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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO [ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 2003
Commission File number 1-10704
Sport Supply Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2241783
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1901 Diplomat Drive, Farmers Branch, Texas 75234 - 8914
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
----------------------------- ------------------------
Common Stock, $ .01 Par Value Over-the-counter
Bulletin Board
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 126-2) Yes _______ No X
The aggregate market value of the voting and non voting common equity
held by non-affiliates of the registrant on September 27, 2002 based on the
closing price of the common stock on the Over the Counter Bulletin Board as
of the last business day of the registrant's most recently completed second
quarter, was approximately $6,200,000.
Indicated below is the number of outstanding shares of each class of
the registrant's common stock, as of June 1, 2003.
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
Common Stock, $.01 par value 8,917,244 shares
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of the Form 10-K
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Proxy Statement for Annual Meeting of
Stockholders to be held on or about August 28, 2003 Part III
TABLE OF CONTENTS
Item Page
---- ----
PART I
1 Business........................................... 3
2 Properties......................................... 10
3 Legal Proceedings.................................. 11
4 Submission of Matters to a Vote of Security Holders 11
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters.............................. 11
6 Selected Financial Data............................ 12
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 14
7A Quantitative and Qualitative Disclosure About
Market Risk...................................... 23
8 Financial Statements and Supplementary Data........ 23
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 41
PART III
10 Directors and Executive Officers of the Registrant. 41
11 Executive Compensation............................. 41
12 Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters... 41
13 Certain Relationships and Related Transactions..... 41
14 Controls and Procedures............................ 41
15 Principal Accountant Fees and Services............. 41
PART IV
16 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.............................. 42
PART I.
Item 1. Business.
--------
General
Sport Supply Group, Inc. is a direct mail marketer of sporting goods,
physical education, recreational and leisure products and equipment to the
institutional market in the United States. The institutional market is
generally comprised of schools, colleges, universities, government agencies,
military facilities, athletic clubs, athletic teams and dealers, youth
sports leagues and recreational organizations. We offer products directly
to the institutional market primarily through: (i.) a variety of
distinctive, information-rich catalogs; (ii.) sales personnel strategically
located in certain large metropolitan areas; (iii.) in-bound and out-bound
telemarketers; (iv.) a team of experienced bid and quote personnel and (v.)
the Internet. Our marketing efforts are supported by a customer database of
over 250,000 names, a call center at our headquarters located in Farmers
Branch, Texas, a custom-designed 180,000 square foot distribution center,
world-wide sourcing, and domestic manufacturing facilities. We currently
offer approximately 10,000 sports related equipment products to over 100,000
customers.
We believe that over the past few years the sales of sports related,
physical education, recreational and leisure products in the United States
have experienced increased competition and declining participation in
traditional sports activities. Satisfying the product and service needs of
the sporting goods market has increasingly shifted from in-store and on-site
sales to printed catalogs, broadcast and cable infomercials, home shopping
channels, direct telephone marketing and the Internet. This shift has
allowed increased competition and expanded product offerings to customers
across the country from direct marketing companies.
We are positioned to grow our business because of our long-term
customer relationships, expansive product lines, our Information Technology
(IT) and Internet platform, our high capacity order-taking, processing and
fulfillment, our well-developed expertise in catalog design and
merchandising, and our superior sourcing capabilities.
One of the most important contributions of our IT platform is that our
order processing and fulfillment capabilities are integrated throughout our
operations, including all of our websites. Each website is strategically
targeted to a specific customer group or product line. Our websites enable
our customers to place orders, access account information, track orders, and
perform routine customer service inquires on a real-time basis, twenty-four
hours a day, seven days a week. This functionality provides more
convenience and added flexibility for our customers, many of whom are part-
time coaches and volunteers who have careers and parenting responsibilities.
We believe the majority of our customers have access to the Internet
and view placing orders and accessing their account information over the
Internet as a significant benefit. While the majority of our customers'
orders are received directly by telephone and through the mail, we continue
to experience increased e-commerce activity through our websites and believe
that in the future an increasing portion of our customer base will use the
Internet as the predominant method of quoting, ordering, and procuring their
products, along with performing customer service inquiries. In fiscal year
2003, orders placed over the internet have increased from approximately $3
million in the prior year to approximately $5 million this year.
