AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 2003.
REGISTRATION NO. 333-34294
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE
AMENDMENT NO. 5
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 (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code Number)
13950 SENLAC DRIVE, SUITE 100 MICHAEL J. BLUMENFELD
DALLAS, TEXAS 75234 CHIEF EXECUTIVE OFFICER
972. 243.8100 13950 SENLAC DRIVE, SUITE 100
(Address and telephone number of principal DALLAS, TEXAS 75234
executive offices and principal place of 972. 243.8100
business) (Name, address and telephone number
of agent for service)
</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 Relationships 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 Not Applicable
and 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 March 12, 2003, the closing price of the Common Stock was
$4.40 per share, and the closing price of the Warrants was $0.65 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 MARCH 13, 2003
The date of this Prospectus is March 13, 2003. 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.......................................................... 15
Management........................................................... 19
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............................................ 31
Legal Matters........................................................ 35
Experts ............................................................. 35
Indemnification...................................................... 35
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," "fiscal 2002" and "fiscal 2003"
refers to our fiscal years ended June 30, 1999, 2000, 2001, 2002, and 2003,
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 and Warrants 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 and Warrants 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 mail order marketing of sports equipment. We manufacture
and distribute 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
3,200 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
35,000 customers.
Our master mailing list currently includes over 200,000 potential
customers, and we intend to distribute approximately 1,300,000 catalogs and
fliers to this audience during fiscal 2003. Michael J. Blumenfeld, the Chief
Executive Officer of the Company with over 30 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.
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, expand working
capital, and 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. As a result, pursuant to the terms of the Warrants, the
cancellation price of the Warrants was automatically reduced from $.10 per share
of Common Stock purchasable upon exercise of the Warrants to $.05 per share. See
"Description of Dividend Warrants."
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 March 12, 2003, 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 AFTER OFFERING
----------------- -----------------------
NUMBER OF PERCENT OF SHARES TO BE NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES(1) CLASS(2) SOLD SHARES(1) CLASS
- ------------------------ ------------- ------------- ------------- ---------- -----------
Michael J. Blumenfeld, 4,285,214(3) 66.9% 2,857,152(4) 1,428,062 32.4%
Chief Executive Officer
of the Company
</Table>
The shares and Warrants that have been registered by Mr. Blumenfeld are being
done so with the intention that the sale or placement of these shares and
Warrants may be for the benefit of the Company. The shares and Warrants 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.
5
- ----------
(1) 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.
(2) 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.
(3) Consists of 2,177,607 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 2,002,607
shares issuable upon exercise of a Warrant expiring May 26, 2005, issued
as a special dividend of Warrants on shares of Common Stock.
(4) 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, 2,002,607 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
6
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 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 did not receive any consideration for the issuance of the
Warrants and will not receive 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 approximately $21,000,000. 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 shares and Warrants that have been registered by Mr. Blumenfeld are
being done so with the intention that the sale or placement of these shares and
Warrants may be for the benefit of the Company. The shares and warrants 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. 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.
7
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. If the Company calls the Warrants for cancellation,
holders may exercise the Warrants at any time prior to the close of business on
the business day preceding the date fixed for cancellation.
DESCRIPTION OF NOTES
The Notes were sold to certain officers and directors of the Company
and certain other third parties not affiliated with the Company (the "Note
Holders") pursuant to a Purchase Agreement between the Company and the Note
Holders (the "Purchase Agreement"), dated as of February 29, 2000. The Notes
were general obligations of the Company 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 OR WARRANTS COULD DECLINE,
AND INVESTORS COULD LOSE ALL OR PART OF ANY INVESTMENT IN THE COMMON STOCK OR
WARRANTS.
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 entered into the catalog and mail-order distribution
of sporting goods business only five years ago. The Company generated net income
of approximately $805 thousand and $4 thousand for fiscal 2002 and fiscal 2003,
respectively.
Our prospects must be considered in light of the risks, expenses, and
difficulties frequently encountered by start-up companies in the marketing
industry. To address these risks, we must, among other things:
o effectively develop new relationships and maintain existing
relationships with our suppliers, advertisers and customers;
o provide products at competitive prices;
o respond to competitive developments; and
o attract, retain, and motivate qualified personnel.
We cannot assure you that we will succeed in addressing such risks. Our
failure to do so could have a material adverse effect on the Company's business,
financial condition, or results of operations.
In addition, our limited operating history makes it difficult or
impossible to predict future operating results. We cannot give you any assurance
that our revenues will increase or even continue at their current level, or that
we will attain profitability or generate cash from operations in the future.
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 that 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 may need to seek additional third-party
financing to raise additional capital needed to support any future growth. 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 and does not have a "key person" life insurance
policy on any of its officers or other employees.
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.
RISKS RELATED TO INTERNATIONAL SUPPLIERS
A significant amount of our revenues depend 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.
11
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 adversely
affect our business, financial condition, and results of operations due to an
inability to make timely shipments to our customers or by utilizing other more
costly carriers or means of shipping.
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 2,177,607 shares or 50.6% of our Common
Stock, and holds options and Warrants convertible into 2,107,607 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 Company. In addition, Mr. Blumenfeld
may control the election of directors and any other action requiring stockholder
approval.
12
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.
We have granted 650,700 options, each to purchase one share of our Common Stock,
to key employees, officers, and directors under our 1998 Collegiate Pacific Inc.
Stock Option Plan. These outstanding options could have a significant adverse
effect on the trading price of our Common Stock, especially if a significant
volume of the options were exercised and the stock issued were immediately sold
into the public market.
THE EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS COULD HAVE A DILUTIVE EFFECT
As of March 12, 2003, there were outstanding options and warrants held
by shareholders and certain third parties to purchase approximately 4,895,307
shares of Common Stock. The options and warrants have exercise prices ranging
from $3.88 per share to $9.38 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.
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
13
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 $0.05 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."
14
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:
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;
and
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.
15
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.
On December 26, 2001, we entered into a $2.5 million revolving line of
credit with Bank of America, N.A. (the "Line of Credit'). In August 2002, we
amended the Line of Credit to increase the amount of the line to $5.0 million
and extended the maturity date to July 15, 2004. We also increased the
percentage of all eligible receivables that we may borrow against to 85%. There
was $1.1 million outstanding under the Line of Credit on December 31, 2002.
We are in the mail order marketing of sports equipment. We manufacture
and distribute 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
3,200 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
35,000 customers.
Our master mailing list currently includes over 200,000 potential
customers, and we intend to distribute approximately 1,300,000 catalogs and
fliers to this audience during fiscal 2003. Michael Blumenfeld, the Chief
Executive Officer of the Company with 30 years of experience in the industry,
16
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.
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
17
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 56 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 any organized labor organization or union, and we
believe our relations with our employees are generally good.
