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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 2001.
REGISTRATION NO. 333-34294
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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COLLEGIATE PACIFIC INC.
(Name of small business issuer in its charter)
DELAWARE 5091 22-2795073
(State of other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code Number)
13950 SENLAC DRIVE, SUITE 100 MICHAEL J. BLUMENFELD
DALLAS, TEXAS 75234 CHIEF EXECUTIVE OFFICER
972. 243.8100 13950 SENLAC DRIVE, SUITE 100
(Address and telephone number of principal DALLAS, TEXAS 75234
executive offices and principal place of 972. 243.8100
business) (Name, address and telephone number
of agent for service)
COPIES TO:
MICHAEL R. DOREY
SAYLES, LIDJI & WERBNER,
A PROFESSIONAL CORPORATION
4400 RENAISSANCE TOWER
1201 ELM STREET
DALLAS, TEXAS 75270
214.939.8700
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1993, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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Pursuant to Rule 429, this is a combined registration statement that relates to
the securities previously registered by Form SB-2 Registration Statement, No.
333-64471, effective as of October 26, 1998, and the securities being registered
by this registration statement.
COLLEGIATE PACIFIC INC.
CROSS REFERENCE SHEET
FORM SB-2 ITEM NO. AND CAPTION PROSPECTUS CAPTION
Item 1. Front of Registration Statement and Outside Front Cover of Outside Front Cover
Prospectus
Item 2. Inside Front Cover and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover
Pages
Item 3. Summary Information and Risk Factors Summary, Risk Factors
Item 4. Use of Proceeds Summary -- Use of Proceeds
Item 5. Determination of Offering Price Not Applicable
Item 6. Dilution Not Applicable
Item 7. Selling Security Holders Summary -- Selling Shareholders
Item 8. Plan of Distribution Summary -- Plan of Distribution
Item 9. Legal Proceedings The Company -- Legal Proceedings
Item 10. Directors, Executive Officers, Promoters and Control Persons Management - Executive Officers and
Directors
Item 11. Security Ownership of Certain Beneficial Owners and Management Management - Security Ownership of
Certain Beneficial
Owners and Management
Item 12. Description of Securities Description of Securities
Item 13. Interest of Named Experts and Counsel Not Applicable
Item 14. Disclosure of Commission Position on Indemnification For Indemnification
Securities Act Liabilities
Item 15. Organization Within Last Five Years Not Applicable
Item 16. Description of Business The Company - Business
Item 17. Management's Discussion and Analysis or Plan of Operation Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Item 18. Description of Property The Company - Property
Item 19. Certain Relationship and Related Transactions Management - Certain Relationships
and Related Transactions
Item 20. Market For Common Equity and Related Stockholder Matters Market For Common Equity and Related
Stockholder Matters
Item 21. Executive Compensation Management - Executive Compensation
Item 22. Financial Statements Index To Consolidated Financial
Statements
Item 23. Changes in and Disagreements With Accountants on Accounting and Not Applicable
Financial Disclosures
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COLLEGIATE PACIFIC INC.
4,244,607 COMMON STOCK PURCHASE WARRANTS
5,462,515 SHARES OF COMMON STOCK
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This Prospectus relates to the issuance and resale of up to:
o 4,244,607 Common Stock Purchase Warrants issued as a special
dividend to each record holder of Common Stock as of May 26,
2000.
o 4,244,607 shares of Common Stock issuable upon exercise of the
Company's Common Stock Purchase Warrants.
Each record holder of Common Stock as of May 26, 2000 received a
special dividend from the Company of one Warrant for each share of Common Stock
owned by the record holder. Each Warrant entitles the holder to purchase one
share of Common Stock at an initial exercise price of $5.00 per share, subject
to adjustment, at any time prior to May 26, 2005.
This Prospectus also relates to an offering of up to 677,267 shares of
Common Stock by certain stockholders who previously held Notes of the Company.
The Company privately sold Notes in the principal amount of $2,235,000 to
certain officers and directors of the Company and certain third parties. The
Note Holders converted the Notes into 677,267 shares of Common Stock, based upon
a conversion price of $3.30 per share, on April 19, 2000.
In addition, this Prospectus relates to an offering of up to 507,500
shares of Common Stock by certain stockholders of Collegiate Pacific Inc. The
stockholders acquired these shares in the following transactions:
o Michael J. Blumenfeld acquired 400,000 shares through a Stock
Purchase Agreement dated as of August 18, 1997 by and between
Mr. Blumenfeld, Adam Blumenfeld and the Company.
o Richard Hershorin and Patti Hershorin acquired 27,500 shares
pursuant to an Agreement for Purchase and Sale of Stock dated
as of April 14, 1998 by and between the Hershorins and the
Company.
o Cary W. Bawcum, Stanley Graber, Frank A. Jones, and Joel W.
Brown each acquired 20,000 shares pursuant to a Plan and
Agreement of Merger dated as of May 31, 1998 by and among
Vantage Products International, Inc., Messrs. Bawcum, Graber,
Jones and Brown, and the Company.
These 507,500 shares are offered for the account of the Selling
Shareholders. Collegiate Pacific Inc. will not receive any proceeds from the
sale of these shares.
The Common Stock is quoted on the American Stock Exchange under the
symbol "BOO." The Warrants are quoted on the American Stock Exchange under the
symbol "BOO/WS." On April 24, 2001, the high and low price of the Common Stock
was $3.99 per share, and on April 24, 2001, the high and low price of the
Warrants was $0.77 per Warrant.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 8 IN THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 2001.
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No dealer, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus in connection with the offering made hereby and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, any of the securities offered hereby to
anyone in any jurisdiction to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to the dates as of which such information is furnished.
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TABLE OF CONTENTS
Available Information............................................................. 3
Summary........................................................................... 3
Risk Factors...................................................................... 9
The Company....................................................................... 14
Management........................................................................ 18
Market for Common Stock and Related Stockholder Matters........................... 23
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 24
Description of Securities......................................................... 28
Legal Matters..................................................................... 33
Experts........................................................................... 33
Indemnification................................................................... 33
Index To Consolidated Financial Statements........................................ F-1
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Collegiate Pacific Inc. is a Delaware corporation. Our executive
offices are located at 13950 Senlac Drive, Suite 100, Dallas, Texas 75234, and
our telephone number is (972) 243-8100. In this Prospectus, the "Company,"
"Collegiate Pacific," "we," "us," and "our" refer to Collegiate Pacific Inc. and
its subsidiaries. The term "Warrants" refers to the Company's common stock
purchase warrants. The term "Notes" refers to the Company's Subordinated
Convertible Promissory Notes. In addition, "Common Stock" refers to our common
stock, $.01 par value per share. The term "Selling Shareholders" refers to Mr.
Blumenfeld, the Hershorins, and Messrs. Bawcum, Graber, Jones and Brown. In
addition, "Common Stock" refers to our common stock, $.01 par value per share.
The Company's fiscal year ends on June 30th. Reference herein to "fiscal 1998,"
"fiscal 1999," "fiscal 2000," and "fiscal 2001" refers to our fiscal years ended
June 30, 1998, 1999, 2000 and 2001, respectively.
You should rely only on the information contained in this Prospectus.
We have not authorized anyone to provide you with information different from
that contained in this Prospectus. The information contained in this Prospectus
is accurate only as of the date of this Prospectus, regardless of the time of
delivery of this Prospectus or of any sale of the Common Stock.
UNLESS OTHERWISE PROVIDED IN THIS PROSPECTUS, ALL REFERENCES TO SHARES
OF COMMON STOCK TAKE INTO ACCOUNT THE ONE-FOR-FIVE REVERSE STOCK SPLIT THAT
BECAME EFFECTIVE JANUARY 19, 2000.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we
file annual, quarterly and other reports and other information with the
Securities and Exchange Commission (the "Commission"). These materials may be
inspected and copied at the public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549-1004,
at its Northeast Regional Office located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and at its West Regional Office located at 5670
Wilshire Boulevard, Los Angeles, California 90036. You can obtain copies of
these materials at prescribed rates from the Public Reference Section of the
Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy statements,
information statements and other information regarding the Company. The
Commission's Web site address is http://www.sec.gov.
The Company is a publicly held corporation and its Common Stock is
traded on the American Stock Exchange under the symbol "BOO." The Warrants are
traded on the American Stock Exchange under the symbol "BOO/WS."
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as it
may determine to furnish or as may be required by law.
We have filed Registration Statements on Form SB-2 (the "Registration
Statements") under the Securities Act of 1933 (the "Securities Act") with the
Commission, with respect to the Common Stock offered in this Prospectus. This
Prospectus does not contain all information set forth in the Registration
Statements. We omitted certain parts of the Registration Statements in
accordance with the rules and regulations of the Commission. For further
information about us and the Common Stock being offered in this Prospectus, you
should read the Registration Statements and their exhibits and schedules, which
you may read without charge at the public reference rooms at the offices of the
Commission.
SUMMARY
CERTAIN INFORMATION IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS." ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, ARE
"FORWARD-LOOKING STATEMENTS" FOR PURPOSES OF THESE PROVISIONS.
THESE STATEMENTS INCLUDE:
o ANY PROJECTIONS OF EARNINGS, REVENUES OR OTHER FINANCIAL
ITEMS;
o ANY STATEMENTS OF THE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS;
o ANY STATEMENTS CONCERNING PROPOSED NEW PRODUCTS OR SERVICES;
o ANY STATEMENTS REGARDING FUTURE ECONOMIC CONDITIONS OR
PERFORMANCE; AND
o ANY STATEMENT OF ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING.
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IN SOME CASES, FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE
OF TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECTS," "BELIEVES", "PLANS,"
"ANTICIPATES," "ESTIMATES," "POTENTIAL," OR "CONTINUE," AND VARIATIONS ON SUCH
WORDS AND SIMILAR EXPRESSIONS.
ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN ITS
FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT THESE
EXPECTATIONS OR ANY FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS WE PROJECTED OR ASSUMED IN OUR
FORWARD-LOOKING STATEMENTS. THE COMPANY'S FUTURE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, AS WELL AS ANY FORWARD-LOOKING STATEMENTS, ARE SUBJECT TO
INHERENT RISKS AND UNCERTAINTIES, SOME OF WHICH ARE SUMMARIZED IN THE SECTION
TITLED "RISK FACTORS" BEGINNING ON PAGE 9.
THE COMPANY
We are in the business of the mail order marketing of sports equipment.
We sell our products primarily to institutional customers located throughout the
United States. Our principal customers include country clubs, schools, YMCAs,
YWCAs and similar recreational organizations, municipal recreation departments,
and other governmental agencies. We offer a broad line of sporting equipment,
including inflatable balls, nets for various sports, standards and goals for
sports, weight lifting equipment, and other recreational products, and we also
provide after-sale customer service through toll-free numbers.
We believe that prompt delivery of a broad range of products at
competitive prices, coupled with prompt, accessible customer service,
distinguishes Collegiate Pacific from its competitors. We currently market about
3,000 sports and recreational related equipment and products to over 200,000
potential institutional, retail, Internet and sporting good dealer type
customers. Since commencing operations, we have sold products to approximately
25,000 customers.
Our master mailing list currently includes over 200,000 potential
customers, and we intend to distribute approximately 750,000 catalogs and fliers
to this audience during fiscal 2001. Michael J. Blumenfeld, the Chief Executive
Officer of the Company with over 25 years of experience in the industry,
supervised the development of this mailing list, and it is carefully maintained,
screened, and cross-checked. We subdivided this mailing list into various
combinations designed to place catalogs in the hands of the individuals making
the purchase decisions. The master mailing list is also subdivided by relevant
product types, seasons, and customer profiles. We also use other forms of
solicitations such as trade shows, telemarketing, broadcast fax programs, and
the Internet.
Collegiate Pacific Inc. was incorporated in Pennsylvania in 1987, and
reincorporated in Delaware in 1999. The Company's executive offices are located
at 13950 Senlac Drive, Suite 100, Dallas, Texas 75234, and its telephone number
at that location is (972) 243-8100.
RECENT DEVELOPMENTS
On October 25, 1999, we acquired certain assets of Mark One Inc., a
distributor of camping and sporting goods related equipment, as well as numerous
items for the recreation, military, and municipal markets.
On January 14, 2000, our shareholders approved an amendment to the
Company's Articles of Incorporation authorizing a one-for-five reverse stock
split, which became effective on January 19, 2000.
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On February 7, 2000, we entered into licensing and distribution
agreements with the Edwards Sports Company, a manufacturer of tennis nets and
tennis court equipment.
On February 29, 2000, we issued $2,235,000 of Subordinated Convertible
Promissory Notes to certain officers and directors of the Company and certain
third parties. Approximately $995,000 of such Notes were issued in exchange for
an equal amount of subordinated notes held by Michael J. Blumenfeld. The
remaining Notes were sold for approximately $1.4 million in cash. We are using
the cash proceeds to repay our outstanding commercial bank debt, to expand
working capital, and to finance stock repurchases. On April 19, 2000, the Note
holders converted the Notes into 677,267 shares of Common Stock, based on a
conversion price of $3.30 per share.
On June 8, 2000, the General Services Administration awarded a
long-term contract to us for the supply of sports and recreational products to
federal and military locations throughout the world.
On September 7, 2000, we acquired Kesmil Manufacturing, Inc., a
manufacturer of a broad line of athletic equipment.
On February 15, 2001, we announced that our Board of Directors
authorized the Company to reduce the strike price of the Warrants issued to each
record holder of the Company's Common Stock as of May 26, 2000, from $10 per
share to $5 per share, to be effective at 12:00 midnight, Dallas, Texas time, on
Monday, March 12, 2001.
SELLING SHAREHOLDERS
The following table sets froth the names of each of the Selling
Shareholders, the number of shares of Common Stock beneficially owned by each
Selling Shareholder as of March 1, 2001, the number of shares that each may
offer, and the number of shares of Common Stock beneficially owned by each
Selling Shareholder upon completion of the offering, assuming all of the shares
offered are sold. The number of shares sold by each Selling Shareholder may
depend upon a number of factors, including, among other things, the market price
of the Common Stock.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING
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NUMBER OF PERCENT OF SHARES TO BE NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES(2) CLASS(3) SOLD SHARES(2) CLASS
- ------------------------ ----------- ---------- ------------ --------- ----------
Michael J. Blumenfeld, 4,355,314(4) 67.9% 2,995,152(5) 1,349,462 31.9%
Chief Executive Officer
of the Company
Richard M. Hershorin TTEE 55,000(6) 1.3% 27,500 27,500 0.6%
FBO R. Hershorin Rev. Trust
U/A/D 04/21/89
Cary W. Bawcum 40,000(7) 0.9% 20,000 20,000 0.5%
Stanley Graber(8) 40,000(9) 0.9% 20,000 20,000 0.5%
Frank A. Jones 40,000(10) 0.9% 20,000 20,000 0.5%
Joel W. Brown 40,000(11) 0.9% 20,000 20,000 0.5%
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(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated.
