<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
---------- EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---------- EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-17293
COLLEGIATE PACIFIC INC.
DELAWARE 22-2795073
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
13950 SENLAC, SUITE 200, DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
(972) 243-8100
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
COMMON STOCK PURCHASE WARRANTS
(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
---
Indicate by check mark if disclosure of delinquent filers pursuant 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. [ ]
Issuer's revenues for the fiscal year ended June 30, 2000 were $10,065,781.
The aggregate market value as of September 25, 2000 of shares of the Common
Stock held by non-affiliates was $10,307,983 based upon the bid price of the
Issuer's Common Stock as reported by the American Stock Exchange. 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 25, 2000, there were 4,244,607 shares of the issuer's Common Stock,
$0.01 par value, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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COLLEGIATE PACIFIC INC.
FORM 10-KSB
FISCAL YEAR ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PAGE
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PART I
Item 1 Description of Business 1
Item 2 Description of Property 3
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote of Security Holders 4
PART II
Item 5 Market for Common Equity and Related Stockholder Matters 5
Item 6 Management's Discussion and Analysis or Plan of Operations 8
Item 7 Consolidated Financial Statements 15
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures 30
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 31
Item 10 Executive Compensation 33
Item 11 Security Ownership of Certain Beneficial Owners and Management 34
Item 12 Certain Relationships and Related Transactions 36
PART IV
Item 13 Exhibits, List and Reports on Form 8-K 37
Signatures 39
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
The company was originally incorporated in Pennsylvania in 1987. From August
1989 to June 16, 1997, Collegiate Pacific Inc. ("we," "us," "our," or the
"Company") was engaged in the business of developing and marketing drug testing
products under the name Drug Screening Systems, Inc. On June 16, 1997, we sold
substantially all of our assets, changed our name to DSSI, and thereafter had no
formal operations.
On February 17, 1998, our stockholders authorized us to enter into the
business of distributing sports equipment. This change in our business was
accomplished through the following steps:
o the Company sold 2,000,000 shares of its common stock, a
controlling interest in the Company. The price of the shares was
$1.00 per share, which was the average of the bid and ask price of
the common stock on August 18, 1997, the date of the Stock
Purchase Agreement, or a total price of $2 million. Michael J.
Blumenfeld purchased 1,960,000 shares and Adam Blumenfeld
purchased 40,000 shares;
o Michael J. Blumenfeld sold all of the assets, including the
corporate name of Collegiate Pacific, Inc. f/k/a Nitro Sports
Inc., a Texas corporation, to the Company, at cost. Mr. Blumenfeld
formed that company in 1997 to engage in the catalog and mail
order distribution of sports equipment; and
o the Company changed its name to Collegiate Pacific Inc. at that
time.
We then entered into exclusive distribution agreements with the following
companies:
o Equipment, Inc., a manufacturer of rollers and component parts for
the tennis industry, on February 24, 1998;
o FunNets, Inc., a manufacturer of plastic frames and nets used as
soccer goals and other related purposes, on March 7, 1998;
o Pro Gym Equipment, Inc., a manufacturer of weight lifting and
exercise equipment and other recreational and sporting goods on
March 21, 1998; and
o Edwards Sports Products Limited, a manufacturer of tennis nets and
court equipment, on February 7, 2000
On April 14, 1998, the Company acquired Product Merchandising, Inc., a
mail order distribution company that distributes products and equipment for
summer camps.
On May 31, 1998, we merged with Vantage Products International, Inc., a
distributor of baseball netting and other related baseball products.
On December 11, 1998, the Company's stockholders approved the
reincorporation of the Company from the Commonwealth of Pennsylvania to the
State of Delaware, pursuant to a merger
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agreement with a newly formed Delaware corporation. The merger and
reincorporation as a Delaware corporation was effective on July 21, 1999.
On October 25, 1999, we acquired certain assets of Mark One Inc., a
distributor of camping and sporting goods related equipment as well as numerous
items for the recreation, military and municipal markets.
On February 7, 2000, we obtained licensing and distribution agreements
with the Edwards Sports Company, a manufacturer of tennis nets and court
equipment.
On June 8, 2000, the General Services Administration awarded a
long-term contract to us for the supply of sports and recreational products to
federal and military locations throughout the world.
On September 7, 2000, we acquired Kesmil Manufacturing, Inc., a
manufacturer of a broad line of athletic equipment.
The Company's executive offices are located at 13950 Senlac Drive,
Suite 200, Dallas, Texas 75234, and our telephone number at that location is
(972) 243-8100. The Company's fiscal year ends on June 30th . References herein
to "fiscal 1998," "fiscal 1999," "fiscal 2000," and "fiscal 2001" refer to our
fiscal years ended June 30, 1998, 1999, 2000 and 2001, respectively.
BUSINESS
We are in the business of the mail order marketing of sports equipment.
We sell our products primarily to institutional customers located throughout the
United States. Our principal customers include country clubs, schools, YMCAs,
YWCAs and similar recreational organizations, municipal recreation departments,
and other governmental agencies. We offer a broad line of sporting equipment,
including inflatable balls, nets for various sports, standards and goals for
sports, weight lifting equipment, and other recreational products, and we also
provide after-sale customer service through toll-free numbers.
We believe that prompt delivery of a broad range of products at
competitive prices, coupled with prompt, accessible customer service,
distinguishes the Company from its competitors. We currently market about 3,000
sports and recreational related equipment and products to over 200,000 potential
institutional, retail, Internet and sporting good dealer type customers. Since
commencing operations, we have sold products to approximately 25,000 customers.
Our master mailing list currently includes over 200,000 potential
customers, and we intend to distribute approximately 750,000 catalogs and fliers
to this audience during fiscal 2001. Michael J. Blumenfeld, the Chief Executive
Officer of the Company with over 25 years of experience in the industry,
supervised the development of this mailing list, and it is carefully maintained,
screened, and cross-checked. We subdivided this mailing list into various
combinations designed to place catalogs in the hands of the individuals making
the purchase decisions. The master mailing list is also subdivided by relevant
product types, seasons, and customer profiles. We also use other forms of
solicitations such as trade shows, telemarketing, broadcast fax programs, and
the Internet.
Our revenues are not dependent upon any one or a few major customers.
Our institutional customers typically receive annual appropriations for sports
related equipment, which are generally spent in the period preceding the season
in which the sport or athletic activity occurs. While institutions are subject
to budget constraints, once allocations have been made, aggregate levels of
expenditures are typically not reduced.
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We derive a significant portion of our revenues from the sale of
products purchased directly from suppliers in the Far East. Accordingly, we are
subject to the risks of this international component that may affect our ability
to deliver products in a timely and competitive manner. These risks include:
o shipment delays;
o fluctuation in exchange rates;
o increase in import duties;
o changes in customs regulations;
o adverse economic conditions in foreign countries; and
o political turmoil.
As a result, we attempt to maintain a three to six week supply of critical
inventory items in stock. Although the vast majority of products we distribute
are purchased in final form, a small percentage of the items require minor
fabrication to complete. We have welding machines and an assortment of tools to
aid in this fabrication process. The raw materials used in this process are in
the form of shipping supplies, nuts and bolts, and other commercially available
products. We believe there are multiple suppliers for these products nationwide.
SEASONAL NATURE OF BUSINESS
We anticipate that our revenues will peak in the third and fourth
quarters of each fiscal year due primarily to the budgeting procedures of many
of our customers and the seasonal demand for our products. The first and second
quarters generally experience lower revenues and higher expenses as a percentage
of sales due to lessening customer demand because of decreased sports
activities, adverse weather conditions inhibiting customer demand, holiday
seasons, and school recesses.
COMPETITION
We compete principally in the institutional market with local sporting
goods dealers and other direct mail companies, who collectively dominate the
institutional market. We compete on a number of factors, including price,
relationships with customers, name recognition, product availability and quality
of service. We believe that we have an advantage on the institutional market
over traditional sporting goods retailers because our selling prices do not
include comparable price markups attributable to wholesalers, manufacturers, and
distributors. In addition, we believe that we have an advantage over other
direct mail marketers of sporting goods because we offer superior products,
coupled with prompt and accessible service, at the most competitive prices.
EMPLOYEES
We currently employ 40 people on a full-time basis. In addition, we may
hire temporary employees as seasonal increases in demand occur. None of our
employees are represented by a union, and we believe our relations with our
employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases its corporate headquarters and a warehouse facility
located in Farmers Branch, Texas, with approximately 30,000 square feet. The
lease for this facility expires in August 2002. The Company also leases a sales
office in Memphis, Tennessee, with approximately 4,000 square feet. The lease
for this facility expires in 2005. The Company believes that these facilities
will be adequate for its business needs for the foreseeable future. The Company
does not own any real property.
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ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the American Stock Exchange under
the symbol "BOO" and its redeemable purchase warrants trade on the American
Stock Exchange under the symbol "BOO/WS." Prior to June 7, 2000, the Company's
common stock traded on the NASD's Bulletin Board. The redeemable common stock
purchase warrants did not trade until May 2000.