PROPERTIES
We lease approximately 88,000 square feet in Farmers Branch, Texas,
which we use for our corporate headquarters and a warehouse facility. The lease
for this facility expires in October 2007. The Company also leases approximately
1,500 square feet in Memphis, Tennessee, which we use for a sales office. The
lease for this facility expires in 2005. We believe those facilities will be
adequate for our business needs for the foreseeable future. We do not own any
real property.
LEGAL PROCEEDINGS
None.
18
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 57 Chairman of the Board and Chief Executive Officer
Adam Blumenfeld 33 President and Director
Arthur J. Coerver 60 Chief Operating Officer and Director
Harvey Rothenberg 61 Vice President Marketing and Director
William R. Estill 54 Chief Financial Officer, Secretary and Treasurer
Chad H. Edlein 33 Vice President Corporate Development
Jeff Davidowitz 47 Director
William H. Watkins, Jr 61 Director
Robert W. Hampton 56 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 December
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. Estill holds a Bachelor of Business Administration degree
in Accounting from the University of Texas at Arlington and passed the CPA exam
in 1983.
19
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 and has served in that capacity since 1991. Mr. Davidowitz is also a
member of the Company's Board of Directors and serves on its Audit and Stock
Option Committees.
William H. Watkins, Jr. is a partner in the public accounting firm of
Watkins Uiberall and has served in that capacity 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, including
Jones Financial Group, Ltd., conduct business in several areas including cable
television programming, radio programming, advertising sales representation,
education and software development. Prior to joining Jones International, Ltd.,
Mr. Hampton held various management positions at Xerox Corporation. Mr. Hampton
is also a member of the Company's Board of Directors and serves on its Audit and
Stock Option Committees.
20
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 $100,000 and who were serving as an executive officer at the end of
fiscal 2002.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
Long-Term
Annual Compensation Compensation
------------------------ --------------------------
Restricted Securities
Fiscal Stock Underlying
Name and Principal Positions Year Salary ($) Awards($) Options
---------------------------- ------ ---------- ---------- ----------
Michael J. Blumenfeld 2002 160,000 -- --
Chairman of the Board and 2001 140,000 -- 95,000
Chief Executive Officer 2000 96,500 -- --
Adam Blumenfeld 2002 150,000 -- --
President 2001 138,650 -- 45,000
2000 68,8601 -- --
Harvey Rothenberg 2002 115,000 -- --
Vice President, Marketing 2001 105,400 -- 40,000
2000 84,325 -- --
Arthur J. Coerver 2002 128,000 -- --
Chief Operating Officer 2001 118,200 -- 40,000
2000 108,200 -- --
William Estill 2002 156,000 -- --
Chief Financial Officer 2001 151,800 -- 40,000
2000 100,270(1) -- --
</Table>
- ----------
(1) Mr. Blumenfeld's employment with the company commenced in January 2000.
Mr. Estill's employment with the company commenced in July 1999.
21
- --------------------------------------------------------------------------------
STOCK OPTIONS
- --------------------------------------------------------------------------------
No stock option awards were made to the Named Executive Officers during
fiscal 2002 and no Named Executive Officer exercised any outstanding stock
option award during fiscal 2002.
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 $ 42,825 $ 0
Adam Blumenfeld 45,000 0 24,000 0
Harvey Rothenberg 40,000 0 17,200 0
Arthur J. Coerver 42,000 0 19,200 0
William Estill 40,000 0 19,200 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 ($4.85).
EQUITY COMPENSATION PLAN INFORMATION
<Table>
<Caption>
(a) (b) (c)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS OPTIONS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
------------- ------------------- --------------------------- ------------------------
Equity Compensation Plans 498,200 $5.16 501,800
Approved by Security Holders
Equity Compensation Plans Not --
Approved by Security Holders
--------- ----- --------
Total 498,200 $5.16 501,800
</Table>
22
DIRECTOR COMPENSATION
Each non-employee director receives $7,500 per year for their service
on the Board of Directors or any committee of the Board of Directors. Directors
are reimbursed for their reasonable out-of-pocket expenses associated with
attending Board of Directors and committee meetings.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of shares of Common Stock as of March 12,
2003, 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 2,177,607 2,107,607 4,285,214 66.9%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Adam Blumenfeld 243,600 307,100 550,700 12.0%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Jeff Davidowitz 140,302(b) 160,802(b) 301,104 6.7%
13950 Senlac Drive, Suite 100
Dallas, TX 75234
Arthur J. Coerver 37,790(c) 97,790(c) 135,580 3.1%
William H. Watkins, Jr. 42,803(d) 51,303(d) 94,106 2.2%
Harvey Rothenberg 18,832(e) 66,717(e) 85,549 2.0%
Robert W. Hampton -- 5,000 5,000 --
Chadd Edlein 14,000 52,500 66,500 1.5%
William R. Estill -- 60,000 60,000 1.4%
Directors and executive
officers as a group (9 persons) 2,674,934 2,908,819 5,583,753 77.5%
</Table>
- ----------
a - Based on the number of shares outstanding (4,300,659) at the close of
business on October 25, 2002.
23
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) 4,000 shares issuable upon exercise of a warrant
held by Mr. Rothenberg's spouse, and (iv) 3,430 shares issuable upon
exercise of a warrant held in trust for the benefit of Mr. Rothenberg.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 2000, the Company issued $2,235,000 of Notes to certain
officers and directors of the Company and certain third parties. Approximately
$995,000 of the Notes were issued to Michael J. Blumenfeld in exchange for an
equal amount of subordinated notes originally issued to Mr. Blumenfeld in
exchange for cash. The remaining notes were issued in exchange for cash in the
amount of approximately $1.4 million. In April 2000, all of the note holders
converted the outstanding balance under the Notes into shares of Common Stock at
a conversion price of $3.30 per share, resulting in the issuance of 677,267
shares of Common Stock.
The following table sets forth the principal amount of the notes and
the number of shares the notes were converted into by each officer and director
of the Company.
