AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 2001.
REGISTRATION NO. 333-34294
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
POST-EFFECTIVE
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------
COLLEGIATE PACIFIC INC.
(Name of small business issuer in its charter)
<Table>
DELAWARE 5091 22-2795073
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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)
</Table>
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.
================================================================================
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
<Table>
<Caption>
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 Shareholder
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
</Table>
COLLEGIATE PACIFIC INC.
4,244,607 COMMON STOCK PURCHASE WARRANTS
5,321,874 SHARES OF COMMON STOCK
----------
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 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 400,000
shares of Common Stock by Michael J. Blumenfeld, the Company's Chief Executive
Officer. Mr. Blumenfeld acquired those 400,000 shares through a Stock Purchase
Agreement dated as of August 18, 1997, by and between Mr. Blumenfeld, Adam
Blumenfeld and the Company. The 400,000 shares being registered by Mr.
Blumenfeld are being done so with the intention that the sale or placement of
the shares may be for the benefit of the Company. The shares or the majority of
net proceeds of a sale, or both, could be used in acquisitions, debt repayment,
working capital advances or other such circumstances that may accrue to the
benefit of the Company.
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 December 3, 2001, the high and low price of the Common Stock
was $5.10 per share, and on December 3, 2001, the high and low price of the
Warrants was $0.99 per Warrant.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9 IN THIS PROSPECTUS.
- --------------------------------------------------------------------------------
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 DECEMBER 10, 2001
The date of this Prospectus is December 10, 2001. 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.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<Table>
Available Information ....................................................... 3
Summary ..................................................................... 3
Risk Factors ................................................................ 9
The Company ................................................................. 14
Management .................................................................. 18
Market for Common Stock and Related Stockholder Matters ..................... 25
Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................... 26
Description of Securities ................................................... 30
Legal Matters ............................................................... 34
Experts ..................................................................... 34
Indemnification ............................................................. 34
Index To Consolidated Financial Statements .................................. F-1
</Table>
- --------------------------------------------------------------------------------
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 Shareholder" refers to Mr.
Blumenfeld. The Company's fiscal year ends on June 30th. Reference herein to
"fiscal 1999," "fiscal 2000," "fiscal 2001" and "fiscal 2002" refers to our
fiscal years ended June 30, 1999, 2000, 2001, and 2002, 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.
-2-
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.
-3-
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 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 2002. 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 purchasing 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, 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.
-4-
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 used 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 SHAREHOLDER
The following table sets forth the name of the Selling Shareholder,
the number of shares of Common Stock beneficially owned by the Selling
Shareholder as of December 1, 2001, the number of shares that he may offer, and
the number of shares of Common Stock beneficially owned by the Selling
Shareholder upon completion of the offering, assuming all of the shares offered
are sold. The number of shares sold by the Selling Shareholder may depend upon a
number of factors, including, among other things, the market price of the Common
Stock.
<Table>
<Caption>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING
---------------------------------------- ------------------------
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, 4,438,014(4) 68.2% 2,995,152(5) 1,442,862 33.0%
Chief Executive Officer
of the Company
</Table>
- ----------
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated.
(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.
-5-
(3) The percentage of the 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 2,191,207 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, 75,000
shares issuable upon exercise of an option expiring May 8, 2011, 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 may be for the
benefit of the Company. The shares, or the majority of net proceeds of
a sale, or both, 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.
PLAN OF DISTRIBUTION
The Warrants offered in this Prospectus were issued to each of the
Company's stockholder's on a pro rata basis as a special dividend on May 26,
2000.
The sale of the shares of Common Stock offered in this Prospectus may
be made from time to time directly by the Selling Shareholder, by the Note
holders who converted their Notes into shares of Common Stock, by the
stockholders who exercised their Warrants, or by one or more broker-dealers or
agents.
Shareholders selling their shares of Common Stock or Warrants will act
independently of the Company in making decisions with respect to the timing,
manner and size of each sale. The shares of Common Stock 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 of Common Stock or the Warrants, they may do so by purchasing the shares
of Common Stock or Warrants as principals or by selling the shares of Common
Stock 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 of Common
Stock 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 of Common Stock 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 Common Stock and the Warrants by these
shareholders. All of the foregoing may affect the marketability of the Common
Stock and the Warrants.
To comply with applicable states' securities laws, the Common Stock and
the Warrants will be sold in such jurisdictions only through registered or
licensed brokers or dealers. Additionally, the shares of Common Stock and the
Warrants may not be sold in certain states unless the shares of Common Stock
-6-
and the Warrants have 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 or the majority of net proceeds of a sale, or
both 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
Warrants, 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 $21,223,035. 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.
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 or the majority of net proceeds of
a sale, or both, 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 any
other shares of Common Stock by the Selling Stockholder or sales of the shares
of Common Stock acquired by the Warrant holders upon exercise of the Warrants.
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 $.05 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.
-7-
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.
-8-
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 incurred losses before taxes of
approximately $23,000 and $950,000 for fiscal 2001 and fiscal 2000.
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.
-9-
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.
-10-
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 before taxes of
approximately $23 thousand and $950 thousand for fiscal 2001 and fiscal 2000,
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 our 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 our 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.
-11-
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 2,192,407 shares or 51.4% of our Common
Stock, and holds options and Warrants convertible into 2,245,607 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
-12-
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 509,200 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 December 1, 2001, there were outstanding options and warrants
held by shareholders and certain third parties to purchase approximately
4,758,807 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.
-13-
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 of Common Stock 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 $.05 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:
-14-
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 used 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 2001 were not material.
-15-
We are in the business of 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 2002. 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 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, nuts and bolts, and other commercially
available products. We believe there are multiple suppliers for these products
nationwide.
-16-
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 52 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 68,000 square feet. The lease for this
facility expires in August 2005. The Company also leases a sales office in
Memphis, Tennessee, with approximately 1,500 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.
-17-
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are:
<Table>
<Caption>
POSITIONS AND OFFICES HELD
NAME AGE WITH THE COMPANY
---- --- --------------------------
Michael J. Blumenfeld 55 Chairman of the Board and Chief Executive Officer
Adam Blumenfeld 31 President and Director
Arthur J. Coerver 58 Chief Operating Officer and Director
Harvey Rothenberg 59 Vice President Marketing and Director
William R. Estill 53 Chief Financial Officer, Secretary and Treasurer
Chad H. Edlein 31 Vice President Corporate Development
Jeff Davidowitz 45 Director
William A. Watkins, Jr 59 Director
Robert W. Hampton 54 Director
</Table>
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 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 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 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
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 Sport Supply Group, Inc., a
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.
-18-
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 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 Group Vice President of Jones
International, Ltd. Since 1985, Mr. Hampton has held various executive positions
at Jones International, Ltd., a holding company whose subsidiaries 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 and Stock Option
Committees.
