UNITED STATES SECURITIES AND EXCHANGE COMISSION
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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-25513
SPORTAN UNITED INDUSTRIES, INC.
(Exact name of Registrant as specified in is charter)
TEXAS 760333165
(State of Incorporation) (IRS Employer Identification Number)
3170 OLD HOUSTON ROAD
HUNTSVILLE, TEXAS 77340
936-295-2726
(Address and telephone number of principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes X No .
--- ---
The number of shares of common stock of the Registrant outstanding at June 30,
2000 was 7,095,000.
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SPORTAN UNITED INDUSTRIES, INC.
BALANCE SHEET
June 30, 2000
ASSETS
<S> <C>
Current Assets
Cash $ 8,856
Accounts receivable, net of allowance
for doubtful accounts of $56,686 97,092
Accounts receivable-stockholder and employees 11,242
Inventory, net of valuation allowance of $0 258,557
----------
Total Current Assets 375,747
Property and Equipment, net of $93,869
accumulated depreciation 64,614
Other assets 1,444
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TOTAL ASSETS $ 441,805
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 438,139
Accrued expenses 55,276
Due to related parties 7,940
Preferred stock dividends payable 8,962
Notes payable to stockholders 202,500
Note payable to bank 99,000
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Total Current Liabilities 811,817
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share, 10,000,000
shares authorized, 2,144,006 issued and outstanding 2,144
Common stock, $.001 par value, 50,000,000 shares
authorized, 4,951,000 issued and outstanding 4,951
Paid in capital 311,924
Retained earnings (deficit) (689,031)
----------
Total Stockholders' Equity (370,012)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 441,805
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SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 212,077 $ 955,181 $ 612,574 $2,693,116
Cost of Sales 177,862 904,093 501,433 2,368,224
----------- ----------- ----------- -----------
Gross Margin 34,215 51,088 111,141 324,892
Operating Expenses
General and administrative 232,928 189,135 591,748 554,442
----------- ----------- ----------- -----------
Operating Loss (198,713) (138,047) (480,607) ( 229,550)
Other Income and (Expense)
Gain on sale of assets 204,202 1,210 206,735
Other income 10,784 11,949
Interest expense ( 11,878) ( 3,007) ( 21,199) ( 5,062)
Miscellaneous income(expense) ( 69) ( 491) ( 533) ( 2,920)
----------- ----------- ----------- -----------
Total Other Income (Expense) ( 1,163) 200,704 ( 8,573) 198,753
----------- ----------- ----------- -----------
NET (LOSS) (199,876) 62,657 (489,180) ( 30,797)
Preferred stock dividends ( 8,962) ( 8,962)
----------- ----------- ----------- -----------
NET (LOSS) APPLICABLE TO
TO COMMON SHAREHOLDERS $ (208,838) $ 62,657 $ (498,142) $( 30,797)
=========== =========== =========== ===========
Net (loss) per share
Basic $ ( .04) $ .01 $ ( .10) $( .01)
Diluted ( .03) .01 ( .07) ( .01)
Weighted average common shares
outstanding
Basic 4,944,333 7,000,000 4,901,000 6,159,167
Diluted 6,373,667 7,056,800 6,806,778 6,159,167
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SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 2000 and 1999
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(489,180) $( 30,797)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 13,511 13,748
Securities issued for services 107,950
(Gain) on disposal of property and equipment ( 1,210) (206,735)
Net (increase) decrease in:
Accounts receivable ( 34,637) ( 47,928)
Inventory 6,700 52,664
Prepaid expenses ( 1,650)
Other current assets ( 1,444)
Net increase (decrease) in:
Accounts payable 176,833 138,128
Accrued expenses 17,459 ( 8,395)
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (204,018) ( 90,965)
---------- ----------
CASH FLOWS (USED) BY INVESTING ACTIVITIES
Proceeds from sale of property and equipment 2,250 344,279
Cash paid for property and equipment ( 52,324) ( 7,873)
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NET CASH (USED) BY INVESTING ACTIVITIES ( 50,074) 336,406
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (repayments)from line of credit 89,000 ( 85,000)
Net proceeds from notes to stockholders 149,000 15,000
Net increase (decrease) in stockholder advances
to the company 6,458 ( 66,464)
Increase in drafts outstanding ( 24,782)
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 244,458 (161,246)
---------- ----------
NET INCREASE IN CASH ( 9,634) 84,195
CASH BALANCES
-Beginning of period 18,490 6,663
---------- ----------
-End of period $ 8,856 $ 90,858
========== ==========
SUPPLEMENTAL DISCLOSURES
Interest paid in cash $ 3,413 $ 5,062
Income taxes paid in cash $ 0 $ 0
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SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of Sportan United Industries,
Inc. have been prepared in accordance with generally accepted accounting
principles and the rules of the Securities and Exchange Commission ("SEC"), and
should be read in conjunction with the audited financial statements and notes
thereto contained in the company's latest Annual Report filed with the SEC on
Form 10-KSB, as amended. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year. Notes to the financial statements which would substantially
duplicate the disclosures contained in the audited financial statements for the
most recent fiscal year 1999 as reported in the 10-KSB, have been omitted.
