Sport Supply 10-Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                    

Commission File No. 1-15289

COLLEGIATE PACIFIC INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	22-2795073
(State or Other Jurisdiction of	(I.R.S. Employer Identification No.)
Incorporation or Organization)
1901 Diplomat Drive, Dallas, Texas	75234
(Address of Principal Executive Offices)	(Zip code)

(972) 243-8100(Registrant’s Telephone Number, Including Area Code)

     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 such filing requirements for the past 90 days. Yesþ Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero      Accelerated filero      Non-accelerated filerþ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

     As of May 11, 2007, there were 10,233,560 shares of the issuer’s common stock outstanding.

COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
TABLE OF CONTENTS

	Page
	Number
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 2007 and June 30, 2006		1
Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2007 and 2006		2
Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2007 and 2006		3
Notes to Condensed Consolidated Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
Item 4. Controls and Procedures		22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		23
Item 5. Other Information		23
Item 6. Exhibits		24
SIGNATURES		25
Letter Agreement
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

COLLEGIATE PACIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

	March 31,			June 30,
	2007			2006
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,185		$	4,079
Accounts receivable, net of allowance for doubtful accounts of $2,035 and $1,496 respectively		37,029			31,004
Inventories		35,591			37,185
Current portion of deferred taxes		2,957			2,625
Prepaid income taxes		1,627			1,607
Prepaid expenses and other current assets		2,538			2,199
Total current assets		82,927			78,699
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $4,357 and $2,755, respectively		9,784			10,087
DEFERRED DEBT ISSUANCE COSTS, net of accumulated amortization of $1,781 and $1,076, respectively		2,563			2,782
INTANGIBLE ASSETS, net of accumulated amortization of $3,110 and $2,188, respectively		8,293			9,014
GOODWILL		54,567			40,280
DEFERRED INCOME TAXES		2,655			3,156
OTHER ASSETS, net		152			417
Total assets	$	160,941		$	144,435
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	14,469		$	14,802
Accrued liabilities		6,275			5,896
Dividends payable		256			256
Accrued interest		1,055			329
Current portion of long-term debt		3,368			2,210
Deferred tax liability		41			15
Total current liabilities		25,464			23,508
DEFERRED TAX LIABILITY		3,077			3,259
NOTES PAYABLE AND OTHER LONG-TERM DEBT		81,735			62,284
COMMITMENTS AND CONTINGENCIES MINORITY INTEREST IN SUBSIDIARY		—			8,150
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares issued		—			—
Common stock, $0.01 par value, 50,000,000 shares authorized; 10,319,586 and 10,315,191 shares issued and 10,233,560 and 10,229,165 shares outstanding, respectively		103			103
Additional paid-in capital		43,199			43,162
Retained earnings		8,020			4,626
Treasury stock at cost, 86,026 shares		(657	)		(657	)
Total stockholders’ equity		50,665			47,234
Total liabilities and stockholders’ equity	$	160,941		$	144,435

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended						Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Net sales	$	63,235		$	59,418		$	180,782		$	171,094
Cost of sales		40,404			38,421			116,513			113,640
Gross profit		22,831			20,997			64,269			57,454
Selling, general and administrative expenses		18,421			17,253			52,474			49,181
Operating profit		4,410			3,744			11,795			8,273
Other income (expense):
Interest income		28			25			142			99
Interest expense		(1,707	)		(1,261	)		(4,424	)		(3,379	)
Other income		17			155			109			244
Total other expense		(1,662	)		(1,081	)		(4,173	)		(3,036	)
Income before minority interest in income of consolidated subsidiary and income taxes		2,748			2,663			7,622			5,237
Income tax provision		1,010			787			2,929			1,813
Minority interest in income of consolidated subsidiary, net of tax		0			644			531			588
Net income	$	1,738		$	1,232		$	4,162		$	2,836
Weighted average number of shares outstanding:
Basic		10,233,560			10,183,973			10,231,051			10,174,843
Diluted		13,774,358			10,359,528			10,375,469			10,389,740
Net income per share common stock – basic	$	0.17		$	0.12		$	0.41		$	0.28
Net income per share common stock – diluted	$	0.17		$	0.12		$	0.40		$	0.27
Dividends declared per share common stock	$	0.025		$	0.025		$	0.075		$	0.075

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(In thousands)

	Nine Months Ended
	March 31,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,162		$	2,836
Adjustments to reconcile net income to cash provided by operating activities:
Provision for uncollectible accounts receivable		1,307			763
Depreciation expense		1,732			1,027
Amortization expense		821			1,114
Amortization of deferred debt issuance costs		705			512
Deferred taxes		1,952			(231	)
Stock-based compensation expense		—			60
Minority interest in consolidated subsidiary		531			588
Changes in operating assets and liabilities (net of effects of acquisitions):
Accounts receivable		(7,332	)		(8,572	)
Inventories		1,594			(2,740	)
Prepaid expenses and other current assets		(339	)		(2,937	)
Other assets, net		(321	)		128
Accounts payable		(333	)		1,658
Accrued liabilities and interest		1,105			864
Prepaid income taxes		(20	)		382
Net cash provided by (used in) operating activities		5,564			(4,548	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1,429	)		(699	)
Cash used in business acquisitions, net of cash acquired of $0 and $864, respectively		(24,907	)		(43,657	)
Net cash used in investing activities		(26,336	)		(44,356	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit		34,024			110,992
Payments on notes payable and line of credit		(13,415	)		(97,337	)
Payment of dividends		(768	)		(765	)
Proceeds from issuance of common stock		37			99
Net cash provided by financing activities		19,878			12,989
Net change in cash and cash equivalents		(894	)		(35,915	)
Cash and cash equivalents at beginning of period		4,079			40,326
Cash and cash equivalents at end of period	$	3,185		$	4,411
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	2,963		$	2,015
Cash paid for income taxes	$	1,042		$	1,412
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (See Note 2 for non-cash acquisition disclosures)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation:

     The accompanying unaudited condensed consolidated financial statements of Collegiate Pacific Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements and should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2006. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included.

     Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year ending June 30, 2007.

2. Business Combinations:

     On July 1, 2005, the Company acquired 53.2% of the outstanding capital stock of Sport Supply Group, Inc. (“SSG”) from Emerson Radio Corp and Emerson Radio (Hong Kong) Limited for $32 million in cash. SSG is a direct marketer and supplier of sporting goods and physical education equipment principally to the institutional and youth sports market. The acquisition of 53.2% of SSG was accounted for using the purchase method of accounting and, accordingly, the net assets and results of operations of SSG have been included in the Company’s consolidated financial statements since the date of acquisition. The purchase price was allocated to assets acquired of approximately $41.3 million, which included cash of $863 thousand, plus identifiable intangible assets, which included $3.2 million for non-compete agreements, $1.3 million for customer relationships, $660 thousand for a customer database, $327 thousand for significant contracts, $221 thousand for contractual backlog, $43 thousand for photo library and $14 thousand for a bid database calendar, and liabilities assumed based on their respective estimated fair values of approximately $26.8 million at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill in the amount of approximately $11.9 million.

