10QSB 1 doc1.txt 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 March 31, 2001 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 March 31, 2001 was 6,047,447.
ITEM 1. FINANCIAL STATEMENTS Sportan United Industries, Inc. Balance Sheet March 31, 2001 ASSETS Current Assets Cash $ 4,566 Accounts receivable, net of allowance for doubtful accounts of $67,720 37,602 Accounts receivable-stockholder and employees 11,535 Inventory, net of valuation allowance of $18,659 140,691 ------------ Total Current Assets 194,394 ------------ Property and Equipment, net of $80,971 accumulated depreciation 46,157 Other assets 1,409 ------------ TOTAL ASSETS $ 241,960 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 379,815 Accounts payable to stockholder 11,655 Accrued expenses 64,212 Dividends payable 42,127 Accrued salary due to stockholder 38,652 Notes payable to stockholders 314,500 Note payable to bank 99,000 ------------ Total Current Liabilities 949,961 ------------ STOCKHOLDERS' EQUITY Stockholders' Equity Convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 2,144,006 shares issued and outstanding 2,144 Common stock, $.001 par value, 50,000,000 shares authorized, 6,017,447 issued and outstanding 6,017 Paid in capital 715,814 Retained earnings (deficit) (1,431,976) ------------ Total Stockholders' Equity ( 708,001) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 241,960 ============
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Sportan United Industries, Inc. Statement of Operations For the Three Months and Six Months ended March 31, 2000 and 2001 Three Months Ended Six Months Ended March 31, March 31, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Revenues $ 92,787 $ 160,312 $ 279,686 $ 411,082 Cost of Sales 161,095 134,457 305,542 323,571 ----------- ----------- ----------- ----------- Gross Margin ( 68,308) 25,855 ( 25,856) 87,511 ----------- ----------- ----------- ----------- Operating Expenses General and administrative 61,308 202,942 257,862 358,820 ----------- ----------- ----------- ----------- Operating Loss (129,616) (177,087) (283,718) (271,309) ----------- ----------- ----------- ----------- Other Income and (Expense) Gain on sale of assets 376 1,210 ( 760) 1,210 Interest expense ( 13,731) ( 7,065) ( 26,719) ( 9,321) Miscellaneous income(expense) 150 7 150 700 ----------- ----------- ----------- ----------- Total Other Income (Expense) ( 13,205) ( 5,848) ( 27,329) ( 7,411) ----------- ----------- ----------- ----------- NET (LOSS) (142,821) (182,935) (311,047) (278,720) Preferred dividends ( 13,443) 0 ( 26,886) 0 ----------- ----------- ----------- ----------- NET (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ (156,264) $ (182,935) $ (337,933) $ (278,720) =========== =========== =========== =========== Net (loss) per common share $( .027) $( .026) $( .058) $ ( .040) Weighted average common shares Outstanding 5,881,336 7,035,000 5,846,613 7,023,333
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Sportan United Industries, Inc. Statements of Cash Flows For the Six Months Ended March 31, 2001 and 2000 2001 2000 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $(311,047) $(278,720) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 8,161 7,680 Securities issued for services 69,951 63,000 (Gain) loss on disposal of property and equipment 1,137 ( 1,210) Net (increase) decrease in: Accounts receivable 78,430 33,826 Inventory 82,760 ( 53,119) Accounts receivable - stockholder and employees ( 6,243) Prepaid expenses ( 5,000) Other current assets ( 715) Net increase (decrease) in: Accounts payable 44,196 61,861 Accrued expenses ( 3,195) ( 9,307) ---------- ---------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ( 35,850) (181,704) ---------- ---------- CASH FLOWS (USED) BY INVESTING ACTIVITIES Proceeds from sale of property and equipment 2,366 2,250 Cash paid for property and equipment ( 17,358) ---------- ---------- NET CASH (USED) BY INVESTING ACTIVITIES 2,366 ( 15,108) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds (repayments)from line of credit 69,000 Net proceeds from notes to stockholders 140,000 Net increase (decrease) in stockholder advances to the company ( 4,579) ( 1,482) Collection of stock subscription receivable 4,359 Net increase in accrued salary to shareholder 26,000 Net increase (decrease) in preferred dividends payable ( 2,595) ---------- ---------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 23,185 207,518 ---------- ---------- NET INCREASE IN CASH ( 10,299) 10,706 CASH BALANCES -Beginning of period 14,865 18,490 ---------- ---------- -End of period $ 4,566 $ 29,196 ========== ========== SUPPLEMENTAL DISCLOSURES Interest paid in cash $ 4,846 $ 6,111 Income taxes paid in cash $ 0 $ 0