Our sourcing, warehousing, distribution and fulfillment capabilities,
and our fully integrated SAP information system, provide the necessary
capacities, logistics, information and technological capabilities to meet
the demands and growth potential of e-commerce and business expansion. We
view the continued migration of our customers to our websites as vital to
our future growth and success.
We are a Delaware corporation incorporated in 1982. In 1988, we became
the successor of an operating division of Aurora Electronics, Inc. (f/k/a
BSN Corp. and referred to herein as "Aurora"). Before completing the
initial public offering of 3,500,000 shares of our common stock in April
1991, we were a wholly-owned subsidiary of Aurora. As of March 28, 2003, we
had two wholly-owned subsidiaries: Athletic Training Equipment Company,
Inc., a Delaware corporation ("ATEC") and Sport Supply Group Asia, Ltd., a
Hong Kong corporation. In December 1997, our ATEC subsidiary purchased
substantially all of the assets of Athletic Training Equipment Company,
Inc., a Nevada corporation. On September 25, 2000, we acquired the stock of
Sport Supply Group Asia, Ltd., from Emerson Radio Corp. (See Item 13 --
"Certain Relationships and Related Transactions"). Effective March 2001,
Sport Supply Group, Inc. is a majority-owned subsidiary of Emerson Radio
Corp.
Our executive offices are located at 1901 Diplomat Drive, Farmers
Branch, Texas 75234-8914 and our telephone number is (972) 484-9484. Our
Internet website, www.sportsupplygroup.com, provides certain additional
information about us. Our Forms 10-K, Forms 10-Q and other SEC filings
including Forms 3, 4 and 5 are made available free of charge on our website,
www.sportsupplygroup.com as soon as reasonably practical after they are
filed electronically with the SEC.
Products
We believe we manufacture and distribute one of the broadest lines of
sporting goods, physical education, recreational and leisure products and
equipment to the institutional market. We offer over 10,000 products for
sale. We manufacture approximately 1,000 of these products and obtain the
remainder from external manufacturers. Our product lines include, but are
not limited to: archery, baseball, softball, basketball, camping, football,
tennis and other racquet sports, gymnastics, indoor recreational games and
game tables, physical education, soccer, field and floor hockey, lacrosse,
track and field, volleyball, weight lifting, fitness equipment, outdoor
playground equipment, and early childhood development products.
We believe brand recognition is important to the institutional market.
Most of our products are marketed under trade names or trademarks owned or
licensed by us. We believe many of our trade names and trademarks are well
recognized among institutional customers. We intend to continue to expand
our product and brand name offerings by actively pursuing product, trademark
and trade name licensing arrangements and acquisitions. Our trademarks,
servicemarks, and trade names include, but are not limited to, the
following:
* Voit[R] -- institutional sports and physical education related
equipment and products -- (licensed from Voit Corporation. - see
discussion below).
* MacGregor[R] -- certain equipment and accessories relating to baseball,
softball, basketball, soccer, football, volleyball, and general
exercise (licensed from MacMark Corporation, a subsidiary of Riddell
Sports, Inc. - see discussion below).
* Huffy[R] -- early childhood development products (sublicensed from
Huffy Sports Company - see discussion below).
* Alumagoal[R] -- track and field equipment, including starting blocks,
hurdles, pole vault and high jump standards and crossbars, and soccer
goals.
* AMF[R] -- gymnastics equipment (licensed from AMF Bowling, Inc. - see
discussion below).
* ATEC [R] -- pitching machines and related baseball and softball
training equipment.
* Blastball[R] -- youth recreational baseball.
* BSN[R] -- sport balls.
* Champion Barbell-- barbells, dumbbells and weight lifting benches and
machines.
* Curvemaster[R] -- baseball and softball pitching machines.
* Fibersport -- pole vaulting equipment.
* Flag A Tag[R] -- flag football belts.
* Gamecraft - physical education, recreational game tables and coaching
equipment.
* GSC Sports -- gymnastics equipment.
* Maxpro[R] -- products include, among others, football practice dummies,
baseball, and other protective helmets and pads (other than football
protective equipment), baseball chest protectors and baseball mitts and
gloves (licensed from Proacq Corp., a subsidiary of Riddell Sports
Inc.).
* New England Camp and Supply -- camping and outdoor recreational
equipment and accessories.
* North American Recreation[R] -- billiard, table tennis and other game
tables.
* Passon's Sports -- mail order catalogs.
* Pillo Polo[R] -- recreational polo and hockey games.
* Port-A-Pit[R] -- high jump and pole-vault landing pits.