     On September 8, 2005, the Company announced it entered into an Agreement and Plan of Merger with SSG (the “Original Merger Agreement”) pursuant to which the Company would have acquired the remaining 46.8% of the outstanding capital stock of SSG that it did not already own. On November 22, 2005, however, the Company announced it had entered into an agreement with SSG to terminate the Original Merger Agreement after determining the merger was unlikely to close in a timely fashion under previously contemplated terms. Under the terms of the Termination Agreement, dated November 22, 2005, the Company agreed to reimburse SSG for up to $350 thousand for the fees and expenses incurred by SSG in connection with the Original Merger Agreement.

     Also on November 22, 2005, the Company announced it purchased of 1,661,900 shares of SSG, or an additional 18% of SSG’s outstanding common shares, for approximately $9.2 million in cash from an institutional holder, representing a purchase price of $5.55 per share. In addition, the Company purchased during that same fiscal quarter an additional 155,008 shares of SSG for $746 thousand in open market transactions at an average price of $4.81 per share. The purchase of these additional shares of SSG increased goodwill by approximately $4.3 million.

     On November 13, 2006, the Company announced it had completed its acquisition of the remaining 26.8% of the capital stock of SSG that it did not already own for approximately $24.9 million (the “Merger Transaction”). Under the terms of the Merger Transaction, a wholly-owned subsidiary of the

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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company was merged with and into SSG, with SSG as the surviving corporation. Each issued and outstanding share of SSG’s common stock was converted into the right to receive $8.80 in cash.

     The Company acquired SSG after considering the historic levels of earnings achieved by SSG. The consideration paid was agreed upon after the Company determined the potential impact on future earnings of the integrated companies.

     The goodwill acquired by the Company in connection with the SSG acquisition is not deductible for income tax purposes. The pro forma operating results of the Company as if the acquisition of 100% of SSG had occurred on July 1, 2005 are not materially different for the periods presented than the actual results and, therefore, pro forma results have been omitted.

     In August 2005, the Company completed the acquisition of substantially all of the operating assets of Team Print from Mr. Albert Messier, one of the former principal stockholders of Salkeld & Sons, Inc. (“Salkeld”), for approximately $1.0 million in cash and the issuance of 53,248 shares of the Company’s common stock to Mr. Messier, which were valued at approximately $641 thousand and based on the average closing price of the Company’s common stock five days prior to May 10, 2005. Team Print is an embroiderer and screen printer of sports apparel and accessories. The Company’s wholly owned subsidiary, Kesslers Team Sports, Inc. (“Kesslers”) employs Mr. Messier. The excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill in the amount of $1.2 million.

     The Company acquired the operating assets of Team Print from Mr. Messier after considering the historic levels of earnings achieved by Team Print, the fact that the Company was Team Print’s largest customer and the cost savings to be realized from owning the Team Print business and the impact those savings could have on the future earnings of the Company. The consideration given to Team Print was agreed upon after the Company determined the potential impact on future earnings of owning the operating assets of Team Print.

     In an effort to streamline the accounting and legal operations of the Company’s team dealers, on January 1, 2007, the Company caused to be effected the merger of Salkeld with and into Kesslers, and the merger of CMS of Central Florida d/b/a Orlando Team Sports with and into Dixie Sporting Goods Co., Inc. (“Dixie”). As a result of these mergers, the Company now conducts its team dealer business through Kesslers and Dixie, each of which is a wholly-owned subsidiary of the Company.

3. Net Sales:

     The Company’s net sales to external customers are attributable to sales of sporting goods equipment and soft goods. The following table details the Company’s consolidated net sales by these product lines for the three and nine months ended March 31, 2007, and 2006:

	For the Three Months Ended				For the Nine Months Ended
	March 31,				March 31,
	2007		2006		2007		2006
			(Unaudited, in thousands)
Sporting goods equipment	$	43,472	$	42,246	$	113,442	$	110,772
Soft goods		19,763		17,172		67,340		60,322
Net sales	$	63,235	$	59,418	$	180,782	$	171,094

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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Inventories:

     Inventories are carried at the lower of cost or market using the weighted-average cost method for items purchased for resale and the average cost method for manufactured items.

     Inventories at March 31, 2007 and June 30, 2006 consisted of the following (in thousands):

	March 31,		June 30,
	2007		2006
Raw materials	$	1,950	$	1,893
Work in progress		207		116
Finished goods		33,434		35,176
Inventories	$	35,591	$	37,185

5. Allowance for Doubtful Accounts:

     Changes in the Company’s allowance for doubtful accounts for the nine months ended March 31, 2007, and the fiscal year ended June 30, 2006, are as follows (in thousands):

	March 31,			June 30,
	2007			2006
Balance at beginning of period	$	1,496		$	1,042
Provision for uncollectible accounts receivable		1,307			982
Accounts written off, net of recoveries		(768	)		(528	)
Balance at end of period	$	2,035		$	1,496

6. Income Per Share:

     The table below outlines the determination of the number of diluted shares of common stock used in the calculation of diluted earnings per share as well as the calculation of diluted earnings per share for the periods presented:

	For the Three Months				For the Nine Months
	Ended				Ended
	March 31,				March 31,
	2007		2006		2007		2006
	(In thousands except share and per share data)
Determination of diluted number of shares:
Average common shares outstanding		10,233,560		10,183,973		10,231,051		10,174,843
Assumed exercise of dilutive stock options(1)		127,829		175,555		144,418		214,897
Assumed conversion of subordinated debentures(2)		3,412,969		—		—		—
Diluted average common shares outstanding (b)		13,774,358		10,359,528		10,375,469		10,389,740
Calculation of diluted earnings per share:
Net income	$	1,738	$	1,232	$	4,162	$	2,836
Add: interest component on assumed conversion of subordinated debentures, net of taxes(2)		552		—		—		—
Net income, adjusted (a)	$	2,290	$	1,232	$	4,162	$	2,836
Diluted earnings per share (a/b)	$	0.17	$	0.12	$	0.40	$	0.27

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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)	For the three and nine months ended March 31, 2007 and March 31, 2006, 653,100 and 3,619,969 shares and 3,861,669 and 3,606,969 shares, respectively, were not included in the calculation of fully diluted earnings per share since the effect of those shares would have been antidilutive.
	For the nine month periods ended March 31, 2007 and 2006, the shares relating to outstanding stock options for which the exercise price was greater than the average closing price of the common stock for the respective periods and the shares underlying the convertible securities were excluded from the calculation as the effect was antidilutive.
(2)	Convertible bonds of $50,000,000 were issued in November 2004. For the nine months ended March 31, 2007 and the three and nine months ended March 31, 2006, these bonds were antidilutive in the computation of earnings per share; however, for the three months ended March 31, 2007 they were dilutive.

