<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-17293
COLLEGIATE PACIFIC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 22-2795073
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
13950 SENLAC DR., #200
DALLAS, TEXAS 75234
(Address of principal executive offices)
TELEPHONE NUMBER (972) 243-8100
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
YES [X] NO [ ]
As of December 31, 1998, there were 1,704,839 shares of the
Registrant's Common Stock, with a par value of $0.01 par share, outstanding.
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COLLEGIATE PACIFIC, INC.
INDEX
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<CAPTION>
PART I - FINANCIAL INFORMATION
Page
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheet
December 31, 1998 (Unaudited) and June 30, 1998 3
Condensed Consolidated Statement of Operations
Three and six months ended December 31, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statement of Cash Flows
Six months ended December 31, 1998 and 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 11
</TABLE>
See accompanying notes to these consolidated financial statements.
2
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COLLEGIATE PACIFIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 391,473 $ 514,494
Accounts receivable, net of the allowance for doubtful
accounts of $30,048 and $15,743 343,136 685,974
Inventories 2,172,467 2,149,020
Prepaid expenses and other assets 67,242 40,064
----------- -----------
Total current assets 2,974,318 3,389,552
PROPERTY AND EQUIPMENT 227,356 187,042
Less accumulated depreciation (79,461) (66,416)
----------- -----------
147,895 120,626
OTHER ASSETS
License agreements, net of accumulated amortization of
$31,029 and $12,418 260,647 279,258
Goodwill, net of accumulated amortization of $25,806 and $7,590 525,940 544,156
Other assets, net 50,427 54,552
----------- -----------
$ 3,959,227 $ 4,388,144
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 194,377 $ 552,618
Accrued interest - shareholder 135,523 145,165
Accrued expenses and other current liabilities 86,661 106,266
Note payable - shareholder 919,477 754,671
----------- -----------
Total current liabilities 1,336,038 1,558,720
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 50,000,000 shares;
issued and outstanding, 17,041,833 and
17,016,833 shares, respectively 170,418 170,168
Additional paid-in capital 3,326,804 3,320,804
Accumulated deficit (842,413) (629,928)
----------- -----------
2,654,809 2,861,044
Less notes receivable from stockholders (31,620) (31,620)
----------- -----------
Total stockholders' equity 2,623,189 2,829,424
----------- -----------
$ 3,959,227 $ 4,388,144
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements
3
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COLLEGIATE PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
--------------------------- ---------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 989,036 $ 325,816 $ 2,349,025 $ 558,651
Cost of sales 627,601 194,833 1,551,846 350,696
------------ ------------ ------------ ------------
Gross margin 361,435 130,983 797,179 207,955
Selling, general and administrative expenses 485,761 368,465 964,081 591,837
------------ ------------ ------------ ------------
Loss from operations (124,326) (237,482) (166,902) (383,882)
Interest expense (26,403) (50,232) (49,582) (69,584)
Other income 1,868 2,203 3,999 5,116
------------ ------------ ------------ ------------
Net loss $ (148,861) $ (285,511) $ (212,485) $ (448,350)
============ ============ ============ ============
Net loss per share (basic and diluted) $ (0.01) $ (0.02) $ (0.01) $ (0.03)
============ ============ ============ ============
Shares used in computing net loss
per share (basic and diluted) 17,041,833 16,401,000 17,032,841 16,401,000
</TABLE>
See accompanying notes to these consolidated financial statements
4
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COLLEGIATE PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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<CAPTION>
Six months ended Six months ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Operating activities
Net loss $ (212,485) $ (448,350)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 49,872 21,730
Changes in operating assets and liabilities (91,150) (1,985,237)
----------- -----------
Net cash used in operating activities (253,763) (2,411,857)
Investing activities
Purchase of property and equipment (40,314) (105,047)
----------- -----------
Net cash used in investing activities (40,314) (105,047)
Financing activities
Proceeds from borrowings 164,806 2,040,829
Proceeds from issuance of common stock 6,250 21,000
----------- -----------
Net cash provided by financing activities 171,056 2,061,829
----------- -----------
Net decrease in cash and cash equivalents (123,021) (455,075)
Cash and cash equivalents at beginning of period 514,494 638,011
----------- -----------
Cash and cash equivalents at end of period $ 391,473 $ 182,936
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 59,260 $ --
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements
5
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COLLEGIATE PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL AND BACKGROUND
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP") for interim financial information. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements. The condensed consolidated financial
statements as of December 31, 1998 and the periods ended December 31, 1998
and 1997 are unaudited and reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim period. The condensed
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, for the year ended June 30, 1998
together with management's discussion and analysis of financial condition
and results of operations, contained in the 10-K filed with the Securities
and Exchange Commission. The results of operations for the three and six
months ended December 31, 1998 are not necessarily indicative of the
results for the entire fiscal year.