* Pro Base[R] -- baseball bases.
* Pro Down[R] -- football down markers, football equipment
* Pro Net -- nets, net assemblies and frames and practice cages.
* Rol-Dri[R] and Tidi-Court -- golf course and tennis court maintenance
equipment.
* Toppleball[R] -- recreational ball games.
* U.S. Games, Inc.[R] -- physical education equipment for exercise, games
and childhood development.
In December 1986, we entered into an agreement with Voit Corporation.
The Voit license permits us to use the Voit[R] trademark in connection with
manufacturing, advertising, and selling specified sports related equipment
and products, including inflated balls for all sports and baseball and
softball products to certain institutional customers. We are required to
pay annual royalties under the license, with a minimum annual royalty of
$100,000. Subject to the terms of the license agreement, we are permitted to
use the Voit[R] trademark through December 31, 2004.
In February 1992, we acquired two separate licenses to use several
trade names, styles, and trademarks (including, but not limited to,
MacGregor[R]). On December 21, 2000, the license with MacMark, Equilink and
Riddel relating to the use of the MacGregor[R] trademark, was amended and
restated in its entirety. The amended and restated license permits us to
manufacture, promote, sell, and distribute to designated customers
throughout the world, specified sports related equipment and products
relating to baseball, softball, basketball, soccer, football, volleyball,
and general exercise. The amended and restated license requires us to pay
an annual royalty based upon sales of MacGregor[R] branded products, with
the minimum annual royalty set at $100,000. The amended and restated
license is exclusive with respect to certain customers and non-exclusive
with respect to others. The amended and restated license has an original
term of forty (40) years, but will automatically renew for successive forty
(40) year periods unless terminated in accordance with the terms of the
license. We have converted a substantial portion of our products to the
MacGregor[R] brand, which is believed to be a widely recognized trade name
in the sporting goods industry. See Part I. Item 1. -- "Business - Sales
and Marketing" and Part I. Item 7. - "Risks and Uncertainties."
On August 19, 1993, we entered into an exclusive license agreement with
AMF Bowling, Inc. to use the AMF[R] name in connection with the promotion
and sale of certain gymnastics equipment in the United States and Canada.
We are required to pay an annual royalty under the license. The minimum
royalty increases by a predetermined percentage each year the license
agreement is in effect. The minimum royalty for the contract year ending
December 31, 2002 was approximately $108,000. The estimated royalty for the
contract year ending December 31,2003 is approximately $100,000. Subject to
the terms of the AMF license, we are permitted to use the AMF[R] name
through December 31, 2003.
In 1996, we entered into an advertising and distribution agreement with
Hershey Chocolate USA. Pursuant to this agreement, we market and distribute
promotional fundraising literature and programs to our customers, and
service the fundraising needs of many nontraditional customers, subject to
the provisions of the agreement. The current agreement expires on May 15,
2004 with a two year renewal option. We are currently in the process of
renegotiating the terms of this agreement with Hershey. If this agreement
is not revised to our satisfaction, we will either exercise our right to
terminate this agreement early or expand our fundraising product offering to
include other confectionery brands.
In June 1998, we entered into an agreement with the Huffy Corporation.
The Huffy sublicense permits us to use the Huffy[R] trademark in connection
with manufacturing, advertising, selling and distributing certain sports
related products and equipment to institutional customers. We are required
to pay annual royalties under the sublicense subject to the terms of the
sublicense agreement. The minimum royalty increases by a predetermined
percentage each year the license agreement is in effect. The minimum
royalty for the contract year ending September 30, 2002 was approximately
$87,000. The estimated royalty for the contract year ending September 30,
2003 is approximately $85,000.The term of the sublicense expires September
30, 2003.
We are currently in the process of conducting cost benefit analyses of
our Huffy[R] and AMF[R] license agreements. We believe we may be able to
convert some of our license branded products to brands that are owned by us
without sacrificing a loss in revenues. If we conclude that we can
successfully convert product that is currently branded under the AMF[R] or
Huffy[R] name to product that is branded under a name we own, we will make
such a conversion and permit the applicable license agreements to expire
thereby reducing our royalty expenses.
In addition to the foregoing, we have acquired (or had issued) a number
of patents relating to products sold by us. We also have a number of patent
applications pending before the United States Patent and Trademark Office.