7. Intangible Assets:

     Intangible assets at March 31, 2007 and June 30, 2006, consisted of the following:

			March 31, 2007							June 30, 2006
	Asset		Gross					Net		Gross				Net
	Life		Carrying			Accumulated		Carrying		Carrying		Accumulated		Carrying
	(Years)		Value			Amortization		Value		Value		Amortization		Value
						(In thousands)						(In thousands)
Amortizable intangible assets:
Trademarks		10-15	$	343		$	193	$	150	$	343	$	166	$	177
Non-compete agreements		10		3,200			560		2,640		3,200		320		2,880
Customer relationships		10		3,343			1,105		2,238		3,343		788		2,555
Contractual backlog		0.25-0.50		427			427		—		427		427		—
Customer database		3		660			385		275		660		220		440
Significant contracts		5		327			114		213		327		65		262
License agreements and other		3-10		493			326		167		292		202		90
Total amortizable intangible assets			$	8,793		$	3,110	$	5,683	$	8,592	$	2,188	$	6,404
Non-amortizable intangible assets:
Trademarks			$	2,610			—	$	2,610	$	2,610		—	$	2,610
Total non-amortizable intangible assets			$	2,610			—	$	2,610	$	2,610		—	$	2,610
Total identifiable intangible assets			$	11,403		$	3,110	$	8,293	$	11,202	$	2,188	$	9,014
Goodwill – June 30, 2006			$	40,280
Acquisitions				16,221
Changes in deferred tax valuation allowance				(1,939	)
Additional merger expenses				5
Goodwill – March 31, 2007			$	54,567

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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. Stockholders’ Equity:

     Changes in stockholders’ equity during the nine months ended March 31, 2007, were as follows (in thousands):

Stockholders’ equity at June 30, 2006	$	47,234
Issuance of stock for cash		37
Net income		4,162
Dividends declared		(768	)
Stockholders’ equity at March 31, 2007	$	50,665

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

     Certain statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties. Actual results may differ materially from expectations as of the date of this filing because of the factors discussed elsewhere in this Quarterly Report.

     Collegiate Pacific Inc. (“Collegiate Pacific,” “we,” “us,” “our,” or the “Company”) is a marketer, manufacturer and distributor of sporting goods equipment, soft good athletic apparel and footwear products (“soft goods”), physical education, recreational and leisure products primarily to the non-retail institutional market in the United States. The institutional market generally consists of youth sports programs, YMCAs, YWCAs, park and recreational organizations, schools, colleges, churches, government agencies, athletic teams, athletic clubs and dealers. We sell our products directly to our customers primarily through the distribution of our unique, informative catalogs and fliers, our strategically located road sales professionals, our telemarketers and the internet. We offer a broad line of sporting goods and equipment, soft goods and other recreational products, as well as provide after-sale customer service. We currently market approximately 23 thousand sports related equipment products, soft goods and recreational related equipment and products to institutional, retail, internet, sports teams and sporting goods dealer-type customers. Since commencing operations in early 1998, we have sold our products to approximately 173,000 customers. References herein to “fiscal 2005,” “fiscal 2006” and “fiscal 2007” refer to our fiscal years ended or ending, as the case may be, June 30, 2005, 2006 and 2007, respectively.

Consolidated Results of Operations

     The following table compares selected financial data from the Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2007 and 2006:

	For the Three Months Ended						For the Nine Months Ended
	March 31,						March 31,
	2007			2006			2007			2006
Net sales	$	63,235		$	59,418		$	180,782		$	171,094
Gross profit		22,831			20,997			64,269			57,454
Operating profit		4,410			3,744			11,795			8,273
Net income		1,738			1,232			4,162			2,836
Net income per share – basic	$	0.17		$	0.12		$	0.41		$	0.28
Net income per share – diluted	$	0.17		$	0.12		$	0.40		$	0.27
Gross profit margin		36.1	%		35.3	%		35.6	%		33.6	%
Selling, general and administrative expenses		29.1	%		29.0	%		29.0	%		28.7	%
Operating profit		7.0	%		6.3	%		6.5	%		4.8	%

-9-

Acquisitions Since July 1, 2005 and Related Developments

     On July 1, 2005, the Company completed the acquisition of 53.2% of the outstanding capital stock of Sport Supply Group, Inc. (“SSG”) from Emerson Radio Corp and Emerson Radio (Hong Kong) Limited for $32 million in cash. SSG is a direct marketer and Business-To-Business (“B2B”) e-commerce supplier of sporting goods and physical education equipment to the institutional and youth sports market. The acquisition of 53.2% of SSG was accounted for using the purchase method of accounting and, accordingly, the net assets and results of operations of SSG have been included in the Company’s consolidated financial statements since the date of acquisition. The purchase price was allocated to assets acquired of approximately $41.3 million, which included cash of $863 thousand, plus identifiable intangible assets, which included $3.2 million for non-compete agreements, $1.3 million for customer relationships, $660 thousand for a customer database, $327 thousand for significant contracts, $221 thousand for contractual backlog, $43 thousand for photo library and $14 thousand for a bid database calendar, and liabilities assumed based on their respective estimated fair values of approximately $26.8 million at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill in the amount of approximately $11.9 million.

     On September 8, 2005, the Company announced it entered into an Agreement and Plan of Merger with SSG (the “Original Merger Agreement”) pursuant to which the Company would have acquired the remaining 46.8% of the outstanding capital stock of SSG that it did not already own. On November 22, 2005, however, the Company announced it had entered into an agreement with SSG to terminate the Original Merger Agreement after determining the merger was unlikely to close in a timely fashion under previously contemplated terms. Under the terms of the Termination Agreement, dated November 22, 2005, the Company agreed to reimburse SSG for up to $350 thousand for the fees and expenses incurred by SSG in connection with the Original Merger Agreement.

     Also on November 22, 2005, the Company announced its purchase of 1,661,900 shares of SSG, or an additional 18% of SSG’s outstanding common shares, for approximately $9.2 million in cash from an institutional holder, representing a purchase price of $5.55 per share. In addition, the Company purchased during that same fiscal quarter an additional 155,008 shares of SSG for $746 thousand in open market transactions at an average price of $4.81 per share. The purchase of these additional shares of SSG increased goodwill by approximately $4.3 million.

     On November 13, 2006, the Company announced it had completed its acquisition of the remaining 26.8% of the capital stock of SSG that it did not already own for approximately $24.9 million (the “Merger Transaction”). Under the terms of the Merger Transaction, a wholly-owned subsidiary of the Company was merged with and into SSG, with SSG as the surviving corporation. Each issued and outstanding share of SSG’s common stock was converted into the right to receive $8.80 in cash.

     The Company acquired SSG after considering the historic levels of earnings achieved by SSG. The consideration paid was agreed upon after the Company determined the potential impact on future earnings of the integrated companies. For income tax purposes, the goodwill acquired by the Company in connection with the SSG acquisition is not deductible.

     In August 2005, the Company completed the acquisition of substantially all of the operating assets of Team Print from Mr. Albert Messier, one of the former principal stockholders of Salkeld & Sons, Inc. (“Salkeld”), for approximately $1.0 million in cash and the issuance of 53,248 shares of the Company’s common stock to Mr. Messier, which were valued at approximately $641 thousand and based on the average closing price of the Company’s common stock five days prior to May 10, 2005. Team Print is an embroiderer and screen printer of sports apparel and accessories. The Company’s wholly owned subsidiary, Kesslers Team Sports, Inc. (“Kesslers”) employs Mr. Messier. The excess of the purchase

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price over the fair value of the net assets acquired has been recorded as goodwill in the amount of $1.2 million.