The consolidated financial statements for the period ended December 31,
1998 include the accounts of Collegiate Pacific, Inc. ("CPI") and its
wholly owned subsidiaries Product Merchandising, Inc. ("PMI") and Vantage
Products International, Inc. ("VPI") (collectively referred to as the
"Company"). The consolidated financial statements for the period ended
December 31, 1997 include the accounts of "CPI" and its wholly owned
subsidiary "VPI". See Note 2.
NOTE 2 - BUSINESS COMBINATIONS
On May 31, 1998 the Company acquired "VPI" by issuing 400,000 shares of
its common stock in exchange for all outstanding "VPI" common stock. The
acquisition was accounted for as a pooling of interests and, accordingly,
the assets and liabilities and results of operations of "VPI" have been
included in the Company's consolidated financial statements as if the
transaction occurred on July 1, 1997.
On April 14, 1998 the Company acquired all common stock of "PMI" for
$200,000 cash and 137,500 shares of the Company's common stock. The
acquisition was accounted for as a purchase and accordingly, the net
assets and results of operation of "PMI" have been included in the
Company's consolidated financial statements commencing on April 14, 1998.
Unaudited pro forma financial information for the three and six months
ended December 31, 1997 as though the acquisition of "PMI" had occurred on
July 1, 1997 is as follows:
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<CAPTION>
Three months ended Six months ended
December 31, 1997 December 31, 1997
------------------ -----------------
<S> <C> <C>
Revenues $ 369,646 $1,123,395
Net loss (462,921) (420,302)
Net loss per common share
(basic and diluted) (.03) (.03)
</TABLE>
6
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COLLEGIATE PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - NOTE PAYABLE TO STOCKHOLDER
The note payable to stockholder (also the president of the Company) is
payable on demand, uncollateralized, and bears interest at an annual rate
of 12%. Accrued interest on this note totaled $135,523 at December 31,
1998, and is included in accrued expenses.
NOTE 4 - CURRENT AND PENDING ACCOUNTING CHANGES
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position No. 98-5, "Reporting on the Costs of Start-up Activities" (SOP
98-5). SOP 98-5 will be effective for all transactions entered into by the
Company subsequent to December 31, 1998. The Company does not expect the
adoption of the new Standard to have a material impact on its financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities".
The Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, (collectively referred to as derivatives) and for
hedging activities. The new Statement is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999. The Company does not
expect the adoption of the new Statement to have a material impact on its
financial position or results of operations.
7
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COLLEGIATE PACIFIC, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is engaged in the national distribution of sports equipment to the
institutional and retail markets realizing the vast majority of its revenues in
response to catalog mailings and telemarketing efforts. The market for this
merchandise is estimated to consist of approximately 250,000 locations, which
have annual expenditures of some $4 billion for sports equipment. The
management of the Company has extensive experience in this business having been
the founder of several successful mail order companies in the sports equipment
industry.
On May 31, 1998 the Company acquired Vantage Products International, Inc.
("VPI"). The acquisition was accounted for as a pooling and accordingly, the
assets and liabilities and results of operations of VPI have been included in
the Company's consolidated financial statements as if the transaction occurred
on July 1, 1997.
On April 14, 1998 the Company acquired all common stock of Product
Merchandising, inc. ("PMI"). The acquisition was accounted for as a purchase
and accordingly, the net assets and results of operation of PMI have been
included in the Company's consolidated financial statements commencing on April
14, 1998. The results of operations for the periods ended December 31, 1997 do
not reflect the operations of PMI.
This Report contains certain forward-looking statements such as the Company's
or management's intentions, hopes, beliefs, expectations, strategies,
predictions or any other variation thereof or comparable phraseology of the
Company's future activities or other future events or conditions within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended, which are intended to be covered by the safe
harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation,
variations in quarterly results, volatility of the company's stock price, entry
into the market of new competitors, the sufficiency of the Company's working
capital. Although the company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
The following discussion should be read in conjunction with the Company's Form
10-KSB and consolidated financial statements for the fiscal year ended June 30,
1998, the financial statements and related notes for the periods ended December
31, 1998 and 1997 included herein.