<Table>
<Caption>
NUMBER OF SHARES
ISSUED UPON
PRINCIPAL AMOUNT CONVERSION
NAME OF NOTE HOLDER OF NOTE($) 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
and a stockholder and relative of Mr. Blumenfeld, and the assumption of other
liabilities of approximately $400,000. In connection with the amendment to the
Company's Line of Credit in August 2002, those notes payable were repaid in full
by the Company. 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." 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. The price quotation
in NASD reflect interdealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
<Table>
<Caption>
FISCAL 2003 FISCAL 2002 FISCAL 2001
COMMON STOCK ------------------- ------------------ ------------------
CALENDAR PERIOD LOW HIGH LOW HIGH LOW HIGH
--------------- ----- ------ ----- ------ ----- ------
July 1 - September 30 $4.70 $ 6.15 $3.88 $ 5.65 $6.00 $ 9.75
October 1 - December 31 5.75 6.35 4.90 5.93 5.50 6.75
January 1 - March 31 -- -- 5.00 7.12 3.75 5.63
April 1 - June 30 -- -- 4.70 7.50 3.85 4.10
</Table>
<Table>
<Caption>
FISCAL 2003 FISCAL 2002 FISCAL 2001
WARRANTS ------------------- ------------------ ------------------
CALENDAR PERIOD LOW HIGH LOW HIGH LOW HIGH
--------------- ----- ------ ----- ------ ----- ------
July 1 - September 30 $1.20 $ 1.75 $0.83 $ 0.83 $1.25 $ 1.88
October 1 - December 31 1.00 1.80 0.90 1.25 1.00 1.25
January 1 - March 31 -- -- 1.00 2.65 0.60 0.90
April 1 - June 30 -- -- 1.05 2.81 0.73 0.85
</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 March 12, 2003, there were approximately 335 holders of record of
Common Stock (not including shares held in street name), and there were
4,300,669 shares of Common Stock outstanding and 4,244,607 Warrants outstanding.
DIVIDENDS
The Company did not declare or pay any cash or stock dividends on the
Common Stock during fiscal 2002. 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. On September 19, 2002, we announced for the
first time that we would pay a cash dividend of $0.02 per share on October 11,
2002, to all shareholders of record on September 30, 2002, and on December 24,
2002, we announced that we would pay a cash dividend of $0.02 per share on
January 24, 2003, to all shareholders of record on December 31, 2002. Future
dividends may be paid only when, as, and if declared by the Company's Board of
Directors in its sole discretion, and will be dependent upon the 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. We currently do not anticipate paying
any stock dividends in the foreseeable future.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The Company is engaged in the business of manufacturing and
distributing sports equipment nationwide to the institutional and retail markets
and realizes 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. Company management 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 35,000 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 2003 and fiscal 2002 refer to our fiscal years ending on June 30, 2003
and 2002, respectively.
THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2001 AND SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 2001
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 December 31, 2002, increased by
approximately $660 thousand, or approximately 23%, compared to the same period
in 2001. Net sales for the six months ended December 31, 2002, increased by
approximately $1.6 million, or 24%, compared to the same period in 2001. We
attribute the growth in net sales to our aggressive marketing activities, the
expansion of our product offerings, and the overall growth of our customer base.
As a result of the Company's expanded operations and marketing activities, we
believe future revenues will continue to exhibit growth from current levels.
Management believes the seasonality in the Company's 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 Profit. Gross profit for the three months ended December 31,
2002, increased by approximately $275 thousand, or 27%, compared to the same
period in 2001. As a percentage of sales, gross profit for the three months
ended December 31, 2002, increased to approximately 37%, compared to 36% for the
same period in 2001. Gross profit for the six months ended December 31, 2002,
increased by approximately $622 thousand, or 26%, compared to the same period in
2001. As a percentage of sales, gross profit for the six months ended December
31, 2002 and 2001, was 37% and 36%, respectively.
The increase in gross profit for the three and six months ended December 31,
2002 over the same periods in 2001 was primarily the result of our increased
sales volume and a slight increase in the sale of our manufactured goods, which
historically have higher margins.
26
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the three months ended December 31, 2002,
increased by approximately $281 thousand, or 23%, compared to the same period in
2001. As a percentage of sales, SG&A expenses for the three months ended
December 31, 2002 and 2001, was 43%. SG&A expenses for the six months ended
December 31, 2002, increased by approximately $516 thousand, or 21%, compared to
the same period in 2001. As a percentage of sales, SG&A expenses for the six
months ended December 31, 2002, decreased to 36% from 37% for the same period in
fiscal 2002. The increase in SG&A expenses was primarily due to an increase in
personnel related costs incurred in connection with hiring additional personnel
in the fulfillment and sales force to manage the increase in sales volume. Also
contributing to the increase in SG&A expenses were the additional legal and
professional fees incurred in connection with identifying and performing due
diligence on potential acquisition candidates, as well as additional investor
relation fees.
Operating Profit (Loss). Operating losses increased by approximately $5
thousand for the three months ended December 31, 2002, compared to the same
period in fiscal 2002. As a percentage of sales, operating losses decreased to
approximately 6% for the three months ended December 31, 2002, compared to 7%
for the same period during fiscal 2002. Operating profit increased by
approximately $106 for the six months ended December 31, 2002, compared to the
same period in fiscal 2002. As a percentage of sales, operating profit increased
to approximately 1% for the six months ended December 31, 2002, compared to a
0.4% loss for the same period during fiscal 2002. The increase was attributable
to an increase in sales, an increase in gross profit, and a decrease in SG&A
expenses as a percentage of sales during the same period in fiscal 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled approximately $148 thousand at
December 31, 2002, compared to approximately $267 thousand at June 30, 2002.
Cash used in operations was approximately $592 thousand during the six months
ended December 31, 2002, primarily due to an increase in inventories of
approximately $825 thousand and prepaid expenses of approximately $636 thousand,
which was partially offset by operating profit in the period and a decrease in
accounts receivable of approximately $696 thousand. For the same period in
fiscal 2002, cash used in operations of approximately $501 thousand was the
result of an increase in inventory of approximately $922 thousand and prepaid
expenses of approximately $61 thousand, and a decrease in accounts payable of
approximately $280 thousand, partially offset by a decrease in accounts
receivable of approximately $736 thousand.
The Company used approximately $141 thousand in cash in investing
activities in the six month period ended December 31, 2002, compared to
approximately $94 thousand for the same period in fiscal 2002. The increase was
due to the increase in capital expenditures compared to the prior year.
The Company generated approximately $613 thousand from financing
activities for the six months ended December 31, 2002. The cash generated from
financing activities was from borrowings under the Company's revolving line of
credit of $1.2 million, partially offset by the purchase of treasury shares of
approximately $98 thousand, cash dividends to the holders of common stock of
approximately $86 thousand and repayments on the note payable to stockholder of
approximately $353 thousand. For the same period in fiscal 2002, the Company
generated approximately $543 from financing activities primarily from borrowings
under the Company's revolving line of credit of $650 thousand, partially offset
by the purchase of treasury shares of approximately $107 thousand.
Current assets totaled approximately $6 million at December 31, 2002,
providing the Company with working capital of approximately $4.6 million.