-19-
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the total compensation, for each of the last
three fiscal years, earned by the Named Executive Officers -- Mr. Michael
Blumenfeld the Chief Executive Officer and the four other executive officers who
earned over $100,000 and who were serving as an executive officer at the end of
fiscal 2001.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
Long-Term
Annual Compensation Compensation
------------------- -----------------------------
Restricted Securities
Fiscal Stock Underlying
Name and Principal Positions Year Salary ($) Awards($) Options
---------------------------- ------ ------------ ------------ ------------
Michael J. Blumenfeld 2001 140,000 -- 95,000
Chairman of the Board and 2000 96,500 -- --
Chief Executive Officer 1999 36,000 -- --
Adam Blumenfeld 2001 138,650 -- 45,000
President 2000 68,860(1) -- --
1999 36,000 -- --
Harvey Rothenberg 2001 105,400 -- 40,000
Vice President, Marketing 2000 84,325 -- --
1999 94,000 -- 3,000
Arthur J. Coerver 2001 118,200 -- 40,000
Chief Operating Officer 2000 108,200 -- --
1999 108,000 46,875 5,000
William Estill 2001 151,800 -- 40,000
Chief Financial Officer 2000 100,270(1) -- --
1999 -- -- --
</Table>
- ----------
(1) Mr. Blumenfeld's employment with the company commenced in January 2000.
Mr. Estill's employment with the company commenced in July 1999.
-20-
STOCK OPTIONS
The following table sets forth certain information about the stock
option awards that were made to the Named Executive Officers during fiscal 2001.
All of these options are transferable to family members under specified
conditions.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
PERCENTAGE
NUMBER OF OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE
---- ---------- ------------ --------- ----------
Michael J. Blumenfeld 95,000 15.7% $3.890 5/08/11
20,000 4.2% 6.125 8/15/10
Adam Blumenfeld 25,000 5.2% 3.890 5/08/11
20,000 4.2% 6.125 8/15/10
Harvey Rothenberg 20,000 4.2% 3.890 5/08/11
20,000 4.2% 6.125 8/15/10
Arthur J. Coerver 20,000 4.2% 3.890 5/08/11
20,000 4.2% 6.125 8/15/10
William Estill 20,000 4.2% 3.890 5/08/11
20,000 4.2% 6.125 8/15/10
</Table>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS (1)
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
------------------------------ -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Michael J. Blumenfeld 105,000 0 $ 0 $ 0
Adam Blumenfeld 45,000 0 0 0
Harvey Rothenberg 40,000 0 0 0
Arthur J. Coerver 42,000 0 0 0
William Estill 40,000 0 0 0
</Table>
(1) Amounts were calculated using the closing price of Collegiate Pacific's
common stock on the last trading day of the fiscal year ($3.85).
-21-
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 December 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.
<Table>
<Caption>
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 2,192,407 2,245,607 4,438,014 68.2%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Adam Blumenfeld 243,600 288,600 532,200 11.7%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Jeff Davidowitz 142,302(b) 158,302(b) 300,604 6.8%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Arthur J. Coerver 37,790(c) 48,303(c) 91,106 2.1%
William A. Watkins, Jr. 42,803(d) 79,790(d) 117,580 2.5%
Harvey Rothenberg 18,432(e) 62,432(e) 80,864 1.9%
Robert W. Hampton -- 2,500 2,500 --
Chadd Edlein 14,000 45,500 59,500 --
William R. Estill -- 40,000 40,000 --
Directors and executive
officers as a group (8 persons) 2,690,134 2,971,534 5,661,668 78.2%
</Table>
- ----------
(a) - Based on the number of shares outstanding (4,264,773) at the close of
business on October 1, 2001.
-22-
(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 (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.
(d) - 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.
(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 $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 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 $3.30 per share, resulting in the issuance of 677,267
shares of Common Stock.
-23-
The following table sets forth the principal amount of the notes and
the number of shares the notes were converted into by each officer and director
of the Company.
<Table>
<Caption>
NUMBER OF SHARES
ISSUED UPON
PRINCIPAL AMOUNT CONVERSION
NAME OF NOTE HOLDER OF NOTE($) 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
</Table>
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 was 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.
-24-
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.
<Table>
<Caption>
COMMON STOCK FISCAL 2002 FISCAL 2001 FISCAL 2000
--------------- --------------------- --------------------- ---------------------
CALENDAR PERIOD LOW HIGH LOW HIGH LOW HIGH
--------------- -------- -------- -------- -------- -------- --------
July 1 - September 30 $ 3.88 $ 5.65 $ 6.00 $ 9.75 $ 9.38 $ 14.38
October 1 - December 31 -- -- 5.50 6.25 4.38 11.88
January 1 - March 31 -- -- 3.75 5.63 3.00 14.75
April 1 - June 30 -- -- 3.85 4.05 10.13 14.00
</Table>
<Table>
<Caption>
WARRANTS FISCAL 2002 FISCAL 2001 FISCAL 2000
--------------- --------------------- --------------------- ---------------------
CALENDAR PERIOD LOW HIGH LOW HIGH LOW HIGH
--------------- -------- -------- -------- -------- -------- --------
July 1 - September 30 $ 0.73 $ 1.20 $ 1.25 $ 1.88 $ -- $ --
October 1 - December 31 -- -- 1.00 1.25 -- --
January 1 - March 31 -- -- 0.60 0.90 -- --
April 1 - June 30 -- -- 0.73 0.85 1.25 3.25
</Table>
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 December 1, 2001, there were approximately 350 holders of record
of Common Stock, and there were 4,264,773 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 2001. 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.
-25-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
BACKGROUND
The company is engaged in the national distribution of sports equipment
to the institutional and retail markets realizing the vast majority of its
revenues in response to catalog mailings and telemarketing efforts. The market
for this merchandise is estimated to consist of approximately 250,000 locations,
which have annual expenditures of some $4 billion for sports equipment. The
management of the company has extensive experience in this business having
previously founded successful mail order companies in the sports equipment
industry.
The company believes it is the fastest growing supplier of sporting
goods equipment to the institutional and dealer market. Since the company
commenced its first national marketing programs in March 1998, it has received
orders from more than 27,000 locations and continues to add new customers at a
high rate. The company believes that its dedication to product quality and
customer service is the primary reason for the growth rate of the company's
revenues and new customers.
The company's fiscal year ends on June 30th. References herein to
fiscal 2002 and fiscal 2001 refer to our fiscal years ending on June 30, 2002
and 2001, respectively.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
Net Sales. The company's sales and earnings are seasonal in nature.
Historically, the company has reported lower sales and earnings in the first and
second 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.
