Company. From August 1996 to January 1998, Mr. Otteson served
as vice president of the Company. From November 1996 through December 1997,
Mr. Otteson served as a consultant for Premier Medical Technology, Inc. Mr.
Otteson owns International Environmental Group, Inc. and is involved in helping
other companies with capital raising activities. Mr. Otteson received a
marketing and finance degree from Stephen F. Austin State University in 1996.
W.G. Westbrook, Jr. has served as vice president of operations of the
Company since March 1998. From August 1995 through March 1998, Mr. Westbrook has
served as manager for the Company. From August 1984 to August 1995, Mr.
Westbrook served as sales representative for Moorman Manufacturing Company. From
May 1988 to August 1995, Mr. Westbrook was the owner of Gary's Hobbies. Mr.
Westbrook received a business degree from Sam Houston State University.
Brian E. Rodriguez has served as a director of the Company since December
1997 and as secretary since March 1998. Mr. Rodriguez has served as controller
of Voyager Expanded Learning since October 1997. From September 1996 to June
1997, Mr. Rodriguez served as director and chief financial officer of Pitts &
Spitts of Texas, Inc., a public company. From September 1994 to September 1996,
Mr. Rodriguez served as an audit associate at Coopers & Lybrand, L.L.P. Mr.
Rodriguez received an accounting degree from Texas A & M University. Mr.
Rodriguez is a Certified Public Accountant.
-10-
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following tables contain compensation data for the Chief Executive
Officer for the fiscal year ended September 30, 1998:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Bonus/ Securities
Other Annual Underlying
Name and Principal Fiscal Year Compensation Stock Options/
Position Salary Award SARs
<S> <C> <C> <C> <C> <C>
Jason G. Otteson, 1998 $37,500/(1)/ -- -- --
Chief Executive Officer
1997 $ 3,600 -- -- --
1996 $ 1,400 -- -- --
</TABLE>
_______________
(1) Represents portion of $50,000 annual salary earned in fiscal year 1998.
The Company does not have any employment agreements.
STOCK OPTIONS
In March 1999, the Company adopted, and the shareholders and board of
directors approved, the 1999 Incentive Stock Option Plan ("Plan"). Pursuant to
the Plan, options to purchase up to 1,000,000 shares of Common Stock may be
granted to employees, officers, and directors of the Company. Options granted
under the Plan generally expire five to ten years after the date of grant. As
of August 11, 1999, the Company had not issued any options pursuant to the Plan.
The Company does not maintain any long-term retirement or other benefit plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1998, the Company issued 5,000 shares of Common Stock to each
of Brian E Rodriguez and W.G. Westbrook, Jr., officers and directors of the
Company for services rendered to the Company, and the Company issued 5,000 to
Michael D. Strader a former officer of the Company.
In January 1998, James R. Otteson's estate transferred an aggregate of
3,590,994 shares of Common Stock to Jason G. Otteson and James R. Otteson, II.
Jason R. Otteson is the father of Jason G. Otteson and Jason R. Otteson II.
The Company has a lease agreement with Jason G. Otteson covering
approximately 12,000 square feet in Huntsville, Texas. The lease expires in
October 1999 and the monthly rental is $1,845. The Company has an option to
renew the lease for a five year period at a rental rate of 90% of the market
value of such similar property, but not to exceed $2,045.
In October 1996, the Company issued 1,565,315 shares of Common Stock
to Connie L. Logan upon the exercise of warrants at an aggregate exercise price
of $56,667 ($0.036 per share). Ms. Logan purchased 828,691 shares of Common
Stock from a third party in an arms-length transaction in July 1996. Ms. Logan
is Jason G. Otteson's aunt.
-11-
<PAGE>
In August 1996, Jason G. Otteson and James R. Otteson, II loaned the
Company $53,500 in the form of a note payable at an annual interest rate of 5%
payable on demand. As of June 1, 1999, the amount due pursuant to this note was
$59,965. As of June 14, 1999, no demand for payment has been made.
In August 1996, Jason G. Otteson loaned the Company $10,000 in the
form of a non-interest bearing note payable due on demand. In November 1998 the
Company repaid the note.
In December 1996 and August 1997, Ms. Logan loaned the Company an
aggregate of $204,742 which was repaid with interest in the aggregate amount of
$206,695 by the Company during 1997.