27
The Company's principal external source of liquidity is its $5,000,000
revolving line of credit with Bank of America, N.A. (the "Revolving Line of
Credit"). At the Company's option, borrowings under the Revolving Line of Credit
bear interest at the prevailing prime rate, which was 4.25% as of December 31,
2002, plus 1/2% or LIBOR plus 3%. The Revolving Line of Credit matures on July
15, 2004 and is secured by all of the Company's assets. As of December 31, 2002,
$1.2 million was outstanding under the Revolving Line of Credit, thereby leaving
the Company with approximately $1.3 million of availability under the borrowing
base formula. The Revolving Line of Credit contains customary covenants and the
Company must maintain certain financial ratios pertaining to its net worth and
ratio of debt to net worth. The Company is currently in compliance with all
financial covenants and management does not believe that the financial covenants
set forth in its Revolving Line of Credit will have an adverse impact on its
operations or future plans.
We believe the Company will satisfy its short term and long-term
liquidity needs from borrowings under the Revolving Line of Credit and cash
flows from operations. We may experience periods of higher borrowing under the
Revolving Line of Credit due to the seasonal nature of the Company's business
cycle. We are actively seeking expansion through acquisitions and/or joint
ventures, and the success of such efforts may require additional bank debt,
equity financing, or private financing.
FISCAL YEAR ENDED JUNE 30, 2002 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2001
Net Sales. Net sales for the twelve months ended June 30, 2002,
increased by approximately $3.6 million, or approximately 27.3%, compared to the
same period in 2001. 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 our net sales will continue to be a factor in future
periods because of the budgeting procedures of our customers and the seasonal
demand for our products. As a result, we continue to see an increase in demand
for our products during the third and fourth quarters of our fiscal year.
Gross Profit. The Company's gross profit for the twelve months ended
June 30, 2002, increased by approximately $1.5 million, or approximately 31.6%,
compared to the same period in 2001. As a percentage of sales, gross profit
increased to 37.0% compared to 35.8% for the same period in 2001. The increase
in gross profit was primarily due to the increase in sales of the Company's
manufactured products which, historically, have been sold at higher margins, as
well as a small decrease in freight costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the twelve months ended June 30, 2002, increased by
approximately $691 thousand, or approximately 15.0%, compared to the same period
in 2001. As a percentage of sales, selling, general and administrative expenses
decreased to approximately 31.4% from 34.8% for fiscal 2001. The increase in
selling, general, and administrative expenses was due primarily to:
o an increase in salaries and personnel related costs of
approximately $431 thousand for additional personnel hired by
the Company to manage the increase in its sales volume;
o an increase in advertising and trade show expenses of
approximately $235 thousand, primarily for mailing catalogs to
existing and new customers, as well as an increase in fliers
and promotional literature; and
o an increase in the cost of property, casualty, and liability
insurance of approximately $78 thousand.
28
These increases in personnel, advertising, and insurance costs were partially
offset by decreases in other expense categories.
Operating Profit. Operating profit increased by approximately $808
thousand for the twelve months ended June 30, 2002, compared to the same period
in fiscal 2001. As a percentage of net sales, the operating profit increased to
approximately 5.6% compared to 1.0% for the twelve-months ended June 30, 2001.
The increase was attributable to increased sales activity, an 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 2002.
Interest Expense. Interest expense decreased by approximately $16
thousand for the twelve months ended June 30, 2002, compared to the twelve
months ended June 30, 2001. As a percentage of sales, interest expense was
approximately 0.8% and 1.2% for the twelve months ended June 30, 2002 and 2001,
respectively. The decrease in interest expense primarily reflects the net cash
provided by operating activities used to reduce the Company's borrowings during
fiscal 2002. Approximately $86 thousand of the interest expense in both fiscal
2002 and 2001 was for interest paid on the note payable to Mr. Blumenfeld. See
"Liquidity and Capital Resources."
Net Income. Net income increased by approximately $801 thousand for the
twelve months ended June 30, 2002, compared to the same period in fiscal 2001.
As a percentage of net sales, net income increased to approximately 4.8% for the
twelve months ended June 30, 2002 compared to 0.03% for the twelve months ended
June 30, 2001. 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 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the twelve months ended June 30,
2002, was approximately $867 thousand, compared to net cash used by the Company
of approximately $554 thousand for the same period in 2001. The increase in cash
flow was due primarily to an increase in net income resulting from the increase
in sales levels and smaller increases in our investment in working capital.
The Company used approximately $161 thousand in cash for investing
activities during fiscal 2002. The primary use of cash in investing activities
was the purchase of property and equipment. The Company expects to increase
spending for capital expenditures in fiscal 2003 by approximately $100 thousand
to expand its Texas distribution facility.
The Company used approximately $788 thousand in cash for financing
activities for the twelve months ended June 30, 2002. The cash was used to repay
borrowings on the Company's line of credit and note payable to stockholder, as
well as to purchase treasury shares.
Current assets as of June 30, 2002, totaled approximately $5.4 million,
thereby providing the Company with working capital of approximately $4.1
million.
We believe the Company will satisfy its short term and long-term
liquidity needs from borrowings under the Line of Credit, a new line of credit,
and cash flows from operations. We may experience periods of higher borrowing
under the credit facility due to the seasonal nature of the Company's business
cycle. We are actively seeking expansion through acquisitions and/or joint
ventures, and the success of such efforts may require additional bank debt,
equity financing, or private financing.
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 $0.01 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
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
30
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 $0.05
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 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.
The exercise price and number and kind of shares of Common Stock or
other securities or assets purchasable on exercise of the Warrants and the
cancellation price are subject to adjustment if the Company:
o Combines or subdivides its outstanding shares of Common Stock,
including stock splits effected through a dividend; or
o Merges or consolidates with another corporation.
There will be no adjustment to the Warrants if the Company:
o Makes any cash dividends or asset distributions with respect
to outstanding shares of Common Stock;
o Sells additional shares of Common Stock; or
o Sells all or substantially all of its assets.
o In the event of any other type of recapitalization or
reorganization of the Company, the Company may, at its option,
provide for adjustment to the Warrants' terms.
31
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 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.
