U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
- --------------------------------------------------------------------------------
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
SPORTAN UNITED INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Commission file number: 000-25223
Texas 760333165
----- ---------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3170 Old Houston Road, Huntsville, Texas 77340
---------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
409-295-2726
------------
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of January 20, 2000, registrant had 7,035,000 shares of Common Stock
outstanding.
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SPORTAN UNITED INDUSTRIES, INC.
BALANCE SHEET
ASSETS
- ------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,531
Trade accounts receivable, net of
allowance for doubtful accounts of $62,994 86,668
Stockholder & employee receivables 13,216
Inventory 350,669
----------
Total current assets 457,084
----------
PROPERTY AND EQUIPMENT, net
of $84,150 accumulated depreciation 38,587
OTHER ASSETS 715
TOTAL ASSETS $ 496,386
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 336,450
Accrued expenses 27,847
Notes payable to stockholders 53,500
Note payable to bank 99,000
Total current liabilities 516,797
----------
STOCKHOLDERS' EQUITY:
Common stock: par value, $.001; 50,000,000 shares
authorized, 7,035,000 shares issued and outstanding 7,035
Additional paid-in capital 259,228
Retained earnings (deficit) (286,674)
----------
Total stockholders' equity (20,411)
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 496,386
==========
</TABLE>
See notes to financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
SALES $ 250,770 $ 997,710
COST OF SALES 189,114 845,942
----------- -----------
GROSS PROFIT 61,656 151,768
OPERATING EXPENSES
General and administrative 155,878 177,249
TOTAL OPERATING EXPENSES 155,878 177,249
----------- -----------
INCOME (LOSS) FROM OPERATIONS (94,222) (25,481)
OTHER INCOME (EXPENSE)
Interest expense (2,256) (2,055)
Miscellaneous income (expense) 693 (683)
TOTAL OTHER INCOME (EXPENSE) (1,563) (2,738)
----------- -----------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAXES (95,785) (28,219)
FEDERAL INCOME TAXES - -
----------- -----------
NET INCOME (LOSS) $ (95,785) $ (28,219)
=========== ===========
NET LOSS PER SHARE (0.014) (0.004)
=========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 7,011,667 7,000,000
=========== ===========
</TABLE>
See notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
---------------------
1999 1998
--------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(95,785) $ (28,219)
--------- ----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,792 4,583
(Gain) loss on sale of fixed assets (1,206) -
Stock issued as compensation 13,000 -
Changes in assets and liabilities:
Increase in trade accounts receivable (23,205) (83,308)
Increase in stockholder & employee receivables (2,981) (719)
(Increase) decrease in inventory (85,413) 48,987
Increase in prepaids - (8,675)
Increase in other assets (715) -
Increase in trade accounts payable 117,340 260,230
Decrease in accounts payable - stockholder (1,482) (41,464)
Decrease in accrued expenses (9,971) (12,712)
--------- ----------
Total adjustments 9,159 166,922
--------- ----------
Net cash provided (used) by operating activities $(86,626) $ 138,703
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 2,250 -
Purchases of property and equipment (16,583) (7,367)
----------
Net cash used by investing activities $(14,333) $ (7,367)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (repayments) from line of credit 89,000 (95,000)
Principal payments on notes to stockholders - (10,000)
Decrease in drafts outstanding - (24,782)
Net cash provided (used) by financing activities $ 89,000 $(129,782)
--------- ----------
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SPORTAN UNITED INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
-------------------------------
1999 1998
--------- ------
<S> <C> <C>
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,959) 1,554
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 18,490 6,663
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,531 $8,217
</TABLE>
See notes to financial statements.
4
<PAGE>
SPORTAN UNITED INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim 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 disclosure contained in the audited financial statements for the
most recent fiscal year, 1999, as reported in the Form 10-KSB, have been
omitted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Some of the statements contained in this Form 10-QSB, discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. These statements are
subject to known and unknown risks, uncertainties, and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and is
derived using numerous assumptions. Important factors that may cause actual
results to differ from projections include, for example:
- the success or failure of management's efforts to implement their
business strategy;
- the ability of the Company to raise sufficient capital to meet
operating requirements;
- the ability of the Company to protect its intellectual property
rights;
- the effect of changing economic conditions;
- the ability of the Company to attract and retain quality
employees; and
- other risks which may be described in future filings with the SEC.
GENERAL
The Company's fiscal year was changed from December 31 to September 30 in
1997. The Company recognizes revenues from sales of sports memorabilia at the
time of shipment. General and administrative costs are charged to expense as
incurred. Property, plant and equipment are recorded at cost and depreciated
using an appropriate accounting method over the estimated useful lives of the
assets. Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized and
depreciated over the estimated useful lives. The cost and related accumulated
depreciation of the assets are removed from the accounts upon disposition.
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. Management estimates that the sold
product line represented approximately 80% of its revenues. Management believes
that it can achieve greater margins on its remaining products.
5
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended December 31, 1999 Compared to the Three Months Ended December
31, 1998
Sales. Sales decreased to $250,770 for the three months ended December 31,
1999 from $997,710 for the three months ended December 31, 1998, a decrease of
$746,940 or 75%. Cost of sales decreased to $189,114 for the three months
ended December 31, 1999 from $845,942 for the three months ended December 31,
1998, a decrease of $656,828 or 78%. Gross profit margins increased to 25% for
the three months ended December 31, 1999 from 15% for the three months ended
December 31, 1998. The decrease in sales was due to the Company's divestiture
in June 1999 of its sports card and supplies segment, which management estimated
represented 80% of its products. The Company believes the increase in gross
margins was attributable to focusing on the profitable segments of the Company
and divesting the trading card division with less margins.