REVENUES
For the quarter ended December 31, 1998 revenues rose 203%, from $325,816 to
$989,036, and for the six months rose 320%, from $558,651 to $2,349,025. The
Company attributes the growth in revenues to an increase in marketing activity,
the acquisition of PMI and the growth in its customer base. As the result of
expanded operations the Company believes future revenues will rise materially
from current levels.
8
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COLLEGIATE PACIFIC, INC.
GROSS MARGIN
For the quarter ended December 31, 1998, gross margin decreased from 40% to
37%, and for the six months ended December 31, 1998, decreased from 37% to 34%.
The decreases were primarily the result of lower product selling prices as the
Company completes its start up phase which includes the introduction of new
products below traditional selling prices. The Company anticipates that gross
margins will improve in the third and fourth quarter.
OPERATING EXPENSES
Selling, general and administrative (SG&A) expenses increased by 32% for the
quarter ended December 31, 1998. However, as a percentage of sales, SG&A
expenses decreased from 113% to 49%. For the six months ended December 31,
1998, SG&A expenses increased by 63%, but as a percentage of sales decreased
from 106% to 41%.
The increase in the amount of SG&A expense resulted primarily from increases in
advertising and the effect of the acquisition of PMI in April 1998. The
decrease in SG&A expense as a percentage of sales is due to the Company's
establishing an infrastructure in 1997 capable of handling substantially higher
sales volume.
LIQUIDITY AND SOURCES OF CAPITAL
The Company has no commercial bank debt but has recently received two proposals
from nationally recognized institutions offering to fund its future operations
and expansion and is evaluating these proposals.
Cash and cash equivalents totaled $391,000 at December 31, 1998 compared to
$514,000 at June 30, 1998. Cash used in operations of $254,000 in the six
months ended December 31, 1998 resulted primarily from the Company's net loss.
For the comparable 1997 period, cash used in operations of $2,400,000 resulted
primarily from the Company's net loss and increases in inventory.
Current assets totaled $2,974,000 at the end of the second quarter, providing
the Company with working capital of $1,638,000.
Longer-term cash requirements, other than normal operating expenses, are
anticipated for the enhancement of existing products, financing anticipated
growth and the possible acquisition of other businesses complimentary to the
company's business. The company believes that its existing cash and cash
equivalents and anticipated cash generated from operations will be sufficient
to satisfy its currently anticipated cash requirements for fiscal year 1999.
The Company's principal commitments at December 31, 1998 consisted of
obligations under operating leases for facilities.
9
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COLLEGIATE PACIFIC, INC.
YEAR 2000 ISSUE
The Company's assessment of its Year 2000 issues is not complete, however, the
company has taken actions to assess the nature and extent of the work required
to make its systems, products and infrastructure Year 2000 ready. The Company
intends to work toward making its internal information technology Year 2000
ready, which may include replacing or updating existing computer systems as
needed. Additionally, the Company plans to evaluate the Year 2000 readiness of
its consultants, vendors and suppliers. Where the Company determines that
critical consultants, vendors or suppliers are not Year 2000 ready, the Company
will monitor their progress and take appropriate actions. The Company believes
it is taking the necessary steps to resolve year 2000 issues and, based on
current progress and future plans, the Company believes that the Year 2000 date
change will not significantly affect the Company's ability to deliver services
to its customers on a timely basis; however, given the uncertain consequences
of failure to resolve significant year 2000 issues, there can be no assurance
that any one or more such failures would not have a material adverse effect on
the Company. The Company has not determined the cost of completing its
compliance with the Year 2000.
10
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COLLEGIATE PACIFIC, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27.1 Financial Date Schedule
REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLLEGIATE PACIFIC, INC.
By: /s/ MIKE BLUMENFELD Dated: February 16, 1999
------------------------------------- ---------------------------
Mike Blumenfeld
President and Chief Financial Officer
11
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 391,473
<SECURITIES> 0
<RECEIVABLES> 343,136
<ALLOWANCES> 30,048
<INVENTORY> 2,172,467
<CURRENT-ASSETS> 2,974,318
<PP&E> 227,356
<DEPRECIATION> 79,461
<TOTAL-ASSETS> 3,959,227
<CURRENT-LIABILITIES> 1,336,038
<BONDS> 0
0
0
<COMMON> 170,418
<OTHER-SE> 2,452,771
<TOTAL-LIABILITY-AND-EQUITY> 3,959,227
<SALES> 989,036
<TOTAL-REVENUES> 989,036
<CGS> 627,601
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,403
<INCOME-PRETAX> (148,861)
<INCOME-TAX> 0
<INCOME-CONTINUING> (148,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148,861)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