32
(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,
2002 and June 30, 2001, 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 Financial Statements.........................................................F-1
Report of Independent Certified Public Accountants.................................................F-2
Consolidated Balance Sheets as of June 30, 2002 and 2001...........................................F-3
Consolidated Statements of Income for the years ended June 30, 2002 and 2001.......................F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30,
2002 and 2001......................................................................................F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2002 and 2001...................F-6
Notes to Consolidated Financial Statements.........................................................F-7
Condensed Consolidated Balance Sheets as of December 31, 2002 (Unaudited)
and June 30, 2002..................................................................................F-16
Condensed Consolidated Statements of Operations for the three and six months ended
December 31, 2002 and 2001 (Unaudited).............................................................F-17
Condensed Consolidated Statements of Cash Flows for the six months ended
December 31, 2002 and 2001 (Unaudited).............................................................F-18
Notes to Condensed Consolidated Financial Statements (Unaudited)...................................F-19
</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, 2002 and 2001, and the
related consolidated statements of income, 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, 2002 and 2001, 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
July 24, 2002, except for Notes 7 and 13
as to which the date is August 31, 2002
F-2
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND 2001
ASSETS
<Table>
<Caption>
2002 2001
---------- ----------
Current Assets:
Cash and cash equivalents $ 267,362 $ 349,508
Accounts receivable, less allowance for doubtful accounts
of $96,181 in 2002 and $87,187 in 2001 1,990,997 1,797,079
Inventories 2,984,803 2,787,169
Prepaid expenses and other current assets 149,442 146,328
---------- ----------
Total current assets 5,392,604 5,080,084
Property and equipment, net of accumulated depreciation
of $445,635 in 2002 and $295,980 in 2001 502,275 523,472
Other Assets:
License agreements, net of accumulated amortization of
$82,759 in 2002 and $44,296 in 2001 152,670 100,106
Goodwill 544,375 544,375
Other assets, net 260,798 283,319
---------- ----------
$6,852,722 $6,531,356
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
2002 2001
---------- ----------
Current liabilities:
Accounts payable $1,154,398 $ 942,129
Accrued expenses 128,648 124,190
Revolving line of credit -- 420,000
Notes payable to stockholders, current portion -- 290,973
Other current liabilities 7,553 16,144
---------- ----------
Total current liabilities 1,290,599 1,793,436
Notes payable to stockholders, net of current portion 353,063 365,027
---------- ----------
Total liabilities 1,643,662 2,158,463
Stockholders' equity:
Common stock, $.01 par value; authorized 50,000,000 shares,
issued: 4,300,659 in 2002 and 4,264,773 in 2001 43,007 42,648
Additional paid-in capital 6,607,546 6,452,278
Accumulated deficit (945,080) (1,750,568)
Treasury shares, at cost: 59,526 shares in 2002 and 36,226
shares in 2001 (496,413) (366,470)
---------- ----------
5,209,060 4,377,888
Less: note receivable from stockholder -- (4,995)
---------- ----------
Total stockholders' equity 5,209,060 4,372,893
---------- ----------
$6,852,722 $6,531,356
========== ==========
</Table>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------ ------------
Net sales $ 16,901,125 $ 13,272,696
Cost of sales 10,654,442 8,525,643
------------ ------------
Gross profit 6,246,683 4,747,053
Selling, general and administrative expenses 5,307,390 4,616,385
------------ ------------
Operating profit 939,293 130,668
------------ ------------
Other income (expense):
Interest expense (140,888) (156,734)
Interest income 63 3,823
Miscellaneous 7,020 (681)
------------ ------------
Total other income (expense) (133,805) (153,592)
------------ ------------
Income (loss) before provision for income taxes 805,488 (22,924)
Income tax expense (benefit) -- (27,044)
------------ ------------
Net income $ 805,488 $ 4,120
============ ============
Weighted average shares of common stock outstanding -basic 4,225,213 4,253,850
============ ============
Weighted average shares of common stock outstanding -diluted 4,669,008 4,759,941
============ ============
Net income per share of common stock - basic $ 0.19 $ 0.00
============ ============
Net income per share of common stock - diluted $ 0.17 $ 0.00
============ ============
</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, 2002 AND 2001
<Table>
<Caption>
COMMON STOCK TREASURY SHARES
ADDITIONAL RECEIVABLE
PAID-IN ACCUMULATED FROM
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT STOCKHOLDER TOTAL
---------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at July 1, 2000 4,244,607 $ 42,446 $ 6,461,453 $(1,754,688) 20,860 $ (255,443) $ (15,000) $ 4,478,768
Issuance of stock
for purchase of assets 20,166 202 96,796 -- -- -- -- 96,998
Purchase of stock for cash -- -- -- -- 15,366 (111,027) -- (111,027)
Warrants cancelled in
conjunction with amendment
of distribution agreement -- -- (105,971) -- -- -- -- (105,971)
Payment of notes
receivable from
Stockholders -- -- -- -- -- -- 10,005 10,005
Net income -- -- -- 4,120 -- -- -- 4,120
---------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 2001 4,264,773 42,648 6,452,278 (1,750,568) 36,226 (366,470) (4,995) 4,372,893
Issuance of stock for
cash 20,000 200 64,400 -- -- -- -- 64,600
Issuance of stock for
purchase of assets 15,886 159 90,868 -- -- -- -- 91,027
Purchase of stock
for cash -- -- -- -- 23,300 (129,943) -- (129,943)
Payment of notes
receivable from
stockholder -- -- -- -- -- -- 4,995 4,995
Net income -- -- -- 805,488 -- -- -- 805,488
---------- -------- ----------- ----------- ----------- ----------- ----------- -----------
Balances at June 30, 2002 4,300,659 $ 43,007 $ 6,607,546 $ (945,080) 59,526 $ (496,413) $ -- $ 5,209,060
========== ======== =========== =========== =========== =========== =========== ===========
</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, 2002 AND 2001
<Table>
<Caption>
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 805,488 $ 4,120
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation 187,209 113,845
Amortization 60,984 128,826
Bad debt expense 53,116 56,600
Change in operating assets and liabilities:
Accounts receivable (247,034) (469,494)
Inventories (197,634) (371,841)
Prepaid expenses and other current assets (3,114) (107,314)
Other assets, net -- 13,692
Accounts payable 212,269 386,334
Accrued expenses 4,458 (290,812)
Other liabilities (8,591) (17,904)
---------- ----------
Net cash provided by (used in) operating activities 867,151 (553,948)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (166,012) (207,217)
Cash paid for trade name -- (63,851)
Cash received from notes receivable from stockholders 4,995 10,005
---------- ----------
Net cash used in investing activities (161,017) (261,063)
---------- ----------
Cash flow from financing activities
Net change in revolving line of credit (420,000) 420,000
Payments on notes payable to stockholders (302,947) --
Proceeds from notes payable to stockholders -- 75,000
Cash paid from treasury shares (129,943) (111,027)
Proceeds from issuance of common stock 64,600 --
---------- ----------
Net cash provided by (used in) financing activities (788,280) 383,973
---------- ----------
Decrease in cash (82,146) (431,038)
Cash and cash equivalents at beginning of year 349,508 780,546
---------- ----------
Cash and cash equivalents at end of year $ 267,362 349,508
========== ==========
Noncash investing and financing activities:
Warrants cancelled in conjunction with
amendment to distribution agreement $ -- $ 105,971
========== ==========
Common stock issued for purchase of assets $ 91,027 $ 96,998
========== ==========
Cash payments for:
Income taxes $ -- $ --
========== ==========
Interest $ 162,071 $ 135,551
========== ==========
</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, 2002 AND 2001
(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.