     The Company acquired the operating assets of Team Print from Mr. Messier after considering the historic levels of earnings achieved by Team Print, the fact that the Company was Team Print’s largest customer and the cost savings to be realized from owning the Team Print business and the impact those savings could have on the future earnings of the Company. The consideration given to Team Print was agreed upon after the Company determined the potential impact on future earnings of owning the operating assets of Team Print.

     In an effort to streamline the accounting and legal operations of the Company’s team dealers, on January 1, 2007, the Company caused to be effected the merger of Salkeld with and into Kesslers, and the merger of CMS of Central Florida d/b/a Orlando Team Sports with and into Dixie Sporting Goods Co., Inc. (“Dixie”). As a result of these mergers, the Company now conducts its team dealer business through Kesslers and Dixie, each of which is a wholly-owned subsidiary of the Company.

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

     Net Sales.Net sales for the fiscal quarter ended March 31, 2007, totaled $63.2 million compared to $59.4 million for the fiscal quarter ended March 31, 2006, an increase of $3.8 million, or 6.4%. The increase in net sales was primarily attributable to an increase in sales through our road sales force of $3.1 million, and an increase in freight and install revenues of $726 thousand. The sales growth in the fiscal quarter ended March 31, 2007, was from organic growth. The revenue impact from acquisitions was immaterial.

     Historically, sales of our sporting goods have experienced seasonal fluctuations. This seasonality causes our financial results to vary from quarter to quarter, which usually results in lower net sales and operating profit in the second quarter of our fiscal year (October through December) and higher net sales and operating profit in the remaining quarters of our fiscal year. We attribute this seasonality primarily to the budgeting procedures of our customers and the seasonal demand for our products, which have historically been driven by spring and summer sports. Generally, between the months of October and December, there is a lower level of sports activities at our non-retail institutional customer base, a higher degree of adverse weather conditions and a greater number of school recesses and major holidays. We believe the operations of our team dealers, which have a greater focus on fall and winter sports, have reduced the seasonality of our financial results.

     Gross Profit. Gross profit for the fiscal quarter ended March 31, 2007, was $22.8 million, or 36.1% of net sales, compared with $21.0 million, or 35.3% of net sales, for the fiscal quarter ended March 31, 2006. Gross profit for the fiscal quarter ended March 31, 2007, increased by approximately $1.8 million compared to the prior year and was primarily due to an increase in sales volume.

     We include the acquisition and manufacturing costs of our inventories, and the cost of shipping and handling (freight costs) in determining our total cost of sales. Our total cost of sales for the fiscal quarter ended March 31, 2007, was $40.4 million, or 63.9% of net sales, compared to $38.4 million, or 64.7% of net sales, for the same period last fiscal year. Our total cost of sales for the quarter ended March 31, 2007, consisted of $34.8 million for the acquisition cost of inventories, $4.5 million in freight costs, $324 thousand for the write-off of obsolete or damaged inventories and $833 thousand for labor and overhead costs associated with the products we manufacture.

     Selling, General and Administrative Expenses.Selling, general and administrative (“SG&A”) expenses for the fiscal quarter ended March 31, 2007, were $18.4 million, or 29.1% of net sales, compared with $17.3 million, or 29.0% of net sales, for the fiscal quarter ended March 31, 2006. During the fiscal quarter ended March 31, 2007, SG&A expenses primarily consisted of the following:

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• personnel related expenses of approximately $9.6 million;

• advertising of approximately $2.2 million;

• depreciation and amortization of approximately $824 thousand;

• rent expense of approximately $686 thousand;

• computer services and supplies of approximately $627 thousand;

• travel related expense of approximately $575 thousand;

• bad debt of approximately $302 thousand;

• legal and accounting fees of approximately $301 thousand;

• Sarbanes-Oxley related compliance costs of approximately $281 thousand; and

• bank charges of approximately $274 thousand.

     The $1.2 million increase in SG&A expenses we experienced in the fiscal quarter ended March 31, 2007, compared to the same period last year was primarily attributable to personnel related expenses, which increased $857 thousand, and an increase in advertising expenses of $314 thousand to support sales growth during the fiscal quarter ended March 31, 2007, partially offset by a decrease in legal and accounting expenses of $226 thousand.

     Operating Profit.Operating profit for the fiscal quarter ended March 31, 2007, was $4.4 million, or 7.0% of net sales, compared to an operating profit of $3.7 million, or 6.3% of net sales for the fiscal quarter ended March 31, 2006. The increase in operating profit was primarily attributable to the increase in net sales and gross profit, partially offset by the increase in SG&A expenses during the period.

     Interest Expense, and Interest and Other Income.Interest expense, and interest and other income for the fiscal quarter ended March 31, 2007, increased to $1.7 million, compared to $1.1 million for the fiscal quarter ended March 31, 2006. The increase in interest expense for the fiscal quarter ended March 31, 2007, was due to increased borrowings under the Company’s revolving credit facility and notes payable due to the consummation of the Merger Transaction. See “Liquidity and Capital Resources.”

     Minority Interest. Due to the completion of the Merger Transaction in November 2006, there was no minority interest for the fiscal quarter ended March 31, 2007. The minority interest for the fiscal quarter ended March 31, 2006, was $644 thousand. Minority interest reflects the minority stockholders’ share in SSG’s income for the three months ended March 31, 2006.

     Income Taxes.Income tax expense for the fiscal quarter ended March 31, 2007, was $1.0 million compared to income tax expense of $787 thousand for the fiscal quarter ended March 31, 2006. The increase in income tax expense was primarily attributable to increased operating profits before taxes during the period.

     Net Income.Net income for the fiscal quarter ended March 31, 2007 was $1.7 million or 2.7% of net sales, compared to net income of $1.2 million, or 2.1% of net sales, for the fiscal quarter ended March 31, 2006. The increase in net income was attributable to an increase in net sales and gross margin, partially offset by increases in SG&A expenses and interest expense.

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Nine Months Ended March 31, 2007 Compared to Nine Months Ended March 31, 2006

     Net Sales.Net sales for the nine months ended March 31, 2007, totaled $180.8 million compared to $171.1 million for the nine months ended March 31, 2006, an increase of $9.7 million, or 5.7%. The increase in net sales was primarily attributable to an increase in catalog and consumer direct internet sales of $2.2 million, an increase in the sale of soft goods and sporting equipment through our road sales force of $5.7 million, and an increase in freight and install revenue of $1.8 million.

     Historically, sales of our sporting goods have experienced seasonal fluctuations. This seasonality causes our financial results to vary from quarter to quarter, which usually results in lower net sales and operating profit in the second quarter of our fiscal year (October through December) and higher net sales and operating profit in the remaining quarters of our fiscal year. We attribute this seasonality primarily to the budgeting procedures of our customers and the seasonal demand for our products, which have historically been driven by spring and summer sports. Generally, between the months of October and December of each fiscal year, there is a lower level of sports activities at our non-retail institutional customer base, a higher degree of adverse weather conditions and a greater number of school recesses and major holidays. We believe the operations of our team dealers, which have a greater focus on fall and winter sports, have reduced the seasonality of our financial results.