The tables below set forth the high and low sales prices for the common
stock and the redeemable common stock purchase warrants during each of the
periods indicated, as reported on the American Stock Exchange, and the range of
the high and low bid information for the Company's common stock, as reported by
the NASD, prior to June 7, 2000. The price quotations on NASD reflect
interdealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
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COMMON STOCK 2000 SALES PRICES 1999 SALES PRICES
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CALENDAR PERIOD LOW HIGH LOW HIGH
--------------- ------- -------- ------- --------
<S> <C> <C> <C> <C>
July 1 - September 30 $ 9.38 $ 14.38 $ 8.13 $ 10.63
October 1 - December 31 4.38 11.88 8.13 11.25
January 1 - March 31 3.00 14.75 8.13 12.20
April 1 - June 30 10.13 14.00 8.75 13.45
</TABLE>
<TABLE>
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WARRANTS 2000 SALES PRICES
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CALENDAR PERIOD LOW HIGH
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May 26 - June 30 $ 1.25 $ 3.25
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On January 14, 2000, our shareholders approved an amendment to the
Company's Certificate of Incorporation authorizing a one-for-five reverse stock
split, which became effective on January 19, 2000. The prices set forth in the
foregoing tables have been adjusted to take into account the reverse stock
split.
As of September 27, 2000, there were 358 holders of record of our
common stock, and there were 4,244,607 shares of common stock issued and
outstanding.
The Company did not declare or pay any cash dividends on its common
stock during fiscal 2000. On May 26, 2000, each record holder of our common
stock received a special dividend from the Company of one warrant for each share
of common stock owned by the record holder. The Company issued the warrants
pursuant to a warrant agreement between the Company and Continental Stock
Transfer and Trust Company, Inc.
Each warrant entitles the holder to purchase from the Company, for
cash, one share of common stock at $10.00 per share. The number of shares
purchasable upon exercise of each warrant and price per share may be adjusted
under certain conditions. Holders may exercise the warrants at any time on or
before May 26, 2005, unless extended by the Company. The warrants are callable
and cancelable at a cancellation price of $0.10 per share of common stock
purchasable upon exercise of the warrants. If the Company calls the warrants for
cancellation, holders may exercise the warrants at any time prior to the close
of business on the business day preceding the date fixed for cancellation.
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We currently do not anticipate paying any cash or stock dividends in
the foreseeable future. Any future determination to pay dividends will be at the
discretion of our Board of Directors and will be dependent upon then existing
conditions, including the Company's financial condition, results of operations,
contractual restrictions, capital requirements, business prospects, and such
other factors as the Board deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
During fiscal 2000, the Company issued unregistered securities in
connection with certain transactions, each of which has previously been
disclosed by the Company in prior filings on Form 10-QSB, except for the
transactions described below. The issuance of all unregistered securities issued
by the Company during fiscal 2000 was exempt from the registration requirements
of the Securities Act of 1933 by virtue of Section 4(2) thereof as a transaction
not involving a public offering and an appropriate restrictive legend was
affixed to the certificates and other securities. In connection with each of the
transactions described below, each purchaser was provided access to all relevant
information regarding the Company and represented to the Company that the
purchaser was an accredited investor purchasing the securities for investment
purposes only and with no review toward distribution.
Conversion of Notes Payable
Under the terms of a Note Purchase Agreement dated February 29, 2000,
the Company borrowed a total of $2.235 million from certain officers and
directors of the Company, and certain third parties. Approximately $995 thousand
of the notes were issued in exchange for an equal amount of subordinated notes
held by Michael J. Blumenfeld, the Company's Chairman and Chief Executive
Officer. The remaining notes were issued in exchange for approximately $1.2
million in cash.
On April 19, 2000, the note holders exercised rights under the notes to
convert the outstanding balance under the notes into shares of our common stock
at a conversion price of $3.30 per share, resulting in the issuance of 677,267
shares of our common stock. The shares were subsequently registered by the
Company on Form SB-2 (Reg. No. 333-34294) dated April 7, 2000, as amended on
June 22, 2000.
Issuance of Warrants
The Company issued a total of 40,000 common stock purchase warrants to
Mike Farkus and Christopher Haupt in connection with a License Agreement by and
between the Company and On-Line Sports, Inc., dated April 24, 1999. The warrants
entitle Messrs. Farkus and Haupt to purchase from the Company, for cash, 40,000
shares of common stock at a per share exercise price of $12.50. The exercise
price and number of shares issuable upon the exercise of the warrants may be
adjusted under certain circumstances. Messrs. Farkus and Haupt may exercise the
warrants at any time on or before April 24, 2004. The shares of common stock
issuable upon the exercise of the warrants were subsequently registered by the
Company on Form SB-2 (Reg. No. 333-34294) dated April 7, 2000, as amended on
June 22, 2000.
Exercise of Warrants
On February 3, 2000, a former DSSI Corporation executive exercised
common stock purchase warrants for 98,974 shares of our common stock. These
warrants were granted to the warrant holder during his tenure as a DSSI
executive. The Company received approximately $500 thousand or $5.05 per share.
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Exercise of Options
During fiscal 2000, employees of the Company and its predecessor
exercised option covering 27,000 shares of our common stock. The Company
received approximately $43 thousand or $1.54 per share.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company was originally incorporated in Pennsylvania in 1987. From
August 1989 to June 16, 1997, the Company developed and marketed drug testing
products under the name of Drug Screening Systems, Inc. On June 16, 1997, the
Company sold substantially all of its assets, changed its name to DSSI
Corporation and thereafter had no formal operations.
Michael J. Blumenfeld formed Collegiate Pacific Inc. as a Texas
corporation, on April 10, 1997. That company was originally named Nitro Sports
Inc. and it began business during the latter part of June 1997. Effective
February 7, 1998, Collegiate Pacific Inc. entered into a reverse acquisition
agreement with DSSI Corporation, which was then a publicly held shell
corporation.
On April 14, 1998, we acquired all of the issued and outstanding common
stock of Product Merchandising, Inc. We accounted for this transaction as a
purchase, and, accordingly, the results and operations of this entity were
included in the Company's results of operations commencing on April 14, 1998.
The Company also acquired Vantage Products International, Inc. on May 31, 1998
by issuing common stock for all of the issued outstanding common stock of that
entity. We accounted for this acquisition as a pooling of interests and,
accordingly, the results of operations of the Company include the results of
operations of the pooled entity for the entire fiscal year.
We solicit customers from a variety of catalogs designed for specific
uses, including summer camps, baseball, and general sports and recreation, and
we distributed approximately 750,000 catalogs to current and prospective
customers during fiscal 2000. After the end of fiscal 1999, the Company entered
into a supply agreement with the General Services Administration of the federal
government to furnish certain products to government agencies. There were no
sales to any federal government agencies in fiscal 1999, and sales to those
agencies in fiscal 2000 were immaterial. We also solicit customers through trade
shows, road salesmen, broadcast fax programs, telemarketing, and the Internet.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999
Net Sales. Net sales for the twelve months ended June 30, 2000
increased by approximately $3.2 million or 47%, compared to the same period in
1999. The Company attributes the growth in net sales primarily to an increase in
catalog sales and dealer-related revenues. We believe that our net sales will
continue to rise from current levels in future periods. However, no assurances
can be made that any future increases in revenues will be at the same rate. We
also believe that seasonality in net sales will continue to be a factor in
future periods as net sales during the third and fourth quarters of the
Company's fiscal year are typically higher due to the order pattern of our
customer base.
Gross Profit. The Company's gross profit for the twelve months ended
June 30, 2000, increased by approximately $1.1 million or 4.6%, compared to the
same period in 1999. As a percentage of sales, the gross profit decreased to 35%
as compared to 36% for the same period in 1999. The decrease was the result of
lower product selling prices to dealer-related customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the twelve months ended June 30, 2000, increased by
approximately $1.5 million or 67%, compared to the same period in 1999. As a
percentage of sales, selling, general and administrative expenses increased
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to approximately 38% from 34%. The increase in selling, general, and
administrative expenses was due primarily to the following:
o an increase in salaries and personnel related cost of approximately
$718 thousand as the Company staffed additional personnel to manage
the increase in the sales volume, temporarily hired salesman to
target the youth team market, as well as added administrative
personnel;
o an increase in advertising and trade show expenses of approximately
$409 thousand due to mailing catalogs to existing and new
customers, an increase in fliers and promotional literature and
increased participation at industry trade shows;
o an increase in legal, accounting and bank charges of approximately
$78 thousand due to the Company's maintenance of various trademarks
and license agreements, the original listing fees for the American
Stock Exchange, and costs associated with our new credit facility
which we entered into in fiscal 2000;
o an increase in computer system related expenses of approximately
$77 thousand due to the increased sales activity and certain system
enhancements;
o an increase in amortization expense of approximately $58 thousand
due to the amortization of certain expenses associated with license
agreements entered into by the Company in fiscal 2000 and fiscal
1999; and
o an increase in office related expense of approximately $27 thousand
due to the increased sales activity.
Operating Profit. Operating profit decreased by approximately $434
thousand for the twelve-month period ended June 30, 2000, compared to the
twelve-month period ended June 30, 1999. As a percentage of net sales, the
operating profit decreased to approximately a 3% loss compared to a 2% operating
profit for the twelve-months ended June 30, 1999. The decrease was attributable
to the additional selling, general and administrative expenses incurred during
fiscal 2000.
Interest Expense. Interest expense increased by approximately $43
thousand for the twelve months ended June 30, 2000, compared to the twelve
months ended June 30, 1999. As a percentage of sales, interest expense was
approximately 2% for the twelve months ended June 30, 2000 and 1999. The
increase primarily reflects the borrowing requirements for working capital due
to the increase in sales. Approximately $76 thousand in fiscal 2000 and all of
the interest incurred in fiscal 1999 relates to interest paid on the note to Mr.