Sales and Marketing
We believe we are the largest seller of sporting goods and sports
leisure products to the institutional market in the United States. The
institutional market is made up of over 500,000 potential customers, most
clearly defined as: 1) Out-of-School Customers, including youth sports
leagues, recreational departments and organizations, churches and private
athletic organizations; 2) In-School Customers, including all levels of
public and private schools and their related athletic and recreational
departments; 3) Government Customers, including federal, state and local
agencies; and 4) Resale and Specialty Customers, including sporting goods
resellers and specialty organizations.
We solicit and sell our products through 12 different direct mail
catalogs, an internal sales and customer service staff of over 75 people, an
external sales force of over 15 people traveling in significant metropolitan
sales territories, and 15 Internet sites.
We have marketing efforts directed towards the following athletic and
leisure activities: Football, Baseball, Softball, Basketball, Soccer, Track
and Field, Training and Fitness, Camping, Outdoor Recreation, Indoor
Recreation Table Games, Playground Recreation, Tennis and Volleyball. We
believe we are also a brand leader in the institutional sporting goods and
sports leisure market, marketing our products under a variety of private
label and well recognized name brands including: BSN Sports, MacGregor[R],
Wilson, Mizuno, Spalding, Port-A-Pit, Champion Barbell, Voit[R], ATEC[R] and
Flag-A-Tag[R]. We believe our mailing list of over 250,000 customer and
target prospects is one of our most valuable assets.
We also have licenses and marketing alliances with national
organizations including, YMCA, Hershey Chocolate USA, American Heart
Association and American Diabetes Association.
During fiscal year 1999, we acquired two team dealers. A team dealer
is a local sporting goods store that sells its products primarily to teams
in its local market. These team dealer acquisitions service the local
institutional customers and teams with a full line of athletic products.
Conlin Bros., Inc., located in Southern California, was acquired in January
1999. Larry Black Sporting Goods, Inc. in Oklahoma and Kansas, was acquired
in February 1999. During October 1999, we acquired two more local team
dealers: Spaulding Athletic, located in Little Rock Arkansas, and LAKCO Team
Sports, located in Southern California.
During fiscal year 1998, we acquired certain assets of Athletic
Training Equipment Company, Inc., a Nevada Corporation. ATEC manufactures
and markets pitching machines and other baseball and softball training
equipment to sporting goods dealers and other sporting goods institutions.
These products are marketed using catalogs and outside sales representatives
to service the dealers. ATEC has one of the broadest and most versatile
lines of pitching machines in the market today. With the use of the latest
technology, ATEC has continued to meet the training needs of professional,
college, high school and youth baseball and softball leagues.
We have designed and launched 15 Internet Websites. Each website is
strategically targeted to a specific customer group or product line. Our
websites enable our customers to place orders, access account information,
track orders, and perform routine customer service inquiries on a real-time
basis, twenty-four hours a day, seven days a week. This functionality
allows added convenience and flexibility for our customers. We maintain and
operate these websites. Our 15 Internet sites are listed below:
BSNsports.com -- targets primarily middle schools, high
schools, colleges, and municipalities
LeagueDirect.com -- targets Little League and other league sports
US-Games.com -- targets elementary schools and the early
childhood development buyer
ChampionBarbell.com -- targets fitness
BSNgsanaf.com -- targets government entities
NewEnglandCamp.com -- targets camps and outdoor leisure
Portapit.com -- targets track and field
eSportsonline.com -- targets direct consumers
ATECsports.com -- website for ATEC
Officialfundraising.com -- targets all customers interested in
fundraising
Flagatag.com -- targets flag football and intramural leagues
Blastball.com -- targets users of our exclusive Blastball
product
ConlinSports.com -- targets the West Coast sports customer
familiar with the Conlin Sports name
RolDri.com -- targets dealers servicing the tennis market
ThinkSportz -- targets direct consumers of baseball
products
We believe we have established a market leader position by constantly
updating and expanding our product lines and targeting selling efforts to
specific customer profiles. We have historically targeted one market --
institutional sporting goods and physical education customers. We also
target individual consumers on our esportsonline.com and ThinkSportz.com
websites.
Our new Associate Program is a revenue sharing program, with
independent third parties called "associates." These associates receive a
percentage of revenue generated by the purchase of our products for orders
directed through the associate's website. More than 1,000 entities have
joined the Associate Program because they can generate revenues by promoting
a full-line sporting goods store on their website without taking any
inventory or credit risk. Typically, the Associate Agreement may be
terminated by either party upon 30 days notice.