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(2) As required by SEC regulations, the number of shares shown as beneficially
owned includes shares that could be purchased within 60 days after the
date of this Prospectus. The table shows the estimated total of the shares
that would be issued on the exercise of all Warrants to acquire shares of
Common Stock described in this Prospectus. The actual number of shares of
Common Stock issuable upon the exercise of the Warrants is subject to
adjustment and could be materially less than the number estimated in this
table. This variation is due to factors that cannot be predicted by us at
this time. The most significant of these factors is the future market
price of our Common Stock.
(3) The percentage of each Selling Shareholder is based on the beneficial
ownership of that Selling Shareholder divided by the sum of the current
outstanding shares of Common Stock plus the additional shares, if any,
that would be issued to that Selling Shareholder (but not any other
shareholder) when exercising any Warrant or other right in the future.
(4) Consists of 2,184,707 shares of Common Stock, 10,000 shares issuable upon
exercise of an option expiring February 24, 2009, 20,000 shares issuable
upon exercise of an option expiring August 15, 2010, and 2,140,607 shares
issuable upon exercise of a Warrant expiring May 26, 2005, issued as a
special dividend of warrants on shares of Common Stock.
(5) Consists of 400,000 shares being registered by Mr. Blumenfeld with the
intention that the sale or placement of these shares will be for the
benefit of the Company. The shares and/or the majority of net proceeds of
a sale could be used in acquisitions, debt repayments, working capital
advances or other such circumstances that may accrue to the benefit of the
Company. Also includes 454,545 shares issued upon conversion of a Note on
April 19, 2000, 2,140,607 shares issuable upon exercise of a Warrant
expiring May 26, 2005, issued as a special dividend of warrants on shares
of Common Stock.
(6) Consists of 27,500 shares of Common Stock, and 27,500 shares issuable upon
exercise of a Warrant expiring May 26, 2005.
(7) Consists of 20,000 shares of Common Stock, and 20,000 shares issuable upon
exercise of a Warrant expiring May 26, 2005.
(8) Mr. Graber is the brother-in-law of Michael J. Blumenfeld.
(9) Consists of 20,000 shares of Common Stock, and 20,000 shares issuable upon
exercise of a Warrant expiring May 26, 2005.
(10) Consists of 20,000 shares of Common Stock, and 20,000 shares issuable upon
exercise of a Warrant expiring May 26, 2005.
(11) Consists of 20,000 shares of Common Stock, and 20,000 shares issuable upon
exercise of a Warrant expiring May 26, 2005.
PLAN OF DISTRIBUTION
The Warrants offered in this Prospectus will be issued to each of the
Company's stockholder's on a pro rata basis as a special dividend.
The sale of the Shares offered in this Prospectus may be made from time
to time directly by the Selling Shareholders, by the Note holders who converted
their Notes into shares of Common Stock, by
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the stockholders who exercised their Warrants, or by one or more broker-dealers
or agents.
Shareholders selling their Shares or Warrants will act independently of
the Company in making decisions with respect to the timing, manner and size of
each sale. The Shares and the Warrants may be sold in one or more transactions
on the Bulletin Board, in negotiated transactions, or through a combination of
such methods of distribution, at prices related to prevailing market prices or
at negotiated prices.
In the event one or more broker-dealers or agents agree to sell the
Shares or the Warrants, they may do so by purchasing the Shares or Warrants as
principals or by selling the Shares or the Warrants as agent for the
shareholders selling their shares. These broker-dealers may be compensated in
the form of discounts, concessions, or commissions from these shareholders or
the purchasers of the Shares or the Warrants. A particular broker-dealer's
compensation may be in excess of customary compensation.
Under applicable Exchange Act rules and regulations, any person engaged
in a distribution of the Shares or the Warrants may not simultaneously engage in
market-making activities with respect to the Company's Common Stock or Warrants
for the applicable period under Regulation M of the Exchange Act prior to the
commencement of such distribution. In addition, shareholders selling their
shares are subject to applicable provisions, rules and regulations of the
Exchange Act, including Regulation M, which may limit the timing of purchases
and sales of the Shares and the Warrants by these shareholders. All of the
foregoing may affect the marketability of the Shares and the Warrants.
To comply with applicable states' securities laws, the Shares and the
Warrants will be sold in such jurisdictions only through registered or licensed
brokers or dealers. Additionally, the Shares and the Warrants may not be sold in
certain states unless the Shares and the Warrants has been registered or
qualified for sale in these states, or an exemption from registration or
qualification is available and is complied with.
The 400,000 shares being registered by Mr. Blumenfeld are being done so
with the intention that the sale or placement of these shares may be for the
benefit of the Company. The shares and/or the majority of net proceeds of a sale
could be used in acquisitions, debt repayment, working capital advances or other
such circumstances that may accrue to the benefit of the Company.
USE OF PROCEEDS
The Company will not receive any consideration for the issuance of the
Warrant, or any proceeds from the sale of Warrants by the Warrant holders.
The Company will receive proceeds only if the Warrants are duly
exercised and paid by the Warrant holders. There can be no assurance that the
Warrant holders will exercise all or any portion of the Warrants. If all the
Warrants are exercised, the Company will receive $21,438,740. The Company
currently plans to use any proceeds received upon exercise of the Warrants for
general corporate purposes. These general corporate purposes may include working
capital, acquisitions, and debt repayment.
The Company did not receive any proceeds from the conversion of the
Notes into shares of Common Stock. However, the conversion of the Notes
constituted a reduction of the Company's outstanding debt by $2,235,000. The
Note holders converted the Notes into shares of Common Stock at a conversion
price equal to $3.30 per share.
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The 400,000 shares that have been registered by Mr. Blumenfeld are
being done so with the intention that the sale or placement of these shares may
be for the benefit of the Company. The shares and/or the majority of net
proceeds of a sale could be used in working capital, acquisitions, debt
repayment, or other circumstances that may accrue to the benefit of the Company.
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock by the Selling Stockholders.
DESCRIPTION OF DIVIDEND WARRANTS
The Company issued the Warrants pursuant to a Warrant Agreement between
the Company and Continental Stock Transfer and Trust Company, Inc. (the "Warrant
Agent"). Each record holder of Common Stock as of May 26, 2000 received a
special dividend from the Company of one Warrant for each share of Common Stock
owned by the record holder.
Each Warrant entitles the registered holder to purchase from the
Company, for cash, one share of Common Stock at $5.00 per share. The number of
shares purchasable upon exercise of each Warrant and price per share may be
adjusted under certain conditions.
Holders may exercise the Warrants at any time on or before May 26,
2005, unless extended by the Company. The Warrants are callable and cancelable
at a cancellation price of $.10 per share of Common Stock purchasable upon
exercise of the Warrants (the "Cancellation Price"). If the Company calls the
Warrants for cancellation, holders may exercise the Warrants at any time prior
to the close of business on the business day preceding the date fixed for
cancellation.
DESCRIPTION OF NOTES
The Notes were sold to certain officers and directors of the Company
and certain other third parties not affiliated with the Company (the "Note
Holders") pursuant to a Purchase Agreement between the Company and the Note
Holders (the "Purchase Agreement"), dated as of February 29, 2000. The Company
and the Note Holders also executed a Subordination Agreement with Chase Bank of
Texas, National Association (the "Subordination Agreement"), subordinating the
indebtedness represented by the Notes to the prior payment in full of all Senior
Indebtedness.
The Notes were general obligations of ours limited to $2,235,000 in
aggregate principal amount, and bore an interest rate equal to the Prime Rate
plus 2 1/2 percentage points. The Notes were convertible at $3.30 per share.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND CAUTIONARY
WARNINGS BEFORE INVESTING IN THE COMMON STOCK OFFERED IN THIS PROSPECTUS. THE
FOLLOWING RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES FACING THE COMPANY.
THERE ARE ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE EITHER UNAWARE OF OR
THAT WE CURRENTLY THINK ARE IMMATERIAL; HOWEVER, THESE RISKS AND UNCERTAINTIES
MAY ALSO IMPAIR THE COMPANY'S BUSINESS OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION, OR RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED.
IN SUCH CASE, THE TRADING PRICE OF THE COMMON STOCK COULD DECLINE, AND INVESTORS
COULD LOSE ALL OR PART OF ANY INVESTMENT IN THE COMMON STOCK.
YOU SHOULD ALSO REFER TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS, INCLUDING THE COMPANY'S FINANCIAL STATEMENTS AND THE RELATED NOTES.
LIMITED OPERATING HISTORY:
We have a limited operating history upon which to base an evaluation of
the Company and its prospects.
Collegiate Pacific only recently entered into the catalog and
mail-order distribution of sporting goods, and it incurred losses of
approximately $482,000 and $31,000 for fiscal 2000 and fiscal 1999,
respectively, and losses of approximately $424,000 and $673,000 for the six
months ended December 31, 2000 and 1999, respectively.
Our prospects must be considered in light of the risks, expenses, and
difficulties frequently encountered by start-up companies in the marketing
industry. To address these risks, we must, among other things:
o effectively develop new relationships and maintain existing
relationships with our suppliers, advertisers and customers;
o provide products at competitive prices;
o respond to competitive developments; and
o attract, retain, and motivate qualified personnel.
We cannot assure you that we will succeed in addressing such risks. Our
failure to do so could have a material adverse effect on the Company's business,
financial condition, or results of operations.
In addition, our limited operating history makes it difficult or
impossible to predict future operating results. We cannot give you any assurance
that our revenues will increase or even continue at their current level, or that
we will attain profitability or generate cash from operations in the future.
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COMPETITION
The sporting goods and related equipment market in which we participate
is highly competitive and it is without a significant barrier to entry.
We compete principally in the institutional market with local sporting
goods dealers and other direct mail companies. Most of our direct mail
competitors have:
o substantially greater financial resources;
o a larger customer base; and
o greater name recognition within the industry.
In addition, our competitors may have larger technical, sales, and marketing
resources.
We compete on a number of factors, including price, relationships with
customers, name recognition, product availability, and quality of service. We
cannot give you any assurance that we will compete successfully against our
competitors in the future. If we fail to compete successfully, our business,
financial condition, and results of operations will be materially and adversely
affected.
RAW MATERIALS
The general economic conditions in the U.S. or international countries
with which we do business could affect pricing of raw materials such as metals
and other commodities used by suppliers of our finished goods. We cannot assure
you that any price increase incurred by the Company for its products can be
passed to its customers without adversely affecting the Company's operating
results.
ACCOUNTS RECEIVABLE
We monitor the credit worthiness of our customer base on an ongoing
basis, and we have not experienced an abnormal increase in losses in our
accounts receivable portfolio. We believe that allowances for losses adequately
reflect the risk of loss. However, a change in the economic condition or in the
make-up of our customer base could have an adverse affect on losses associated
with the credit terms the we give to our customers.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control.
We anticipate that our revenues will peak in the third and fourth
quarters of each fiscal year due primarily to the budgeting procedures of many
of our customers and the seasonal demand for the products. The first and second
quarters generally experience lower revenues and higher expenses as a percentage
of sales due to lessening customer demand because of decreased sports
activities, adverse weather conditions inhibiting customer demand, holiday
seasons, and school recesses. Therefore, we do not believe that
quarter-to-quarter comparisons of operating results for preceding quarters are
necessarily meaningful. You should not rely on the results of one quarter as an
indication of our future performance.
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MANAGING POTENTIAL GROWTH
We experienced a period of significant growth, and our continued
expansion may significantly strain our management, financial, and other
resources. We believe that improvements in management and operational controls,
and operational, financial and management information systems could be needed to
manage future growth. We cannot assure you that:
o these resources will be available or in a cost-effective form
to the Company which will allow it to sustain growth at the
same levels;
o our current personnel, systems, procedures, and controls will
be adequate to support our future operations;
o we will identify, hire, train, motivate, or manage required
personnel; or
o that we will successfully identify and exploit existing and
potential market opportunities.
Our failure to have these resources in sufficient form or quantity
during a period of significant growth could have an adverse affect on our
operating results.
FUTURE CAPITAL REQUIREMENTS
Our cash flow from existing operations may not support an expansion of
operations or future acquisitions. We incurred losses of approximately $482
thousand and $31 thousand for fiscal 2000 and fiscal 1999, respectively. We
funded our operations primarily from the sale of stock to Michael Blumenfeld and
others in February and March of 1998 and with working capital loans from Mr.
Blumenfeld. In addition, on September 14, 1999, we obtained a $2 million
revolving line of credit from Chase Bank of Texas, N.A. On February 29, 2000, we
received approximately $1.2 million in cash from the sale of the Notes. We may
need to seek additional third-party financing to raise additional capital needed
to support any future growth.
We cannot give you any assurance that such additional funding will be
available on acceptable terms, if at all. If we cannot obtain adequate funds
from third parties we may have to forego strategic decisions or delay, scale
back, or eliminate certain aspects of our operations. This could have a material
adverse effect on our business, financial condition, and results of operations.
DEPENDENCE ON KEY PERSONNEL
Our performance is substantially dependent on the skills, experience,
and performance of its Chief Executive Officer, Michael J. Blumenfeld, as well
as our ability to retain and motivate other officers and key employees, certain
of whom would be difficult to replace. The Company does not have an employment
agreement with Mr. Blumenfeld.
The loss of services of certain of these executives and personnel could
have a material adverse effect on the Company. We cannot assure you that the
services of our personnel will continue to be available to us. In addition, we
believe that our success in attracting and retaining additional qualified
employees, and our failure to recruit such skilled personnel as needed, could
have a material adverse effect on the Company.
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RISKS RELATED TO INTERNATIONAL SUPPLIERS
A significant amount of our revenues depends upon products purchased
from foreign suppliers, located primarily in the Far East. In addition, we
believe that many of the products we purchase from our domestic suppliers are
manufactured overseas.
Accordingly, we are subject to the risks of this international
component, including:
o shipment delays;
o fluctuation in exchange rates;
o increases in import duties;
o changes in customs regulations;
o adverse economic conditions in foreign countries; and
o political turmoil.
The occurrence of any one or more of the foregoing could materially and
adversely affect our business, financial condition, and results of operations.
RELIANCE ON THIRD PARTY CARRIERS
Our operations depend upon third party carriers to deliver our catalogs
and products to our customers. We ship our products using common carriers,
primarily UPS. The operations of such carriers are outside the Company's
control. Accordingly, our business reputation and operations are subject to many
risks, including:
o shipment delays caused by such carriers;
o labor strikes by the employees of such carriers;
o increases in delivery cost, postage rate increases; and
o other adverse economic conditions.
The occurrence of any one or more of the foregoing could adversely
affect our business, financial condition, and results of operations due to an
inability to make timely shipment to our customers or by utilizing other more
costly carriers or means of shipping.
