<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
DSSI CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
DSSI CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
- --------------------
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
DSSI Corporation
P.O. Box 1570
West Chester, PA 19380
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
February 17, 1998
To the shareholders of DSSI Corporation
Notice is hereby given that a Special Meeting of Shareholders of DSSI
Corporation (the "Company") will be held at the offices of Wachtel & Masyr, LLP,
110 East 59th Street, New York, New York, on Tuesday, February 17, 1998, at 2:00
o'clock in the afternoon for the following purposes:
(1) To authorize the Company to enter the business of distributing
sports equipment, which action will be effected through: (a) the sale of
10,000,000 shares of the Company's Common Stock, $0.01 par value (the "Common
Stock"), which shares will constitute a controlling interest in the Company, to
Michael J. Blumenfeld at $.20 per share or an aggregate purchase price of
$2,000,000 and (b) the sale by Mr. Blumenfeld to the Company, at cost, of the
assets (including corporate name) of Collegiate Pacific Inc. f/k/a Nitro Sports
Inc., which company is commencing engagement in the business of distributing
sports equipment to the institutional markets.
(2) To authorize the change of name of the Company from DSSI
Corporation to Collegiate Pacific Inc., but only if the prior proposal is
approved and the sale to Mr. Blumenfeld is consummated.
Each shareholder of record at the close of business on Wednesday,
December 10, 1997, is entitled to cast, in person by proxy, one vote for each
share of the Common Stock held by such shareholder on such date.
By order of the Board of Directors
Patrick J. Brennan, CPA
Secretary
Dated: January 30, 1998
- --------------------------------------------------------------------------------
YOUR PROXY IS IMPORTANT NO MATTER NOW MANY SHARES YOU OWN. PLEASE FILL-IN, DATE,
SIGN AND MAIL IT TODAY IN THE ACCOMPANYING SELF-ADDRESSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
DSSI Corporation
P.O. Box 1570
West Chester, PA 19380
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
To be held on February 17, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of DSSI Corporation (the "Company"), a
Pennsylvania corporation which, pending the acquisition of a new business, uses
the residence of its Chief Financial Officer as its principal office, the
mailing address of which is P.O. Box 1570, West Chester, Pennsylvania 19380, for
use at a Special Meeting of Shareholders to be held on Tuesday, February 17,
1998, or at any adjournment or adjournments thereof. Only shareholders of record
at the close of business on Wednesday, December 10, 1997 (the "Record Date"),
are entitled to vote at the meeting. Proxy material is first being mailed on or
about Monday, February 2, 1998, to the Company's shareholders of record on the
Record Date.
VOTING SECURITIES
The voting securities at the meeting will consist of 4,446,017 shares
of Common Stock, $0.01 par value (the "Common Stock"). Each shareholder of
record is entitled to cast, in person or by proxy, one vote for each share of
the Common Stock held by such shareholder at the close of business on the Record
Date.
Shareholders who execute proxies retain the right to revoke them by
notifying the Company at any time before they are voted. Such revocation may be
effected by execution of a subsequently dated proxy or by a letter to the
Company, sent to the attention of the Secretary at the address of the Company's
principal office set forth above in the introductory paragraph of this Proxy
Statement or delivered at the Meeting, revoking the proxy. Unless so revoked,
the shares represented by proxies solicited by the Board of Directors of the
Company will be voted at the Meeting in accordance with the direction given
therein. If no direction is given, a properly executed proxy will be voted in
favor of the two proposals set forth in the Notice of Special Meeting to
authorize the Company (1) to enter the new business of distributing sports
equipment and (2) to change its name from DSSI Corporation to Collegiate Pacific
Inc. The latter proposal, if approved by the shareholders, will be implemented
only if the first proposal is approved and the sale of shares to Michael J.
Blumenfeld as described in the succeeding paragraph is consummated and will be
effected by the filing of a Certificate of Amendment to the Company's Articles
of Incorporation.
A majority of the votes cast at the Meeting shall be necessary to
approve each of the proposals set forth in the Notice of Special Meeting to
authorize (1) the Company to enter the business of distributing sports
equipment, which action will be effected through (a) the sale of 10,000,000
shares of the Common Stock to Michael J. Blumenfeld at $.20 per share or an
aggregate purchase price of $2,000,000, which shares will constitute a
controlling interest in the Company, and (b) the sale by Mr. Blumenfeld to the
Company, at his cost (estimated to be $400,000), of the assets (including cash
advances and the corporate name) of Collegiate Pacific
1
<PAGE>
Inc. f/k/a Nitro Sports Inc.; and (2) the change of the name of the Corporation
from DSSI Corporation to Collegiate Pacific Inc. Abstentions and broker
non-votes will be counted for the purpose of determining a quorum at the Meeting
and will not be counted as a vote for or against the proposal. Simultaneously
with the closing of the sale to Mr. Blumenfeld, two current directors of the
Company (Jeff Davidowitz and John Pappajohn, their affiliates and designees and
a non-affiliated 5% beneficial shareholder (James A. Gordon) will purchase an
aggregate of 1,500,000 shares also at $.20 per share or an aggregate purchase
price of $300,000. If the sale to Mr. Blumenfeld is consummated, he will have
the right to designate a majority of the directors. See "Proposal One: To Enter
a New Business -- Sale to Michael J. Blumenfeld." There is no affiliation
between Mr. Blumenfeld and his affiliates, on the one hand, and the Company, its
management and affiliates of both, on the other hand. As of the Record Date, Mr.
Blumenfeld owned 49,100 shares of the Common Stock, all purchased subsequent to
his entering into an agreement with the Company. See "Proposal One: To Enter A
New Business-Sale to Michael J. Blumenfeld."
A shareholder shall not have the right to receive payment for his, her
or its shares of the Common Stock as a result of shareholder approval of either
of the proposals. As indicated under "Securities Ownership of Certain Beneficial
Owners and Management," the two directors of the Company, the father of one such
director, a former director and a non-affiliated beneficial owner therein named
may vote an aggregate of 2,722,820 shares of the Common Stock or 61.2% of the
outstanding shares of the Common Stock as of the Record Date (without giving
effect to any stock options or Common Stock purchase warrants held by them) and
have committed themselves to vote for the two proposals. Assuming that these
commitments are kept, the two proposals will be approved even if all of the
other shareholders vote against such proposals. Under the Business Corporation
Law of the Commonwealth of Pennsylvania (the "BCL"), no shareholders' approval
is required as to either proposal. In addition, in the Company's Proxy Statement
dated May 23, 1997 (the "Prior Proxy Statement") for the Annual Meeting of the
Shareholders held on June 16, 1997, the Board committed itself that "any
proposal for entering into new operations will be presented to the shareholders
for approval at either an annual or special shareholders' meeting" and that, at
the time the Company commences new operations, the "directors will consider a
more desirable name relating to the type of business and submit the same to the
shareholders for their approval." Section 5.01(g) of the Stock Purchase
Agreement with Mr. Blumenfeld (see "Proposal One: To Enter A New Business Sale
to Michael J. Blumenfeld") requires shareholder approval. Even though their
votes may not change the outcome of the vote, the Board urges all shareholders
to vote on the two proposals which are important to the future of the Company
and recommends a vote in favor of both proposals for the reasons set forth in
this Proxy Statement. Assuming that the two proposals submitted herewith are
approved, all future proposals regarding the operations of the Company will be
submitted for vote by the shareholders only as required by the BCL or other
applicable law.
The two current directors, the father of one such director and the
non-affiliated beneficial owner referred to in the second preceding paragraph
have an interest in the two proposals only to the extent that, if Mr. Blumenfeld
consummates his purchase of the 10,000,000 shares of the Common Stock, each
director and such beneficial owner, or the affiliates or designees thereof, will
have the right, at the closing with respect to the sale to Mr. Blumenfeld, to
purchase 500,000 shares of the Common Stock at $.20 per share. See "Proposal
One: To Enter A New Business-Sale to Others."
2
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of the Record
Date with respect to (1) all persons who are known to the Company to own
beneficially, or exercise voting or dispositive control over, 5% or more of the
outstanding shares of the Common Stock, (2) each current and a former director,
(3) the former acting chief executive officer of the Company and the other
executive officer of the Company whose compensation exceeded $100,000 during the
fiscal year ended June 30, 1997 ("Fiscal 1997") and (4) all directors and
officers as a group. Each beneficial owner, except James A. Gordon and William
Davidowitz, has advised the Company that he has sole voting and investment power
with respect to his shares except as to those shares still subject to exercise
of a stock option or a Common Stock purchase warrant as to which there are no
voting rights until the option or warrant is exercised. The information in the
table as to each of Mr. Gordon and Mr. William Davidowitz was derived from a
Schedule 13D filed by him pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The table also sets forth the shares of the Common
Stock to be owned, if (1) Michael J. Blumenfeld acquires the 10,000,000 shares
after shareholder approval and (2) certain persons acquire up to 1,500,000
shares at the same closing for which they have subscribed, as if such shares
were beneficially owned as of the Record Date. See the sections "Sale to Michael
J. Blumenfeld" and "Sale to Others" under the caption "Proposal One: To Enter A
New Business."
<TABLE>
<CAPTION>
Before Transactions After Transactions
-------------------------------------- -----------------------------------
Number of Shares Number of Shares
Name and Address of of Common Stock Percent of of Common StockPercent of
Beneficial Owner Beneficially Owned Class (1) Beneficially Owned Class (2)
- --------------------- ------------------ ------------ ------------------ ---------
<S> <C> <C> <C> <C>
James A. Gordon 785,093 17.7% 1,285,093 8.1%
Edgewater Private Equity
Fund L.P.
666 Grand Avenue, Suite 200
De Moines, IA 50309
John Pappajohn (3) 1,436,408(4) 31.3% 1,988,224(5) 12.1%
c/o Pappajohn Capital Resources
2116 Financial Center
Des Moines, IA 50309
Jeff Davidowitz (3) 410,000(5) 9.2% 610,000(7) 3.8%
c/o JIBS Equities
Line and Grove Streets
P.O. Box 87
Nanticoke, PA 18634
William Davidowitz 260,000 5.8% 360,000(8) 2.3%
c/o JIBS Equities
Line and Grove Streets
P.O. Box 87
Nanticoke, PA 18634
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stephen C. Turner (9) 26,000(6) nil 26,000 nil
c/o Oncor, Inc.
209 Perry Parkway
Gaithersburg, MD 20877
Before Transactions After Transactions
-------------------------------------- -----------------------------------
Number of Shares Number of Shares
Name and Address of of Common Stock Percent of of Common StockPercent of
Beneficial Owner Beneficially Owned Class (1) Beneficially Owned Class (2)
- --------------------- ------------------ ------------ ------------------ ---------
Joseph R. Shaya (10) 150,000(11) 3.3% 150,000 nil
1951 Sage Drive
Golden, CO 80401
Patrick J. Brennan (12) 50,000(13) 1.1% 50,000 nil
1341 Greenhill Road
Westchester, PA 19380
Michael J. Blumenfeld 49,100 nil 10,049,100(14) 63.0%
Collegiate Pacific, Inc.
13950 Sernlac Drive
Suite 200
Dallas, TX 75234
All Executive Officers and 1,896,408(15) 40.6% 2,648,224(16) 16.4%
Directors as a Group (3
Persons)
</TABLE>
- ----------------------
(1) The percentages are based upon 4,446,017 shares of the Common Stock
being outstanding on the Record Date and, where appropriate, effect is
given to the exercise of stock options or Common Stock purchase
warrants as required by Rule 13d-3(d)(1)(i) under the Exchange Act.
(2) The percentages are based on 15,946,017 shares of the Common Stock
being assumed to be outstanding on the Record Date as set forth in the
introduction to this table and, where appropriate, effect is given to
the exercise of stock options or Common Stock purchase warrants as
required by Rule 13d-3(d)(1)(i). In addition, in Note (5) to the table,
effect is given to anti-dilution provisions of the Common Stock
purchase warrants as if the 11,250,000 shares had been issued.
(3) A director of the Company.
4
<PAGE>
(4) The shares reported in the table include an aggregate of 144,681
shares, after giving effect to anti-dilution provisions, issuable upon
the exercise of Common Stock purchase warrants expiring February 17,
1998, March 11, 1998 and March 30, 1998 granted to Mr. Pappajohn in
connection with a loan guaranty and pledge.
(5) The shares reported in the table include (a) 486,497 shares issuable
upon the exercise of the Common Stock purchase warrants reported in
Note (4) to this table and (b) 210,000 shares as to which Mr.
Pappajohn has subscribed.
(6) The shares reported in the table reflect or include 25,000 shares
issuable upon exercise of a stock option expiring August 9, 1999.
(7) The shares reported in the table include, in addition to those reported
in Note (6) to this table, 200,000 shares as to which affiliates of Mr.
Jeff Davidowitz have subscribed.
(8) The shares reported in the table include 100,000 shares as to which Mr.
William Davidowitz has subscribed.
(9) Mr. Turner resigned as a director effective October 17, 1997 for
personal reasons.
(10) Mr. Shaya served as a consultant to the Company from June 1, 1994 to
June 27, 1997, during which period he served as the Acting President
and Chief Executive Officer of the Company.
(11) The shares reported in the table reflect 125,000 shares issuable upon
exercise of a stock option expiring August 9, 1999 and 25,000 shares
issuable upon the exercise of an option expiring June 16, 2002.
(12) Mr. Brennan is the Vice President, Finance, the Secretary, the Chief
Financial Officer and the Chief Accounting Officer of the Company.
(13) The shares reported in the table reflect 25,000 shares issuable upon
the exercise of each of two stock options, one expiring August 9, 1999
and the other expiring June 16, 2002.
(14) The shares reported in the table include the 10,000,000 shares which
Mr. Blumenfeld has agreed to purchase subject to shareholder approval.
(15) The shares reported in the table reflect those reported for a director
elsewhere in the table (see the text relating to Notes (4) and (6)) and
for the sole executive officer (see the text relating to Note (13) for
Mr. Brennan). The shares reported in the table do not include those for
each of Messrs. Turner and Shaya because he was not a director and an
executive officer, respectively, on the Record Date.
(16) The shares reported in the table include those reported in Notes (4),
(5), (6), (7) and (15) to this table.
PROPOSAL ONE: TO ENTER A NEW BUSINESS
5
<PAGE>
Background
From August 1989 to June 16, 1997, the Company was engaged in the
business of developing and marketing tests for cocaine, opiates (heroin,
morphine and codeine), methamphetamine, THC (marijuana), barbiturates, PCP
(phencyclidine), amphetamines and benzodiazepines using urine samples. As a
result of the Company's net losses and negative cash flow from these operations
and the Board's recognition that the Company had not been able to become a
competitive force in the on-site drug testing industry because it is an emerging
market requiring a significant amount of on-going resources, which the Company
was unable to raise, while all of the industry competition were substantially
better funded than the Company and thus able to invest more money and people in
the process of getting products to market, the Company's Board of Directors
initiated a search for a suitable strategic partner or a purchaser, which
search, after a two-year period, culminated in a purchase and sale agreement
dated March 17, 1997 (the "Sales Agreement") with Casco Standards, Inc.
("Casco"), a Wisconsin corporation with its principal offices at 500 Riverside
Industrial Parkway, Portland, ME 04103-1418. Casco is a subsidiary of Erie
Scientific, which is a subsidiary of Sybron International Corporation, a
publicly traded company (NYSE: SYB). On June 16, 1997, after receiving
shareholder approval at the Annual Meeting of Shareholders held on the same day,
the Company sold the business and substantially all of its assets (other than
cash and accounts receivable) to Casco for $1,950,000. In addition, the Company
agreed to furnish to Casco a six-month supply of products for which Casco agreed
to pay the Company's standard charges. Pursuant to the Sales Agreement, the
Company paid $600,000 to AccuScreen Labs, Inc. ("AccuScreen") to terminate the
Company's exclusive license and distributorship agreement with AccuScreen, which
agreement Casco did not want to assume and for which termination Casco had
increased the purchase price from $1,600,000 to $1,950,000.
As a result of the sale to Casco, the Company became a shell
corporation and, after the payment to AccuScreen, the payment of closing costs
and the payment of some of the then existing liabilities, became a publicly held
company with $305,559 in liabilities, a cash reserve of $801,979, subject to
collection of accounts receivable (which, as indicated above, were not part of
the assets sold to Casco and which were $4,411 (net a reserve of $50,000) as of
September 30, 1997), the collection of the holdback of $160,000 as part of the
Casco purchase and the incurrence of expenses relating to a company registered
under Section12(g) of the Exchange Act, including completion of the audit for
Fiscal 1997. From July 1, 1997 to September 30, 1997, the Company had collected
$51,629 of the accounts receivable with $1,414 still to be collected. After the
sale, the Board of Directors initiated a search for strategic opportunities so
that the Company could enter a new business not related to drug testing. As
previously reported in the Prior Proxy Statement, the directors were of the
opinion that the shareholders would have a better opportunity to realize more
though the Company entering a new business than by liquidating the Company
(estimated then that the shareholders would receive $.23 per share on
liquidation). The principal action which the directors took to ascertain the
availability of possible new businesses, in addition to speaking to persons in
the investment banking industry with whom they were previously familiar, was to
place an advertisement in The Wall Street Journal, to which they received 1ten0
inquiries of interest. Four of the inquirers requested written information
relating to the Company and they were mailed copies of the Company's'Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1996, subsequent
quarterly reports and the proxy statement relating to the asset sale to Casco.
Three responded to such information by sending copies of
6
<PAGE>
their business plans to the Company, which were reviewed by the staff of John
Pappajohn, a director of the Company who is engaged in venture capital and
related investment activities. The examiner reviewed these business plans from
the point of view of management experience, financial capability and the
likelihood of the proposed business producing revenues and profits at an early
date. The Board rejected two of these three submissions because they were likely
to propose a highly leveraged offer and to give a lesser percentage of ownership
to existing shareholders than the offer which was ultimately accepted and the
business plans did not offer, in the reviewer's opinions, a reasonable
expectation as to profitability within an acceptable (i.e., short-term) time
frame, a criteria the Board deemed important in view of the past history of the
Company. The remaining parties who had responded to the advertisement were
interviewed by telephone and, because none requested additional data relating to
the Company, furnished a business plan for the Company to review or made an
offer to be considered, they were eliminated from consideration. Among those
responding to the advertisement and who was active in making available
information as to his business plans and who was the only one to make a specific
offer to the Company was Michael J. Blumenfeld (see the succeeding section "Sale
to Michael J. Blumenfeld").
The Company's directors readily recognized that each of the prospective
inquirers was only interested in the Company because it was a public company
with no operations, with no indebtedness and its principal asset being cash.
While this interest seemed the basis for placing some value on the public nature
of the Company, the directors did not do so as a result of the fact that several
of the prospective acquirers, even those dating back to the time of the Casco
offer and subsequent sale, indicated that they had no interest in the Company
because its Common Stock was neither a listed nor a Nasdaq SmallCap security.
Because the Company was barred by its agreement with Casco from re-entering its
former business of drug testing, the Company's tax loss carryforwards were not
deemed significant to attract a potential acquirer. Accordingly, the Board
decided to focus on what person or entity would seem to offer the best
opportunity to obtain profitability at the earliest date and to make his, her or
its own investment in the business. As indicated below, the Blumenfeld offer
seemed to the directors to meet best such criteria.
After the sale to Casco, Patrick J. Brennan, Vice President, Chief
Financial Officer and Secretary of the Company, and John G. Connolly were
employed full time until the audit for Fiscal 1997 was completed. All other
employees were terminated. Mr. Brennan has continued to serve the Company on a
part-time basis, with responsibility for all necessary filings under the federal
securities laws and federal, state and local tax laws. The monthly costs for
these services are approximately $3,500, which outlay is largely offset by
interest income from the sale proceeds. In addition, the Company continues to
incur stock transfer agent fees and expenses and has continued its directors'
and officers' liability insurance, all other insurance coverages being
terminated as a result of the sale of assets to Casco.
Sale to Michael J. Blumenfeld
As a result of its search, the Board received an offer from Michael J.
Blumenfeld to purchase 10,000,000 shares of the Common Stock at $.20 per share
or an aggregate purchase price of $2,000,000. Mr. Blumenfeld was the founder,
chief executive officer (serving as such for 25 years) and largest individual
shareholder of Sport Supply Group, Inc. ("Sport Supply") (NYSE: GYM) until
December 1996, at which time control of Support Supply was sold to
7
<PAGE>
Emerson Radio Corp. ("Emerson") (ASE: MSN). Sport Supply is recognized as the
nation's largest supplier of sports equipment to the institutional markets.
Subsequently, Mr. Blumenfeld incorporated a corporation named Collegiate Pacific
Inc. ("CPI"), a Delaware corporation in which he owns 100% of the stock, engaged
a staff, prepared sales brochures and entered the business of distributing
sports equipment to the institutional markets. He has advised the Company that
he has no non-compete arrangements with either Sport Supply or Emerson, so that
there are no restrictions on him operating CPI or, after consummation of the
proposed sale by the Company to him of the controlling shares, for the Company
to enter the same business.
After the initial response from Mr. Blumenfeld to the Company's
advertisement in The Wall Street Journal, Jeff Davidowitz and John Pappajohn,
both directors, met with Mr. Blumenfeld to review the proposed business plan for
his sport supply distribution business which was not as yet operational so as to
seek customers and to negotiate the terms of the acquisition. This meeting in
person was followed by a series of telephone conversations exploring the subject
further. When the discussions began, between the Company and Mr. Blumenfeld, the
bid and asked prices of the Common Stock were fluctuating between $.10 and $.15
per share. During the discussions the parties agreed that the purchase price
should be the then fair market value of the Common Stock and, accordingly,
should approximate the then market price of the Common Stock. See the discussion
at the end of this section "Sale to Michael J. Blumenfeld." Mr. Blumenfeld gave
these two directors a number of references in investment banking, banking and
other businesses, all of which names were recognizable. The two directors then
checked these references, all of which were highly favorable as to Mr.
Blumenfeld's business record and business ethics. Mr. Davidowitz then made a
two-day trip to Dallas in August 1997 where he met with the key members of the
CPI management team, was shown the then preliminary operations at the temporary
office facility of CPI and visited the current CPI facility which was then being
renovated. Both he and Mr. Pappajohn, as well as the latter's staff, reviewed
the initial sales catalog then being prepared by CPI.