Customers
Our revenues are not dependent upon any single customer. Instead, we
enjoy a very large and diverse customer base. Our customers include all
levels of public and private schools, colleges, universities and military
academies, municipal and governmental agencies, military facilities,
churches, clubs, camps, hospitals, youth sports leagues, non-profit
organizations, team dealers and certain large retail sporting goods chains.
Many of our institutional customers typically receive annual appropriations
for sports related equipment, which appropriations are generally spent in
the period preceding the season in which the sport or athletic activity
occurs. We believe our customer base in the United States is the largest in
the institutional direct mail market for sports related equipment.
Approximately 8%, 8%, 7%, and 9% of our sales in the fiscal years 2003,
2002, 2001, and 2000, respectively, were to agencies of the United States
Government, a majority of which were sales to military installations. We
have a contract with the General Services Administration (the "GSA
Contract") that grants us an "approved" status when attempting to make sales
to military installations or other governmental agencies. The existing GSA
Contract expires December 31, 2006. Under the GSA Contract, we agree to sell
approximately 385 products to United States Government agencies and
departments at catalog prices or at prices consistent with any discount
provided to our other customers. Products sold to the United States
Government under the GSA Contract are always sold at our lowest offered
price.
We also sell products to United States Government customers from a NAF
(Non-Appropriated Funds) contract. Our entire product line is included on
this contract and offers pricing to the United States Government at
discounted prices that are consistent with any discount provided to our
other customers. This contract is administered by the United States Air
Force and is scheduled to expire on September 30, 2003.
Not withstanding the foregoing, no material portion of our business is
subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the Government.
Seasonal Factors and Backlog
Historically, our revenues are lowest in the quarter ending December
and peak in the quarter ending March. Our revenues reflect a level cycle
during the quarters ending in June and in September. The peak in revenues
in the quarter ending March is primarily due to spring and summer sports,
favorable outdoor weather conditions and school needs before summer closing.
We had a backlog of approximately $2,936,000 at March 28, 2003,
$2,015,000 at March 29, 2002, $2,638,000 at March 30, 2001, and $2,329,000
at September 29, 2000.
Manufacturing and Suppliers
We manufacture, assemble and distribute many of our products from four
of our facilities. See Item 2. -- "Properties" for details. Several vinyl
and netting products are manufactured in our two Anniston, Alabama plants.
Baseball and softball pitching machines are manufactured and assembled at
our ATEC subsidiary in Sparks, Nevada. Items of steel and aluminum
construction, such as soccer, football and baseball field equipment, are
principally manufactured at our facilities in Farmers Branch, Texas.
Most of our manufactured products are standardized. Certain products
manufactured by us are custom-made (such as tumbling mats ordered in color
or size specifications). The principal raw materials used by us in
manufacturing are, for the most part, readily available from several
different sources. Such raw materials include foam, vinyl, nylon thread,
and steel and aluminum tubing.
We are now outsourcing many of the products previously manufactured by
us, including products such as game tables and fitness equipment. Products
have been outsourced to both domestic and international vendors. In fiscal
year 2003, we opened a sourcing office in Hong Kong. We now have more
control of our sourcing through direct negotiation of terms with
manufacturers, conducting on-site quality control and a local presence.
Outsourcing these products has enabled us to (i.) reduce our cost of goods
in many of these products, (ii.) reduce our manufacturing facility costs,
(iii.) reduce many selling prices to our customers and (iv.) improve our
remaining manufacturing efficiencies by focusing on longer production runs
of fewer products. Outsourcing these products also requires us to carry
more inventory due to the longer lead times from overseas. We believe
selling products to our customers at more competitive prices will have a
positive impact on our revenue base.
Items not manufactured by us are purchased from various suppliers
primarily located in the United States, Taiwan, Australia, the Philippines,
Thailand, the People's Republic of China, Pakistan, Sweden and Canada. We
have no significant purchase contracts with any major supplier of finished
products, and most products purchased from suppliers are available from
other sources. We purchase most of our finished product in United States
dollars and are, therefore, not subject to direct foreign exchange rate
differences. See Part II. Item 7. - Management Discussion and Analysis -
Certain Factors that May Affect the Company's Business or Future Operating
Results".
