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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-QSB (Mark One) x
    
    Quarterly report under Section 13 OR 15(d) of the Securities Exchange
Act of 1934
 For the quarterly period ended September 30, 2004
 o
    
    Transition report under Section 13 or 15(d) of the Exchange Act
 For the transition period from  to
 Commission File No. 0-172923 COLLEGIATE PACIFIC INC.  Texas
    
    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   Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x  No
 o As of November 10, 2004,
there were 10,067,049 shares of the issuers common
stock outstanding. Transitional Small Business Disclosure Format (check one): o x




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
TABLE OF CONTENTS PageNumberPART I: FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets at September 30, 2004
and June 30, 2004
    
    
    1Condensed Consolidated Statements of Income for the
three months ended September 30, 2004 and 2003
    
    
    2Condensed Consolidated Statements of Cash Flows for
the three months ended September 30, 2004 and 2003
    
    
    3Notes to the Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    8Item 3. Controls and Procedures
    
    
    13PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    14Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    14Item 6. Exhibits
    
    
    14SIGNATURES
    
    
    15Section 302 Certification of Principal Executive OfficerSection 302 Certification of Principal Financial OfficerSection 906 Certification of Principal Executive and Principal Financial Officers




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PART I. FINANCIAL INFORMATION 
 Item 1.
Consolidated Financial Statements. COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    June 30,2004
    
    2004(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    3,340,861
    
    
    $
    7,473,145Accounts receivable, net of allowance for doubtful accounts of $892,772
and $635,531, respectively
    
    
    19,702,429
    
    
    
    10,683,860Inventories
    
    
    11,155,151
    
    
    
    9,214,063Current portion of deferred taxes
    
    
    149,414
    
    
    
    149,414Prepaid expenses and other current assets
    
    
    884,069
    
    
    
    496,912Total current assets
    
    
    35,231,924
    
    
    
    28,017,394PROPERTY AND EQUIPMENT, net of accumulated depreciation of $959,293
and $870,394 , respectively
    
    
    1,186,008
    
    
    
    831,205INTANGIBLE ASSETS, net of accumulated amortization of $428,338
and $346,238, respectively
    
    
    359,733
    
    
    
    429,833GOODWILL
    
    
    20,440,802
    
    
    
    17,308,487DEFERRED INCOME TAXES
    
    
    100,812
    
    
    
    100,812OTHER ASSETS, net
    
    
    281,527
    
    
    
    259,012Total assets
    
    $
    57,600,806
    
    
    $
    46,946,743LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    10,258,413
    
    
    $
    4,983,603Accrued liabilities
    
    
    1,627,168
    
    
    
    1,283,553Dividends payable
    
    
    251,135
    
    
    
    247,128Current portion of long-term debt
    
    
    224,800
    
    
    
    124,800Income taxes payable
    
    
    1,400,091
    
    
    
    700,850Total current liabilities
    
    
    13,761,607
    
    
    
    7,339,934REDEEMABLE COMMON STOCK (see Note 2)
    
    
    
    
    
    
    7,250,000LONG-TERM DEBT
    
    
    935,837
    
    
    
    73,200COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    STOCKHOLDERS EQUITY:Preferred stock, $0.01 par value, 1,000,000 shares authorized; no shares
issued
    
    
    
    
    
    
    Common stock, $0.01 par value, 50,000,000 shares authorized; 10,045,404
and 9,884,142 shares issued, respectively
    
    
    100,454
    
    
    
    98,842Additional paid-in capital
    
    
    40,266,824
    
    
    
    31,469,423Retained earnings
    
    
    3,193,535
    
    
    
    1,372,795Treasury stock at cost, 86,026 shares, respectively
    
    
    (657,451
    )
    
    
    (657,451
    )Total stockholders equity
    
    
    42,903,362
    
    
    
    32,283,609Total liabilities and stockholders equity
    
    $
    57,600,806
    
    
    $
    46,946,743
 The accompanying notes are an integral part of these financial statements. 1




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 Three Months EndedSeptember 30,2004
    
    2003Net sales
    
    $
    27,710,288
    
    
    $
    5,973,592Cost of sales
    
    
    18,317,237
    
    
    
    3,725,352Gross profit
    
    
    9,393,051
    
    
    
    2,248,240Selling, general and administrative expenses
    
    
    5,876,714
    
    
    