After completing its "due diligence" as described in the preceding two
paragraphs, the Board of Directors approved the sale on August 12, 1997 and the
Company entered into a Stock Purchase Agreement dated as of August 18, 1997 (the
"Stock Purchase Agreement" ) with Mr. Blumenfeld. A copy of the Stock Purchase
Agreement is annexed to this Proxy Statement as Appendix A and is incorporated
herein by this reference. The directors unanimously concluded that, in view of
Mr. Blumenfeld's over 25 years of experience as an executive officer of Sports
Supply, a listed company, the strong endorsements he had received from persons
in the banking, investment banking and other businesses and the revenues and
profitability which Sport Supply had achieved in the sport supply industry,
combined with the capital infusion he would make, this was the type of strategic
opportunity for a new business for the Company for which they had been
searching. The directors recognized that CPI represented only a start-up
operation with no guaranty of success, but concluded that Mr. Blumenfeld's track
record at Sport Supply (during his 25 years as Chief Executive Officer at Sport
Supply, such company completed 75 acquisitions, grew to a company with no
customers to one with 120,000 customers offering over 7,000 products and had 25
years of uninterupted revenue growth, with an operating loss in only one year),
his experience at the head of a listed company and his willingness to infuse
$2,000,000 of his own money into the Company made such a risk worth taking and
different from the other expressions of interest in the Company had received.
Two of the directors (Messrs. Davidowitz and Pappajohn) concluded that they,
together with their affiliates and designees, would show their support of Mr.
8
<PAGE>
Blumenfeld's proposed operations by agreeing to invest (together with an
unaffiliated major shareholder) $300,000. See the section "Sale to Others" under
this caption "Proposal One: To Enter A New Business." In making their decision
to accept Mr. Blumenfeld's offer, the directors considered that the business was
substantially different from the drug testing business the Company had sold to
Casco, so that there would be no violation of the non-competition clause under
the Sales Agreement with Casco. The directors also noted that none of the other
inquiries of interest had actively pursued the issue as did Mr. Blumenfeld or
offered the same type of qualifications as described above in this paragraph. In
addition, the directors, although satisfied with the Blumenfeld offer, asked
themselves as a matter of reassurance whether it would be appropriate to reject
the same and institute a new search at a later date for other opportunities.
However, the directors concluded, in view of the old adage that "a bird in the
hand is worth two in the bush," that there could be no real assurance that a
better offer would be made by another party in the future and, in the interim,
if Mr. Blumenfeld succeeded in this start-up business, as to which there can be
no assurance, the Minority Shareholders could benefit from this effort. See
"Recommendation for Approval of Both Proposals for an explanation as to why such
success, if attained, as to which there can be no assurance, may be beneficial
to the Minority Stockholders.
The Stock Purchase Agreement provides that, if the sale to Mr.
Blumenfeld is consummated, the Board of Directors shall consist of one designee
of the existing Board (which designee is expected to be Jeff Davidowitz) and at
least two designees of Mr. Blumenfeld. Information with respect to his three
proposed nominees is given under "Proposed Nominees for Directorships." The
Stock Purchase Agreement also provides that Mr. Brennan's services on behalf of
the Company will be phased out during the 30-day period following the closing of
the stock transaction. One of the other conditions to closing is that
shareholder approval be obtained.
As indicated under "Recommendation for Approval of Both Proposals," the
Minority Stockholders were already in a minority to vote with respect to the
election of directors and the other matters to be submitted to a shareholder
vote so that the sale of a controlling interest to Mr. Blumenfeld would have no
significant effect on their voting rights. As also indicated therein and later
in this section the contemplated sale will have no effect on the payment of
dividends because of the historical losses and the intention to use the
Company's cash to fund the acquisition of inventory and otherwise to grow the
business. Management is not aware of any other potential disadvantage to the
Minority Stockholders. In addition, by selling a controlling interest to Mr.
Blumenfeld, the Company will become committed to succeed in the sport supply
business, as to which there can be no assurance. However, the Board did not
consider this to be a disadvantage to the Minority Stockholders in that such
risk would be possible no matter which new business the Company entered and the
directors' review seemed to support the view that there was a reasonable chance
to succeed in the sport supply business.
As of the Record Date, there were 4,446,017 shares of the Common Stock
outstanding and there were reserved an aggregate of 916,029 shares of the Common
Stock consisting of (1) an aggregate of 345,000 shares reserved for issuance
upon the
9
<PAGE>
exercise of stock options (the "Options") granted under the Company's
1994 Stock Option Plan (the "Option Plan"), (2) an aggregate of 155,000 shares
reserved for issuance upon the exercise of the Options to be granted under the
Option Plan and (3) an aggregate of 416,029 shares reserved for issuance upon
the exercise of outstanding Common Stock purchase warrants (the "Warrants"). If
the 10,000,000 shares are sold to Mr. Blumenfeld and the 1,500,000 shares are
sold to the other prospective purchasers (see the section "Sales to Others"
under this caption "Proposal One: To Enter A New Business"), Mr. Blumenfeld will
own 63.0% of the outstanding shares assuming that no Options and Warrants are
exercised and 59.3% assuming that the outstanding Options and Warrants are
exercised. The Stock Purchase Agreement provides that the Board of Directors
will reserve an additional 400,000 shares of the Common Stock for issuance to
members of the Board of Directors designated by Mr. Blumenfeld at a price not
less than the fair market value of such shares.
The proposed purchase price represented approximately the market price
of the Common Stock at the time Mr. Blumenfeld's offer was made and accepted by
the Board of Directors on August 12, 1997. Even if the purchase price had
represented a discount to then market price, the Board believed that the shares
to be purchased by Mr. Blumenfeld, as "restricted securities" (as such term is
defined in Rule 144(a)(3) under the Securities Act), thereby restricting their
resaleability, would have been entitled to a discount from the then market price
as is common in private transactions pursuant to Section 4(2) of the Securities
Act. The following were the high and low bid prices of the Common Stock as
reported in the OTC Bulletin Board by the National Association of Securities
Dealers, Inc. on the dates indicated:
Bid Prices(1)
-----------------------------
Date High Low
- ---- ---- ---
8/7/97 $0.25 $0.25
8/8/97 0.203 0.203
8/11/97 0.25 0.203
8/12/97 0.203 0.203
8/13/97 0.250 0.203
8/14/97 0.250 0.203
8/15/97 0.328 0.250
8/18/97(2) 0.563 0.281
- -------------------
(1) The foregoing quotations reflect inter-dealer prices, without mark-up,
mark-down or commissions, and may not represent actual transactions.
(2) The date of the Stock Purchase Agreement.
Sale to Others
At the closing for the sale to Mr. Blumenfeld, the Company will sell an
aggregate of 1,500,000 shares of the Common Stock to persons other than Mr.
Blumenfeld, also at $.20 per share or an aggregate purchase price of $300,000.
The prospective purchasers are:
1. John Pappajohn, a director of the Company and his designees, as to
500,000 shares. As of the Record Date, Mr. Pappajohn was the beneficial owner of
1,436,408 shares of
10
<PAGE>
the Common Stock, which amount includes 144,681 shares issuable upon the
exercise of Warrants and constitutes 31.3% of the outstanding shares (29.1% of
the voting shares at this Meeting).
2. Jeff Davidowitz, a director of the Company, William Davidowitz, his
father, and their designees, as to 500,000 shares. As of the Record Date, Jeff
Davidowitz was the beneficial owner of 410,000 shares of the Common Stock, which
amount includes 25,000 shares issuable upon the exercise of an Option and
constitutes 9.2% of the outstanding shares (8.7% of the voting shares at this
Meeting), and William Davidowitz was the beneficial owner of 260,000 shares of
the Common Stock or 5.8% of the outstanding shares.
3. James A. Gordon, a beneficial owner of 5% or more of the outstanding
shares of the Common Stock as of the Record Date, and his designees as to
500,000 shares. As of the Record Date, Mr. Gordon through Edgewater Private
Equity Fund L.P., owned 785,093 shares of the Common Stock or 17.7% of the
outstanding shares.
Accordingly, the prospective purchasers include the persons who own
sufficient shares of the Common Stock to approve the two proposals at this
Meeting no matter how the other shareholders vote with respect thereto and also
constitute two of the three current directors who approved the transaction. Only
Stephen C. Turner, who resigned as a director effective October 17, 1997, is not
participating in the purchase.
As a result of these prospective purchases of an aggregate of 1,500,000
shares of the Common Stock, Messrs. Pappajohn, Davidowitz and Mr. Gordon and
their affiliates and designees will own beneficially (a) 4,221,820 shares or
26.5% of the outstanding shares without giving effect to their outstanding
Options and Warrants and (b) 4,391,501 shares or 27.5% of the outstanding shares
when such effect is given.
The result of the sales to Mr. Blumenfeld and the persons named in this
section is to further dilute the stock ownership of persons other than the
current directors and their affiliates (the "Minority Shareholders") as
indicated in the following table which does not give effect to the outstanding
Options and Warrants:
Minority
Shareholders'
Date Outstanding Shares Number of Shares Percentages
- ---- ------------------ ---------------- -----------
Before sale 4,446,017 1,723,197 38.8%
After sales 15,946,017 1,723,197 10.8%
Because of the above-contemplated purchases of shares of the Common
Stock, the directors considered whether to require that a majority of the shares
of the Minority Shareholders vote affirmatively, but concluded that such an
action was not required under Pennsylvania law and, accordingly, the possible
benefits of seeking such a vote did not justify the expenditure of engaging a
proxy solicitor to obtain the same.
11
<PAGE>
Purchase of Collegiate Pacific, Inc.
If the sale of 10,000,000 shares of the Common Stock to Mr. Blumenfeld
is consummated, he will sell to the Company, at his cost (currently estimated to
approximate $400,000), the assets (including cash advances and the corporate
name) of Collegiate Pacific, Inc. ("CPI") f/k/a Nitro Sports, Inc., a Delaware
corporation. The property to be acquired by the Company from CPI, based on CPI's
most recent balance sheet (i.e., as of September 26, 1997, which is included in
Appendix C to this Proxy Statement) used in the preparation of the pro forma
balance sheet included in this Proxy Statement under the caption "Unaudited Pro
Forma Balance Sheet," will be primarily inventory (72% of the purchase) which
will be used in the Company's business. Capital equipment accounts for an
additional 17% and the remaining 11% consists of trademarks, deposits,
organizational costs and other immaterial assets. All of these percentages may,
of course, vary at the date of the actual closing. Because all of the assets of
CPI were purchased during recent months, the Company believes that the costs
incurred therefor represent fair consideration for the assets. The Company will
not also assume any of the liabilities of CPI except for unpaid invoices for
inventory. CPI currently occupies 30,000 square feet of warehouse and office
space located at 13950 Semlac Drive, Suite 200, Dallas, Texas 75234. CPI's
telephone number is (972) 243-8100. CPI's management believes that these
facilities will be adequate for the foreseeable future. CPI employs five persons
and intends to increase this employment to approximately eight persons when and
if business conditions justify, as to which there can be no assurance. CPI, of
which Mr. Blumenfeld owns 100% of the outstanding shares of stock, was
incorporated on April 14, 1997 under the laws of the State of Delaware.
CPI intends to engage in the mail order marketing of sports equipment
primarily to institutional locations throughout the United States. These
accounts will include country clubs, schools, YMCAs and YWCAs (or similar
organizations), municipal recreation departments and other governmental
agencies. CPI has created a master mailing list of some 200,000 potential
customers and intends to distribute approximately 500,000 catalogs and fliers to
this audience during 1998. CPI also intends to utilize other forms of
solicitations such as trade shows, telemarketing, road salesmen and broadcast
fax programs. While CPI management believes that the vast majority of products
to be distributed by CPI will be purchased in finished form, a small percentage
of the items may require fabrication to complete. CPI anticipates capital
expenditures of no more than $50,000 to purchase welding machines and an
assortment of tools and thereby set up its fabrication process. The raw material
used in the proposed fabrication process are in the form of shipping supplies,
nuts and bolts and other commercially available components. CPI believes that
there are multiple suppliers nationwide for these products. For information as
to contemplated products, see the section "Change of Business" under this
caption "Proposal One:
To Enter A New Business."
Between April and October 1997, CPI did market research as to potential
products to offer and prepared a limited product sales catalog based on such
research. CPI first commenced test marketing product catalogs in early October
1997 and has received approximately 300 orders which it has filled, thereby
deriving its first revenues of $60,000. For seasonal reasons (i.e., the
Christmas holiday), CPI's management did not anticipate additional orders until
January 1998. CPI management intends to design a master
12
<PAGE>
catalog which will be mailed throughout 1998 and which will offer some 300
products. CPI has installed several incoming toll free phone and fax lines to
support the anticipated level of revenues and has purchased, installed and
tested a multistation computer system which will maintain inventory and
financial record keeping and controls. CPI has purchased and has in current
inventory a substantial percentage of the products it intends to offer and sell
during 1998. CPI has expended approximately $160,770 through September 26, 1997
related to market research, inventory acquisition, marketing brochures and
engaging personnel. CPI has fully expensed all items necessary to operate its
business and anticipates no additional costs to generate additional revenues
except the purchase of additional inventory to fill specific product orders. CPI
believes that it can process an estimated $400,000 per month in orders with only
a minimal increase in overhead and personnel. There can be no assurance that CPI
will attain such level of orders; however, as indicated in the next paragraph,
CPI's management believes that the Company will be able to meet its financial
requirements for the next 12 months. See Appendices B and C for the financial
statements of CPI and "Financial Statements-Collegiate Pacific, Inc." for an
index thereto.
If the proposal for a change in business is approved at the meeting and
the sale to Mr. Blumenfeld subsequently consummated, the products will be
distributed by the Company and not by CPI. CPI's management believes that, with
the investment by Mr. Blumenfeld of $2,000,000 ($2,300,000 if the sale to others
is consummated as well, see the section "Sale to Others" under this caption
"Proposal One: To Enter A New Business"), the Company will be able to satisfy
its cash requirements and will not require additional financing during the 12
months following the closing.
There can be no assurance that CPI and, after the sale, the Company
will be able to achieve the anticipated goals set forth in the preceding four
paragraphs.
Mr. Blumenfeld currently serves as the President and Chief Executive
Officer of CPI and will serve in such capacities with the Company after his
purchase of the controlling shares. Certain information with respect to current
executive officers of CPI who will hold similar officerships in the Company
after the sale is as follows:
Arthur Coerver, age 55, is the Chief Operating Officer of CPI. From
1981 until 1997, Mr. Coerver was Vice President, Sales and Marketing, of Sports
Supply. Mr. Coerver graduated from the University of Texas at Austin in 1965
with a BS in Mechanical Engineering.
Chad Edlein, age 26, is the Vice President of Corporate Development of
CPI. From 1994 until 1997, Mr. Edlein was Marketing Manager at Sports Supply.
Mr. Edlein graduated from the University of North Texas in 1994.
Under the Stock Purchase Agreement, Mr. Blumenfeld is to submit an
itemized statement of his costs to the Board promptly after the closing at which
he purchases the 10,000,000 shares of the Common Stock. The Board is obligated
to meet within five business days of the receipt of such statement and the
Company is obligated to make such purchase within three business days after the
Board approves the purchase price (including any resolutions as to items in
dispute). Based upon its current information, the Company believes that the
purchase of the assets of CPI
13
<PAGE>
will be treated as a purchase for accounting purposes and that there will be no
federal income tax consequences to the Company or its shareholders as a result
thereof.
Change of Business
If the first proposal set forth in the Notice of Special Meeting is
approved and, subsequently, the sale of the controlling stock interest in the
Company is purchased by Mr. Blumenfeld, the Company will enter the business of
distributing sports equipment, including inflatable balls, nets for all sports,
standards and goals for sports requiring such, weight lifting equipment and
recreational products such as frisbees and horseshoes, to the institutional
markets. For additional information as to the contemplated operations of the
Company, see the section "Sale to Michael J. Blumenfeld" under this caption
"Proposal One: To Enter A New Business." Mr. Blumenfeld has been engaged in the
sports equipment business for over 25 years. During his 25 years as a Chief
Executive Officer of Sports Supply or its predecessors, such company completed
75 acquisitions and grew to have over 100,000 customers and to offer nearly
5,000 products. If the proposal is approved and the sale of stock is
consummated, Mr. Blumenfeld intends to pursue a policy of strategic
acquisitions, new licensing programs and corporate joint ventures in an attempt
to grow the Company's business. He anticipates that the Company will be
initially offering 300 products by 1998. There can be no assurance that these
acquisitions, licenses or joint ventures will be effectuated or obtained or as
to the number of products to be offered by the Company. Furthermore, there can
be no assurance that the sports equipment business or any other business
hereafter entered into by the Company will be profitable or successful.
Except for compliance with Section 14(a) of the Exchange Act and
Regulation 14A promulgated thereunder relating to this Proxy Statement and the
accompanying proxy, there are no federal or state regulatory requirements as to
which the Company must comply or any approvals obtained in order for the Company
to enter into the business of distributing sports equipment. Whenever the
Company will hereafter elect to commence fabricating manufacturing sports
equipment, compliance with certain federal and state regulatory requirements may
become applicable to the Company.
PROPOSAL TWO: CHANGE OF CORPORATE NAME
The Stock Purchase Agreement requires the Company to change its name
from DSSI Corporation to Collegiate Pacific, Inc. As indicated in the Prior
Proxy Statement, the name DSSI Corporation was adopted only temporarily, because
the name Drug Screening Systems, Inc. was sold to Casco, until a more desirable
name relating to the new business could be adopted. Although the BCL does not
require shareholder approval of a change in corporate name, the Board had agreed
in the Prior Proxy Statement to seek such approval.
RECOMMENDATION FOR APPROVAL OF BOTH PROPOSALS
The Board of Directors unanimously recommends that shareholders approve
the proposals to enter the business of distributing sports equipment (including
the sale of a controlling interest) and to change the corporate name to
Collegiate Pacific Inc. because they believe that this new business, under the
leadership of Mr. Blumenfeld, will afford the Minority
14
<PAGE>
Shareholders an opportunity to recoup potentially their investment in the
Company and for the Company to realize future profits, as to neither of which
results there can be any assurance. The Board also believes that the Minority
Shareholders will realize a greater return on their investment more than if the
Company were liquidated rather than consummating the transaction with Mr.
Blumenfeld. As of September 30, 1997, the book value of the Company was $721,933
or $.16 per share and the liquidation value (after paying all liquidating
expenses) was estimated by management to be $.14 per share. While the Board does
not make any recommendation as to whether a Minority Shareholder should hold or
sell his, her or its shares of the Common Stock, it notes that, based on the
high and low sales prices of $1.19 and $1.08, respectively, on NovemberDecember
2, 1997, a Minority Shareholder would realize more by a sale than the estimated
liquidation value; however, there can be no assurance as to what the market
price of the Common Stock will be when a Minority Shareholder chooses to sell.
Reference is made to the lower market prices at the time the Stock Purchase
Agreement was negotiated as set forth under "Proposal One: To Enter A New
Business-Sale to Michael J. Blumenfeld."
The Board is also of the opinion that, after the transactions are
consummated, so that the Company again has operations and if these new
operations result in profitability, there should be greater interest in the
Common Stock, thereby not only helping to increase its market value but
hopefully also increase its liquidity. However, there can be no assurance that
(1) the Company will achieve profitability, either as to when or if at all; (2)
there will continue to be a rise in the market price of the Common Stock; or (3)
there will be an improvement in the liquidity of the Common Stock.
The book value of the Common Stock assuming the occurrence of all of
the transactions described in this Proxy Statement to be taken after shareholder
approval is $0.19 per share and the liquidation value would be approximately the
same amount (unrounded, the numbers would be $0.192 and $0.186, respectively).
Although directors reviewed these values prior to reaching their decision, their
primary focus was on the potential future earnings of the new entity as a means
of enhancing the market value of the Common Stock rather than on the book value
of the shares immediately after consummation of the sale to Mr. Blumenfeld and
the subsequent purchase of CPI's assets. In addition, although the directors did
not believe that the future earnings were quantifiable, they concluded that Mr.
Blumenfeld's past results in the intended market gave a good indication of the
potential for growth. There can be, of course, no assurance that the Company
will operate at a profit or achieve any significant amount of revenues or that
these results, if achieved, will result in a higher market value for the Common
Stock.
Although, as indicated under the section "Sales to Others" under the
caption "Proposal One: To Enter A New Business," the percentage of ownership of
the shareholders who are not affiliated with the current directors and James A.
Gordan (i.e., the Minority Shareholders) would be reduced, the Board does not
consider this to be a material reason for the Minority Shareholders to vote
against either proposal. Because of its history of continuing losses when the
Company was engaged in the drug testing business, no dividends were ever paid
nor was there a likely chance of such dividends because of the continuing cash
requirements of the Company. Although the directors believe that, as a result of
the Company's entry into the sports equipment business, the Company will achieve
profitability at an earlier date that the Company would have (if at all) in the
drug testing business, thereby permitting legally the payment of dividends, Mr.
Blumenfeld has advised the directors that any earnings will be used to develop
15
<PAGE>
the business and, accordingly, no dividends are currently contemplated even if
the Company achieves his expectations. In addition, the prior percentage
ownership did not permit the Minority Shareholders to effect the vote on the
election of directors or on any other matters so long as the directors and the
5% beneficial owner voted together. Accordingly, the further reduction in their
percentage ownership caused by the transactions contemplated by this Proxy
Statement will not deprive the Minority Stockholders of a voting right which
they currently have. There will be no other changes in the rights of the
Minority Shareholders.
PROPOSED NOMINEES FOR DIRECTORSHIPS
If the first proposal set forth in the Notice of Special Meeting is
approved and Mr. Blumenfeld subsequently purchases the controlling stock
interest in the Company, he intends to designate to the current Board the three
persons hereinafter named for election as directors of the Company and, pursuant
to the Stock Purchase Agreement, the Board will elect them as permitted by the
BCL and the Company's By-Laws. In addition, one current director (currently
expected to be John Pappajohn) will resign and one current director (expected to
be Jeff Davidowitz) will continue to serve.
Certain information with respect to Mr. Blumenfeld's designees for
election as directors is as follows:
Michael J. Blumenfeld, age 51, will serve as the President and Chief
Executive Officer of the Company, currently serving in such capacities for CPI.
From 1992 until November 1996, he was the Chairman of the Board and Chief
Executive Officer of Sports Supply, from which public company he resigned in
November 1996.
Robert W. Philip, age 62 was an Executive in Residence and Lecturer in
the Department of Accounting of the College of Business Administration at the
University of North Texas in Denton, Texas from September 1989 until May 1994.