Net sales for the three months ended September 30, 2001, increased by
approximately $1.1 million, or approximately 43%, compared to the same period in
2000. The company attributes the growth in its revenues for both periods to its
aggressive marketing activities, the expansion of its product offerings, an
increase in dealer related revenues, and the overall growth of its customer
base. As a result of the company's expanded operations and marketing activities,
the company believes future revenues will continue to exhibit growth from
current levels. Management believes the seasonality in its revenues will
continue to be a factor in future periods, but may not be to the same extent if
the company's revenues continue to rise at current rates.
Gross Margin. Gross margin for the three months ended September 30,
2001, increased by approximately $490 thousand, or 53%, compared to the same
period in 2000. As a percentage of sales, gross margin for the three months
ended September 30, 2001, increased to approximately 36%, compared to 35% for
the same period in 2000. The increase for the period was the result of better
absorption by the company of its manufacturing costs, a higher percentage of
manufactured goods sold as a percent of overall sales, and a modest increase in
the average selling price of our products.
-26-
Operating Expenses. Selling, general and administrative ("SG&A")
expenses for the three months ended September 30, 2001, increased by
approximately $256 thousand, or 26%, compared to the same period in 2000. As a
percentage of sales, SG&A expenses for the three months ended September 30,
2001, decreased to 32% from 36% for the same period in 2000. 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, as well as in connection with managing the increase in sales
volume and advertising costs associated with the company's additional marketing
efforts.
Net Income. The net income of the company increased by approximately
$219 thousand for the three months ended September 30, 2001, compared to the
same period in fiscal 2001. As a percentage of net sales, net income increased
to approximately 4% for the three months ended September 30, 2001, compared to a
3% net loss for the same period during fiscal 2001. The increase was
attributable to an increase in sales, a small increase in gross profit as a
percentage of sales, and a decrease in selling, general and administrative
expenses as a percentage of sales during the same period in fiscal 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled approximately $275 thousand at
September 30, 2001, compared to approximately $95 thousand at June 30, 2001.
Cash used in operations of approximately $8 thousand in the three months ended
September 30, 2001, was the result of an increase in inventory of approximately
$325 thousand and prepaid expenses of approximately $140 thousand, which were
partially offset by an increase in accounts payable of approximately $175
thousand and a decrease in accounts receivable of approximately $64 thousand,
and an increase in net earnings of approximately $219 thousand. For the same
period in fiscal 2001, the cash used in operations of approximately $987
thousand was the result of losses incurred during the period and an increase in
inventory of approximately $249 thousand and prepaid expenses of approximately
$264 thousand, and a decrease in accounts payable of approximately $258 thousand
and accrued expenses of approximately $262 thousand, which were partially offset
by an decrease in accounts receivable.
Cash used in operations for the twelve months ended June 30, 2001 was
approximately $554 thousand, compared to approximately $1.3 million for the same
period in 2000. The decrease was due primarily to an increase in net profit
resulting from the increase in sales levels, and a seasonal increase in accounts
payable due to an increase in inventories.
The company used approximately $66 thousand in cash in investing
activities in the three month period ended September 30, 2001, compared to
approximately $48 thousand for the same period in fiscal 2001. The primary use
of cash in investing activities was the purchase of property and equipment of
approximately $72 thousand.
The Company used approximately $372 thousand in cash for investing
activities during fiscal 2001. The primary use of cash in investing activities
was the repurchase of the Company's common stock and the purchase of property
and equipment. The Company expects to spend a smaller amount for capital
expenditures in fiscal 2002.
For the three months ended September 30, 2001, the company did not use
any proceeds from financing activities, compared to its use of approximately
$349 thousand of proceeds from financings for the same period in fiscal 2001.
The Company generated approximately $495 thousand in cash from
financing activities for the twelve months ended June 30, 2001. The cash
generated from financing activities was primarily from borrowings under the
Company's line of credit.
-27-
Current assets totaled approximately $5.4 million at September 30,
2001, providing the company with working capital of approximately $3.4 million.
Current assets totaled approximately $5 million at the end of fiscal
2001, providing the Company with working capital of approximately $3.3 million.
The borrowings under the revolving credit facility with Chase Bank of
Texas, N.A. are classified as a current liability since the facility would have
expired on October 31, 2001. On October 31, 2001, the company amended the terms
of its $2,000,000 revolving credit facility to extend the maturity date of the
facility to October 31, 2002, and permit the company to repurchase up to $125
thousand of its outstanding common stock during the term of the facility. All
borrowings under the revolving credit facility will continue to be classified as
a current liability. 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 continues its
efforts to expand by evaluating potential acquisitions and joint ventures, and
the success of those efforts may require additional bank debt, equity financing,
or private financing.
FISCAL YEAR ENDED JUNE 30, 2001 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2000
Net Sales. Net sales for the twelve months ended June 30, 2001
increased by approximately $2.9 million, or approximately 29%, compared to the
same period in 2000. We attribute the growth in net sales primarily to an
overall increase in catalog sales and dealer-related revenues. We believe future
net sales will continue to rise from current levels, however, no assurances can
be made that any future increases in revenues will be at the same rate. We also
believe that seasonality in net sales will continue to be a factor in future
periods as net sales during the third and fourth quarters of the our fiscal year
are typically higher due primarily to the budgeting procedures of our customers
and the seasonal demand for our products.
Gross Profit. The Company's gross profit for the twelve months ended
June 30, 2001, increased by approximately $1.4 million, or approximately 40%,
compared to the same period in 2000. As a percentage of sales, gross profit
increased to 36% compared to 33% for the same period in 2000. The increase in
gross profit was primarily due to the increase in sales of the Company's
manufactured products and the decrease in freight costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the twelve months ended June 30, 2001, increased by
approximately $523 thousand, or approximately 13%, compared to the same period
in 2000. As a percentage of sales, selling, general and administrative expenses
decreased to approximately 35% from 40% for fiscal 2000. The increase in
selling, general, and administrative expenses was due primarily to:
o an increase in salaries and personnel related costs of
approximately $392 thousand for additional sales personnel
hired by the Company to manage the increase in its sales
volume and for the additional administrative personnel; and
o an increase in advertising and trade show expenses of
approximately $202 thousand incurred to mail catalogs to
existing and new customers, as well as an increase in fliers
and promotional literature.
-28-
These increases in personnel and advertising costs were partially offset by
small decreases in other expense categories.
Operating Profit. Operating profit increased by approximately $834
thousand for the twelve months ended June 30, 2001 compared to the same period
in fiscal 2000. As a percentage of net sales, the operating profit increased to
approximately 1% compared to a 7% operating loss for the twelve-months ended
June 30, 2000. The increase was attributable to increased sales activity, a
small increase in gross profit as a percentage of sales, and the reduction of
selling, general and administrative expenses as a percentage of sales during
fiscal 2001.
