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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 
 AMENDMENT NO.1
ON
 FORM 10-KSB/A
 
 (Check One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended June 30, 2004
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from  to
 Commission File No. 0-172923
 COLLEGIATE PACIFIC INC.  Delaware
    
    22-2795073(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 13950 Senlac Drive, Suite 100, 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: Name of Each ExchangeTitle of Each Class
    
    On Which RegisteredCommon Stock
    
    American Stock Exchange
 Securities Registered Pursuant to Section 12(g) of the Act:
None þ o
 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
is not contained in this form and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. þ State issuers revenues for its most recent fiscal year. $39,561,521. State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, or the average bid and
asked price of such common equity, as of a specified date within the past 60 days. (See definition
of affiliate in Rule 12b-2 of the Exchange Act): $66,542,681. This amount was calculated by
reducing the total number of shares of voting common stock outstanding by the total number of
shares of voting common stock held by officers, directors, and stockholders owning in excess of 10%
of the registrants common stock, and multiplying the remainder by the closing price for the
registrants common stock on September 20, 2004, as reported on the American Stock Exchange. The
information provided shall in no way be construed as an admission that any officer, director, or
more than 10% stockholder of the registrant may be deemed an affiliate of the registrant or that
such person is the beneficial owner of the shares reported as being held by such person, and any
such inference is hereby disclaimed. On September 20, 2004, there were 10,045,399 shares of the issuers common stock, $0.01 par value,
outstanding, of which 7,443,253 were held by non-affiliates.

Transitional Small Business Disclosure Format (check one): Yes o No
þ DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants Proxy Statement for the Annual Meeting of Stockholders to be held on
or about December 3, 2004 are incorporated by reference into Part III of this Form
10-KSB.




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EXPLANATORY NOTE We have filed this Amendment No.1 on Form 10-KSB/A for the fiscal year ended June 30, 2004,
which was filed with the Securities and Exchange Commission on September 28, 2004 (the Original
Filing), to amend the Original Filing as follows:  1.
    
    Item 6. Managements Discussion and Analysis of Financial Condition and
Results of Operations. We have expanded our discussion and analysis of the changes
to our net sales, gross profit and selling, general and administrative expenses for the
fiscal year ended June 30, 2004, compared to the fiscal year ended June 30, 2003. See
Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended June 30, 2003. We have
also expanded our discussion and analysis of the changes to our working capital for the
fiscal year ended June 30, 2004, compared to the fiscal year ended June 30, 2003, and
expanded our discussion of our cash flow. See Liquidity and Capital Resources;2.
    
    Item 7. Financial Statements. Our Report of Independent Registered Public
Accounting Firm has been revised to clarify that the audit was performed in accordance
with the standards of the Public Accounting Oversight Board (United States). Also, we
have expanded our revenue recognition accounting policy, added disclosure regarding our
segment reporting policy, and added disclosure regarding our consolidated net sales to
external customers of sporting goods equipment and soft good athletic apparel and footwear
for the fiscal years ended June 30, 2004 and 2003, in Note 2 to Notes to Consolidated
Financial Statements; and3.
    
    Item 8A. Controls and Procedures. We have corrected our disclosures under
Item 8A for the fiscal year ended June 30, 2004. In addition, pursuant to rule 12b-15 of the Securities Exchange Act of 1934, we are including
with this Amendment No. 1 on Form 10-KSB/A certain currently dated certifications. Except as
described above, the information contained in our Annual Report on Form 10-KSB as originally filed
with the Securities and Exchange Commission has not been updated or amended.




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Collegiate Pacific Inc.
FORM 10-KSB
Fiscal Year Ended June 30, 2004 TABLE OF CONTENTS PagePART IIItem 6.
    
    Managements Discussion and Analysis of
Financial Condition and Results of
Operations.
    
    
    1Item 7.
    
    Financial Statements.
    
    
    16Item 8A.
    
    Controls and Procedures.
    
    
    34PART IIIItem 13.
    
    Exhibits, List and Reports on Form 8-K.
    
    
    35SIGNATURES
    
    
    
    
    36Consent of Grant Thornton LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 906




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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements in Managements Discussion and Analysis are forward-looking as defined in
the Private Securities Litigation Reform Act of 1995. These statements are based on current
expectations that are subject to risks and uncertainties. Actual results may differ materially from
expectations as of the date of this filing because of the factors discussed below under the
Factors That Could Affect Future Results section and elsewhere in this Annual Report. Collegiate Pacific Inc. (Collegiate Pacific, we, us, our, or the Company) is a
premier marketer, manufacturer and distributor of sporting goods and equipment, soft good athletic
apparel and footwear products (soft goods), physical education, recreational and leisure products
primarily to the institutional market in the United States. The institutional market generally
consists of youth sports programs, park and recreational organizations, schools, colleges,
churches, government agencies, athletic teams, athletic clubs and dealers. We sell our products
directly to our customers primarily through the distribution of our unique, informative catalogs
and fliers, our strategically located road sales professionals, our telemarketers and the Internet.
We offer a broad line of sporting goods and equipment, soft goods and other recreational products,
as well as provide after-sale customer service. We currently market approximately 4,500 sports
related equipment products, soft goods and recreational related equipment and products to over
300,000 potential institutional, retail, Internet, sports teams and sporting good dealer type
customers. Since commencing operations in early 1998, we have sold our products to approximately
80,000 customers. References herein to fiscal 2003, fiscal 2004 and fiscal 2005 refer to our
fiscal years ended or ending, as the case may be, June 30, 2003, 2004 and 2005, respectively. Overview We believe that over the past few years the consolidation of the traditional team dealers and
the small, independent sporting goods retailers is leading to a consolidation of the sporting goods
industry. We believe this consolidation of the sporting goods industry has contributed to the
shift of sales from traditional, retail store front sites to sales from catalogs, direct telephone
marketing and the Internet to satisfy the product and service needs of the sporting goods market,
especially the institutional market. Collegiate Pacific believes the most successful sporting
goods companies will be those with greater financial resources and the ability to produce or source
high-quality, low cost products, deliver those products directly to customers on a timely basis
without the middleman and access distribution channels with a broad array of products and brands. As a result of this market trend, Collegiate Pacific has embarked upon an aggressive program
to leverage its existing operations and to complement and diversify its product offerings within
the sporting goods and recreational products. We intend to implement our internal growth strategy
by continuing to improve operating efficiencies, extending our product offerings through new
product launches and maximizing our distribution channels. In addition, Collegiate Pacific will
seek strategic acquisitions and relationships with other sporting goods companies with well
established brands and with complimentary distribution channels. During fiscal 2004, Collegiate Pacific made significant progress towards achieving its
strategic objectives as follows:  
    
    Acquiring by merger Corona, California based Tomark Inc., a leading
distributor and installer of sporting goods and related equipment, establishing
Collegiate Pacifics presence on the west coast; - 1 -




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
    
    Acquiring substantially all of the operating assets of Richmond, Indiana
based Kesslers Sport Shop, Inc., one of the largest team dealers in the United States,
establishing Collegiate Pacifics presence as a team dealer and adding team uniforms
to its product line;
    
    Balancing the seasonality of its business and strengthening its customer
relationships by acquiring the team dealer discussed above;
    
    Expanding its football and baseball product offerings through the
acquisitions discussed above, which provides the Company with an additional platform
for future growth opportunities;
    
    Introducing a number of new products during fiscal 2004 as a means to drive
organic growth; and
    
    Replacing its revolving line of credit with a new revolving credit facility
of $12 million, which provides the Company with more opportunity and flexibility to
make progress towards its strategic objectives. Collegiate Pacific has begun to see results from its efforts reflected in its financial
performance. Net sales for fiscal 2004 improved 87.7% to $39.6 million from fiscal 2003 due
primarily to the acquisitions Collegiate Pacific completed during fiscal 2004, as well as organic
growth from the sale of the Companys existing products. Gross profit improved to $14.2 million,
or 35.9% of net sales, in fiscal 2004 compared to $7.8 million, or 37.0% of net sales, in fiscal
2003. The decrease in gross margin for fiscal 2004, compared to fiscal 2003,was mainly due to the
increase in sales of soft goods, which generally have slightly lower gross margins. Operating
profit for fiscal 2004 increased to $3.2 million, or 8.1% of net sales, as compared to operating
profit of $968 thousand, or 4.6% of net sales, in fiscal 2003. The increase in operating profit
reflects higher sales volume, partially offset by higher selling and general and administrative
expenses. The increase in selling, general and administrative expenses in fiscal 2004 was
attributable to Collegiate Pacifics acquisitions during fiscal 2004, an increase in personnel
related costs incurred in connection with additional sales personnel and a slight increase in
general insurance costs incurred in connection with the Companys growth. Unlike our operating
results for fiscal 2003 that included an income tax benefit, our operating results for fiscal 2004
included a provision for income taxes. Matters Affecting Comparability Collegiate Pacifics operating results for fiscal 2004 include the operating results for its
acquisitions completed during fiscal 2004, beginning with the date of each acquisition.
Approximately $13.8 million of the $18.5 million increase in net sales, when compared to fiscal
2003, is attributable to Collegiate Pacifics acquisitions during fiscal 2004 as discussed below.
However, our operating results for fiscal 2004 do not include any operating results for our
acquisition of all of the outstanding stock of Dixie Sporting Goods Co., Inc., which we completed
in July 2004. Our acquisition of Dixie will be reflected in the operating results we report in our
quarterly report on Form 10-QSB for the first three months of fiscal 2005 ending on September 30,
2004. - 2 -




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Consolidated Results of Operations The following table compares selected financial data from the Consolidated Statements of
Operations for fiscal 2004 and fiscal 2003: Fiscal 2004 vs. Fiscal 2003Increase/(Decrease)Fiscal 2004
    
    
    Fiscal 2003
    
    
    Dollars
    
    
    Percentage(dollars in thousands, except per share amounts)Net sales
    
    $
    39,562
    
    
    $
    21,076
    
    
    $
    18,486
    
    
    
    87.7
    %Gross profit
    
    
    14,189
    
    
    
    7,807
    
    
    