Blumenfeld. See "Liquidity and Capital Resources."
Provision for Income Taxes. The provision for taxes increased by
approximately $18 thousand for the twelve months ended June 30, 2000, compared
to the twelve months ended June 30, 1999. The increase resulted from the
Company's operating profits incurred during fiscal 2000 in certain states.
Net Loss. The net loss increased by approximately $452 thousand for the
twelve months ended June 30, 2000. As a percentage of net sales, the net loss
increased approximately 5% for the twelve months ended June 30, 2000 compared to
0.5% for the twelve months ended June 30, 1999. The increase was primarily due
to the increase in selling, general and administrative expenses.
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LIQUIDITY AND CAPITAL RESOURCES.
Cash used in operations for the twelve months ended June 30, 2000 was
approximately $1.0 million, compared to approximately $190 thousand for the same
period in 1999. The increase was due primarily to an increase in inventory and
accounts receivable related to the increase in sales volume, and the increase in
selling, general and administrative expenses.
The Company used approximately $442 thousand in cash for investing
activities during fiscal 2000. The primary use of cash in investing activities
was for the purchase of license agreements, the acquisition of a camp-related
business, the purchase of treasury shares, and property and equipment. The
Company expects to spend a comparable amount for capital expenditures in fiscal
2000.
The Company generated approximately $1.7 million in cash from financing
activities for the twelve months ended on June 30, 2000. The cash generated from
financing activities was approximately $1.2 million of net proceeds from the
issuance of notes to certain stockholders, officers and certain third parties,
and approximately $542 thousand in proceeds from the issuance of common stock
upon the exercise of common stock options and warrants, partially offset by the
purchase of additional treasury shares.
Current assets totaled approximately $4.5 million at the end of fiscal
2000, providing the Company with working capital of approximately $3.8 million.
On September 14, 1999, the Company agreed to terms for a $2 million
Revolving Line of Credit with Chase Bank of Texas, N.A. The Revolving Line of
Credit allows the Company to borrow funds based upon a certain percentages of
accounts receivable and inventories, will mature on October 31, 2001, and
includes a provision for letters of credit. Borrowings under the Revolving Line
of Credit bear interest at the prevailing prime rate plus 1/4% or LIBOR plus 2
1/2%. Mr. Michael Blumenfeld guaranteed the Revolving Line of Credit up to $1
million.
We believe the Company will satisfy its short term and long-term
liquidity needs from borrowings under the Revolving Line of Credit and cash
flows from operations. We may experience periods of higher borrowing under the
credit facility due to the seasonal nature of the Company's business cycle. We
are actively seeking expansion through acquisitions and/or joint ventures, and
the success of such efforts may require additional bank debt, equity financing,
or private financing.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS OR FUTURE OPERATING
RESULTS
This report contains various forward-looking statements and information
that are based upon management's beliefs as well as assumptions made by and
information currently available to management. When used in this report the
words "anticipate", "believe", "estimates", "expect", "predict", "project", and
similar expressions are intended to identify forward looking statements. Such
statements are subject to certain risk, uncertainties and assumptions. Should
one or more of these risk or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected. Among the key factors that may have a direct
bearing on the company's results are set forth below.
Limited Operating History
We have a limited operating history upon which to base an evaluation of
the Company and its prospects.
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Collegiate Pacific only recently entered into the catalog and
mail-order distribution of sporting goods, and it incurred losses of
approximately $482 thousand and $31 thousand for fiscal 2000 and fiscal 1999,
respectively.
Our prospects must be considered in light of the risk, expenses, and
difficulties frequently encountered by start-up companies in the marketing
industry. To address these risks, we must, among other things:
o effectively develop new relationships and maintain existing
relationships with our suppliers, advertisers and customers;
o provide products at competitive prices;
o respond to competitive developments; and
o attract, retain, and motivate qualified personnel.
We cannot assure you that we will succeed in addressing such risks. Our
failure to do so could have a material adverse effect on the Company's business,
financial condition, or results of operations.
In addition, our limited operating history makes it difficult or
impossible to predict future operating results. We cannot give you any assurance
that our revenues will increase or even continue at their current level, or that
we will attain profitability or general cash from operations in the future.
Competition
The sporting goods and related equipment market in which we participate
is highly competitive and it is without a significant barrier to entry.
We compete principally in the institutional market with local sporting
goods dealers and other direct mail companies. Most of our direct mail
competitors have:
o substantially greater financial resources;
o a larger customer base; and
o greater name recognition within the industry.
In addition, our competitors may have larger technical, sales and marketing
resources.
We compete on a number of factors, including price, relationships with
customers, name recognition, product availability, and quality of service. We
cannot give you assurance that we will compete successfully against our
competitors in the future. If we fail to compete successfully, our business,
financial condition, and results of operations will be materially and adversely
affected.
Raw Materials
The general economic conditions in the U.S. or international countries
with which we do business could affect pricing of raw materials such as metals
and other commodities used by suppliers of our
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finished goods. We cannot assure you that any price increase incurred by the
Company for its products can be passed to its customers without adversely
affecting the Company's operating results.
Accounts Receivable
We monitor the credit worthiness of our customer base on an ongoing
basis, and we have not experienced an abnormal increase in losses in our
accounts receivable portfolio. We believe that allowances for losses adequately
reflect the risk of loss. However, a change in the economic condition or in the
make-up of our customer base could have an adverse affect on losses associated
with the credit terms that we give to our customers.
Potential Fluctuations in Quarterly Operating Results; Seasonality
Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. We anticipate that our revenues will peak in the third and fourth
quarters of each fiscal year due primarily to the budgeting procedures of many
of our customers and the seasonal demand for the products. The first and second
quarters generally experience lower revenues and higher expenses as a percentage
of sales due to lessening customer demand because of decreased sports
activities, adverse weather conditions inhibiting customer demand, holiday
seasons, and school recesses. Therefore, we do not believe that
quarter-to-quarter comparison of operating results for preceding quarters are
necessarily meaningful. You should not rely on the results of one quarter as an
indication of our future performance.
Managing Potential Growth
We experienced a period of significant growth, and our continued
expansion my significantly strain our management, financial, and other
resources. We believe that improvements in management and operational controls,
and operations, financial and management information systems could be needed to
manage future growth. We cannot assure you that:
o these resources will be available or in a cost-effective form to
the Company which will allow it to sustain growth at the same
levels;
o our current personnel, systems, procedures, and controls will be
adequate to support our future operations;
o we will identify, hire, train, motivate or manage required
personnel; or
o that we will successfully identify and exploit existing and
potential market opportunities.
Our failure to have these resources in sufficient form or quantity during a
period of significant growth could have an adverse affect on our operating
results.
Future Capital Requirements
Our cash flow form existing operations may not support an expansion of
operations or future acquisitions. We incurred losses of approximately $482
thousand and $31 thousand for fiscal 2000 and fiscal 1999, respectively. We
funded our operations primarily from the sale of stock to Michael Blumenfeld and
others in February and March of 1998 and with working capital loans from Mr.
Blumenfeld In addition, on September 14, 1999, we obtained a $2 million
revolving line of credit from
-12-
<PAGE> 15
Chase Bank of Texas, N.A. Notes. On February 29, 2000, we received approximately
$1.2 million in cash from the sale of the convertible notes. We may need to seek
additional third-party financing to raise additional capital needed to support
any future growth.
We cannot give you any assurance that such additional funding will be
available on acceptable terms, if at all. If we cannot obtain adequate funds
from third parties we may have to forego strategic decisions or delay, scale
back, or eliminate certain aspects of our operations. This could have a material
adverse effect on our business, financial condition, and results of operations.
Dependence on Key Personnel
Our performance is substantially dependent on the skills, experience,
and performances of our Chief Executive Officer, Michael J. Blumenfeld, as well
as our ability to retain and motivate other officers and key employees, certain
of whom would be difficult to replace. The Company does not have an employment
agreement with Mr. Blumenfeld.
The loss of services of certain of these executives and personnel could
have a material adverse effect on the Company. We cannot assure you that the
services of our personnel will continue to be available to us. In addition, we
believe that our success in attracting and retaining additional qualified
employees, and our failure to recruit such skilled personnel as needed, could
have a material adverse effect on the Company.
Risks Related to international Suppliers
A significant amount of our revenues depends upon products purchased
from foreign suppliers, located primarily in the Far East. In addition, we
believe that many of the products we purchase from our domestic suppliers are
manufactured overseas.
Accordingly, we are subject to the risk of this international
component, including:
o shipment delays;
o fluctuation in exchange rates;
o increases in import duties;
o changes in customs regulations;
o adverse economic conditions in foreign countries; and
o political turmoil.
The occurrences of any one or more of the foregoing could materially
and adversely affect our business, financial condition, and result of
operations.
Reliance on Third Party Carriers
Our operations depend upon third party carriers to deliver our catalogs
and products to our customers. We ship our products using common carriers,
primarily UPS. The operations of such carriers
-13-
<PAGE> 16
are outside the Company's control. Accordingly, our business reputation and
operations are subject to many risks, including:
o shipment delays caused by such carriers;
o labor strikes by the employees of such carriers;
o increases in delivery cost, postage rate increase; and
o other adverse economic conditions.
The occurrence of any one or more of the foregoing could adversely
affect our business, financial condition, and results of operations due to any
inability to make timely shipment to our customers or by utilizing other more
costly carriers or means of shipping.