Interest Expense. Interest expense increased by approximately $45
thousand for the twelve months ended June 30, 2001, compared to the twelve
months ended June 30, 2000. As a percentage of sales, interest expense was
approximately 1% and 2% for the twelve months ended June 30, 2001 and 2000,
respectively. The decrease primarily reflects the use of proceeds from the sale
of common stock in late fiscal 2000, which was used to fund working capital
requirements in fiscal 2001. Approximately $86 thousand in fiscal 2001 and $121
thousand in fiscal 2000 relates to interest paid on the note payable to Mr.
Blumenfeld. See "Liquidity and Capital Resources."
Provision for Income Taxes. There was an income tax benefit of $27
thousand in 2001 compared to an income tax expense of $52 thousand in 2000. The
change resulted from revisions to estimated state income taxes of one of our
subsidiaries for fiscal 2000.
Net Profit. The net profit increased by approximately $953 thousand for
the twelve months ended June 30, 2001, compared to the same period in fiscal
2000. As a percentage of net sales, the net profit increased to approximately
zero for the twelve months ended June 30, 2001 compared to a 9% net loss for the
twelve months ended June 30, 2000. The increase was attributable to increased
sales activity, a small increase in gross profit as a percentage of sales, and
the reduction of selling, general and administrative expenses as a percentage of
sales during fiscal 2001.
-29-
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.
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
-30-
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 $.05
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 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.
-31-
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 conversion of the Notes. Percentages are based on
3,679,340 shares of Common Stock outstanding on April 19, 2000.
<Table>
<Caption>
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
-----
</Table>
*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
-32-
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 Note Holder is based on the beneficial ownership
of that Note Holder divided by the sum of the current outstanding
shares of Common Stock plus the additional shares, if any, that would
be issued to that Note Holder (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 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.
-33-
(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.
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,
2001 and June 30, 2000, and for the years then ended, are included in the
Registration Statement of which this Prospectus is a part in reliance on the
report of Grant Thornton LLP, independent certified public accountants, which
report is 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
-34-
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
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.
-35-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Index to Consolidated Statements............................................................................ F-1
Report of Independent Certified Public Accountants.......................................................... F-2
Consolidated Balance Sheets as of June 30, 2001 and 2000.................................................... F-3
Consolidated Statements of Operations for the years ended June 30, 2001 and 2000............................ F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30,
2001 and 2000............................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2001 and 2000............................ F-6
Notes to Consolidated Financial Statements.................................................................. F-7
Condensed Consolidated Balance Sheets as of September 30, 2001 (Unaudited) and
June 30, 2001............................................................................................... F-17
Condensed Consolidated Statements of Operations for the three months ended
September 30, 2001 and 2000 (Unaudited)..................................................................... F-18
Condensed Consolidated Statements of Cash Flows for the three months ended
September 30, 2001, and 2000 (Unaudited).................................................................... F-19
Notes to Condensed Consolidated Financial Statements (Unaudited)............................................ F-20
</Table>
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors of Collegiate Pacific Inc. and
Subsidiaries
We have audited the accompanying consolidated balance sheets of
Collegiate Pacific Inc. and Subsidiaries as of June 30, 2001 and 2000, 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, 2001 and 2000, 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 21, 2001
F-2
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
ASSETS
<Table>
<Caption>
2001 2000
------------ ------------
Current Assets:
Cash and cash equivalents $ 349,508 $ 780,546
Accounts receivable, less allowance for doubtful accounts
of $87,187 in 2001 and $51,751 in 2000 1,797,079 1,384,185
Inventory 2,787,169 2,415,328
Prepaid expenses and other current assets 146,328 39,014
------------ ------------
Total current assets 5,080,084 4,619,073
Property and equipment, net of accumulated depreciation
of $295,980 in 2001 and $184,354 in 2000 523,472 333,102
Other Assets:
License agreements, net of accumulated amortization of
$44,296 in 2001 and $142,369 in 2000 100,106 468,049
Cost in excess of net tangible assets acquired, net of
Accumulated amortization of $122,542 in 2001 and
$78,105 in 2000 544,375 588,185
Other assets, net 283,319 56,204
------------ ------------
$ 6,531,356 $ 6,064,613
============ ============
</Table>
LIABILITIES AND STOCKHOLDERS' EQUITY
<Table>
<Caption>
2001 2000
------------ ------------
Current liabilities:
Accounts payable $ 942,129 $ 555,795
Accrued expenses 124,190 415,002
Revolving line of credit 420,000 --
Notes payable to stockholders, current portion 290,973 --
Other current liabilities 16,144 34,048
------------ ------------
Total current liabilities 1,793,436 1,004,845
Notes payable to stockholders, net of current portion 365,027 581,000
------------ ------------
Total liabilities 2,158,463 1,585,845
Stockholders' equity:
Common stock, $.01 par value; authorized 20,000,000 shares,
Issued and outstanding: 4,264,773 in 2001 and 4,244,607 in 2000 42,648 42,446
Additional paid-in capital 6,452,278 6,461,453
Accumulated deficit (1,750,568) (1,754,688)
Treasury shares, at cost: 36,226 shares in 2001 and 20,860
shares in 2000 (366,470) (255,443)
------------ ------------
4,377,888 4,493,768
Less: note receivable from stockholder (4,995) (15,000)
------------ ------------
Total stockholders' equity 4,372,893 4,478,768
------------ ------------
$ 6,531,356 $ 6,064,613
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
<Table>
<Caption>
2001 2000
------------ ------------
Net sales $ 13,272,696 $ 10,324,009
Cost of sales 8,525,643 6,933,991
------------ ------------
Gross profit 4,747,053 3,390,018
Selling, general and administrative expenses 4,616,385 4,093,275
------------ ------------
Operating profit (loss) 130,668 (703,257)
------------ ------------
Other income (expense):
Interest expense (156,734) (201,434)
Interest income 3,823 7,066
Miscellaneous (681) --
------------ ------------
Total other income (expense) (153,592) (194,368)
------------ ------------
Loss before provision for income taxes (22,924) (897,625)
Income tax expense (benefit) (27,044) 51,748
------------ ------------
Net income (loss) $ 4,120 $ (949,373)
============ ============
Net income (loss) per share of common stock (basic and diluted) $ 0.00 $ (0.26)
============ ============
Weighted average shares of common stock outstanding -basic 4,253,850 3,641,109
============ ============
Weighted average shares of common stock outstanding -diluted 4,759,941 3,641,109
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
<Table>
<Caption>
COMMON STOCK
ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS/DEFICIT)
------------ ------------ ------------ -----------------
Balances at July 1, 1999 3,440,366 $ 34,404 $ 3,507,568 $ (805,315)
Issuance of stock
for cash 126,974 1,270 541,674 --
Purchase of stock for cash -- -- -- --
Conversion of debt to stock 677,267 6,772 2,160,211 --
Payment of notes
receivable from
Stockholders -- -- -- --
Issuance of warrants for
license agreements -- -- 252,000 --