CONTROL BY MAJOR STOCKHOLDER
Michael J. Blumenfeld, Chairman and Chief Executive Officer of
Collegiate Pacific, currently owns 2,184,707 shares or 51.5% of our Common
Stock, and holds options and Warrants convertible into 2,170,607 shares of the
Company's outstanding Common Stock. As a result, Mr. Blumenfeld has the power to
initiate or block corporate actions such as an amendment to the Company's
Certificate of Incorporation, the consummation of any merger, or the sale of all
or substantially all of the assets of the
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Company. In addition, Mr. Blumenfeld may control the election of directors and
any other action requiring stockholder approval.
VOLATILITY OF STOCK PRICE
The price of the Common Stock is determined in the marketplace and may
be influenced by many factors, including:
o the depth and liquidity of the market for the Common Stock;
o investor perception of the Company and the industry within
which it competes;
o quarterly variations in operating results; and
o general economic and market conditions.
Historically, the weekly trading volume of the Common Stock has been
relatively small. Any material increase in public float could have a significant
impact on the price of the Common Stock. In addition, the stock market has
occasionally experienced extreme price and volume fluctuations that often
affected market prices for smaller companies. These extreme price and volume
fluctuations often are unrelated or disproportionate to the operating
performance of the affected companies. Accordingly, the price of the Common
Stock could be affected by such fluctuations.
OUTSTANDING STOCK OPTIONS
Outstanding options may have an effect on the price of our securities.
There are 5,000 options, each to purchase one share of our Common Stock, issued
by DSSI Corporation under the Drug Screening Systems, Inc. Stock Option Plan of
1994 that are still outstanding. In addition, we have granted 252,000 options,
each to purchase one share of our Common Stock, to key employees, officers, and
directors under our 1998 Collegiate Pacific Inc. Stock Option Plan. These
outstanding options could have a significant adverse effect on the trading price
of our common stock, especially if a significant volume of the options were
exercised and the stock issued were immediately sold into the public market.
THE EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS COULD HAVE A DILUTIVE EFFECT
As of March 1, 2001, there were outstanding options and warrants held
by shareholders and certain third parties to purchase approximately 4,501,607
shares of Common Stock. The options and warrants have exercise prices ranging
from $1.25 per share to $12.50 per share. The exercise of warrants or options
and the sale of the underlying shares of common stock (or even the potential of
such exercise or sale) could have a negative effect on the market price of our
common stock, and will have a dilutive impact on other shareholders.
If we attempt to raise additional capital through the issuance of
equity or convertible debt securities, the terms upon which we will be able to
obtain additional equity capital, if at all, may be negatively affected since
the holders of outstanding warrants and options can be expected to exercise
them, to the extent they are able, at a time when we would, in all likelihood,
be able to obtain any needed capital on terms more favorable than those provided
in such warrants or options.
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DEPENDENCE OF WARRANT HOLDERS ON MAINTENANCE OF CURRENT REGISTRATION STATEMENT;
POSSIBLE LOSS OF VALUE OF WARRANTS.
Before exercising the Warrants, a current registration statement (or an
exemption therefrom) must be in effect with the Commission and with the various
state securities authorities in the states where Warrant holders reside. We
intend to keep effective a registration statement covering the Warrants and the
underlying Shares while the Warrants are exercisable. However, we expect to
incur substantial continuing expenses for legal and accounting fees in doing so.
There can be no assurance that we will be able to maintain a current
registration statement while the Warrants are exercisable. Our inability to
maintain an effective registration statement and qualification in appropriate
states (or exemptions therefrom) covering the underlying shares would render the
Warrants unexercisable and may deprive them of all or a portion of their value.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS.
We may redeem each Warrant at $.10 per Warrant after the occurrence of
certain preconditions. Redemption of the Warrants could force the Warrant
holders to exercise the Warrants at a time when it may be disadvantageous for
the holders to do so or to sell the Warrants at their then current market price
when the holders might otherwise wish to hold the Warrants for possible
appreciation. Any holders who do not exercise warrants prior to their expiration
or redemption, as the case may be, will forfeit the right to purchase the shares
of Common Stock underlying the Warrants. See "Description of Securities - Common
Stock Purchase Warrants."
THE COMPANY
BUSINESS
The Company was originally incorporated in Pennsylvania in 1987. From
August 1989 to June 16, 1997, the Company developed and marketed drug testing
products under the name of Drug Screening Systems, Inc. On June 16, 1997, the
Company sold substantially all of its assets, changed its name to DSSI
Corporation, and thereafter had no formal operations.
On February 17, 1998, the Company's stockholders authorized the Company
to enter into the business of distributing sports equipment. This change in our
business was accomplished through the following steps:
o the Company sold 2,000,000 shares of Common Stock, a
controlling interest in the Company. The price of the shares
was $1.00 per share, which was the average of the bid and ask
price of the Common Stock on August 18, 1997, the date of the
Stock Purchase Agreement, or a total price of $2 million.
Michael J. Blumenfeld purchased 1,960,000 shares, and Adam
Blumenfeld purchased 40,000 shares;
o Michael J. Blumenfeld sold all of the assets, including the
corporate name, of Collegiate Pacific Inc. f/k/a Nitro Sports
Inc., a Texas corporation, to the Company, at cost. Mr.
Blumenfeld formed that company in 1997 to engage in the
catalog and mail order distribution of sports equipment; and
o the Company changed its name to Collegiate Pacific Inc. at
that time.
We then entered into exclusive distribution agreements with the
following companies:
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o Equipmart, Inc., a manufacturer of rollers and component parts
for the tennis industry, on February 24, 1998;
o FunNets, Inc., a manufacturer of plastic frames and nets used
as soccer goals and other related purposes, on March 7, 1998;
o Edwards Sports Products Limited, a manufacturer of tennis nets
and court equipment, on February 7, 2000.
On April 14, 1998, the Company acquired Product Merchandising, Inc., a
mail order distribution company that distributes products and equipment for
summer camps.
On May 31, 1998, we merged with Vantage Products International, Inc., a
distributor of baseball netting and other related baseball products.
On December 11, 1998, the Company's stockholders approved the
reincorporation of the Company from the Commonwealth of Pennsylvania to the
State of Delaware, pursuant to a merger agreement with a newly formed Delaware
corporation. The merger and reincorporation as a Delaware corporation was
effective on July 21, 1999.
On September 14, 1999, we obtained a $2 million revolving line of
credit from Chase Bank of Texas, N.A. We may need to seek additional third-party
financing to raise additional capital needed to support any future growth.
On October 25, 1999, we acquired certain assets of Mark One Inc., a
distributor of camping and sporting good related equipment as well as numerous
items for the recreation, military and municipal markets.
On January 14, 2000, our shareholders approved an amendment to the
Company's Articles of Incorporation authorizing a one-for-five reverse stock
split, which became effective on January 19, 2000.
On February 7, 2000, we obtained licensing and distribution agreements
with the Edwards Sports Company, a manufacturer of tennis nets and court
equipment.
On February 29, 2000, we issued $2,235,000 of Subordinated Convertible
Promissory Notes to certain officers and directors of the Company and certain
third parties. Approximately $995,000 of such Notes were issued in exchange for
an equal amount of subordinated notes held by Michael J. Blumenfeld. The
remaining Notes were sold for approximately $1.4 million in cash. We are using
the cash proceeds to repay our outstanding commercial bank debt, to expand
working capital, and to finance stock repurchases.
On April 19, 2000, all of the Note Holders converted their Notes into
677,267 shares of Common Stock.
On September 7, 2000, we acquired Kesmil Manufacturing, Inc., a
manufacturer of a broad line of athletic equipment.
On June 8, 2000, the General Services Administration awarded a
long-term contract to us for the supply of sports and recreational products to
federal and military locations throughout the world. The contract includes a
most favored vendor provision which provides that all products sold by the
Company to the GSA must be at a price equal to or less than the price charged by
the Company to its other customers. Sales by the Company to the GSA during
Fiscal Year 2000 were not material.
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We are in the business of the mail order marketing of sports equipment.
We sell our products primarily to institutional customers located throughout the
United States. Our principal customers include country clubs, schools, YMCAs,
YWCAs and similar recreational organizations, municipal recreation departments,
and other governmental agencies. We offer a broad line of sporting equipment,
including inflatable balls, nets for various sports, standards and goals for
sports, weight lifting equipment, and other recreational products, and we also
provide after-sale customer service through toll-free numbers.
We believe that prompt delivery of a broad range of products at
competitive prices, coupled with prompt, accessible customer service,
distinguishes Collegiate Pacific from its competitors. We currently market about
3,000 sports and recreational related equipment and products to over 200,000
potential institutional, retail, Internet, and sporting good dealer type
customers. Since commencing operations, we have sold products to approximately
25,000 customers.
Our master mailing list currently includes over 200,000 potential
customers, and we intend to distribute approximately 750,000 catalogs and fliers
to this audience during fiscal 2001. Michael Blumenfeld, the Chief Executive
Officer of the Company with 25 years of experience in the industry, supervised
the development of this mailing list, and it is carefully maintained, screened,
and cross-checked. We subdivided this mailing list into various combinations
designed to place catalogs in the hands of the individuals making the purchase
decisions. The master mailing list is also subdivided by relevant product types,
seasons, and customer profiles. We also use other forms of solicitations such as
trade shows, telemarketing, broadcast fax programs, and the Internet.
Our revenues are not dependent upon any one or a few major customers.
Our institutional customers typically receive annual appropriations for sports
related equipment, which are generally spent in the period preceding the season
in which the sport or athletic activity occurs. While institutions are subject
to budget constraints, once allocations have been made, aggregate levels of
expenditures are typically not reduced.
We derive a significant portion of our revenues from the sale of
products purchased directly from suppliers in the Far East. Accordingly, we are
subject to the risks of this international component that may affect our ability
to deliver products in a timely and competitive manner. These risks include:
o shipment delays;
o fluctuation in exchange rates;
o increases in import duties;
o changes in customs regulations;
o adverse economic conditions in foreign countries; and
o political turmoil.
As a result, we attempt to maintain a three to six week supply of
critical inventory items in stock. Although the vast majority of products we
distribute are purchased in final form, a small percentage of the items require
minor fabrication to complete. We have welding machines and an assortment of
tools to aid in this fabrication process. The raw materials used in this process
are in the form of shipping supplies,
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nuts and bolts, and other commercially available products. We believe there are
multiple suppliers for these products nationwide.
SEASONAL NATURE OF BUSINESS
We anticipate that our revenues will peak in the third and fourth
quarters of each fiscal year due primarily to the budgeting procedures of many
of our customers and the seasonal demand for our products. The first and second
quarters generally experience lower revenues and higher expenses as a percentage
of sales due to lessening customer demand because of decreased sports
activities, adverse weather conditions inhibiting customer demand, holiday
seasons, and school recesses.
COMPETITION
We compete principally in the institutional market with local sporting
goods dealers and other direct mail companies, which collectively dominate the
institutional market. We compete on a number of factors, including price,
relationships with customers, name recognition, product availability, and
quality of service. We believe that we have an advantage on the institutional
market over traditional sporting goods retailers because our selling prices do
not include comparable price markups attributable to wholesalers, manufacturers,
and distributors. In addition, we believe that we have an advantage over other
direct mail marketers of sporting goods because we offer superior products,
coupled with prompt and accessible service, at the most competitive prices.
EMPLOYEES
We currently employ 40 people on a full-time basis. In addition, we may
hire temporary employees as seasonal increases in demand occur. None of our
employees are represented by a union, and we believe our relations with our
employees are good.
PROPERTIES
We lease our corporate headquarters and a warehouse facility located in
Farmers Branch, Texas, with approximately 30,000 square feet. The lease for this
facility expires in August 2002. The Company also leases a sales office in
Memphis, Tennessee, with approximately 4,000 square feet. The lease for this
facility expires in 2005. We believe that these facilities will be adequate for
our business needs for the foreseeable future. We do not own any real property.
LEGAL PROCEEDINGS
None.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are:
POSITIONS AND OFFICES HELD
NAME AGE WITH THE COMPANY
- --------------------- ---- ----------------------------------------
Michael J. Blumenfeld 54 Chairman of the Board and Chief Executive Officer
Adam Blumenfeld 30 President and Director
Arthur J. Coerver 58 Chief Operating Officer and Director
Harvey Rothenberg 59 Vice President Marketing and Director
William R. Estill 52 Chief Financial Officer, Secretary and Treasurer
Chad H. Edlein 30 Vice President Corporate Development
Jeff Davidowitz 44 Director
William A. Watkins, Jr 57 Director
Robert W. Hampton 53 Director
Michael J. Blumenfeld has served as the Company's Chairman of the Board
and Chief Executive Officer since February 1998. Mr. Blumenfeld served as
President of the Company from February 1998 to January 2000. From July 1997
until February 1998, Mr. Blumenfeld served as President and Chief Executive
Officer of Collegiate Pacific, Inc., a Texas corporation, that sold all of its
assets to the Company in February 1998. From 1992 until November 1996, Mr.
Blumenfeld served as Chairman of the Board and Chief Executive Officer of Sport
Supply Group, Inc., a New York Stock Exchange company engaged in the direct mail
marketing of sports related equipment. Mr. Blumenfeld is Adam Blumenfeld's
father.
Adam Blumenfeld is the Company's President and has served in that
capacity since joining the Company in January 2000. Mr. Blumenfeld is also a
member of the Company's Board of Directors. From January 1998 through 1999, Mr.
Blumenfeld was Vice President of Sales and Marketing of Sport Supply Group,
Inc., a New York Stock Exchange company engaged in the direct mail marketing of
sports related equipment. Mr. Blumenfeld's other positions with Sport Supply
Group included Vice President of Youth Sales from January 1995 to January 1998,
and Director of Youth Sales from August 1993 to December 1994. Mr. Blumenfeld is
Michael Blumenfeld's son.
Arthur J. Coerver is the Company's Chief Operating Officer and has
served in that capacity since joining the Company in February 1998. From 1991
through 1997, Mr. Coerver was Vice President of Sales and Marketing of Sport
Supply Group, Inc., a New York Stock Exchange company engaged in the direct mail
marketing of sports related equipment. Mr. Coerver is also a member of the
Company's Board of Directors.
Harvey Rothenberg has served as the Company's Vice President of
Marketing and served in that capacity since February 1998. From 1977 to 1998,
Mr. Rothenberg served as Vice President of Sales for Sport Supply Group, Inc., a
New York Stock Exchange company engaged in the direct mail marketing of sports
related equipment. Mr. Rothenberg is also a member of the Company's Board of
Directors.
William R. Estill joined the Company in July 1999 as Chief Financial
Officer and Treasurer, and has been Secretary since August 1999. From December
1997 until February 1999, Mr. Estill served as Vice President of Finance for
FWT, Inc., a manufacturer of telecommunication structures. From May 1996 to
November 1997, Mr. Estill served as Chief Financial Officer of Bearcom, Inc.
From April 1985 to May 1996, Mr. Estill served as Vice President, Chief
Financial Officer, Secretary and Treasurer for
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Sport Supply Group, Inc., a New York Stock Exchange company engaged in the
direct mail marketing of sports related equipment. Mr. Estill was also a member
of the Board of Directors during his tenure with Sport Supply Group, Inc. Mr.