Control by Major Stockholder
Michael J. Blumenfeld, Chairman and Chief Executive Officer of
Collegiate Pacific, currently owns 2,152,907 shares or 50.4% of our common
stock, and holds options and warrants convertible into 2,158,607 shares of the
Company's outstanding common stock. As a result, Mr. Blumenfeld has the power to
initiate or block corporate actions such as an amendment to the Company's
Certificate of Incorporation, the consummation of any merger, or the sale of or
substantially all of the assets of the Company. In addition, Mr. Blumenfeld may
control the election of directors and any other action requiring stockholder
approval.
Volatility of Stock Price
The price of our common stock is determined in the marketplace and may
be influenced by many factors, including:
o the depth and liquidity of the market for our common stock;
o investor perception of the Company and the industry within which it
competes;
o quarterly variations in operating results; and
o general economic and market conditions.
Historically, the weekly trading volume of our common stock has been
relatively small. Any material increase in public float could have a
significant impact on the price of the common stock. In addition, the stock
market has occasionally experienced extreme price and volume fluctuations that
often affected market prices for smaller companies. These extreme price and
volume fluctuations often are unrelated or disproportionate to the operating
performance of the affected companies. Accordingly, the price of our common
stock could be affected by such fluctuations.
-14-
<PAGE> 17
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Consolidated Financial Statements.................................................... 15
Report of Independent Certified Public Accountants............................................ 16
Consolidated Balance Sheets as of June 30, 2000 and 1999...................................... 17
Consolidated Statements of Operations for the year ended June 30, 2000
and 1999 ..................................................................................... 18
Consolidated Statements of Stockholders' Equity for the year ended
June 30, 2000 and 1999........................................................................ 19
Consolidated Statements of Cash Flows for the year ended June 30, 2000
and 1999...................................................................................... 20
Notes to Consolidated Financial Statements.................................................... 21
</TABLE>
-15-
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors
Collegiate Pacific Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Collegiate
Pacific Inc. and Subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Collegiate Pacific Inc. and Subsidiaries as of June 30, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Grant Thornton LLP
Dallas, Texas
August 25, 2000
-16-
<PAGE> 19
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS
2000 1999
----------- -----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 768,076 $ 518,844
Accounts Receivable, less allowance for doubtful accounts
of $51,751 in 2000 and $38,806 in 1999 1,384,185 1,142,708
Inventory 2,323,845 1,843,820
Prepaid Expenses and other Current Assets 39,014 23,581
----------- -----------
Total Current Assets 4,515,120 3,528,953
Property and Equipment, net of accumulated depreciation
of $135,217 in 2000 and $98,785 in 1999 149,731 150,585
Other Assets:
License Agreements, net of accumulated amortization of
$142,369 in 2000 and $50,030 in 1999 468,049 253,586
Cost in Excess of Net Tangible Assets Acquired, net of
Accumulated amortization of $78,105 in 2000 and
$42,373 in 1999 588,185 509,373
Other Assets, net 54,955 54,409
----------- -----------
$ 5,776,040 $ 4,496,906
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 509,614 $ 537,056
Accrued Expenses 142,822 51,181
Other Current Liabilities 34,048 86,826
----------- -----------
Total Current Liabilities 686,484 675,063
Note Payable to Stockholder -- 980,720
----------- -----------
Total Liabilities 686,484 1,655,783
----------- -----------
Commitments and Contingencies -- --
Stockholders' Equity:
Common Stock, $.01 par value; authorized 20,000,000 shares,
issued and outstanding: 4,244,607 in 2000 and 3,440,666 in 1999 42,446 34,404
Additional Paid-in Capital 6,460,453 3,506,568
Accumulated Deficit (1,142,900) (660,462)
Treasury Shares, at Cost; 20,860 shares in 2000 and
900 shares in 1999 (255,443) (10,982)
----------- -----------
5,104,556 2,869,528
Less: Notes Receivable from Stockholders (15,000) (28,405)
----------- -----------
Total Stockholders' Equity 5,089,556 2,841,123
----------- -----------
$ 5,776,040 $ 4,496,906
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-17-
<PAGE> 20
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 10,065,781 $ 6,813,333
Cost of Sales 6,498,002 4,367,382
------------ ------------
Gross Profit 3,567,779 2,445,951
Selling, General and Administrative Expenses 3,851,661 2,343,434
------------ ------------
Operating Profit (Loss) (283,882) 102,517
------------ ------------
Other Income (Expense):
Interest Expense (153,874) (110,534)
Interest Income 7,066 11,373
------------ ------------
Total Other Income (Expense) (146,808) (99,161)
------------ ------------
Income (Loss) Before Provision for Taxes (430,690) 3,356
Provision for Taxes 51,748 33,890
------------ ------------
Net Loss $ (482,438) $ (30,534)
============ ============
Weighted average shares of common stock outstanding 3,641,109 3,409,257
============ ============
Net loss per share of common stock (basic and diluted) $ (0.13) $ (0.01)
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-18-
<PAGE> 21
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK TREASURY SHARES
--------------------- -------------------- NOTES
ADDITIONAL RECEIVABLE
PAID-IN RETAINED FROM
SHARES AMOUNT CAPITAL EARNINGS/(DEFICIT) SHARES AMOUNT STOCKHOLDERS TOTAL
---------- -------- ----------- ------------------ -------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1,
1998 3,403,366 $ 34,034 $ 3,456,938 $ (629,928) $ -- -- $ (31,620) $ 2,829,424
Issuance of stock
for cash 37,000 370 49,630 -- -- -- -- 50,000
Purchase of stock
for cash -- -- -- -- 900 (10,982) -- (10,982)
Repayment of notes
receivable from
stockholders -- -- -- -- -- -- 3,215 3,215
Net Loss -- -- -- (30,534) -- -- -- (30,534)
---------- -------- ----------- ----------- -------- ---------- ----------- -----------
Balance at June 30,
1999 3,440,366 34,404 3,506,568 (660,462) 900 (10,982) (28,405) 2,841,123
Issuance of stock
for cash 136,974 1,270 541,674 -- -- -- -- 542,944
Purchase of stock
for cash shares -- -- -- -- 19,960 (244,461) -- (244,461)
Conversion of debt
to stock 677,267 6,772 2,160,211 -- -- -- -- 2,166,983
Repayment of notes
receivable from
stockholders -- -- -- -- -- -- 13,405 13,405
Issuance of
warrants for
license agreements -- -- 252,000 -- -- -- -- 252,000
Net Loss -- -- -- (482,438) -- -- -- (482,438)
---------- -------- ----------- ----------- -------- ---------- ----------- -----------
Balance at June
30, 2000 4,254,607 $ 42,446 $ 6,460,453 $(1,142,900) 20,860 $ (255,443) $ (15,000) $ 5,089,556
========== ======== =========== =========== ======== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-19-
<PAGE> 22
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (482,438) $ (30,534)
Adjustments to reconcile net loss to net cash
Used by operating activities:
Depreciation 42,478 32,367
Amortization 131,283 75,618
Change in assets and liabilities, net of effects of business
acquisitions:
Accounts Receivable (241,477) (456,734)
Inventory (480,025) 305,200
Prepaid Expenses and Other Current Assets (15,433) 16,483
Other Assets, net (3,758) (3,070)
Accounts Payable (27,442) (15,562)
Accrued Expenses 91,641 (140,885)
Other Liabilities (52,778) 27,461
----------- -----------
Net cash used in operating activities (1,037,949) (189,656)
----------- -----------
Cash flows from investing activities:
Purchase of Property and Equipment (41,624) (62,326)
Cash paid for Licenses (54,802) (11,950)
Cash paid for Treasury Shares (244,461) (10,982)
Cash received from Notes Receivable from Stockholders 13,405 3,215
Cash used in business acquisition net of cash acquired (114,543) --
----------- -----------
Net cash (used in) investing activities (442,025) (82,043)
----------- -----------
Cash flow from financing activities
Proceeds from convertible debt 1,186,262 226,049
Proceeds from issuance of Common Stock 542,944 50,000
----------- -----------
Net cash provided by financing activities 1,729,206 276,049
Increase in cash 249,232 4,350
Cash and cash equivalents at beginning of year 518,844 514,494
----------- -----------
Cash and cash equivalents at end of year $ 768,076 $ 518,844
=========== ===========
Noncash investing activities:
Conversion of debt into Common Stock $ 2,166,983 $ --
=========== ===========
Warrants issued for license agreements $ 252,000 $ --
=========== ===========
Cash Payments for:
Income taxes $ 22,580 $ 26,020
=========== ===========
Interest $ 153,874 $ 255,699
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-20-
<PAGE> 23
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(1) GENERAL AND BACKGROUND
Collegiate Pacific Inc. ("CPI") was incorporated on April 10, 1997 and
began business in June 1997. The Company is a Delaware corporation and
is primarily engaged in the mail order marketing of professional sports
equipment to schools, colleges and other organizations throughout the
United States.
Effective February 17, 1998 CPI entered into a reverse acquisition
agreement with DSSI, Inc. ("DSSI"), a publicly held corporation which
had no active operations at the time. DSSI issued 2,000,000
(approximately 62.5%) shares of DSSI's voting common stock in exchange
for all of the outstanding shares of CPI (a tax free reorganization).