     Gross Profit. Gross profit for the nine months ended March 31, 2007, was $64.3 million, or 35.6% of net sales, compared with $57.5 million, or 33.6% of net sales, for the nine months ended March 31, 2006. Gross profit for the nine months ended March 31, 2007 increased approximately $6.8 million compared to the prior year and was primarily due to a combination of an increase in sales volume, our customer and product mix, and $1.2 million of required inventory adjustments from our acquisition of SSG, which were recorded during the six months ended December 31, 2005.

     We include the acquisition and manufacturing costs of our inventories, and the cost of shipping and handling (freight costs) in the determination of our total cost of sales. Our total cost of sales for the nine months ended March 31, 2007, was $116.5 million, or 64.4% of net sales, compared to $113.6 million, or 66.4% of net sales in the same period last fiscal year. Our total cost of sales for the nine months ended March 31, 2007, consisted of $100.7 million for the acquisition cost of inventories, $12.5 million in freight costs, $742 thousand for the write-off of obsolete or damaged inventories, and $2.5 million for labor and overhead costs associated with the products we manufacture.

     Selling, General and Administrative Expenses.SG&A expenses for the nine months ended March 31, 2007, were $52.5 million, or 29.0% of net sales, compared to $49.2 million, or 28.7% of net sales, for the nine months ended March 31, 2006. During the nine months ended March 31, 2007, SG&A expenses primarily consisted of the following:

• personnel related expenses of approximately $28.5 million;

• advertising of approximately $5.3 million;

• depreciation and amortization of approximately $2.4 million;

• rent of approximately $2.1 million;

• computer services and supplies of approximately $1.9 million;

• travel related expense of approximately $1.6 million;

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• bad debt of approximately $1.3 million;

• legal and accounting fees of approximately $1.1 million;

• bank charges of approximately $805 thousand;

• insurance related expenses of approximately $665 thousand;

• Sarbanes-Oxley related compliance costs in the amount of approximately $405 thousand; and

• accrued sales tax liability of $343 thousand.

     The $3.3 million increase in SG&A expenses we experienced during the nine months ended March 31, 2007, compared to the same period last year, was primarily attributable to an increase in personnel related expenses of $3.1 million to support sales growth, an increase in advertising expenses of $569 thousand to support sales growth and a bad debt expense increase of $533 thousand related to management’s ongoing assessment of the quality of accounts receivable, offset by a decrease of $744 thousand in legal and accounting fees.

     Operating Profit.Operating profit for the nine months ended March 31, 2007, increased to $11.8 million, or 6.5% of net sales, compared to an operating profit of $8.3 million, or 4.8% of net sales for the nine months ended March 31, 2006. The increase in operating profit was primarily attributable to the increase in net sales and gross profit, which was partially offset by the increase in SG&A expenses during the period.

     Interest Expense, and Interest and Other Income.Interest expense and interest and other income for the nine months ended March 31, 2007, increased to $4.2 million, compared to $3.0 million for the nine months ended March 31, 2006. Interest expense increased due to increased borrowings under the Company’s revolving credit facility and notes payable. See “Liquidity and Capital Resources.”

     Minority Interest. Minority interest of $531 and $588 thousand for the nine months ended March 31, 2007 and 2006, respectively, reflects the minority interest stockholders’ share in SSG’s income.

     Income Taxes.Income tax expense for the nine months ended March 31, 2007 was $2.9 million, which is approximately 41.3% of our income before income taxes, compared to $1.8 million, which was approximately 39.0% of our income before income taxes for the nine months ended March 31, 2006. The increase in income tax expense was primarily attributable to the increase in operating profits before tax during the period. The increase in the effective rate was primarily due to legislated tax law changes in the State of Texas.

     Net Income.Net income for the nine months ended March 31, 2007, increased to $4.2 million, or 2.3% of net sales, compared to net income of $2.8 million, or 1.7% of net sales, for the nine months ended March 31, 2006.

Liquidity and Capital Resources

Liquidity

     The decrease in cash for the nine months ended March 31, 2007, compared to June 30, 2006, was primarily attributable to the subsequent repayment of funds borrowed to consummate the Merger Transaction.

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     Operating Activities.Cash flows from operating activities during the nine months ended March 31, 2007, provided approximately $5.6 million in cash compared to the use of approximately $4.6 million of cash during the nine months ended March 31, 2006. The cash flows from operating activities during the nine months ended March 31, 2007, resulted primarily from net income, which represents our principal source of cash flows.

     Increases in operating cash flows compared to the operating cash flows during the nine months ended March 31, 2006, were attributable to:

• a decrease in inventories of $1.6 million during the nine months ended March 31, 2007, compared to a $2.7 million increase in inventories during the nine months ended March 31, 2006, which is attributable to the increase in net sales, improved inventory management in our catalog operations, and the ongoing consolidation of inventories and manufacturing operations following the consummation of the Merger Transaction;

• an increase in prepaid expenses and other current assets of $339 thousand during the nine months ended March 31, 2007, compared to a $2.9 million increase in prepaid expenses and other current assets during the nine months ended March 31, 2006, which is due primarily to advertising costs associated with the production of catalogs to be mailed in future periods;

• an increase in accounts receivable of $7.3 million during the nine months ended March 31, 2007, compared to an $8.6 million increase in accounts receivable during the nine months ended March 31, 2006, which is primarily attributable to the improved management of accounts receivable in our catalog and team dealer operations; and

• an increase in non-cash expenses including depreciation and bad debt expense during the nine months ended March 31, 2007, compared to the nine months ended March 31, 2006.

     During the fiscal quarter ended March 31, 2007, we continued integrating SSG’s operations with the Company’s operations. In that regard, the Company plans to continue its efforts to consolidate its Dallas, Texas distribution, warehouse and assembly facilities through the remainder of fiscal 2007. The Company anticipates completing this project in large part by the end of the second fiscal quarter of fiscal 2008, which ends December 31, 2007. A byproduct of consolidating our Dallas, Texas facilities will be a reduction in the number of SKUs we currently carry, which we anticipate will reduce our inventory levels and corresponding carrying costs, as well as improve inventory turns. In addition, as we combine some of our catalog brands and divisions, we intend to reduce the number of paper catalogs we distribute by as much as twenty-five percent and rely more heavily on our CRM-driven telesales and road sales professionals to grow our net sales. We believe these integration efforts will enhance our cash flows in future periods.

     Investing Activities.Cash used in investing activities during the nine months ended March 31, 2007, was $26.3 million, compared to $44.4 million of cash used in investing activities during the nine months ended March 31, 2006. During the nine months ended March 31, 2007, the Company used approximately $24.9 million to complete its acquisition of the 26.8% of the capital stock of SSG that it did not already own, compared to the same period in fiscal 2006, when $43.7 million (net of cash acquired) was used to acquire outstanding capital stock of SSG and Team Print. Purchases of property and equipment during the nine months ended March 31, 2007, were $1.4 million. Property and equipment purchased during the nine months ended March 31, 2007, included computer equipment, software and leasehold improvements. The Company estimates it will spend approximately $1.5 million in additional funds for capital expenditures in fiscal 2007 primarily related to the integration of the catalog operations to a single IT

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platform. The Company intends to complete this integration project by June 30, 2007.