    6,382
    
    
    
    81.7
    %Operating profit
    
    
    3,204
    
    
    
    968
    
    
    
    2,236
    
    
    
    230.9
    %Net income
    
    
    1,884
    
    
    
    1,254
    
    
    
    630
    
    
    
    50.2
    %Diluted earnings per share
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    (0.02
    )
    
    
    (7.4
    )%
 Expressed as a percentage of sales: Fiscal 2004
    
    
    Fiscal 2003Gross margin (a)
    
    
    35.9
    %
    
    
    37.0
    %Selling, general and administrative expense
    
    
    27.5
    %
    
    
    32.2
    %Operating profit
    
    
    8.1
    %
    
    
    4.6
    %
 
 (a)
    
    Gross margin is defined as gross profit divided by net sales as presented in the
Consolidated Statements of Operations. Acquisitions On January 9, 2004, Collegiate Pacific completed the acquisition of Tomark, Inc. (Tomark),
in a merger transaction. Tomark, a privately held company founded in 1985, is a marketer,
distributor, manufacturer and installer of sporting goods and related equipment primarily to the
institutional market in the State of California. We paid the former stockholders of Tomark, a
total of $5.25 million (excluding transaction costs), which consisted of $2.5 million in cash, $250
thousand in promissory notes and 270,562 shares of our common stock valued at $2.5 million. Our
wholly owned subsidiary, Tomark Sports, Inc. employs the two former Tomark stockholders. The
results of operations of Tomark, since the date of acquisition, have been included in our
consolidated financial statements for the fiscal year ended June 30, 2004. On April 1, 2004, Collegiate Pacific completed the acquisition of substantially all of the
operating assets of Kesslers Sport Shop, Inc. (now known as RPD Services, Inc.; Kesslers), in
exchange for cash and shares of our common stock. Kesslers, a privately held company founded in
1964, is one of the nations largest team dealers of sporting goods, team apparel and related
equipment. We paid Kesslers a total of approximately $13.75 million (excluding transaction costs
and the assumption of approximately $4.7 million of existing debt), which consisted of 906,250
shares of our common stock valued at $7.25 million and a cash payment of $6.5 million. We also
agreed to repurchase from Kesslers for cash on the two year anniversary of the effective date of
the registration statement covering the 906,250 shares (August 20, 2006), any of those shares that
have not been sold by Kesslers as of that two-year anniversary for a per share price of - 3 -




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$8.00 (the
same price we used to determine the number of shares of our common stock to issue to Kesslers), but
only so long as Kesslers (a) sells at least 2,000 shares of our common stock on each trading day
after August 20, 2004, and (b) does not reject any offer to purchase any of our shares
from Kesslers at or above a price that is not less than 10% below the then current market
price of our common stock as reported on AMEX, if the number of shares subject to the offer is more
than 50,000 shares, or at or above a price that is not less than 7% below the then current market
price as reported on AMEX, if the number of shares subject to the offer is equal to or less than
50,000 shares. Alternatively, if all 906,250 shares have been sold by Kesslers as of August 20,
2006, and Kesslers has complied with the terms of (a) and (b) above, we agreed to pay Kesslers an
amount in cash equal to the difference between $7.25 million and the total sales proceeds received
by Kesslers from sales of our common stock. Our wholly owned subsidiary, Kesslers Team Sports, Inc., employs the three former managers of
Kesslers. We also entered into a lease with RPD Services, Inc. for its 76,000 square foot
warehouse and distribution facility in Richmond, Indiana. The term of the lease runs through early
2009 and the monthly rental rate is $11,400. See Item 2.  Description of Property above. The
results of operations of Kesslers, since the date of acquisition, have been included in our
consolidated financial statements for the fiscal year ended June 30, 2004. On July 26, 2004, after the end of our fiscal 2004, we completed our acquisition of Richmond,
Virginia based Dixie Sporting Goods Co., Inc. in exchange for a combination of cash, notes and
shares of our common stock. Our wholly owned subsidiary, Dixie Sporting Goods Co., Inc. (Dixie)
now employs the former management team of Dixie. Dixie is a leading supplier of team uniforms and
sporting goods equipment throughout the Mid-Atlantic United States. Our operating results for
fiscal 2004 do not include the operating results for our acquisition of Dixie. Fiscal Year Ended June 30, 2004 Compared to Fiscal Year Ended June 30, 2003 Net Sales.Net sales for fiscal 2004 totaled $39.6 million compared to $21.1 million in
fiscal 2003, an increase of $18.5 million, or 87.7%. Net sales grew by a combined $13.8 million
from the businesses acquired during fiscal 2004 and the growth in our existing catalog operations
of approximately $4.7 million, and reflects the results of our efforts during the last quarter of
fiscal 2004 to direct a selection of our traditional catalog customers to our acquired road sales
professionals. These efforts have contributed to the growth in net sales for our acquired
businesses. We believe that if we can successfully service a selection of our traditional catalog
customers in specific regions of the United States with our road sales professionals, we will
continue to grow our net sales through greater account penetration and retention. The increase in
sales for our existing catalog operations was due to our expanded product offerings and the overall
growth in our customer base. We believe future net sales will continue to rise from current
levels, however, no assurances can be made that any future increases in net sales will be at the
same rate. Historically, sales of our sporting goods have experienced seasonal fluctuations. This
seasonality causes our financial results to vary from quarter to quarter, which usually results in
lower net sales and operating profit in the second quarter of our fiscal year (October through
December) and higher net sales and operating profit in the remaining quarters of our fiscal year,
especially the first and fourth quarters of our fiscal year (July through September and April
through June, respectively). We attribute this seasonality primarily to the budgeting procedures
of our customers and the seasonal demand for our products, which have historically been driven by
spring and summer sports. Generally, between the months of October and December of each fiscal
year, there is a lower level of sports activities at our historical institutional customer base, a
higher degree of adverse weather conditions and a greater number of school recesses and major - 4 -




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holidays. We believe that our acquisitions of Kesslers and Dixie, which have a greater focus on
fall and winter sports, may reduce the seasonality of our financial results. Gross Profit.Gross profit for fiscal 2004 was $14.2 million, or 35.9% of net sales, compared
with $7.8 million, or 37.0% of net sales, in fiscal 2003. In fiscal 2004, Tomark and Kesslers
contributed a combined gross profit of $4.7 million and gross profit percentage of 34.1%. We include the acquisition cost of our inventory, the cost of shipping and handling (freight
costs) and any decrease in the value of our inventory in our determination of our total cost of
sales. Our total cost of sales for fiscal 2004 was $25.4 million, or 64% of net sales, compared to
$13.3 million, or 63% of net sales in fiscal 2003. Our total cost of sales for fiscal 2004,
consisted of $21.8 million for the acquisition cost of our inventory, $3.3 million in freight costs
and $0.2 million for the write-off of obsolete or damaged inventory and $0.1 million for labor and
overhead cost associated with the products that we manufacture. The increase in our gross profit was due to the increase in our net sales during fiscal 2004.
We continue to direct a selection of our traditional catalog customers to our road sales
professionals. We believe these efforts have contributed to the growth in our net sales volume and
anticipate this trend will continue in future periods as our road sales professionals continue to
expand the number of face-to-face sales calls to our traditional institutional customers. Although
we do from time to time adjust the selling price of our products, we do not believe that any price
adjustments during fiscal 2004 contributed to our increase in net sales. The decrease in gross profit margin for fiscal 2004, compared to fiscal 2003,was primarily
due to the increase in sales of our soft goods, which generally have slightly lower gross margins
than our sporting goods and equipment. During fiscal 2004, $5.4 million of our net sales
(approximately 13.6% of our net sales for fiscal 2004) were from the sale of soft goods and, as a
result, our overall gross margins were affected by our additional sales of soft goods. As our net
sales of soft goods continues to grow, we anticipate that our gross margin percentage will continue
to be effected to the extent our sales of sporting goods and equipment do not increase at the same
rate. No other factor contributed to our decrease in gross margins for fiscal 2004. Selling, General and Administrative Expense.Selling, general and administrative (SG&A)
expenses for fiscal 2004 were $10.9 million, or 27.5% of net sales, compared with $6.8 million, or
32.2% of net sales, in fiscal 2003. The primary components of our SG&A expenses are personnel
costs, advertising expenses, travel expenses, rent, professional services and insurance costs. The
increase in SG&A expenses during fiscal 2004 was attributable to Collegiate Pacifics acquisitions
in fiscal 2004, which resulted in increased expenses of $3.3 million, an increase in personnel
related costs incurred in connection with additional sales personnel in the amount of $0.5 million
and an increase in travel, professional services, other sales expenses and a slight increase in
general insurance costs in the amount of $0.3 million, which was incurred in connection with the
Companys growth during fiscal 2004. Operating Profit.Operating profit for fiscal 2004 increased to $3.2 million, or 8.1% of net
sales, compared to operating profit of $968 thousand, or 4.6% of net sales, in fiscal 2003. The
increase in operating profit is mainly attributable to higher sales volume and a decrease in SG&A
as a percentage of net sales. - 5 -




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Interest Expense.Interest expense for fiscal 2004 decreased to $52 thousand, or 38.0%,
compared with $85 thousand in fiscal 2003. The decrease in interest expense was primarily
attributable to lower average borrowing levels during fiscal 2004, which can be attributed to the
funds received from the exercise of the warrants, and lower interest rates. See Liquidity and
Capital Resources. Income Taxes.Income tax expense for fiscal 2004 increased to $1.3 million. The Company
eliminated its valuation allowance on net deferred tax assets at the end of fiscal 2003 and
recorded an income tax benefit of $350 thousand during fiscal 2003. Income tax expense for fiscal
2003, would have been approximately $330 thousand had the Company not reversed the valuation
allowance. The Company expects to record tax expense on all future net income at the Companys
effective tax rate, which was 41.0% for fiscal 2004. Net Income.Net income for fiscal 2004 increased to $1.9 million, or 4.8% of net sales,
compared to net income of $1.3 million, or 6.0% of net sales, in fiscal 2003. The increase in net
income was attributable to increased sales activity, as well as a decrease in selling, general and
administrative expenses as a percentage of net sales, all of which was offset by the increase in
income tax expense. Liquidity and Capital Resources Collegiate Pacifics operating activities provided $151 thousand of cash in fiscal 2004
compared to approximately $214 thousand in fiscal 2003. The decrease in cash provided by operating
activities was primarily attributable to:  
    
    An increase in accounts receivable during fiscal 2004 of $1.2 million compared to
the prior fiscal years increase of $790 thousand, which is attributable to the
Companys growth in net sales during the year.
    