The public entity then changed its name to Collegiate Pacific, Inc. For
accounting purposes, the transaction was treated as a recapitalization
of CPI, with CPI as the acquirer (a reverse acquisition).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of CPI and
its wholly owned subsidiaries Product Merchandising, Inc. ("PMI"), and
Vantage Products International, Inc. ("VPI") (collectively referred to
as the "Company"). Significant intercompany accounts and transactions
have been eliminated.
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS
Financial instruments, which are potentially subject to concentrations
of credit risk, consist principally of cash and accounts receivable.
Cash deposits are placed with high credit quality financial
institutions to minimize risk. Accounts receivable are unsecured. The
fair value of these financial instruments and notes payable approximate
their carrying values.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing consolidated
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts
of assets and liabilities, the disclosures of contingent assets and
liabilities, and the reported amounts of revenues and expenses. Actual
results could vary from the estimates used in preparing the
accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
-21-
<PAGE> 24
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
INVENTORIES
Inventories, which consist of goods held for resale, are carried at the
lower of cost or market using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives (5 to 7
years). The cost of maintenance and repairs is charged to expense as
incurred; significant renewals and betterments are capitalized.
COST IN EXCESS OF NET TANGIBLE ASSETS ACQUIRED
Cost in excess of net tangible assets acquired is the difference
between the purchase price paid and liabilities assumed over the
estimated fair market value of assets acquired. Cost in excess of net
tangible assets acquired in connection with acquisitions is amortized
using the straight-line method over 15 years. Amortization expense
relating to cost in excess of net tangible assets amounted to
approximately $36 thousand and approximately $37 thousand for the years
ended June 30, 2000 and 1999. On an on-going basis management reviews
recoverability, the valuation and amortization of cost in excess of net
tangible assets. As a part of this review, the Company considers the
undiscounted projected future net cash flows in evaluating the
recoverability of cost in excess of net tangible assets. If the
undiscounted future net cash flows were less than the stated value,
cost in excess of net tangible assets would be written down to fair
value.
LICENSE AGREEMENTS
License agreements represent amounts paid to acquire exclusive
distribution rights for specific products and are amortized over their
estimated useful life ranging from 3 to 15 years. Amortization expense
relating to license agreements was approximately $92 thousand and $38
thousand for the years ended June 30, 2000 and 1999, respectively.
STOCK BASED COMPENSATION
The Company measures compensation cost for its stock based compensation
plans under the provisions of Accounting Principles Board Opinion No.
25 ("APB 25"), "Accounting for Stock Issued to Employees". The excess,
if any, of the fair value of the stock on the date of grant over the
amount to be paid for the stock is accrued over the related vesting
period. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") requires
companies electing to continue to use APB 25 to account for stock-based
compensation to make pro forma disclosures of net income and earnings
per share as if SFAS 123 had been applied. See Note 9.
-22-
<PAGE> 25
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
INCOME TAXES
The Company utilizes the asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
ADVERTISING
The Company expenses the cost of advertising as incurred or when such
advertising initially takes place. No advertising costs were
capitalized at June 30, 2000 or 1999. Advertising expense approximated
$856 thousand and $489 thousand for the years ended June 30, 2000 and
1999, respectively.
LOSS PER SHARE
Loss per common share was computed by dividing the net loss by the
weighted average number of shares of common stock outstanding. The
effect of outstanding options on the computation of net loss per share
would be anti-dilutive and therefore is not included in the computation
of weighted average shares.
(3) BUSINESS ACQUISITIONS
On October 22, 1999, the Company acquired certain assets of Mark One
Distributors, Inc. for approximately $115 thousand in an all cash
transaction. The purchased assets related to sales and distribution
activities by Mark One in the camp sporting goods business. The
acquisition was accounted for as a purchase, and accordingly, the net
assets and results of operations of Mark One's camping related business
have been included in the Company's consolidated financial statements
commencing on October 22, 1999.
(4) EQUITY
On January 14, 2000, the stockholders of the Company approved a one for
five reverse stock split of the Company's $.01 par value common stock
(the "Common Stock"). As a result of the reverse stock split additional
paid in capital was increased by approximately $139 thousand and Common
Stock has been reduced by the same amount. All references in the
accompanying financial statements to the number of shares of Common
Stock and the per share amounts have been restated to reflect the
reverse stock split.
In February 2000, a former executive of the DSSI Corporation ("DSSI"),
which was the predecessor of the Company, exercised common stock
warrants for 98,974 shares of Common
-23-
<PAGE> 26
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
Stock. The warrants were originally granted to the warrant holder
during his tenure as an executive of DSSI. The terms of the warrants
were extended at the February 18, 1998 meeting of the Board of
Directors of DSSI. The Company received funds for the exercise of the
warrants for approximately $500 thousand or $5.05 per share.
In February 2000, the Company agreed to exchange the note payable to
stockholder for a subordinated convertible note. In addition, the
Company solicited and received additional subscriptions from Company
directors and officers including the holder of the existing note
payable to stockholder, and third party investors for approximately
$1.3 million in subordinated convertible notes. The subordinated
convertible notes bore interest at the prevailing Prime Rate plus 2.5%,
were non-callable by the Company for a period of two years, and were
convertible to Common Stock at $3.30 per share. The subordinated
convertible notes were subordinate to the Company's Revolving Line of
Credit with Chase Bank of Texas, N.A. and were uncollateralized.
Interest paid on these notes and the note payable to stockholder during
the period was approximately $120 thousand. On April 19, 2000, the
holders of the subordinated convertible notes converted the entire
outstanding balance of approximately $2.3 million to 677,267 shares of
Common Stock.
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Fixtures and equipment $ 277,533 $ 230,255
Other 7,415 19,115
--------- ---------
Total property and equipment 284,948 249,370
Less accumulated depreciation (135,217) (98,785)
--------- ---------
Property and equipment, net $ 149,731 $ 150,585
========= =========
</TABLE>
-24-
<PAGE> 27
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(6) LINE OF CREDIT
On September 14, 1999, the Company agreed to terms for a $2 million
Revolving Line of Credit with Chase Bank of Texas, N.A. The new
Revolving Line of Credit will allow the Company to borrow funds based
upon a certain percentage of accounts receivable and inventory. The new
Revolving Line of Credit will mature on October 31, 2001 and include a
provision for letters of credit. Borrowings under the Revolving Line of
Credit will bear interest at the prevailing prime rate plus 1/4% or
LIBOR plus 2 1/2%. The Company had no outstanding balances at June 30,
2000 under the terms of this facility and the Chief Executive Officer
guaranteed the Revolving Line of Credit up to $1 million.
(7) FEDERAL INCOME TAXES
CPI and its subsidiaries file separate income tax returns. Deferred tax
assets and liabilities consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 702,048 $ 714,000
Other 16,604 5,018
--------- ---------
Total deferred tax assets 718,652 719,018
Valuation allowance (718,652) (719,018)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
</TABLE>
The Company has provided a valuation allowance against deferred tax
assets because their recovery is uncertain. Following is a
reconciliation of income taxes at the federal statutory rate to income
tax expense:
<TABLE>
<CAPTION>
June 30,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Tax benefit at statutory rate $ 146,425 $ 1,114
Loss for which benefits were not used (146,425) (1,114)
Taxes attributable to filing on
a separate return basis -- 23,896
State income taxes 51,748 9,994
--------- --------
Income tax expense $ 51,748 $ 33,890
========= ========
</TABLE>
-25-
<PAGE> 28
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
At June 30, 2000, the Company had net operating loss carryovers of
approximately $2 million, of which approximately $800 thousand were
carryforwards of DSSI. Because of the ownership change rules, use of
the DSSI carryforwards are limited to approximately $80 thousand per
year. The carryovers of CPI and its subsidiaries expire from 2013
through 2020. The DSSI carryovers expire through 2011.
(8) RELATED PARTY TRANSACTIONS
During the period the Company purchased certain inventory items from
Kesmil Manufacturing, a manufacturing supplier which is also owned by
the majority stockholder of the Company. Purchases from the
manufacturing supplier were approximately $1.0 million for the period
ended on June 30, 2000 and the Company had approximately $10 thousand
in outstanding payables to the supplier at the end of the period.
(9) STOCK OPTIONS AND WARRANTS
On September 22, 1994, DSSI established a non-qualified stock option
plan, which provides for the granting of non-qualifying stock options
to purchase up to 100,000 shares of common stock at the fair market
value at the date of grant. There were 5,000 and 33,000 options
outstanding at June 30, 2000 and 1999, respectively. Approximately
27,000 shares and 37,000 shares were exercised in the year ended June
30, 2000 and 1999, respectively, and no additional shares were granted
or canceled under the terms of this plan during the year ended June 30,
2000.
On December 11, 1998, the Company's stockholders approved a new stock
option plan, ("1998 Collegiate Pacific Inc. Stock Option Plan"). The
new plan authorizes the Company's Board of Directors to grant
employees, directors and consultants of the Company up to an aggregate
of 2,000,000 shares of the Company's common stock, $0.01 par value per
share. Pursuant to the approval of the stock option plan by the
Company's stockholders, the Company's Board of Directors on February
24, 1999 granted 41,500 shares to employees and non-employee directors
of the Company at the closing price of the Company's common stock,
which was $9.38. These options vested at date of grant. Approximately
1,000 shares were exercised in the year ended June 30, 2000 and no
additional shares were granted or canceled under the terms of this plan
during the year ended June 30, 2000.