Estill holds a Bachelor of Business Administration degree in Accounting from the
University of Texas at Arlington and passed the CPA exam in 1983.
Chad H. Edlein joined the Company in July 1997. From 1994 to 1997 Mr.
Edlein served as Marketing Manager for Sport Supply Group, Inc., a New York
Stock Exchange company engaged in the direct mail marketing of sports related
equipment.
Jeff Davidowitz is the President of Penn Footwear, a private investment
company, since January 1, 1991. Prior to that, Mr. Davidowitz was Vice President
of Penn Footwear. Mr. Davidowitz is also a member of the Company's Board of
Directors and serves on its Audit and Stock Option Committees.
William A. Watkins, Jr. is a partner in the public accounting firm of
Watkins, Watkins and Keenan, a certified public accounting firm, since December
1971. Mr. Watkins is also a member of the Company's Board of Directors and
serves on its Audit and Stock Option Committees.
Robert W. Hampton is a director and the President of Jones Financial
Group, Ltd. Since 1985, Mr. Hampton has held various executive positions at
Jones International, Ltd., a holding company whose subsidiaries, including Jones
Financial Group, Ltd., conduct business in several areas including cable
television programming, radio programming, advertising sales representation,
education and software development. Prior to joining Jones International, Ltd.,
Mr. Hampton held various management positions at Xerox Corporation. Mr. Hampton
is also a member of the Company's Board of Directors and serves on its Audit
Committee.
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EXECUTIVE COMPENSATION
The following table summarizes the total compensation, for each of the
last three fiscal years, for Mr. Michael Blumenfeld and the only other executive
officer who earned over $100,000 and who was serving as an executive officer at
the end of fiscal 2000.
SECURITIES
RESTRICTED UNDER-
STOCK LYING
NAME AND PRINCIPAL SALARY AWARD(S) OPTIONS
POSITION YEAR ($) ($) (#)
- --------------------------- ---- --------- --------- ----------
Michael J. Blumenfeld 2000 96,517 -- --
Chairman and Chief 1999 78,000 -- --
Executive Officer 1998 78,000 93,750 10,000
Arthur J. Coerver 2000 108,223 -- --
Chief Operating Officer 1999 108,000 46,875 5,000
1998 112,500 -- --
DIRECTOR COMPENSATION
Directors receive $7,500 per year for their service on the Board of
Directors or any committee of the Board of Directors. Directors are reimbursed
for their reasonable out-of-pocket expenses associated with attending Board of
Directors and committee meetings.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of shares of Common Stock as of March 1,
2001 for:
o all persons who are beneficial owners of 5% or more of the
Company's Common Stock;
o each director and nominee for director;
o the Company's Chief Executive Officer and the other Named
Executive Officer in the Summary Compensation Table above; and
o All executive officers and directors as a group.
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TOTAL AS A
OPTIONS/WARRANTS PERCENTAGE OF
NUMBER OF EXERCISABLE TOTAL SHARES
SHARES WITHIN 60 BENEFICIAL OUTSTANDING
BENEFICIAL OWNER OWNED DAYS OWNERSHIP (IF 1% OR MORE)(a)
------------ ---------------- ------------ ------------------
Michael J. Blumenfeld 2,184,707 2,170,607 4,355,314 67.9%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Adam Blumenfeld 243,600 263,600 507,200 10.8%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Jeff Davidowitz 142,302(b) 155,802(b) 298,104 6.8%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
William A. Watkins, Jr 42,803(c) 46,303(c) 89,106 2.0%
Arthur J. Coerver 37,790(d) 62,790(d) 100,580 1.9%
Harvey Rothenberg 18,432(e) 42,432(e) 60,864 1.4%
Chadd Edlein 14,000 35,500 49,500 --
William R. Estill -- 20,000 20,000 --
Directors and executive
officers as a group (8 persons) 2,683,634 2,797,034 5,480,668 77.8%
(a) - Based on the number of shares outstanding (4,244,607) at the close of
business on December 29, 2000.
(b) - Includes (i) 34,751 shares and 34,751 shares issuable upon exercise of
a warrant held by Penn Footwear Retirement Trust of which Mr.
Davidowitz is a trustee, (ii) 67,551 shares and 67,551 shares issuable
upon exercise of a warrant held by JIBS Equities of which Mr.
Davidowitz is a general partner, (iii) 9,000 shares and 9,000 shares
issuable upon exercise of a warrant held by Penn Footwear of which Mr.
Davidowitz is President and a shareholder, (iv) 4,000 shares and 14,000
shares issuable upon exercise of a warrant held by Oldfield Company of
which Mr. Davidowitz is President and a shareholder, (v) 10,000 shares
and 10,000 shares issuable upon exercise of a warrant held by DVD
Partners of which Mr. Davidowitz is a general partner, and (vi) 10,000
shares and 10,000 shares issuable upon exercise of a warrant held by 3D
Partners of which Mr. Davidowitz is general partner.
(c) - Includes 30,303 shares held in trust for the benefit of Mr. Watkins and
30,303 shares issuable upon exercise of a warrant held in trust for the
benefit of Mr. Watkins.
(d) - Includes (i) 6,060 shares held in trust for the benefit of Mr.
Coerver, (ii) 1,212 shares held in trust for the benefit of Mr.
Coerver's spouse, (iii) 6,060 shares issuable upon exercise of a
warrant held in trust for the benefit of Mr. Coerver, and (iv) 1,212
shares issuable upon exercise of a warrant held in trust for the
benefit of Mr. Coerver.
(e) - Includes (i) 1,687 shares held in trust for the benefit of Mr.
Rothenberg's child, (ii) 3,030 shares held in trust for the benefit of
Mr. Rothenberg, (iii) 1,000 shares issuable upon exercise of a warrant
held by Mr. Rothenberg's spouse, and (iv) 3,030 shares issuable upon
exercise of a warrant held in trust for the benefit of Mr. Rothenberg.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 17, 1998, the Company sold 1,960,000 shares of Common Stock
to Michael J. Blumenfeld and 40,000 shares to Adam Blumenfeld for $1.00 per
share, or an aggregate purchase price of
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$2,000,000, in cash, pursuant to the Stock Purchase Agreement dated August 18,
1997 by and between the Company and Michael and Adam Blumenfeld. Adam Blumenfeld
is the son of Mr. Blumenfeld. Mr. Blumenfeld was not an officer or director of
the Company at the time of the execution of the Stock Purchase Agreement. The
consideration paid by Mr. Blumenfeld for the Common Stock was based on the
average of the high and low bid price of the Common Stock as reported by the
NASD on August 18, 1997, the date of the Stock Purchase Agreement.
Also on February 17, 1998, in connection with the Stock Purchase
Agreement, the Company sold:
o 20,000 shares of Common Stock to Arthur J. Coerver; and
o 13,500 shares of Common Stock to William A. Watkins, Jr.
These shares were sold at $1.00 per share, and Messrs. Coerver, Philip
and Watkins became directors of the Company upon consummation of the Stock
Purchase Agreement.
Since April 14, 1997, Michael J. Blumenfeld has made loans, net of
repayments, to the Company in an aggregate amount approximating $755,000. These
loans were payable on demand and bore interest at the rate of 12% per annum. On
February 1, 2000, the aggregate outstanding amount under the note payable was
$994,307, and pursuant to the Purchase Agreement, Mr. Blumenfeld exchanged his
outstanding loans for an equal amount of Notes.
In February 2000, the Company issued $2,235,000 of Notes to certain
officers and directors of the Company and certain third parties. Approximately
$995,000 of the Notes were issued to Michael J. Blumenfeld in exchange for an
equal amount of subordinated notes originally issued to Mr. Blumenfeld in
exchange for cash. The remaining notes were issued in exchange for cash in the
amount of approximately $1.4 million. In April 2000, all of the note holders
converted the outstanding balance under the Notes into shares of Common Stock at
a conversion price of $3.30 per share, resulting in the issuance of 677,267
shares of Common Stock.
The following table sets forth the principal amount of the notes and
the number of shares the notes were converted into by each officer and director
of the Company.
NUMBER OF SHARES
ISSUED UPON
PRINCIPAL AMOUNT CONVERSION
NAME OF NOTE HOLDER OF NOTE($) OF NOTE
------------------- ---------------- ----------------
Michael J. Blumenfeld 1,500,000 454,545
William A. Watkins, Jr. 100,000 30,303
Arthur J. Coerver 50,000 15,151
Jeff Davidowitz 150,000 45,455
Harvey Rothenberg 15,000 4,545
On September 7, 2000, the Company acquired the stock of Kesmil
Manufacturing, Inc., a manufacturing company owned by Michael J. Blumenfeld, the
majority stockholder and Chief Executive Officer of the Company, for the
assumption of approximately $581 thousand in notes payable to the stockholder.
The Company is the sole customer of the acquired company and the acquisition
was accounted for similar to a pooling of interest. During fiscal 2000, the
Company purchased approximately $1.0 million of certain inventory items from
Kesmil.
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MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET
The Common Stock trades on the American Stock Exchange under the symbol
"BOO" and the Warrants trade on the American Stock Exchange under the symbol
"BOO/WS." Prior to June 7, 2000, the Common Stock traded on the NASD's Bulletin
Board. The Warrants did not trade until May 2000.
The tables below set forth the high and low sales prices for the Common
Stock and the Warrants during each of the periods indicated, as reported on the
American Stock Exchange, and the range of the high and low bid information for
the Common Stock, as reported by the NASD, prior to June 7, 2000. The price
quotation in NASD reflect interdealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.
COMMON STOCK 2001 SALES PRICES 2000 SALES PRICES 1999 SALES PRICES
------------ ----------------- ----------------- -----------------
CALENDAR PERIOD LOW($) HIGH($) LOW($) HIGH($) LOW($) HIGH($)
--------------- ------ ------- ------ ------- ------ --------
July 1-September 30 $6.00 $9.75 9.38 14.38 8.13 10.63
October 1 - December 31 -- -- 4.38 11.88 8.13 11.25
January 1 - March 31 -- -- 3.00 14.75 8.13 12.20
April 1 - June 30 -- -- 10.13 14.00 8.75 13.45
WARRANTS 2001 SALES PRICES 2001 SALES PRICES
-------- ----------------- -----------------
CALENDAR PERIOD LOW($) HIGH($) LOW($) HIGH($)
--------------- ------ ------- ------ -------
July 1 - September 30 .60 .75 -- --
May 26 - June 30 -- -- 1.25 3.25
On January 14, 2000, our shareholders approved an amendment to the
Company's Certificate of Incorporation authorizing a one-for-five reverse stock
split, which became effective on January 19, 2000. The prices set forth in the
foregoing tables have been adjusted to take into account the reverse stock
split.
HOLDERS
As of March 1, 2001, there were approximately 358 holders of record of
Common Stock, and there were 4,244,607 shares of Common Stock issued and
outstanding.
DIVIDENDS
The Company did not declare or pay any cash or stock dividends on the
Common Stock during fiscal 2000. On May 26, 2000, each record holder of Common
Stock received a special dividend from the Company of one warrant for each share
of Common Stock owned by the record holder. The Company issued the warrants
pursuant to a warrant agreement between the Company and Continental Stock
Transfer and Trust Company, Inc. The Company currently does not anticipate
paying any cash dividends in the foreseeable future. Any future determination to
pay dividends will be at the discretion of the Company's Board of Directors and
will be dependent upon then existing conditions, including the Company's
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects, and such other factors as the Board deems
relevant.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was originally incorporated in Pennsylvania in 1987. From
August 1989 to June 16, 1997, the Company developed and marketed drug testing
products under the name of Drug Screening Systems, Inc. On June 16, 1997, the
Company sold substantially all of its assets, changed its name to DSSI
Corporation and thereafter had no formal operations.
Michael J. Blumenfeld formed Collegiate Pacific Inc. as a Texas
corporation on April 10, 1997. That company was originally named Nitro Sports
Inc. and it began business during the latter part of June 1997. Effective
February 7, 1998, Collegiate Pacific Inc. entered into a reverse acquisition
agreement with DSSI Corporation, which was then a publicly held shell
corporation.
On April 14, 1998, we acquired all of the issued and outstanding common
stock of Product Merchandising, Inc. We accounted for this transaction as a
purchase and, accordingly, the results and operations of this entity were
included in the Company's results of operations commencing on April 14, 1998.
The Company also acquired Vantage Products International, Inc. on May 31, 1998
by issuing common stock for all of the issued outstanding common stock of that
entity. We accounted for this acquisition as a pooling of interests and,
accordingly, the results of operations of the Company include the results of
operations of the pooled entity for the entire fiscal year.
We solicit customers from a variety of catalogs designed for specific
uses, including summer camps, baseball, and general sports and recreation, and
we distributed approximately 750,000 catalogs to current and prospective
customers during fiscal 2000. After the end of fiscal 1999, the Company entered
into a supply agreement with the General Services Administration of the federal
government to furnish certain products to government agencies. There were no
sales to any federal government agencies in fiscal 1999, and sales to those
agencies in fiscal 2000 and in fiscal 2001 as of September 30, 2001, were
immaterial. We also solicit customers through trade shows, road salesmen,
broadcast fax programs, telemarketing, and the Internet.
The Company's fiscal year ends on June 30th. References herein to
"fiscal 1998," "fiscal 1999," "fiscal 2000" and "fiscal 2001" refer to our
fiscal years ended June 30, 1998, 1999, 2000 and 2001, respectively.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE AND SIX MONTHS ENDED DECEMBER
31, 2000 AND 1999
NET SALES
The Company's net sales and earnings are seasonal in nature.
Historically, the Company has reported lower revenues and earnings in the first
and second fiscal quarters. Net sales and earnings reported by the Company in
the second fiscal quarter have been generally lower than those in other fiscal
quarters because many of the Company's primary customers are closed for the
year-end holidays. Other factors, such as poor weather, could negatively impact
demand for the Company's products. Management believes that if sales continue to
increase at historical levels and, as the Company makes changes to its product
mix, the historical seasonal nature of the Company's sales and earnings will be
diminished.
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Net sales for the three months ended December 31, 2000 increased by
approximately $600 thousand, or 40%, compared to the same period in 1999.
Net sales for the six months ended December 31, 2000 increased by approximately
$1.4 million, or 40%, compared to the same period in 1999. The Company
attributes the growth in its sales for both periods to its aggressive
marketing activities, the expansion of its product offerings, an increase in
dealer related sales, and the overall growth of its customer base. As a
result of the Company's expanded operations and marketing activities, the
Company believes future sales will continue to exhibit growth from current
levels. Management believes the seasonality in its sales will continue to be
a factor in future periods, but not to the same extent if the Company's sales
continue to rise at current rates.