NOTE B - STOCK OPTION PLAN
On March 1, 1999, the Company had adopted an incentive stock option plan for its
eligible employees. On February 7, 2000, 410,000 options were issued to
employees with an exercise price of $ .75 per share. These options become
exercisable on March 31, 2003, and expire seven years from the exercise date.
Additionally, options representing 200,000 shares were issued to an officer of
the Company with an exercise price of $ .825 per share. These options become
exercisable on March 31, 2003, and expire two years from the exercise date.
Additionally, on July 13, 2000, the Company adopted an agreement to issue a key
vendor 20,000 options with an exercise price of $1.00 per share. The options
vest in eight installments of 2,500 shares per month with the first installment
vesting on August 1, 2000, and each installment thereafter vesting on the first
day of the month.
NOTE C - SALES OF COMMON STOCK
In April 2000, the Company hired Capital Growth Resources ("Capital Growth") to
assist it in selling up to 500,000 shares of its common stock at $1 per share
through a Private Placement Memorandum. As of July 24, 2000, Capital Growth
sold 250,000 shares of Company stock for $250,000 gross proceeds, less $50,390
out of pocket expenses and stock selling commissions. In addition, Capital
Growth will receive warrants to purchase 150,000 shares for an exercise price of
$.05 per share as additional compensation. The offering ends September 1, 2000.
NOTE D - PREFERRED STOCK
In connection with the above and at the request of Capital Growth, on May 3,
2000 the Company and 5 shareholders agreed to trade 2,144,006 shares of $.001
par value common stock owned by them for 2,144,006 shares of $.001 par value
preferred stock newly issued by the Company.
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SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D - PREFERRED STOCK (continued)
Holders of the preferred shares are entitled to receive cash dividends at an
annual rate of 6% calculated on a share stated value of $.418 per share, payable
$4,481 per month. If the shares are redeemed for cash or converted into common
stock, an additional dividend payment is due of $250,000 less dividends paid to
date. In addition, preferred shareholders also get cash dividends to the same
extent as the common shareholders, if any common stock cash dividends are
declared.
Shares are redeemable at the Company's option into cash at $.418 per share, or
into Company common stock at a 1 to 1 ratio anytime at the Company's option. On
April 1, 2005, any remaining shares are automatically converted to common stock.
Holders of preferred shares have the same voting rights as holders of common
shares. The preferred shares have a liquidation preference of $.418 per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis as of June 30, 2000 and for the
three-month and nine-month periods ended June 30, 2000 and 1999 should be read
in conjunction with the unaudited condensed consolidated financial statements
and notes thereto set forth in Item 1 of this report.
The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. For example, words such as, "may,"
"will," "should," "estimates," "predicts," "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statement. Factors that might cause or
contribute to such a discrepancy include, but are not limited to the risks
discussed in our other SEC filings, including those in our annual report on Form
10-KSB for the year ended December 31, 1999. These forward-looking statements
speak only as of the date hereof. We expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
GENERAL
We recognize 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.
RESULTS OF OPERATIONS
Nine months ended June 30, 2000 compared to the same period in 1999
Our sales declined 77% from $2,693,000 to $613,000, and our gross margin
declined 66% from $325,000 to $111,000 during the nine-month period. Our gross
margin percentage increased to 18.1% from 12.1% during the nine-month period.
In June 1999, we sold the sports cards and supplies segment of our product line,
which caused the large sales decline. We believe the increase in our gross
margin percentage is due to better margins on our remaining products.
Our general and administrative expenses grew 7% from $554,000 to $592,000
during the nine-month period. We believe the increase in general and
administrative expenses is due to additional professional fees in connection
with our public filing requirements and our recent private placement, in web
site developments, and from the installation of a computer inventory control
systems.
As we were not able to reduce our general and administrative expenses
proportionately with our reduction in sales, our net operating loss grew 109%
from $230,000 to $481,000. The restructuring of our business, which was
affected through the sale of our sports card and supplies segment and our new
focus on e-commerce, has kept our general administrative expenses constant, but
has required a focus on non-revenue generating activities. As such, we will
need to generate significant additional revenues through our new business
structure to achieve profitability. As our new business strategy is unproven,
we can provide no assurance that we will be successful and become profitable in
the future.
Cash used by operations for the nine-month period grew from $91,000 to
$204,000 because of the substantially increased losses during the nine-month
period ended June 30, 2000.
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Cash provided by investing activities was $336,000 during the nine-month
period ended June 30, 1999, compared to $50,000 used by investing activities
during the nine-month period ended June 30, 2000, because we sold our St. Louis
warehouse and trading card division in during the 1999 period and invested in
computer equipment during the 2000 period.