    1,781,180Amortization expense
    
    
    82,100
    
    
    
    12,266Operating profit
    
    
    3,434,237
    
    
    
    454,794Other income (expense):Interest income
    
    
    15,445
    
    
    
    Interest expense
    
    
    (6,856
    )
    
    
    (10,718
    )Other
    
    
    49,379
    
    
    
    278Total other income (expense)
    
    
    57,968
    
    
    
    (10,440
    )Income before income taxes
    
    
    3,492,205
    
    
    
    444,354Provision for income taxes
    
    
    1,420,330
    
    
    
    175,062Net income
    
    $
    2,071,875
    
    
    $
    269,292Weighted average number of shares outstanding:Basic
    
    
    9,908,227
    
    
    
    4,290,603Diluted
    
    
    10,102,793
    
    
    
    5,779,308Net income
per share common stock  basic
    
    $
    0.21
    
    
    $
    0.06Net income per share common stock  diluted
    
    $
    0.21
    
    
    $
    0.05
 The accompanying notes are an integral part of these financial statements. 2




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,071,875
    
    
    $
    269,292Adjustments
to reconcile net income to cash provided by (used in) operating activities:Depreciation expense
    
    
    90,392
    
    
    
    48,286Amortization expense
    
    
    82,100
    
    
    
    12,266Provision for uncollectible accounts receivable
    
    
    120,429
    
    
    
    23,630Loss on sale of property and equipment
    
    
    2,723
    
    
    
    Changes in operating assets and liabilities, net of effects of
acquisitions:Accounts receivable
    
    
    (5,998,163
    )
    
    
    174,880Inventories
    
    
    251,291
    
    
    
    (75,092
    )Prepaid expenses and other current assets
    
    
    (239,490
    )
    
    
    (163,408
    )Other assets, net
    
    
    14,378
    
    
    
    Accounts payable
    
    
    2,445,381
    
    
    
    (197,422
    )Accrued liabilities
    
    
    (71,986
    )
    
    
    131,540Income taxes payable
    
    
    699,241
    
    
    
    129,262Net cash provided by (used in) operating activities:
    
    
    (531,829
    )
    
    
    353,234CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (151,415
    )
    
    
    (24,394
    )Purchase of subsidiary, net of cash acquired of $187,508
    
    
    (3,712,492
    )
    
    
    Net cash used in investing activities:
    
    
    (3,863,907
    )
    
    
    (24,394
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings under line of credit
    
    
    7,718,951
    
    
    
    250,000Payments on notes payable and line of credit
    
    
    (7,257,385
    )
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (40,808
    )Payment of dividends
    
    
    (247,128
    )
    
    
    (224,278
    )Proceeds from issuance of common stock
    
    
    49,014
    
    
    
    1,468,524Net cash provided by financing activities:
    
    
    263,452
    
    
    
    1,453,438Increase (decrease) in cash and cash equivalents
    
    
    (4,132,284
    )
    
    
    1,782,278Cash and cash equivalents, beginning of period
    
    
    7,473,145
    
    
    
    365,713Cash and cash equivalents, end of period
    
    $
    3,340,861
    
    
    $
    2,147,991SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    6,856
    
    
    $
    10,718Cash paid for income taxes
    
    $
    721,089
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:Fair value of assets acquired in business acquisitions
    