During the three-month period ended December 31, 2000, the Company,
pursuant to Emerging Issues Task Force Issue 2000-10, began classifying freight
charges billed to customers as sales and the related costs as part of the
Company's cost of sales. The net amount of these sales and associated costs
were previously included as part of the Company's selling, general and
administrative expenses. All prior periods have been restated to reflect this
change.
GROSS MARGIN
Gross margin for the three months ended December 31, 2000, increased by
approximately $215 thousand, or 50%, compared to the same period in 1999. As a
percentage of sales, gross margin for the three months ended December 31, 2000,
increased to 30%, compared to 28% for the same period in 1999. Gross margin for
the six months ended December 31, 2000 increased by approximately $658 thousand,
or 72%, compared to the same period in 1999. As a percentage of sales, gross
margin for the six months ended December 31, 2000, increased to 32%, compared to
26% for the same period in 1999. The increase for both periods was the result of
better absorption of the Company's manufacturing costs, and a decrease in
freight costs during the periods.
OPERATING EXPENSES
Selling, general and administrative (SG&A) expenses for the three
months ended December 31, 2000 increased by approximately $217 thousand, or 29%,
compared to the same period in 1999. As a percentage of sales, SG&A expenses for
the three months ended December 31, 2000, decreased to 44% from 48% for the same
period in 1999. SG&A expenses for the six months ended December 31, 2000
increased by approximately $447 thousand, or 30%, compared to the same period in
1999. As a percentage of sales, SG&A expenses for the six months ended December
31, 2000, decreased to 40% from 43% for the same period in 1999. The increase in
selling, general and administrative expenses was primarily due to an increase in
personnel related costs incurred in connection with hiring additional personnel
to the sales force and managing the increase in sales volume.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled approximately $206 thousand at
December 31, 2000 compared to approximately $781 thousand at June 30, 2000. Cash
used in operations of approximately $1.3 million in the six months ended
December 31, 2000 resulted primarily from the Company's net loss, increases in
inventory of approximately $503 thousand, and in prepaid expenses of
approximately $235 thousand, a decrease in accounts payable of approximately
$343 thousand and a decrease in accrued liabilities of approximately $316
thousand, which was partially offset by a decrease in accounts receivable of
approximately $517 thousand. For the comparable 1999 period, the cash used in
operations of approximately $1.2 million resulted primarily from losses incurred
during the period, increases in inventory and a decrease in accounts payable,
partially offset by a decrease in accounts receivable.
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28
The Company used approximately $185 thousand in cash in investing
activities in the six month period ended December 31, 2000. The primary use of
cash in investing activities was the purchase of treasury shares of
approximately $111 thousand and the purchase of property and equipment of
approximately $89 thousand.
The Company generated approximately $870 thousand from financing
activities for the six months ended December 31, 2000. The cash generated from
financing activities was from borrowings under the revolving line of credit.
Current assets totaled approximately $4.2 million at December 31, 2000,
providing the Company with working capital of approximately $3.0 million.
On January 13, 2001, the Company amended the terms of its $2,000,000
revolving line of credit with The Chase Manhattan Bank. The amendment revised
certain financial covenants to permit the Company to consummate the acquisition
of Kesmil.
Management believes the Company will be able to satisfy its short-term
and long-term liquidity requirements from borrowings under the revolving line of
credit and from cash generated from operations. The Company may experience
periods of higher borrowing under its revolving line of credit due to the
seasonal nature of its business cycle. The Company is actively involved in
seeking expansion through acquisitions and joint ventures, and the success of
such efforts may require additional bank debt, equity financing, or private
financing.
RESULTS OF OPERATIONS - COMPARISON OF THE YEAR ENDED JUNE 30, 2000 TO THE YEAR
ENDED JUNE 30, 1999
Net Sales. Net sales for the twelve months ended June 30, 2000
increased by approximately $3.2 million or 47%, compared to the same period in
1999. The Company attributes the growth in sales primarily to an increase in
catalog sales and dealer-related revenues. We believe that our sales will
continue to rise from current levels in future periods. However, no assurances
can be made that any future increases in sales will be at the same rate. We also
believe that seasonality in sales will continue to be a factor in future periods
as sales during the third and fourth quarters of the Company's fiscal year are
typically higher due to the order pattern of our customer base.
Gross Profit. The Company's gross profit for the twelve months ended
June 30, 2000, increased by approximately $1.1 million or 4.6%, compared to the
same period in 1999. As a percentage of sales, the gross profit decreased to 35%
as compared to 36% for the same period in 1999. The decrease was the result of
lower product selling prices to dealer-related customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the twelve months ended June 30, 2000, increased by
approximately $1.5 million or 67%, compared to the same period in 1999. As a
percentage of sales, selling, general and administrative expenses increased to
approximately 38% from 34%. The increase in selling, general, and administrative
expenses was due primarily to the following:
o an increase in salaries and personnel related cost of
approximately $718 thousand as the Company staffed additional
personnel to manage the increase in the sales volume,
temporarily hired salesman to target the youth team market, as
well as added administrative personnel;
-26-
29
o an increase in advertising and trade show expenses of
approximately $409 thousand due to mailing catalogs to
existing and new customers, an increase in fliers and
promotional literature and increased participation at industry
trade shows;
o an increase in legal, accounting and bank charges of
approximately $78 thousand due to the Company's maintenance of
various trademarks and license agreements, the original
listing fees for the American Stock Exchange, and costs
associated with our new credit facility which we entered into
in fiscal 2000;
o an increase in computer system related expenses of
approximately $77 thousand due to the increased sales activity
and certain system enhancements;
o an increase in amortization expense of approximately $58
thousand due to the amortization of certain expenses
associated with license agreements entered into by the Company
in fiscal 2000 and fiscal 1999; and
o an increase in office related expense of approximately $27
thousand due to the increased sales activity.
Operating Profit. Operating profit decreased by approximately $434
thousand for the twelve-month period ended June 30, 2000, compared to the
twelve-month period ended June 30, 1999. As a percentage of net sales, the
operating profit decreased to approximately a 3% loss compared to a 2% operating
profit for the twelve-months ended June 30, 1999. The decrease was attributable
to the additional selling, general and administrative expenses incurred during
fiscal 2000.
Interest Expense. Interest expense increased by approximately $43
thousand for the twelve months ended June 30, 2000, compared to the twelve
months ended June 30, 1999. As a percentage of sales, interest expense was
approximately 2% for the twelve months ended June 30, 2000 and 1999. The
increase primarily reflects the borrowing requirements for working capital due
to the increase in sales. Approximately $76 thousand in fiscal 2000 and all of
the interest incurred in fiscal 1999 relates to interest paid on the note to Mr.
Blumenfeld. See "Liquidity and Capital Resources."
Provision for Income Taxes. The provision for taxes increased by
approximately $18 thousand for the twelve months ended June 30, 2000, compared
to the twelve months ended June 30, 1999. The increase resulted from the
Company's operating profits incurred during fiscal 2000 in certain states.
Net Loss. The net loss increased by approximately $452 thousand for the
twelve months ended June 30, 2000. As a percentage of net sales, the net loss
increased approximately 5% for the twelve months ended June 30, 2000 compared to
0.5% for the twelve months ended June 30, 1999. The increase was primarily due
to the increase in selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations for the twelve months ended June 30, 2000 was
approximately $1.0 million, compared to approximately $190 thousand for the same
period in 1999. The increase was due primarily to an increase in inventory and
accounts receivable related to the increase in sales volume, and the increase in
selling, general and administrative expenses.
The Company used approximately $442 thousand in cash for investing
activities during fiscal 2000. The primary use of cash in investing activities
was for the purchase of license agreements, the
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acquisition of a camp-related business, the purchase of treasury shares, and
property and equipment. The Company expects to spend a comparable amount for
capital expenditures in fiscal 2000.
The Company generated approximately $1.7 million in cash from financing
activities for the twelve months ended on June 30, 2000. The cash generated from
financing activities was approximately $1.2 million of net proceeds from the
issuance of notes to certain stockholders, officers and certain third parties,
and approximately $542 thousand in proceeds from the issuance of common stock
upon the exercise of common stock options and warrants, partially offset by the
purchase of additional treasury shares.
Current assets totaled approximately $4.5 million at the end of fiscal
2000, providing the Company with working capital of approximately $3.8 million.
On September 14, 1999, the Company agreed to terms for a $2 million
Revolving Line of Credit with Chase Bank of Texas, N.A. The Revolving Line of
Credit allows the Company to borrow funds based upon a certain percentages of
accounts receivable and inventories, will mature on October 31, 2001, and
includes a provision for letters of credit. Borrowings under the Revolving Line
of Credit bear interest at the prevailing prime rate plus 1/4% or LIBOR plus
2 1/2%. Mr. Michael Blumenfeld guaranteed the Revolving Line of Credit up to
$1 million.
We believe the Company will satisfy its short term and long-term
liquidity needs from borrowings under the Revolving Line of Credit and cash
flows from operations. We may experience periods of higher borrowing under the
credit facility due to the seasonal nature of the Company's business cycle. We
are actively seeking expansion through acquisitions and/or joint ventures, and
the success of such efforts may require additional bank debt, equity financing,
or private financing.
DESCRIPTION OF SECURITIES
GENERAL
As of the closing of the offering, the Company's authorized capital
stock will consist of 50,000,000 shares of Common Stock, par value $.01 per
share and 1,000,000 shares of Preferred Stock, par value $.01 per share.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote per
share on all matters to be voted on by stockholders. The holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of legally available funds. See
"Dividends." In the event of liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable.
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31
PREFERRED STOCK
As of the date of this Prospectus, there are no outstanding shares of
Preferred Stock. The Board of Directors may authorize the issuance of Preferred
Stock in one or more series and may determine, with respect to any such series,
the designations, powers, preferences, and rights of such series, and its
qualifications, limitations, and restrictions, including, without limitation:
o The designation of the series;
o The number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the
designations for such series) increase or decrease (but not
below the number of shares of such series then outstanding);
o Whether dividends, if any, will be cumulative or noncumulative
and the dividend rate of the series;
o The conditions upon which and the dates at which dividends, if
any, will be payable, and the relation that such dividends, if
any, will bear to the dividends payable on any other class or
classes of stock;
o The redemption rights and price or prices, if any, for shares
of the series;
o The terms and amounts of any sinking fund provided for the
purchase or redemption of share of the series;
o The amounts payable on and the preferences, if any, of shares
of the series, in the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the
Company;
o Whether the shares of the series will be convertible into
shares of any other class or series, or any other security, of
the Company or any other corporation, and, if so, the
specification of such other class or series or such other
security, the conversion price or prices or rate or rates, any
adjustments, the date or dates as of which such shares will be
convertible and all other terms and conditions upon which such
conversion may be made; and
o The voting rights, if any, of the holders of shares of such
series.
COMMON STOCK PURCHASE WARRANTS
Special Dividend of Warrants
Each Warrant entitles the holder to purchase one share of Common Stock
at an exercise price of $5.00 per share. Warrants are exercisable through May
26, 2005 provided that at the time of exercise the Common Stock is qualified for
sale or exempt from qualification under applicable state securities laws. The
Company has the right at any time to call the Warrants for cancellation by
giving at least 30 days, but not more than 90 days, notice, at a price of $.10
per Warrant. Holders of Warrants automatically forfeit their rights to purchase
the shares of Common Stock issuable upon exercise of such Warrants unless the
Warrants are exercised before the close of business on the business day
immediately prior to the date set for redemption. A notice of redemption shall
be mailed to each of the registered holders of the Warrants
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32
by First Class mail, postage prepaid, at least 30 days before the date fixed for
redemption. The notice of redemption shall specify the redemption price, the
date fixed for redemption, the place where the Warrant certificates shall be
delivered and the redemption price to be paid, and that the right to exercise a
Warrant shall terminate at 5:00 p.m. (New York City time) on the business day
immediately preceding the date fixed for redemption.
The Warrants may be exercised upon surrender of the Warrant
certificate(s) on or prior to the expiration or the redemption date at the
offices of Continental Stock Transfer & Trust Company, the Company's warrant
agent (the "Warrant Agent") with the subscription form on the reverse side of
the certificate(s) completed and executed as indicated, accomplished by payment
(in the form of a certified or cashier's check payable to the order of the
Company) of the full exercise price for the number of warrants being exercised.
o The exercise price and number and kind of shares of Common
Stock or other securities or assets purchasable on exercise of
the Warrants and the Cancellation Price are subject to
adjustment if the Company:
o Combines or subdivides its outstanding shares of Common Stock,
including stock splits effected through a dividend; or
o Merges or consolidates with another corporation.
There will be no adjustment to the Warrants if the Company:
o Makes any cash dividends or asset distributions with respect
to outstanding shares of Common Stock;
o Sells additional shares of Common Stock; or
o Sells all or substantially all of its assets.
o In the event of any other type of recapitalization or
reorganization of the Company, the Company may, at its option,
provide for adjustment to the Warrants' terms.
The Company is not required to issue fractional shares of Common Stock,
and, in lieu of a fractional share, the Company will make a cash payment based
upon the current market value of such fractional shares. The Warrants holder
will not have any right as a shareholder of the Company unless or until the
holder exercises the Warrants.
SUBORDINATED CONVERTIBLE PROMISSORY NOTES
GENERAL. The Notes were general obligations of ours limited to
$2,235,000 in aggregate principal amount. The Notes bore interest at a variable
rate equal to the Prime Rate plus 2 1/2 percentage points per year.
NOTE HOLDERS. The following table and accompanying footnotes identify
each of the Note Holders based upon information provided to the Company, set
forth as of April 19, 2000, the date the Note Holders converted their Notes into
shares of Common Stock. This information also states the principal amount of the
Notes, the number of shares the Notes were converted into, shares beneficially
held by or acquired by, as the case may be, each Note Holder. Beneficial
ownership is stated as of the
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conversion of the Notes. Percentages are based on 3,679,340 shares of Common
Stock outstanding on April 19, 2000.
NUMBER OF SHARES NUMBER OF SHARES
PRINCIPAL AMOUNT ISSUED UPON CONVERSION BENEFICIALLY
NAME OF NOTE HOLDER OF NOTE OF NOTE(1) OWNED(2) PERCENT OF CLASS(3)
- -------------------------- ---------------- ---------------------- ----------------- -------------------
Michael J. Blumenfeld, $1,500,000 454,545 4,344,614(4) 67.7%
Chief Executive Officer of
the Company
Watkins Brothers Trust $ 100,000 30,303 88,606(5) 2.0%
Arthur J. Coerver, IRA $ 20,000 6,060 100,580(6) 1.9%
Arthur J. Coerver $ 26,000 7,878 100,580(6) 1.9%
Colleen C. Coerver, IRA $ 4,000 1,212 100,580(6) 1.9%
Penn Footwear Retirement $ 50,000 15,151 305,606(7) 6.8%
Trust
Davidowitz Foundation Inc. $ 50,000 15,151 32,302(8) *
JIBS Equities, L.P. $ 50,000 15,151 305,606(7) 6.8%
William Davidowitz $ 100,000 30,303 110,660(9) 2.5%
Robert W. Philip or Sharon $ 50,000 15,151 48,302(10) 1.1%
A. Philip Joint Tenants
with Right of Survivorship
Myrna G. Kulp(11) $ 100,000 30,303 65,926 1.5%
Harvey Rothenberg and $ 5,000 1,515 18,432(12) *
Elizabeth Rosenberg
Harvey Rothenberg, IRA $ 10,000 3,030 18,432(12) *
H. I. Schendle IRA Rollover $ 50,000 15,151 48,902(13) 1.1%
Eric Green GST Trust $ 120,000 36,363 72,726 1.7%
Total $2,235,000 677,267
*Less than one percent.