    An increase in inventories during fiscal 2004 of $1.2 million compared to the
prior fiscal years increase of $707 thousand. The increase in inventories during
the last two quarters of each fiscal year is due to an increase in purchasing
activity to acquire inventory to support the Companys strongest selling season,
which generally occurs during the months of January through September. More
inventories are being acquired than in previous years to support the Companys
anticipated future growth.
    
    The changes discussed above were all partially offset by an increase in net income
in fiscal 2004 of approximately $500 thousand compared to fiscal 2003. The improvement in net income for fiscal 2004 was primarily attributable to the Companys
higher sales volume, partially offset by slightly lower gross profit margins. As the Company
continues to execute its expansion efforts, the Company expects its inventories, accounts
receivables and accounts payable will continue to increase to support the anticipated increase in
net sales, especially during the first and fourth quarters of our fiscal year (July through
September and April through June, respectively). Net cash used in investing activities was $12.9 million compared to $222 thousand in fiscal
2003. The increase in cash used in investing activities in fiscal 2004 was due to cash used for
acquisition activities during fiscal 2004 of $12.6 million, which is net of the amount of cash
acquired in connection with those acquisition activities. No material commitments for capital
expenditures existed as of June 30, 2004. - 6 -




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Net cash provided by financing activities in fiscal 2004 was $19.8 million compared to $106
thousand for fiscal 2003. The increase in cash provided by financing activities during fiscal 2004
compared to cash provided in the prior fiscal year was due to:  
    
    An increase in cash of $21.3 million from the exercise of outstanding options and
warrants.
    
    The payment of cash dividends in the amount of $573 thousand.
    
    Net repayments of long-tem debt in the amount of $865 thousand.
    
    The purchase of treasury shares in the amount of $41 thousand. On April 14, 2004, the Company announced its Board of Directors had unanimously authorized the
Company to call all outstanding warrants for cancellation effective as of May 21, 2004. Any
warrant that was not exercised by the close of business on May 20, 2004, was cancelled and became
entitled to receive $0.05 for each share of Collegiate Pacifics common stock that could have been
acquired upon the exercise of the warrant prior to cancellation. The per share exercise price of
the warrants was $5.00 per share. Of the 4,244,607 warrants that were originally issued by us as a dividend to our stockholders
in May 2000, a total of 4,199,599 warrants were exercised during fiscal 2004 before the
cancellation date and approximately 45,008 were cancelled, which required the Company to pay those
former holders a total of approximately $2,250 upon cancellation. As a result, the Company
received a total of $20.9 million from the exercise of warrants during fiscal 2004. Of that
amount, the Company received approximately $5.0 million, before commissions and expenses, in a
single transaction from the exercise of 1.0 million warrants by Roth Capital Partners, LLC
(Roth). Roth purchased the 1.0 million warrants from Michael J. Blumenfeld, the Companys
Chairman and Chief Executive Officer. In October 2003, Mr. Blumenfeld completed an offering on a
firm commitment basis directly to Roth of 1.0 million warrants held by Mr. Blumenfeld at a per
warrant price of $1.95. Under the terms of the offering, Roth immediately exercised the Warrants
and the Company issued 1.0 million shares of its common stock directly to Roth. Roth sold these
shares to institutional investors at a price of $6.95 per share. The Company paid a commission to
Roth of $480 thousand in connection with the sale of the warrants in the offering and the issuance
to Roth of the shares of common stock upon Roths exercise of the warrants. The Company used the
net proceeds it received from the exercise of the warrants for working capital and general
corporate purposes, as well as to finance the acquisitions we completed during fiscal 2004. Current assets as of June 30, 2004, totaled approximately $28.0 million, thereby providing the
Company with working capital of approximately $20.7 million. The Companys principal external source of liquidity is its $12.0 million revolving line of
credit with Merrill Lynch Business Financial Services Inc. (the Credit Facility) collateralized
by all of the assets of Collegiate Pacific and its subsidiaries. Total availability under the
Credit Facility is determined by a borrowing formula based on eligible trade receivables and
inventories that provides for borrowings against up to 80% of its eligible trade receivables and
50% of its eligible inventories, but not to exceed $12 million. The Credit Facility expires on
December 31, 2005. Borrowings under the Credit Facility bear interest at the rate of 2.25% plus
the one-month LIBOR rate (1.35% at June 30, 2004). As of June 30, 2004, there was no balance
outstanding under the Credit Facility, leaving the Company with approximately $12 million of
availability under the terms of the borrowing base formula of the Credit Facility. The Credit
Facility contains customary covenants and the Company must maintain certain financial ratios
pertaining to its fixed charges and total debt to (a) total net worth and (b) earnings before
interest, taxes, - 7 -




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depreciation and amortization. The Company entered into an amendment to the
Credit Facility in August 2004 to clarify the calculations of its financial ratios after taking
into account the Companys recent acquisitions. The Company is currently in compliance with all
financial covenants and management does not believe that the financial covenants set forth in the
Credit Facility will have an adverse impact on its operations or future plans.

The following table summarizes the outstanding borrowings and long-term contractual
obligations of the Company at June 30, 2004, and the effects such obligations are expected to have
on liquidity and cash flow in future periods. Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    Total
    
    
    1 year
    
    
    1 - 3 years
    
    
    4 - 5 years
    
    
    5 years(dollars in thousands)Long-term debt (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Leases (2)
    
    
    2,614
    
    
    
    823
    
    
    
    1,342
    
    
    
    449
    
    
    
    Redeemable common stock (3)
    
    
    7,250
    
    
    
    
    
    
    
    7,250
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    9,864
    
    
    $
    823
    
    
    $
    8,592
    
    
    $
    449
    
    
    $
    
 
 (1)
    
    See Note 7 to Notes to Consolidated Financial Statements for additional information
on Collegiate Pacifics long-term debt obligations.(2)
    
    See Note 11 to Notes to Consolidated Financial Statements for additional information
on Collegiate Pacifics operating leases.(3)
    
    See Note 3 to Notes to Consolidated Financial Statements for additional information
on Collegiate Pacifics redeemable common stock liabilities. We believe the Company will satisfy its short-term and long-term liquidity needs from
borrowings under the Credit Facility and cash flows from operations. We may experience periods of
higher borrowing under the Credit Facility due to the seasonal nature of our 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. Subsequent Events In July 2004, the first month of fiscal 2005, we completed the acquisition of Dixie Sporting
Goods Co., Inc. (Dixie) in exchange for cash, notes and shares of our common stock. Dixie, a
privately held company founded in 1965, is one of the nations largest team dealers of sporting
goods and related equipment. We acquired all of the outstanding shares of Dixies common stock in
exchange for 148,662 shares of our common stock valued at $1.5 million, a cash payment of $4.0
million, $0.5 million of notes and up to an additional $1.0 million in the form of an earnout if
the net income of Dixie exceeds certain target levels in the 17 month period ending December 31,
2005, resulting in a total purchase price of approximately $7.0 million (excluding transaction
costs). Our wholly owned subsidiary, Dixie Sporting Goods Co., Inc., employs the two former Dixie
shareholders. The results of operations of Dixie have not been included in our consolidated
financial statements for the fiscal year ended June 30, 2004. See Note 13 to Notes to Consolidated
Financial Statements. Newly Adopted Accounting Standards None. Critical Accounting Policies - 8 -




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Collegiate Pacifics discussion and analysis of its financial condition and results of
operations are based upon the Companys consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, expenses, and related disclosures of contingent assets
and liabilities. Discussed below are several significant accounting policies, which require the use of
judgments and estimates that may materially affect the consolidated financial statements. The
estimates described below are reviewed from time to time and are subject to change if the
circumstances so indicate. The effect of any such change is reflected in results of operations
for the period in which the change is made. Establishment of the reserves affecting inventories and
the allowance for doubtful accounts are among the most important. Our significant accounting
policies are more fully described in Note 2 to Notes to Consolidated Financial Statements. Inventories.Inventories are valued at the lower of cost or market value. Cost is determined
using the standard cost method for items manufactured by us and the weighted-average cost method
for items purchased for resale. We record adjustments to our inventories for estimated
obsolescence or diminution in market value equal to the difference between the cost of inventory
and the estimated market value, based on market conditions from time to time. These adjustments are
estimates, which could vary significantly, either favorably or unfavorably, from actual experience
if future economic conditions, levels of customer demand or competitive conditions differ from
expectations. Because valuing our inventories requires significant management judgment and our
failure to write-down obsolete inventory could have an impact on our future results of operations,
we believe that the accounting estimate related to our inventories is a critical accounting
estimate. Management of the Company has discussed the development and selection of this critical
accounting estimate with the audit committee of our Board of Directors and the audit committee has
reviewed the Companys disclosure relating to it in this Annual Report on Form 10-KSB. Allowance for Doubtful Accounts.We evaluate the collectibility of accounts receivable based
on a combination of factors. In circumstances where there is knowledge of a specific customers
inability to meet its financial obligations, a specific reserve is recorded against amounts due to
reduce the net recognized receivable to the amount that is reasonably believed to be collected. For
all other customers, reserves are established based on historical bad debts, customer payment
patterns and current economic conditions. The establishment of these reserves requires the use of
judgment and assumptions regarding the potential for losses on receivable balances. If the
financial condition of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required resulting in an additional charge
to expenses when made. Because estimating our uncollectible accounts requires significant
management judgment and our use of different estimates that we reasonably could have used would
have an impact on our reported accounts receivable balance, we believe the accounting estimate
related to our allowance for doubtful accounts is a critical accounting estimate. Management of
the Company has discussed the development and selection of this critical accounting estimate with
the audit committee of our Board of Directors and the audit committee has reviewed the Companys
disclosure relating to it in this Annual Report on Form 10-KSB. At June 30, 2004, our total allowance for doubtful accounts was approximately $636 thousand,
an increase of $514 thousand from fiscal 2003. The increase in the amount of our allowance for
doubtful accounts for fiscal 2004 is mainly attributable to allowances for doubtful accounts that
arose from business acquisitions completed during fiscal 2004, as well as an - 9 -