Certain legal matters with respect to the preparation of this
registration statement were conducted for the Company by Brewer & Pritchard,
P.C., Houston, Texas. Principals of Brewer & Pritchard, P.C. own warrants to
purchase 71,000 shares of Common Stock at an exercise price of $0.01 per share.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, $0.001 par value per share of which 7,000,000 shares are issued and
outstanding and 171,000 shares are reserved for issuance underlying outstanding
warrants. The holders of shares of Common Stock are entitled to one vote per
share on each matter submitted to a vote of stockholders. In the event of
liquidation, holders of Common Stock are entitled to share ratably in the
distribution of assets remaining after payment of liabilities. Holders of
Common Stock have no cumulative voting rights, and, accordingly, the holders of
a majority of the outstanding shares have the ability to elect all of the
directors. Holders of Common Stock have no preemptive or other rights to
subscribe for shares. Holders of Common Stock are entitled to such dividends as
may be declared by the Board of Directors out of funds legally available
therefor.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of
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.
No shares of preferred stock are outstanding and the Company has no
present plans for the issuance thereof. The issuance of any such preferred
stock could adversely effect the rights of the holders of Common Stock and,
therefore, reduce the value of the Common Stock.
-12-
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Currently, there is no public trading market for the company's securities
and there can be no assurance that any market will develop. If a market
develops for the company's securities, it will likely be limited, sporadic and
highly volatile.
It is the present policy of the Company not to pay cash dividends and to
retain future earnings to support the Company's growth. Any payment of cash
dividends in the future will be dependent upon the amount of funds legally
available therefor, the Company's earnings, financial condition, capital
requirements and other factors that the Board of Directors may deem relevant.
The Company has not paid any dividends during the last two fiscal years and does
not anticipate paying any cash dividends in the foreseeable future.
SHARES ELIGIBLE FOR FUTURE SALE
There are 7,000,000 shares of Common Stock currently outstanding, of which
5,895,000 shares of Common Stock are held by affiliates of the Company and are
eligible for sale pursuant to Rule 144 promulgated under the Act, if and when
any market for the Common Stock develops. Rule 144 governs resales of
"restricted securities" for the account of any person (other than an issuer),
and restricted and unrestricted securities for the account of an "affiliate" of
the issuer. Restricted securities generally include any securities acquired
directly or indirectly from an issuer or its affiliates which were not issued or
sold in connection with a public offering registered under the Act. An
affiliate of the issuer is any person who directly or indirectly controls, is
controlled by, or is under common control with, the issuer. Affiliates of the
Company may include its directors, executive officers, and persons directly or
indirectly owning 10% or more of the outstanding Common Stock. Under Rule 144
unregistered resales of restricted Common Stock cannot be made until it has been
held for one year from the later of its acquisition from the Company or an
affiliate of the Company. Thereafter, shares of Common Stock may be resold
without registration subject to Rule 144's volume limitation, aggregation,
broker transaction, notice filing requirements, and requirements concerning
publicly available information about the Company ("Applicable Requirements").
Resales by the Company's affiliates of restricted and unrestricted Common Stock
are subject to the Applicable Requirements. The volume limitations provide that
a person (or persons who must aggregate their sales) cannot, within any three-
month period, sell more than the greater of one percent of the then outstanding
shares, or the average weekly reported trading volume during the four calendar
weeks preceding each such sale. A non-affiliate may resell restricted Common
Stock which has been held for two years free of the Applicable Requirements.
In addition, there are currently 1,000,000 shares of Common Stock eligible
for sale pursuant to Rule 504 promulgated under the Act, if and when any market
for the Common Stock develops. Shares issued pursuant to Rule 504 are freely
tradeable, without limitation, by all non-affiliates of the Company.
ITEM 2. LEGAL PROCEEDINGS
None.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-13-
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth certain information for all securities
the Company sold within the past three years, without registration under the
Act.
Between April 1998 and August 1998, the Company issued 1,000,000 shares of
Common Stock at a purchase price of $0.05 per share. The issuance was made
pursuant to Rule 504 promulgated under the Act. In connection with the
offering, the Company paid a cash sales commission of $5,000, a non-accountable
expense allowance of $1,500, and issued warrants to purchase 100,000 shares of
Common Stock at an exercise price of $0.06 per share to the underwriters, Di
Paulo Securities, Ltd. The Company believes the transaction was exempt from
registration pursuant to Section 4(2) of the Act.
In August 1998, the Company issued warrants to purchase 71,000 shares of
Common Stock at an exercise price of $0.01 per share to Brewer & Pritchard, P.C.
The Company believes the transaction was exempt from registration pursuant to
Section 4(2) of the Act.