General and Administrative Expenses. General and administrative expenses
decreased to $155,878 for the three months ended December 31, 1999 from $177,249
for the three months ended December 31, 1998, a decrease of $21,371 or 12%.
Management believes the reduction in general and administrative expenses is due
to reduced overhead expenses in connection with the Company divesting all of its
trading card product lines.
Net Income (Loss). The Company had a net loss of $95,785 for the three
months ended December 31, 1999, as compared to a net loss of $28,219 for the
three months ended December 31, 1998. The loss was due to the decrease in
product sales due to the Company's divestiture in June 1999 of its sports card
and supplies segment, then restructuring the new design of the Company, which
was not accompanied by a corresponding decrease in general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow from Operating Activities. The Company's net cash flow from
operating activities resulted in cash used by operations of $86,626 for the
three months ended December 31, 1999, from cash provided by operations of
$138,703 for the three months ended December 31, 1998. The decrease is
primarily the result of: (a) an increase in net losses, as described above, (b)
an increase in inventory, and (c) a decrease in accounts payable.
Cash Flow from Investing Activities. The Company's net cash used from
investing activities during the three months ended December 31, 1999 increased
to $14,333 from $7,367 for the three months ended December 31, 1998. The
increase was primarily due to an increase in purchases of property and
equipment.
Cash Flow from Financing Activities. The Company's net cash flows provided
in financing activities for the three months ended December 31, 1999 increased
to $99,000 from a net cash flows used of $129,782 for the three months ended
December 31, 1998. The increase is primarily due to an increase in net proceeds
from the Company's line of credit of $89,000 from repayments on the line of
credit of $95,000 in the prior period.
As of December 31, 1999, the Company had negative working capital of
$59,713, and cash and cash equivalents of $6,531. The Company is currently
attempting to obtain external equity financing, but there is no assurance that
it will be able to do so. If the Company is unable to raise additional capital,
it will be forced to reduce growth. Management estimates its current monthly
operating costs after the sale of its sports card product line are approximately
$50,000. 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.
The Company has established a line of credit in the amount of $100,000 with
First National Bank of Huntsville. At December 31, 1999, the Company had a
balance of approximately $89,000 on the line of credit. There can be no
assurance that the Company will be able to obtain additional funding from other
external sources on suitable terms, if at all.
6
<PAGE>
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. There can be no assurance that
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.
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
Even though the date is now past January 1, 2000, and the Company has not
experienced any immediate adverse impact from the transition to the year 2000,
the Company cannot provide any assurance that its suppliers and customers have
not been affected in a manner that is not yet apparent. In addition, some
computer programs which were date sensitive to the year 2000 may not have been
programmed to process the year 2000 as a leap year, and any negative
consequential effects remain unknown. As a result, the Company will continue to
monitor its year 2000 compliance. The costs related to verifying and testing
our year 2000 compliance have been nominal and immaterial to our business.
7
<PAGE>
PART II
Pursuant to the Instructions to Part II of the Form 10-QSB, Items 1, 3-5
are omitted.
Item 2. CHANGES IN SECURITIES
The following information sets forth certain information, as of January 20,
2000, for all securities the Company sold since September 30, 1999, without
registration under the Act, excluding any information "previously reported" as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. There were no
underwriters in any of these transactions, nor were any sales commissions paid
thereon.
In November 1999, the Company issued 35,000 shares of common stock to three
sophisticated investors and a corporation. The Company believes these
transactions were exempt from registration pursuant to Section 4(2) of the Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are to be filed as part of this Form 10-QSB:
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
Exhibit 3.1(1) Amended and Restated Articles of Incorporation of
Sportan United Industries, Inc.
Exhibit 3.2(1) Bylaws of Sportan United Industries, Inc.
Exhibit 4.1(1) Common Stock Certificate, Sportan United
Industries, Inc.
Exhibit 10.1(1) Sportan United Industries, Inc. 1999 Stock Option
Plan
Exhibit 27.1 Financial Data Schedule
(1) Filed previously.
(b) There have been no reports filed on Form 8-K.
8
<PAGE>
SIGNATURES
----------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the undersigned, thereunto duly authorized.
Sportan United Industries, Inc.
Date: February 18, 2000 /s/ Jason G. Otteson
-----------------------------------------
. Jason G. Otteson, Chief Executive Officer
9
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6531
<SECURITIES> 0
<RECEIVABLES> 149662
<ALLOWANCES> 62994
<INVENTORY> 350669
<CURRENT-ASSETS> 457084
<PP&E> 122737
<DEPRECIATION> 84150
<TOTAL-ASSETS> 496386
<CURRENT-LIABILITIES> 516797
<BONDS> 0
0
0
<COMMON> 7035
<OTHER-SE> (27446)
<TOTAL-LIABILITY-AND-EQUITY> (20411)
<SALES> 250770
<TOTAL-REVENUES> 250770
<CGS> 189114
<TOTAL-COSTS> 189114
<OTHER-EXPENSES> 155185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2256
<INCOME-PRETAX> (95785)
<INCOME-TAX> 0
<INCOME-CONTINUING> (95785)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95785)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