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increase in accounts
receivable at June 30, 2004 compared to June 30, 2003. See Note 2 to Notes to Consolidated
Financial Statements. Intangible Assets.We assess the recoverability of the carrying value of long-lived assets
periodically. If circumstances suggest that long-lived assets may be impaired, and a review
indicates that the carrying value will not be recoverable, the carrying value is reduced to its
estimated fair value. As of June 30, 2004, the balance sheet includes approximately $17.7 million
of goodwill and intangible assets, net, and $831 thousand of fixed assets, net. The Company has
concluded that no impairment exists. Because estimating the recoverability of the carrying value
of long-lived assets requires significant management judgment and that our use of different
estimates that we reasonably could have used would have an impact on our reported net long-lived
assets, we believe that the accounting estimates related to our impairment testing are critical accounting estimates. Management of the Company has discussed the development and
selection of this critical accounting estimate with the audit committee of our Board of Directors
and the audit committee has reviewed the Companys disclosure relating to it in this MD&A. Factors that Could Affect Future Operating Results Because of the following factors, as well as other factors affecting our business, financial
position, results of operations and prospects, past financial performance may not be a reliable
indicator of future performance, and historical trends should not be used to anticipate results or
trends in future periods. Our success depends upon our ability to develop new and enhance our existing relationships with
customers and suppliers. Our success depends upon our ability to develop new and enhance our existing relationships
with customers and suppliers. Our prospects must be considered in light of the risk, expenses, and
difficulties frequently encountered by companies in the marketing industry. To address these
risks, we must, among other things:  
    
    effectively develop new relationships and maintain existing relationships with our
suppliers, advertisers and customers;
    
    provide products at competitive prices;
    
    respond to competitive developments; and
    
    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 our business, financial condition, or results of operations
in the form of lower revenues and operating profit and higher operating costs. Our strategic plan, involving growth through the acquisition of other companies, may not succeed. Collegiate Pacifics strategic plan involves rapid growth through the acquisition of other
companies. Such growth involves a number of risks, including:  
    
    the difficulties related to combining previously separate businesses into a single
unit; - 10 -




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
    
    the substantial diversion of managements attention from day-to-day operations;
    
    the assumption of liabilities of an acquired business, including unforeseen
liabilities;
    
    the failure to realize anticipated benefits, such as cost savings and revenue
enhancements;
    
    the dilution of existing stockholders due to the issuance of equity securities,
utilization of cash reserves, or incurrence of debt in order to fund the
acquisitions;
    
    the potential to have to write-down or write-off the value of acquired assets;
    
    the potentially substantial transaction costs associated with acquisitions; and
    
    the difficulties related to assimilating the products, personnel and systems of an
acquired business and to integrating distribution and other operational capabilities. Our success depends on our ability to manage our growth. During recent years, we have experienced a period of rapid and significant growth and our
continued expansion may significantly strain our management, financial, and other resources. We
believe that improvements in management and operational controls, and operations, financial and
management information systems could be needed to manage future growth. We cannot assure you that:  
    
    these resources will be available or in a cost-effective form to us which will
allow us to sustain growth at the same levels;
    
    our current personnel, systems, procedures, and controls will be adequate to
support our future operations;
    
    we will identify, hire, train, motivate or manage required personnel; or
    
    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. Collegiate Pacific faces intense competition and potential competition from companies with greater
resources and our inability to effectively compete with these companies could harm our business. The market for sporting goods and related equipment in which we compete is highly competitive,
especially as to product innovation and availability, performance and styling, price, customer
relationships, name recognition, marketing, delivery and quality of service. We compete
principally in the institutional market with local sporting goods dealers and other direct mail
companies. Some of our competitors have: - 11 -




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
    
    substantially greater financial resources;
    
    a larger customer base;
    
    a broader line of product offerings; and
    
    greater name recognition within the industry. In addition, our competitors may have larger technical, sales and marketing resources.
Further, there is no significant technological or capital barriers to entry into the markets for
many sporting goods and recreational products. We cannot give you assurance that we will compete
successfully against our competitors in the future. We are dependent on competitive pricing from our suppliers. The general economic conditions in the U.S. or international countries with which we do
business could affect pricing of raw materials such as metals and other commodities used by
suppliers of our finished goods. We cannot assure you that any price increase we incur for our
products can be passed on to our customers without adversely affecting our operating results. The weak financial conditions of some of our customers may adversely impact our business. 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 that would adversely affect our cash flow and
involve significant risks of nonpayment. Our financial results vary from quarter to quarter, which could hurt our business and the market
price of our stock. Various factors affect the Companys quarterly operating results and some of them are not
within our control. They include, among others:  
    
    weather conditions;
    
    the timing and introduction of new products;
    
    the mix of products sold;
    
    the timing of significant orders from and shipments to customers;
    
    product pricing and discounts;
    
    the timing of our acquisitions of other companies and businesses; and
    
    general economic conditions. - 12 -




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These and other factors are likely to cause our financial results to fluctuate from quarter to
quarter. If revenue or operating results fall short of the levels expected by public market
analysts and investors, the trading price of our common stock could decline dramatically. Based on
the foregoing, Collegiate Pacific believes that quarter-to-quarter comparisons of its results of
operations may not be meaningful. Therefore, purchasers of our common stock should not view our
historical results of operations as reliable indications of our future performance. Seasonality of our business may adversely affect our net sales and operating income. We anticipate our net sales will peak in the first and fourth quarters of each fiscal year
(July 1  September 30 and April 1  June 30) due primarily to the budgeting procedures of many of
our customers and the seasonal demand for our products. We generally experience lower net sales
and higher expenses as a percentage of sales in the second and third quarters of each fiscal year
(October 1  March 31) due to lower customer demand during those periods of decreased
sports activities, adverse weather conditions inhibiting customer demand, holiday seasons, and
school recesses. We depend on key personnel for our future success. Our performance is substantially dependent on the skills, experience, and performance of our
Chief Executive Officer, Michael J. Blumenfeld, as well as our ability to retain and motivate other
officers and key employees, certain of whom would be difficult to replace. We do not have an
employment agreement with Michael J. Blumenfeld. We do not have a key person life insurance
policy on any of our officers or other employees. 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 inability to attract and retain
additional qualified employees, as needed, could have a material adverse effect on the Company. Risks related to international and domestic suppliers. A significant amount of our revenues are dependent upon products purchased from foreign
suppliers, which are located primarily in the Far East. In addition, we believe that many of the
products we purchase from our domestic suppliers are manufactured overseas. Accordingly, we are subject to the risks of international business, including:  
    
    shipment delays;
    
    fluctuation in exchange rates;
    
    increases in import duties;
    
    changes in customs regulations;
    
    adverse economic conditions in foreign countries;
    
    social, political and economic instability; and
    
    acts of war and terrorism. - 13 -




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Further, we are dependent on a growing number of domestic suppliers for our finished goods.
Any significant delay in the delivery of products by our domestic suppliers could significantly
increase our backlog. The occurrence of any one or more of the events described above could adversely affect our
business, financial condition, and results of operations due to an inability to make timely
shipments to our customers or by utilizing other more costly carriers or means of shipping. We depend on third party carriers. Our operations depend upon third party carriers to deliver our catalogs and products to our
customers. We ship our products using common carriers, primarily UPS. The operations of such
carriers are outside the Companys control. Accordingly, our business reputation and operations
are subject to many risks, including:  
    
    shipment delays caused by such carriers;
    
    labor strikes by the employees of such carriers;
    
    increases in delivery cost, postage rate increase; and
    
    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. Our stock price could be subject to significant volatility. The price of our common stock is determined in the marketplace and may be influenced by many
factors, including:  
    
    the depth and liquidity of the market for our common stock;
    
    investor perception of the Company and the industry within which we compete;
    
    quarterly variations in operating results; and
    
    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 our common stock.
In addition, the stock market has occasionally experienced extreme price and volume fluctuations
that often affect 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. Outstanding stock options. - 14 -




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Outstanding options may have an effect on the price of our common stock. We currently have
1,025,800 outstanding options, each to purchase one share of our Common Stock, issued to key
employees, officers, and directors under our 1998 Collegiate Pacific Inc. Stock Option Plan. The
options have exercise prices ranging from $3.88 per share to $9.48 per share. These outstanding
options could have a significant adverse effect on the trading price of our common stock,
especially if a significant volume of the options was exercised and the stock issued was
immediately sold into the public market. Further, the exercise of these options could have a
dilutive impact on other shareholders by decreasing their ownership percentage of the Companys
outstanding common stock. If we attempt to raise additional capital through the issuance of equity
or convertible debt securities, the terms upon which we will be able to obtain additional equity
capital, if at all, may be negatively affected since the holders of outstanding options can be
expected to exercise them, to the extent they are able, at a time when we would, in all likelihood,
be able to obtain any needed capital on terms more favorable than those provided in such options. One principal stockholder owns a significant amount of our outstanding common stock. Mr. Michael J. Blumenfeld, our Chairman and Chief Executive Officer, owns 2,067,276 shares of
our common stock (or 21% based on the number of shares outstanding as of September 20, 2004). As a
result, he is in a position to significantly influence the outcome of elections of our directors,
the adoption, amendment or repeal of our bylaws and any other actions requiring the vote or consent
of our stockholders. - 15 -




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ITEM 7. FINANCIAL STATEMENTS. PageIndex to Consolidated Financial Statements
    
    
    16Report of Independent Registered Public Accounting Firm
    
    
    17Consolidated Balance Sheets as of June 30, 2004 and 2003
    
    
    18Consolidated Statements of Income for the years ended June 30, 2004 and 2003
    
    
    19Consolidated Statement of Stockholders Equity for the years ended June 30, 2004 and 2003
    