In April 1998, the Company issued 15,000 shares of Common Stock to Messrs.
Rodriguez, Strader, and Westbrook, current and former officers and directors of
the Company, for services rendered. The Company believes the transaction was
exempt from registration pursuant to Section 4(2) of the Act.
In October 1996, the Company issued 1,565,315 shares of Common Stock to Ms.
Logan upon the exercise of warrants at an aggregate exercise price of $56,667
($0.036 per share). The Company believes the transaction was exempt from
registration pursuant to Section 4(2) of the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation eliminates, subject to certain
exceptions, the personal liability of directors of the Company or its
stockholders for monetary damages for breaches of fiduciary duty by such
directors. The Articles of Incorporation do not provide for the elimination of
or any limitation on the personal liability of a director for (i) any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful corporate distributions, or (iv) any
transaction from which such director derives an improper personal benefit. This
provision of the Articles of Incorporation will limit the remedies available to
the stockholder who is dissatisfied with a decision of the Board of Directors
protected by this provision; such stockholder's only remedy may be to bring a
suit to prevent the action of the Board. This remedy may not be effective in
many situations, because stockholders are often unaware of a transaction or an
event prior to Board action in respect of such transaction or event. In these
cases, the stockholders and the Company could be injured by a Board's decision
and have no effective remedy.
Insofar as indemnification by the Company for liabilities arising under the
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to provisions of the Certificate of Incorporation and Bylaws,
or otherwise, the Company has been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding is asserted by such director, officer or controlling person in
connection with the securities being offered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
-14-
<PAGE>
PART III
ITEM 1. EXHIBITS
The following exhibits are to be filed as part of the Registration
Statement:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 2.1(1) Amended and Restated Articles of Incorporation of Sportan
United Industries, Inc.
Exhibit 2.2(1) Bylaws of Sportan United Industries, Inc.
Exhibit 2.3(1) Common Stock Certificate, Sportan United Industries, Inc.
Exhibit 6.1(1) Sportan United Industries, Inc. 1999 Stock Option Plan
(1) Filed previously on registration statement Form 10-SB SEC File
No. 000-25513.
-15-
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPORTAN UNITED INDUSTRIES, INC.
Dated: August 12, 1999 By: /s/ James G. Otteson
-----------------------------------------
JAMES G. OTTESON, Chief Executive Officer
-16-
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
C O N T E N T S
Page
----
Independent Auditors' Report...................................... F-2
Balance Sheets....................................................F-3, F-4
Statements of Operations.......................................... F-5
Statements of Changes in Stockholders' Equity..................... F-6
Statements of Cash Flows.......................................... F-7
Notes to Financial Statements..................................... F-8
F-1
<PAGE>
Independent Auditors' Report
----------------------------
Board of Directors
Sportan United Industries, Inc.
Huntsville, Texas
We have audited the accompanying balance sheet of Sportan United Industries,
Inc. as of September 30, 1998, and the related statements of operations, changes
in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sportan United Industries, Inc.
as of September 30, 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
MANN FRANKFORT STEIN & LIPP, P.C.
Houston, Texas
December 30, 1998
F-2
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
----------------------- -----------
1998 1997 1999
(Audited) (Unaudited) (Unaudited)
--------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,663 $ 36,082 $ 4,242
Accounts receivable - trade, net of allowance for
doubtful accounts of $21,051 at March 31, 1999
and September 30, 1998, and $160,769 at
September 30, 1997 123,432 129,141 171,785
Accounts receivable - stockholder and employees 433 - 2,152
Inventory, net of valuation allowance of $29,852
at September 30, 1998 and $13,970 at
September 30, 1997 525,247 443,939 408,528
Prepaids 13,292 44,331 31,136
-------- -------- --------
TOTAL CURRENT ASSETS 669,067 653,493 617,843
PROPERTY AND EQUIPMENT
Computer equipment and software 47,367 41,635 50,328
Furniture and fixtures 63,978 60,940 68,890
Transportation equipment 7,820 11,433 7,820
-------- -------- --------
119,165 114,008 127,038
Less: accumulated depreciation and amortization 78,264 63,273 87,429
-------- -------- --------
TOTAL PROPERTY AND EQUIPMENT 40,901 50,735 39,609
-------- -------- --------
TOTAL ASSETS $709,968 $704,228 $657,452
======== ======== ========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
September 30, March 31,
----------------------- -----------
1998 1997 1999
(Audited) (Unaudited) (Unaudited)
--------- ----------- -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Drafts outstanding $ 24,782 $ - $ -
Accounts payable 226,784 151,552 297,546
Accounts payable - stockholder 41,464 - 16,540
Accrued expenses 17,816 3,968 22,698
Notes payable - stockholders 63,500 229,532 78,500
Note payable - bank 95,000 - 95,000