Prior to that time, Mr. Philip served as an audit partner with Arthur Andersen,
S.C. for approximately 18 years. Mr. Philip is also a director of Medical
Control, Inc. (Nasdaq: MDCL), a health care cost management company. Mr. Philip
is currently retired from the University of North Texas and Arthur Andersen,
S.C.
William A. Watkins, Jr., age 55, has been a partner of Watkins, Watkins
and Keenan, a certified public accounting firm, since December 1971. He also
serves as a director of Aurora Electronics, Inc. (AMEX: AUR), a provider of
specialized distribution and materials support services to the electronics
industry.
There are no family relationships between any of the foregoing
designees and the current directors or between the foregoing designees and the
officers named under "Proposal One: To Enter A New Business-Purchase of
Collegiate Pacific, Inc."
16
<PAGE>
FINANCIAL STATEMENTS
DSSI Corporation
- ----------------
The following audited financial statements appear in the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997 (the
"Annual Report"), a copy of which Annual Report is annexed to the Proxy
Statement as Appendix D, and are incorporated herein by this reference.
<TABLE>
<CAPTION>
Page in
Item Form 10-KSB
---- -----------
<S> <C>
Independent Auditors' Report............................................................ 10
Balance Sheets as of June 30, 1997 and 1996............................................. 11
Statements of Operations for the years ended June 30,
1997 and 1996........................................................................ 12
Statements of Changes in Stockholders' Equity for the years ended
June 30, 1997 and 1996............................................................... 13
Statements of Cash Flows for the years ended June 30, 1997 and 1996..................... 14
Notes to Financial Statements........................................................... 15
</TABLE>
The following Items in the Annual Report are also incorporated herein
by this reference: 1 (Description of Business), 2 (Description of Property), 3
(Legal Proceedings), 4 (Market for Common Equity and Related Stockholder
Matters), 6 (Management's Discussion and Analysis or Plan of Operations) and 8
(Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures).
The following unaudited financial statements appear in the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997 (the
"Quarterly Report"), a copy of which Quarterly Report is annexed to the Proxy
Statement as Appendix E, and are incorporated herein by this reference.
<TABLE>
<CAPTION>
Page in
Item Form 10-QSB
---- -----------
<S> <C>
Balance Sheets as of September 30 and June 30, 1997..................................... 4
Page in
Item Form 10-KSB
---- -----------
Statements of Operations and Accumulated Deficit for the
three months ended September 30, 1997 and 1996....................................... 5
Statements of Cash Flows for the three months ended
September 30, 1997 and 1996.......................................................... 6
Notes to Financial Statements........................................................... 7
</TABLE>
Periodic reports and proxy material relating to the Company can be
inspected and copies made at the public reference facilities of the Commission
at Room 104, 450 Fifth Street, N.W.,
17
<PAGE>
Washington, D.C. 20549, as well as the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York, 10048 and
Northwestern Atrium Center, 500West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. A copy of the Company's periodic reports and proxy
statements can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web Site that contains
reports, proxy and information statements and information regarding registrants
like the Company that file electronically with the Commission at the following
Web site address: http://www/sec.gov. A copy can also be obtained from the
Company by writing Mr. Brennan at the address shown in the introductory heading
to this Proxy Statement or by calling him at (610) 696-3479.
Collegiate Pacific, Inc.
- ------------------------
The following audited financial statements for CPI for the period from
inception to August 22, 1997 are annexed as Appendix B and are incorporated
herein by this reference. CPI has advised the Company that its fiscal year ends
December 31 and that, if the transactions contemplated by this Proxy Statement
are consummated, the Company's fiscal year will be changed from June 30 to
December 31.
<TABLE>
<CAPTION>
Page in
Item Appendix B
<S> <C>
Independent Auditor's Report............................................................ B-1
Balance Sheets as of August 22, 1997.................................................... B-2
Statement of Income (Loss) from Inception
to August 22, 1997.................................................................. B-3
Page in
Item Appendix B
Statement of Stockholder's Equity from Inception
to August 22, 1997.................................................................. B-4
Statement of Cash Flows from Inception
to August 22, 1997.................................................................. B-5
Notes to Financial Statements........................................................... B-6
</TABLE>
18
<PAGE>
The following unaudited financial statements for CPI for the period
from inception to September 26, 1997 are annexed as Appendix C and are
incorporated herein by this reference.
<TABLE>
<CAPTION>
Page in
Item Appendix C
<S> <C>
Unaudited Balance Sheet as of September 26, 1997........................................ C-1
Unaudited Statement of Income (Loss) from Inception
to September 26, 1997............................................................... C-2
Unaudited Statement of Stockholder's Equity from Inception
to September 26, 1997............................................................... C-3
Unaudited Statement of Cash Flows from Inception
to September 26, 1997............................................................... C-4
Notes to Financial Statements........................................................... C-5
</TABLE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Balance Sheet and Unaudited Statement
of Income (Loss) of the Company have been prepared as if CPI acquired the
Company, except no good will or other tangible assets are recorded in the former
financial statement.
The Unaudited Pro Forma Balance Sheet gives effect to the sale of the
shares to Michael J. Blumenfeld and others as if the sale had occurred as of
September 30, 1997. The Unaudited Pro Forma Balance Sheet and the Unaudited
Statement of Income (Loss) should be read in conjunction with the historical
financial statements of the Company and CPI, including the notes thereto. Each
of the unaudited pro forma financial statements does not purport to represent
what the Company's or CPI's actual financial position or performance would
have been if the sale of shares in fact occurred on such date or to project
the Company's or CPI's financial position or performance at any future date.
The Unaudited Pro Forma Balance Sheet does not give effect to any transactions
other than the payment of the note to the former sole owner of CPI as
described in footnote (2) and the sale of an aggregate of 11,250,000 shares of
the Common Stock for an aggregate purchase price of $2,300,000 less expenses,
which is, in substance, the equivalent to CPI
19
<PAGE>
issuing stock for the net monetary assets of the Company and the
recapitalization of CPI to remove the retained deficit of the Company.
No pro forma income statement is included for the fiscal year ended
June 30, 1997 because CPI is a start-up operation, having realized no revenues
and incurring only expenses during that period. A Pro Forma Income Statement is
presented for the three-month period ended September 30, 1997 which gives effect
to the issuance of the 11,500,000 shares as of July 1, 1997.
COLLEGIATE PACIFIC, INC.
UNAUDITED PRO FORMA BALANCE SHEET
As of September 30, 1997
<TABLE>
<CAPTION>
CPI DSSI Pro Forma Pro Forma
Historical Historical Adjustments As Adjusted
---------- ---------- ----------- -----------
Assets
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 449,282 $ 606,203 $2,225,000 (1) $2,466,134
(814,351)(2)
Accounts receivable, not of allowance of $50,000 at
September 30, 1997 2,044 160,411 - 162,455
Inventory 391,859 - - 391,859
Prepaid expenses and other 6,429 19,912 - 26,341
--------- ---------- ---------- ----------
Total Current Assets 849,614 786,526 1,410,649 3,046,789
Equipment and improvements, net 84,076 1,380 - 85,456
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CPI DSSI Pro Forma Pro Forma
Historical Historical Adjustments As Adjusted
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Other Assets:
Deposits 19,750 150 - 19,900
Patents or Trademark 43,950 - - 43,950
-------- -------- --------- ---------
Total Assets $997,390 $786,056 $1,410,649 $3,196,095
======== ======== ========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt and
capital leases - $ 10,388 $10,388
Note Payable - shareholder $ 999,950 - $(999,950)(2) -
Accounts payable and accrued expenses 182,039 55,735 - 237,774
-------- -------- --------- ---------
Total Current Liabilities 1,181,989 66,123 (999,950) 248,162
Long Term Debt - - -
Stockholders' Equity
Class "A" preferred stock, $0.01 par value; 2,000
Shares authorized; none issued - - - -
Common stock, $0.01 par value; 20,000,000
shares authorized: 4,446,017 shares at September
30, 1997 issued and outstanding 10 44,460 115,000 (1) 159,460
(10)(3)
Additional paid-in-capital 990 15,118,555 185,599 (2) 2,974,072
2,110,000 (1)
(14,441,072)(3)
Accumulated deficit (185,599) (14,441,082) 14,441,082 (3) (185,599)
-------- -------- --------- ---------
Total Stockholders' Equity (184,599) 721,933 2,410,599 2,947,933
-------- -------- --------- ---------
Total Liabilities and Stockholders' Equity $ 997,390 $ 788,056 $1,410,649 $3,196,095
========== ========= ========== ==========
</TABLE>
- -----------------------
(1) This amount represents the purchase of 11,500,000 shares of the Common Stock
as described elsewhere in this Proxy Statement at a cost of $.20 per share
less a reduction of $75,000 for the expenses relating to the proposed sales
of shares of the Common Stock.
(2) This adjustment pays down the debt of $999,950 to the former sole owner of
CPI for $814,351 in cash and a resulting contribution of part-in-capital of
$185,599.
(3) This adjustment shows the recapitalization of CPI to remove the retained
deficit of the Company.
<PAGE>
COLLEGIATE PACIFIC, INC.
------------------------
UNAUDITED PRO FORMA INCOME (LOSS) STATEMENT(1)
----------------------------------------------
For the three months ended September 30, 1997
---------------------------------------------
<TABLE>
<CAPTION>
CPI DSSI Pro Forma
Historical Historical Adjustments Pro Forma
<S> <C> <C> <C> <C>
Sales $ 2,170 $ - $ - $ 2,170
- ----------------------------------------------------------------------------------------------------------------------------
Cost of Sales 1,352 - - 1,352
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 818 - - 818
- ----------------------------------------------------------------------------------------------------------------------------
General & administrative 189,566 46,695 (22,901)(2) 213,360
- ----------------------------------------------------------------------------------------------------------------------------
Operating loss (188,749) (46,695) 22,901 (212,542)
- ----------------------------------------------------------------------------------------------------------------------------
Other income 3,149 7,061 - 10,210
- ----------------------------------------------------------------------------------------------------------------------------
Net loss $(185,599) $(39,634) $ 22,901 $(202,332)
- ----------------------------------------------------------------------------------------------------------------------------
Net loss per share (0.01)
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 15,966,017
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------
(1) This Unaudited Pro Forma Income (Loss) Statement gives effect to the
issuance of the 11,500,000 shares for the full three months ended September
30, 1997.
(2) Shows the reduction of interest expense for the three months ended September
30, 1997 associated with the assumed pay-off of the Note Payable to
shareholders.
MISCELLANEOUS
Costs of Solicitation
The expenses in connection with the solicitation of proxies, including
the cost of preparing assembling and mailing this Proxy Statement and the
related material, will be borne by the Company. The Company will pay brokers and
other custodians, nominees and fiduciaries their reasonable expenses for sending
proxy materials to principals and obtaining their proxies. In addition to
solicitations by mail, proxies may be solicited personally or by telephone or
telegraph by directors and the sole officer of the Company, who will receive no
additional compensation therefor.
Annual Report to Shareholders
A copy of the Annual Report is annexed to this Proxy Statement as
Appendix D and its financial statements and certain items are incorporated
herein by this reference under "Financial Statements.". A copy of any exhibits
to the Annual Report may be obtained by written or oral request to Patrick J.
Brennan, Vice President, Chief Financial Officer and Secretary of the
22
<PAGE>
Company, at the principal office of the Company, the address of which is set
forth in the introductory paragraph heading to this Proxy Statement. A
reasonable fee for duplicating and mailing will be charged if a copy of any
exhibit is requested.
Shareholder Proposals
Shareholder proposals for inclusion in the Company's Proxy Statement
for the next Annual Meeting of Shareholders must be received not later than a
reasonable time before the proxy material for such meeting is mailed.
DSSI CORPORATION
Patrick J. Brennan, CPA
Secretary
Dated: January 30, 1998
23
<PAGE>
APPENDIX A
STOCK PURCHASE AGREEMENT
AND ADDENDUM TO
STOCK PURCHASE AGREEMENT
<PAGE>
APPENDIX A-1
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into as of
August 18, 1997 by and between DSSI Corporation, a Pennsylvania corporation (the
"Company"), and Michael J. Blumenfeld ("Purchaser").
Background
Purchaser, on the terms and subject to the conditions of this
Agreement, desires to purchase from the Company, and the Company desires to
issue and sell to Purchaser, 10,000,000 shares of the Company's common stock,
$.01 par value per share (the "Company Common Stock"), for an aggregate purchase
price of $2,000,000.
Therefore, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which all parties mutually acknowledge, the Company and Purchaser hereby
agree as follows:
Article I
The Purchase and Sale of the Shares
1.01 Purchase and Sale of the Shares. At the Closing (as defined
below), and subject to the terms and conditions set forth in this Agreement,
Purchaser will purchase from the Company, and the Company will issue and sell to
Purchaser, 10,000,000 shares of the Company Common Stock (the "Shares"), free
and clear of any liens, encumbrances, pledges, restrictive agreements, or
adverse claims of any nature.
1.02 Purchase Price. The aggregate purchase price for the Shares will
be $2,000,000 (the "Purchase Price") in immediately available funds.
Article II
The Closing
2.01 Closing; Closing Date. Unless this Agreement has been terminated
pursuant to Section 7.01, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the issuance and sale of the Shares
contemplated by this Agreement (the "Closing") will take place at the offices of
the Company on September 2, 1997 (provided, that the conditions set forth in
Article V have been satisfied or waived at or prior to such time) or as soon as
practicable (but not later than five business days) after satisfaction of the
conditions set forth in Article V, or at such time, date, and place as the
Company and Purchaser agree. The date on which the Closing takes place is
referred to as the "Closing Date".
A-1-1
<PAGE>
2.02 Deliveries by Purchaser. Purchaser will deliver or cause to be
delivered the following at Closing, and it will be a condition to the Company's
obligations under this Agreement that all of the following be delivered at
Closing:
(a) A wire transfer for the Purchase Price in immediately available
funds to the account established for the benefit of the Company,
titled "DSSI Corporation d/b/a Collegiate Pacific Inc.", at BankOne
Texas, N.A. in Dallas, Texas.
(b) Such other documents and instruments as may be necessary to carry
out the transactions contemplated by this Agreement.
2.03 Deliveries by the Company. The Company will deliver or cause to be
delivered the following at Closing, and it will be a condition to Purchaser's
obligations under this Agreement that all of the following be delivered at
Closing:
(a) A certificate or certificates representing the Shares, in such
denominations and registered in such names as Purchaser shall
request at least two days prior to the Closing Date.
(b) Opinion of counsel for the Company, substantially in the form of
Exhibit A.
(c) A certificate of the secretary of the Company, substantially in the
form of Exhibit B.
(d) A closing certificate executed by an officer of the Company,
substantially in the form of Exhibit C.
(e) Such other documents and instruments as may be necessary to carry
out the transactions contemplated by this Agreement.
Article III
Representations and Warranties of the Company
The Company hereby represents and warrants to Purchaser that the
statements in this Article III are true and correct as of the date of this
Agreement.
3.01 Organization, Good Standing, and Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the Commonwealth of Pennsylvania, has all requisite corporate power and
authority to own, lease, and operate its properties and to carry on its business
as presently conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means a material adverse effect on, or a material adverse change in, or a group
of such effects on or changes in, the business, operations, financial condition,
results of operations, assets, or liabilities of the Company.
3.02 Authorization. The Company has all requisite power and authority
to execute and deliver this Agreement, to perform its obligations hereunder, and
to consummate the transactions
A-1-2
<PAGE>
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Company are required to authorize the
transactions contemplated hereby. This Agreement constitutes a legal, valid, and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as may be limited by (a) applicable bankruptcy,
insolvency, reorganization, or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (b) the effect of
rules of law governing the availability of equitable remedies.
3.03 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of (i)
20,000,000 shares of the Company Common Stock, of which
4,446,017 are issued and outstanding, and (ii) 2,000 shares of
Class "A" Preferred Stock, $.01 par value per share, none of
which are issued and outstanding. At Closing, in addition to
the issuance and sale of the Shares to Purchaser, the Company
will issue and sell 1,500,000 shares of the Company Common
Stock, at a purchase price of $.20 per share, to persons other
than Purchaser.
The Company has reserved 500,000 shares of the Company Common
Stock for issuance under the Company's 1994 Stock Option Plan
under which options to purchase 345,000 shares are
outstanding. The Company has issued and outstanding warrants
to purchase an aggregate of 408,998 shares of the Company
Common Stock. Except for shares reserved for issuance under
the 1994 Stock Option Plan and for the outstanding warrants,
no other shares of capital stock of the Company are reserved
for any purpose. Each of the outstanding shares of capital
stock of the Company is duly authorized, validly issued, and
fully paid and nonassessable, and has not been issued in
violation of (nor are any of the authorized shares of capital
stock subject to) any preemptive or similar rights.
(b) Except as provided in this Agreement or as set forth in
Schedule 3.03(b), there are no options, warrants, or other
rights, agreements, or commitments of any nature to which the
Company is a party or by which it is bound relating to the
issued or unissued capital stock or other securities of the
Company or obligating the Company to grant, issue, or sell any
shares of its capital stock or other securities. Except as set
forth in Schedule 3.03(b), there are no agreements,
arrangements, or commitments of any nature pursuant to which
any person or entity is or may be entitled to receive any
payment based on the revenues or earnings, or calculated in
accordance therewith, of the Company.
(c) There are no obligations, contingent or otherwise, of the
Company to (i) repurchase, redeem, or otherwise acquire any
shares of the Company Common Stock or other capital stock or
securities of the Company; or (ii) provide material funds to,
or make any material investment in (in the form of a loan,
capital contribution, or otherwise), or provide any guarantee
with respect to the obligations of any person or entity.
A-1-3
<PAGE>
3.04 Subsidiaries. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity.
3.05 No Conflict. The execution, delivery, and performance of this
Agreement, and the consummation by the Company of the transactions contemplated
hereby, do not and will not (i) contravene or conflict with the Articles of
Incorporation or Bylaws of the Company; (ii) constitute a violation of any
provision of any federal, state, local, or foreign law binding upon or
applicable to the Company; or (iii) constitute a default or require any consent
under, give rise to any right of termination, cancellation or acceleration of,
or to a loss of any benefit to which the Company is entitled under, or result in
the creation or imposition of any lien, claim, or encumbrance on any assets of
the Company under, any contract to which the Company is a party or any permit,
license, or similar right relating to the Company or by which the Company may be
bound or affected.
3.06 Valid Issuance of Stock. The Shares, when issued, sold, and
delivered in accordance with the terms of this Agreement for the consideration
provided for herein, will be duly and validly issued, fully paid and
nonassessable.
3.07 Governmental Consents. Except as provided in Section 5.01(f) and
Section 5.01(g), no consent, approval, order, or authorization of, or
registration, qualification, designation, declaration, or filing with, any
federal, state, or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement.
3.08 Litigation. There is no claim, action, suit, litigation,
proceeding, arbitration, or investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or, to the
knowledge of the Company, threatened against the Company or any properties or
rights of the Company, or relating to this Agreement or the transactions
contemplated by this Agreement, including, without limitation, any claims for
indemnification raised by Casco Standards, Inc. against the Company pursuant to
the Purchase and Sale Agreement dated March 14, 1997. The Company is not subject
to any continuing order of, consent decree, settlement agreement, or other
similar written agreement with, or continuing investigation by, any governmental
entity, or any judgment, order, writ, injunction, decree, or award of any
governmental entity or arbitrator.
3.09 Permits; Compliance. The Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals, and orders necessary to own,
lease, and operate its properties and to carry on its business as it is now
being conducted (collectively, the "Company Permits"), and there is no action,
proceeding, or investigation pending or threatened regarding suspension or
cancellation of any of the Company Permits.
3.10 Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of its Articles of Incorporation or
Bylaws, both as amended to date. The Company has complied and is in compliance
in all material respects with all applicable statutes, laws, regulations, and
executive orders of the United States of America and all states,
A-1-4
<PAGE>
foreign counties, and over governmental bodies and agencies having jurisdiction
over the Company's business or properties.
3.11 Registration Rights. The Company is not currently subject to any
grant or agreement to grant to any person or entity any rights (including
piggyback registration rights) to have any securities of the Company registered
with the United States Securities and Exchange Commission ("SEC") or any other
governmental authority.
3.12 Title to Property and Assets. Except as set forth on Schedule
3.12, the Company does not own any real property and does not have any assets.
With respect to the property and assets it leases, the Company is, except as set
forth in Schedule 3.12, in compliance with such leases in all material respects.
3.13 Material Contracts. The Company has no (a) agreement, contract, or
other arrangement, whether written or oral, providing for the payment by the
Company of $25,000 or more or (b) other agreement, contract, or other
arrangement that is material to the business of the Company.
3.14 SEC Documents.
-------------
(a) The Company has furnished to Purchaser copies of the Company's
Annual Report on Form 10-KSB for the year ended June 30, 1996,
the Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1997, and the Company's Proxy Statement for
the Annual Meeting of the Shareholders dated May 23, 1997
(collectively, the "SEC Documents"). Each of the SEC
Documents, as of the respective date thereof, did not, and
each of the registration statements, reports, and proxy
statements filed by the Company with the SEC after the date
thereof and prior to the Closing will not, as of the date
thereof, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under
which they are made, not misleading. The Company is not a
party to any material contract, agreement, or other
arrangement which was required to have been filed as an
exhibit to the SEC Documents that is not so filed.
(b) The SEC Documents include the Company's audited financial
statements (the "Audited Financial Statements") for the year
ended June 30, 1996 and its unaudited financial statements as
of and for the nine-month period ended March 31, 1997 (the
"Balance Sheet Date"). Since the Balance Sheet Date, the
Company has duly filed with the SEC all registration
statements, reports, and proxy statements required to be filed
by it under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the Securities Act of 1933, as
amended (the "Securities Act"). The audited and unaudited
financial statements of the Company included in the SEC
Documents filed prior to the date hereof fairly present, in
conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis (except as may be
indicated in the notes thereto), the financial position of the
Company as at the date thereof and the results of their
A-1-5
<PAGE>
operations and cash flows for the periods then ended (subject
to normal year and audit adjustments in the case of unaudited
interim financial statements).
(c) Except as and to the extent reflected or reserved against in
the Company's unaudited financial statements for the
nine-month period ending March 31, 1997 (including the notes
thereto), the Company has no liabilities (whether accrued or
unaccrued, liquidated or unliquidated, secured or unsecured,
joint or several, due or to become due, vested or unvested,
executory, determined or determinable) other than: (i)
liabilities incurred in the ordinary course of business since
the Balance Sheet Date, and (ii) liabilities with respect to
agreements listed in Schedule 3.14(c).