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 expensed as incurred and significant
renewals and betterments are capitalized.
F-7
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
GOODWILL
Goodwill represents the excess of the purchase price paid and
liabilities assumed over the estimated fair market value of assets acquired.
LICENSE AGREEMENTS AND TRADEMARKS
License agreements represent amounts paid to acquire exclusive
distribution rights for specific products and are amortized over their estimated
useful lives of 5 to 10 years.
Trademarks represent amounts paid to acquire the rights to brand
specific products or categories of products with recognizable brands in certain
sporting good categories and are amortized over 15 years.
VALUATION OF LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived
assets, including goodwill, whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. If the total of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, a loss is recognized based on the amount by which the carrying value
exceeds the asset's fair market value.
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 10.
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, 2002 or 2001. Advertising expenses for the fiscal years ended June 30, 2002
and 2001 were approximately $1.3 million and $1.1 million, respectively.
F-8
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
INCOME PER SHARE
Basic income per common share is computed by dividing the net income by
the weighted average number of shares of common stock outstanding. Diluted
income 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 its inventory to
customers. A provision is made for returns, which are estimated based upon
historical rates of return experienced by the Company.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of sales.
INTANGIBLE ASSETS
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 2002. The following table reflects pro forma
amounts as though SFAS 142 were adopted at the beginning of fiscal 2001:
<Table>
<Caption>
Year ended
June 30,
--------
2002 2001
---------- ----------
Reported net income: $ 805,488 $ 4,120
Add back: Goodwill amortization -- 44,437
---------- ----------
Adjusted net income $ 805,488 $ 48,557
========== ==========
Basic earnings per share:
Reported net income $ 0.19 $ 0.00
Add back: Goodwill amortization -- 0.01
---------- ----------
Adjusted net income $ 0.19 $ 0.01
========== ==========
Diluted earnings per share:
Reported net income $ 0.17 $ 0.00
Add back: Goodwill amortization -- 0.01
---------- ----------
Adjusted net income $ 0.17 $ 0.01
========== ==========
</Table>
ACCOUNTING STANDARDS NOT YET ADOPTED
In October 2001, the 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
F-9
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
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 adopted SFAS 144 on
July 1, 2002. The Company does not expect the adoption of this standard to have
a material effect on its financial position or results of operations.
(3) BUSINESS ACQUISITIONS
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. The
revolving line of credit was amended in July 2002 to permit the repayment in
full of the notes payable to the Company's Chairman and Chief Executive Officer
and his relative. (See Note 7).
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.
(4) INVENTORIES
Inventories consist of the following:
<Table>
<Caption>
June 30,
--------
2002 2001
---------- ----------
Raw materials $ 232,064 $ 205,734
Work in progress 42,587 28,139
Finished goods 2,710,152 2,553,296
---------- ----------
$2,984,803 $2,787,169
========== ==========
</Table>
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<Table>
<Caption>
June 30,
--------
2002 2001
--------- ---------
Fixtures and equipment $ 597,763 $ 487,466
Manufacturing equipment 350,147 331,986
--------- ---------
Total property and equipment 947,910 819,452
Less accumulated depreciation (445,635) (295,980)
--------- ---------
Property and equipment, net $ 502,275 $ 523,472
========= =========
</Table>
F-10
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(6) INTANGIBLE ASSETS
Intangible assets consist of the following:
<Table>
<Caption>
June 30,
-------------------------------------------------------
2002 2001
------------------------- -------------------------
Gross Gross
carrying Accumulated carrying Accumulated
Amortizable intangible assets value amortization value amortization
-------- ------------ -------- ------------
License agreements $235,429 $ 82,759 $144,402 $ 44,296
Trademarks 330,642 86,048 330,647 64,005
-------- ------------ -------- ------------
Total amortizable intangible assets $566,071 $ 168,807 $475,049 $ 108,301
======== ============ ======== ============
Intangible assets not subject to amortization
Goodwill $666,917 $ 122,542 $666,917 $ 122,542
======== ============ ======== ============
</Table>
Amortization expense related to intangible assets totaled approximately $61
thousand and $129 thousand during the years ended June 30, 2002 and 2001,
respectively. The aggregate estimated amortization expense for the intangible
assets remaining as of June 30, 2002 is as follows:
<Table>
<Caption>
Year ended
June 30,
----------
2003 $ 58,200
2004 49,066
2005 49,066
2005 32,171
2007 31,146
Thereafter 77,615
--------
Total $397,264
========
</Table>
(7) LINE OF CREDIT
On December 26, 2001, the Company agreed to terms for a $2.5 million
revolving line of credit with Bank of America, N.A. (the "Line of Credit"). The
Line of Credit allows the Company to borrow funds based upon a certain
percentage of its eligible accounts receivable and inventories. At June 30,
2002, those percentages were 80% and 40%, respectively. This facility will
mature on December 26, 2003, and includes a provision for letters of credit. At
the Company's option, borrowings under the Line of Credit bear interest at the
prevailing prime rate plus 1/2% or LIBOR plus 3%. There was $0 and $420 thousand
outstanding under the Line of Credit as of June 30, 2002 and 2001, respectively,
leaving the Company with approximately $2.5 million and $1.6 million of
availability on June 30, 2002 and 2001, respectively. The Company's notes
payable to stockholders are subordinate to the Line of Credit and the
stockholder guaranteed the repayment of up to $1.0 million outstanding under the
Line of Credit. In July 2002, the Company amended the revolving line of credit
to allow the complete repayment of the Note Payable to Stockholder. The balance
of the Note Payable to Stockholder was repaid in August 2002 as a result of this
amendment. In August 2002, the Company amended the revolving line of credit to
increase the amount of allowable borrowings to $5.0 million, and extended the
maturity of the line to July 15, 2004. In addition, the amendment to the line
increased the formulas underlying the borrowing base on accounts receivable to
85%, and no longer requires the partial guarantee of the note by the majority
stockholder of the Company.
F-11
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(8) FEDERAL INCOME TAXES
CPI and its subsidiaries file separate income tax returns. Deferred tax
assets and liabilities consist of the following:
<Table>
<Caption>
Year ended June 30,
--------------------------
2002 2001
---------- ----------
Deferred tax assets
Net operating loss carryforward $ 383,782 $ 692,447
Accrued expenses 58,005 58,755
---------- ----------
Total deferred tax assets 441,787 751,202
Deferred tax liabilities
Fixed assets (21,867) (21,857)
---------- ----------
Net deferred tax asset 419,920 729,345
Valuation allowance (419,920) (729,345)
---------- ----------
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>
Year ended June 30,
--------------------------
2002 2001
---------- ----------
Tax expense (benefit) $ 273,866 $ (7,794)
Change in valuation allowance (309,425) 10,693
Other 11,636 (2,899)
State income taxes 23,923 (27,044)
---------- ----------
Income tax expense (benefit) $ -- $ (27,044)
========== ==========
</Table>
At June 30, 2002, the Company had net operating loss carryforwards of
approximately $1.1 million, of which approximately $720 thousand were
carryforwards of DSSI. Because of the ownership change rules of the Internal
Revenue Code, use of the DSSI carryforwards are limited to approximately $80
thousand per year.