-------- -------- ---------
TOTAL CURRENT LIABILITIES 469,346 385,052 510,284
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 March 31, 1999
and September 30, 1998, and 5,985,000 at
September 30, 1997 7,000 5,985 7,000
Additional paid-in capital 246,263 196,528 246,263
Retained earnings (deficit) (12,641) 116,663 (106,095)
-------- -------- ---------
TOTAL STOCKHOLDERS' EQUITY 240,622 319,176 147,168
-------- -------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $709,968 $704,228 $ 657,452
======== ======== =========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Six Months Ended
Year Ended Ended March 31,
September 30, September 30, -------------------------
1998 1997 1999 1998
(Audited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $3,057,734 $3,566,290 $1,737,935 $1,650,014
COST OF SALES 2,604,403 3,258,753 1,464,131 1,390,316
---------- ---------- ---------- ----------
GROSS PROFIT 453,331 307,537 273,804 259,698
OPERATING EXPENSES
General and administrative 536,909 490,053 320,290 242,154
Expense of private offering 33,022 - 42,484 4,105
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 569,931 490,053 362,774 246,259
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (116,600) (182,516) (88,970) 13,439
OTHER EXPENSE
Interest expense (5,141) (9,988) (2,055) (1,730)
Miscellaneous expense (7,563) (945) (2,429) (4,296)
---------- ---------- ---------- ----------
TOTAL OTHER EXPENSE (12,704) (10,933) (4,484) (6,026)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAXES (129,304) (193,449) (93,454) 7,413
FEDERAL INCOME TAXES - - - -
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (129,304) $ (193,449) $ (93,454) $ 7,413
========== ========== ========== ==========
NET LOSS PER SHARE
Basic $ (.02) $ (.03) $ (.01) $ (.00)
========== ========== ========== ==========
Diluted $ (.02) $ (.03) $ (.01) $ (.00)
========== ========== ========== ==========
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.
F-5
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED SEPTEMBER 30, 1998 (AUDITED),
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND
SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------ Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 5,985,000 $5,985 $196,528 $ 310,112 $ 512,625
Net loss - - - (193,449) (193,449)
--------- ------ -------- --------- ---------
Balances at September 30, 1997
(Unaudited) 5,985,000 5,985 196,528 116,663 319,176
Issue stock to employees 15,000 15 735 - 750
Proceeds from sale of stock 1,000,000 1,000 49,000 - 50,000
Net loss - - - (129,304) (129,304)
--------- ------ -------- --------- ---------
Balances at September 30, 1998 7,000,000 7,000 246,263 (12,641) 240,622
Net loss - - - (93,454) (93,454)
--------- ------ -------- --------- ---------
Balances at March 31, 1999 7,000,000 $7,000 $246,263 $(106,095) $ 147,168
========= ====== ======== ========= =========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
Nine Months Six Months Ended
Year Ended Ended March 31,
September 30, September 30, -------------------------
1998 1997 1999 1998
(Audited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $(129,304) $(193,449) $(93,454) $ 7,413
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Stock issued as compensation 750 - - -
Depreciation 18,330 14,134 9,165 8,785
Provision for bad debts - (9,107) - -
Gain on disposal of property and
equipment (226) (1,062) - (225)
Changes in assets and liabilities:
Accounts receivable 5,276 128,695 (50,072) (1,971)
Inventory (81,308) 112,486 116,719 (144,175)
Prepaids and other assets 31,039 (44,331) (17,844) 23,579
Accounts payable 75,232 (27,152) 70,762 376,405
Accounts payable - stockholder 41,464 - (24,924) -
Accrued expenses 13,848 (250) 4,882 1,675
--------- --------- -------- ---------
104,405 173,413 108,688 264,073
--------- --------- -------- ---------
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES (24,899) (20,036) 15,234 271,486
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of property and
equipment 500 - - 500
Cash paid for property and equipment (8,770) - (7,873) (4,221)
--------- --------- -------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (8,270) - (7,873) (3,721)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds from sale of stock 50,000 - - -
Net proceeds from line of credit 95,000 - - -
Principal payments on notes to
stockholders (189,532) (28,708) - (176,032)
Net proceeds from notes to stockholders 23,500 - 15,000 -
Increase (decrease) in drafts outstanding 24,782 - (24,782) -
--------- --------- -------- ---------
NET CASH PROVIDED BY (USED
IN) FINANCING ACTIVITIES 3,750 (28,708) (9,782) (176,032)
--------- --------- -------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (29,419) (48,744) (2,421) 91,733
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 36,082 84,826 6,663 36,082
--------- --------- -------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 6,663 $ 36,082 $ 4,242 $ 127,815
========= ========= ======== =========
NON-CASH FINANCING ACTIVITY
Issuance of shares of stock to officers
as compensation $ 750 $ - $ - $ -
========= ========= ======== =========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE A - 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 B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Company changed its fiscal year end from December 31
to September 30 in 1997. In accordance with guidelines of the Securities and
Exchange Commission, only nine months of income and expense were included in the
Statements of Operations and Cash Flows for the period ended September 30, 1997.