3.15 Employees; Employee Benefits.
----------------------------
(a) The Company has no employees other than those listed on
Schedule 3.15(a). The Company has not received any notice, and
has no knowledge of any threatened labor or civil rights
dispute, controversy, or grievance or any other unfair labor
practice proceeding or breach of contract claim or action with
respect to claims of, or obligations to, any present or former
employee or group of employees of the Company.
(b) Except as set forth on Schedule 3.15(b), the Company does not
maintain, sponsor, contribute to, or provide any benefits
under (i) any "employee benefit plan" (as defined in the
Employee Retirement Income Security Act of 1974, as amended);
(ii) any plan or policy providing for any "fringe benefits";
(iii) any bonus, incentive, compensation, deferred
compensation, profit sharing, stock, severance, retirement,
health, life, disability, group insurance, employment, stock
option, stock purchase, stock appreciation right, supplemental
unemployment, layoff, consulting, or other similar plan; or
(iv) any agreement, policy, or understanding (whether written
or oral, qualified or nonqualified, currently effective or
terminated) ((i) through (iv) are collectively referred to as
"Employee Plans"). There is no claim pending arising out of or
related to any Employee Plan by any person or entity
(including any governmental entity) against the Company nor is
any such claim threatened. The Company has no continuing
liability or other obligations arising under any previously
terminated or transferred Employee Plans.
3.16 Tax Matters.
-----------
(a) The Company has filed on a timely basis all Tax Returns
required to have been filed by it and has paid on a timely
basis all Taxes required to be shown thereon as due. All such
Tax Returns are true, complete, and correct in all material
respects. No director, officer, or employee of the Company
having responsibility for Tax matters has reason to believe
that any Taxing authority has valid grounds to claim or assess
any additional Tax with respect to the Company in excess of
the amounts shown in the financial statements delivered to
Purchaser for the periods covered thereby. As used in this
Agreement, (l) "Taxes" means (x) all federal, state, local,
foreign, and other net income, gross income, gross receipts,
sales, use,
A-1-6
<PAGE>
ad valorem, value added, intangible, unitary, capital gain,
transfer, franchise, profits, license, lease, service, service
use, withholding, backup withholding, payroll, employment,
estimated, excise, severance, stamp, occupation, premium,
property, prohibited transactions, windfall or excess profits,
customs, duties or other taxes, fees, assessments or charges
of any kind whatsoever together with any interest and any
penalties, additions to tax or additional amounts with respect
thereto, (y) any liability for payment of amounts described in
clause (x) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined, or
unitary group for any period, or otherwise through operation
of law, and (z) any liability for the payment of amounts
described in clauses (x) or (y) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other
person for Taxes; and the term "Tax" means any one of the
foregoing Taxes; and (2) "Tax Returns" means all returns,
reports, forms, or other information required to be filed with
respect to any Tax.
(b) With respect to all amounts in respect of Taxes imposed upon
the Company or for which the Company is or could be liable,
whether to Taxing authorities (as, for example, under law) or
to other persons or entities (as, for example, under tax
allocation agreements), and with respect to all taxable
periods or portions of periods ending on or before the Closing
Date, all applicable Tax laws and agreements have been fully
complied with, and all such amounts required to be paid by the
Company to taxing authorities or others have been paid.
(c) The Company has not received notice that the Internal Revenue
Service or any other Taxing authority has asserted against the
Company any deficiency or claim for additional Taxes in
connection with any Tax Return, and no issues have been raised
(and are currently pending) by any taxing authority in
connection with any Tax Return. The Company has not received
notice that it is or may be subject to Tax in a jurisdiction
in which it has not filed or does not currently file Tax
Returns.
3.17 Indebtedness. The Company has no outstanding indebtedness that the
Company has directly or indirectly created, incurred, assumed, or guaranteed.
3.18 Environmental Matters.
---------------------
(a) During the period that the Company has leased or owned its
properties or owned or operated any facilities, there have
been no disposals, releases, or threatened releases of
Hazardous Materials (as defined below) on, from, or under such
properties or facilities in violation of applicable law. The
Company has no knowledge of any presence, disposals, releases,
or threatened releases of Hazardous Materials on, from, or
under any of such properties or facilities, which may have
occurred prior to the Company having taken possession of any
of such properties or facilities in violation of applicable
law. For purposes of this Agreement, the terms "disposal",
"release", and "threatened release" shall have the definitions
assigned thereto by the Comprehensive Environmental Response,
compensation and Liability Act of 1980, 42 U.S.C. Section 9601
et seq., as
A-1-7
<PAGE>
amended ("CERCLA"). For the purposes of this Section 3.17,
"Hazardous Materials" shall mean any hazardous or toxic
substance, material, or waste which is or becomes prior to the
Closing regulated under, or defined as a "hazardous
substance", "pollutant", "contaminant", "toxic chemical",
"hazardous material", "toxic substance", or "hazardous
chemical" under (1) CERCLA; (2) the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Section 11001 et seq.;
(3) the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq.; (4) the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq.; (5) the Occupational Safety
and Health Act of 1970, 29 U.S.C. Section 651 et seq.; or (6)
regulations promulgated under any of the above statutes.
(b) None of the Company's properties or facilities is in violation
of any federal, state, or local law, ordinance, regulation, or
order relating to industrial hygiene or to the environmental
conditions on, under, or about such properties or facilities,
including, but not limited to, soil and ground water
conditions. During the time that the Company has owned or
leased its properties and facilities, neither the Company nor,
to the Company's knowledge, any third party, has used,
generated, manufactured, or stored on, under, or about such
properties or facilities or transported to or from such
properties or facilities any Hazardous Materials in violation
of applicable law.
(c) During the time that the Company has owned or leased its
properties and facilities, there has been no litigation
brought or threatened against the Company, or any settlement
reached by the Company with, any party or parties alleging the
presence, disposal, release, or threatened release of any
Hazardous Materials on, from, or under any of such properties
or facilities.
(d) During the period that the Company has owned or leased its
properties and facilities, no Hazardous Materials have been
transported from such properties or facilities to any site or
facility now listed on the National Priorities List, at 40
C.F.R. Part 300, or any list with a similar scope or purpose
published by any state authority in violation of applicable
law.
3.19 Full Disclosure. The representations and warranties contained in
this Agreement, as modified or qualified by the Schedules, are true and complete
in all material respects and do not omit to state any materiel fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Article IV
Representations and Warranties of Purchaser
Purchaser hereby represents and warrants to the Company that the
statements in this Article IV are true and correct as of the date of this
Agreement.
4.01 Investment Intent. Purchaser is acquiring the Shares for his own
account for investment purposes and not with a view to the distribution thereof
within the meaning of the Securities Act.
A-1-8
<PAGE>
4.02 Restricted Securities. Purchaser understands that the Shares
constitute "restricted securities" within the meaning of Rule 144 under the
Securities Act and may not be sold, pledged, or otherwise disposed of unless
they are subsequently registered under the Securities Act and applicable state
securities laws or unless an exemption from registration is available.
4.03 Accredited Investor. Purchaser is an "accredited investor" within
the meaning of Rule 501 under the Securities Act.
4.04 Restrictive Legend. Purchaser understands that each certificate
representing the Shares shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend that may now or
hereafter be required by applicable state law):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
4.05 No Non-Competition Obligation. Purchaser is not a party to any
agreement, whether with Sports Supply Group, Inc. or any other entity, pursuant
to which he has agreed not to compete with such entity or pursuant to which the
transactions contemplated by this Agreement would be prohibited or limited in
any material manner.
Article V
Closing Conditions
5.01 Conditions to Purchaser 's Obligations at Closing. The obligations
of Purchaser to purchase the Shares and the other transactions contemplated by
this Agreement are subject to the fulfillment or waiver, on or before the
Closing, of each of the following conditions:
(a) Each of the representations and warranties of the Company
contained in this Agreement must be true and correct in all
material respects on and as of the Closing Date as though made
on and as of the Closing Date.
(b) The Company must have performed and complied in all material
respects with all agreements, obligations, and conditions
contained in this Agreement that are required to be performed
or complied with by it on or before the Closing and will have
obtained all approvals, consents, and qualifications necessary
to complete the purchase and sale of the Shares.
A-1-9
<PAGE>
(c) Each of the required items set forth in Section 2.03 must have
been executed and delivered.
(d) The Company's Board of Directors shall have taken such actions
so that, immediately after the Closing, the Board of Directors
shall consist of one designee of the existing Board of
Directors with the remaining members to consist of persons
designated by Purchaser (which shall in any event never be
less than two members of the Company's Board of Directors).
(e) The Company's Board of Directors must have taken all steps
required by the Pennsylvania Business Corporation Law to
propose and adopt an amendment to the Company's Articles of
Incorporation changing the name of the Company from "DSSI
Corporation" to "Collegiate Pacific Inc.", which shall be
conditioned upon and effective at Closing.
(f) The Company shall have complied with its obligations under
Section 14(f) of the Exchange Act.
(g) The Company must have taken all steps required by applicable
law, including the filing of a proxy statement with the SEC,
to seek shareholder approval of this Agreement and the
transactions contemplated hereby.
(h) The Company must have delivered to Purchaser audited financial
statements for the fiscal year ended June 30, 1997, including
balance sheets and statements of income, cash flow, and
changes in stockholders' equity for such period, prepared in
accordance with GAAP applied on a consistent basis throughout
such period, the results of which are not materially adverse
as compared with the results reported in the Audited Financial
Statements and the unaudited financial statements of the
Company as of and for the nine-month period ended March 31,
1997.
(i) The Company must have terminated all consulting, employment,
or other agreements, contracts, or understandings between the
Company and any person, including any agreement, whether
written or oral, between the Company and Patrick J. Brennan,
except that payments to, or on behalf of, Mr. Brennan may be
phased out during the thirty (30) day period following the
Closing Date as also provided in Section 6.06.
5.02 Conditions to the Company's Obligations at Closing. The
obligations of the Company to issue and sell the Shares and the other
transactions contemplated by this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions:
(a) Each of the representations and warranties of Purchaser
contained in this Agreement must be true and correct in all
material respects on and as of the Closing Date as though made
on and as of the Closing Date.
A-1-10
<PAGE>
(b) Purchaser must have performed and complied in all material
respects with all agreements, obligations, and conditions
contained in this Agreement that are required to be performed
or complied with by it on or before the Closing and will have
obtained all approvals, consents, and qualifications necessary
to complete the purchase and sale of the Shares.
(c) Each of the required items set forth in Section 2.02 must
have been executed and delivered.
Article VI
Covenants
6.01 Affirmative Covenants of the Company. The Company hereby covenants
and agrees that, prior to the Closing, the Company, except as otherwise
contemplated by this Agreement, will (a) not purchase any assets in excess of
$10,000 or incur any liabilities in excess of $2,000 per month, except as
provided in Schedule 6.01(a); (b) not take or permit any action that would cause
the conditions on the obligations of the parties to effect the transactions
contemplated by this Agreement not to be fulfilled, including, without
limitation, by taking or causing to be taken any action that would cause the
representations and warranties made by the Company in this Agreement not to be
true and correct; (c) not increase the compensation payable to or to become
payable to any stockholder, director, or officer of the Company; (d) not declare
or pay any dividend on, or make any other distribution in respect of,
outstanding shares of capital stock; (e) effect any reorganization or
recapitalization; (f) split, combine, or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock; (g) not
issue, deliver, award, grant, or sell, or authorize or propose the issuance,
delivery, award, grant, or sale (including the grant of any security interests,
liens, claims, pledges, limitations in voting rights, charges, or other
encumbrances) of, any shares of any class of its capital stock or other
securities (including shares held in treasury), any securities convertible into
or exercisable or exchangeable for any such shares or other securities, or any
rights, warrants, or options to acquire any such shares or other securities; (h)
not acquire or agree to acquire, by merging or consolidating with, by purchasing
an equity interest in or a portion of the assets of, or by any other manner, any
business or any division thereof, or otherwise acquire or agree to acquire any
assets of any other entity; (i) not adopt or propose to adopt any amendments to
its Articles of Incorporation or bylaws or similar organizational documents; (j)
incur any obligation for borrowed money indebtedness, whether or not evidenced
by a note, bond, debenture, or similar instrument; and (k) take all reasonable
steps to cause to be fulfilled the conditions precedent to Purchaser's
obligations to consummate the transactions contemplated by this Agreement that
are dependent on the actions of the Company.
6.02 Access and Information. The Company has caused and will, until the
Closing Date, continue to cause Purchaser to have reasonable access to the
Company's directors, officers, employees, agents, assets, and properties and all
relevant books, records, and documents of or relating to the business and assets
of the Company during normal business hours and will furnish to Purchaser such
information, financial records, and other documents relating to the Company and
its operations and business as Purchaser may reasonably request.
6.03 Supplemental Disclosure. The Company will promptly supplement or
amend each of the Schedules with respect to any matter that arises or is
discovered after the date of this
A-1-11
<PAGE>
Agreement that, if existing or known at the date of this Agreement, would have
been required to be set forth or listed in the Disclosure Schedule; provided
that, for purposes of determining the rights and obligations of the parties
under this Agreement (other than the obligations of the Company under this
Section 6.03), any such supplemental or amended disclosure will not be deemed to
have been disclosed to Purchaser unless Purchaser otherwise expressly consents
in writing.
6.04 Publicity. Purchaser and the Company will cooperate with each
other in the development and distribution of all news releases and other public
disclosures relating to the transactions contemplated by this Agreement.
6.05 Reservation of Common Stock. Prior to Closing, the Company will
take all actions required by the laws of the Commonwealth of Pennsylvania and
the Company's Articles of Incorporation and Bylaws to reserve 400,000 shares of
the Company Common Stock to be issued at Purchaser's discretion to members of
the Company's Board of Directors designated by Purchaser.
Section 6.06 Termination of COBRA Coverage with U.S. Healthcare.
Within thirty (30) days of Closing, the Company will take all steps required by
applicable law to terminate its agreement with U.S.
Healthcare for the provision of COBRA benefits to Company employees.
Section 6.07 Delivery of Proxy. Simultaneous with the execution of
this Agreement, the Company shall deliver the proxy from persons representing a
majority of the issued and outstanding shares of Company Common Stock approving
this Agreement and the transactions contemplated hereby, including the proposed
change in Company operations by Purchaser.
Section 6.08 Delivery of Information. Purchaser hereby covenants
and agrees to provide such information as may be reasonably requested by the
Company and as required by applicable law to enable the Company to fulfill its
obligations as set forth in Section 5.01(g).
Article VII
Miscellaneous
7.01. Termination. This Agreement and the transactions contemplated by
this Agreement may be terminated and abandoned (a) at any time prior to the
Closing by mutual written consent of the Company and Purchaser; or (b) by either
Purchaser, on the one hand, or the Company, on the other hand, if a condition to
performance by the terminating party or parties under this Agreement has not
been satisfied or waived prior to September 30, 1997. Notwithstanding the
foregoing clause (b), (i) Purchaser may not terminate this Agreement if the
event giving rise to its termination right results from Purchaser's willful
failure to perform or observe any of its covenants or agreements set forth in
this Agreement or if Purchaser is, at such time, in breach of this Agreement,
and (ii) the Company may not terminate this Agreement if the event giving rise
to its termination right results from the willful failure of the Company to
perform or observe any of its covenants or agreements set forth in this
Agreement or if the Company is, at such time, in breach of this Agreement. Upon
termination of this Agreement pursuant to Section 7.01, this Agreement (except
for Section 7.02, Section 7.04, and Section 7.10) will become void, there will
be no liability on the part of the Purchaser, on the one hand, or
A-1-12
<PAGE>
the Company, on the other hand, to the other and all rights and obligations of
each party to this Agreement will cease, except that nothing in this Agreement
will relieve any party of any liability for any willful breach of such party's
representations, warranties, covenants, or agreements contained in this
Agreement.
7.02 Notices. All notices that are required or may be given pursuant to
this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy, or by
registered or certified mail, postage prepaid, to the parties at the following
addresses (or to the attention of such other person or such other address as any
party may provide to the other parties by notice in accordance with this Section
8.02):
If to Purchaser:
----------------
Michael J. Blumenfeld
13950 Semlac Drive
Farmers Branch, Texas 75234
Telecopy: (214) 739-1639
with a copy to:
Alan J. Bogdanow
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Telecopy: (214) 939-5849
If to the Company:
------------------
DSSI Corporation
P.O. Box 1570
West Chester, Pennsylvania 19380
Attention: Patrick Brennan
Telecopy: (610) 696-3479
with a copy to:
Robert W. Berend
Wachtel & Masyr, LLP
110 E. 59th Street
New York, NY 10022
Telecopy: (212) 909-9455
Any such notice or other communication will be deemed to have been given and
received (whether actually received or not) on the day it is personally
delivered or delivered by courier or overnight delivery service or sent by
telecopy or, if mailed, when actually received.
A-1-13
<PAGE>
7.03 Survival of Representations and Warranties. All representations
and warranties made in or pursuant to this Agreement will survive the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and continue for a period ending on the third anniversary of
this Agreement. All statements contained in any schedule, certificate, or other
writing delivered in connection with this Agreement or the transactions
contemplated by this Agreement will constitute representations and warranties
under this Agreement. Each party agrees that no other party to this Agreement
will be under any duty, express or implied, to make any investigation of any
representation or warranty made by any other party to this Agreement, and that
no failure to so investigate will be considered negligent or unreasonable.
7.04 Attorneys' Fees and Costs. If attorneys' fees or other costs are
incurred to secure performance of any obligations under this Agreement, or to
establish damages for the breach thereof or to obtain any other appropriate
relief, whether by way of prosecution or defense, the prevailing party will be
entitled to recover reasonable attorneys' fees and costs incurred in connection
therewith.
7.05 Further Assurances. Each party agrees to execute any and all
documents and to perform such other acts as may be reasonably necessary or
expedient to further the purposes of this Agreement and the transactions
contemplated by this Agreement.
7.06 No Brokers. Each party to this Agreement represents to the other
party that it has not incurred and will not incur any liability for brokerage
fees or agents' commissions in connection with this Agreement or the
transactions contemplated by this Agreement, and agrees that it will indemnify
and hold harmless the other party against any claim for brokerage and finders'
fees or agents' commissions in connection with the negotiation or consummation
of the transactions contemplated by this Agreement.
7.07 Counterparts. This Agreement may be executed in one or more
counterparts for the convenience of the parties to this Agreement, all of which
together will constitute one and the same instrument.
7.08 Assignment. Neither this Agreement nor any of the rights,
interests, or obligations under this Agreement will be assigned or delegated by
the Company or Purchaser, without the prior written consent of the other party;
provided, however, that Purchaser may assign its rights, but not the
liabilities, arising under this Agreement to an affiliate of Purchaser without
the prior written consent of the Company. This Agreement is not intended to
confer any rights or benefits to any person or entity other than the parties to
this Agreement.
7.09 Entire Agreement. This Agreement and the related documents
contained as Exhibits and Schedules to this Agreement or expressly contemplated
by this Agreement contain the entire understanding of the parties relating to
the subject matter hereof and supersede all prior written or oral and all
contemporaneous oral agreements and understandings relating to the subject
matter hereof. This Agreement cannot be modified or amended except in writing
signed by the party against whom enforcement is sought. The Exhibits and
Schedules to this Agreement are hereby incorporated by reference into and made a
part of this Agreement for all purposes.
7.10 Governing Law. This Agreement will be governed by, and construed
in accordance with, the substantive laws of the State of Texas, without giving
effect to any
A-1-14
<PAGE>
conflicts-of-law, rule, or principle that might require the application of the
laws of another jurisdiction.
IN WITNESSES WHEREOF, the parties have entered into this Agreement as
of the date first set forth above.
DSSI CORPORATION,
a Pennsylvania corporation
By: ________________________
Name: ________________________
Title: ________________________
PURCHASER:
---------------------------------
Michael J. Blumenfeld
A-1-15
<PAGE>
APPENDIX A-2
Addendum to
Stock Purchase Agreement
This Addendum is hereby incorporated into and made a part of the Stock
Purchase Agreement dated August 12, 1997 between Michael J. Blumenfeld and DSSI
Corporation. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to such terms in the Stock Purchase Agreement.
The Company and Purchaser hereby agree that any and all assets owned by
Collegiate Pacific Inc. f/k/a Nitro Sports Inc. ("Collegiate Pacific") and
acquired by Purchaser on behalf of Collegiate Pacific after April 1, 1997 will
be purchased by the Company promptly after the Closing at cost. Promptly after
Closing, Purchaser shall submit an itemized statement (the "Statement") of such
assets detailing the cost of such items to the Board of Directors of the Company
who shall meet within five (5) business days of the Company's receipt of the
Statement for the purpose of reviewing the assets and their value for purchase.
The Company and Purchaser shall use reasonable good faith efforts to resolve any
disputes regarding the value of any such assets. If such costs are undisputed,
the Board of Directors shall approve the purchase and payment of such assets,
which shall occur within three (3) business days of such Board approval. Payment
for the assets as set forth in the Statement shall be in immediately available
funds to an account designated in writing by Purchaser to the Company.
Agreed and accepted:
- --------------------
- -----------------------------
Michael J. Blumenfeld
DSSI CORPORATION
By: _________________________
Title: ________________________
A-2-1
<PAGE>
APPENDIX B
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
August 22, 1997
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITOR'S REPORT B-1
FINANCIAL STATEMENTS
Balance Sheet B-2
Statement of Income (Loss) B-3
Statement of Stockholder's Equity B-4
Statement of Cash Flows B-5
Notes to Financial Statements B-6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Collegiate Pacific, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of Collegiate Pacific, Inc. (A
Development Stage Company) as of August 22, 1997, and the related statements of
income (loss), stockholder's equity and cash flows from April 10, 1997
(Inception), to August 22, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Collegiate Pacific, Inc. as of
August 22, 1997, and the results of its operations and its cash flows from
inception to August 22, 1997, in conformity with generally accepted accounting
principles.