- ----------
(1) The number of shares issued upon conversion of the Notes is based on a
conversion price equal to $3.30 per share, with the Note Holder receiving
a cash payment in lieu of any fractional shares that would otherwise be
issued.
(2) As required by SEC regulations, the number of shares shown as
beneficially owned includes shares that could be purchased within 60 days
after the date of this Prospectus. The table shows the total shares
issued on the conversion of all of outstanding Notes as well as the
shares issuable upon the exercise of all Warrants to acquire shares of
Common Stock described in this Prospectus. The actual number of shares of
Common Stock issuable upon the exercise of the Warrants is subject to
adjustment and could be materially less than the number estimated in this
table. This variation is due to factors that cannot be predicted by us at
this time. The most significant of these factors is the future market
price of our Common Stock.
(3) The percentage of each Selling Shareholder is based on the beneficial
ownership of that Selling Shareholder divided by the sum of the current
outstanding shares of Common Stock plus the additional shares, if any,
that would be issued to that Selling Shareholder (but not any other
shareholder) when exercising any Warrant or other right in the future.
(4) Consists of 1,719,462 shares of Common Stock, 454,545 shares issued upon
conversion of a Note on April 19, 2000, 10,000 shares issuable upon
exercise of an option expiring February 24, 2009, 20,000 shares issuable
upon exercise if an option expiring August 15, 2010, and 2,140,607 shares
issuable upon exercise of a Warrant expiring May 26, 2005, issued as a
special dividend of warrants on shares of Common Stock issued upon
conversion of a Note on April 19, 2000.
(5) Consists of 13,500 shares of Common Stock, 30,303 shares held in trust
for the benefit of Mr. Watkins issued upon conversion of a Note on April
19, 2000, 1,000 shares issuable upon exercise of an option expiring
February 24, 2009, 13,500 shares issuable upon exercise of a Warrant
expiring May 26, 2005, and 30,303 shares held in trust for the benefit of
Mr. Watkins issuable upon exercise of a Warrant expiring May 26, 2005
issued as a special dividend of warrants on shares of Common Stock issued
upon conversion of a Note on April 19, 2000.
(6) Consists of 22,640 shares of Common Stock, 6,060 shares held in trust for
the benefit of Mr. Coerver issued upon conversion of a Note on April 19,
2000, 1,212 shares held in trust for the benefit of Mr. Coerver's spouse
issued upon conversion of a Note on April 19, 2000, 7,878 shares issued
upon conversion of a Note on April 19, 2000, 5,000 shares issuable upon
exercise of an option expiring February 24, 2009, 22,640 shares issuable
upon exercise of a Warrant
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34
expiring May 26, 2005, 6,060 shares held in trust for the benefit of Mr.
Coerver issuable upon exercise of a Warrant expiring May 26, 2005 issued
as a special dividend of warrants on shares of Common Stock issued upon
conversion of a Note on April 19, 2000, 1,212 shares held in trust for
the benefit of Mr. Coerver's spouse issuable upon exercise of a Warrant
expiring May 26, 2005 issued as a special dividend of warrants on shares
of Common Stock issued upon conversion of a Note on April 19, 2000, and
7,878 shares issuable upon exercise of a Warrant expiring May 26, 2005
issued as a special dividend of warrants on shares of Common Stock issued
upon conversion of a Note on April 19, 2000.
(7) Consists of 122,000 shares of Common Stock, 30,303 shares issued upon
conversion of a Note on April 19, 2000, 1,000 shares issuable upon
exercise of an option expiring February 24, 2009, 122,000 shares issuable
upon exercise of a Warrant expiring May 26, 2005, and 30,303 shares
issuable upon exercise of a Warrant expiring May 26, 2005 issued as a
special dividend of warrants on shares of Common Stock issued upon
conversion of a Note on April 19, 2000.
(8) Consists of 1,000 shares of Common Stock, 15,151 shares issued upon
conversion of a Note on April 19, 2000, 1,000 shares issuable upon
exercise of a Warrant expiring May 26, 2005, and 15,151 shares issuable
upon exercise of a Warrant expiring May 26, 2005 issued as a special
dividend of warrants on shares of Common Stock issued upon conversion of
a Note on April 19, 2000.
(9) Consists of 8,500 shares of Common Stock, 15,151 shares issued upon
conversion of a Note on April 19, 2000, 1,000 shares issuable upon
exercise of an option expiring February 24, 2009, 8,500 shares issuable
upon exercise of a Warrant expiring May 26, 2005, and 15,151 shares
issuable upon exercise of a Warrant expiring May 26, 2005 issued as a
special dividend of warrants on shares of Common Stock issued upon
conversion of a Note on April 19, 2000.
(10) Consists of 25,000 shares of Common Stock, 30,303 shares issued upon
conversion of a Note on April 19, 2000, 25,000 shares issuable upon
exercise of a Warrant expiring May 26, 2005, and 30,303 shares issuable
upon exercise of a Warrant expiring May 26, 2005 issued as a special
dividend of warrants on shares of Common Stock issued upon conversion of
a Note on April 19, 2000.
(11) Myrna G. Kulp is Michael J. Blumenfeld's sister-in-law.
(12) Consists of 12,200 shares of Common Stock, 1,687 shares of Common Stock
held in trust for the benefit of Mr. Rothenberg's child, 3,030 shares
held in trust for the benefit of Mr. Rothenberg issued upon conversion of
a Note on April 19, 2000, 1,515 shares issued upon conversion of a Note
on April 19, 2000, 20,000 shares issuable upon exercise of an option
expiring August 15, 2010, 3,000 shares issuable upon exercise of an
option expiring February 24, 2009, 1,000 shares issuable upon exercise of
an option expiring February 24, 2009 held by Mr. Rothenberg's spouse,
1,687 shares issuable upon exercise of a Warrant expiring May 26, 2005,
12,200 shares held in trust for the benefit of Mr. Rothenberg issuable
upon exercise of a Warrant expiring May 26, 2005 issued as a special
dividend of warrants on shares of Common Stock issued upon conversion of
a Note on April 19, 2000, and 1,515 shares issuable upon exercise of a
Warrant expiring May 26, 2005 issued as a special dividend of warrants on
shares of Common Stock issued upon conversion of a Note on April 19,
2000.
(13) Consists of 9,300 shares of Common Stock, 15,151 shares issued upon
conversion of a Note on April 19, 2000, 9,300 shares issuable upon
exercise of a Warrant expiring May 26, 2005, and 15,151 shares issuable
upon exercise of a Warrant expiring May 26, 2005 issued as a special
dividend of warrants on shares of Common Stock issued upon conversion of
a Note on April 19, 2000.
WARRANT AGENT, STOCK TRANSFER AGENT AND REGISTRAR
The warrant agent, stock transfer agent and registrar for the Common
Stock is Continental Stock Transfer & Trust Company.
STOCKHOLDER REPORTS
The Company furnishes its stockholders with annual reports containing
audited financial statements and may furnish its stockholders quarterly or
semi-annual reports containing unaudited financial information.
-32-
35
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Delaware General
Corporation Law ("DGCL") Section 203 (the "Anti-takeover Law") regulating
corporate takeovers. The Anti-takeover Law prevents certain Delaware
corporations from engaging, under certain circumstances, in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "interested stockholder" (defined as a
stockholder who acquires 15% or more of the corporation's outstanding voting
stock without the prior approval of the corporation's Board of Directors) for
three years following the date that such stockholder became an "interested
stockholder". A Delaware corporation may "opt out" of the Anti-takeover Law with
an express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from an
amendment approved by at least a majority of the outstanding voting shares. The
Company has not "opted out" of the application of the Anti-takeover Law.
LEGAL MATTERS
The validity of the Shares and the Warrants offered hereby will be
passed upon for the Company by Sayles, Lidji & Werbner, A Professional
Corporation, Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company as of June 30,
2000 and June 30, 1999, and for the years then ended, are included in the
Registration Statement of which this Prospectus is a part in reliance on the
reports of Grant Thornton LLP, independent certified public accountants, which
reports are included herein. The consolidated financial statements audited by
Grant Thornton LLP have been included herein in reliance on their reports given
on their authority as experts in accounting and auditing.
INDEMNIFICATION
The Company's Bylaws provide that any officer or director who is made a
party to or is threatened to be made a party to or is otherwise involved in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was an officer or a director of the Company or is or was serving at the
request of the Company as a director or an officer of another entity shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the DGCL against all expense, liability, and loss reasonably incurred or
suffered by such person in connection therewith. The right to indemnification
includes the right to be paid by the Company for expenses incurred in defending
any such proceeding in advance of its final disposition. Officers and directors
are not entitled to indemnification if such persons did not meet the applicable
standard of conduct set forth in the DGCL for officers and directors.
DGCL Section 145 provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that the person is or was a
director, officer, employee or agent of the Company, or is or was serving at the
Company's request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding. The power to indemnify applies (a) if such person is successful
on the merits or otherwise in defense of any action, suit or proceeding, or (b)
if such person acted in good faith and in a manner he reasonably believed to be
in the best interest, or not opposed to the best interest, of the Company and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The power to indemnify applies to actions
-33-
36
brought by or in the right of the Company as well, to the extent of expenses
(including attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the Company, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company, unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
The indemnification provisions contained in the Company's Bylaws are
not exclusive of any other rights to which a person may be entitled by law,
agreement, vote of stockholders or disinterested directors or otherwise.
Insofar as indemnification by the Company for liabilities arising under
the Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
-34-
37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Index to Consolidated Statements.......................................................................F-1
Report of Independent Certified Public Accountants.....................................................F-2
Consolidated Balance Sheets as of June 30, 2000 and 1999...............................................F-3
Consolidated Statements of Operations for the years ended June 30, 2000 and 1999.......................F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30,
2000 and 1999..........................................................................................F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2000 and 1999.......................F-6
Notes to Consolidated Financial Statements.............................................................F-7
Condensed Consolidated Balance Sheets as of December 31, 2000 (Unaudited) and
June 30, 2000.........................................................................................F-15
Condensed Consolidated Statements of Operations for the three and six months ended
December 31, 2000 and 1999 (Unaudited)................................................................F-16
Condensed Consolidated Statements of Cash Flows for the six months ended
December 31, 2000 and 1999 (Unaudited)................................................................F-17
Notes to Condensed Consolidated Financial Statements (Unaudited)......................................F-18
F-1
38
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors
Collegiate Pacific Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Collegiate
Pacific Inc. and Subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Collegiate Pacific Inc. and Subsidiaries as of June 30, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Grant Thornton LLP
Dallas, Texas
August 25, 2000
F-2
39
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
ASSETS 2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents $ 768,076 $ 518,844
Accounts receivable, less allowance for doubtful accounts
of $51,751 in 2000 and $38,806 in 1999 1,384,185 1,142,708
Inventory 2,323,845 1,843,820
Prepaid expenses and other current assets 39,014 23,581
----------- -----------
Total current assets 4,515,120 3,528,953
Property and equipment, net of accumulated depreciation
of $135,217 in 2000 and $98,785 in 1999 149,731 150,585
Other assets:
License agreements, net of accumulated amortization of
$142,369 in 2000 and $50,030 in 1999 468,049 253,586
Cost in excess of net tangible assets acquired, net of
accumulated amortization of $78,105 in 2000 and
$42,373 in 1999 588,185 509,373
Other assets, net 54,955 54,409
----------- -----------
$ 5,776,040 $ 4,496,906
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 509,614 $ 537,056
Accrued expenses 142,822 51,181
Other current liabilities 34,048 86,826
----------- -----------
Total current liabilities 686,484 675,063
-----------
Note payable to stockholder -- 980,720
----------- -----------
Total liabilities 686,484 1,655,783
----------- -----------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value; authorized 20,000,000
shares, issued and outstanding: 4,244,607 in 2000
and 3,440,666 in 1999 42,446 34,404
Additional paid-in capital 6,460,453 3,506,568
Accumulated deficit (1,142,900) (660,462)
Treasury shares, at cost; 20,860 shares in 2000 and
900 shares in 1999 (255,443) (10,982)
----------- -----------
5,104,556 2,869,528
Less: notes receivable from stockholders (15,000) (28,405)
----------- -----------
Total stockholders' equity 5,089,556 2,841,123
----------- -----------
$ 5,776,040 $ 4,496,906
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
40
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
2000 1999
------------ ------------
Sales $ 10,065,781 $ 6,813,333
Cost of sales 6,498,002 4,367,382
------------ ------------
Gross profit 3,567,779 2,445,951
Selling, general and administrative expenses 3,851,661 2,343,434
------------ ------------
Operating profit (loss) (283,882) 102,517
------------ ------------
Other income (expense):
Interest expense (153,874) (110,534)
Interest income 7,066 11,373
------------ ------------
Total other income (expense) (146,808) (99,161)
------------ ------------
Income (loss) before provision for taxes (430,690) 3,356
Provision for taxes 51,748 33,890
------------ ------------
Net loss $ (482,438) $ (30,534)
============ ============
Weighted average shares of common stock outstanding 3,641,109 3,409,257
============ ============
Net loss per share of common stock (basic and diluted) $ (0.13) $ (0.01)
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
41
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
NOTES
COMMON STOCK ADDITIONAL TREASURY SHARES RECEIVABLE
-------------------- PAID-IN ACCUMULATED ------------------ FROM
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT STOCKHOLDERS TOTAL
---------- ------- ---------- ----------- ------ --------- ------------ -----------
Balance at July 1, 1998 3,403,366 $34,034 $3,456,938 $ (629,928) -- -- $(31,620) $ 2,829,424
Issuance of stock
for cash 37,000 370 49,630 -- -- -- -- 50,000
Purchase of stock for cash -- -- -- -- 900 (10,982) -- (10,982)
Repayment of notes
receivable from
stockholders -- -- -- -- -- -- 3,215 3,215
Net loss -- -- -- (30,534) -- -- -- (30,534)
---------- ------- ---------- ----------- ------ --------- -------- -----------
Balance at June 30, 1999 3,440,366 34,404 3,506,568 (660,462) 900 (10,982) (28,405) 2,841,123
Issuance of stock for 126,974 1,270 541,674 -- -- -- -- 542,944
cash
Purchase of stock
for cash -- -- -- -- 19,960 (244,461) -- (244,461)
Conversion of debt to 677,267 6,772 2,160,211 -- -- -- -- 2,166,983
stock
Repayment of notes
receivable from
stockholders -- -- -- -- -- -- 13,405 13,405
Issuance of warrants for
license agreements -- -- 252,000 -- -- -- -- 252,000
Net loss -- -- -- (482,438) -- -- -- (482,438)
---------- ------- ---------- ----------- ------ --------- -------- -----------
Balance at June 30, 2000 4,244,607 $42,446 $6,460,453 $(1,142,900) 20,860 $(255,443) $(15,000) $ 5,089,556
========== ======= ========== =========== ====== ========= ======== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
42
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000 AND 1999
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $ (482,438) $ (30,534)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 42,478 32,367
Amortization 131,283 75,618
Change in assets and liabilities, net of effects of business
acquisitions:
Accounts receivable (241,477) (456,734)
Inventory (480,025) 305,200
Prepaid expenses and other current assets (15,433) 16,483
Other assets, net (3,758) (3,070)
Accounts payable (27,442) (15,562)
Accrued expenses 91,641 (140,885)
Other liabilities (52,778) 27,461
----------- -----------
Net cash used in operating activities (1,037,949) (189,656)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (41,624) (62,326)
Cash paid for licenses (54,802) (11,950)
Cash paid for treasury shares (244,461) (10,982)
Cash received from notes receivable from stockholders 13,405 3,215
Cash used in business acquisition net of cash acquired (114,543) --
----------- -----------
Net cash (used in) investing activities (442,025) (82,043)
----------- -----------
Cash flow from financing activities
Proceeds from convertible debt 1,186,262 226,049
Proceeds from issuance of common stock 542,944 50,000
----------- -----------
Net cash provided by financing activities 1,729,206 276,049
Increase in cash 249,232 4,350
Cash and cash equivalents at beginning of year 518,844 514,494
----------- -----------
Cash and cash equivalents at end of year $ 768,076 $ 518,844
=========== ===========
Noncash investing activities:
Conversion of debt into Common Stock $ 2,166,983 $ --
=========== ===========
Warrants issued for license agreements $ 252,000 $ --
=========== ===========
Cash payments for:
Income taxes $ 22,580 $ 26,020
=========== ===========
Interest $ 153,874 $ 255,699
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
43
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL AND BACKGROUND
Collegiate Pacific Inc. ("CPI") was incorporated on April 10, 1997 and
began business in June 1997. The Company is a Delaware corporation and
is primarily engaged in the mail order marketing of professional sports
equipment to schools, colleges and other organizations throughout the
United States.