Competition
We compete in the institutional sporting goods market principally with
local sporting goods dealers, retail sporting goods stores, other direct
mail catalog marketers and providers of sporting goods on the Internet. We
have identified approximately 15 other direct marketing and internet
companies in the institutional market. We believe that most of these
competitors are substantially smaller than us in terms of geographic
coverage, products, e-commerce capability, customer base and revenues.
We compete in the institutional market principally on the basis of:
brand, price, product availability and customer service. We believe we have
an advantage in the institutional market over traditional sporting goods
retailers and team dealers because our selling prices do not include
comparable price markups attributable to traditional multi-distribution
channel markups. In addition, our expansive product lines and availability
of goods we source enable us to respond more rapidly to customer demand. We
believe our direct mail competitors operate primarily as wholesalers and
distributors.
Government Regulation
Many of our products are subject to 15 U.S.C.A. SS 2051-2084 (1998 and
Supp. 2002), among other laws, which empowers the Consumer Product Safety
Commission (the "CPSC") to protect consumers from hazardous sporting goods
and other articles. The CPSC has the authority to exclude from the market
certain articles that are found to be hazardous and can require a
manufacturer to refund the purchase price of products that present a
substantial product hazard. CPSC determinations are subject to court
review. Similar laws exist in some states and cities in the United States.
Product Liability and Insurance
Because of the nature of our products, we are periodically subject to
product liability claims resulting from personal injuries. We may become
involved in various lawsuits incidental to our business, some of which
relate to claims allegedly resulting in substantial permanent paralysis.
Significantly increased product liability claims continue to be asserted
successfully against manufacturers and distributors of sports equipment
throughout the United States resulting in general uncertainty as to the
nature and extent of manufacturers' and distributors' liability for personal
injuries. See Item 3. -- "Legal Proceedings".
In recent years, product liability insurance has become much more
expensive, more restrictive and more difficult to obtain. There can be no
assurance that our general product liability insurance will be sufficient to
cover any successful product liability claims made against us. In our
opinion, any ultimate liability arising out of currently pending product
liability claims will not have a material adverse effect on our financial
condition or results of operations. However, any claims substantially in
excess of our insurance coverage, or any substantial claim not covered by
insurance, could have a material adverse effect on our financial condition
and results of operations.
Employees
On April 30, 2003, we had approximately 340 full-time employees, of
whom approximately 65 were involved in our manufacturing operations. We
also hire part-time and temporary employees during peak seasons. None of
our employees are represented by unions, and we believe our relations with
employees are good.
Directors and Executive Officers
Year First
Became
Director or
Name Age Position Officer
---- --- -------- -------
Geoffrey P. Jurick 62 Chairman of the Board and Chief 1996
Executive Officer
John P. Walker 40 President and Director 1996
Terrence M. Babilla 41 Chief Operating Officer, Executive 1995
Vice President, General Counsel and
Secretary
Robert K. Mitchell 51 Chief Financial Officer 1999
Thomas P. Treichler 59 Director 1997
Peter G. Bunger 63 Director 1996
Carl D. Harnick 68 Director 2003
Item 2. Properties.
----------
The following table sets forth the material properties owned or leased
by us or any of our subsidiaries:
Approximate
Square Lease Expires
Facility Purpose Footage Location or is Owned
---------------- ------- -------- --------------
Manufacturing and corporate 135,000 Farmers December, 2004
headquarters (1) Branch, TX
Warehouse and fulfillment 181,000 Farmers December, 2004
processing (2) Branch, TX
Warehouse 31,000 Farmers December, 2003
Branch, TX
Manufacturing 62,500 Sparks, NV December, 2006
Manufacturing 35,000 Anniston, AL Owned
Manufacturing 45,000 Anniston, AL Owned
(1) Approximately 40,000 square feet are utilized by Emerson Radio Corp.
(2) Approximately 35,000 square feet are utilized by Emerson Radio Corp.
We believe the facilities used in our operations are in satisfactory
condition and adequate for our present and anticipated future operations.
However, we are currently reviewing the possibility of consolidating the
facilities located in Farmers Branch into one facility in 2004. The purpose
of the consolidation would be to improve efficiencies, take advantage
of economies of scale and reduce property taxes. In addition to the
facilities listed above, we lease space in various locations primarily for
use as sales offices.
Item 3. Legal Proceedings.