/s/ Watkins, Watkins & Keenan
-------------------------------
Watkins, Watkins & Keenan
Memphis, Tennessee
December 22, 1997
B-1
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
BALANCE SHEET
August 22, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current Assets
Cash and cash equivalents $ 546,651
Inventory 188,126
Prepaid expenses 500
---------
Total current assets 735,277
Property and Equipment
Furniture and Equipment 17,029
Automobile 11,700
Leasehold improvements 4,726
---------
33,455
Less accumulated depreciation (3,148)
---------
30,307
Other assets
Deposits 19,750
Organizational costs (net of accumulated amortization of $107) 1,818
Trademarks (net of accumulated amortization of $286) 41,642
---------
63,209
---------
$ 828,793
=========
Liabilities and Stockholder's Equity
------------------------------------
Current Liabilities
Accounts payable $ 13,635
Accrued expenses 26,173
Note payable - shareholder (note 2) 901,759
---------
Total current liabilities 941,567
Stockholder's Equity
Common stock - $.01 par value; 1,000,000 shares
authorized; 1,000 shares issued and outstanding 10
Additional paid in capital 990
Deficit accumulated during the development stage (113,774)
---------
Total stockholder's equity (112,774)
---------
$ 828,793
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-2
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
STATEMENT OF INCOME (LOSS)
From April 10, 1997 (Inception), to August 22, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Indirect costs and administrative expenses
Salaries and benefits $ 37,075
Supplies 1,223
Commissions and fees 300
Office and postage 7,946
Automobile 73
Amortization 393
Depreciation 3,148
Insurance 2,600
Interest 14,016
Professional fees 16,181
Meals and travel 22,649
Telephone 612
Rent 9,528
Miscellaneous 604
---------
Total indirect costs and administrative expenses 116,348
---------
Operating loss (116,348)
Other income
Interest 1,905
Other 669
---------
Total other income 2,574
---------
Net loss (113,774)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-3
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY
From April 10, 1997 (Inception), to August 22, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Deficit Accumulated
Paid in During The
Common Stock Capital Development Stage Total
------------ ------- ----------------- -----
<S> <C> <C> <C> <C>
Balance at Inception $ -- $ -- $ -- $ --
Issuance of stock on
April 10, 1997, 1,000 Shares 10 990 1,000
Net loss -- -- (113,774) (113,774)
Balance at August 22, 1997 $ 10 $ 990 $(113,774) $(112,774)
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-4
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
From April 10, 1997 (Inception), to August 22, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows From (Used For) Operating Activities:
Net loss $(113,774)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 3,148
Amortization 393
Increase (Decrease) in Cash and Cash Equivalents:
Inventory (188,126)
Prepaid expenses (500)
Accounts payable 13,635
Accrued expenses 26,173
---------
Total adjustments (145,277)
---------
Net cash provided by (used for) operating activities (259,051)
Cash Flows Used For Investing Activities:
Purchase of property and equipment (33,455)
Deposits made (19,750)
Organizational costs paid (1,925)
Trademarks purchased (41,928)
---------
Net cash used for investing activities (97,057)
Cash Flows From Financing Activities:
Proceeds from issuance of note payable - shareholder 901,759
Proceeds from issuance of common stock 1,000
---------
Net cash provided by financing activities 902,759
---------
Net increase in cash and cash equivalents being
cash and cash equivalents at end of the period $ 546,651
=========
Supplemental Information for Cash Flow Disclosure:
Cash Paid During the Period For:
Interest $ --
=========
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-5
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
August 22, 1997
- --------------------------------------------------------------------------------
Note (1) - Summary of Significant Accounting Policies
The Company is a development stage company and will be primarily
engaged in the sale of professional sports equipment to schools, colleges and
other organizations throughout the United States once principal operations
commence.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company's credit risks primarily relate to cash and cash
equivalents. Cash and cash equivalents are primarily held in bank accounts. At
August 22, 1997, the Company exceeded federally insured limits by approximately
$447,000.
Inventories are valued at the lower of cost or market, on an average
cost basis.
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over useful lives of seven years for furniture
and five years for automobile, equipment, and leasehold improvements.
Depreciation expense for the period ended August 22, 1997 was $3,148.
Organizational costs and trademarks, which are stated at cost, are
being amortized over five and forty years respectively using the straight-line
method of computing amortization. Amortization expense for the period ended
August 22, 1997 was $393.
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Note (2) - Note Payable - Shareholder
The note is payable on demand, uncollateralized, and bears interest at
an annual rate of 12%.
B-6
<PAGE>
Note (3) - Lease Commitment
The Company conducts its operations in leased facilities. Rent expense
under the lease agreement was $9,528 for the period ending August 22, 1997. The
current lease agreement expires July 31, 2002.
Future minimum lease payments for the years ending August 22, are as
follows:
1998 $ 93,000
1999 93,000
2000 94,000
2001 105,000
2002 96,250
-----------
481,250
===========
Note (4) - Commitments and contingencies
The Company has the following purchase commitments supported by
outstanding irrevocable letters of credit which are cash collateralized and
expire October 1, 1997:
Fan Chiou Fishing Net Co., Ltd. $ 293,458
Yuan Chi Overseas, Ltd. 182,735
---------
$ 476,193
=========
After Michael J. Blumenfeld, the company's sole shareholder, receives
approval to purchase the stock of DSSI Corporation, the Company's assets will be
purchased by DSSI Corporation.
B-7
<PAGE>
APPENDIX C
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
September 26, 1997
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
INTERIM FINANCIAL STATEMENTS
Interim Balance Sheet C-1
Interim Statement of Income (Loss) C-2
Interim Statement of Stockholder's Equity C-3
Interim Statement of Cash Flows C-4
Notes to Interim Financial Statements C-5
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
UNAUDITED INTERIM BALANCE SHEET
September 26, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current Assets
Cash and cash equivalents $ 449,282
Accounts receivable 2,044
Inventory 391,859
Prepaid expenses 6,429
-------------
Total current assets 849,614
Property and Equipment
Furniture and Equipment 70,413
Automobile 11,700
Leasehold improvements 5,111
-------------
87,224
Less accumulated depreciation ( 3,148)
-------------
84,076
Other Assets 63,700
$ 997,390
Liabilities and Stockholder's Equity
------------------------------------
Current Liabilities
Accounts payable $ 145,885
Accrued expenses 36,154
Note payable - shareholder 999,950
-------------
Total current liabilities 1,181,989
Stockholder's Equity
Common stock - $.01 par value; 1,000,000 shares
Authorized; 1,000 shares issued and outstanding 10
Additional paid in capital 990
Deficit accumulated during the development stage ( 185,599)
-------------
Total stockholder's equity ( 184,599)
-------------
$ 997,390
=============
</TABLE>
C-1
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
UNAUDITED INTERIM STATEMENT OF INCOME (LOSS)
Period Ended September 26, 1997, and the Period From April 10,
1997 (Inception) to September 26, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period From April 10,
August 23, 1997
1997 to (Inception) to
September 26, September 26,
1997 1997
---- ----
<S> <C> <C>
Sales $ 2,170 $ 2,170
Cost of Sales 1,352 1,352
--------- ---------
Gross margin 818 818
Indirect costs and administrative expenses
Salaries and benefits 27,275 64,350
Other 46,591 125,216
--------- ---------
Total indirect costs and administrative expenses 73,866 189,566
--------- ---------
Operating loss ( 73,048) ( 188,748)
Other income 1,223 3,149
--------- ---------
Net loss ($ 71,825) ($185,599)
========= =========
</TABLE>
C-2
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
UNAUDITED INTERIM STATEMENT OF STOCKHOLDER'S EQUITY
Period From April 10, 1997 (Inception), to September 26, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Deficit Accumulated
Paid in During The
Common Stock Capital Development Stage Total
------------ ------- ----------------- -----
<S> <C> <C> <C> <C>
Balance at Inception $ - $ - $ - $ -
Issuance of stock on
April 10, 1997, 1,000 Shares 10 990 - 1,000
Net loss - - ( 185,599) ( 185,599)
-------------- ----------- ------------------ -------------
Balance at September 26, 1997 $ 10 $ 990 ($ 185,599) ($ 184,599)
============== =========== ================== =============
</TABLE>
C-3
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
UNAUDITED INTERIM STATEMENT OF CASH FLOWS
Period Ended September 26, 1997, and the Period From April 10,
1997 (Inception) to September 26, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Period From April 10,
August 23, 1997
1997 to (Inception) to
September 26, September 26,
1997 1997
---- ----
<S> <C> <C>
Net Cash Used For Operating Activities ($ 141,300) ($ 400,351)
Cash Flows Used For Investing Activities:
Purchase of property and equipment ( 53,769) ( 87,224)
Deposits - ( 19,750)
Organizational costs paid - ( 1,925)
Trademarks purchased ( 490) ( 42,418)
-------------- -------------
Net cash used for investing activities ( 54,259) ( 151,317)
Cash Flows From Financing Activities
Proceeds from issuance of note payable - shareholder 98,191 999,950
Proceeds from issuance of common stock - 1,000
-------------- -------------
Net cash provided by financing activities 98,191 1,000,950
-------------- -------------
Net increase (decrease) in cash and cash equivalents ( 97,368) 449,282
Cash and cash equivalents, beginning of period 546,651 -
-------------- -------------
Cash and cash equivalents, end of period $ 449,282 $ 449,282
============== =============
Supplemental Information for Cash Flow Disclosure:
Cash Paid During the Period For:
Interest $ - $ -
============== =============
</TABLE>
C-4
<PAGE>
COLLEGIATE PACIFIC, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
September 26, 1997
- --------------------------------------------------------------------------------
Note (1) - Commitments and contingencies
The Company has the following purchase commitments supported by
outstanding irrevocable letters of credit which are cash collateralized and
expire October 1, 1997:
Fan Chiou Fishing Net Co., Ltd. $ 176,259
Yuan Chi Overseas, Ltd. 182,735
------------
$ 358,994
============
The Company has committed to purchasing inventory totaling $54,015 from
Goodway, Inc.
After Michael J. Blumenfeld, the company's sole shareholder, receives
approval to purchase the stock of DSSI Corporation, the Company's assets will be
purchased by DSSI Corporation.
C-5
<PAGE>
APPENDIX D
ANNUAL REPORT ON FORM 10-KSB
FOR FISCAL YEAR ENDED
MARCH 31, 1997
<PAGE>
U. S. Securities and Exchange Commission
Washington, DC 20549
Form 10-K SB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1997
Commission file number 0-17293
DSSI Corporation
-------------------------------------------------------------------
(Name of small business issuer in its charter)
Pennsylvania 22-2795073
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 1570 West Chester, PA 19380
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (610) 696-3479
--------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
--------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No .
----- -----
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended June 30, 1997 were $1,907,687.
The aggregate market value at September 5, 1997 of shares of the
Common Stock held by non-affiliates was $1,966,168 based upon the bid price of
the Issuer's Common Stock as reported by the National Association of
Securities Dealers in the OTC Bulletin Board. Solely for the purpose of this
calculation, shares held by certain principal shareholders named in Item 11
hereof, as well as shares held by directors and officers of the Issuer, have
been excluded. Such exclusion should not be deemed a determination or an
admission by the issuer that such shareholders or individuals are, in fact,
affiliates of the issuer.
On September 5, 1997, there were 4,446,017 shares of the issuer's
Common Stock, $0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
DSSI Corporation
FORM 10-KSB
Fiscal Year Ended June 30, 1997
TABLE OF CONTENTS
Page
PART I
Item 1 Description of Business 3
Item 2 Description of Property 5
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 5
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 6
Item 6 Management's Discussion and Analysis or Plan of Operations 7
Item 7 Financial Statements 9
Item 8 Changes in and Disagreements with Accountants on Accounting 22
and Financial Disclosures
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons; 22
Compliance with Section 16(a) of the Exchange Act
Item 10 Executive Compensation 24
Item 11 Security Ownership of Certain Beneficial Owners and Management 26
Item 12 Certain Relationships and Related Transactions 28
PART IV
Item 13 Exhibits, List and Reports on Form 8-K 29
Signatures 33
2
<PAGE>
PART 1
ITEM 1 Description of Business
General
DSSI Corporation (the "Company"), which was named Drug Screening
Systems, Inc. until the sale of its business effective June 16, 1997 (see
below), was organized under the laws of the Commonwealth of Pennsylvania on
March 17, 1987 under the name of Analytical Innovations, Inc. On December 29,
1987, the Company adopted the name of Drug Screening Systems, Inc. The
Company's principal executive offices are at P. O. Box 1570, West Chester, Pa
and its telephone number is (610) 696-4314.
The Company began the development of its former product line in
August 1989. To the date of sale hereinafter described, the Company had
developed and marketed tests for cocaine, opiates (heroin, morphine and
codeine), methamphetamines, THC (marijuana), barbiturates, PCP
(phencyclidine), amphetamines and benzodiazepines. The Company marketed its
tests under the names MACH IV(R) Screen and microLINE(R) Screen (collectively,
the "Products").
The Products were sold for "Medical Uses" (e.g., in vitro diagnostic
use by physicians and hospitals) and "Non-Medical Uses" (e.g., pre-employment
screening and screening by correctional and criminal justice agencies). The
Company's major distributor was Borg Warner Information Systems ("BWIS") which
accounted for approximately one half of the Company's revenues.
As a result of the net losses aggregating $15,070,555 from inception
through March 31, 1997, the Company's cash flows from operating activities had
been negative. Accordingly, the Company had been required to finance its
operations and research and development program primarily through proceeds
received from its initial public offering in May 1988, the exercise of
warrants thereafter and subsequent securities offerings, including the sale of
shares of the Company's Common Stock, $0.01 par value (the "Common Stock"),
through a rights offering in June and July, 1993. The directors and other
beneficial owners have financed the Company's cash requirements since November
1994 through two private placements which resulted in aggregate gross proceeds
of $825,000 and subsequent secured loans in principal amounts totaling
$245,000 at March 31, 1997. Total equity raised by the Company since inception
is $15,113,015.
The Board had been seeking a potential sale or merger of the Company
for the past several years. In the summer and early fall of 1994 the Board
replaced the then existing management with two officers who were tasked to
find a suitable strategic partner or purchaser. In November of 1994, the
directors and certain other individuals invested $375,000 in the first of two
private placements to fund the Company during the search. The Company offered
750,000 shares at $0.50 per share. By February of 1995, after discussions with
a number of candidates who were found by networking activities of the officers
and directors, two offers were received. The Board authorized the officers to
permit a privately held bioscience company to conduct its due diligence review
of the Company and for the officers to conduct a due diligence review of the
prospective purchaser. Due diligence reviews were in their final phases in
August of 1995 when business conditions unrelated to the Company forced the
potential buyer to withdraw from the discussions. The offer which was pursued
offered approximately 17% of the outstanding shares of the privately held
bioscience company to the Company and the second offer was for a payout of a
percentage of future profits which the Board rejected upon receipt. The search
reverted to the initial stage of networking discussions and blind advertising
for potential acquirers. The search was suspended and a second private
placement of $450,000 was raised from the directors and certain other
individuals in the first quarter of 1996 when talks with Allegiance Healthcare
Corporation ("Allegiance") formerly named Baxter Healthcare Corporation for a
possible distribution agreement looked favorable. The Company offered
1,800,000 shares at $0.25 per share in such private placement.
The Company entered into a distribution agreement with Allegiance in 1996, a
copy of which agreement is filed (by incorporation by reference) as an exhibit
to this Report and is incorporated herein by this reference, for Allegiance to
distribute the Company's Products in the hospital and clinical market
throughout the United States. Despite the Company's efforts, the sales
relating to the Allegiance agreement ran significantly behind forecast. The
sales to Allegiance totaled only $185,000 from inception of the contract
through March 31, 1997. Accordingly, during the fall of 1996, the Board of
Directors resumed its efforts to find a buyer for the Company via networking
with industry contacts and blind advertising.
3
<PAGE>
During February 1997, the Company received four offers to acquire the
Company's business. The Board reviewed the offers, considering such factors as
the amount of the consideration to be received by the Company, the form of the
payment (i.e., cash or securities), the timing of the payment and the
purchaser's apparent ability to pay. Based on this review the Board
unanimously approved the sale of substantially all of the assets to Casco
Standards, Inc. ("Casco"). Effective June 16, 1997, Casco acquired the
Company's inventory, capital equipment (except for leasehold improvements) and
intellectual property. Casco also acquired the right to do business as Drug
Screening Systems, Inc. Casco agreed to pay $1,950,000 (to be adjusted for net
asset fluctuation from December 31, 1996) plus a payment of $ 174,454 for an
agreed-upon inventory build-up of the products. Sybron International
Corporation ("Sybron"), Casco's ultimate parent, reported revenues of $674.5
million and net income of $57.6 million for its fiscal year ended September
30, 1996. Casco did not purchase the accounts receivable of the Company. As
part of the agreement, Casco agreed to use its best efforts at collecting cash
receipts for the Company and will treat the history of paying the Company as
part of the customer's credit history. Management believed that the Company's
accounts receivables were adequately reserved, but reviewed the question as
part of its year-end close. As a condition of the Purchase & Sale Agreement
dated as of March 14, 1997 (the "Casco Agreement"), a copy of which agreement
is filed (by incorporation by reference) as an exhibit to this Report and is
incorporated herein by this reference, the Company manufactured specific
quantities of finished goods to have a six-month supply on hand for Casco.
Casco compensated the Company at the Company's standard costs for the
inventory build-up.
In April 1994, the Company, under the previous management, entered
into an exclusive license and distributorship agreement with AccuScreen Labs,
Inc. ("AccuScreen"), a copy of which agreement is filed (by incorporation by
reference) as an exhibit to this Report and is incorporated herein by this
reference). The Company granted AccuScreen the license to sell or distribute
the Company's drug screening panel to direct marketing purchasers or to
retailers in the United States. The license was for a term of five years and
six months from the date permission from the Food and Drug Administration (the
"FDA") to market the tests to direct marketing purchasers or to retailers was
obtained. AccuScreen had invested funds in the efforts to prepare for the
appropriate filings with the FDA, but, as of June 16, 1997, had not submitted
a filing. Casco determined that it did not want to accept the assignment of
the AccuScreen agreement and discussions among Casco, AccuScreen and the
Company resulted in a termination agreement whereby the Company paid
AccuScreen the sum of $600,000 upon closing of the Casco purchase. In the
financial statements for the fiscal year ended June 30, 1997 ("Fiscal 1997"),
the termination fee paid to AccuScreen is reflected as a charge to earnings
and is reflected in the Company's accumulated deficit. Casco increased its
original offer price by $350,000 to partially offset the effect of this
payment.
At June 30, 1997, after the AccuScreen payment, settlement of some of
the then existing liabilities and closing costs, the Company had $305,559 in
liabilities, cash of $801,979, plus the collection of accounts receivable
(which, as indicated above, were not part of the assets sold to Casco and
which were $53,073 as of June 30, 1997), the collection of the holdback of
$160,000 as part of the Casco purchase and the incurrence of expenses relating
to a company registered under Section12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), including completion of the audit for
Fiscal 1997. From July 1, 1997 to August 31, 1997, the Company had collected
$51,629 of accounts receivable with $1,414 still to be collected.
As indicated in the Proxy Statement relating to the shareholders'
meeting on June 16, 1997, the Board has continued the Company subsequent to
the closing with Casco as a shell corporation, while seeking a potential
business to enhance shareholder value. On August 18, 1997, the Company entered
into an agreement to sell a controlling interest to Michael J. Blumenfeld who
intends to have the Company enter into the business of manufacturing and
distributing sports equipment to the institutional markets. The transaction
with Mr. Blumenfeld is subject to shareholder approval, which will be sought
by proxy material filed pursuant to Registration 14A under the Exchange Act.
4
<PAGE>
Employees
As of September 13, 1997, the Company employed an officer on a part
time basis to maintain its federal securities, tax and other required
regulatory filings.
ITEM 2 Description of Property
The Company leased 12,000 square feet at Units 603, 604 and 605 VPR
Commerce Center, 1001 Lower Landing Road, Blackwood, New Jersey 08012, which
it utilized as administrative, research and development, manufacturing,
quality control, warehousing and shipping facilities. The space allocated for
research and development included a laboratory with analytical
instrumentation. The leases, with an unaffiliated landlord, were extended for
60 days and expired on June 30, 1997. The aggregate base monthly rental was
$4,712. The Company currently conducts its business from the residence of its
Chief Financial Officer and its address is P.O. Box 1570, West Chester, PA
19380
ITEM 3 Legal Proceedings
None
ITEM 4 Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on June 16,
1997.
(b) Jeff Davidowitz, John Pappajohn and Stephen C. Turner, all of
whom were directors, were elected at the Annual Meeting. There were no other
directors whose term of office continued after the meeting.
(c) At the Annual meeting, the other matter submitted to a vote and
the vote therefor were:
On the proposal to ratify the appointment by the Board of Directors
of the Company of Deloitte & Touche LLP as auditors of the Company for the
fiscal year which commenced on July 1, 1996, FOR: 3,754,793, AGAINST: 3,037
ABSTAINED: 490.
On the proposal to sell the business of the Company and the majority
of the assets to Casco, FOR: 2,860,720, AGAINST: 6,260, ABSTAINED: 4,610
On the proposal to authorize the name change of the Company from Drug
Screening Systems, Inc. to DSSI Corporation, FOR: 3,716,754, AGAINST: 3,381,
ABSTAINED: 880.
The vote on the directors was:
Director FOR WITHHELD
-------- --- --------
Jeff Davidowitz 3,752,665 5,655
John Poppajohn 3,752,665 5,655
Stephen C. Turner 3,702,635 55,685
(d) There was no contested solicitation and, accordingly, no
settlement with any participant.
5
<PAGE>
PART II
ITEM 5 Market for the Common Stock and Related Stockholder Matters
Market
The following table sets forth, for the periods indicated, the
quarterly range of the high and low bid prices of the Common Stock as reported
by the National Association of Securities Dealers, Inc. (the "NASD") in the
OTC Bulletin Board:
Bid Prices(1)
-------------
Fiscal 1997 Quarter Ended Low High
- ------------------------- --- ----
September 30, 1996 $ 0.25 $0.75
December 31, 1996 0.125 0.50
March 31, 1997 0.063 0.328
June 30, 1997 0.094 0.172
Fiscal 1996 Quarter Ended Low High
- ------------------------- --- ----
September 30, 1995 $ 0.37 $ 0.81
December 31, 1995 0.14 .37
March 31, 1996 0.19 1.50
June 30, 1996 .69 1.56
- ----------------------------
(1) The foregoing quotations reflect inter-dealer prices, without mark-up,
mark-down or commissions, and may not represent actual transactions.
The high bid and low asked prices of the Common Stock as reported by
the NASD in the OTC Bulletin Board on September 5, 1997 were $ 1.266 and
$1.141 per share, respectively.
Holders
The number of holders of record of the Common Stock at September 5,
1997 was 281. Management of the Company is of the opinion that, based on the
number of copies of proxy statements requested by brokers, banks and other
record holders for beneficial owners in connection with the June 16, 1997
Special Meeting of Shareholders, there are over 2,300 beneficial owners.