    
    20Consolidated Statements of Cash Flows for the years ended June 30, 2004 and 2003
    
    
    21Notes to Consolidated Financial Statements
    
    
    22
 - 16 -




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Stockholders and Board of Directors of Collegiate Pacific Inc. We have audited the accompanying consolidated balance sheets of Collegiate Pacific Inc. and its
subsidiaries as of June 30, 2004 and 2003, and the related consolidated statements of income,
stockholders equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 its
subsidiaries as of June 30, 2004 and 2003, 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 24, 2004, except as to Note 2,   
which is dated as of June 24, 2005. - 17 -




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COLLEGIATE PACIFIC, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 As of June 30, 2004 and 2003
 2004
    
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    7,473,145
    
    
    $
    365,713Accounts receivable, net of allowance for doubtful accounts of $635,531 and
$121,139, respectively
    
    
    10,683,860
    
    
    
    2,702,551Inventories
    
    
    9,214,063
    
    
    
    3,691,615Current portion of deferred taxes
    
    
    149,414
    
    
    
    102,171Prepaid expenses and other current assets
    
    
    496,912
    
    
    
    218,030Total current assets
    
    
    28,017,394
    
    
    
    7,080,080PROPERTY AND EQUIPMENT, net of accumulated depreciation of $870,394 and
$629,205, respectively
    
    
    831,205
    
    
    
    541,055INTANGIBLE ASSETS, net of accumulated amortization of $346,238 and
$227,305, respectively
    
    
    429,833
    
    
    
    339,066GOODWILL
    
    
    17,308,487
    
    
    
    544,375DEFERRED INCOME TAXES
    
    
    100,812
    
    
    
    304,646OTHER ASSETS, net
    
    
    259,012
    
    
    
    16,102Total assets
    
    $
    46,946,743
    
    
    $
    8,825,324LIABILITIES AND STOCKHOLDERS EQUITYCURRENT
LIABILITIES:Accounts payable
    
    $
    4,983,603
    
    
    $
    1,642,732Accrued liabilities
    
    
    1,283,553
    
    
    
    205,505Dividends payable
    
    
    247,128
    
    
    
    107,704Current portion of long-term debt
    
    
    124,800
    
    
    
    Income taxes payable
    
    
    700,850
    
    
    
    54,789Total current liabilities
    
    
    7,339,934
    
    
    
    2,010,730REDEEMABLE COMMON STOCK (see Note 3)
    
    
    7,250,000
    
    
    
    LONG-TERM DEBT
    
    
    73,200
    
    
    
    800,000COMMITMENTS
    
    
    
    
    
    
    STOCKHOLDERS EQUITY:Common stock, $0.01 par value, 50,000,000 shares authorized; 9,884,142
and 4,308,169 shares issued, respectively
    
    
    98,842
    
    
    
    43,082Additional paid-in capital
    
    
    31,469,423
    
    
    
    6,387,090Retained earnings
    
    
    1,372,795
    
    
    
    201,065Treasury stock at cost, 86,026 and 80,326 shares, respectively
    
    
    (657,451
    )
    
    
    (616,643
    )Total stockholders equity
    
    
    32,283,609
    
    
    
    6,014,594Total liabilities and stockholders equity
    
    $
    46,946,743
    
    
    $
    8,825,324
 The accompanying notes are an integral part of these financial statements. - 18 -




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME
 For the years ended June 30, 2004 and 2003
 2004
    
    
    2003Net sales
    
    $
    39,561,521
    
    
    $
    21,075,893Cost of sales
    
    
    25,372,325
    
    
    
    13,268,532Gross profit
    
    
    14,189,196
    
    
    
    7,807,361Selling, general and administrative expenses
    
    
    10,866,254
    
    
    
    6,780,705Amortization expense
    
    
    119,232
    
    
    
    58,300Operating profit
    
    
    3,203,710
    
    
    
    968,356Other income (expense):Interest income
    
    
    22,388
    
    
    
    3,200Interest expense
    
    
    (52,415
    )
    
    
    (84,525
    )Other
    
    
    18,376
    
    
    
    17,186Total other expense
    
    
    (11,651
    )
    
    
    (64,139
    )Income before income taxes
    
    
    3,192,059
    
    
    
    904,217Income tax provision (benefit)
    
    
    1,308,367
    
    
    
    (349,632
    )Net income
    
    $
    1,883,692
    
    
    $
    1,253,849Weighted average number of shares outstanding:Basic
    
    
    6,324,950
    
    
    
    4,225,784Diluted
    
    
    7,571,910
    
    
    
    4,669,574Net income per share common stock  basic
    
    $
    0.30
    
    
    $
    0.30Net income per share common stock  diluted
    
    $
    0.25
    
    
    $
    0.27
 The accompanying notes are an integral part of these consolidated financial statements. 19




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 For the years ended June 30, 2004 and 2003
 ADDITIONAL
    
    
    RETAINED EARNINGSCOMMON STOCK
    
    
    PAID-IN
    
    
    (ACCUMULATED
    
    
    TREASURY STOCKSHARES
    
    
    AMOUNT
    
    
    CAPITAL
    
    
    DEFICIT)
    
    
    SHARES
    
    
    AMOUNT
    
    
    TOTALBalances at July 1, 2002
    
    
    4,300,659
    
    
    $
    43,007
    
    
    $
    6,607,546
    
    
    $
    (945,080
    )
    
    
    59,526
    
    
    $
    (496,413
    )
    
    $
    5,209,060Issuance of stock for cash
    
    
    7,510
    
    
    
    75
    
    
    
    36,455
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,530Cash dividends
    
    
    
    
    
    
    
    
    
    
    (256,911
    )
    
    
    (107,704
    )
    
    
    
    
    
    
    
    
    
    
    (364,615
    )Purchase of stock for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,800
    
    
    
    (120,230
    )
    
    
    (120,230
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,253,849
    
    
    
    
    
    
    
    
    
    
    
    1,253,849Balances at June 30, 2003
    
    
    4,308,169
    
    
    
    43,082
    
    
    
    6,387,090
    
    
    
    201,065
    
    
    
    80,326
    
    
    
    (616,643
    )
    
    
    6,014,594Issuance of stock for cash,
net of offering costs
of $589,721
    
    
    4,399,161
    
    
    
    43,992
    
    
    
    21,252,851
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,296,843Issuance of stock for
business acquisitions
    
    
    1,176,812
    
    
    
    11,768
    
    
    
    3,829,482
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,841,250Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (711,962
    )
    
    
    
    
    
    
    
    
    
    
    (711,962
    )Purchase of stock for cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,700
    
    
    
    (40,808
    )
    
    
    (40,808
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,883,692
    
    
    
    
    
    
    
    
    
    
    
    1,883,692Balances at June 30, 2004
    
    
    9,884,142
    
    
    $
    98,842
    
    
    $
    31,469,423
    
    
    $
    1,372,795
    
    
    
    86,026
    
    
    $
    (657,451
    )
    
    $
    32,283,609
 The accompanying notes are an integral part of these consolidated financial statements. - 20 -




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the years ended June 30, 2004 and 2003
 2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,883,692
    
    
    $
    1,253,849Adjustments to reconcile net income to cash provided by
operating activities:Depreciation expense
    
    
    241,167
    
    
    
    183,571Amortization expense
    
    
    119,233
    
    
    
    58,300Provision for uncollectible accounts receivable
    
    
    194,620
    
    
    
    78,373Deferred income taxes
    
    
    170,805
    
    
    
    (406,817
    )Changes in operating assets and liabilities, net of effects of
acquisitions:Accounts receivable
    
    
    (1,225,153
    )
    
    
    (789,927
    )Inventories
    
    
    (1,222,431
    )
    
    
    (706,812
    )Prepaid expenses and other current assets
    
    
    (52,640
    )
    
    
    (68,588
    )Other assets, net
    
    
    (177,239
    )
    
    
    (7,553
    )Accounts payable
    
    
    322,767
    
    
    
    488,334Accrued expenses
    
    
    (749,390
    )
    
    
    76,857Income taxes payable
    
    
    646,061
    
    
    
    54,789Net cash provided by operating activities:
    
    
    151,492
    
    
    
    214,376CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (215,611
    )
    
    
    (222,351
    )Purchase of subsidiaries, net of cash acquired of $798,831
    
    
    (12,646,829
    )
    
    
    Net cash used in investing activities:
    
    
    (12,862,440
    )
    
    
    (222,351
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings under line of credit
    
    
    6,571,798
    
    
    
    800,000Payments on notes payable and line of credit
    
    
    (7,436,916
    )
    
    
    (353,063
    )Purchase of treasury stock
    
    
    (40,808
    )
    
    
    (120,230
    )Payment of dividends
    
    
    (572,537
    )
    
    
    (256,911
    )Proceeds from issuance of common stock
    
    
    21,296,843
    
    
    
    36,530Net cash provided by financing activities:
    
    
    19,818,380
    
    
    
    106,326Increase in cash and cash equivalents
    
    
    7,107,432
    
    
    
    98,351Cash and cash equivalents, beginning of year
    
    
    365,713
    
    
    
    267,362Cash and cash equivalents, end of year
    
    $
    7,473,145
    
    
    $
    365,713SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    52,415
    
    
    $
    84,525Cash paid for income taxes
    
    $
    480,000
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:Fair value of assets acquired in business acquisitions
    