    $
    5,814,276
    
    
    $
    Liabilities assumed in business acquisitions
    
    $
    3,034,831
    
    
    $
    
 The accompanying notes are an integral part of these financial statements. 3




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation: These unaudited condensed consolidated financial statements of Collegiate
Pacific Inc. and its subsidiaries (collectively, the Company) have been
prepared in accordance with accounting principles generally accepted in the
United States of America (US GAAP) for interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by US GAAP for complete financial statements and should be read in conjunction
with the Companys annual report on Form 10-KSB for the fiscal year ended June
30, 2004. All significant intercompany transactions and balances have been
eliminated in consolidation. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation of the interim financial information have been included. Operating results for the interim period are not necessarily indicative of
results that may be expected for the fiscal year ending June 30, 2005. 2. Business Combinations: On July 26, 2004, the Company completed its acquisition of all of the
outstanding capital stock of Dixie Sporting Goods Co., Inc. (Dixie). The
Company paid the former stockholders of Dixie a total of approximately $7.0
million, which consisted of $4.0 million in cash, $0.5 million in promissory
notes, 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, and 148,662 shares of the Companys common stock valued at
$1.5 million. The cash portion of the purchase price was paid out of the
Companys working capital. The acquisition of Dixie was accounted for using the purchase method of
accounting and, accordingly, the net assets and results of operations of Dixie
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 $12,000, which is being amortized on a straight-line
basis over its estimated useful life of six 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 Companys purchase price allocation is preliminary,
subject to post-acquisition due diligence, and may be adjusted as additional
information is obtained. The excess of the purchase price over the fair value
of the net assets acquired has been preliminarily recorded as goodwill in the
amount of $3,146,046. 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 Dixie after considering the historic levels of
earnings achieved by Dixie, the impact the Dixie sales force could have on
future earnings of the Company by increasing the sales volume of products that
the Company imports and manufactures, and the increase to the combined customer
base by cross selling products to each others customers. The consideration
given to the stockholders of Dixie was agreed upon after the Company determined
the potential impact on future earnings of the integrated companies. On September 29, 2004, the Company entered into an amendment (the
Amendment) to the Asset Purchase Agreement, dated as of February 9, 2004, by
and among Collegiate Pacific Inc., RPD Services, Inc. (f/k/a Kesslers Sport
Shop, Inc.), Kesslers Team Sports, Inc. (f/k/a BOO Acquisition Corp.), Bob
Dickman, Phil Dickman, Dan Dickman and Floyd Dickman (the Purchase
Agreement). Under the terms of the Purchase Agreement, the Company issued a
total of 906,250 shares of its common stock (the Shares) to RPD Services in
connection with its acquisition of Kesslers on April 1, 2004, and agreed to 4




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS the terms of a price guarantee with respect to those shares that, if
triggered in full, would have obligated Collegiate Pacific to pay RPD Services
an amount of up to $7,250,000. As a result, the Company recorded a contingent
liability of $7,250,000 for redeemable common stock in its audited consolidated
financial statements for the fiscal year ended June 30, 2004. Under the terms of the Amendment, the parties agreed to terminate
Collegiate Pacifics obligations under the price guarantee and the resale
provisions with respect to the Shares, effective as of the date of the
Amendment, September 29, 2004. Accordingly, the Company no longer has any
amount recorded as a contingent liability for redeemable common stock at
September 30, 2004. Consequently, $7,250,000 of the increase in stockholders
equity as of September 30, 2004, compared to June 30, 2004, is attributable to
the elimination of the price guaranty under the terms of the Amendment. The following presents the unaudited pro forma results for the Company for
the three months ended September 30, 2004 and 2003, as if the acquisition of
Dixie had been consummated at the beginning of each of the periods presented.
In addition, the results for the three months ended September 30, 2003 include
adjustments for the operating results for the previous acquisitions of Tomark
Inc. and Kesslers Sports Shop, Inc. The pro forma results are prepared for
comparative purposes only and do not necessarily reflect the results that would
have occurred had the acquisition occurred at the beginning of the periods
presented or the results which may occur in the future. Three months endedSeptember 30,2004
    
    2003Net sales
    
    $
    28,498,341
    
    
    $
    22,396,313Net income
    
    
    1,973,751
    
    
    
    1,718,899Net income per share:Basic
    
    $
    0.20
    
    
    $
    0.31Diluted
    
    $
    0.20
    
    
    $
    0.24
 3. Inventories: Inventories at September 30, 2004 and June 30, 2004 consisted of the
following: September 30,
    
    June 30,2004
    
    2004Raw materials
    
    $
    457,634
    
    
    $
    457,337Work in progress
    
    
    121,074
    
    
    
    115,223Finished goods
    
    
    10,576,443
    
    
    
    8,641,503Inventories
    
    $
    11,155,151
    
    
    $
    9,214,063
 5




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4. Income Per Share: Summarized basic and diluted income per share are as follows: Three months endedSeptember 30,2004
    
    2003Net income
    
    $
    2,071,875
    
    
    $
    269,292Weighted average common shares - basic
    
    
    9,908,227
    
    
    
    4,290,603Effect of dilutive securities (options and warrants)
    
    
    194,566
    
    
    
    1,488,705Weighted average common shares - diluted
    
    
    10,102,793
    
    
    