Net loss -- -- -- (949,373)
------------ ------------ ------------ ------------
Balances at June 30, 2000 4,244,607 42,446 6,461,453 (1,754,688)
Issuance of stock for purchase
of assets 20,166 202 96,796 --
Purchase of stock for cash -- -- -- --
Warrants cancelled in conjunction
with amendment of distribution
agreement -- -- (105,971) --
Payment of notes
receivable from
stockholders -- -- -- --
Net income -- -- -- 4,120
------------ ------------ ------------ ------------
Balances at June 30, 2001 4,264,773 $ 42,648 $ 6,452,278 $ (1,750,568)
============ ============ ============ ============
<Caption>
TREASURY SHARES
RECEIVABLE
FROM
SHARES AMOUNT STOCKHOLDERS TOTAL
------------ ------------ ------------ ------------
Balances at July 1, 1999 900 $ (10,982) $ (28,405) $ 2,697,270
Issuance of stock
for cash -- -- -- 542,944
Purchase of stock for cash 19,960 (244,461) -- (244,461)
Conversion of debt to stock -- -- -- 2,166,983
Payment of notes
receivable from
Stockholders -- -- 13,405 13,405
Issuance of warrants for
license agreements -- -- -- 252,000
Net loss -- -- -- (949,373)
------------ ------------ ------------ ------------
Balances at June 30, 2000 20,860 (255,443) (15,000) 4,478,768
Issuance of stock for purchase
of assets -- -- -- 96,998
Purchase of stock for cash 15,366 (111,027) -- (111,027)
Warrants cancelled in conjunction
with amendment of distribution
agreement -- -- -- (105,971)
Payment of notes
receivable from
stockholders -- -- 10,005 10,005
Net income -- -- -- 4,120
------------ ------------ ------------ ------------
Balances at June 30, 2001 36,226 $ (366,470) $ (4,995) $ 4,372,893
============ ============ ============ ============
</Table>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
<Table>
<Caption>
2001 2000
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 4,120 $ (949,372)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 113,845 79,006
Amortization 128,826 131,377
Bad debt expense 56,600 20,000
Change in operating assets and liabilities, net of effects of
business acquisitions:
Accounts receivable (469,494) (261,207)
Inventory (371,841) (520,442)
Prepaid expenses and other current assets (107,314) (15,433)
Other assets, net 13,692 (3,760)
Accounts payable 386,334 (21,444)
Accrued expenses (290,812) 327,021
Other liabilities (17,904) (52,778)
------------ ------------
Net cash used in operating activities (553,948) (1,267,032)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (207,217) (80,609)
Cash paid for licenses -- (54,802)
Cash paid for treasury shares (111,027) (244,461)
Cash paid for trade name (63,851) --
Cash received from notes receivable from stockholders 10,005 13,405
Cash used in business acquisition net of cash acquired -- (114,543)
------------ ------------
Net cash used in investing activities (372,090) (481,010)
------------ ------------
Cash flow from financing activities
Proceeds from line of credit 420,000 --
Proceeds from notes payable to stockholders 75,000 256,000
Proceeds from convertible debt -- 1,186,262
Proceeds from issuance of common stock -- 542,944
------------ ------------
Net cash provided by financing activities 495,000 1,985,206
------------ ------------
Increase (decrease) in cash (431,038) 237,164
Cash and cash equivalents at beginning of year 780,546 543,382
------------ ------------
Cash and cash equivalents at end of year $ 349,508 780,546
============ ============
Noncash investing activities:
Warrants cancelled in conjunction with
amendment to distribution agreement $ 105,971 $ --
============ ============
Common stock issued for purchase of assets $ 96,998 $ --
============ ============
Conversion of debt into common stock $ -- $ 2,166,983
============ ============
Warrants issued for license agreements $ -- $ 252,000
============ ============
Cash payments for:
Income taxes $ -- $ 26,020
============ ============
Interest $ 135,551 $ 201,434
============ ============
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(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 "shell" corporation. 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 Kesmil
Manufacturing, Inc. ("KM") (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 accounting principles generally accepted
in the United States of America. 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.
F-7
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
INVENTORIES
Inventories are carried at the lower of cost or market using the
average cost method.
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 and
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 $44 thousand and $36 thousand for the fiscal years ended June 30,
2001 and 2000, respectively. 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 AGREEMENTS
License agreements represent amounts paid to acquire exclusive
distribution rights for specific products and are amortized over their estimated
useful life of 5 years. Amortization expense relating to license agreements was
approximately $63 thousand and $92 thousand for the fiscal years ended June 30,
2001 and 2000, 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 its
stock-based compensation to make pro forma disclosures of net income and
earnings per share as if SFAS 123 had been applied. See Note 11.
F-8
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
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, 2001 or 2000. Advertising expense approximated $1.1 million and $856
thousand for the fiscal years ended June 30, 2001 and 2000, respectively.
INCOME (LOSS) PER SHARE
Basic income (loss) per common share is computed by dividing the net
income (loss) by the weighted average number of shares of common stock
outstanding. Diluted income (loss) per share is computed based on weighted
average number of shares outstanding increased by the effect of stock options
and warrants when dilutive.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of inventory after giving
consideration to the possibility of returns based upon historical rates of
return.
RECENT PRONOUNCEMENTS
The Company, pursuant to Emerging Issues Task Force Issue 2000-10,
began classifying in 2001, 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.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations," which eliminates the pooling method of accounting for business
combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the
accounting for intangible assets and goodwill acquired in a business
combination. This portion of SFAS 141 is effective for business combinations
completed after June 30, 2001. The Company does not expect SFAS 141 will have a
material impact on the Company's financial position or results of operations.
F-9
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Intangible Assets," which revises
the accounting for purchased goodwill and intangible assets. Under SFAS 142,
goodwill and intangible assets with indefinite lives will no longer be
amortized, but will be tested for impairment annually, and in the event of an
impairment indicator. SFAS 142 is effective for fiscal years beginning after
December 15, 2001, with earlier adoption permitted. The Company expects the
adoption of SFAS 142 will increase annual pretax income by approximately $45
thousand. The Company adopted SFAS 142 in the first quarter of fiscal 2002.
(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.
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 stockholder and relative
of the Chairman, for $581 thousand and other liabilities of approximately $400
thousand. These notes 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 thousand.
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.
Selected financial information for the combined entities included in
the consolidated statements of operations for the years ended June 30, 2001 and
2000 are as follows:
F-10
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
<Table>
<Caption>
(DOLLARS IN THOUSANDS)
FOR THE YEARS
ENDED
JUNE 30,
-------------------------------
2001 2000
------------ ------------
Net sales:
CPI $ 13,273 $ 10,324
Kesmil 136 1,016
Elimination of intercompany sales (136) (1,016)
------------ ------------
Combined $ 13,273 $ 10,324
============ ============
Net income (loss):
CPI $ 98 $ (482)
Kesmil (94) (401)
Elimination of intercompany profit -- (66)
in inventory
------------ ------------
Combined $ 4 $ (949)
============ ============
</Table>
(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 $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.