Dividends
The Company did not declare or pay cash or stock dividends on the
Common Stock during Fiscal 1997 or the fiscal year ended June 30, 1996
("Fiscal 1996"). Due to current and anticipated cash requirements as a result
of the Stock Purchase Agreement and the subsequent entrance into the business
of manufacturing and distributing sports equipment (more fully explained in
Item 1 to this report) the Board of Directors does not anticipate the payment
of cash dividends in the near future.
6
<PAGE>
ITEM 6 Management's Discussion and Analysis or Plan of Operations
The following management's discussion and analysis for Fiscal 1997
and Fiscal 1996 should be read in conjunction with the Financial Statements
included in Item 7 to this Report. In the opinion of management, the following
discussion and analysis of operations is no longer relevant due to the
cessation of operations as a result of the sale to Casco of the Company's
business and a majority of its assets (See Item 1 to this Report). The
information is presented for historical purposes and compliance with reporting
requirements.
Results of Operations
- ---------------------
Fiscal 1996 versus Fiscal 1997
- ------------------------------
Revenues - The Company's sales for Fiscal 1997 decreased $264,623 (12.2%) to
$1,907,687 from $2,172,310 in Fiscal 1996. The Company's sales for Fiscal 1997
were in the range of management's expectations. The major reason for the
decrease in sales was because the Company resupplied the maximum amount under
its arrangement with BWIS during Fiscal 1996. During fiscal 1997, the Company,
according to the Casco Agreement could no longer resupply the BWIS inventory
from the time of the agreement to the closing. In addition, sales were only
for eleven and one half months rather than a full year because the closing
date for the sale to Casco was June 16,1997.
The Company's gross profit of $963,660 for Fiscal 1997 amounted to 60.9%
($1,100,348 and 70.7%, respectively, in Fiscal 1996) of its operating
expenses. At the gross profit percentage for Fiscal 1997, the Company would
have had to generate approximately $3,130,000 in sales to cover such operating
expenses ($3,064,000 in Fiscal 1996).
Cost of sales and gross profits - The Company's cost of sales for Fiscal 1997
was $944,027 and its gross profit percentage was 50.5% ($1,071,962 and 50.7%,
respectively, for Fiscal 1996). The slight decrease in the gross profit as a
percent of sales was insignificant.
Research and Development - The Company decreased expenditures for research and
development. In Fiscal 1997, the Company expended $345,410 on research and
development as compared to $392,698 in Fiscal 1996. The decrease of $47,288
resulted principally from reductions in headcount in anticipation of the sale
of the business.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses increased $76,434 (6.6%) to $1,235,872 in Fiscal 1997
from $1,159,438 in Fiscal 1996. This increase resulted primarily because of
cost relating to the professional services required to complete the sale to
Casco.
Net Income (Loss) - The Fiscal 1997 net income of $41,821 was $493,609
(109.3%) more than the net loss of $451,788 in Fiscal 1996. This increase is
attributable to the profit on the sale to Casco of the business and a majority
of the assets, offset by the AccuScreen settlement and the reasons cited
above.
Fiscal 1995 versus Fiscal 1996
Revenues - The Company's sales for Fiscal 1996 decreased $532,741 (19.7%) to
$2,172,310 from $2,705,051 in the fiscal year ended June 30, 1995 ("Fiscal
1995"). The Company's sales for Fiscal 1996 were in the range of management's
expectations. The major reason for the decrease in sales was because the
Company had manufactured the maximum amount under its arrangement with BWIS
during Fiscal 1995. During Fiscal 1996, the Company could no longer build for
stock owned by BWIS, but was limited to replacing Product as it was used. This
difference accounted for the vast majority of the decline in sales.
7
<PAGE>
The Company's gross profit of $1,100,348 for Fiscal 1996 amounted to 70.7%
($1,387,502 and 82.2%, respectively, in Fiscal 1995) of its operating
expenses. At the gross profit percentage for Fiscal 1996, the Company would
have had to generate approximately $2,283,000 in sales to cover such operating
expenses ($3,291,000 in Fiscal 1995).
Cost of sales and gross profits - The Company's cost of sales for Fiscal 1996
was $1,071,962 and its gross profit percentage was 50.7% ($1,317,549 and
51.3%, respectively, for Fiscal 1995). The slight increase in the gross profit
as a percent of sales resulted from more corporate sales and less government
bid sales.
Research and Development - The Company increased expenditures in the research
and development. In Fiscal 1996, the Company expended $392,698 on research and
development as compared to $361,978 in Fiscal 1995. The increase of $30,720
resulted principally from the development efforts on the eight-panel plate
designed for Allegiance's fourth quarter launch of the Products in the
hospital market.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses declined $162,572 (12.3%) to $1,163,737 in Fiscal 1996
from $1,326,309 in Fiscal 1995. This decrease resulted primarily because
Fiscal 1995 cost reductions were realized for the entire year of Fiscal 1996.
Net Loss - The Fiscal 1996 net loss of $451,788 was $156,432 (53.0%) more than
the net loss of $295,356 in Fiscal 1995. This decrease is attributable to the
reasons cited above.
Inflation
- ---------
Inflation has not had a material impact on the Company's operations during
Fiscal 1997 and 1996.
New Accounting Pronouncements
- -----------------------------
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121). This statement established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
No. 121 requires that long-lived assets to be held and used by the Company be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment is
recognized to the extent that the sum of undiscounted estimated future cash
flows expected to result from the assets used is less than the carrying value.
The Company adopted this standard during the first quarter of Fiscal 1997. The
adoption of this standard did not have a material effect on the Company's
financial position or results of operations as then conducted. The recognition
and measurement of impairment losses for long-lived assets under the new
standard was consistent with the Company's past practices.
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
which requires expanded disclosures of stock-based compensation arrangements
with employees. SFAS 123 encourages, but does not require, compensation costs
to be measured based on the fair value of the equity instrument awarded. It
allows the Company to continue to measure compensation cost for these plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has elected to continue to recognize compensation cost
based on the intrinsic value of the equity instrument awarded as promulgated
in APB 25. The effect on pro forma net income and pro forma earnings per share
would be immaterial if compensation costs were measured based on the fair
value of the equity instrument awarded and therefore the disclosure of these
amounts has been omitted. The fair value of the options granted during the
year ended June 30, 1997 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used:
risk-free interest rate of 6.38%, expected volatility of 300% and expected
life of 5 years.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company had working capital at June 30, 1997 of $751,537 and a cash
balance of $801,979 due to the sale of the majority of its assets and business
to Casco. The Company feels it will collect its net receivables and recoup the
other smaller assets on the Balance Sheet, i.e., deposits and prepaids.
Commitments
- -----------
There were no material commitments for capital expenditures at June 30, 1997.
ITEM 7 Financial Statements
Index to Financial Statements Page
- ----------------------------- ----
Independent Auditors' Report 10
Balance Sheets as of June 30, 1997 and 1996 11
Statements of Operations for the years ended June 30, 1997 and 1996 12
Statements of Changes in Stockholders' Equity for the
years ended June 30, 1997 and1996 13
Statements of Cash Flows for the years ended June 30, 1997 and 1996 14
Notes to Financial Statements 15
9
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors
DSSI Corporation
Blackwood, New Jersey
We have audited the accompanying balance sheets of DSSI Corporation
(formerly Drug Screening Systems, Inc.) as of June 30, 1997 and 1996, and the
related statements of operations, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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, such financial statements present fairly, in all
material respects, the financial position of DSSI Corporation as of June 30,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As described in Note A to the Financial Statements, on June 16, 1997,
the Company sold its business and the majority of its assets to Casco
Standards, Inc.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
September 23, 1997
<PAGE>
DRUG SCREENING SYSTEMS, INC.
Balance Sheets, June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 801,979 $ 91,807
Accounts receivable, net of allowance of $60,000 at June 30, 1997
and $50,000 at June 30, 1996 53,073 222,262
Receivable from purchase holdback 160,000 --
Inventory 445,229
Prepaid expenses and other 42,044 63,120
------------ ------------
Total Current Assets 1,057,096 822,418
Equipment and improvements, net 1,506 283,726
Other Assets:
Deposits 8,585 12,104
Patents -- 25,792
------------ ------------
Total Assets $ 1,067,187 $ 1,144,040
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt and capital leases $ 233,213 $ 109,117
Accounts payable and accrued expenses 72,346 348,116
Customer advances and prepayments 17,000
------------ ------------
Total Current Liabilities 305,559 474,233
Commitments and contingencies -- --
Stockholders' Equity
Class "A" preferred stock, $0.01 par value; 2,000
shares authorized; none issued -- --
Common stock, $0.01 par value; 20,000,000
shares authorized; 4,446,017 shares at June 30,1997 and
4,246,017 shares at June 30, 1996 issued and outstanding 44,460 42,460
Additional paid-in-capital 15,118,555 15,070,555
Accumulated deficit (14,401,387) (14,443,208)
------------ ------------
Total Stockholders' Equity 761,628 669,807
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,067,187 $ 1,144,040
============ ============
</TABLE>
See notes to financial statements
11
<PAGE>
DSSI Corporation
Statements of Operations for the Years Ended June 30, 1997 and 1996
1997 1996
---- ----
Revenues 1,907,687 $ 2,172,310
Cost of sales 944,027 1,071,962
----------- -----------
Gross profit 963,660 1,100,348
Operating expenses:
Research and development 345,410 392,698
Selling, general and administrative 1,235,872 1,159,438
----------- -----------
1,581,282 1,552,136
----------- -----------
Loss from operations (617,622) (451,788)
Gain on sale of assets 1,259,443 --
Settlement fee (600,000) --
----------- -----------
Net income (loss) $ 41,821 $ (451,788)
=========== ===========
Net income (loss) per share $ 0.01 $ (0.15)
=========== ===========
Weighted average number of shares
outstanding 4,246,000 3,096,000
=========== ===========
See notes to financial statements
12
<PAGE>
DSSI Corporation
Statements of Changes in Stockholders' Equity
For the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $ 2,446,017 $ 24,460 $ 14,638,555 $(13,991,420) $ 671,595
Sale of common stock through a
private offering 1,800,000 18,000 432,000 450,000
Net loss (451,788) (451,788)
--------------------------------------------------------------------------
Balance, June 30, 1996 4,246,017 42,460 15,070,555 (14,443,208) 669,807
Sale of common stock through a
private offering 200,000 2,000 48,000 50,000
Net income
41,821 41,821
--------------------------------------------------------------------------
Balance, June 30, 1997 $ 4,446,017 $ 44,460 $ 15,118,555 $(14,401,387) $ 761,628
==========================================================================
</TABLE>
See notes to financial statements
13
<PAGE>
DSSI Corporation
Statements of Cash Flows for the Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 41,821 $ (451,788)
Adjustments to reconcile net income (loss) to net cash used
Depreciation and amortization 56,733 89,620
Impairment of capital equipment -- 212,050
Net gain on sale of assets (1,259,443) (2,800)
Decrease (increase) in assets net of effects from
sale of assets to Casco:
Accounts receivable 169,189 (97,287)
Inventory (76,754) (65,893)
Prepaid expenses and other 4,201 192
Decrease in liabilities:
Accounts payable and accrued expenses (275,770) (197,709)
Customer prepayments and advances (17,000) (46,523)
----------- -----------
Net cash used in operating activities (1,357,023) (560,138)
Cash flows from investing activities:
Proceeds from sale of assets to Casco 1,908,635 --
Proceeds from sale of equipment net of expenses -- 2,800
Expenditures for equipment and improvements (19,055) (21,696)
Decrease in (recovery of) deposits 3,519 (2,707)
----------- -----------
Net cash provided (used) in investing activities 1,893,099 (21,603)
Cash flows from financing activities:
Net proceeds from issuance of common stock 50,000 450,000
Proceeds from non-bank financing 515,073 95,150
Principal payments on debt and capital leases (390,977) (176,710)
----------- -----------
Net cash provided by financing activities 174,096 368,440
----------- -----------
Net increase (decrease) in cash and cash equivalents 710,172 (213,301)
Cash and cash equivalents:
Beginning of period 91,807 305,108
----------- -----------
End of period $ 801,979 $ 91,807
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,066 $ 2,058
=========== ===========
</TABLE>
See notes to financial statements
14
<PAGE>
DSSI Corporation
Notes to Financial Statements
Years Ended June 30, 1997 and 1996
A Business, Financing and Basis of Financial Statement Preparation
DSSI Corporation (the "Company"), which was named Drug Screening
Systems, Inc. until the sale of its business effective June 16, 1997 (see
below) was organized under the laws of the Commonwealth of Pennsylvania on
March 17, 1987 under the name of Analytical Innovations, Inc. On December 29,
1987, the Company adopted the name of Drug Screening Systems, Inc
The Company began the development of its former product line in
August 1989. To the date of sale hereinafter described, the Company had
developed and marketed tests for cocaine, opiates (heroin, morphine and
codeine), methamphetamines, THC (marijuana), barbiturates, PCP
(phencyclidine), amphetamines and benzodiazepines. The Company marketed its
tests under the names MACH IV(R) Screen and microLINE(R) Screen (collectively,
the "Products").
The Products were sold for "Medical Uses" (e.g., in vitro diagnostic
use by physicians and hospitals) and "Non-Medical Uses" (e.g., pre-employment
screening and screening by correctional and criminal justice agencies). The
Company's major distributor was Borg Warner Information Systems ("BWIS") which
accounted for approximately one half of the Company's revenues.
As a result of the net losses aggregating $15,070,555 from inception
through March 31, 1997, the Company's cash flows from operating activities had
been negative. Accordingly, the Company has been required to finance its
operations and research and development program primarily through proceeds
received from its initial public offering in May 1988, the exercise of
warrants thereafter and subsequent securities offerings, including the sale of
shares of the Common Stock through a rights offering in June and July, 1993.
The directors and other beneficial owners have financed the Company since
November 1994 with two private placements which resulted in aggregate gross
proceeds of $825,000 and subsequent secured loans in principal amounts
totaling $245,000 at March 31, 1997. Total equity raised by the Company since
inception is $15,113,015.
The Board had been seeking a potential sale or merger for the past
several years. In the summer and early fall of 1994 the Board replaced the
then existing management with two officers who were tasked to find a suitable
strategic partner or purchaser. In November of 1994, the directors and certain
other individuals invested $375,000 in the first of two private placements to
fund the Company during the search. The Company offered 750,000 shares at
$0.50 per share. By February of 1995, after discussions with a number of
candidates who were found by networking activities of the officers and
directors, two offers were received. The Board authorized the officers to
permit a privately held bioscience company to conduct its due diligence review
of the Company and for the officers to conduct a due diligence review of the
prospective purchaser. Due diligence reviews were in their final phases in
August of 1995 when business conditions unrelated to the Company forced the
potential buyer to withdraw from the discussions. The offer which was pursued
offered approximately 17% of the outstanding shares of the privately held
bioscience company to the Company and the second offer was for a payout of a
percentage of future profits which the Board rejected upon receipt. The search
reverted to the initial stage of networking discussions and blind advertising
for potential acquirers. The search was suspended and a second private
placement of $450,000 was raised from the directors and certain other
individuals in the first quarter of 1996 when talks with Allegiance Healthcare
Corporation ("Allegiance"), formerly named Baxter Healthcare Corporation for a
possible distribution agreement looked favorable. The Company offered
1,800,000 shares at $0.25 per share in such private placement.
The Company entered into a distribution agreement with Allegiance in
March 1996 for Allegiance to distribute the Products in the hospital and
clinical market throughout the United States. Despite the Company's efforts,
the sales relating to the Allegiance agreement ran significantly behind
forecast. The sales to Allegiance totaled only $185,000 from inception of the
contract through March 31, 1997. Accordingly, during the fall of 1996, the
Board of Directors resumed its efforts to find a buyer for the Company via
networking with industry contacts and blind advertising.
15
<PAGE>
During February 1997, the Company received four offers to acquire the
Company's business. The Board reviewed the offers, considering such factors as
the amount of the consideration to be received by the Company, the form of the
payment (i.e., cash or securities), the timing of the payment and the
purchaser's apparent ability to pay. Based on this review the Board
unanimously approved the sale of substantially all of the assets to Casco
Standards, Inc. ("Casco"). Effective June 16, 1997, Casco acquired the
Company's inventory, capital equipment (except for leasehold improvements) and
intellectual property. Casco also acquired the right to do business as Drug
Screening Systems, Inc. Casco paid $1,908,635 plus a payment for an
agreed-upon inventory build-up of the products. Sybron International
Corporation ("Sybron"), Casco's ultimate parent, reported revenues of $674.5
million and net income of $57.6 million for its fiscal year ended September
30, 1996. Casco did not purchase the accounts receivable of the Company. As
part of the agreement, Casco agreed to use its best efforts at collecting cash
receipts for the Company and will treat the history of paying the Company as
part of the customer's credit history. As a condition of the agreement, the
Company manufactured specific quantities of finished goods to have a six-month
supply on hand for Casco. Casco compensated the Company at the Company's
standard costs for the inventory build-up.
In April 1994, the Company, under the previous management, entered
into an exclusive license and distributorship agreement with AccuScreen Labs,
Inc. ("AccuScreen"). The Company granted AccuScreen the license to sell or
distribute the Company's drug screening panel to direct marketing purchasers
or to retailers in the United States. The license was for a term of five years
and six months from the date permission from the Food and Drug Administration
(the "FDA") to market the tests to direct marketing purchasers or to retailers
was obtained. AccuScreen has invested funds in the efforts to prepare for the
appropriate filings with the FDA, but, as of June 16, 1997, had not submitted
a filing. Casco determined that it did not want to accept the assignment of
the AccuScreen agreement and discussions among Casco, AccuScreen and the
Company resulted in a termination agreement whereby the Company paid
AccuScreen the sum of $600,000 upon closing of the Casco purchase. The
termination fee paid to AccuScreen is reflected as a charge to earnings and is
reflected in the Company's accumulated deficit. Casco increased its offer
price from the originally accepted amount of $1,600,000 by $350,000 to
partially offset the effect of this payment.
The Board has continued the Company subsequent to the closing with
Casco as a shell corporation, while seeking a potential business to enhance
shareholder value. On August 18, 1997, the Company entered into an agreement
to sell a controlling interest to Michael J. Blumenfeld who intends to have
the Company enter into the business of manufacturing and distributing sports
equipment to the institutional markets. The transaction with Mr. Blumenfeld is
subject to shareholder approval, which will be sought by proxy material filed
pursuant to Registration 14A under the Exchange Act.
B Summary of Significant Accounting Policies
Cash and Cash Equivalents - All highly liquid debt instruments purchased with
a maturity of three months or less are classified as cash equivalents.
Inventory - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Revenue Recognition - The Company recognizes revenues at the time Product was
shipped. The Company had an arrangement with a customer (Borg Warner
Information Systems ("BWIS")) whereby title and risk of loss transferred to
the customer upon the transfer of Product from the Company's finished goods
inventory into a segregated refrigeration unit on the Company's premises and,
accordingly, the Company recognized revenue at the time such Product was
transferred. Sales under this arrangement totaled $751,775 during Fiscal 1997
and $1,041,245 during the fiscal year ended June 30, 1996 (`Fiscal 1996"), of
which $0 and $660,000 was in the refrigerated storage unit at June 30, 1997
and 1996, respectively.
16
<PAGE>
Depreciation and Amortization - Depreciation and amortization were computed by
the straight-line method over the estimated useful lives of the respective
assets or the term of the related lease. Estimated useful lives and lease
terms ranged from two to seven years. Depreciation and amortization of
property was $ 56,733 and $89,620 in Fiscal 1997 and 1996, respectively.
Income taxes - Deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes
and (b) operating loss and tax credit carryforwards.
Patents - Patents are amortized over the life of the patent beginning at the
time the patent was obtained. Amortization of patents for Fiscal 1997 and 1996
was $1,438 and $1,500, respectively.
Research and Development Costs - Research and development costs consisted
mainly of salaries and related employee benefits, purchased materials and
services. These costs are charged to operations as incurred.
Restricted Stock Incentive Plan - Shares issued to employees under the plan
are recorded at fair market value at the date of the grant and are amortized
to compensation expense over a two-year vesting period.
Net Income (Loss) Per Share - Net income (loss) per share has been computed
based on the weighted average number of shares outstanding during the year.
Stock options and warrants are considered anti-dilutive and have not been
considered in the computation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.
Fair Value of Financial Instruments - The amounts reported in the balance
sheets for cash and accounts receivables and accounts payable approximated
fair value.
Concentration of Credit Risk - The Company was subject to credit risk through
receivables. Credit risk with respect to receivables was minimized due to the
credit worthiness of its then major customer and the large number of smaller
customers, which spread the risk.
Asset Impairment - Assets are reviewed for impairment when a specific event
indicats that the carrying value of an asset may not be recoverable and on an
annual basis in conjunction with the preparation of the annual report.
Recoverability is assessed based on estimates of future cash flows expected to
result from the use and eventual disposition of the asset. If the sum of
expected undiscounted cash flows is less than the carrying value of the asset,
an impairment loss is recognized. The impairment loss is measured as the
amount by which the carrying amount of the asset exceeds its estimated fair
value. No impairment loss was required for Fiscal 1997 or 1996.
17
<PAGE>
C Inventory
Inventory at June 30, 1997 and 1996 consisted of the following:
1997 1996
---- ----
Raw Materials - $ 262,858
Work-in-process - 134,911
Finished Goods - 47,460
------------- ------------------
Total - $ 445,229
============= ==================
D Equipment and Improvements
Equipment and improvements at June 30, 1997 and 1996, which were recorded at
cost, consisted of the following:
1997 1996
---- ----
Furniture and fixtures $1,506 $ 59,746
Leasehold improvements - 176,299
Machinery and equipment - 666,259
-------------- -------------
902,304
Less accumulated depreciation
and amortization - 618,578
-------------- -------------
$ 1,506 $ 283,726
============== =============
E Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at June 30, 1997 and 1996 consisted of
the following:
1997 1996
---- ----
Accounts payable - trade $ 22,346 $ 257,878
Accrued payroll and related expenses 50,000 46,728
Other - 43,510
============== ==============
$ 72,346 $ 348,116
============== ==============
F Related Party Transactions
In February 1993, the Company obtained a non-revolving, multiple drawdown line
of credit from a bank in the amount of $500,000. To enable the Company to
obtain such line of credit, John Pappajohn became a guarantor of the Company's
borrowings under the demand note and pledged a money market account owned by
him in the amount of $500,000, as collateral security for his performance
under the guaranty. The Company had granted to Mr. Pappajohn a security
interest in its tangible and intangible assets (excluding certain equipment
which it is attempting to lease) as collateral in the event the bank called
his guarantee. In consideration of his action as such guarantor and pledging
his money; market account as foresaid, the Company granted Mr. Pappajohn a
warrant expiring February 17, 1998 to purchase 10,000 shares of the Common
|Stock at $10.00 per share. The Company also agreed to grant him a warrant to
purchase up to 8,000 shares of the Common Stock for each $100,000 as and when
drawn by the Company under the line of credit. Each of these warrants would be
exercisable for a period of five years from its respective date of grant at
$10.00 a share. Mr. Pappajohn was also granted registration rights with
respect to the shares of the Common Stock issuable upon exercise of these
warrants. Subsequently, the Company borrowed the $500,000. As a result of this
borrowing, the Company issued to Mr. Pappajohn additional warrants to purchase
40,000 shares of the Common Stock. After giving effect to the anti-dilution
provisions of these warrants, Mr. Pappajohn had received, as consideration for
his guaranty and pledge, warrants to purchase as of June 30, 1997 an aggregate
of 144,681 shares of the Common stock at an exercise price of $3.46 a share.