Effective February 17, 1998 CPI entered into a reverse acquisition
agreement with DSSI, Inc. ("DSSI"), a publicly held corporation which
had no active operations at the time. DSSI issued 2,000,000
(approximately 62.5%) shares of DSSI's voting common stock in exchange
for all of the outstanding shares of CPI (a tax free reorganization).
The public entity then changed its name to Collegiate Pacific, Inc. For
accounting purposes, the transaction was treated as a recapitalization
of CPI, with CPI as the acquirer (a reverse acquisition).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of CPI and
its wholly owned subsidiaries Product Merchandising, Inc. ("PMI"), and
Vantage Products International, Inc. ("VPI") (collectively referred to
as the "Company"). Significant intercompany accounts and transactions
have been eliminated.
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS
Financial instruments, which are potentially subject to concentrations
of credit risk, consist principally of cash and accounts receivable.
Cash deposits are placed with high credit quality financial
institutions to minimize risk. Accounts receivable are unsecured. The
fair value of these financial instruments and notes payable approximate
their carrying values.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing consolidated
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosures of contingent assets and
liabilities, and the reported amounts of revenues and expenses. Actual
results could vary from the estimates used in preparing the
accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, which consist of goods held for resale, are carried at the
lower of cost or market using the average cost method.
F-7
44
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives (5 to 7
years). The cost of maintenance and repairs is charged to expense as
incurred; significant renewals and betterments are capitalized.
COST IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED
Cost in excess of net tangible assets acquired is the difference
between the purchase price paid and liabilities assumed over the
estimated fair market value of assets acquired. Cost in excess of net
tangible assets acquired in connection with acquisitions is amortized
using the straight-line method over 15 years. Amortization expense
relating to cost in excess of net tangible assets amounted to
approximately $36 thousand and approximately $37 thousand for the years
ended June 30, 2000 and 1999. On an on-going basis management reviews
recoverability, the valuation and amortization of cost in excess of net
tangible assets. As a part of this review, the Company considers the
undiscounted projected future net cash flows in evaluating the
recoverability of cost in excess of net tangible assets. If the
undiscounted future net cash flows were less than the stated value,
cost in excess of net tangible assets would be written down to fair
value.
LICENSE AND DISTRIBUTION AGREEMENTS
The Company from time to time enters into licensing and distribution
agreements with its suppliers and Internet related businesses. The
duration of these licensing and distribution agreements vary from five
years to perpetual in nature. The Company's accounting policy with
respect to the licensing and distribution agreements is to amortize the
cost related to these agreements over the shorter of the life of the
agreements or fifteen years. If, however, the cost related to those
agreements is royalty related, the Company amortizes those costs in the
fiscal year in which the royalty is incurred. Amortization expense
relating to license agreements was approximately $92 thousand and $38
thousand for the years ended June 30, 2000 and 1999, respectively.
STOCK BASED COMPENSATION
The Company measures compensation cost for its stock based compensation
plans under the provisions of Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees". The excess,
if any, of the fair value of the stock on the date of grant over the
amount to be paid for the stock is accrued over the related vesting
period. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") requires
companies electing to continue to use APB 25 to account for stock-based
compensation to make pro forma disclosures of net income and earnings
per share as if SFAS 123 had been applied. See Note 9.
REVENUE RECOGNITION
The Company recognizes revenue at a selling price fixed at the time the
order is placed, the credit worthiness of the customer is confirmed,
and upon shipment to the customer after giving consideration to the
prospect of returns based upon historical data.
F-8
45
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The Company utilizes the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
ADVERTISING
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. No advertising costs were
capitalized at June 30, 2000 or 1999. Advertising expense approximated
$856 thousand and $489 thousand for the years ended June 30, 2000 and
1999, respectively.
LOSS PER SHARE
Loss per common share was computed by dividing the net loss by the
weighted average number of shares of common stock outstanding. The
effect of outstanding options on the computation of net loss per share
would be anti-dilutive and therefore is not included in the computation
of weighted average shares.
(3) BUSINESS ACQUISITIONS
On October 22, 1999, the Company acquired certain assets of Mark One
Distributors, Inc. for approximately $115 thousand in an all cash
transaction. The purchased assets related to sales and distribution
activities by Mark One in the camp sporting goods business. The
acquisition was accounted for as a purchase, and accordingly, the net
assets and results of operations of Mark One's camping related business
have been included in the Company's consolidated financial statements
commencing on October 22, 1999.
(4) EQUITY
On January 14, 2000, the stockholders of the Company approved a one for
five reverse stock split of the Company's $.01 par value common stock
(the "Common Stock"). As a result of the reverse stock split additional
paid in capital was increased by approximately $139 thousand and Common
Stock has been reduced by the same amount. All references in the
accompanying financial statements to the number of shares of Common
Stock and the per share amounts have been restated to reflect the
reverse stock split.
In February 2000, a former executive of the DSSI Corporation ("DSSI"),
which was the predecessor of the Company, exercised common stock
warrants for 98,974 shares of Common Stock. The warrants were
originally granted to the warrant holder during his tenure as an
executive of DSSI. The terms of the warrants were extended at the
February 18, 1998 meeting of the Board of Directors of DSSI. The
Company received funds for the exercise of the warrants for
approximately $500 thousand or $5.05 per share.
F-9
46
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In February 2000, the Company agreed to exchange the note payable to
stockholder for a subordinated convertible note. In addition, the
Company solicited and received additional subscriptions from Company
directors and officers including the holder of the existing note
payable to stockholder, and third party investors for approximately
$1.3 million in subordinated convertible notes. The subordinated
convertible notes bore interest at the prevailing Prime Rate plus 2.5%,
were non-callable by the Company for a period of two years, and were
convertible to Common Stock at $3.30 per share. The subordinated
convertible notes were subordinate to the Company's Revolving Line of
Credit with Chase Bank of Texas, N.A. and were uncollateralized.
Interest paid on these notes and the note payable to stockholder during
the period was approximately $120 thousand. On April 19, 2000, the
holders of the subordinated convertible notes converted the entire
outstanding balance of approximately $2.3 million to 677,267 shares of
Common Stock.
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
2000 1999
--------- ---------
Fixtures and equipment $ 277,533 $ 230,255
Other 7,415 19,115
--------- ---------
Total property and equipment 284,948 249,370
Less accumulated depreciation (135,217) (98,785)
--------- ---------
Property and equipment, net $ 149,731 $ 150,585
========= =========
(6) LICENSES AND DISTRIBUTION AGREEMENTS
Licenses and distribution agreements consist of the following:
Agreement Unamortized Cost at June 30, 2000 Current Term
--------- --------------------------------- ------------
Equipment $ 190,000 Perpetual
Funnets, Inc. 14,814 Perpetual
Edwards Sports Products, Ltd. 45,688 5 Years
Online Sports, Inc. 217,567 5 Years
(7) LINE OF CREDIT
On September 14, 1999, the Company agreed to terms for a $2 million
Revolving Line of Credit with Chase Bank of Texas, N.A. The new
Revolving Line of Credit will allow the Company to borrow funds based
upon a certain percentage of accounts receivable and inventory. The new
Revolving Line of Credit will mature on October 31, 2001 and include a
provision for letters of credit. Borrowings under the Revolving Line of
Credit will bear interest at the prevailing prime rate plus 1/4% or
LIBOR plus 2 1/2%. The Company had no outstanding balances at June 30,
2000 under the terms of this facility and the Chief Executive Officer
guaranteed the Revolving Line of Credit up to $1 million.
(8) FEDERAL INCOME TAXES
CPI and its subsidiaries file separate income tax returns. Deferred tax
assets and liabilities consist of the following:
F-10
47
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30,
-------------------------
2000 1999
--------- ---------
Deferred tax assets
Net operating loss carryforward $ 702,048 $ 714,000
Other 16,604 5,018
--------- ---------
Total deferred tax assets 718,652 719,018
Valuation allowance (718,652) (719,018)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
The Company has provided a valuation allowance against deferred tax
assets because their recovery is uncertain. Following is a
reconciliation of income taxes at the federal statutory rate to income
tax expense:
JUNE 30,
-----------------------------
2000 1999
----------- -----------
Tax benefit at statutory rate $ 146,425 $ 1,114
Loss for which benefits were not used (146,425) (1,114)
Taxes attributable to filing on
a separate return basis -- 23,896
State income taxes 51,748 9,994
----------- -----------
Income tax expense $ 51,748 $ 33,890
=========== ===========
At June 30, 2000, the Company had net operating loss carryovers of
approximately $2 million, of which approximately $800 thousand were
carryforwards of DSSI. Because of the ownership change rules, use of
the DSSI carryforwards are limited to approximately $80 thousand per
year. The carryovers of CPI and its subsidiaries expire from 2013
through 2020. The DSSI carryovers expire through 2011.
(9) RELATED PARTY TRANSACTIONS
During the period the Company purchased certain inventory items from
Kesmil Manufacturing, a manufacturing supplier which is also owned by
the majority stockholder of the Company. Purchases from the
manufacturing supplier were approximately $1.0 million for the period
ended on June 30, 2000 and the Company had approximately $10 thousand
in outstanding payables to the supplier at the end of the period.
(10) STOCK OPTIONS AND WARRANTS
On September 22, 1994, DSSI established a non-qualified stock option
plan, which provides for the granting of non-qualifying stock options
to purchase up to 100,000 shares of common stock at the fair market
value at the date of grant. There were 5,000 and 33,000 options
outstanding at June 30, 2000 and 1999, respectively. Approximately
27,000 shares and 37,000 shares were exercised in the year ended June
30, 2000 and 1999, respectively, and no additional shares were granted
or canceled under the terms of this plan during the year ended June 30,
2000.
On December 11, 1998, the Company's stockholders approved a new stock
option plan, ("1998 Collegiate Pacific Inc. Stock Option Plan"). The
new plan authorizes the Company's Board of Directors to grant
employees, directors and consultants of the Company up to an aggregate
of 2,000,000 shares of the Company's common stock, $0.01 par value per
share. Pursuant to the approval of the stock option plan by the
Company's stockholders, the Company's Board of Directors on February
24, 1999 granted 41,500 shares to employees and non-employee directors
F-11
48
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of the Company at the closing price of the Company's common stock,
which was $9.38. These options vested at date of grant. Approximately
1,000 shares were exercised in the year ended June 30, 2000 and no
additional shares were granted or canceled under the terms of this plan
during the year ended June 30, 2000.
A summary of employee and director option and warrant activity for the
years ended June 30, 2000 and 1999 follows:
WEIGHTED
AVERAGE
EXERCISE
WARRANTS OPTIONS PRICE
--------- --------- ---------
Outstanding and exercisable at
June 30, 1998 98,974 69,000 $ 3.49
Options and warrants granted -- 41,500 9.38
Options and warrants exercised -- (37,000) 1.25
--------- --------- ---------
Outstanding and exercisable at
June 30, 1999 98,974 73,500 5.36
Options and warrants exercised (98,974) (28,000) 4.28
--------- --------- ---------
Outstanding and exercisable at
June 30, 2000 -- 45,500 $ 8.48
========= ========= =========
The weighted average fair value of options granted in fiscal 1999 was
$6.15 per share.
The Company has adopted the disclosure provisions of Statement No. 123,
as discussed in Note 2, and continues to apply Opinion 25 for stock
options granted to employees. If the Company had recognized
compensation expense based upon the fair market at the date of grant
for options granted to employees, the effect on net loss and loss per
share for the years ended June 30, 2000 and 1999 would have been as
follows:
JUNE 30,
-----------------------------
2000 1999
----------- -----------
Net Loss
As reported $ (482,438) $ (30,534)
Pro forma (482,438) (285,000)
Loss per share
As reported (0.13) (0.01)
Pro forma (0.13) (0.08)
The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions: expected volatility of 140%; risk free
interest rate of 5.50%; no dividend yield; and expected lives of seven
years.
F-12
49
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes additional information about stock
options at June 30, 2000:
OUTSTANDING AND EXERCISABLE
---------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED
CONTRACTUAL AVERAGE
LIFE EXERCISE
EXERCISE PRICE SHARES (IN YEARS) PRICE
-------------- --------- --------------------------- -----------
$ 1.25 5,000 2.0 $ 1.25
9.38 40,500 8.7 9.38
--------- ------
45,500 $ 8.48
========= ======
In January 2000, the Company declared a special warrant dividend to the
holders of record on May 26, 2000, of the Company's Common Stock. One
warrant was issued for each share of Common Stock held and will entitle
the warrant holder to purchase, for cash, one share of Common Stock at
$10 per share. The warrant holders may exercise the warrant any time on
or before May 26, 2005. The warrants are callable and cancelable at a
cancellation price of $.10 per warrant. If the Company calls the
warrants for cancellation, holders may exercise the warrants at any
time prior to the close of business on the business day preceding the
date fixed for cancellation.