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.
F-11
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(5) INVENTORIES
Inventories consist of the following:
<Table>
<Caption>
2001 2001
---------- ----------
Raw materials $ 205,734 $ 108,507
Work in progress 28,139 36,878
Finished goods 2,553,296 2,269,943
---------- ----------
$2,787,169 $2,415,328
========== ==========
</Table>
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<Table>
<Caption>
2001 2001
---------- ----------
Fixtures and equipment $ 487,466 $ 289,638
Manufacturing equipment 331,986 227,818
---------- ----------
Total property and equipment 819,452 517,456
Less accumulated depreciation (295,980) (184,354)
---------- ----------
Property and equipment, net $ 523,472 $ 333,102
========== ==========
</Table>
(7) LICENSE AND DISTRIBUTION AGREEMENTS
License and distribution agreements consist of the following:
<Table>
<Caption>
Agreement Unamortized Cost at June 30, 2001 Term
--------- --------------------------------- ----
Edwards Sports Products Ltd. $27,401 5 Years
Online Sports, Inc. $72,705 5 Years
</Table>
(8) 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 Revolving Line of
Credit permits the Company to borrow funds based upon a certain percentage of
accounts receivable and inventory. The Revolving Line of Credit 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%. The Company had $420 thousand outstanding at
June 30, 2001, under the terms of this facility and the Chief Executive Officer
guaranteed the Revolving Line of Credit up to $1 million. No amounts were
outstanding at June 30, 2000. At June 30, 2001, approximately $1.6 million was
available under this line of credit.
F-12
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(9) FEDERAL INCOME TAXES
CPI and its subsidiaries file separate income tax returns. Deferred tax
assets and liabilities consist of the following:
<Table>
<Caption>
June 30,
------------------------------
2001 2000
------------ ------------
Deferred tax assets
Net operating loss carryforward $ 692,447 $ 702,048
Other 36,898 16,604
------------ ------------
Total deferred tax assets 729,345 718,652
Valuation allowance (729,345) (718,652)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
</Table>
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:
<Table>
<Caption>
June 30,
------------------------------
2001 2000
------------ ------------
Tax expense (benefit) $ (7,794) $ (305,193)
Loss for which benefits were not used -- 305,559
Change in valuation allowance 10,693 (366)
Other (2,899) --
State income taxes (27,044) 51,748
------------ ------------
Income tax expense (benefit) $ (27,044) $ 51,748
============ ============
</Table>
At June 30, 2001, the Company had net operating loss carry forwards of
approximately $2.0 million, of which approximately $800 thousand were carry
forwards of DSSI. Because of the ownership change rules of the Internal Revenue
Code, use of the DSSI carry forwards are limited to approximately $80 thousand
per year. The carry forwards of CPI and its subsidiaries expire from 2013
through 2020. The DSSI carry forwards expire through 2011.
(10) RELATED PARTY TRANSACTIONS
During the periods the Company paid the majority stockholder of the
Company approximately $86 thousand in interest on notes payable assumed in
conjunction with the purchase of Kesmil Manufacturing (See Note 3).
F-13
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(11) STOCK OPTIONS AND WARRANTS
On September 22, 1994, DSSI established a non-qualified stock option
plan, which provides for the granting of non-qualified stock options to purchase
up to 100,000 shares of common stock at the fair market value on the date of
grant. There were 5,000 and 33,000 options outstanding at June 30, 2001 and
2000, respectively. No shares were exercised in 2001 and 27,000 shares were
exercised in the fiscal year ended June 30, 2000. No additional shares were
granted or canceled under the terms of this plan during the fiscal year ended
June 30, 2001.
On December 11, 1998, the Company's stockholders approved a new stock
option plan, (the "1998 Collegiate Pacific Inc. Stock Option Plan"). The new
plan authorized the Company's Board of Directors to grant employees, directors
and consultants of the Company up to an aggregate of 400,000 shares of the
Company's common stock, $0.01 par value per share. The number of shares
available under the plan was increased to 1,000,000 upon approval by the
Company's stockholders on March 20, 2001.
A summary of the Company's employee and director option and warrant
activity for the fiscal years ended June 30, 2001 and 2000 is as follows:
<Table>
<Caption>
Weighted
Average
Exercise
Warrants Options Price
------------ ------------ ------------
Outstanding and exercisable at July 1, 1999 98,974 73,500 $ 5.36
Exercised (98,974) (28,000) 4.28
------------ ------------ ------------
Outstanding and exercisable at June 30, 2000 -- 45,500 8.48
Granted -- 476,200 4.88
Forfeited or cancelled -- (7,500) 7.68
------------ ------------ ------------
Outstanding at June 30, 2001 -- 514,200 $ 5.16
============ ============ ============
Exercisable at June 30, 2001 -- 456,200 $ 5.13
============ ============ ============
</Table>
The weighted average fair value of options granted in fiscal 2001 was $4.33 per
share.
F-14
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
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 fiscal years ended June 30, 2001
and 2000 would have been as follows:
<Table>
<Caption>
June 30,
------------------------------
2001 2000
------------ ------------
Net income (loss)
As reported $ 4,120 $ (949,373)
Pro forma (1,993,466) (949,373)
Income (loss) per common share
As reported $ 0.00 $ (0.26)
Pro forma $ (0.47) $ (0.26)
</Table>
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 4.9% to
6.2%; no dividend yield; and expected lives of five to seven years.
The following table summarizes additional information about stock
options at June 30, 2001:
<Table>
<Caption>
Outstanding Exercisable
------------- ------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Life Exercise Exercise
Exercise price Shares (In Years) Price Shares Price
- -------------- ------------ ------------- ------------ ------------- ------------
$1.25 5,000 1.0 $ 1.25 5,000 $ 1.25
3.89-4.81 272,700 9.4 3.91 259,700 3.89
6.13-7.50 200,000 9.4 6.19 155,000 6.13
9.38 36,500 7.7 9.38 36,500 9.38
------------ ------------
514,200 456,200
============ ============
</Table>
On May 26, 2000, each record holder of our 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. Each warrant entitles the holder to purchase from the Company, for
cash, one share of common stock at $5.00 per share. The total number of warrants
issued was 4,244,607. 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. 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.
F-15
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(12) 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 $311 thousand for the
fiscal year ended June 30, 2001, and $275 thousand for the fiscal year ended
June 30, 2000.