    $
    11,897,034
    
    
    $
    Liabilities assumed in business acquisitions
    
    $
    8,714,750
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements. - 21 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2004 and 2003
 1. General: Collegiate Pacific Inc. (CPI) was incorporated on April 10, 1997 and commenced business in
February 1998. Collegiate Pacific, Inc. is a Delaware corporation and is primarily engaged in the
mail order marketing of sports equipment and team uniforms to schools, colleges, and other
organizations throughout the United States. 2. Summary of Significant Accounting Policies: Consolidation.The consolidated financial statements include the balances and results of
operations of CPI and its wholly owned subsidiaries Tomark Sports, Inc. (Tomark) and Kesslers
Team Sports, Inc. (Kesslers). CPI, together with Tomark and Kesslers, are generally referred to
herein as the Company. All significant intercompany balances and transactions have been
eliminated in consolidation. Cash and Cash Equivalents.The Company includes as cash and cash equivalents, all highly
liquid investments with maturities of three months or less at the date of purchase. Financial Instruments and Credit Risk Concentrations.Financial instruments, which are
potentially subject to concentrations of credit risk, consist principally of cash, accounts
receivable, and notes payable. Cash deposits are placed with high credit, quality financial
institutions to minimize risk. Accounts receivable are unsecured. The carrying value of these
financial instruments approximates their fair value due to their short-term nature or their index
tied to market rates. Accounts Receivable.The Companys accounts receivable are due primarily from customers in
the institutional and sporting goods dealer market. Credit is extended based on evaluation of each
customers financial condition and, generally, collateral is not required. Accounts receivable are
generally due within 30 days and are stated in amounts due from customers net of an allowance for
doubtful accounts. Accounts outstanding longer than contractual payment terms are considered past
due. The Company records allowances by considering a number of factors, including the length of
time trade accounts receivable are past due, the Companys previous loss history, the customers
current ability to pay its obligation to the Company, and the condition of the general economy and
the industry as a whole. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are credited to the allowance
in the period the payment is received. Changes in the Companys allowance for doubtful accounts for the years ended June 30, 2004 and
2003 are as follows: 2004
    
    
    2003Balance at beginning of period
    
    $
    121,139
    
    
    $
    96,181Provision for uncollectible accounts
receivable
    
    
    194,620
    
    
    
    78,373Effect of business acquisitions
    
    
    488,756
    
    
    
    Accounts written off, net of recoveries
    
    
    (168,984
    )
    
    
    (53,415
    )Balance at end of period
    
    $
    635,531
    
    
    $
    121,139
 Inventories.Inventories are carried at the lower of cost or market using the
weighted-average cost method for items purchased for resale and the standard cost method for
manufactured items. Inventory - 22 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 adjustments for estimated obsolescence or diminution in market value are recorded in an amount
equal to the difference between the cost of inventory and the estimated market value, based on
market conditions from time to time. Property and Equipment.Property and equipment includes office equipment, furniture and
fixtures, manufacturing equipment, and vehicles. These assets are stated at cost and are
depreciated over their estimated useful lives of 3 to 10 years using the straight-line method. The
cost of maintenance and repairs is expensed as incurred and significant renewals and betterments
are capitalized. License Agreements, Trademarks and Other Intangible Assets.License agreements represent
amounts paid to acquire exclusive distribution rights for specific products and are amortized over
their estimated useful lives of 5 to 10 years. Trademarks represent amounts paid to acquire the rights to brand specific products or
categories of products with recognizable brands in certain sporting good categories and are
amortized over 15 years. Other intangible assets represents a contractual backlog intangible asset acquired as part of
the Companys acquisition of substantially all of the operating assets of Kesslers Sports Shop,
Inc. This asset is being amortized on a straight-line basis over its estimated useful life of nine
months. The Company estimates the average remaining life of license agreements, trademarks, and other
intangible assets to be 7 years. Goodwill.Goodwill represents the excess of the purchase price paid and liabilities assumed
over the estimated fair market value of assets acquired and identifiable intangible assets.
Goodwill is tested for impairment annually and whenever impairment indicators are present. If the
fair value of goodwill is less than the carrying amount of goodwill, an impairment will be
recognized. The assessment of whether goodwill has been impaired is based on the Companys
estimate of the fair value using a model which considers both a discounted future cash flow
analysis and an analysis of market multiples. Valuation of Long-Lived Assets.The Company periodically evaluates the carrying value of
depreciable and amortizable long-lived assets whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. If the total of the expected future
undiscounted cash flows is less than the carrying amount of the assets, a loss is recognized in the
amount that the carrying value of the assets exceeds their fair value. Revenue Recognition.The Company recognizes revenue from product sales when title passes and
the risks and rewards of ownership have passed to the customer. Title passes generally upon
shipment or upon receipt by the customer, based on the terms of sale, except for sports equipment
that requires installation and related services. If installation or other post shipment services
are required, title passes upon the completion of all installation and related services and the
acceptance of the installed product by the customer. In fiscal 2004 and 2003, less than 3% of the
Companys consolidated revenues were from the sale of sports equipment that required any
installation or other post-shipment services. Reserves for estimated returns are established based
upon historical rates of return experienced by the Company and recorded as reductions of sales. Shipping and Handling Fees and Costs.Shipping and handling costs are included in cost of
sales, while amounts billed are included in net sales. Advertising.Advertising costs are expensed as incurred. Advertising expenses for the fiscal
years - 23 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 ended June 30, 2004 and 2003 were approximately $1.9 million and $1.8 million, respectively.
No advertising costs were capitalized at June 30, 2004 or 2003. Stock Based Compensation.At June 30, 2004, the Company has a stock-based employee
compensation plan, which is described more fully in Note 10. The Company accounts for the plan
under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations. No stock-based
compensation cost is reflected in net income, as all options granted under the plan had an exercise
price equal to the market price of the underlying common stock on the date of grant. The following
table illustrates the effect on net income and income per share if the Company had applied the fair
value recognition provisions of Financial Accounting Standards Board (FASB) SFAS No. 123,
Accounting for Stock-based Compensation, to stock-based employee compensation: 2004
    
    
    2003Net income, as reported
    
    $
    1,883,692
    
    
    $
    1,253,849Add: stock-based employee compensation expense
included in net income
    
    
    
    
    
    
    Deduct: stock-based employee compensation expense
determined under fair value method for all awards,
net of related tax effects
    
    
    (442,403
    )
    
    
    (1,109,690
    )Pro forma net income
    
    $
    1,441,289
    
    
    $
    144,159Net income per share common stock:Basic  as reported
    
    $
    0.30
    
    
    $
    0.30Basic  pro forma
    
    $
    0.23
    
    
    $
    0.03Diluted  as reported
    
    $
    0.25
    
    
    $
    0.27Diluted  pro forma
    
    $
    0.19
    
    
    $
    0.03
 Income Taxes.The Company utilizes the asset and liability approach in its reporting for
income taxes. Deferred income tax assets and liabilities are computed for differences between the
financial statements 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 Per Share.Basic income per common share is computed by dividing the net income by the
weighted average number of shares of common stock outstanding. Diluted income per share is
computed based on weighted average number of shares outstanding increased by the effect of stock
options and warrants when dilutive. Segment
Reporting.The Company and its five wholly owned subsidiaries are each engaged in the
business of marketing, manufacturing and distributing sporting goods and equipment, soft good
athletic apparel and footwear products, physical education, recreational and leisure products to
the institutional market in the United States. Although each of the Companys subsidiaries is
considered a separate operating segment, the Company meets the aggregation criteria of paragraph 17
of SFAS 131 and, accordingly, for disclosure purposes has aggregated its operating segments into
one reportable operating segment. Each of the Companys operating segments offers the same line of
products, which are acquired from the same resources, to a common customer base. - 24 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 Net Sales.The Companys net sales to external customers are attributable to sales of
sporting goods equipment and soft good athletic apparel and footwear. The following table details
the Companys consolidated net sales by these product lines for the years ended June 30, 2004 and
2003: 2004
    
    
    
    2003Sporting Goods Equipment
    
    
    $
    34,167,193
    
    
    
    $
    21,075,893Soft Good Athletic Apparel and Footwear
    
    
    
    5,394,328
    
    
    
    
    Net Sales
    
    
    $
    39,561,521
    
    
    
    $
    21,075,893
 Use of Estimates in Financial Statements.The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during the reporting period. Actual
results could differ from those estimates. 3. Business Combinations: On January 9, 2004, the Company completed its acquisition of Tomark, Inc. (Tomark) by
merging Tomark with and into a wholly owned subsidiary of the Company. The Company paid the former
stockholders of Tomark a total of $5,250,000, which consisted of $2,500,000 in cash, $250,000 in
promissory notes, and 270,562 shares of the Companys common stock valued at $2,500,000. The cash
portion of the purchase price was paid out of the Companys working capital. The acquisition of Tomark was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of Tomark have been included in the Companys
consolidated financial statements since the date of acquisition. The purchase price was allocated
to assets acquired and liabilities assumed, based on their respective estimated fair values at the
date of acquisition. After determining that the value of any identifiable intangible assets was
not material, the excess of the purchase price over the fair value of the net assets acquired has
been recorded as goodwill in the amount of $4,728,719. In accordance with Statement of Financial
Accounting Standards No. 142, the goodwill associated with this acquisition is not being amortized,
but will be tested annually for impairment. The Company purchased Tomark to increase its existing sales and customer base in the
California market, expand its product base in its existing baseball product offerings, increase the
profitability of Tomark by including products sold that the Company imports or manufactures, and
consolidate administrative tasks. The consideration given to the stockholders of Tomark was agreed
upon after the Company determined the potential impact on future earnings of the integrated
companies. On April 1, 2004, the Company completed its acquisition of substantially all of the operating
assets of Kesslers Sport Shop, Inc. d/b/a Kesslers Team Sports, Inc., an Indiana corporation
(Kesslers). Under the terms of the purchase agreement, the Company paid Kesslers $13,750,000 for
substantially all of its operating assets. The payment consisted of $6,500,000 in cash and 906,250
shares of Collegiate Pacifics common stock (the Shares) valued at $7,250,000. The Company also
paid certain liabilities of Kesslers at closing in the approximate amount of $4,700,000 and assumed
certain other specified liabilities of Kesslers related to the acquired operating assets. The
Company also agreed to register all of the Shares for resale with the Securities and Exchange
Commission. The registration statement has been filed and - 25 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 was effective on August 20, 2004. Additionally, so long as Kesslers and its stockholders
comply with the applicable provisions of the purchase agreement, the Company is required to either
(a) repurchase from Kesslers or its stockholders, as the case may be, for cash any of the Shares
that have not been sold by Kesslers prior to the second anniversary of the effective date of the
registration statement (August 20, 2006) covering the Shares for a per share price of $8.00 (the
same per share price used to determine the number of Shares issued at closing) or (b) if all of the
Shares have been sold as of the second anniversary of the effective date of the registration
statement covering the Shares, pay Kesslers an amount in cash equal to the difference between
$7,250,000 and the total sales proceeds received by Kesslers from the sale of the Shares. The acquisition of substantially all of the assets of Kesslers was accounted for using the
purchase method of accounting and, accordingly, the net assets and results of operations of
Kesslers have been included in the Companys consolidated financial statements since the date of
acquisition. Assets acquired included a contractual backlog intangible asset in the amount of
$210,000, which is being amortized on a straight-line basis over its estimated useful life of nine
months. The purchase price was allocated to assets acquired, which included the identified
intangible asset, and liabilities assumed, based on their respective estimated fair values at the
date of acquisition. The excess of the purchase price over the fair value of the net assets
acquired has been recorded as goodwill in the amount of $12,029,894. In accordance with Statement
of Financial Accounting Standards No. 142, the goodwill associated with this acquisition is not
being amortized, but will be tested annually for impairment. The Company purchased Kesslers after considering the historic levels of earnings achieved by
Kesslers, the impact the Kesslers sales force could have on future earnings of the Company by
increasing the sales volume of products that the Company imports and manufacturers, and the
increase to the combined customer base by cross selling products to each others customers. The
consideration given to the stockholders of Kesslers was agreed upon after the Company determined
the potential impact on future earnings of the integrated companies. Since the Company purchased the stock of Tomark, none of the goodwill will be deductible for
tax purposes. The goodwill related to the acquisition of Kesslers is fully deductible for tax
purposes over a 15-year period. The following table summarizes the estimated fair value of the assets acquired and liabilities
assumed related to these acquisitions completed during fiscal 2004: Current Assets
    