     Financing Activities.Net cash provided by financing activities during the nine months ended March 31, 2007, was $19.9 million, compared to $13.0 million during the nine months ended March 31, 2006. The net increase in cash provided by financing activities during the nine months ended March 31, 2007, was due to:

              • proceeds from the Company’s revolving credit facility of $34.0 million; and

              • proceeds from the issuance of common stock upon the exercise of options of approximately $37 thousand; and,

Increases in cash provided by financing activities were partially offset by:

              • the payment of dividends in the amount of approximately $768 thousand; and,

              • payments on notes payable and the Company’s revolving line of credit and term loan of $13.4 million.

     Current assets as of March 31, 2007, were approximately $82.9 million and current liabilities were approximately $25.5 million, thereby providing the Company with working capital of approximately $57.4 million.

Capital Resources

     During the fiscal quarter ended December 31, 2004, we sold $50.0 million principal amount of 5.75% Convertible Senior Subordinated Notes due 2009 (the “Notes”). The Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The issuance of the Notes resulted in aggregate proceeds of $46.6 million to the Company, net of issuance costs.

     The Notes are governed by the Indenture dated as of November 26, 2004, between the Company and The Bank of New York Trust Company N.A., as trustee (the “Indenture”). The Indenture provides, among other things, that the Notes will bear interest of 5.75% per year, payable semi-annually, and will be convertible at the option of the holder of the Notes into the Company’s common stock at a conversion rate of 68.2594 shares per $1 thousand principal amount of Notes, subject to certain adjustments. This is equivalent to a conversion price of approximately $14.65 per share. On or after December 31, 2005, the Company may redeem the Notes, in whole or in part, at the redemption price, which is 100% of the principal amount, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the redemption date only if the closing price of the Company’s common stock exceeds 150% of the conversion price for at least 20 trading days in any consecutive 30-day trading period. If the Company calls the Notes for redemption on or before December 10, 2007, the Company will be required to make an additional payment in cash in an amount equal to $172.50 per one thousand principal amount of the Notes, less the amount of any interest actually paid on the Notes before the redemption date. In addition, upon the occurrence of a change in control of the Company, holders may require the Company to purchase all or a portion of the Notes in cash at a price equal to 100% of the principal amount of Notes to be repurchased, plus accrued and unpaid interest and additional interest, if any, to, but excluding, the repurchase date, plus the make whole premium, if applicable.

     Under the terms of a Registration Rights Agreement the Company entered into with the holders of the Notes, the Company was required to file a registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”) for the registration of the Notes and the shares issuable upon conversion of the Notes (the “Registration Statement”). On February 28, 2006, the SEC declared the Registration Statement effective.

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     The Company’s principal external source of liquidity is its amended and restated senior secured credit facility (the “Senior Credit Agreement”) with Merrill Lynch Business Financial Services, Inc. (“MLBFS”), individually as a lender, as administrative agent, sole book runner and sole lead manager, which is collateralized by all of the assets of the Company and its wholly-owned subsidiaries.

     On November 13, 2006, the Company entered into the Senior Credit Agreement with MLBFS to fund the Company’s acquisition of the remaining 26.8% of the capital stock of SSG that it did not already own for approximately $24.9 million, to provide on-going financing for working capital, capital expenditures and other general corporate purposes of the Company and its subsidiaries. The Senior Credit Agreement replaced the Company’s June 29, 2006, Credit Agreement with Merrill Lynch Capital, a division of MLBFS. The Senior Credit Agreement establishes a commitment to the Company to provide up to $55.0 million in the aggregate of loans and other financial accommodations consisting of (a) a thirty-month senior secured loan in the aggregate principal amount of $20.0 million (the “Term Loan”) and (b) a thirty-month secured revolving credit facility in an aggregate principal amount of $35.0 million (the “Revolving Facility” and, together with the Term Loan, the “Senior Credit Facility”). The Senior Credit Facility includes a sub-limit of up to an aggregate amount of $4.0 million in letters of credit.

     Total availability under the Senior Credit Facility is determined by a borrowing formula based on eligible trade receivables and inventories that provides for borrowings against up to 85% of the Company’s eligible trade receivables and 50% of the Company’s eligible inventories, not to exceed in the aggregate the total availability under the Senior Credit Facility. As of March 31, 2007, the Company had $19.3 million outstanding under the Term Loan and approximately $15.5 million outstanding under the Revolving Facility, thereby leaving the Company with approximately $19.0 million of availability under the terms of the borrowing base formula of the Senior Credit Facility.

     All borrowings under the Senior Credit Facility will bear interest at either (a) the London Inter-Bank Offered Rate (“LIBOR”) plus a spread ranging from 1.25% to 2.00% for all borrowings under the Revolving Facility and 1.75% to 3.25% for all borrowings under the Term Loan, with the amount of the spread at any time based on the Company’s ratio of total debt, excluding subordinated debt, to the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) on a trailing 12-month basis (the “Senior Leverage Ratio”) or (b) an alternative base rate equal to the higher of (i) the Federal Funds Rate plus 0.50% or (ii) the MLBFS prime rate, plus an additional spread ranging from -0.25% to 0.50% for all borrowings under the Revolving Facility and 0.25% to 1.75% for all borrowings under the Term Loan, with the amount of the spread at any time based on the Company’s Senior Leverage Ratio on a trailing 12-month basis. Until April 1, 2007, the interest rate spreads were 2.00% for LIBOR loans under the Revolving Facility and 3.25% for LIBOR loans under the Term Loan, and 0.50% for base rate loans under the Revolving Facility and 1.75% for base rate loans under the Term Loan. After April 1, 2007, the interest rate spreads are 1.75% for LIBOR loans under the Revolving Facility and 2.75% for LIBOR loans under the Term Loan, and 0.25% for base rate loans under the Revolving Facility and 1.25% for base rate loans under the Term Loan. The effective interest rate on borrowings under the Senior Credit Facility at March 31, 2007 was 8.0%.

     The Senior Credit Facility includes covenants that require the Company to maintain certain financial ratios. The Company’s Senior Leverage Ratio on a trailing 12-month basis may not exceed 2.75 to 1.00 at March 31, 2007, 2.50 to 1.00 at June 30, 2007, 2.25 to 1.00 at September 30 and December 31, 2007 and March 31, 2008, and 2.00 to 1.00 at June 30, 2008 and the last day of each calendar quarter thereafter. The Company’s ratio of EBITDA to the sum of the Company’s fixed charges (interest expense, taxes, cash dividends and scheduled principal payments) on a trailing 12-month basis (the “Fixed Charge Coverage Ratio”) must be at least 1.15 to 1.0 through March 31, 2007, 1.20 to 1.00 through September 30, 2007, 1.25 to 1.00 through March 31, 2008 and 1.35 to 1.00 at all times thereafter. At March 31, 2007, the Company was in compliance with all of its financial covenants under the Senior Credit Facility.