    5,779,308Net income per share - basic
    
    $
    0.21
    
    
    $
    0.06Per share effect of dilutive securities
    
    
    
    
    
    
    (0.01
    )Net income per share - diluted
    
    $
    0.21
    
    
    $
    0.05Options and warrants excluded from computation
because their effect was anti-dilutive
    
    
    
    
    
    
    31,500
 5. Stock Based Compensation: On December 11, 1998, the Companys stockholders approved a new stock
option plan (the Plan). The 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 Plan, as amended, now authorizes the Companys Board of Directors to grant
employees, directors and consultants of the Company up to an aggregate of
1,500,000 shares of the Companys common stock. The options vest in full upon
the employees one-year anniversary of employment with the Company or on the
award date if the employee has been employed for at least one year on the award
date. The Company accounts for all options issued under the Plan in accordance
with 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
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and income per share as 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: 6




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COLLEGIATE PACIFIC INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Three months endedSeptember 30,2004
    
    2003Net income, as reported
    
    $
    2,071,875
    
    
    $
    269,292Add: stock-based employee compensation
expense included in net income
    
    
    
    
    
    
    Deduct: stock-based employee
compensation expense determined using
the fair value based method for all awards,
net of related tax effects
    
    
    (196,655
    )
    
    
    2,949Pro forma net income
    
    $
    1,875,220
    
    
    $
    266,343Net income per share common stock:As reported:Basic
    
    $
    0.21
    
    
    $
    0.06Diluted
    
    $
    0.21
    
    
    $
    0.05Pro forma:Basic
    
    $
    0.19
    
    
    $
    0.06Diluted
    
    $
    0.19
    
    
    $
    0.05
 The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: expected average volatility of 33.0%; risk free interest rate of
3.58%; dividend yield of 1.5%; and expected lives of five years. 7




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations. Overview 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
Statement Regarding Forward-Looking Disclosure section and elsewhere in this
Quarterly Report on Form 10-QSB. Collegiate Pacific Inc. (Collegiate Pacific, we, us, our, or the
Company) is a premier marketer, manufacturer and distributor of sporting
goods and equipment, team uniforms, 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 and other recreational products, as well as provide after-sale
customer service. We currently market approximately 4,500 sports related
equipment products, team uniforms 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 2004 and fiscal 2005 refer to our fiscal years
ended or ending, as the case may be, June 30, 2004 and 2005, respectively. Matters Affecting Comparability Collegiate Pacifics operating results for the first quarter of fiscal
2005 include the operating results of Tomark Sports, Inc. (Tomark) and
Kesslers Sport Shop, Inc. (Kesslers), both of which we acquired in fiscal
2004, and Dixie Sporting Goods Co., Inc. (Dixie), which we acquired during
the first quarter of fiscal 2005, since their respective acquisition dates.
However, the condensed consolidated statement of income for the three months
ended September 30, 2003, does not include the operating results for any of
those acquisitions since each acquisition was completed after September 30,
2003. Approximately $20.9 million of the $21.7 million increase in net sales,
when compared to the first three months of fiscal 2004, is attributable to
Collegiate Pacifics acquisitions during fiscal 2004 and fiscal 2005. See Note
2 to Notes to Condensed Consolidated Financial Statements. Consolidated Results of Operations The following table compares selected financial data from the Consolidated
Statements of Income for the three months ended September 30, 2004 and 2003: 8




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For the three months ended September 30,Increase/(Decrease)2004
    
    2003
    
    Dollars
    
    Percentage(dollars in thousands, except per share amounts)Net sales
    
    $
    27,710
    
    
    $
    5,974
    
    
    $
    21,736
    
    
    
    363.9
    %Gross profit
    
    
    9,393
    
    
    
    2,248
    
    
    
    7,145
    
    
    
    317.8
    %Operating profit
    
    
    3,434
    
    
    
    455
    
    
    
    2,979
    
    
    
    655.1
    %Net income
    
    
    2,072
    
    
    
    269
    
    
    
    1,803
    
    
    
    669.4
    %Diluted earnings per share
    
    $
    0.21
    
    
    $
    0.05
    
    
    $
    0.16
    
    
    