-----------------
Periodically, we become involved in various claims and lawsuits
incidental to our business. In management's opinion, any ultimate liability
arising out of currently pending claims will not have a material adverse
effect on our financial condition or results of operations. However, any
claims substantially in excess of our insurance coverage, or any substantial
claim that may not be covered by insurance or any significant monetary
settlement, could have a material adverse effect on our financial condition
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matter was submitted by us to a vote of security holders, through
the solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year covered by this report.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
Trading Price Range and Dividends
Our common stock, par value $.01 per share, (the "Common Stock") is
quoted on the Over-the-counter Bulletin Board under the symbol SSPY. As of
April 30, 2003, there were 1,122 holders of the Common Stock (including
individual security position listings). The following table sets forth the
high and low sales range for the periods indicated. During 2001, we changed
our financial reporting year end from September 30 to March 31. Therefore,
the fiscal year ended March 30, 2001 is a transition period consisting of
six calendar months. Over-the-counter market quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Common Stock
Fiscal Year Fiscal Quarter High Low
----------- --------------- ------ ------
2000 Ended December 8.438 5.688
Ended March 8.250 5.938
Ended June 6.125 3.875
Ended September 4.875 2.188
2001 Ended December 2.938 0.750
Ended March 2.375 1.063
2002 Ended June 1.500 1.270
Ended September 1.350 0.760
Ended December 1.250 0.850
Ended March 1.100 0.960
2003 Ended June 1.300 1.070
Ended September 1.600 1.280
Ended December 1.750 1.400
Ended March 2.100 1.550
We have not declared dividends in the past three fiscal years. Pursuant
to the Loan and Security Agreement we have with Congress Financial
Corporation, we are restricted from paying cash dividends without the
lender's prior consent. We do not intend to pay cash dividends in the
foreseeable future.
On January 12, 2001, we issued 1,629,629 shares of restricted stock out
of our treasury stock to Emerson Radio Corp. ("Emerson"), our largest
stockholder. Emerson paid $1.35 in cash for each share of stock, for a
total purchase price of $2.2 million. All of the shares issued in this
transaction were issued in a non-public offering pursuant to Section 4(2) of
the Securities Act of 1933, as amended. Proceeds of the sale were used to
pay off our term loan with Comerica Bank.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information regarding our equity
compensation plans as of March 29, 2002. See Note 2 to the Consolidated
Financial Statements for further information.
----------------------------------------------------------------------------
Number of Number of
securities to be Weighted securities
issued upon average remaining
exercise of exercise price available for
outstanding of outstanding future issuance
options, warrants options, warrants under equity
and rights and rights compensation plans
(a) (b) (c)
----------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 308,442 $6.695 1,244,349
----------------------------------------------------------------------------
Item 6. Selected Financial Data (Unaudited).
The following sets forth selected historical financial information.
The data has been derived from our audited financial statements. The
amounts are in thousands, except for per share data. The historical
information should be read in conjunction with Item 7. -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and our financial statements and notes thereto included in Item 8. --
"Financial Statements and Supplementary Data".
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
( Amounts in thousands, except for per share data )
Fiscal Fiscal Six Fiscal Fiscal Fiscal
Year Year Months Year Year Year
Ended Ended Ended Ended Ended Ended
March 28, March 29, March 30, Sept 29, Oct 1, Oct 2,
Statement of Earnings Data: 2003 2002 2001 (1) 2000 1999 1998
-------- -------- -------- -------- -------- --------
Net revenues $ 102,617 $ 103,601 $ 50,337 $ 119,321 $ 112,880 $ 101,935
Gross profit 30,029 29,495 13,936 36,170 37,283 32,303
Operating profit (loss) (943) (2,790) (2,411) (437) 8,445 7,782
Interest expense 629 986 957 2,022 1,196 474
Other income, net (11) 193 14 17 63 215
Earnings (loss) before cumulative
effect of accounting change (1,561) (3,582) (2,123) (1,518) 4,623 4,964
Cumulative effect of accounting change (7,442) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net earnings (loss) $ (9,003) $ (3,582) $ (2,123) $ (1,518) $ 4,623 $ 4,964
======== ======== ======== ======== ======== ========