    $
    11,510,156Property and equipment
    
    
    315,706Other assets
    
    
    71,171Intangible assets
    
    
    210,000Goodwill
    
    
    16,758,613Total assets acquired
    
    $
    28,865,646Current liabilities
    
    $
    4,016,749Non-current liabilities
    
    
    4,698,001Total liabilities assumed
    
    $
    8,714,750
 The following presents the unaudited pro forma results for the Company for the years ended
June 30, 2004 and 2003, as if the acquisitions of Tomark, Inc. and Kesslers Sports Shop, Inc. had
been consummated at the beginning of each of the periods presented. The pro forma results are
prepared for comparative purposes only and do not necessarily reflect the results that would have
occurred had the - 26 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 acquisition occurred at the beginning of the periods presented or the results which may occur
in the future. 2004
    
    
    2003(unaudited pro forma)Net sales
    
    $
    69,057,008
    
    
    $
    56,720,665Net income
    
    $
    2,691,071
    
    
    $
    1,988,852Net income per share common stock:Basic
    
    $
    0.43
    
    
    $
    0.37Diluted
    
    $
    0.36
    
    
    $
    0.34
 4. Inventories: Inventories consisted of the following: 2004
    
    
    2003Raw materials
    
    $
    457,337
    
    
    $
    310,871Work in progress
    
    
    115,223
    
    
    
    83,229Finished goods
    
    
    8,641,503
    
    
    
    3,297,515Inventories
    
    $
    9,214,063
    
    
    $
    3,691,615
 5. Property and Equipment: Property and equipment consisted of the following: EstimatedUseful Lives(Years)
    
    
    2004
    
    
    2003Office equipment
    
    
    4  7
    
    
    $
    535,093
    
    
    $
    266,287Fixtures and equipment
    
    
    3  7
    
    
    
    614,920
    
    
    
    529,916Manufacturing equipment
    
    
    5  10
    
    
    
    452,038
    
    
    
    374,057Vehicles
    
    
    7
    
    
    
    99,548
    
    
    
    Total property and equipment
    
    
    
    
    
    
    1,701,599
    
    
    
    1,170,260Less: accumulated depreciation
    
    
    
    
    
    
    (870,394
    )
    
    
    (629,205
    )Property and equipment, net
    
    
    
    
    
    $
    831,205
    
    
    $
    541,055
 6. Intangible Assets: Intangible assets consisted of the following: - 27 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 2004
    
    
    2003Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedValue
    
    
    Amortization
    
    
    Value
    
    
    AmortizationAmortizable intangible assetsLicense Agreements
    
    $
    235,429
    
    
    $
    145,938
    
    
    $
    235,429
    
    
    $
    118,915Trademarks
    
    
    330,642
    
    
    
    130,133
    
    
    
    330,642
    
    
    
    108,090Contractual Backlog
    
    
    210,000
    
    
    
    70,167
    
    
    
    
    
    
    
    Total amortizable intangible assets
    
    $
    776,071
    
    
    $
    346,238
    
    
    $
    566,071
    
    
    $
    227,005Intangible assets not subject to
amortizationGoodwill
    
    $
    17,308,487
    
    
    $
    
    
    
    $
    544,375
    
    
    $
    
 Amortization expense related to intangible assets totaled $119,233 and $58,300 during the
years ended June 30, 2004 and 2003, respectively. The aggregate estimated amortization expense for
intangible assets for each of the fiscal years ending June 30 is as follows: Year Ending June 30,2005
    
    $
    188,8992006
    
    
    32,1712007
    
    
    31,1462008
    
    
    31,1462009
    
    
    31,146Thereafter
    
    
    115,325Total
    
    $
    429,833
 7. Line of Credit and Notes Payable: On April 28, 2004, the Company and Merrill Lynch Business Financial Service Inc., agreed to
amend the terms of the Companys existing revolving line of credit (the Credit Facility) by
increasing the Credit Facility from $5.0 million to $12.0 million and extending the term of the
facility to December 31, 2005. The Credit Facility is secured by all of the Companys assets.
Borrowings under the Credit Facility bear interest at the rate of 2.25% plus the one-month LIBOR
rate (1.35% at June 30, 2004). The Credit Facility permits the Company to borrow up to 80% of its
eligible accounts receivable and 50% of its eligible inventory, but not to exceed $12.0 million in
total borrowings. As of June 30, 2004, there was no balance outstanding under the Credit Facility,
leaving the Company with approximately $12.0 million of availability under the terms of the
borrowing base formula of the Credit Facility. The Credit Facility contains customary covenants
and the Company must maintain certain financial ratios pertaining to its fixed charges and total
debt to (a) total net worth and (b) earnings before interest, taxes, depreciation and amortization.
The Company entered into an amendment to the Credit Facility in August 2004 to clarify the
calculations of its financial ratios after taking into account the Companys recent acquisitions.
The Company is currently in compliance with all financial covenants. On January 9, 2004, the Company issued promissory notes to the two former stockholders of
Tomark - 28 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 in the aggregate amount of $250,000. Payments of principal and interest are paid monthly and
interest accrues at the rate of 3% per annum on the unpaid principal amount of the notes. The
notes expire on December 31, 2005. Payments due in fiscal 2005 and 2006 are $124,800 and $73,200,
respectively 8. Federal Income Taxes: The temporary differences that give rise to the deferred tax assets or liabilities are as
follows: 2004
    
    
    2003Deferred tax assets attributed to:Accounts receivable
    
    $
    77,439
    
    
    $
    44,821Inventories
    
    
    36,011
    
    
    
    26,236Net operating loss carryforward
    
    
    147,664
    
    
    
    361,842Compensation accruals
    
    
    29,464
    
    
    
    Intangible assets
    
    
    7,039
    
    
    
    Other
    
    
    8,256
    
    
    
    2,379Total deferred tax assets
    
    
    305,873
    
    
    
    435,278Deferred tax liabilities attributed to:Property and equipment
    
    
    (55,647
    )
    
    
    (25,491
    )Intangible assets
    
    
    
    
    
    
    (2,970
    )Total deferred tax liabilities
    
    
    (55,647
    )
    
    
    (28,461
    )Net deferred taxes
    
    $
    250,226
    
    
    $
    406,817
 Based on the Companys operating results and projections of future taxable income, the Company
believes that it will realize its deferred tax assets, and accordingly, has not established a
valuation allowance on its net deferred tax assets. Deferred tax assets and liabilities included in the balance sheet are as follows: 2004
    
    
    2003Current deferred tax asset
    
    $
    149,414
    
    
    $
    102,171Non-current deferred tax asset
    
    
    100,812
    
    
    
    304,646Balance at end of period
    
    $
    250,226
    
    
    $
    406,817
 The provision for income taxes consists of the following: 2004
    
    
    2003FederalCurrent
    
    $
    1,213,918
    
    
    $
    40,080Deferred
    
    
    (143,019
    )
    
    
    (373,832
    )StateCurrent
    
    
    264,603
    
    
    
    17,105Deferred
    
    
    (27,135
    )
    
    
    (32,985
    )Total provision for income taxes
    
    $
    1,308,367
    
    
    $
    (349,632
    )
 Following is a reconciliation of income taxes at the Federal statutory rate to income tax
expense: - 29 -




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 2004
    
    
    2003Tax expense at the Federal statutory rate
    
    $
    1,085,300
    
    
    $
    307,433Change in valuation allowance
    
    
    
    
    
    
    (419,920
    )Increase in available net operating loss carry-forwards
    
    
    
    
    
    
    (259,237
    )State income taxes, net of federal benefit
    
    
    210,848
    
    
    
    17,105Other
    
    
    12,219
    
    
    
    4,987Income tax expense (benefit)
    