    320.0
    %Expressed as a percentage of net sales:Gross profit margin
    
    
    33.9
    %
    
    
    37.6
    %Selling, general and administrative expense
    
    
    21.2
    %
    
    
    29.8
    %Operating profit
    
    
    12.4
    %
    
    
    7.6
    %
 Acquisitions On July 26, 2004, we completed our acquisition of Richmond, Virginia based
Dixie in exchange for a combination of cash, notes and shares of our common
stock. Our wholly owned subsidiary, 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
the first three months of fiscal 2005 include the operating results of Dixie
since July 26, 2004, the date we completed our acquisition of Dixie. Three Months Ended
September 30, 2004 Compared to Three Months Ended September 30, 2003 Net Sales.Net sales for the fiscal quarter ended September 30, 2004,
totaled $27.7 million compared to $6.0 million for the fiscal quarter ended
September 30, 2003, an increase of $21.7 million, or 363.9%. Net sales grew by
a combined $20.9 million from the businesses we acquired during fiscal 2004 and
early fiscal 2005, and reflect the intentional migration of some
catalog customers into these newly acquired entities, which resulted
in additional organic growth in net sales for those acquired
entities. The Company intends to continue this migration of certain
catalog customers to our newly acquired road sales staff in specific
regions of the United States. We believe this migration will result
in deeper account penetration, enhanced account retention and
additional organic growth to the Companys net sales. 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. We also believe that seasonality in our
net sales will continue to be a factor in future periods because of the
budgeting procedures of our customers and the seasonal demand for our products.
We believe, however, we have reduced the seasonality of our net sales by
acquiring Kesslers and Dixie. As a result, we continue to see an increase in
demand for our products during the first and fourth quarters of our fiscal year
(July through September and April through June, respectively). Gross Profit. Gross profit for the fiscal quarter ended September 30,
2004, was $9.4 million, or 33.9% of net sales, compared with $2.2 million, or
37.6% of net sales, for the fiscal quarter ended September 30, 2003. The
improvement in gross profit dollars for the quarter was attributable to the
increase in sales volume. The decrease in gross profit margin for the fiscal
quarter ended September 30, 2004, compared to the fiscal quarter ended
September 30, 2003,was mainly due to the increase in sales of soft good
products, which generally have slightly lower gross margins. In the fiscal
quarter ended September 30, 2004, Tomark, Kesslers and Dixie contributed a
combined gross profit of $6.8 million and gross profit percentage of 32.6%.
Other factors which affect gross profit are the cost of freight, which is
influenced by oil prices, the cost 9




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of raw materials used in the manufacturing process and the Companys
ability to timely pass these changes to variable costs on to its customers. Selling, General and Administrative Expenses.Selling, general and
administrative (SG&A) expenses for the fiscal quarter ended September 30,
2004, were $5.9 million, or 21.2% of net sales, compared with $1.8 million, or
29.8% of net sales, for the fiscal quarter ended September 30, 2003. The
increase in SG&A expenses for the fiscal quarter ended September 30, 2004, was
attributable to Collegiate Pacifics acquisitions in fiscal 2004 and early
fiscal 2005, which resulted in increased expenses of $3.8 million, 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. Operating Profit.Operating profit for the fiscal quarter ended September
30, 2004, increased to $3.4 million, or 12.4% of net sales, compared to
operating profit of $455 thousand, or 7.6% of net sales for the fiscal quarter
ended September 30, 2003. The increase in operating profit was primarily
attributable to higher sales volume, partially offset by higher SG&A expenses. Interest Expense.Interest expense for the fiscal quarter ended September
30, 2004, decreased to $7 thousand, or 36.0%, compared to $11 thousand for the
fiscal quarter ended September 30, 2003. The decrease in interest expense was
primarily attributable to lower average borrowing levels during the fiscal
quarter ended September 30, 2004. See Liquidity and Capital Resources. Income Taxes.Income tax expense for the fiscal quarter ended September
30, 2004, increased to $1.4 million, which is approximately 40.7% of our income
before taxes. Income tax expense for the fiscal quarter ended September 30,
2003 was $175 thousand, or approximately 39.4% of income before taxes. Net Income.Net income for the fiscal quarter ended September 30, 2004,
increased to $2.1 million, or 7.5% of net sales, compared to net income of $269
thousand, or 4.5% of net sales, for the fiscal quarter ended September 30,
2003. The increase in net income was attributable to increased sales activity,
as well as a decrease in SG&A expenses as a percentage of net sales, all of
which was offset by the increase in income tax expense. Liquidity and Capital Resources Cash and cash equivalents totaled approximately $3.3 million at September
30, 2004, compared to approximately $7.5 million at June 30, 2004. Collegiate
Pacifics operating activities utilized approximately $532 thousand in cash
during the fiscal quarter ended September 30, 2004, compared to providing
approximately $353 thousand during the fiscal quarter ended
September 30, 2003.
The decrease in cash provided by operating activities is due to an increase in
accounts receivable, which is attributable to increased sales volume during the
quarter. Net cash used in investing activities was $3.9 million during the fiscal
quarter ended September 30, 2004, compared to approximately $24 thousand for
the fiscal quarter ended September 30, 2003. The increase in cash used during
the fiscal quarter ended September 30, 2004 is attributable to cash used for
the acquisition of Dixie of $3.7 million, which is net of the amount of cash
acquired in connection with that acquisition. No material commitments for
capital expenditures existed as of September 30, 2004. 10