Future minimum lease commitments on all operating leases with terms in
excess of one year are as follows:
<Table>
2002 266,028
2003 278,370
2004 285,228
2005 279,684
2006 89,532
-------------
$ 1,198,842
=============
</Table>
(13) INCOME (LOSS) PER SHARE
Summarized basic and diluted additional income (loss) per common share
for the years ended June 30, 2001 and 2000 are as follows:
<Table>
<Caption>
2001 2000
---------------------------------------- -----------------------------------------
Net Per Share Per Share
Income Shares Amount Net Loss Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
Basic Income
(loss) per share $ 4,120 4,253,850 0.00 (949,373) 3,641,109 (0.26)
Effect of
Dilutive options -- 506,091 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Diluted income
(loss) per share $ 4,120 4,759,941 0.00 (949,373) 3,461,109 (0.26)
========== ========== ========== ========== ========== ==========
</Table>
For fiscal 2001 and 2000 stock options and warrants covering 2,316,262 and
4,328,107 shares, respectively, were excluded in the computations of diluted
income (loss) per share because their effect was antidilutive.
F-16
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
September 30, June 30,
2001 2001
------------ ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 275,075 $ 349,508
Accounts receivable, net of allowance for doubtful
accounts of $93,223 and $87,187, respectively 1,714,910 1,797,079
Inventories 3,112,241 2,787,169
Prepaid expenses and other assets 286,317 146,328
------------ ------------
Total current assets 5,388,543 5,080,084
Property, plant and equipment, net of accumulated
depreciation of $302,300 and $295,980, respectively 551,263 523,472
Other assets:
License agreements, net of accumulated amortization
of $53,343 and $44,296, respectively 91,059 100,106
Cost in excess of net tangible assets acquired, net of
accumulated amortization of $122,542 544,375 544,375
Other assets, net 277,688 283,319
------------ ------------
$ 6,852,928 $ 6,531,356
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,117,082 $ 942,129
Accrued expenses 126,485 124,190
Current portion, notes payable to stockholders 290,973 290,973
Current portion, other notes payable 420,000 420,000
Other current liabilities 6,984 16,144
------------ ------------
Total current liabilities 1,961,524 1,793,436
Notes payable to stockholders, net of current portion 365,027 365,027
------------ ------------
Total liabilities 2,326,551 2,158,463
Stockholders' equity:
Common stock, $.01 par value; authorized 50,000,000
shares; issued 4,264,773 shares 42,648 42,648
Additional paid-in capital 6,452,278 6,452,278
Accumulated deficit (1,602,079) (1,750,568)
Treasury shares at cost; 36,226 shares (366,470) (366,470)
------------ ------------
4,526,377 4,377,888
Less notes receivable from stockholders -- (4,995)
------------ ------------
Total stockholders' equity 4,526,377 4,372,893
------------ ------------
$ 6,852,928 $ 6,531,356
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
F-17
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<Table>
<Caption>
Three Months Ended
September 30,
------------------------------
2001 2000
------------ ------------
Net sales $ 3,814,622 $ 2,662,890
Cost of sales 2,404,891 1,743,353
------------ ------------
Gross profit 1,409,731 919,537
Selling, general and administrative
expenses 1,225,519 971,001
------------ ------------
Operating profit (loss) 184,212 (51,464)
Other income (expense)
Interest expense (40,751) (21,041)
Other income 5,028 1,931
------------ ------------
Net income (loss) $ 148,489 $ (70,574)
============ ============
Net income (loss) per share-basic and diluted $ 0.03 $ (0.02)
============ ============
Weighted average shares outstanding:
Basic 4,264,773 4,244,607
============ ============
Diluted 4,305,111 4,244,607
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
F-18
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<Table>
<Caption>
Three months ended
September 30,
------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 148,489 $ (70,574)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation, amortization and bad debt expense 76,699 85,276
Changes in operating assets and liabilities (232,951) (1,001,279)
------------ ------------
Net cash used in operating activities (7,763) (986,577)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (71,665) (62,774)
Cash paid for licenses -- 5,009
Cash received on notes receivable from stockholders 4,995 9,966
------------ ------------
Net cash used in investing activities (66,670) (47,799)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for treasury shares -- (111,027)
Proceeds from borrowings -- 460,000
------------ ------------
Net cash provided by financing activities -- 348,973
------------ ------------
Net decrease in cash and cash equivalents (74,433) (685,403)
Cash and cash equivalents at beginning of period 349,508 780,546
------------ ------------
Cash and cash equivalents at end of period $ 275,075 $ 95,143
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 56,124 $ 15,681
============ ============
Cash paid during the period for income taxes $ -- $ 29,168
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
F-19
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION.
These unaudited condensed consolidated financial statements of
Collegiate Pacific Inc. and its subsidiaries 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 annual report on Form
10-KSB for the fiscal year ended June 30, 2001. 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,
2002.
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. NEW ACCOUNTING STANDARDS.
The company, pursuant to Emerging Issues Task Force Issue 2000-10,
began classifying in 2001 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.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations," which eliminates the pooling method of
accounting for business combinations initiated after June 30, 2001. In
addition, SFAS 141 addresses the accounting for intangible assets and
goodwill acquired in a business combination. The portion of SFAS 141 is
effective for business combinations completed after June 30, 2001. The
company does not expect SFAS 141 will have a material impact on the
company's financial position or results of operations.
F-20
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill and Intangible Assets," which
revises the accounting for purchased goodwill and intangible assets.
Under SFAS 142, goodwill and intangible assets with indefinite lives
will no longer be amortized, but will be tested for impairment
annually, and in the event of an impairment indicator. SFAS 142 is
effective for fiscal years beginning after December 15, 2001, with
earlier adoption permitted. The Company adopted SFAS 142 in the first
quarter of fiscal year 2002. The following table reflects pro-forma
amounts as though SFAS 142 were adopted at the beginning of fiscal
2001:
<Table>
<Caption>
September 30,
2001 2000
------------ ------------
Reported net income (loss): $ 148,489 $ (70,574)
Add back: Goodwill amortization -- 10,900
------------ ------------
Adjusted net income (loss) $ 148,489 $ (59,674)
============ ============
Basic earnings per share:
Reported net income (loss) $ 0.03 $ (0.02)
Add back: Goodwill amortization -- 0.01
------------ ------------
Adjusted net income (loss) $ 0.03 $ (0.01)
============ ============
Diluted earnings per share:
Reported net income (loss) $ 0.03 $ (0.02)
Add back: Goodwill amortization -- 0.01
------------ ------------
Adjusted net income (loss) $ 0.03 $ (0.01)
============ ============
</Table>
In October 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 144 ("SFAS
144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets". SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" ("SFAS 121") and related
literature and establishes a single accounting model, based on the
framework established in SFAS 121, for long-lived assets to be disposed
of by sale. The Company is required to adopt SFAS 144 for fiscal years
beginning after December 15, 2001.