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     The Senior Credit Facility is guaranteed by each of the Company’s wholly-owned subsidiaries and is secured by, among other things, a pledge of all of the issued and outstanding shares of stock of each of the Company’s wholly-owned subsidiaries and a first priority perfected security interest on all of the assets of the Company and each of its wholly-owned subsidiaries.

     The Senior Credit Facility contains customary representations, warranties and covenants (affirmative and negative) and the Senior Credit Facility is subject to customary rights of the lenders and the administrative agent upon the occurrence and during the continuance of an event of default, including, under certain circumstances, the right to accelerate payment of the loans made under the Senior Credit Facility and the right to charge a default rate of interest on amounts outstanding under the Senior Credit Facility. The Notes are subordinated in right of payment to the prior payment in full, in cash, of all amounts payable under the Senior Credit Facility.

     On July 26, 2004, the Company issued promissory notes to the former stockholders of Dixie in the aggregate amount of $500 thousand. Payments of principal are paid monthly and interest accrues at the rate of 4% per annum on any past due principal amount of the notes. The notes mature on July 31, 2009. Principal payments made in the fiscal quarter ended March 31, 2007, were $24 thousand and the remaining principal payments of $225 thousand are due through the fiscal year ending June 30, 2010.

     On May 11, 2005, the Company issued promissory notes to the former stockholders of Salkeld in the aggregate amount of $230 thousand. The notes matured on April 30, 2007. Principal payments made in the fiscal quarter ended March 31, 2007, were $29 thousand.

Long-Term Financial Obligations and Other Commercial Commitments

     The following table summarizes the outstanding borrowings and long-term contractual obligations of the Company at March 31, 2007, and the effects such obligations are expected to have on liquidity and cash flows in future periods.

	Payments Due by Period
			Less than						After
Contractual Obligations	Total		1 year		1 – 3 years		4 - 5 years		5 years
	(In thousands)
Long-term debt, including current portion	$	85,103	$	3,367	$	81,711	$	25	$	—
Operating leases		7,690		2,997		3,817		876		—
Interest expense and fees on long-term debt		13,664		5,697		7,967		—		—
Total contractual cash obligations	$	106,457	$	12,061	$	93,495	$	901	$	—

     Operating Leases.We lease property and equipment, manufacturing and warehouse facilities, and office space under non-cancellable leases. Certain of these leases obligate us to pay taxes, maintenance and repair costs.

     Off-Balance Sheet Arrangements.We do not utilize off-balance sheet financing arrangements. We do, however, finance the use of certain facilities, office and computer equipment, and automobiles under various non-cancellable operating lease agreements. At March 31, 2007, the total future minimum lease payments under various operating leases we are a party to totaled approximately $7.7 million and, as indicated in the table above, are payable through fiscal 2011.

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     Long-Term Debt and Advances Under Credit Facilities.As of March 31, 2007, we had outstanding $50 million in Notes due 2009. We maintain the Senior Credit Facility with MLBFS. Outstanding advances under the Senior Credit Facility totaled $34.8 million as of March 31, 2007, which consisted of $15.5 million outstanding under the Revolving Facility and $19.3 million under the Term Loan, and are included in other current and non-current liabilities in our consolidated balance sheets. Promissory notes to former stockholders of Dixie and Salkeld and other long-term obligations were approximately $235 thousand.

     We believe the Company’s borrowings under the Senior Credit Facility, cash on hand and cash flows from operations will satisfy the Company’s short-term and long-term liquidity requirements. The Company may experience periods of higher borrowings under the Senior Credit Facility due to the seasonal nature of its business cycles.

Recent Accounting Pronouncements

     In July 2006, the Financial Accounting Standards Board (“FASB) issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“Interpretation 48”).Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes. Interpretation 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interpretation 48 is effective for fiscal years beginning after December 15, 2006. The Company has not determined the impact, if any, of the implementation of Interpretation 48 on its financial position and results of operations.

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“FAS 157”). The provisions of FAS 157 define fair value, establish a framework for measuring fair value in generally accepted accounting principles, and expand disclosures about fair value measurements. The provisions of FAS 157 are effective for fiscal years beginning after November 15, 2007. The Company does not believe the adoption of FAS 157 will have a significant effect on its consolidated financial position, results of operations, or cash flows.

     In September 2006, the United States Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB 108 will not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities including an Amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of FAS 159 are effective for fiscal years beginning after November 15, 2007. The Company has not determined the effect, if any, the adoption of this statement will have on the Company’s consolidated financial position or results of operations.

Critical Accounting Policies

     Collegiate Pacific’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance

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with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities.

     Discussed below are several significant accounting policies, which require the use of judgments and estimates that may materially affect the consolidated financial statements. The estimates described below are reviewed from time to time and are subject to change if the circumstances so indicate. The effect of any such change is reflected in results of operations for the period in which the change is made.

     Inventories.Inventories are valued at the lower of cost or market value. Cost is determined using the average cost method for items manufactured by us and the weighted-average cost method for items purchased for resale. We record adjustments to our inventories for estimated obsolescence or diminution in market value equal to the difference between the cost of inventory and the estimated market value, based on market conditions from time to time. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual experience if future economic conditions, levels of customer demand or competitive conditions differ from expectations. Because valuing our inventories at lower of cost or market requires significant management judgment, we believe the accounting estimate related to our inventories is a “critical accounting estimate.” Management of the Company has discussed this critical accounting estimate with the audit committee of our Board of Directors, and the audit committee has reviewed the Company’s disclosure relating to it in this Quarterly Report on Form 10-Q.

     Allowance for Doubtful Accounts.We evaluate the collectibility of accounts receivable based on a combination of factors. In circumstances where there is knowledge of a specific customer’s inability to meet its financial obligations, a specific allowance is provided to reduce the net receivable to the amount that is reasonably believed to be collectable. For all other customers, allowances are established based on historical bad debts, customer payment patterns and current economic conditions. The establishment of these allowances requires the use of judgment and assumptions regarding the potential for losses on receivable balances. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required resulting in an additional charge to expenses when made. Because estimating our uncollectible accounts requires significant management judgment, we believe the accounting estimate related to our allowance for doubtful accounts is a “critical accounting estimate.” Management of the Company has discussed this critical accounting estimate with the audit committee of our Board of Directors, and the audit committee has reviewed the Company’s disclosure relating to it in this Quarterly Report on Form 10-Q.

     At March 31, 2007, our total allowance for doubtful accounts was approximately $2.0 million, compared to $1.5 million as of June 30, 2006. The increase in our allowance for doubtful accounts for the fiscal quarter ended March 31, 2007, was attributable to the increase in the Company’s overall sales volume during the nine months ended March 31, 2007, and additional reserves based upon management’s ongoing assessment of the quality of accounts receivable. See Note 5 in Notes to Condensed Consolidated Financial Statements.