Cash used in financing activities was $161,000 during the nine-month period
ended June 30, 1999, as compared to cash flows provided of $244,000 during the
nine-month period ended June 30, 2000. The increase was due to a $174,000
increase in our bank line of credit and a $206,000 change in shareholder
repayments and advances.
Three months ended June 30, 2000 compared to the same period in 1999
Our sales declined 78% from $955,000 to $212,000, and our gross margin
declined 33% from $51,000 to $34,000 during the three-month period. Our gross
margin percentage increased to 16.1% from 5.3% during the three-month period.
Our general and administrative expenses grew 23% from $189,000 to $233,000, and
our net operating loss grew 44% from $138,000 to $199,000. We believe the
reasons for the above changes are the generally same as those described for the
nine-month period. The extra increase in our general and administrative
expenses was due to the costs related to our private placement during the
three-month period ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had negative working capital of $436,000, and cash
of $8,856. We began a private placement in May 2000 to raise up to $500,000
through sales of our common stock at $1 per share and through the issuance of
warrants at prices of $1.50 per share and $2.00 per share. To date, we have
raised $268,000 from this offering. The offering closes September 1, 2000 and
there is no assurance that we will be able to raise additional funds from the
offering, or that investors in the offering will exercise their warrants. In
connection with the offering, we spent approximately $50,000. In addition, we
agreed to issue warrants to purchase up to 300,000 shares at $.05 per share, of
which approximately 160,000 have vested.
In connection with this funding, we asked five shareholders related to our
founder to convert 2,144,006 shares of our common stock held by them to the same
number of preferred shares. During the next five years, we have the sole option
of converting these preferred shares back to the same number of common shares or
we may purchase any or all of them at the $.418 per share stated value, or up to
$896,195. In addition, we must pay a monthly 6% annualized dividend on the
$.418 per share stated value, or $4,481 per month, with minimum total minimum
dividends of $250,000 due regardless of when we elect to purchase or convert
this stock. We are currently three months behind on our dividend payments. At
the end of five years, if we have taken no action, this preferred stock
automatically converts back to the same number of our common shares.
We have established a line of credit in the amount of $100,000 with First
National Bank of Huntsville. At June 30, 2000, we had a balance of
approximately $99,000 on the line of credit. We have borrowed from our
stockholders $202,500 in the form of a note payable due on demand, at an annual
interest rate of 12% with principal plus accrued interest to be paid on
repayment. Presently, the stockholders do not intend to demand payment of the
loan. There can be no assurance that stockholder funds will be available in the
future.
The funds obtained in our private placement, has been used, in part, to
speed up our growth, which we believe has been hampered by a lack of capital.
However, our promised website development is proceeding, and we believe our
recent fulfillment programs are gaining momentum and are beginning to produce
sales.
If we are unable to complete the private placement or raise other additional
capital, we may be forced to reduce growth. We estimate our current monthly
operating costs are approximately $50,000. We do not have any other material
commitments for capital expenditures.
We may in the future experience significant fluctuations in our results of
operations. These fluctuations may result in volatility in the price or value
of our common stock. Our results of operations may fluctuate as a result of a
variety of factors, including demand for our products, introduction of new
products by our competitors or us, the variety of products distributed, 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
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disproportionately affect our results of operations because a high percentage of
our operating expenses are relatively fixed. Accordingly, we believe 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 our 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.
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PART II
OTHER INFORMATION
Pursuant to the Instructions to Part II of the Form 10-Q, Items 1, 2, and 5
are omitted.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We currently have outstanding 2,144,006 shares of Series A Convertible
Preferred Stock. We must pay a monthly 6% annualized dividend on the $.418 per
share stated value, or $4,481 per month. As of the date of this report, we are
currently three months behind on our dividend payments, or $13,443.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held a special meeting of shareholders on May 3, 2000 in which our
stockholders approved amending and restating our articles of incorporation by
the following vote: for, 0 against, and 0 abstentions. The amendment permitted
us to issue "blank check" preferred stock, and permitted our stockholders to
action without a meeting, in accordance with Texas corporate law.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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<S> <C>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------------------------------------------------------------------------
Exhibit 3.1 Amended and Restated Articles of Incorporation of Sportan United Industries,
Inc. (Filed previously on Form 10-SB SEC File No. 000-25513)
Exhibit 3.2 Bylaws of Sportan United Industries, Inc. (Filed previously on Form 10-SB
SEC File No. 000-25513)
Exhibit 4.1 Common Stock Certificate, Sportan United Industries, Inc.
(Filed previously on Form 10-SB SEC File No. 000-25513)
Exhibit 10.1 Sportan United Industries, Inc. 1999 Stock Option Plan
(Filed previously on Form 10-SB SEC File No. 000-25513)
Exhibit 10.2 Lease Agreement (Filed previously on Form 10-KSB SEC File No. 000-25513)
Exhibit 27.1 Financial Data Schedule
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(b) REPORTS ON FORM 8-K
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Sportan United Industries, Inc.
Date: August 21, 2000 By: /s/ Jason G. Otteson
-------------------------------------
Jason G. Otteson, President
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