A summary of employee and director option and warrant activity for the
years ended June 30, 2000 and 1999 follows:
-26-
<PAGE> 29
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
Warrants Options PRICE
-------- --------- --------
<S> <C> <C> <C>
Outstanding and exercisable at June 30, 1998 98,974 69,000 $ 3.49
Options and warrants granted -- 41,500 9.38
Options and warrants exercised -- (37,000) 1.25
-------- --------- --------
Outstanding and exercisable at June 30, 1999 98,974 73,500 5.36
Options and warrants exercised (98,974) (28,000) 4.28
-------- --------- --------
Outstanding and exercisable at June 30, 2000 -- 45,500 $ 9.89
======== ========= ========
</TABLE>
The weighted average fair value of options granted in fiscal 1999 was
$6.15 per share.
The Company has adopted the disclosure provisions of Statement No. 123,
as discussed in Note 2, and continues to apply Opinion 25 for stock
options granted to employees. If the Company had recognized
compensation expense based upon the fair market at the date of grant
for options granted to employees, the effect on net loss and loss per
share for the years ended June 30, 2000 and 1999 would have been as
follows:
<TABLE>
<CAPTION>
June 30,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Net Loss
As reported $(482,438) $ (30,534)
Pro forma (482,438) (285,000)
Loss per share
As reported $ (0.13) $ (0.01)
Pro forma (0.13) (0.08)
</TABLE>
The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions: expected volatility of 140%; risk free
interest rate of 5.50%; no dividend yield; and expected lives of seven
years.
-27-
<PAGE> 30
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
The following table summarizes additional information about stock
options at June 30,2000:
<TABLE>
<CAPTION>
OUTSTANDING AND EXERCISABLE
---------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED
CONTRACTUAL AVERAGE
LIFE EXERCISE
EXERCISE PRICE SHARES (IN YEARS) PRICE
-------------- ---------- ------------- ----------
<S> <C> <C> <C>
$ 1.25 5,000 2.0 $ 1.25
9.38 40,500 8.7 9.38
------- ------
45,500 $ 8.48
======= ======
</TABLE>
In January 2000, the Company declared a special warrant dividend to the
holders of record on May 26, 2000, of the Company's Common Stock. One
warrant was issued for each share of Common Stock held and will entitle
the warrant holder to purchase, for cash, one share of Common Stock at
$10 per share. The warrant holders may exercise the warrant any time on
or before May 26, 2005. The warrants are callable and cancelable at a
cancellation price of $.10 per warrant. If the Company calls the
warrants for cancellation, holders may exercise the warrants at any
time prior to the close of business on the business day preceding the
date fixed for cancellation.
The Company also has outstanding at June 30, 2000, warrants to purchase
40,000 shares of Common Stock at $12.50 per share. These warrants,
which were valued at $252 thousand were issued in payment for a license
and expire in April 2004.
(10) LEASES
The Company leases office and warehouse facilities located in Dallas,
Texas and Memphis, Tennessee under the terms of operating leases which
expire at various dates through 2005. Rent expense approximated $129
thousand for the year ended June 30, 2000, and $107 thousand for the
year ended June 30, 1999.
Future minimum lease commitments on all operating leases with terms in
excess of one year are as follows:
<TABLE>
<S> <C>
2001 $ 145,632
2002 145,632
2003 47,382
2004 16,632
2005 12,474
---------
$ 367,752
=========
</TABLE>
(11) SUBSEQUENT EVENTS (UNAUDITED)
On September 7, 2000 the Company acquired all of the common stock of
Kesmil Manufacturing, Inc., ("Kesmil") a manufacturing company owned by
the majority stockholder and Chief
-28-
<PAGE> 31
COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
Executive Officer, for the assumption of approximately $581 thousand in
notes payable to the stockholder. The Company is the sole customer of
Kesmil and the acquisition will be accounted for similarly to a pooling
of interest. (See Note 8).
Following is an unaudited pro forma balance sheet giving effect to the
acquisition of Kesmil as though it had taken place on June 30, 2000:
<TABLE>
<S> <C> <C> <C>
Current assets $ 4,706,000 Current liabilities $ 1,600,000
Noncurrent assets 1,445,000 Stockholders' equity 4,551,000
----------- -----------
$ 6,151,000 $ 6,151,000
=========== ===========
</TABLE>
Unaudited pro forma revenue and net loss assuming the acquisition of
Kesmil had taken place as of the beginning of fiscal 1999, are as
follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
2000 1999
------------ -----------
<S> <C> <C>
Revenues $ 10,066,000 $ 6,813,000
Net loss (833,000) (169,000)
Loss per share (0.23) (0.05)
</TABLE>
-29-
<PAGE> 32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
-30-
<PAGE> 33
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
As of September 25, 2000, the directors and executive officers of the Company
were:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Michael J. Blumenfeld.............. 54 Chairman of the Board, President, and Chief
Executive Officer
Adam Blumenfeld.................... 30 President and Director
Arthur J. Coerver.................. 57 Chief Operating Officer and Director
Harvey Rothenberg.................. 58 Vice President Marketing and Director
William R. Estill.................. 51 Chief Financial Officer, Secretary and Treasurer
Chadd H. Edlein.................... 29 Vice President Corporate Development
Jeff Davidowitz.................... 43 Director
Robert W. Philip................... 64 Director
William A. Watkins, Jr............. 57 Director
</TABLE>
Michael J. Blumenfeld has served as Chairman of the Board and Chief
Executive Officer of the Company since February 1998, and he served as President
of the Company from February 1998 to January 2000. From July 1997 until February
1998, Mr. Blumenfeld served as President and Chief Executive Officer of
Collegiate Pacific, Inc., a Texas corporation that sold all of its assets to the
Company in February 1998. From 1992 until November 1996, Mr. Blumenfeld served
as Chairman of the Board and Chief Executive Officer of Sport Supply Group,
Inc., a New York Stock Exchange company engaged in the direct mail marketing of
sports related equipment. Mr. Blumenfeld is Adam Blumenfeld's father. Mr.
Blumenfeld's term as a director expires at the next annual meeting of
stockholders or on the date his successor is duly elected and qualified. Mr.
Blumenfeld will stand for reelection at the next annual meeting of stockholders.
Adam Blumenfeld joined the Company in January 2000 as President and a
director. From January 1998 through 1999, Mr. Blumenfeld was Vice President of
Sales and Marketing of Sport Supply Group, Inc., a New York Stock Exchange
company engaged in the direct mail marketing of sports related equipment. Mr.
Blumenfeld's other positions with Sport Supply Group included Vice President of
Youth Sales from January 1995 to January 1998, and Director of Youth Sales from
August 1993 to December 1994. Mr. Blumenfeld is Michael Blumenfeld's son. Mr.
Blumenfeld's term as a director expires at the next annual meeting of
stockholders or on the date his successor is duly elected and qualified. Mr.
Blumenfeld will stand for reelection at the next annual meeting of stockholders.
Arthur J. Coerver joined the Company in February 1998 as Chief
Operating Officer and a director. From 1991 through 1997, Mr. Coerver was Vice
President, Sales and Marketing, of Sport Supply Group, Inc., a New York Stock
Exchange company engaged in the direct mail marketing of sports related
equipment. Mr. Coerver's term as a director expires at the next annual meeting
of stockholders or on the date his successor is duly elected and qualified. Mr.
Coerver will stand for reelection at the next annual meeting of stockholders.
Harvey Rothenberg joined the Company in February 1998 as Vice President
of Marketing and Secretary, and has served on the Board of Directors since
December 1998. In August 1999, Mr. Rothenberg resigned as Secretary. From 1977
to 1998 Mr. Rothenberg served as Vice President of Sales for Sport Supply Group,
Inc., a New York Stock Exchange company engaged in the direct mail marketing of
sports related equipment. Mr. Rothenberg's term as a director expires at the
next annual meeting of
-31-
<PAGE> 34
stockholders or on the date his successor is duly elected and qualified. Mr.
Rothenberg will stand for reelection at the next annual meeting of stockholders.
William R. Estill joined the Company in July 1999 as Chief Financial
Officer and Treasurer, and has been Secretary since August 1999. From December
1997 until February 1999, Mr. Estill served as Vice President of Finance for
FWT, Inc., a manufacturer of telecommunication structures. From May 1996 to
November 1997, Mr. Estill served as Chief Financial Officer of Bearcom, Inc.
From April 1985 to May 1996, Mr. Estill served as Vice President, Chief
Financial Officer, Secretary and Treasurer for Sport Supply Group, Inc., a New
York Stock Exchange company. Mr. Estill was also a member of the Board of
Directors during his tenure with Sport Supply Group, Inc. Mr. Estill holds a
Bachelor of Business Administration degree in Accounting from the University of
Texas at Arlington and passed the CPA exam in 1983.
Chadd H. Edlein joined the Company in July 1997. From 1994 to 1997 Mr.
Edlein served as Marketing Manager for Sport Supply Group, Inc., a New York
Stock Exchange company engaged in the direct mail marketing of sports related
equipment.
Jeff Davidowitz has served as a director of the Company since June
1994. Mr. Davidowitz also serves as President of Penn Footwear, a private
investment company, since January 1, 1991. Prior to that, Mr. Davidowitz was
Vice President of Penn Footwear. Mr. Davidowitz's term as a director expires at
the next annual meeting of stockholders or on the date his successor is duly
elected and qualified. Mr. Davidowitz will stand for reelection at the next
annual meeting of stockholders.