     Goodwill, Intangibles and Long-lived Assets.We assess the recoverability of the carrying value of goodwill, intangibles and long-lived assets periodically. If circumstances suggest that long-lived assets may be impaired, and a review indicates the carrying value will not be recoverable, the carrying value is reduced to its estimated fair value. As of March 31, 2007, the balance sheet includes approximately $63.0 million of goodwill and intangible assets, net, and $9.8 million of fixed assets, net. The Company has concluded that no impairment exists. Because estimating the recoverability of the carrying value of long-lived assets requires significant management judgment and our use of different estimates that we reasonably could have used would have an impact on our reported net long-lived assets, we believe the accounting estimates related to our impairment testing are “critical accounting estimates.” Management

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of the Company has discussed this critical accounting estimate with the audit committee of our Board of Directors, and the audit committee has reviewed the Company’s disclosure relating to it in this Quarterly Report on Form 10-Q.

Statement Regarding Forward-Looking Disclosure

     This Quarterly Report onForm 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Collegiate Pacific and its consolidated subsidiaries to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of net sales, gross profit margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include Collegiate Pacific’s ability to integrate acquired businesses, global economic conditions, product demand, financial market performance and other risks that are described herein, including but not limited to the items described from time to time in Collegiate Pacific’s Securities and Exchange Commission reports, including Collegiate Pacific’s Annual Report onForm 10-K for the fiscal year ended June 30, 2006. Collegiate Pacific cautions that the foregoing list of important factors is not all encompassing. Any forward-looking statements included in this report are made as of the date of filing of this report with the Securities and Exchange Commission, and we assume no obligation and do not intend to update these forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Interest Rates.Collegiate Pacific is exposed to interest rate risk in connection with its borrowings under the Senior Credit Facility, which bear interest at floating rates based on London Inter-Bank Offered Rate (“LIBOR”) or the prime rate plus an applicable borrowing margin. For our $50 million of Notes, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for variable rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant.

     As of March 31, 2007, Collegiate Pacific had $50 million in principal amount of fixed rate debt represented by the Notes and $34.8 million of variable rate debt represented by borrowings under the Senior Credit Facility. Based on the balance outstanding under the variable rate facilities as of March 31, 2007, an immediate change of one percentage point in the applicable interest rate would have caused an increase or decrease in interest expense of approximately $348 thousand on an annual basis. At March 31, 2007, up to $19.0 million of variable rate borrowings were available under the Revolving Facility. We may use derivative financial instruments, where appropriate, to manage our interest rate risks. However, as a matter of policy, Collegiate Pacific does not enter into derivative or other financial investments for trading or speculative purposes. At March 31, 2007, Collegiate Pacific had no such derivative financial instruments outstanding.

     Foreign Currency and Derivatives.We do not use derivative financial instruments to manage foreign currency risk related to the procurement of merchandise inventories from foreign sources and we do not earn income denominated in foreign currencies. We recognize all of our revenue and pay all of our obligations in U.S. dollars.

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Item 4. Controls and Procedures.

     Evaluation of Disclosure Controls and Procedures. An evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in §240.13a–15(e) or §240.15d–15(e) of the General Rules and Regulations of the Securities Exchange Act of 1934, as amended (the “1934 Act)) as of the end of the period covered by this Quarterly Report. Based on that evaluation, management, including the CEO and CFO, has concluded that, as of March 31, 2007, the Company’s disclosure controls and procedures were effective.

     Changes in Internal Control Over Financial Reporting.Collegiate Pacific’s management, with the participation of Collegiate Pacific’s CEO and CFO, has evaluated whether any change in Collegiate Pacific’s internal control over financial reporting occurred during the third quarter of fiscal 2007. Based on that evaluation, management including the CEO and CFO, has concluded that there has been no change in Collegiate Pacific’s internal control over financial reporting during the third quarter of fiscal 2007 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

     On September 21, 2006, Jeffrey S. Abraham, as Trustee of the Law Offices of Jeffrey S. Abraham Money Purchase Plan, dated December 31, 1999, f/b/o Jeffrey S. Abraham, filed a complaint in the Court of Chancery of the State of Delaware in and for New Castle County, C.A. No. 2435-N against the Company, Michael J. Blumenfeld, the four directors of SSG, Arthur J. Coerver, Harvey Rothenberg, Robert W. Philip and Thomas P. Treichler, and SSG, as a nominal defendant. The Plaintiff is a former stockholder of SSG and brought the action as a class action on behalf of all SSG minority stockholders in connection with the September 20, 2006 Agreement and Plan of Merger pursuant to which the Company acquired the remaining shares of the outstanding capital stock of SSG that the Company did not already own. The plaintiff alleges, among other things, that the $8.80 cash price per share of SSG common stock paid to the minority stockholders in the merger was unfair in that the purchase price failed to take into account the value of SSG, its improved financial results and its value in comparison to similar companies. The plaintiff also alleges that the process by which the merger agreement was arrived at could not have been the product of good faith and fair dealing because the Company and Mr. Blumenfeld acted in bad faith by taking various actions to depress the price of SSG common stock and dry up the market liquidity in such shares, all in an effort to effect the merger. In addition, the plaintiff alleges that the directors of SSG breached their fiduciary duties of good faith and loyalty to the plaintiff and the other minority stockholders in the merger agreement negotiations. The plaintiff requested that the merger be enjoined or in the alternative, damages be awarded to the SSG minority stockholders. On January 31, 2007, the plaintiff amended his complaint and is requesting that the court certify plaintiff as the class representative of the proposed class and award plaintiff and the class compensating and /or rescissory damages. The plaintiff also seeks the costs of bringing the action, including reasonable attorneys fees and experts’ fees.

     The Company is a party to various other litigation matters, in most cases involving ordinary and routine claims incidental to the Company’s business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results of operations or cash flows.

Item 5. Other Information.

     On May 11, 2007, the Company entered into a letter agreement with Middle Market Finance, a division of Merrill Lynch Business Financial Services, Inc., the terms of which amend the Senior Credit Facility to permit the Company to finance up to $600,000 of its insurance premiums, related taxes and fees for its general liability, umbrella, crime and fiduciary coverages with the carriers of the respective coverages. The foregoing description of the letter agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the letter agreement, a copy of which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q.

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Item 6. Exhibits.

A. Exhibits. The following exhibits are filed as part of this report:

Exhibit Number	Description
10.1	Letter Agreement, dated May 11, 2007, by and between Collegiate Pacific Inc. and Middle Market Finance, a division of Merrill Lynch Business Financial Services, Inc.*
31.1	Certification of Adam Blumenfeld pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of William R. Estill pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32	Certification of Adam Blumenfeld and William R. Estill pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

*	Filed herewith
**	Furnished herewith

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

	COLLEGIATE PACIFIC INC.
Dated: May 15, 2007	/s/ Adam Blumenfeld
	Adam Blumenfeld, Chief Executive Officer

/s/ William R. Estill  

William R. Estill, Chief Financial Officer 

(Principal Financial and Accounting Officer) 

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EXHIBIT INDEX

     The following exhibits are filed as part of this report:

Exhibit
Number	Description
10.1	Letter Agreement, dated May 11, 2007, by and between Collegiate Pacific Inc. and Middle Market Finance, a division of Merrill Lynch Business Financial Services, Inc.*
31.1	Certification of Adam Blumenfeld pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of William R. Estill pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32	Certification of Adam Blumenfeld and William R. Estill pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

*	Filed herewith
**	Furnished herewith