(9) RELATED PARTY TRANSACTIONS
During each of the years ended June 30, 2002 and 2001, 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).
(10) 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. No
options were outstanding at June 30, 2002, and 5,000 options were outstanding at
June 30, 2001. During fiscal 2002, options to acquire 5,000 shares were
exercised and no shares were exercised during fiscal 2001. No additional shares
were granted or canceled under the terms of this plan during fiscal 2002.
F-12
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 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 options vest in full upon
the employee's one-year anniversary date of employment with the Company or the
award date if the employee has been employed for at least one year on the grant
date. The number of shares available under the 1998 Collegiate Pacific Inc.
Stock Option 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 activity for
the fiscal years ended June 30, 2002 and 2001 is as follows:
<Table>
<Caption>
Weighted
Average
Exercise
Options Price
--------- --------
Outstanding and exercisable at July 1, 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
Granted 15,000 4.11
Exercised (20,000) 3.23
Forfeited or cancelled (11,000) 7.26
--------- --------
Outstanding at June 30, 2002 498,200 $ 5.16
========= ========
Exercisable at June 30, 2001 456,200 $ 5.13
========= ========
Exercisable at June 30, 2002 486,200 $ 5.19
========= ========
</Table>
The weighted average fair value of options granted in fiscal 2002 and 2001 was
$3.45 and $4.33 per share, respectively.
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 value at the date of grant for options granted to employees, the effect on
net income (loss) and net income (loss) per share for the fiscal years ended
June 30, 2002 and 2001 would have been as follows:
F-13
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
<Table>
<Caption>
June 30,
-------------------------
2002 2001
--------- -----------
Net income (loss)
As reported $ 805,488 $ 4,120
Pro forma 707,163 (1,993,466)
Income (loss) per common share
As reported
Basic $ 0.19 $ 0.00
Diluted $ 0.17 $ 0.00
Pro forma
Basic $ 0.17 $ (0.47)
Diluted $ 0.15 $ (0.47)
</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 ranging from 111% to 122%; risk free interest
rate of 4.48 to 4.80%; no dividend yield; and expected lives of five years.
The following table summarizes additional information about stock
options at June 30, 2002:
<Table>
<Caption>
Outstanding Exercisable
----------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Life Exercise Exercise
Exercise price Shares (In Years) Price Shares Price
-------------- -------- -------- -------- --------
$3.88-4.81 269,700 8.9 $3.91 259,700 $ 3.91
$5.58-6.13 192,000 8.1 $6.12 190,000 $ 6.13
$9.38 36,500 6.7 $9.38 36,500 $ 9.38
-------- --------
498,200 486,200
======== ========
</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 $.05 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. At June 30, 2002, no warrants had
been exercised.
(11) LEASES
The Company leases office and warehouse facilities located in Dallas,
Texas and Memphis, Tennessee under the terms of operating leases, which expire
at various dates through 2007. Rent expense approximated $269 thousand for the
fiscal year ended June 30, 2002, and $311 thousand for the fiscal year ended
June 30, 2001.
F-14
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
Future minimum lease commitments on all operating leases with terms in
excess of one year are as follows:
<Table>
<Caption>
Year ended
June 30,
----------
2003 $ 349,919
2004 363,996
2005 350,136
2006 347,364
2007 115,788
----------
$1,527,203
</Table>
(12) INCOME PER SHARE
Summarized basic and diluted income per common share for the years
ended June 30, 2002 and 2001 are as follows:
<Table>
<Caption>
2002 2001
----------------------------------- -----------------------------------
Net Per share Net Per share
income Shares amount income Shares amount
-------- ---------- --------- -------- ---------- ---------
Basic income
per share $805,488 4,225,213 $ 0.19 $ 4,120 4,253,850 $ 0.00
Effect of dilutive
options and warrants -- 443,795 (0.02) -- 506,091 0.00
-------- ---------- --------- -------- ---------- ---------
Diluted income
per share $805,488 4,669,008 $ 0.17 $ 4,120 4,759,941 $ 0.00
======== ========== ========= ======== ========== =========
</Table>
For fiscal 2002 and 2001, stock options and warrants covering 2,430,229 and
2,316,262 shares, respectively, were excluded in the computations of diluted
income per share because their effect was antidilutive.
(13) SUBSEQUENT EVENTS
In July 2002, the Company amended its revolving line of credit to allow
the complete repayment of the notes payable to stockholders. The balance of the
notes payable to stockholders was repaid in August 2002 as a result of this
amendment. In August 2002, the Company amended the revolving line of credit to
increase the amount of allowable borrowings to $5,000,000, and extended the
maturity of the line to July 15, 2004. In addition, the amendment to the line
increased the formulas underlying the borrowing base on accounts receivable to
85%, and no longer requires the partial guarantee of the note by the majority
stockholder of the Company.