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Cash provided by financing activities for the fiscal quarter ended
September 30, 2004 was $263 thousand, compared to approximately $1.5 million
during the fiscal quarter ended September 30, 2003. The cash generated from
financing activities was from the issuance of common stock upon the exercise of
options of approximately $49 thousand and net borrowings under the Companys
revolving line of credit of $461 thousand, partially offset by the payment of
dividends of approximately $247 thousand during the period. The cash generated
from financing activities during the fiscal quarter ended September 30, 2003,
was from the issuance of common stock upon the exercise of common stock
warrants and options of approximately $1.5 million and borrowings under the
companys revolving line of credit of $250 thousand, partially offset by the
purchase of treasury shares of approximately $41 thousand and the payment of
dividends of approximately $224 thousand during the period. Current assets as of September 30, 2004, totaled approximately $35.2
million, thereby providing the company with working capital of approximately
$21.5 million. The Companys principal external source of liquidity is its $12 million
revolving line of credit with Merrill Lynch Business Financial Services Inc.
(the Credit Facility), which is 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 (4.09% at September 30, 2004). As of September 30,
2004, there was approximately $509 thousand outstanding under the Credit
Facility, leaving the Company with approximately $11.5 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 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 September 30, 2004, and the effects
such obligations are expected to have on liquidity and cash flow in future
periods. Less than
    
    Payments due by Period    

    
    AfterContractual Obligations
    
    Total
    
    1 year
    
    1 - 3 years
    
    4 - 5 years
    
    5 years(dollars in thousands)Long-term debt
    
    $
    1,159
    
    
    $
    225
    
    
    $
    751
    
    
    $
    183
    
    
    $
    Operating leases
    
    
    3,132
    
    
    
    1,051
    
    
    
    1,526
    
    
    
    555
    
    
    
    Total contractual cash
obligations
    
    $
    4,291
    
    
    $
    1,276
    
    
    $
    2,277
    
    
    $
    738
    
    
    $
    
 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 11




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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. Critical Accounting Policies 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. 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 from actual
experience if future economic conditions, levels of customer demand or
competitive conditions differ from expectations. 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. At September 30, 2004, our total allowance for doubtful accounts was
approximately $893 thousand, an increase of $257 thousand from June 30, 2004.
The increase in the amount of our allowance for doubtful accounts for the
fiscal quarter ended September 30, 2004, is mainly due to allowances for
doubtful accounts that arose from the business acquisition we completed during
the fiscal quarter ended September 30, 2004, as well as an increase in accounts
receivable at September 30, 2004, compared to June 30, 2004. 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 September 30, 2004, the balance sheet includes approximately $20.8 million
of goodwill and intangible assets, net, and $1.2 million of fixed assets, net.
The Company has concluded that no impairment exists. 12