Results of operations for the additional months were credited or charged
directly to retained earnings.
Allowance for Doubtful Accounts: Earnings are charged with a provision for
doubtful accounts based on a current review of the collectibility of accounts.
Accounts deemed uncollectible are applied against the allowance for doubtful
accounts.
Inventory: Inventory is stated at the lower of cost (determined by the specific
identification method) or market.
Property and Equipment: Property and equipment are stated at cost. The Company
depreciates property and equipment by the straight-line method over the
estimated useful lives of the related assets as follows:
Estimated Useful Life
---------------------
Computer equipment 5 years
Furniture and fixtures 5-7 years
Transportation equipment 5-7 years
Revenue Recognition: Revenues are recognized as goods are shipped from the
Company's warehouse. Shipments directly to customers from a third party vendor
are recognized at time of shipment from vendor.
Repairs and Maintenance: Major additions and improvements to property and
equipment are capitalized and depreciated over the estimated useful lives.
Routine maintenance and repair costs are expensed as incurred.
Federal Income Taxes: Since March 30, 1998, the Company reports federal income
taxes as a C corporation and uses the liability method in accounting for income
taxes, whereby tax rates are applied to cumulative temporary differences based
on when and how they are expected to affect future tax returns. Deferred tax
assets and liabilities are adjusted for tax rate changes in the year changes are
enacted. The realizability of deferred tax assets are evaluated annually and a
valuation allowance is provided if it is more likely than not that the deferred
tax assets will not give rise to future benefits in the Company's tax returns.
Prior to conversion to a "C" corporation, the income or loss of the Company
flowed through to its stockholders. Accordingly, no provision has been made for
federal income taxes for periods prior to March 30, 1998.
F-8
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statements of Cash Flows: For purposes of the statements of cash flows, cash
equivalents include all highly liquid investments with original maturities of
three months or less. Following is supplemental cash flow information:
<TABLE>
<CAPTION>
Nine Months Six Months Ended
Year Ended Ended March 31,
September 30, September 30, -------------------------
1998 1997 1999 1998
(Audited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash paid during the year for:
Interest $ 5,141 $ 9,988 $ 2,055 $ 1,730
============== ============== =========== ===========
</TABLE>
Use of Estimates: The preparation of these financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Unaudited Interim Information: The accompanying financial information as of
March 31, 1999 and for the six months ended March 31, 1999 and 1998 have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. The financial statements reflect all
adjustments, consisting of normal recurring accruals which are, in the opinion
of management, necessary to fairly present such information in accordance with
generally accepted accounting principals.
NOTE C - CASH AND CASH EQUIVALENTS
The Company maintains cash balances in several bank accounts which, at times,
exceed federally insured limits. The Company monitors the financial condition
of these banks and has experienced no losses associated with these accounts.
NOTE D - NOTE PAYABLE - BANK
Note payable - bank consists of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------- March 31,
1998 1997 1999
(Audited) (Unaudited) (Unaudited)
------------- ---------- ----------
<S> <C> <C> <C>
Note payable to a bank under a $100,000 line of credit,
renewed March 1999, collateralized by all accounts
receivable and inventory of the Company. The note
is due on demand, but if no demand is made, payment
of unpaid principal plus accrued interest is due on
March 24, 2000. The note accrues interest at 9.5%
annually. $ 95,000 $ - $ 95,000
============= ========== ==========
</TABLE>
F-9
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE E - INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1998
are as follows:
Deferred tax assets:
Net operating loss carryforward $ 20,100
Allowance for doubtful accounts 6,600
Less: valuation allowance (26,500)
--------
200
Deferred tax liability:
Tax over book depreciation (200)
--------
Net current deferred tax assets (liability) $ -
========
The Company has net operating loss carryforwards of approximately $91,000 as of
September 30, 1998, which expire through the year 2013. Valuation allowances
have been provided for all net operating losses due to lack of evidence of
future recoverability at September 30, 1998.