F-15
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
December 31, June 30,
2002 2002
------------ ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 147,722 $ 267,362
Accounts receivable, net of allowance for doubtful
accounts of $65,059 and $96,181 at December 31,
2002 and June 30, 2002, respectively 1,266,384 1,990,997
Inventories 3,810,141 2,984,803
Prepaid expenses and other assets 785,788 149,442
------------ ------------
Total current assets 6,010,035 5,392,604
Property, plant and equipment, net of accumulated
depreciation of $534,049 and $445,635 at December
31, 2002 and June 30, 2002, respectively 554,956 502,275
Other assets:
License agreements, net of accumulated amortization
of $105,404 and $82,759 at December 31, 2002 and
June 30, 2002, respectively 130,025 152,670
Goodwill 544,375 544,375
Other assets, net 249,734 260,798
------------ ------------
$ 7,489,125 $ 6,852,722
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,199,635 $ 1,154,398
Accrued expenses 58,595 128,648
Dividends payable 85,637 --
Other current liabilities 7,389 7,553
------------ ------------
Total current liabilities 1,351,256 1,290,599
Revolving line of credit 1,150,000 --
Note payable to stockholder -- 353,063
------------ ------------
Total liabilities 2,501,256 1,643,662
Stockholders' equity:
Common stock, $.01 par value; authorized 50,000,000
shares; issued 4,300,669 and 4,300,659 shares,
respectively 43,007 43,007
Additional paid-in capital 6,436,322 6,607,546
Accumulated deficit (896,971) (945,080)
Treasury shares at cost: 76,726 and 59,526 at December
31, 2002 and June 30, 2002, respectively (594,489) (496,413)
------------ ------------
Total stockholders' equity 4,987,869 5,209,060
------------ ------------
$ 7,489,125 $ 6,852,722
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
F-16
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $ 3,508,767 $ 2,848,447 $ 8,274,958 $ 6,663,069
Cost of sales 2,217,659 1,832,834 5,227,673 4,237,725
------------ ------------ ------------ ------------
Gross profit 1,291,108 1,015,613 3,047,285 2,425,344
Selling, general and administrative
expenses 1,505,791 1,225,256 2,966,429 2,450,775
------------ ------------ ------------ ------------
Operating profit (loss) (214,683) (209,643) 80,856 (25,431)
Other income (expense)
Interest expense (19,288) (43,202) (35,843) (83,953)
Other income (expense) 2,910 (260) 3,096 4,768
------------ ------------ ------------ ------------
Net income (loss) $ (231,061) $ (253,105) $ 48,109 $ (104,616)
============ ------------ ------------ ------------
Net income (loss) per share - basic $ (0.05) $ (0.06) $ 0.01 $ (0.02)
============ ============ ============ ============
Net income (loss) per share - diluted $ (0.05) $ (0.06) $ 0.01 $ (0.02)
============ ============ ============ ============
Weighted average shares
outstanding:
Basic 4,224,186 4,216,615 4,227,696 4,222,581
------------ ------------ ------------ ------------
Diluted 4,224,186 4,216,615 4,927,029 4,222,581
------------ ------------ ------------ ------------
</Table>
See accompanying notes to condensed consolidated financial statements.
F-17
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
Six months ended
December 31,
------------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 48,109 $ (104,616)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation, amortization and bad debt expense 150,945 151,765
Net changes in operating assets and liabilities (790,872) (548,091)
------------ ------------
Net cash used in operating activities (591,818) (500,942)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (141,096) (93,940)
Cash received on notes receivable from stockholders -- 4,995
------------ ------------
Net cash used in investing activities (141,096) (88,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for treasury shares (98,076) (107,360)
Repayment on note payable to stockholder (353,063) --
Payment of cash dividends on common stock (85,637) --
Proceeds from issuance of common stock 50 --
Proceeds from line of credit 1,150,000 650,000
------------ ------------
Net cash provided by financing activities 613,274 542,640
------------ ------------
Net decrease in cash and cash equivalents (119,640) (47,247)
Cash and cash equivalents at beginning of period 267,362 349,508
------------ ------------
Cash and cash equivalents at end of period $ 147,722 $ 302,261
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 35,843 $ 99,326
============ ============
Cash paid during the period for income taxes $ -- $ --
============ ============
</Table>
See accompanying notes to condensed consolidated financial statements.
F-18
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 of America ("US GAAP") for interim financial reporting.
Accordingly, they do not include all of the information and footnotes
required by US GAAP for complete financial statements and should be
read in conjunction with the Company's annual report on Form 10-KSB for
the fiscal year ended June 30, 2002. 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,
2003.
2. INVENTORIES
Inventories consist of the following:
<Table>
<Caption>
December 31, June 30,
2002 2002
------------ -----------
Raw materials $ 280,434 $ 232,064
Work in progress 85,409 42,587
Finished goods 3,444,298 2,710,152
------------ -----------
$ 3,810,141 $ 2,984,803
============ ===========
</Table>
F-19
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INCOME PER SHARE
Summarized basic and diluted income (loss) per share are as follows:
<Table>
<Caption>
For the three months ended For the six months ended
December 31, December 31,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income (loss) (231,061) (253,105) 48,109 (104,616)
---------- ---------- ---------- ----------
Weighted average
common shares - basic 4,224,186 4,216,615 4,227,696 4,222,581
Effect of dilutive securities
(options and warrants) -- -- 699,333 --
---------- ---------- ---------- ----------
Weighted average
common shares - diluted 4,224,186 4,216,615 4,927,029 4,222,581
========== ========== ========== ==========
Net income (loss) per share - basic $ (0.05) $ (0.06) $ 0.01 $ (0.02)
Per share effect of dilutive securities
(options and warrants) -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) - diluted $ (0.05) $ (0.06) $ 0.01 $ (0.02)
---------- ---------- ---------- ----------
Options and warrants excluded from
computation because their effect
was antidilutive 4,905,307 4,770,807 236,500 4,770,807
========== ========== ========== ==========
</Table>
F-20
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 March 13, 2003.
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 March 13, 2003
- ------------------------- Director (Principal Executive Officer)
Michael J. Blumenfeld
* President and Director March 13, 2003
- --------------------------------------
Adam Blumenfeld
* Chief Financial Officer, Secretary and March 13, 2003
- -------------------------------------- Treasurer (Principal Accounting and
William R. Estill Financial Officer)
* Chief Operating Officer and Director March 13, 2003
- --------------------------------------
Arthur J. Coerver
* Vice President Marketing and Director March 13, 2003
- --------------------------------------
Harvey Rothenberg
* Director March 13, 2003
- --------------------------------------
Jeff Davidowitz
* Director March 13, 2003
- --------------------------------------
William H. Watkins, Jr.
/s/ Robert W. Hampton Director March 13, 2003
- --------------------------------------
Robert W. Hampton
*By Power of Attorney
</Table>
EXHIBIT INDEX
<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 1998 Collegiate Pacific Inc. Stock Option Plan.(2)
</Table>
<Table>
10.12 Promissory Note dated March 31, 1999 from the company to Michael J.
Blumenfeld in the principal amount of $1,082,648.75.(10)
10.13 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)
10.14 Stock Purchase Agreement dated September 7, 2000, by and between the
company and Michael J. Blumenfeld.(11)
10.15 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)
10.16 First Amendment to Stock Option Plan.(14)
10.17 Revolving Line of Credit Agreement dated December 26, 2001, by and
between Bank of American, N.A. and the company.(14)
10.18 Engagement Agreement dated January 15, 2002, by and between NetCap
Ventures, Inc. and the company.(16)
10.19 First Amendment to Revolving Line of Credit dated July 15, 2002, by and
between Bank of America, N.A. and the company. (15)
10.20 Second Amendment to Revolving Line of Credit dated August 22, 2002, by
and between Bank of America, N.A. and the company. (15)
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 Registration Statement
on Form SB-2 (No. 333-34294) dated April 30, 2001.
(14) Previously filed as an exhibit to the company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended December 31, 2001.
(15) Previously filed as an exhibit to the company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 2002.
(16) Previously filed as an exhibit to the company's Registration Statement
on Form SB-2 (No. 333-34294) dated January 23, 2002.