Such warrants expire in February and March 1998.
18
<PAGE>
Sales to Tepnel Diagnostics, PLC, a United Kingdom company which owns 62,500
shares of the Company's Common Stock was $54,249 and $56,175 in Fiscal years
ended June 30, 1997 and 1996 respectively.
G Stockholders' Equity
During Fiscal 1993, the Company granted to the holders of record on May 13,
1993 (the "Record Date") of all of its outstanding shares of the Common Stock
the nontransferable right (the "Rights") to subscribe for Units at $5.00 per
Unit (the "Subscription Price") on the basis of one Unit for every 1.36 shares
of the Common Stock owned on the Record Date. Each Unit consisted of one share
of the Common Stock and a Redeemable Common Stock Purchase Warrant expiring
June 30, 1996 (subsequently extended to December 31, 1996) to purchase one
share of the Common Stock at $5.50 per share. These warrants subsequently
expired on December 31, 1996, except for the related underwriters' warrants
which expire on June 30, 1998. There are 182, 808 of such warrants with an
exercise price of $2.28.
The Company has issued options and warrants to directors, officers, employees
and others as additional incentives for prior and future services.
On September 22, 1994, the Board of Directors ratified the adoption of the
Drug Screening Systems, Inc. Stock Option Plan of 1994 (the "1994 Option
Plan") which provides for the granting of non-qualified stock options to
purchase up to 500,000 shares of the Common Stock, subject to possible
adjustment in the event of stock dividends, stock splits and similar
transactions. Pursuant to the 1994 Option Plan, options may be granted to key
employees, officers, directors, consultants and advisers of the Company and,
if later incorporated, subsidiaries; the options may become exercisable in
installments; the exercise price of an option may not necessarily be at the
fair market value of the Common Stock at its date of grant; the expiration
date of an option may be five to ten years after its date of grant; and there
is a provision permitting exercise if there is a "change in control" (which
definition does not include a transaction approved by the then current
directors). Pursuant to this Plan, options to purchase an aggregate of 270,000
shares of the Common Stock at $0.625 a share were granted on July 29, 1994 and
an option to purchase 25,000 shares at $1.375 a share was granted on September
22, 1994 (the prices per share were the fair market values at the dates of
respective grants). The exercise price of the option issued on September 22,
1994 was subsequently reduced to $0.625 to reflect a drop in the market price.
During its December 1995 meeting, the Board further reduced the exercise price
for options granted to active officers and its consultant to $0.25 to reflect
an additional drop in the market price. These options are exercisable
immediately on the respective date of grant and expire five years from the
respective date of grant regardless of the current status with the Company.
Options to purchase an aggregate of 50,000 shares of Common Stock at $0.25
were granted on June 16,1997
All options and warrants have been issued with exercise prices equivalent to
the market value of
19
<PAGE>
the Common Stock at the date of grant except for options granted on June 16,
1997 which were issued at $0.25 and the fair market value at date of grant was
$0.17. There were no options granted during the year ended June 30, 1996. As
of June 30, 1997, options and warrants to purchase 761,029 shares of the
Common Stock were currently exercisable. A summary of the Company's option and
warrant activity for the years ended June 30, 1997 and 1996 follows. The
following table reflects the anti-dilutive provisions of the options and
warrants through August 31, 1997.
<TABLE>
<CAPTION>
Warrants Issued Warrants Issued Options
in connection to Directors Warrants Key Employees issued to
with Officers and issued to Stock Officers and
Rights Offering Employees Other Parties Option Plan Employees
--------------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding June 30, 1995 1,929,024 320,563 387,568 10,346 495,781
Options granted
Options and warrants expired (123,357) (189,008)
---------- ---------- ---------- ---------- ----------
Outstanding June 30, 1996 1,929,024 320,563 267,376 10,346 306,773
Options granted 50,000
Options and warrants expired (1,746,216) (175,882) (178,836) (10,346) (11,773)
---------- ---------- ---------- ---------- ----------
Outstanding June 30, 1997 182,808 144,681 88,540 -- 345,000
========== ========== ========== ========== ==========
Exercise price of
outstanding
options and warrants $ 2.28 $ 3.46 $ 2.46 $0.25-$0.62
</TABLE>
Effective July 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
which requires expanded disclosures of stock-based compensation arrangements
with employees. SFAS 123 encourages, but does not require compensation costs
to be measured based on the fair value of the equity instrument awarded. It
allows the Company to continue to measure compensation cost for these plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). The Company has elected to continue to recognize compensation cost
based on the intrinsic value of the equity instrument awarded as promulgated
in APB 25. The effect on pro forma net income and pro forma earnings per share
would be immaterial if compensation costs were measured based on the fair
value of the equity instrument awarded and therefore the disclosure of these
amounts has been omitted. The fair value of the options granted during the
year ended June 30, 1997 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used:
risk-free interest rate of 6.38%, expected volatility of 300% and expected
life of 5 years.
The Company's Board of Directors is expressly authorized, without shareholder
approval, to determine with respect to the Preferred Stock, the preferences,
privileges, voting rights and other characteristics set forth in the articles
of incorporation. There are no shares of Preferred Stock issued and
outstanding.
H Commitments and Contingencies
The Company leased facilities, which it utilized as its administrative,
research and development manufacturing, quality control, warehousing and
shipping facilities. The leases, as amended, with an unaffiliated landlord,
expired on June 30, 1997. The monthly base rental was $4,712. Rental expenses
under these leases was $75,993 and $78,963 in Fiscal 1997 and 1996,
respectively.
20
<PAGE>
I Income Taxes and Net Operating Loss Carryforwards
The tax effects of significant items comprising the Company's net deferred
taxes as of June 30, 1997 and 1996 were as follows:
1997 1996
---- ----
Deferred tax assets:
Property $ - $ 44,000
Allowance for doubtful accounts 24,000 20,000
Vacation accrual - 4,000
Operating loss carryforwards 6,100,000 6,100,000
Valuation allowance (6,124,000) (6,168,000)
============= ==============
- -
============= ==============
The change in the valuation allowance for Fiscal 1997 was a decrease of
approximately $44,000 as a result of the increase in doubtful accounts for
Fiscal 1997, offset by deductions in the property accounts and the vacation
accrual.
There was no provision for current income taxes for either Fiscal 1997 or
1996.
The federal and state net operating loss carryforwards of approximately
$14,200,000 expire in varying amounts through 2011.
The Company has had numerous transactions in its Common Stock. Such
transactions may have resulted in a change in the Company's ownership as
defined in the Internal Revenue Code Section 382. Such change may result in an
annual limitation on the amount of the Company's taxable income which may be
offset with its net operating loss carryforwards. The Company has not
evaluated the impact of Section 382, if any, on its ability to utilize its net
operation loss carryforwards in future years.
J Major Customers, Etc.
During Fiscal 1997, sales to BWIS were $751,775 (39% of the gross revenues of
the Company), During Fiscal 1996, sales to BWIS accounted for $1,041,245 (49%
of the gross revenues of the Company). No other customer accounted for 10% or
more of the Company's gross revenues
K Restrictive Stock Incentive Plan
In February 1990, the Company adopted a Restrictive Stock Incentive Plan,
which allows for issuance of up to 75,000 shares of the Common Stock to
certain key employees. Provisions of the plan require continued employment and
prohibit the sale or transfer of shares issued for two years from the date of
the allocation.
As of June 30, 1997, the Company had issued an aggregate of 41,800 shares of
the Common Stock under such plan; none were issued in Fiscal 1997 or 1996.
These shares were recorded at the fair market value at the date of the stock
allocation. The Company records compensation expense for a period of 24 months
from the date of the stock allocation.
No compensation expense was recognized in Fiscal 1997 or Fiscal 1996.
As of June 30, 1997, 33,200 shares of the Common Stock were reserved for
future issuances under the Restrictive Stock Incentive Plan.
21
<PAGE>
N Litigation
These is no current litigation involving the Company .
ITEM 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were none.
PART III
ITEM 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors
As of September 1, 1997, the directors of the Company were:
<TABLE>
<CAPTION>
Year First
Became an
Name Age Position with the Company Officer
- ---- --- -------------------- ----------
<S> <C> <C> <C>
John Pappajohn 69 President of Equity Dynamics, Inc., a 1991
financial consulting and venture capital
firm
Stephen C. Turner 52 Chief Executive Officer of Oncor, Inc., 1991
a manufacturer of genetic medical
diagnostics
Jeff Davidowitz 41 President of Penn Footwear, a company 1994
that manufactures shoes
</TABLE>
All directors hold office until the next Annual Meeting of Shareholders of the
Company or until their successors have been duly elected and qualified. Each
of the current directors was elected at the Annual Meeting of Shareholders on
June 16, 1997.
Executive Officers
As of September 1, 1997, the sole executive officer of the Company
was:
<TABLE>
<CAPTION>
Year First
Became an
Name Age Position with the Company Officer
- ---- --- ------------------------- ----------
<S> <C> <C> <C>
Patrick J. Brennan, CPA 52 Vice President, Chief Financial 1994
& Accounting Officer and Secretary
</TABLE>
Joseph R. Shaya was hired by the Board on June 1, 1994 as a
consultant to the Company to fulfill the duties of Acting President and Chief
Executive Officer, reporting directly to the Board, until an officer was
engaged to perform such duties as an employee. Mr. Shaya's services were ended
on June 27, 1997 after the successful sale to Casco.
22
<PAGE>
Each executive officer of the Company will serve until the first
meeting of the Board of Directors following the next Annual Meeting of
Shareholders or until the Board otherwise directs.
Family Relationships
There are no family relationships among any of the directors or the
sole executive officer of the Company.
Business History
John Pappajohn, a director of the Company since December 1991, has
been the President of Equity Dynamics, Inc., a financial consulting and
venture capital firm, and the sole owner of Pappajohn Capital Resources, a
venture capital firm, since 1969. Mr. Pappajohn is a member of the Board of
Directors of the following public companies: Pace Health Systems, Inc., a
medical software company; Core Management, Inc. a worker's compensation
software company; United Systems Technology, Inc., a municipal software
company; BioCryst Pharmaceuticals, Inc., a pharmaceutical company; and,
OncorMed, Inc., which is a genetic based cancer screening service.
Stephen C. Turner, a director of the Company since December 1991, has
been, since August 1983, the Chairman of the Board and Chief Executive Officer
of Oncor, Inc., a public company which manufactures genetic medical
diagnostics, and OncorMed, Inc., a public company which is a genetic based
cancer screening service.
Jeff Davidowitz, a director of the Company since June 22, 1994, has
been President of Penn Footwear, a private company that manufactures shoes,
since January 1, 1991. Prior to that, he was Vice President of Penn Footwear.
Patrick J. Brennan, CPA joined the Company on September 27, 1994 as
Vice President, Chief Financial Officer, Chief Accounting Officer and
Secretary. Prior to that, Mr. Brennan was Chief Financial Officer of
Enzymatics, Inc., a Biotech company, from June 1993 until March 1994. Prior to
that, he served as Chief Financial Officer for American Film Technologies,
Inc. ("AFT"), a film coloring and animation company, from August 1988 until
December 1992. In February 1991, Mr. Brennan was elected to the Board of
Directors of AFT. Mr. Brennan continued to serve on the Board after his
resignation as Chief Financial Officer. In October 1993, AFT filed for
bankruptcy under Chapter 11 of the Federal Bankruptcy Code. Mr. Brennan, as
well as most directors, resigned upon the acquisition by a new investor. From
December 1992 to June 1993 and from March 1994 to September 1994, Mr. Brennan
was an independent consultant.
Messrs. Pappajohn and Turner (as indicated above) are the only
directors to serve as a director of another company which has a security
registered under Section 12(b) or (g) of the Exchange Act. No director serves
as a director of another company which is registered as an investment company
under the Investment Company Act of 1940, as amended.
Compliance with Section 16(a) of the Exchange Act
Based solely on a review of Forms 3 and 4 furnished to the Company
under Rule 16a-3(e) promulgated under the Exchange Act with respect to Fiscal
1997, the Company is not aware of any director or officer of the Company who
failed to file on a timely basis, as disclosed in such forms, reports required
by Section 16(a) of the Exchange Act during Fiscal 1997 or prior years. The
Company is not aware of any beneficial owner of 10% or more of the outstanding
shares of the Common Stock, which is the only security of the Company
registered under Section 12 of the Exchange Act, other than John Pappajohn who
is a director of the Company. See Item 11 to this Report.
23
<PAGE>
ITEM 10 Executive Compensation
Summary Compensation Table
The following table sets forth summary compensation information
during Fiscal 1997, Fiscal 1996 and the fiscal year ended June 30, 1995
awarded to, earned by or paid to the Acting Chief Executive Officer during
Fiscal 1997 (until June 27, 1997) and the other executive officer as of June
30, 1997 whose total annual salary and bonuses exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-term
Year ------------------------------ Compensation
Name and Other Awards/Options All Other
Principal Annual SARS(1) Compensation
Position Year Salary Compensation $
(a) (b) (c) (d) (e)
--------- ---- ------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Joseph R. Shaya, 1997 180,000 none 25,000 none
Acting President
& CEO 1996 180,000 none none none
1995 180,000 none 125,000 none
- ------------------------------------------------------------------------------------------------------------
Patrick J. Brennan 1997 109,000 none 25,000 None
Vice President,
Chief Financial & 1996 106,917 none none None
Accounting Officer,
Secretary 1995 77,600 none 25,000 none
</TABLE>
(1) Amounts reflect anti-dilution provisions of options.
The Company has never granted any stock appreciation rights (SARS).
There were no long-term incentive plan awards granted in Fiscal 1997. There
are no other plans pursuant to which cash or non-cash compensation was paid or
distributed during Fiscal 1996 or 1997 or pursuant to which cash or non-cash
compensation is proposed to be paid or distributed in the future to the
executive officers of the Company in respect to Fiscal 1996 or 1997.
Option/SARS Grants in the Last Fiscal Year.
There were stock options to purchase an aggregate of 50,000 shares of
the Common Stock granted in Fiscal 1997 as indicated in the following table.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted to
Underlying Options Employees in Exercise Price Expiration
Name Granted Fiscal Year $/Share Date
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Joseph R. Shaya 25,000 N/A $0.25 6/5/02
Patrick J. Brennan 25,000 100% $0.25 6/5/02
</TABLE>
24
<PAGE>
Aggregated Option/SAR Exercises during Fiscal 1997 and
Option/SAR Values at June 30, 1997
<TABLE>
<CAPTION>
Value ($) of
Number (#) of Unexercised
Unexercised in-the-Money
Shares Options/SARs Options/SARs
Acquired Value at June 30,1997 at June 30,1997
on Realized Exercisable/ Exercisable/
Name Exercise ($) Unexerciseable (3) Unexerciseable
(a) (b) (c) (d) (e)
- ------------------------ -------------------- ------------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
Joseph R. Shaya None None 150,000/0 None
Acting President
& CEO (1)
Patrick J. Brennan, None None 50,000/0 None
VP, CFO &
Secretary (2)
</TABLE>
(1) Mr. Shaya joined the Company as a consultant on June 1, 1994 and resigned
on June 27, 1997.
(2) Mr. Brennan joined the Company on September 27, 1994.
(3) These amounts reflect anti-dilution provisions of the options.
.
Compensation of Directors
Directors of the Company receive no compensation for their services
as directors.
Stock Option Plan of 1994
On September 22, 1994, the Board of Directors ratified the adoption
of the Drug Screening Systems, Inc. Stock Option Plan of 1994 (the "1994
Option Plan") which provides for the granting of non-qualified stock options
to purchase up to 500,000 shares of the Common Stock, subject to possible
adjustment in the event of stock dividends, stock splits and similar
transactions. Pursuant to the 1994 Option Plan, options may be granted to key
employees, officers, directors, consultants and advisers of the Company and,
if later incorporated, subsidiaries; the options may become exercisable in
installments; the exercise price of an option may not necessarily be at the
fair market value of the Common Stock at its date of grant; the expiration
date of an option may be five to ten years after its date of grant; and there
is a provision permitting exercise if there is a "change of control" (which
definition does not include a transaction approved by the then current
directors).
Pursuant to the 1994 Option Plan, options to purchase an aggregate of
270,000 shares of the Common Stock at $0.625 a share (the fair market value at
the date of grant) were granted on July 29, 1994 and an option to purchase
25,000 shares at $1.375 a share (the fair market value at the date of grant)
was granted on September 22, 1994 (subsequently reduced to $.0625 to reflect
current market). During its December 1995 meeting, the Board further reduced
the exercise price for options granted to active officers and its consultant
to $0.25 to reflect an additional drop in the market price. Options to
purchase an aggregate of 50,000 shares of the Common Stock at $0.25 a share
(the fair market value at the date of grant) were granted on June 16, 1997.
These options are exercisable on the respective date of grant and expire five
years from the respective date of grant.
25
<PAGE>
<TABLE>
<CAPTION>
Name of Optionee Position with Company Number of Shares
---------------- --------------------- ----------------
<S> <C> <C>
Granted July 29, 1994
Joseph Shaya Consultant (resigned 6/27/97) 125,000
Robert G. Wallace Sales Consultant 50,000
Stephen C. Turner Director 25,000
Anthony Ian Newman Director 25,000
Jeff Davidowitz Director 25,000
Kenneth S. Carpenter Vice President (resigned 7/26/96) 10,000
Jeffrey M. Bachrach Consultant 10,000
Granted September 22, 1994
Patrick J. Brennan Vice President,Chief Financial
Officer and Secretary 25,000
Granted June 16, 1997
Joseph Shaya Consultant (resigned 6/27/97) 25,000
Patrick J. Brennan Vice President,Chief Financial
Officer and Secretary 25,000
</TABLE>
ITEM 11 Security Ownership of Certain Beneficial Owners
(a) Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information at August 31, 1997, based upon
information obtained from the persons named below or, in the case of James A.
Gordon and William Davidowitz, based on their filings under the Exchange Act,
with respect to the beneficial ownership of shares of the Common Stock, which
is the sole voting security of the Company, by each person known by the
Company to be the owner of more than 5% of the outstanding shares of the
Common Stock:
<TABLE>
<CAPTION>
Number of Shares of
Name and Address of Common Stock Percent of
Beneficial Owner Beneficially Owned Class(1)
- ---------------- ------------------ --------
<S> <C> <C>
John Pappajohn (2) 1,436,408(3) 31.3%
c/o Pappajohn Capital Resources
2116 Financial Center
Des Moines, Iowa 50309
James A. Gordon 785,093 17.7
Edgewater Private Equity Fund L.P.
666 Grand Avenue, Suite 200
Des Moines, Iowa 50309
Jeff Davidowitz(2) 410,000(4) 9.2%
c/o JIBS Equities
Line and Grove Streets
PO Box 87
Nanticoke, PA 18634
William Davidowitz 260,000 5.8%
PO Box 87
Nanticoke, PA 18634
</TABLE>
26
<PAGE>
(1) The percentages are based upon 4,446,017 shares of the Common Stock being
outstanding on September 1, 1997 and, where appropriate, effect is given
to the exercise of warrants or options as required by Rule 13d-3(d)(1)(i)
under the Exchange Act.
(2) A director of the Company.
(3) Includes an aggregate of 144,681 shares, after giving effect to
anti-dilution provisions, subject to warrants expiring February 17, 1998,
February 18, 1998. March 11, 1998 and March 30, 1998 granted to Mr.
Pappajohn in connection with a loan guaranty and pledge
(4) Reflects 25,000 shares issuable upon exercise of an option expiring
August 9, 1999.
(b) Security Ownership of Management
Set forth below is information with respect to shares of the Common Stock
beneficially owned as of August 31, 1997, based upon information obtained from
the persons named below, by each director of the Company, by the Acting Chief
Executive Officer through June 27, 1997, by the sole executive officer as of
June 30, 1997, whose compensation exceeded $100,000 in Fiscal 1997 and by all
current directors and executive officers as a group:
Name and Address of Amount of Beneficial Percent of
Beneficial Owner Ownership Class(1)
- ---------------- --------- --------
John Pappajohn(2) 1,436,408(3) 31.3%
c/o Pappajohn Capital Resources
2116 Financial Center
Des Moines, Iowa 50309
Stephen C. Turner(2) 26,000(4) 0.6%
c/o Oncor, Inc.
209 Perry Parkway
Gaithersburg, MD 20877
Jeff Davidowitz(2) 410,000(4) 9.2%
c/o JIBS Equities
Line and Grove Streets
PO Box 87
Nanticoke, PA 18634
Joseph R. Shaya (5) 150,000(6) 3.3%
1951 Sage Drive
Golden, CO 80401
Patrick J. Brennan, CPA 50,000(7) 1.1%
c/o Drug Screening Systems, Inc.
P. O. Box 579
Blackwood, NJ 08012
All Executive Officers and
Directors as a Group (4 persons) 1,922,408 41.2%
- ---------------
(1) See Note (1) to the first table in this Item 11 to this Report.
27
<PAGE>
(2) See Note (2) to the first table in this Item 11 to this Report.
(3) See Note (3) to the first table in this Item 11 to this Report.
(4) Reflects 25,000 shares issuable upon exercise of an option expiring
August 9, 1999.
(5) Mr. Shaya served as a consultant to the Company from June 1, 1994 to June
27, 1997, during which period he served as the Acting President and Chief
Executive Officer of the Company.
(6) Reflects 125,000 shares issuable upon exercise of an option expiring
August 9, 1999 and 25,000 shares issuable upon exercise of an option
expiring June 16, 2002.