    $
    1,308,367
    
    
    $
    (349,632
    )
 At June 30, 2004, the Company had net operating loss carry-forwards, which related to pre-1998
operations of the former Drug Screening Systems, Inc. (DSSI), the predecessor to the Company.
Because of the ownership change rules of the Internal Revenue Code (the Code), the Companys
ability to use the DSSI net operating loss carryforwards is limited to approximately $78 thousand
annually, in accordance with the provisions of the Code, and expire in 2011. 9. Related Party Transactions: During the fiscal year ended June 30, 2003, the Company paid the majority stockholder of the
Company approximately $5,000 in interest on notes payable assumed in conjunction with the purchase
of Kesmil Manufacturing. The Company repaid the note payable in the amount of approximately
$353,000 to the majority stockholder in full in August 2002. During fiscal 2004, the Company paid approximately $34,200 in rent for the facility located in
Richmond, Indiana. This location is owned by RPD Services, Inc., an Indiana corporation f/k/a
Kesslers Sport Shop, Inc., from which we acquired substantially all of its operating assets in
April 2004. RPD Services, Inc. is owned by Bob Dickman, Phil Dickman and Dan Dickman, all of whom
are employed by our wholly owned subsidiary, Kesslers Team Sports, Inc. The lease term for the
facility expires in March 2009. 10. Stock Options and Warrants: On December 11, 1998, the Companys stockholders approved a stock option plan, (the 1998
Collegiate Pacific Inc. Stock Option Plan). This plan authorized the Companys Board of Directors
to grant employees, directors and consultants of the Company up to an aggregate of 400,000 shares
of the Companys common stock, $0.01 par value per share. The options vest in full upon the
employees one-year anniversary date of employment with the Company or the award date if the
employee has been employed for at least one year on the grant date. The number of shares available
under the 1998 Collegiate Pacific Inc. Stock Option Plan was increased to 1,000,000 upon approval
by the Companys stockholders on March 20, 2001, and increased to 1,500,000 upon approval by the
Companys stockholders on January 15, 2004. A summary of the Companys stock option activity for the fiscal years ended June 30, 2004 and
2003 is as follows: - 30 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 WeightedAverageOptions
    
    
    Exercise PriceOutstanding at July 1, 2002
    
    
    498,200
    
    
    $
    5.16Granted
    
    
    292,200
    
    
    
    5.46Exercised
    
    
    (7,500
    )
    
    
    4.86Forfeited or cancelled
    
    
    (10,000
    )
    
    
    7.57Outstanding at June 30, 2003
    
    
    772,900
    
    
    
    5.25Granted
    
    
    300,000
    
    
    
    9.31Exercised
    
    
    (213,800
    )
    
    
    4.49Forfeited or cancelled
    
    
    (1,000
    )
    
    
    6.08Outstanding at June 30, 2004
    
    
    858,100
    
    
    $
    6.85Exercisable at June 30, 2003
    
    
    769,900
    
    
    $
    5.24Exercisable at June 30, 2004
    
    
    683,100
    
    
    $
    6.21
 The Company utilized the following assumptions in calculating the estimated fair value of each
stock option grant on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants: 2004
    
    
    2003Expected volatility
    
    
    33
    %
    
    
    100
    %Risk-free interest rate
    
    
    3.58
    %
    
    
    3.10
    %Dividend yield
    
    
    1.5
    %
    
    
    2.0
    %Expected lives
    
    5 years
    
    5 years
 The weighted average fair value of options granted in fiscal 2004 and 2003 was $2.84 and $3.80
per share, respectively. The following table summarizes additional information about stock options at June 30, 2004: Outstanding
    
    
    ExercisableWeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedContractual
    
    
    Average
    
    
    
    
    
    
    AverageLife
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercise price
    
    Shares
    
    
    (In Years)
    
    
    Price
    
    
    Shares
    
    
    Price$3.88 - $4.81
    
    
    146,100
    
    
    
    6.8
    
    
    $
    3.90
    
    
    
    146,100
    
    
    $
    3.90$4.90 - $6.13
    
    
    380,500
    
    
    
    7.6
    
    
    $
    5.84
    
    
    
    380,500
    
    
    $
    5.84$9.38
    
    
    31,500
    
    
    
    4.7
    
    
    $
    9.38
    
    
    
    31,500
    
    
    $
    9.38$9.05 - $9.48
    
    
    300,000
    
    
    
    9.8
    
    
    $
    9.31
    
    
    
    125,000
    
    
    $
    9.23858,100
    
    
    
    
    
    
    
    
    
    
    
    683,100
 - 31 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 In August 2004, employees of Dixie Sporting Goods Co. Inc., and other employees and directors
of the Company, were issued 180,300 stock options at exercise prices ranging from $8.73 to $9.25,
leaving 224,300 options for issuance under the plan. On April 14, 2004, the Company announced its Board of Directors had unanimously authorized the
Company to call for cancellation effective as of May 21, 2004, all outstanding warrants. 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 entitled the holder to purchase from the Company, for cash, one
share of common stock at $5.00 per share. The total number of warrants issued was 4,244,607. Of
the warrants that were originally issued, 4,199,599 were exercised and 45,008 were cancelled, which
required the Company to pay those former holders a total of approximately $2,250 upon cancellation. 11. Leases: The Company leases office and warehouse facilities located in Dallas, Texas, Corona,
California and Richmond, Indiana, under the terms of operating leases, which expire at various
dates through 2009. The Company also leases small sales offices or storage areas in the following
locations: Cleveland and Columbus, Ohio; Gulfport, Mississippi; Crown Point, Fort Wayne,
Indianapolis, KoKomo, and Portland, Indiana; Knoxville and Memphis, Tennessee; Little Rock,
Arkansas; Norcross and Woodstock, Georgia; Springfield, Illinois; and Tulsa, Oklahoma. These
leases expire at various dates through 2008. Rent expense was approximately $581,277 for the fiscal
year ended June 30, 2004, and $339,000 for the fiscal year ended June 30, 2003. Future minimum lease commitments on all operating leases with terms in excess of one year are
as follows: Year Ending June 30,2005
    
    $
    823,2652006
    
    
    699,6142007
    
    
    642,0622008
    
    
    346,6962009
    
    
    102,600Thereafter
    
    
    Total minimum future lease payments
    
    $
    2,614,237
 - 32 -




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##### Table of Contents



COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 and 2003 12. Income Per Share: Summarized basic and diluted income per common share for the years ended June 30, 2004 and
2003 are as follows: 2004
    
    
    2003Net
    
    
    
    
    
    
    Per Share
    
    
    Net
    
    
    
    
    
    
    Per ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    AmountBasic income
per share
    
    $
    1,883,692
    
    
    
    6,324,950
    
    
    $
    0.30
    
    
    $
    1,253,849
    
    
    
    4,225,784
    
    
    $
    0.30Effect of dilutive
options and
Warrants
    
    
    
    
    
    
    1,246,960
    
    
    
    (0.05
    )
    
    
    
    
    
    
    443,790
    
    
    
    (0.03
    )Diluted income
per share
    
    $
    1,883,692
    
    
    
    7,571,910
    
    
    $
    0.25
    
    
    $
    1,253,849
    
    
    
    4,669,574
    
    
    $
    0.27
 For the fiscal years ended June 30, 2004 and 2003, stock options and warrants covering 866,780
and 274,875 shares, respectively, were excluded in the computations of diluted income per share
because their effect was antidilutive. 13. Subsequent Events: In July 2004, the first month of fiscal 2005, the Company completed the acquisition of Dixie
Sporting Goods Co., Inc. (Dixie) in exchange for cash, notes and shares of the Companys common
stock. Dixie, a privately held company founded in 1965, is one of the nations largest team
dealers of sporting goods and related equipment. The Company acquired all of the outstanding
shares of Dixies common stock in exchange for 148,662 shares of the Companys common stock valued
at $1.5 million, a cash payment of $4.0 million, $0.5 million of notes and up to an additional $1.0
million in the form of an earnout if the net income of Dixie exceeds certain target levels in the
17 month period ending December 31, 2005, resulting in a total purchase price of approximately $7.0
million (excluding transaction costs). The Companys wholly owned subsidiary, Dixie Sporting Goods
Co., Inc., employs the two former Dixie shareholders. The results of operations of Dixie have not
been included in the Companys consolidated financial statements for the fiscal year ended June 30,
2004. - 33 -




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##### Table of Contents



ITEM 8A. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. An evaluation was carried out under the
supervision and with the participation of the Companys management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the Companys disclosure controls and
procedures (as defined in §240.13a15(e) or §240.15d15(e) of the General Rules and Regulations of
the Securities Exchange Act of 1934) as of the end of the period covered by this Annual Report.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer believe the
Companys disclosure controls and procedures are effective. (b) Changes in Internal Controls. During the period covered by this Annual Report, there was
no change to the Companys internal control over financial reporting or in other factors that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting. - 34 -




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##### Table of Contents



ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K. (a) The documents set forth below, numbered in accordance with Item 601 of Regulation S-B, are
filed herewith. ExhibitNumber
    
    Description
    
    Location23
    
    Consent of Grant Thornton LLP*31.1
    
    Certification of the Chief Executive Officer
pursuant to Rule 13a-14(a) or 15(d)-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of the Chief Financial Officer
pursuant to Rule 13a-14(a) or 15(d)-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.*32
    
    Certification of the Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.**
 
 *
    
    Filed herewith**
    
    Furnished herewith - 35 -




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. COLLEGIATE PACIFIC INC.June 27, 2005
    By:
    /s/ Michael J. BlumenfeldMichael J. Blumenfeld,Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer) Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the
capacities indicated on June 27, 2005. Signature
    
    Capacity/s/ Michael J. Blumenfeld

Michael J. Blumenfeld
    
    Chairman of the Board and
Chief Executive Officer/s/ Adam Blumenfeld

Adam Blumenfeld
    
    President and Director/s/ William R. Estill

William R. Estill
    
    Chief Financial Officer,
Secretary and Treasurer
(Principal Accounting and
Financial Officer)/s/ Jeff Davidowitz

Jeff Davidowitz
    
    Director/s/ Robert W. Hampton

Robert W. Hampton
    
    Director/s/ William H. Watkins, Jr.

William H. Watkins, Jr.
    
    Director
 - 36 -




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description
    
    Location23
    
    Consent of Grant Thornton LLP*31.1
    
    Certification of the Chief Executive Officer
pursuant to Rule 13a-14(a) or 15(d)-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of the Chief Financial Officer
pursuant to Rule 13a-14(a) or 15(d)-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.*32
    
    Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.**
 
 *
    
    Filed herewith**
    
    Furnished herewith