The Company also has outstanding at June 30, 2000, warrants to purchase
40,000 shares of Common Stock at $12.50 per share. These warrants,
which were valued at $252 thousand were issued in payment for a license
and expire in April 2004.
(11) LEASES
The Company leases office and warehouse facilities located in Dallas,
Texas and Memphis, Tennessee under the terms of operating leases which
expire at various dates through 2005. Rent expense approximated $129
thousand for the year ended June 30, 2000, and $107 thousand for the
year ended June 30, 1999.
Future minimum lease commitments on all operating leases with terms in
excess of one year are as follows:
2001 $ 145,632
2002 145,632
2003 47,382
2004 16,632
2005 12,474
---------
$ 367,752
=========
(12) SUBSEQUENT EVENTS (UNAUDITED)
On September 7, 2000 the Company acquired all of the common stock of
Kesmil Manufacturing, Inc., ("Kesmil") a manufacturing company owned by
the majority stockholder and Chief Executive Officer, for the
assumption of approximately $581 thousand in notes payable to the
stockholder. The Company is the sole customer of Kesmil and the
acquisition will be accounted for similarly to a pooling of interest.
(See Note 8).
F-13
50
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is an unaudited pro forma balance sheet giving effect to the
acquisition of Kesmil as though it had taken place on June 30, 2000:
Current assets $ 4,706,000 Current liabilities $ 1,600,000
Noncurrent assets 1,445,000 Stockholders' equity 4,551,000
----------- ------------------
$ 6,151,000 $ 6,151,000
=========== ==================
Unaudited pro forma revenue and net loss assuming the acquisition of
Kesmil had taken place as of the beginning of fiscal 1999, are as
follows:
YEAR ENDED JUNE 30,
---------------------------------------
2000 1999
----------- -----------
Revenues $10,066,000 $ 6,813,000
Net loss (833,000) (169,000)
Loss per share (0.23) (0.05)
F-14
51
COLLEGIATE PACIFIC INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2000 June 30, 2000
------------------ -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 205,909 $ 780,546
Accounts receivable, net of the allowance for doubtful
accounts of $50,236 and $38,806, respectively 867,042 1,384,185
Inventories 2,918,134 2,415,328
Prepaid expenses and other assets 274,413 39,014
----------- -----------
Total current assets 4,265,498 4,619,073
PROPERTY AND EQUIPMENT 599,871 510,892
Less accumulated depreciation (229,478) (177,790)
----------- -----------
370,393 333,102
Other Assets:
License agreements, net of accumulated amortization of $133,546 and
$142,369, respectively 410,206 468,049
Cost in excess of net tangible assets acquired, net of accumulated
amortization of $99,648 and $78,105, respectively 566,642 588,185
Other assets, net 112,765 56,204
----------- -----------
$ 5,725,504 $ 6,064,613
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 212,298 $ 555,795
Accrued expenses 99,295 415,002
Current portion, note payable to stockholders 36,312 --
Current portion, notes payable 870,000 --
Other current liabilities 9,986 34,048
----------- -----------
Total current liabilities 1,227,891 1,004,845
Note Payable to stockholders 544,688 581,000
Stockholders' Equity:
Common Stock, $.01 par value; authorized, 50,000,000 shares;
issued, 4,244,607 shares 42,446 42,446
Additional paid-in capital 6,461,453 6,461,453
Accumulated deficit (2,179,097) (1,754,688)
Treasury shares, at cost; 36,226 and 20,860 shares, respectively (366,470) (255,443)
----------- -----------
3,958,332 4,493,768
Less: Notes receivable from stockholders (5,407) (15,000)
----------- -----------
Total stockholders' equity 3,952,925 4,478,768
----------- -----------
$ 5,725,504 $ 6,064,613
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-15
52
COLLEGIATE PACIFIC INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues $ 2,195,303 $ 1,566,042 $ 4,858,193 $ 3,464,746
Cost of sales 1,546,446 1,132,157 3,289,799 2,554,445
----------- ----------- ----------- -----------
Gross margin 648,857 433,885 1,568,394 910,301
Selling, general and administrative
expenses 965,917 748,573 1,936,918 1,490,207
----------- ----------- ----------- -----------
Operating loss (317,060) (314,688) (368,524) (579,906)
Other income (expense)
Interest expense (36,600) (53,168) (57,641) (95,005)
Other income (expense) (175) 470 1,756 1,935
----------- ----------- ----------- -----------
Net loss $ (353,835) $ (367,386) $ (424,409) $ (672,976)
=========== =========== =========== ===========
Net loss per share-basic and diluted
$ (0.08) $ (0.11) $ (0.10) $ (0.19)
=========== =========== =========== ===========
Shares used in computing net loss per share:
Basic and diluted 4,244,607 3,467,007 4,244,607 3,460,659
See accompanying notes to condensed consolidated financial statements
F-16
53
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
December 31,
------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (424,409) $ (672,976)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 128,491 81,993
Changes in operating assets and liabilities (963,315) (651,816)
----------- -----------
Net cash used in operating activities (1,259,233) (1,242,799)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (88,979) (19,935)
Cash paid for treasury shares (111,027) (6,950)
Cash received (paid) for licenses 5,009 (11,637)
Cash used in business acquisition, net of cash
acquired -- (114,543)
Cash received on notes receivable from stockholders 9,593 17,280
----------- -----------
Net cash used in investing activities (185,404) (135,245)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 870,000 994,307
Cash paid on notes receivable from stockholders -- (102,675)
Proceeds from issuance of common stock -- 43,125
----------- -----------
Net cash provided by financing activities 870,000 934,757
----------- -----------
Net decrease in cash and cash equivalents (574,637) (443,287)
Cash and cash equivalents at beginning of period 780,546 543,382
----------- -----------
Cash and cash equivalents at end of period $ 205,909 $ 100,095
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 51,831 $ 59,182
=========== ===========
Cash paid during the period for income taxes $ 29,168 $ --
=========== ===========
See accompanying notes to condensed consolidated financial statements.
F-17
54
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION.
These 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 for interim financial
reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with
the Company's Form 10-KSB for the fiscal year ended June 30, 2000. All
significant 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 the interim period are not necessarily indicative
of results that may be expected for the fiscal year ending June 30,
2001. Certain fiscal year 2000 items have been reclassified to conform
with the fiscal year 2001 presentation.
2. USE OF ESTIMATES.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could
differ from those estimates.
3. BUSINESS COMBINATION.
On September 7, 2000, the Company purchased all the outstanding stock
of Kesmil Manufacturing, Inc., a manufacturer of sports related metal
products, which was 100% owned by the Company's Chairman and Chief
Executive Officer. The Company was, prior to the acquisition, the only
customer for Kesmil's products. The Company assumed notes payable to
the Chairman and a relative of the Chairman, for $581 and other
liabilities of approximately $400. The notes payable to stockholders
are subordinate to the Company's revolving line of credit, are not
secured by any of the Company's assets and mature on August 31, 2004.
The notes payable to stockholders bear interest at the rate of 12% per
annum and are payable in quarterly installments of approximately $36.
Because the former sole stockholder of Kesmil also owns a majority of
the Company's outstanding common stock, the acquisition was accounted
for in a manner similar to a pooling of interests and, accordingly,
financial information for the periods prior to the acquisition reflect
the retroactive restatement of the Company's and Kesmil's combined
financial position and operating results.
F-18
55
COLLEGIATE PACIFIC INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Selected financial information for the combined entities included in
the consolidated statements of operation for the six and three month
periods ended December 31, 2000 and 1999 are as follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales:
CPI $ 2,195 $ 1,566 $ 4,858 $ 3,465
Kesmil -- 230 136 556
Elimination of intercompany sales -- (230) (136) (556)
--------- --------- --------- ---------
Combined $ 2,195 $ 1,566 $ 4,858 $ 3,465
========= ========= ========= =========
Net income (loss):
CPI $ (354) $ (261) $ (324) $ (423)
Kesmil -- (119) (94) (195)
Elimination of intercompany profit in inventory -- 13 (6) (55)
--------- --------- --------- ---------
Combined $ (354) $ (367) $ (424) $ (673)
========= ========= ========= =========
4. CONTINGENCIES.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position and results of
operations, taken as a whole.
5. CHANGE IN ACCOUNTING POLICY.
During the three-month period ended December 31, 2000, the Company,
pursuant to Emerging Issues Task Force Issue 2000-10, began classifying
freight charges billed to customers as revenues and the related costs
as part of the Company's cost of sales. The net amount of these
revenues and associated costs were previously included as part of the
Company's selling, general and administrative expenses. All prior
periods have been restated to reflect this change.
F-19
56
PART II
ITEM 27. EXHIBITS.
The Exhibits to this Registration Statement are listed in the Index to
Exhibits of this Registration Statement, which Index is incorporated herein by
reference.
57
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on April 30, 2001.
COLLEGIATE PACIFIC INC.
By: /s/ Michael J. Blumenfeld
-------------------------------------------
Michael J. Blumenfeld,
Chairman, Chief Executive Officer
and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Act, this Registration
Statement or amendment thereto has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
By:/s/ Michael J. Blumenfeld Chairman, Chief Executive Officer and Director April 30, 2001
-------------------------- (Principal Executive Officer)
Michael J. Blumenfeld
* President and Director April 30, 2001
- --------------------------------------
Adam Blumenfeld
* Chief Financial Officer, Secretary and April 30, 2001
- -------------------------------------- Treasurer (Principal Accounting and
William R. Estill Financial Officer)
* Chief Operating Officer and Director April 30, 2001
- --------------------------------------
Arthur J. Coerver
* Vice President Marketing and Director April 30, 2001
- --------------------------------------
Harvey Rothenberg
* Director April 30, 2001
- --------------------------------------
Jeff Davidowitz
* Director April 30, 2001
- --------------------------------------
William A. Watkins, Jr.
*By Power of Attorney
58
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Purchase and Sale Agreement dated March 14, 1997 for
the sale of the majority of the Company's assets and
business to Casco Standards, Inc.(1)
2.2 Stock Purchase Agreement dated August 18, 1997 with
Michael J. Blumenfeld.(2)
2.3 Agreement and Plan of Merger dated July 20, 1999 for
the reincorporation of the Company in Delaware.(3)
3.1 Articles of Incorporation of the Company filed on
December 15, 1998.(4)
3.2 Certificate of Merger of the Company filed on July
20, 1999.(4)
3.3 By-Laws of the Company.(4)
3.4 Certificate of Amendment to Certificate of
Incorporation of the Company filed on January 18,
2000.(5)
4.1 Specimen Certificate of Common Stock, $0.01, par
value, of the Company.(4)
4.2 Specimen Common Stock Purchase Warrant.(5)
5.1 Opinion of Sayles, Lidji & Werbner, A Professional
Corporation.*
10.1 Warrant Agency Agreement dated as of June 4, 1993,
between the Company and Continental Stock Transfer &
Trust Company, as Warrant Agent.(6)
10.2 Form of Underwriter's Unit Purchase Warrant of the
Company.(7)
10.3 Form of Underwriter's Warrant of the Company.(7)
10.4 1988 Stock Option Plan of the Company.(8)
10.5 1994 Stock Option Plan of the Company.(9)
10.6 Employee Restricted Stock Plan of the Company.(10)
10.7 Lease dated July 1, 1997 between the Company, as
tenant, and Post-Valwood, Inc., as landlord.(11)
10.8 Exclusive Distribution Agreement dated February 24,
1998, between the Company and Equipmart, Inc.(11)
10.9 Exclusive Distribution Agreement dated March 7,
1998, between the Company and FunNets, Inc.(11)
10.10 Exclusive Distribution Agreement dated March 21,
1998, between the Company and Pro Gym Equipment,
Inc.(11)
10.11 Stock Acquisition Agreement dated April 14, 1998,
between the Company and Product Merchandising,
Inc.(11)
59
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.12 Agreement and Plan of Merger dated May 31, 1998,
between the Company and Vantage Products
International, Inc.(11)
10.13 1998 Collegiate Pacific Inc. Stock Option Plan.(3)
10.14 Credit Agreement, dated as at June 30, 1999, between
Chase Bank of Texas, National Association, and the
Company for a $2,000,000 line of credit, and related
documents.(12)
10.15 Promissory Note dated March 31, 1999 from the
Company to Michael J. Blumenfeld in the principal
amount of $1,082,648.75.(12)
10.16 Warrant Agreement dated as of May 26, 2000, between
the Company and Continental Stock Transfer & Trust
Company, as Warrant Agent, with the form of Common
Stock purchase warrant attached.(5)
10.17 Stock Purchase Agreement dated September 7, 2000, by
and between the Company and Michael J.
Blumenfeld.(13)
10.18 Waiver and Second Amendment to Credit Agreement
dated as of September 7, 2000, by and between Chase
Bank Of Texas, National Association and the
Company(14)
10.19 Assumed Notes Payable dated September 6, 2000,
executed by the Company payable to Michael
Blumenfeld and Abe Blumenfeld in the stated
aggregate principal amount of $581,000.(14)
10.20 Fourth Amendment to Credit Agreement dated as of
January 16, 2001, by and between The Chase Manhattan
Bank and the Company. (15)
10.21 First Amendment to Stock Option Plan*
23.1 Consent of Sayles, Lidji & Werbner, A Professional
Corporation (included in Exhibit 5.1)*
23.2 Consent of Grant Thornton LLP*
24.1 Power of Attorney (included in Part II of this
Registration Statement) (13)
- ----------
(1) Previously filed as an exhibit to the Company's Definitive Proxy Statement
for its Annual Meeting held on June 16, 1997.
(2) Previously filed as an exhibit to the Company's Form 8-K/A filed on
September 11, 1997.
(3) Previously filed as an exhibit to the Company's Definitive Proxy Statement
for its Annual Meeting held on December 11, 1998.
(4) Previously filed as an exhibit to the Company's Form 8-A dated September
9, 1999.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (No. 333-34294) dated April 7, 2000, as amended.
(6) Previously filed as an exhibit to the Company's Form 8-A dated June 28,
1993.
(7) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed on July 12, 1993.
(8) Previously filed as an exhibit to the Company's Registration Statement on
Form S-18, File No. 33-19770-NY.
60
(9) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1994.
(10) Previously filed as an exhibit to a Post-Effective Amendment to the
Company's Registration Statement on Form S-18, File No. 33-19770-NY.
(11) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1998.
(12) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1999.
(13) Previously filed as an exhibit to the Company's Report on Form 8-K filed
on September 21, 2000.
(14) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the three months ended September 30, 2000.
(15) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the three months ended December 31, 2000.
*Filed herewith.