4. INVENTORIES
Inventories consist of the following:
<Table>
<Caption>
September 30, June 30,
2001 2001
------------ ------------
Raw materials $ 271,734 $ 205,734
Work in progress 49,524 28,139
Finished goods 2,790,983 2,553,296
------------ ------------
$ 3,112,241 $ 2,787,169
============ ============
</Table>
F-21
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. INCOME (LOSS) PER SHARE
Summarized basic and diluted additional income (loss) per common share
for the three months ended September 30, 2001 and 2000 are as follows:
<Table>
<Caption>
2001 2000
---------------------------------------- -----------------------------------------
Net Per Share Per Share
Income Shares Amount Net Loss Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
Basic Income
(loss) per share $ 148,489 4,264,773 $ 0.03 $ (70,574) 4,244,607 $ (0.02)
Effect of
dilutive options -- 40,338 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Diluted income
(loss) per share $ 148,489 4,305,111 $ 0.03 $ (70,574) 4,244,607 $ (0.02)
========== ========== ========== ========== ========== ==========
</Table>
For the three months ended September 30, 2001 and 2000, stock options
and warrants covering 4,487,107 and 4,452,107 shares, respectively,
were excluded in the computations of diluted income (loss) per share
because their effect was antidilutive.
6. SUBSEQUENT EVENTS
On October 31, 2001, the Company amended the terms of its existing
Revolving Credit Facility with Chase Bank of Texas extending the
maturity date for an additional one year period.
F-22
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.
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 December 10, 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.
<Table>
<Caption>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Michael J. Blumenfeld Chairman, Chief Executive Officer and December 10, 2001
- -------------------------------------- Director (Principal Executive Officer)
Michael J. Blumenfeld
* President and Director December 10, 2001
- --------------------------------------
Adam Blumenfeld
* Chief Financial Officer, Secretary and December 10, 2001
- -------------------------------------- Treasurer (Principal Accounting and
William R. Estill Financial Officer)
* Chief Operating Officer and Director December 10, 2001
- --------------------------------------
Arthur J. Coerver
* Vice President Marketing and Director December 10, 2001
- --------------------------------------
Harvey Rothenberg
* Director December 10, 2001
- --------------------------------------
Jeff Davidowitz
* Director December 10, 2001
- --------------------------------------
William A. Watkins, Jr.
/s/ Robert W. Hampton Director December 10, 2001
- --------------------------------------
Robert W. Hampton
*By Power of Attorney
</Table>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Stock Purchase Agreement dated August 18, 1997 with Michael J.
Blumenfeld.(1)
2.2 Agreement and Plan of Merger dated July 20, 1999, for the
reincorporation of the company in Delaware.(2)
3.1 Articles of Incorporation of the company filed on December 15,
1998.(3)
3.2 By-Laws of the company.(3)
3.3 Certificate of Amendment to Certificate of Incorporation of
the company filed on January 18, 2000.(4)
4.1 Specimen Certificate of Common Stock, $0.01, par value, of the
company.(3)
4.2 Specimen Common Stock Purchase Warrant.(4)
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.(5)
10.2 Form of Underwriter's Unit Purchase Warrant of the company.(6)
10.3 Form of Underwriter's Warrant of the company.(6)
10.4 1994 Stock Option Plan of the company.(7)
10.5 Employee Restricted Stock Plan of the company.(8)
10.6 Lease dated July 1, 1997 between the company, as tenant, and
Post-Valwood, Inc., as landlord.(9)
10.7 Exclusive Distribution Agreement dated February 24, 1998,
between the company and Equipmart, Inc.(9)
10.8 Exclusive Distribution Agreement dated March 7, 1998, between
the company and FunNets, Inc.(9)
10.9 Exclusive Distribution Agreement dated March 21, 1998, between
the company and Pro Gym Equipment, Inc.(9)
10.10 Stock Acquisition Agreement dated April 14, 1998, between the
company and Product Merchandising, Inc.(9)
10.11 Agreement and Plan of merger dated May 31, 1998, between the
company and Vantage Products International, Inc.(9)
10.12 1998 Collegiate Pacific Inc. Stock Option Plan.(2)
</Table>
<Table>
10.13 Credit Agreement, dated as of June 30, 1999, between Chase
Bank of Texas, National Association, and the company for a
$2,000,000 line of credit, and related documents.(10)
10.14 Promissory Note dated March 31, 1999 from the company to
Michael J. Blumenfeld in the principal amount of
$1,082,648.75.(10)
10.15 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.(4)
10.16 Stock Purchase Agreement dated September 7, 2000, by and
between the company and Michael J. Blumenfeld.(11)
10.17 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.(12)
10.18 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.(12)
10.19 Fourth Amendment to Credit Agreement dated as of January 16,
2001, by and between The Chase Manhattan Bank and the
company.(13)
10.20 First Amendment to Stock Option Plan.(14)
10.21 Fifth Amendment to Credit Agreement dated as of October 31,
2001, by and between The Chase Bank of Texas, N.A. and the
company.(16)
21 Subsidiaries of the company(15)
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.(11)
</Table>
- ----------
* Filed herewith
(1) Previously filed as an exhibit to the company's Form 8-K/A filed on
September 11, 1997.
(2) Previously filed as an exhibit to the company's Definitive Proxy Statement
for its Annual Meeting held on December 11, 1998.
(3) Previously filed as an exhibit to the company's Form 8-A dated September 9,
1999.
(4) Previously filed as an exhibit to the company's Registration Statement on
Form SB-2 (No. 333-34294) dated April 7, 2000, as amended.
(5) Previously filed as an exhibit to the company's Form 8-A dated June 28,
1993.
(6) Previously filed as an exhibit to the company's Current Report on Form 8-K
filed on July 12, 1993.
(7) Previously filed as an exhibit to the company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1994.
(8) Previously filed as an exhibit to a Post-Effective Amendment to the
company's Registration Statement on Form S-1, File No. 33-19770-NY.
(9) Previously filed as an exhibit to the company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1998.
(10) Previously filed as an exhibit to the company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1999.
(11) Previously filed as an exhibit to the company's Report on Form 8-K filed on
September 21, 2000.
(12) Previously filed as an exhibit to the company's Quarterly Report on Form
10-QSB for the fiscal quarter ended September 30, 2000.
(13) Previously filed as an exhibit to the company's Quarterly Report on Form
10-QSB for the fiscal quarter ended December 31, 2000.
(14) Previously filed as an exhibit to the company's Registration Statement on
Form SB-2 (No. 333-34294)dated April 30, 2001.
(15) Previously filed as an exhibit to the company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 2001.
(16) Previously filed as an exhibit to the company's Quarterly Report on Form
10-QSB for the fiscal quarter ended September 30, 2001.