Robert W. Philip has served as a director of the Company since February
1998. Mr. Philip served as 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 currently retired from the University of
North Texas and Arthur Andersen, S.C. Mr. Philip will not stand for reelection
at the next annual meeting of shareholders.
William A. Watkins, Jr. has served as a director since February 1998.
Mr. Watkins has been a partner of Watkins, Watkins and Keenan, a certified
public accounting firm, since December 1971. Mr. Watkins' term as a director
expires at the next annual meeting of stockholders or on the date his successor
is duly elected and qualified. Mr. Watkins will stand for reelection at the next
annual meeting of stockholders.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3, 4 and 5 furnished to the Company
under Rule 16a-3(e) promulgated under the Exchange Act with respect to fiscal
2000, the Company is aware that Mr. Adam Blumenfeld, a director and the
President of the Company and Mr. Chadd Edlein, a Vice President of the Company,
did not timely file a Form 3 upon joining the Company. Further, Messrs.
Davidowitz, Rothenberg, Philip, Watkins and Coerver did not timely file a Form 5
reporting the conversion of notes payable to each of them into shares of the
company's common stock during fiscal 2000. See Item 12 below.
-32-
<PAGE> 35
ITEM 10. EXECUTIVE COMPENSATION.
The following Summary Compensation Table sets forth summary information
as to compensation received by our Chief Executive Officer and each of the three
other most highly compensated persons who were serving as executive officers as
of June 30, 2000 (collectively, the "Named Executive Officers"), for services
rendered to our Company in all capacities during the three fiscal years ended
June 30, 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
RESTRICTED UNDER-
STOCK LYING
NAME AND PRINCIPAL SALARY AWARD(S) OPTIONS
POSITION YEAR $ $ #
------------------------- ------ ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Michael J. Blumenfeld 2000 96,517 -- --
Chairman and Chief 1999 78,000 -- --
Executive Officer 1998 78,000 93,750 10,000
Arthur J. Coerver 2000 108,233 -- --
Chief Operating Officer 1999 108,000 46,875 5,000
and Director(A) 1998 112,500 -- --
Harvey Rothenberg 2000 94,400 -- --
Vice President Marketing 1999 94,000 28,125 3,000
and Director(B) 1998 31,333 -- --
William R. Estill 2000 99,426 -- --
Chief Financial Officer(C)
</TABLE>
----------
(A) Mr. Coerver became Chief Operating Officer on February 17, 1998.
(B) Mr. Rothenberg became Vice President Marketing on February 17, 1998.
(C) Mr. Estill became Chief Financial Officer on July 6, 1999.
DIRECTOR COMPENSATION
Directors receive $7,500 per year for their service on the Board of
Directors or any committee of the Board of Directors. Directors are reimbursed
for their reasonable out-of-pocket expenses associated with attending Board of
Directors and committee meetings.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS
None.
-33-
<PAGE> 36
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of shares of Common Stock as of September
25, 2000 for:
o All persons who are beneficial owners of 5% or more of the
Company's common stock;
o Each director and nominees for directors;
o The Company's Chief Executive Officer and the other Named Executive
Officers in the Summary Compensation Table above; and
o All executive officers and directors as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER(1)
---------------------------
DIRECTORS (INCLUDING THOSE WHO ARE ALSO EXECUTIVE
OFFICERS): NUMBER OF SHARES PERCENT OF
BENEFICIALLY OWNED(2) CLASS (2)
--------------------- ----------
<S> <C> <C>
Michael J. Blumenfeld(3) 4,311,513 50.4%
Adam Blumenfeld(4) 513,700 10.8%
Arthur J. Coerver(5) 100,580 2.3%
Harvey Rothenberg(6) 60,864 *
William R. Estill(7) 20,000 *
Chadd Edlein(8) 35,500 *
Jeff Davidowitz(9) 308,104 6.7%
Robert W. Philip(10) 50,802 1.2%
William A. Watkins, Jr.(11) 89,106 2.0%
Executive Officers and Directors as a Group 5,504,170 56.4%
(7 persons)(12)
</TABLE>
*Less than 1%
----------
(1) The business address for each person listed is 13950 Senlac, Suite 200,
Farmers Branch, Texas 75234.
(2) As required by SEC regulations, the number of shares shown as
beneficially owned includes shares that could be purchased within 60
days after the date of this report through the exercise of any stock
option, warrant or other right. The percentage held by each stockholder
is based on the beneficial ownership of that stockholder divided by the
sum of the current outstanding shares of common stock plus the
additional shares, if any, that would be issued to that stockholder
(but not to any other stockholder) when exercising any option, warranty
or other right in the future.
(3) Includes 2,128,606 shares issuable upon exercise of warrants and 30,000
options exercisable at or within 60 days.
(4) Includes 246,900 shares issuable upon exercise of warrants and 20,000
options exercisable at or within 60 days.
(5) Includes 36,578 shares issuable upon exercise of warrants and 25,000
shares issuable upon exercise of options exercisable at or within 60
days, as well as 1,212 shares of common stock and 1,212 warrants held
by Mr. Coerver's spouse.
(6) Includes 16,745 shares issuable upon exercise of warrants and 23,000
shares issuable upon exercise of options exercisable at or within 60
days, as well as (i) 1,687 shares of common stock and 1,687 shares
issuable upon exercise of warrants exercisable at or within 60 days
held in trust for the benefit of Mr. Rothenberg's child and (ii) 1,000
shares issuable upon exercise of options exercisable at or within 60
days held by Mr. Rothenberg's spouse.
(7) All shares represent shares issuable upon exercise of options
exercisable at or within 60 days.
(8) Includes 14,000 shares issuable upon exercise of warrants and 21,500
shares issuable upon exercise of options exercisable at or within 60
days.
-34-
<PAGE> 37
(9) Includes (i) 7,000 shares issuable upon exercise of warrants and 3,500
shares issuable upon exercise of options exercisable at or within 60
days; (ii) 34,751 shares of common stock and 34,751 shares issuable
upon exercise of warrants exercisable at or within 60 days held by Penn
Footwear Retirement Trust of which Mr. Davidowitz is a trustee; (iii)
67,551 shares of Common Stock and 67,551 shares issuable upon exercise
of warrants exercisable at or within 60 days held by JIBS Equities of
which Mr. Davidowitz is a general partner; (iv) 9,000 shares of common
stock and 9,000 shares issuable upon exercise of warrants at or within
60 days held by Penn Footwear of which Mr. Davidowitz is President and
a shareholder; (v) 14,000 shares of common stock and 14,000 shares
issuable upon exercise of warrants at or within 60 days held by
Oldfield Company of which Mr. Davidowitz is President and a
shareholder; (vi) 10,000 shares of common stock and 10,000 shares
issuable upon exercise of warrants at or within 60 days held by DVD
Partners of which Mr. Davidowitz is general partner; and (vii) 10,000
shares of common stock and 10,000 shares issuable upon exercise of
warrants at or within 60 days held by 3D Partners of which Mr.
Davidowitz is general partner.
(10) Includes 23,651 shares issuable upon exercise of warrants and 3,500
shares issuable upon exercise of options exercisable at or within 60
days.
(11) Includes 12,500 shares issuable upon exercise of warrants and 3,500
shares issuable upon exercise of options exercisable at or within 60
days, as well as 30,303 shares of common stock and 30,303 shares
issuable upon exercise of warrants at or within 60 days held in trust
for the benefit of Mr. Watkins.
(12) Includes 2,815,485 shares issuable upon exercise of options and
warrants exercisable at or within 60 days.
-35-
<PAGE> 38
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In February 2000, we issued $2,235,000 of Subordinated Convertible
Promissory Notes to certain officers and directors of the Company and certain
third parties. Approximately $995,000 of the notes were issued to Michael J.
Blumenfeld in exchange for an equal amount of subordinated notes originally
issued to Mr. Blumenfeld in exchange for cash. The remaining notes were issued
in exchange for cash in the amount of approximately $1.4 million. In April 2000,
all of the note holders converted the outstanding balance under the notes into
shares of our common stock at a conversion price of $3.30 per share, resulting
in the issuance of 677,267 shares of our common stock.
The following table sets forth the principal amount of the notes and
the number of shares the notes were converted into by each officer and director
of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
ISSUED UPON
PRINCIPAL AMOUNT CONVERSION
NAME OF NOTE HOLDER OF NOTE OF NOTE
------------------- ---------------- ----------------
<S> <C> <C>
Michael J. Blumenfeld $ 1,500,000 454,545
William A. Watkins, Jr. $ 100,000 30,303
Arthur J. Coerver $ 50,000 15,151
Jeff Davidowitz $ 150,000 45,455
Robert W. Philip $ 50,000 15,151
Harvey Rothenberg $ 15,000 4,545
</TABLE>
On September 7, 2000 the Company acquired the stock of Kesmil
Manufacturing, Inc., a manufacturing company owned by Michael J. Blumenfeld, the
majority stockholder and Chief Executive Officer of the Company, for the
assumption of approximately $581 thousand in notes payable to the stockholder.
The Company is the sole customer of the acquired company and the acquisition
will be accounted for similar to a pooling of interest. During fiscal 2000, the
Company purchased approximately $1.0 million of certain inventory items from
Kesmil.