F-3 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 2000 as reported in the 10-KSB, have been omitted. NOTE B - COMMON STOCK ISSUANCES On September 29, 2000, the Company contracted with a firm to provide financial consulting services for a period of six months. This firm is to be compensated with 100,002 shares of restricted common stock. Shares have been issued as follows: 33,333 shares issued October 2000 with the remainder being issued at 16,667 shares per month. As of March 31, 2001 all 100,002 shares have been issued. Additionally, the Company issued 50,000 shares to each of three employees for services rendered for a total of 150,000 shares. F-4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS This Management's Discussion and Analysis as of March 31, 2001 and for the six-month period ended March 31, 2001 and 2000 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 September 30, 2000. 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 Six months ended March 31, 2001 compared to the same period in 2000 Our sales for the six months ended March 31, 2001 was $279,686, a decrease of 32% from the same period in 2000, and our gross margin percentage declined for six months ended March 31, 2001 to -9% from 21% during the same period in 2000. We believe the decrease in sales was due to lack of funding, which reduced our sales and marketing capability. We reduced purchases because of poor cash flow therefore resulting in lower sales. Our general and administrative expenses decreased during the six months ended March 31, 2001, 28% to $257,862 from the same period in 2000. We believe the decrease in general and administrative expenses are largely due to a decrease in legal and accounting expenses, computer expenses, public relations, and a reduction of overall spending by the company. As our sales decreased 32% and our general and administrative expenses decreased 28%, our net loss only grew 12% to $311,047 for the six months ended March 31, 2001. Cash used by operations for the six-month period decreased from $181,704 to $35,850 because of a substantial decrease in our inventory during the six months ended March 31, 2001. Cash provided by investing activities was $2,366 for the six months ended March 31, 2001, compared to $15,108 used by investing activities for the six months ended March 31, 2000. The decrease was due to the purchase of equipment for the six months ended March 31, 2000. 1 Cash provided by financing activities was $23,185 during the six-month period ended March 31, 2001, as compared to cash flows provided of $207,518 during the six-month period ended March 31, 2000. The decrease was due to a $69,000 increase in our bank line of credit balance and a $140,000 increase of our notes to stockholders for the six months ended March 31, 2000. During the six months ended March 31, 2001, we also accrued $26,000 in salary due to our president. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2001, we had negative working capital of $755,567 and cash of $4,566. We completed a private placement during 2000, which netted approximately $240,000, through the issuance of common stock and warrants. In connection with this funding, we asked five shareholders related to our founder to convert 2,144,006 shares of 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. As of January 2001, we are ten 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 common shares. We have established a line of credit in the amount of $100,000 with First National Bank of Huntsville. At March 31, 2001, we had a balance of approximately $99,000 on the line of credit. We have borrowed $314,500 from our stockholders in the form of notes payable, of which $293,500 is presently due on demand, with the remainder to come due during fiscal 2001. We have borrowed working capital from our stockholders in the past, but it should not be assumed that such funds would be available in the future. The funds obtained in our private placement were used to speed up growth, which we believe was hampered by a lack of capital. Based on our current operating plan, we must raise at least $500,000 in additional funding to pay our outstanding accounts payables and to continue to operate our business through September 30, 2001. At the present time, we have no commitments for capital. If we are unable to obtain additional financing in the near future, we may be required to scale back or cease operations, or find some other way to bring cash flows into balance. In the future, we may continue to 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, our ability to obtain needed financing, demand for our products, introduction of new products, the variety of products distributed, the number and timing of the hiring of additional personnel, general competitive conditions in the industry and general economic conditions. Shortfalls in revenues may adversely and disproportionately affect our results of operations because a high percentage of our operating expenses are relatively fixed. Accordingly, 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 investors. 2 PART II OTHER INFORMATION Pursuant to the Instructions to Part II of the Form 10-Q, Items 1, 2, and 5 are omitted. ITEM 2. LEGAL PROCEEDINGS In September 2000, Racing Champions South Inc. sued us in the County Civil Court at Law No. 2 of Harris County, for the amount of approximately $50,000, alleging that we owed them money for delivered goods and merchandise. We are in the process of evaluating the merits of the claim. In February 2001, Riddell, Inc sued us in the 61st Judicial District Court of Harris County, for the amount of approximately $124,000, alleging that we owed them money for delivered goods and merchandise. We are in the process of evaluating the merits of the claim. 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 twelve months behind on our dividend payments, or $50,236. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS None. (b) REPORTS ON FORM 8-K None. 3 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: May 15, 2001 By: /s/ Jason G. Otteson --------------------------------- Jason G. Otteson, President 4