(7) Reflects 25,000 shares issuable upon exercise of an option expiring
August 9, 1999 and 25,000 shares issuable upon exercise of an option
expiring June 16, 2002.
ITEM 12 Certain Relationships and Related Transactions
Mr. John Pappajohn is the major shareholder and a member of the Board
of DSSI Corporation. Mr. Pappajohn has purchased shares of the Common Stock in
the private placements and has recently loaned funds to the Company to keep
the Company solvent. Mr. Pappajohn has no other transactions of a reportable
nature with the Company during Fiscal 1996 and Fiscal 1997.
Mr. Joseph R. Shaya was hired as a consultant to the Company to
perform the duties of Acting President and Chief Executive Officer. Mr.
Shaya's compensation for these services are described elsewhere in this
Report. Mr. Shaya had no other transactions of a reportable nature with the
Company during Fiscal 1996 and Fiscal 1997. Mr. Shaya resigned June 27, 1997.
28
<PAGE>
PART IV
ITEM 13 Exhibits, List and Reports on Form 8-K
(a) Exhibits
The exhibits listed below which are marked with a footnote reference were
filed with a prior registration statement filed under the Securities Act of
1933, as amended or in a periodic report or proxy statement filed under the
Exchange Act and are incorporated herein by this reference. The exhibits
listed below which are not marked with a footnote reference are filed with
this Form 10-KSB.
Number Exhibit
2 Purchase and Sale Agreement dated March 14, 1997 for the sale of
the majority of the Company's assets and business to Casco
Standards, Inc. (9)
2(a) Stock Purchase Agreement dated August 18, 1997 with Michael J.
Blumenfeld. (10)
3(a) Copy of Articles of Incorporation of the Company. (1)
3(a)(1) Copy of Certificate of Amendment to Articles of Incorporation of
the Company filed on December 29, 1987. (1)
3(a)(2) Copy of Certificate of Amendment to Articles of Incorporation of
the Company filed on December 24, 1991. (1)
3(a)(3) Copy of Certificate of Amendment to Articles of Incorporation of
the Company filed on May 5, 1993. (2)
3(a)(4) Copy of Certificate of Amendment to Articles of Incorporation of
the Company filed June 30, 1997.
3(b) Copy of By-Laws of the Company. (1)
4(a) Specimen Certificate of Common Stock, $0.01, par value, of the
Company. (3)
10(a) Copy of Warrant Agency Agreement dated as of June 4, 1993 between
the Company and Continental Stock Transfer & Trust Company, as
Warrant Agent. (4)
10(a)(1) Proof of Redeemable Warrant expiring June 3, 1996 of the Company.
(4)
10(b) Form of Underwriter's Unit Purchase Warrant of the Company. (5)
10(b)(1) Form of Underwriter's Warrant of the Company. (5)
10(c) Copy of the 1988 Stock Option Plan of the Company. (1)
10(c)(1) Copy of the 1994 Stock Option Plan of the Company.
10(d) Copy of Employee Restricted Stock Plan of the Company. (6)
10(e) Copy of Warrant expiring September 30, 1996 of the Company issued
to John Pappajohn. (3)
29
<PAGE>
Number Exhibit
10(e)(1) Copy of Investor's Rights Agreement dated April 30, 1991 between
the Company and John Pappajohn. (3)
10(e)(2) Copy of Warrant expiring February 17, 1998 of the Company issued to
John Pappajohn. (3)
10(e)(3) Copy of Warrant expiring February 18, 1998 of the Company issued to
John Pappajohn. (3)
10(e)(4) Copy of Warrant expiring March 11, 1998 of the Company issued to
John Pappajohn. (3)
10(e)(5) Copy of Warrant expiring March 30, 1998 of the Company issued to
John Pappajohn. (3)
10(e)(6) Copy of Investor's Rights Agreement dated February 18, 1993 between
the Company and John Pappajohn. (3)
10(f) Copy of Warrant expiring February 28, 1997 issued by the Company to
Gold & Wachtel. (3)
10(g) Copy of Lease dated May 9, 1988 between the Company, as tenant, and
VPR Commerce Center, as landlord. (6)
10(g)(1) Copy of Lease dated December 31, 1989 between the Company, as
tenant, and VPR Commerce Center, as landlord. (6)
10(g)(2) Copy of Lease dated February 19, 1992 between the Company, as
tenant, and VPR Commerce Center, as landlord. (3)
10(g)(3) Copy of Lease dated March 4, 1993 between the Company, as tenant,
and VPR Commerce Center, as landlord. (3)
10(h) Copies of Independent Laboratory Results and Supplements thereto.
(6)
10(i) Copy of Exclusive Distributorship, Sale and Service Agency
Agreement dated May 12, 1989 between the Company and B.P.S. Guard
Services, Inc. ("BPS"). (6)
10(i)(1) Copies of Amendments dated June 5, 1989, July 7, 1989, December 19,
1989 and January 29, 1991 to the foregoing Agreement. (6)
10(I)(2) Copy of Exclusive Distributorship, Sale and Service Agency
Agreement dated January 15, 1993 among the Company, BPS and Wells
Fargo Investigative Services, Inc. (now Borg Warner Investigative
Services, Inc.) restating and amending the Agreement, as previously
amended, filed as Exhibits 10(i) and 10(i)(1). (3)
10(I)(3) Copy of Distributorship, Sale and Service Agency Agreement dated
May 8, 1995 between the Company and Borg Warmer Information
Services, Inc. restating and amending the Agreement as previously
amended, filed as Exhibits 10(I), 10(I)(1) and 10(I)(3).
10(I)(4) Copy of the Exclusive Distribution Agreement dated March 5, 1996
between the Company and U. S. Distribution, a division of Baxter
Healthcare Corporation. (8)
30
<PAGE>
Number Exhibit
10(j) Copy of Distribution Agreement dated July 22, 1991 between the
Company and Marketing & Trade International, Ltd. (now Intertec,
Inc.). (6)
10(k)(1) Copy of security agreement dated January 18, 1993 between the
Company and John Pappajohn. (3)
10(k)(2) Copy of security letter agreement dated January 18, 1993 between
the Company and John Pappajohn. (3)
10(l) Copy of Promissory Note dated August 18, 1988 of Robert G. Wallace
to the Company. (3)
10(l)(1) Copy of Pledge Agreement dated August 18, 1989 by Robert G. Wallace
to the Company. (6)
10(l)(2) Copy of Extension Notes dated November 18, 1988 and July 1, 1991
relating to Exhibit 10(l) hereto. (6)
10(l)(3) Copy of Extension Note dated April 8, 1983 relating to Exhibit
10(l) hereto. (3)
10(m) Copy of Employment Agreement dated as of February 1, 1990 between
the Company and Ming Sun. (3)
10(n) Copy of Employment Agreement dated as of February 1, 1990 between
the Company and Francis R. Pfeiffer. (3)
10(o) Copy of Standby Agreement dated as of June 4, 1993 between the
Company and Royce Investment Group, Inc. ("Royce"). (5)
10(o)(1) Copy of Financial Consulting Agreement between the Company and
Royce is an exhibit to Exhibit 10(o) hereto.
10(p) Copy of Agreement dated as of April 30, 1993 by and among Tepnel
Diagnostics PLC ("Tepnel"), the Company, Gold & Wachtel, as escrow
agent, and Milberg Weiss Bershad Specthrie & Lerach. (2)
10(p)(1) Copy of letter dated April 30, 1993 from John Pappajohn and Mary
Pappajohn to Tepnel. (3)
10(q) Copy of Exclusive Distribution Agreement dated May 21, 1993 between
the Company and Tepnel Diagnostics PLC. (3)
10(r) Copy of the Joint Research and Development Agreement dated May 21,
1993 between the Company and Tepnel Diagnostics PLC. (3)
10(s) Copy of the Exclusive Distribution Agreement dated September 15,
1993 between the Company and Triangle Healthcare Systems, Ltd. (7)
10(t) Copy of Financial Consulting and Employment Agreement dated July
15, 1993 between the Company and Charles Levy. (7)
31
<PAGE>
Number Exhibit
10(u) Copy of Exclusive License and Distributorship Agreement dated April
21, 1994 between the Company and AccuScreen Labs, Inc.
10(u)(1) Copy of Non-Exclusive Distribution Agreement dated November 11,
1993 between the Company and AccuScreen Labs, Inc.
10(v) Copy of Exclusive Distribution Agreement dated May 3, 1994 between
the Company and Rimstar Trading Company.
- ------------
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-18, File No. 33-19770-NY.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993.
(3) Filed as an exhibit to the Company's Registration Statement on Form
SB-2, File No. 33- 60176.
(4) Filed as an exhibit to the Company's Form 8-A dated dune 28, 1993.
(5) Filed as an exhibit to the Company's Current Report on Form 8-K
filed on July 12, 1993.
(6) Filed as an exhibit to a Post-Effective Amendment to the Company's
Registration Statement on Form S- 18, File No. 33-19770-NY.
(7) Filed as an exhibit to the Company's Annual Report on Form 10- KSB
for the year ended June 30, 1993.
(8) Filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1996.
(9) Filed as an exhibit to the Company's Definitive Proxy Statement for
its Annual Meeting held on June 16, 1997.
(10) Filed as an exhibit to the Company's Form 8-K/A filed on September
11, 1997.
(b) Reports on Form 8-K
Report of Form 8-K dated 8/20/97, amended 9/11/97 to include a copy
of stock purchase agreement between DSSI Corporation and
Purchaser Michael J. Blumenfeld.
32
<PAGE>
SIGNATURES
In accordance with Sections 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DRUG SCREENING SYSTEMS, INC.
/s/ Patrick J. Brennan
---------------------------------------
Vice President, Chief Financial Officer
Dated: September 23, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John Pappajohn Director September 23, 1997
- ----------------------------
John Pappajohn
/s/ Stephen C. Turner Director September 23, 1997
- ----------------------------
Stephen C. Turner
/s/ Jeff Davidowitz Director September 23, 1997
- ----------------------------
Jeff Davidowitz
/s/ Patrick J. Brennan Principal Financial September 23, 1997
- ---------------------------- and Accounting Officer
Patrick J. Brennan
</TABLE>
<PAGE>
APPENDIX E
QUARTERLY REPORT ON
FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997
<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 3 or 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
for the quarterly period ended September 30, 1997; or
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
EXCHANGE ACT
for the transition period from ___________________ to ___________________
Commission file number 0-17293
DSSI Corporation
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 22-2795073
---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
P. O. Box 1570, West Chester, PA 19380
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(610) 696-3479
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 5(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ---
On September 30, 1997, there were 4,446,017 shares of the issuer's Common
Stock, $0.01 par value, outstanding.
2
<PAGE>
DSSI Corporation
INDEX
Page
----
Part I - Financial Information
Item 1 - Financial Statements 3
Item 2 - Management's Discussion and Analysis 9
or Plan of Operation
Part II - Other Information
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The accompanying unaudited condensed financial statements of DSSI Corporation
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions
to Form 10-QSB and Item 310 of Regulation S-B of the Securities and Exchange
Commission. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended September 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending June 30, 1998 ("Fiscal 1998"). The accompanying condensed
financial statements and notes thereto should be read in conjunction with the
Company's Annual Report on Form 10-KSB (the "Annual Report") for the year
ended June 30, 1997 ("Fiscal 1997").
Page
-----
Index to Financial Statements
Balance Sheets at September 30, 1997 (unaudited) and June 30, 1997 4
Statements of Operations and Accumulated Deficit (unaudited) for the
three months ended September 30, 1997 and 1996 5
Statement of Cash Flows (unaudited) for the three months ended
September 30, 1997 and 1996 6
Notes to Financial Statements 7
4
<PAGE>
DSSI Corporation
Balance Sheets, September 30, 1997 (Unaudited) and June 30, 1997
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
----------------- -----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 606,203 $ 801,979
Accounts receivable, net of allowance of $50,000 at September 30, 1997
and $60,000 at June 30, 1997
4,411 53,073
Receivable from purchase holdback
156,000 160,000
Prepaid expenses and other
19,912 42,044
----------------- -----------------
Total Current Assets
786,526 1,057,096
Equipment and improvements, net
1,380 1,506
Other Assets:
Deposits
150 8,585
----------------- -----------------
Total Assets $ 788,056 $ 1,067,187
================= =================
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt and capital leases $ 10,388 $ 233,213
Accounts payable and accrued expenses
55,735 72,346
----------------- -----------------
Total Current Liabilities
66,123 305,559
Commitments and contingencies
- -
Stockholders' Equity
Class "A" preferred stock, $0.01 par value; 2,000
shares authorized; none issued
- -
Common stock, $0.01 par value; 20,000,000
shares authorized; 4,446,017 shares at September 30, 1997 and
June 30, 1997 issued and outstanding
44,460 44,460
Additional paid-in-capital
15,118,555 15,118,555
Accumulated deficit
(14,441,082) (14,401,387)
----------------- -----------------
Total Stockholders' Equity
721,933 761,628
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 788,056 $ 1,067,187
================= =================
</TABLE>
See notes to financial statements
5
<PAGE>
DSSI Corporation
Statements of Operations and Accumulated Deficit (unaudited) For Three Months
ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months ended September 30,
1997 1996
------ ------
<S> <C> <C>
Revenues $ 7,061 $ 595,620
Cost of sales 347,688
----------------- -----------------
Gross profit
7,061 247,932
Operating expenses:
Research and development
98,368
Selling, general and administrative
46,756 311,533
----------------- -----------------
46,756 409,901
----------------- -----------------
Net loss
(39,695) (161,969)
Accumulated deficit - beginning of period $ (14,401,387) $ (14,443,208)
----------------- -----------------
$ (14,441,082) $ (14,605,177)
================= =================
Net loss per share $ (0.01) $ (0.04)
================= =================
Weighted average number of shares
outstanding 4,466,017 4,266,017
================= =================
</TABLE>
See notes to financial statements
6
<PAGE>
DSSI Corporation
Statements of Cash Flows for the Three Months (Unaudited)
Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Three Months ended September 30,
---------------------------------
1997 1996
------ ------
Cash flows from operating activities:
<S> <C> <C>
Net loss
(39,695) (161,969)
Adjustments to reconcile net loss to net cash
used
Depreciation and amortization
126 16,909
Gain on sale of equipment held for sale
Decrease (increase) in
assets:
Accounts receivable
48,662 80,966
Receivable from holdback
4,000
Inventory
- 70,343
Prepaid expenses and other
22,132 (51,627)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses
(16,611) 23,036
------------ --------------
Net cash provided by (used in) operating activities
18,614 (22,342)
Cash flows from investing activities:
Expenditures for equipment and improvements
(14,631)
Recovery of deposits
8,435
------------ --------------
Net cash provided by (used in) investing activities
8,435 (14,631)
Cash flows from financing activities:
Proceeds from non-bank financing
- 95,258
Principal payments on debt and capital leases
(222,825) (74,900)
Net cash provided by financing activities (222,825) 20,358
------------ --------------
Net decrease in cash and cash equivalents
(195,776) (16,615)
Cash and cash equivalents:
Beginning of period
801,979 91,807
------------ --------------
End of period $ 606,203 $ 75,192
============ ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 574 $ 782
============ ==============
</TABLE>
See notes to financial statements
7
<PAGE>
DSSI CORPORATION
Notes to Financial Statements
For the Three Months Ended September 30, 1997 and 1996
A. Basis of Presentation
As a result of the net losses aggregating $15,070,555 from inception
through March 31, 1997, the Company's cash flows from operating activities had
been negative. Accordingly, the Company had been required to finance its
operations and research and development program primarily through proceeds
received from its initial public offering in May 1988, the exercise of
warrants thereafter and subsequent securities offerings, including the sale of
shares of the Common Stock through a rights offering in June and July, 1993.
The directors and other beneficial owners financed the Company from November
1994 until Fiscal 1997 with two private placements which resulted in aggregate
gross proceeds of $825,000 and subsequent secured loans in principal amounts
totaling $245,000. Total equity raised by the Company since inception is
$15,113,015.
During Fiscal 1997, the Board unanimously approved the sale
of substantially all of the assets to Casco Standards, Inc. ("Casco").
Effective June 16, 1997, Casco acquired the Company's inventory, capital
equipment (except for leasehold improvements) and intellectual property. Casco
also acquired the right to do business as Drug Screening Systems, Inc. Casco
paid $1,908,635 plus a payment for an agreed-upon inventory build-up of the
products. Sybron International Corporation ("Sybron"), Casco's ultimate
parent, reported revenues of $674.5 million and net income of $57.6 million
for its fiscal year ended September 30, 1996. Casco did not purchase the
accounts receivable of the Company. As part of the agreement, Casco agreed to
use its best efforts at collecting cash receipts for the Company. As of
September 30, 1997, substantially all unreserved accounts receivable have been
collected. As a condition of the agreement, the Company manufactured specific
quantities of finished goods to have a six-month supply on hand for Casco.
In April 1994, the Company, under the previous management, entered
into an exclusive license and distributorship agreement with AccuScreen Labs,
Inc. ("AccuScreen"). The Company granted AccuScreen the license to sell or
distribute the Company's drug screening panel to direct marketing purchasers
or to retailers in the United States. The license was for a term of five years
and six months from the date permission from the Food and Drug Administration
(the "FDA") to market the tests to direct marketing purchasers or to retailers
was obtained. AccuScreen has invested funds in the efforts to prepare for the
appropriate filings with the FDA, but, as of June 16, 1997, had not submitted
a filing. Casco determined that it did not want to accept the assignment of
the AccuScreen agreement and discussions among Casco, AccuScreen and the
Company resulted in a termination agreement whereby the Company paid
AccuScreen the sum of $600,000 upon closing of the Casco purchase. The
termination fee paid to AccuScreen was reflected as a charge to earnings in
Fiscal 1997 and is reflected in the Company's accumulated deficit. Casco
increased its offer price from the originally accepted amount of $1,600,000 as
adjusted for asset fluctuations by $350,000 to partially offset the effect of
this payment.
8
<PAGE>
The Board continued the Company subsequent to the closing with Casco as a
shell corporation, while seeking a potential business to enhance shareholder
value. On August 18, 1997, the Company entered into an agreement to sell a
controlling interest to Michael J. Blumenfeld who intends to have the Company
enter into the business of distributing sports equipment to the institutional
markets. Under this agreement, Mr. Blumenfeld will purchase 10,000,000 shares
of the Common Stock of the Company for $2,000,000. In addition, current
directors and a beneficial owner, or their designees will purchase 1,500,000
shares for $300,000. Upon completion of the transaction, the Company will
change its name to Collegiate Pacific, Inc. and purchase the assets Mr.
Blumenfeld has acquired in starting the operation. The transaction with Mr.
Blumenfeld is subject to shareholder approval, which will be sought by proxy
material filed pursuant to Section 14(a) of The Securities and Exchange Act.
B. Revenue Recognition
During Fiscal 1997, the Company recognized revenues at the time Product was
shipped. The Company had an arrangement with a customer whereby title and risk
of loss transfers to the customer upon transfer of Product from the Company's
finished goods inventory into a segregated refrigeration unit on the Company's
premises and, accordingly, the Company recognized revenues at the time such
Product was transferred. Sales under this arrangement totaled $248,928 during
the first three months of Fiscal 1997. There were no sales during the first
three months of Fiscal 1998.
C. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at September 30, 1997 and June 30, 1996
consist of the following:
September 30 June 30
------------ -------
Accounts payable - trade $ 38,510 $ 22,346
Accrued expenses 17.225 50,000
-------- --------
$ 55,735 $ 72,346
======== ========
D. Income Taxes
The tax effects of significant items comprising the Company's net deferred
taxes as of September 30, 1997 were as follows:
Deferred Tax Assets:
Allowance for doubtful accounts $ 20,000
Operating loss carryforwards 6,200,000
Valuation allowance (6,220,000)
-----------
$ -
===========
There was a decrease of $4,000 in the valuation allowance in the three months
ended September 30, 1997.
9
<PAGE>
There was no provision for current income taxes for either the first three
months of Fiscal 1998 or 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The Company sold its business during the fourth quarter of Fiscal 1997, and
since then has had no operations. The Company's only revenue in the first
three months of Fiscal 1998 is interest income on its cash & cash equivalents
and its expenses consist of maintaining the corporate shell in good standing.
Liquidity and Capital Resources
As of September 30, 1997, the Company had working capital of $720,403 and a
cash balance of $606,203. This position should allow the Company to
successfully complete the sale of the controlling interest in the Company to
Michael J. Blumenfeld as further explained in the Basis of Presentation
footnote to the Financial Statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceeding
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
10
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
(b) Reports on Form 8-K.
A Form 8-K was filed on August 27, 1997 and Amended September 11,
1997 to include a copy of the Stock Purchase Agreement, describing the sale of
the controlling interest in the Company to Michael J. Blumenfeld.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
DSSI CORPORATION
/s/ Patrick J. Brennan
--------------------------------------
Patrick J. Brennan, Vice President and
Chief Financial Officer
Date: November 11, 1997
<PAGE>
PROXY
DSSI CORPORATIOND
P.O. Box 1570, West Chester, PA 19380
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF SHAREHOLDERS -- FEBRUARY 17, 1998
The undersigned hereby appoints Jeff Davidowitz and John Pappajohn, or
either of them, as Proxy or Proxies of the undersigned with full power of
substitution or revocation to attend and to represent the undersigned at the
Special Meeting of Shareholders of DSSI Corporation (the "Company") to be held
on February 17, 1998, and at any adjournments thereof, and to vote thereat the
number of shares of Common Stock, $0.01 par value (the "Common Stock"), of the
Company the undersigned would be entitled to vote if personally present, in
accordance with the directions indicated below.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
Authorize the Company to enter the business of distributing sports
equipment, which action will be effected through: (1) the sale of 10,000,000
shares of the Common Stock to Michael J. Blumenfeld at $.20 per share or an
aggregate purchase price of $2,000,000 and (2) the sale by Mr. Blumenfeld to the
Company, at cost, of the assets (including corporate name) of College Pacific
Inc. f/k/a Nitro Sports Inc.:
|_| FOR |_| AGAINST |_| ABSTAIN
Authorize the change of name of the Company from DSSI Corporation to
Collegiate Pacific Inc., but only if the prior proposal is approved and the sale
to Mr. Blumenfeld is consummated.
|_| FOR |_| AGAINST |_| ABSTAIN
If no specification is made, this proxy will be voted FOR the Proposals
listed above.
Name:________________________________________
----------------------------------------
Please sign exactly as name appears
above. For joint accounts, each
joint owner must sign. Please give
full title if signing in a
representative capacity.
Please check if you plan to attend
this Special Meeting |_|