-36-
<PAGE> 39
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed as part of this report:
NUMBER EXHIBIT
------ -------
2.1 Purchase and Sale Agreement dated March 14, 1997 for the sale
of the majority of the Company's assets and business to Casco
Standards, Inc.(1)
2.2 Stock Purchase Agreement dated August 18, 1997 with Michael J.
Blumenfeld.(2)
2.3 Agreement and Plan of Merger dated July 20, 1999 for the
reincorporation of the Company in Delaware.(3)
3.1 Articles of Incorporation of the Company filed on December 15,
1998.(4)
3.2 Certificate of Merger of the Company filed on July 20, 1999.(4)
3.3 By-Laws of the Company.(4)
3.4 Certificate of Amendment to Certificate of Incorporation of
the Company filed on January 18, 2000.(5)
4.1 Specimen Certificate of Common Stock, $0.01, par value, of the
Company.(4)
4.2 Specimen Common Stock Purchase Warrant.(5)
10.1 Warrant Agency Agreement dated as of June 4, 1993 between the
Company and Continental Stock Transfer & Trust Company, as
Warrant Agent.(6)
10.2 Form of Underwriter's Unit Purchase Warrant of the Company.(7)
10.3 Form of Underwriter's Warrant of the Company.(7)
10.4 1988 Stock Option Plan of the Company.(8)
10.5 1994 Stock Option Plan of the Company.(9)
10.6 Employee Restricted Stock Plan of the Company.(10)
10.7 Lease dated July 1, 1997 between the Company, as tenant, and
Post-Valwood, Inc., as landlord.(11)
10.8 Exclusive Distribution Agreement dated February 24, 1998,
between the Company and Equipmart, Inc.(11)
10.9 Exclusive Distribution Agreement dated March 7, 1998, between
the Company and FunNets, Inc.(11)
-37-
<PAGE> 40
10.10 Exclusive Distribution Agreement dated March 21, 1998, between
the Company and Pro Gym Equipment, Inc.(11)
10.11 Stock Acquisition Agreement dated April 14, 1998, between the
Company and Product Merchandising, Inc.(11)
10.12 Agreement and Plan of Merger dated May 31, 1998, between the
Company and Vantage Products International, Inc.(11)
10.13 1998 Collegiate Pacific Inc. Stock Option Plan.(3)
10.14 Credit Agreement, dated as at June 30, 1999, between Chase
Bank of Texas, National Association, and the Company for a
$2,000,000 line of credit, and related documents.(12)
10.15 Promissory Note dated March 31, 1999 from the Company to
Michael J. Blumenfeld in the principal amount of
$1,082,648.75.(12)
10.16 Warrant Agreement dated as of May 26, 2000, between the
Company and Continental Stock Transfer & Trust Company, as
Warrant Agent, with the form of Common Stock purchase warrant
attached.(5)
10.17 Stock Purchase Agreement dated September 7, 2000, by and
between the Company and Michael J. Blumenfeld.(13)
21 Subsidiaries of the Company.*
23 Consent of Independent Certified Public Accountants.*
27 Financial Data Schedule.*
----------
(1) Previously filed as an exhibit to the Company's Definitive Proxy
Statement for its Annual Meeting held on June 16, 1997.
(2) Previously filed as an exhibit to the Company's Form 8-K/A filed on
September 11, 1997.
(3) Previously filed as an exhibit to the Company's Definitive Proxy
Statement for its Annual Meeting held on December 11, 1998.
(4) Previously filed as an exhibit to the Company's Form 8-A dated
September 9, 1999.
(5) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (No. 333-34294) dated April 7, 2000, as amended.
(6) Previously filed as an exhibit to the Company's Form 8-A dated June 28,
1993.
(7) Previously filed as an exhibit to the Company's Current Report on Form
8-K filed on July 12, 1993.
(8) Previously filed as an exhibit to the Company's Registration Statement
on Form S-18, File No. 33-19770-NY.
(9) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1994.
(10) Previously filed as an exhibit to a Post-Effective Amendment to the
Company's Registration Statement on Form S-18, File No. 33-19770-NY.
(11) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1998.
(12) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1999.
(13) Previously filed as an exhibit to the Company's Report on Form 8-K
filed on September 21, 2000.
* Filed with this Report on Form 10-KSB.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on April 20, 2000, as amended on
May 26, 2000, regarding the conversion of the Company's subordinated convertible
notes.
-38-
<PAGE> 41
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.
COLLEGIATE PACIFIC INC.
September 28, 2000
By: /s/ Michael J. Blumenfeld
------------------------------------------
Michael J. Blumenfeld,
Chairman and Chief Executive
Officer(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on September 28, 2000.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Michael J. Blumenfeld Chairman of the Board and
--------------------------------------- Chief Executive Officer
Michael J. Blumenfeld
/s/ Adam Blumenfeld President and Director
---------------------------------------
Adam Blumenfeld
/s/ Arthur J. Coerver Chief Operating Officer and
--------------------------------------- Director
Arthur J. Coerver
/s/ Harvey Rothenberg Vice President Marketing
--------------------------------------- and Director
Harvey Rothenberg
/s/ William R. Estill Chief Financial Officer,
--------------------------------------- Secretary and Treasurer
William R. Estill (Principal Accounting and Financial Officer)
/s/ Jeff Davidowitz Director
---------------------------------------
Jeff Davidowitz
/s/ Robert W. Philip Director
---------------------------------------
Robert W. Philip
/s/ William A. Watkins, Jr. Director
---------------------------------------
William A. Watkins, Jr.
</TABLE>
-39-
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 Purchase and Sale Agreement dated March 14, 1997 for the sale
of the majority of the Company's assets and business to Casco
Standards, Inc.(1)
2.2 Stock Purchase Agreement dated August 18, 1997 with Michael J.
Blumenfeld.(2)
2.3 Agreement and Plan of Merger dated July 20, 1999 for the
reincorporation of the Company in Delaware.(3)
3.1 Articles of Incorporation of the Company filed on December 15,
1998.(4)
3.2 Certificate of Merger of the Company filed on July 20, 1999.(4)
3.3 By-Laws of the Company.(4)
3.4 Certificate of Amendment to Certificate of Incorporation of
the Company filed on January 18, 2000.(5)
4.1 Specimen Certificate of Common Stock, $0.01, par value, of the
Company.(4)
4.2 Specimen Common Stock Purchase Warrant.(5)
10.1 Warrant Agency Agreement dated as of June 4, 1993 between the
Company and Continental Stock Transfer & Trust Company, as
Warrant Agent.(6)
10.2 Form of Underwriter's Unit Purchase Warrant of the Company.(7)
10.3 Form of Underwriter's Warrant of the Company.(7)
10.4 1988 Stock Option Plan of the Company.(8)
10.5 1994 Stock Option Plan of the Company.(9)
10.6 Employee Restricted Stock Plan of the Company.(10)
10.7 Lease dated July 1, 1997 between the Company, as tenant, and
Post-Valwood, Inc., as landlord.(11)
10.8 Exclusive Distribution Agreement dated February 24, 1998,
between the Company and Equipmart, Inc.(11)
10.9 Exclusive Distribution Agreement dated March 7, 1998, between
the Company and FunNets, Inc.(11)
10.10 Exclusive Distribution Agreement dated March 21, 1998, between
the Company and Pro Gym Equipment, Inc.(11)
10.11 Stock Acquisition Agreement dated April 14, 1998, between the
Company and Product Merchandising, Inc.(11)
</TABLE>
<PAGE> 43
<TABLE>
<S> <C>
10.12 Agreement and Plan of Merger dated May 31, 1998, between the
Company and Vantage Products International, Inc.(11)
10.13 1998 Collegiate Pacific Inc. Stock Option Plan.(3)
10.14 Credit Agreement, dated as at June 30, 1999, between Chase
Bank of Texas, National Association, and the Company for a
$2,000,000 line of credit, and related documents.(12)
10.15 Promissory Note dated March 31, 1999 from the Company to
Michael J. Blumenfeld in the principal amount of
$1,082,648.75.(12)
10.16 Warrant Agreement dated as of May 26, 2000, between the
Company and Continental Stock Transfer & Trust Company, as
Warrant Agent, with the form of Common Stock purchase warrant
attached.(5)
10.17 Stock Purchase Agreement dated September 7, 2000, by and
between the Company and Michael J. Blumenfeld.(13)
21 Subsidiaries of the Company.*
23 Consent of Independent Certified Public Accountants.*
27 Financial Data Schedule.*
</TABLE>
----------
(1) Previously filed as an exhibit to the Company's Definitive Proxy
Statement for its Annual Meeting held on June 16, 1997.
(2) Previously filed as an exhibit to the Company's Form 8-K/A filed on
September 11, 1997.
(3) Previously filed as an exhibit to the Company's Definitive Proxy
Statement for its Annual Meeting held on December 11, 1998.
(4) Previously filed as an exhibit to the Company's Form 8-A dated
September 9, 1999.
(5) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (No. 333-34294) dated April 7, 2000, as amended.
(6) Previously filed as an exhibit to the Company's Form 8-A dated June 28,
1993.
(7) Previously filed as an exhibit to the Company's Current Report on Form
8-K filed on July 12, 1993.
(8) Previously filed as an exhibit to the Company's Registration Statement
on Form S-18, File No. 33-19770-NY.
(9) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1994.
(10) Previously filed as an exhibit to a Post-Effective Amendment to the
Company's Registration Statement on Form S-18, File No. 33-19770-NY.
(11) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1998.
(12) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1999.
(13) Previously filed as an exhibit to the Company's Report on Form 8-K
filed on September 21, 2000.
* Filed with this Report on Form 10-KSB.