The difference between the reported income tax expense (benefit) and the income
tax expense (benefit) computed by multiplying the loss before income taxes by
the federal statutory income tax rate for the year ending September 30, 1998, is
as follows:
Current tax benefit computed at federal
statutory tax rate $(40,896)
Effect of marginal tax brackets 14,722
Change in valuation allowance 26,500
Other (326)
--------
Total income tax expense (benefit) $ -
========
NOTE F - OPERATING LEASES
The Company leases equipment and rents certain facilities under noncancellable
agreements which expire at various dates through the year 1999, and require
various minimum annual rentals.
The Company rents its principal facility from a stockholder of the Company (see
Note G).
Total rent expense under all lease agreements amounted to approximately $43,000,
$48,000, $21,000 and $25,000 for the years ended September 30, 1998, nine months
ended September 30, 1997 (unaudited) and six months ended March 31, 1999 and
1998 (unaudited), respectively.
F-10
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE G - RELATED PARTY TRANSACTIONS
The Company is involved in various transactions with the stockholders of the
Company or officers of the Company. The transactions and amounts incurred with
these individuals are detailed as follows:
<TABLE>
<CAPTION>
Nine Months Six Months
Year Ended Ended Ended
September 30, September 30, March 31,
1998 1997 1999
(Audited) (Unaudited) (Unaudited)
-------------- -------------- -----------
<S> <C> <C> <C>
Transaction
-----------
Rent - principal facility $22,140 $16,605 $11,070
Purchase of inventory $43,391 $ - $ -
Interest $ 5,141 $ 9,988 $ 2,055
</TABLE>
Notes payable - stockholders consist of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------
1998 1997
(Audited) (Unaudited)
--------- -----------
<S> <C> <C>
Note payable to a stockholder - non-interest bearing and
unsecured. Paid off in 1998. $ - $176,032
Note payable to a stockholder - bearing interest at 5% annually,
balance is due on demand. Interest is accrued and paid at
time of repayment. 53,500 53,500
Note payable to a stockholder - non-interest bearing and
unsecured. Due on demand. 10,000 -
------- ----------
Notes payable - stockholders $63,500 $229,532
======= ==========
</TABLE>
F-11
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE H - EARNINGS PER SHARE
In accordance with Financial Accounting Standards Board Statement 128, Earnings
Per Share, basic earnings per common share amounts are calculated using the
average number of common shares outstanding during each period, retroactively
adjusted to give effect to the 41.43455-for-1 common stock split in 1998. As
there were no dilutive potential common shares outstanding during the nine month
period ended September 30, 1997, basic average shares outstanding and loss per
share are equal to diluted average shares outstanding and fully diluted loss per
share.
Loss per common share were computed as follows:
Nine Months
Year Ended Ended
September 30, September 30,
1998 1997
(Audited) (Unaudited)
-------------- -------------
Net loss $ (129,304) $ (193,449)
Divided by weighted average common shares and
common share equivalents:
Weighted average common shares 6,159,167 5,985,000
Weighted average common share equivalents 56,800 -
---------- ----------
Total average common share and common share
equivalents 6,215,967 5,985,000
========== ==========
Basic net loss per common share $ (.02) $ (.03)
========== ==========
Fully dilutive net loss per common share $ (.02) $ (.03)
========== ==========
NOTE I - STOCK SPLIT CHANGING PAR VALUE OF STOCK
On March 30, 1998, the Board of Directors authorized a 41.43455-for-1 stock
split and a reduction of par value from $.10 to $.001, thereby increasing the
number of issued and outstanding shares to 5,985,000, and decreasing the par
value of each share to $.001. All references in the accompanying financial
statements to the number of common shares and per-share amounts for 1997 have
been restated to reflect the stock split.
F-12
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE J - PREFERRED STOCK AND OUTSTANDING STOCK WARRANTS
Preferred Stock: The Company is authorized to issue up to 10,000,000 shares of
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 March 31, 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 March 31, 1999, 171,000 shares of common stock were reserved for that
purpose.
F-13