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Statement Regarding Forward-Looking Disclosure This Quarterly Report onForm 10-QSB, including Managements Discussion
and Analysis of Financial Condition and Results of Operations in Item 2,
contains forward-looking statements that involve risks and uncertainties, as
well as assumptions that, if they never materialize or prove incorrect, could
cause the results of Collegiate Pacific and its consolidated subsidiaries to
differ materially from those expressed or implied by such forward-looking
statements. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including any
projections of net sales, gross margin, expenses, earnings or losses from
operations, synergies or other financial items; any statements of the plans,
strategies and objectives of management for future operations; any statements
regarding future economic conditions or performance; any statements of
expectation or belief; and any statements of assumptions underlying any of the
foregoing. The risks, uncertainties and assumptions referred to above include
Collegiate Pacifics ability to successfully execute its acquisition plans and
growth strategy, integration of acquired businesses, global economic
conditions, product demand, financial market performance and other risks that
are described herein, including but not limited to the items described from
time to time in Collegiate Pacifics Securities and Exchange Commission
reports, including Collegiate Pacifics Annual Report onForm 10-KSBfor the
fiscal year ended June 30, 2004. Collegiate Pacific cautions that the
foregoing list of important factors is not exclusive. Any forward-looking
statements included in this report are made as of the date of filing of this
report with the Securities and Exchange Commission, and we assume no obligation
and do not intend to update these forward-looking statements. 
 Item 3. Controls and Procedures. 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 Quarterly Report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer believe the Companys disclosure
controls and procedures are effective. Changes in Internal Controls. During the period covered by this
Quarterly Report, there were no significant changes to the Companys internal
controls over financial reporting or in other factors that could significantly
affect these controls, including any corrective actions with respect to
significant deficiencies and material weaknesses. However, the Company is
continuing to integrate the operations of newly acquired Kesslers and Dixie
into the Companys current internal controls environment and procedures. It is
anticipated the integration of Kesslers operations will be completed by the
end of the second quarter of fiscal 2005 and the integration of Dixies
operations will be completed by the end of the third quarter of fiscal 2005.
This integration will result in changes to significant areas of the Companys
internal controls in order to provide effective monitoring and control of both
Kesslers and Dixies operations. 13




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PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings. In February 2004, the Companys wholly-owned subsidiary, Dixie Sporting
Goods Co., Inc., was named as a co-defendant in an action styled Edwin Dean
Spruill, Jr. v. Jugs, Inc. and Dixie Sporting Goods Co., Inc., civil action no.
L04-361, which, at the request of Dixie, was recently transferred to the
Circuit Court for the City of Virginia Beach, Virginia. This lawsuit seeks a
total of $5,000,000 for damages suffered by the plaintiff while using a
pitching machine manufactured by Jugs, Inc. and sold to the plaintiffs
employer by Dixie. Dixie maintains primary and excess insurance coverage for
the claim in the amount of $3,000,000. The parties are currently engaged in
discovery and Dixie intends to vigorously defend the claim. Management does
not expect the final outcome to have a material adverse effect on the Companys
financial position, results of operations or cash flows. 
 Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds. On July 26, 2004, Collegiate Pacific issued 148,662 shares of its common
stock, valued at $1.5 million, to the two former stockholders of Dixie Sporting
Goods Co., Inc., C. Michael Caravati and Kenneth L. Caravati, as partial
consideration for the Companys acquisition of all of the capital stock of
Dixie. Because the issuance by the Company of its common stock to the former
stockholders of Dixie did not involve a public offering, the Company relied on
Section 4(2) of the Securities Act of 1933, as amended, to issue the shares of
its common stock to the former stockholders of Dixie. Collegiate Pacific filed
a Form D with the Securities and Exchange Commission covering the issuance of
the common stock. 
 Item 6. Exhibits.  A.
    
    Exhibits. The following exhibits are filed as part of this report: ExhibitNumber
    
    Exhibit31.1
    
    Section 302 Certification of Principal Executive Officer.*31.2
    
    Section 302 Certification of Principal Financial Officer.*32.
    
    Section 906 Certifications of Principal Executive and Principal Financial
Officers.**
   *
    
    Filed herewith**
    
    Furnished herewith 14




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized. COLLEGIATE PACIFIC INC.Dated: November 12, 2004
    
    /s/ Michael J. BlumenfeldMichael J. Blumenfeld, Chairman andChief Executive Officer/s/ William R. EstillWilliam R. Estill, Chief Financial Officer(Principal Financial and Accounting Officer)
 15




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EXHIBIT INDEX ExhibitNumber
    
    Exhibit31.1
    
    Section 302 Certification of Principal Executive Officer.*31.2
    
    Section 302 Certification of Principal Financial Officer.*32.
    
    Section 906 Certifications of Principal Executive and Principal Financial
Officers.**
   *
    
    Filed herewith**
    
    Furnished herewith