Earnings (loss) per common share and
common equivalent share:
Net earnings (loss) per common share
before cumulative effect of accounting
change - basic $ (0.18) $ (0.40) $ (0.27) $ (0.21) $ 0.63 $ 0.62
Cumulative effect of accounting
change - basic (0.83) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net earnings (loss) per common
share - basic $ (1.01) $ (0.40) $ (0.27) $ (0.21) $ 0.63 $ 0.62
======== ======== ======== ======== ======== ========
Net earnings (loss) per common share
before cumulative effect of accounting
change - diluted $ (0.18) $ (0.40) $ (0.27) $ (0.21) $ 0.60 $ 0.60
Cumulative effect of accounting
change - diluted (0.83) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net earnings (loss) per common
share - diluted $ (1.01) $ (0.40) $ (0.27) $ (0.21) $ 0.60 $ 0.60
======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares:
Weighted average common shares
outstanding - basic 8,917 8,917 7,964 7,273 7,390 8,026
Weighted average common shares
outstanding - diluted 8,917 8,917 7,964 7,273 7,728 8,237
At At At At At At
March 28, March 29, March 30, Sept 29, Oct 1, Oct 2,
Balance Sheet Data: 2003 2002 2001 (1) 2000 1999 1998
-------- -------- -------- -------- -------- --------
Working capital $ 27,716 $ 26,977 $ 28,383 $ 30,771 $ 31,873 $ 25,245
Total assets 61,996 67,307 73,584 73,687 73,249 54,804
Long-term obligations, net 17,612 17,000 17,333 19,034 18,426 5,161
Total liabilities 33,950 30,258 32,955 33,150 31,141 13,626
Stockholders equity 28,046 37,049 40,629 40,537 42,108 41,178
NOTES TO SELECTED FINANCIAL DATA (UNAUDITED)
(1) During 2001, we changed our financial reporting year-end from September 30 to March 31.
Therefore, the fiscal year ended March 30, 2001 is a transition period consisting of six
calendar months.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
2003 Compared to 2002
The following table summarizes certain financial information relating to our
results of operations for the fiscal year ended March 28, 2003 and the
fiscal year ended March 29, 2002:
2003 2002
----------- -----------
Net Revenues $102,617,413 $103,601,428
Gross Profit 30,029,166 29,495,185
SG&A 30,511,651 31,928,924
Internet expenses 460,845 355,766
Interest expense 629,026 985,509
Other income, net 11,398 192,586
Net loss before cumulative effect of
accounting change (1,560,958) (3,582,428)
Cumulative effect of accounting change 7,442,432 --
Net loss $ (9,003,390) $ (3,582,428)
Net Revenues. Net revenues decreased approximately $984,000 (1.0%) for the
fiscal year ended March 28, 2003 as compared to the fiscal year ended March
29, 2002. The decrease in net revenues was primarily the result of revenue
losses in our Team Dealer operations and decreases in school spending for
athletic programs.
Gross Profit. Gross profit increased approximately $534,000 (1.8%) for the
fiscal year ended March 28, 2003 as compared to the same period in fiscal
2002. As a percentage of net revenues, gross profit increased to 29.3% for
the fiscal year ended March 28, 2003 as compared to 28.5% for the fiscal
year ended March 29, 2002. The increase in gross profit is attributable to
the consolidation of several of our plants, exiting certain unprofitable
product lines and improved product sourcing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $1.4 million (4.4%) for the
fiscal year ended March 28, 2003 as compared to the same period in fiscal
2002. As a percentage of net revenues, selling, general and administrative
expenses decreased to 29.7% from 30.8% for the fiscal year ended March 28,
2003 as compared to the fiscal year ended March 29, 2002. The decrease in
selling, general and administrative expenses for the fiscal year ended March
28, 2003 as compared to the fiscal year ended March 29, 2002 is primarily a
result of the following:
(i.) A decrease in payroll and related expense of approximately $1.1
million; primarily a result of reduced headcount.
(ii.) A decrease in depreciation and amortization expense of approximately
$366,000; primarily a result of assets reaching their full depreciation
levels and the discontinuation of goodwill amortization.
(iii.) A decrease in auditing and legal expenses of approximately $185,000;
primarily a result of lower audit fees due to our change in fiscal year
from September to March which resulted in more audit work in the prior
year.
Internet Expenses. Internet related expenses increased approximately
$105,000 (29.5%) for the fiscal year ended March 28, 2003 as compared to the
fiscal year ended March 29, 2002. These expenses are related to the
continued support and enhancement of our websites and web development to
post electronic catalogs on our websites.
Interest Expense. Interest expense decreased approximately $356,000
(36.2%) for the fiscal year ended March 28, 2003 as compared to the fiscal
year ended March 29, 2002. This decrease is due to lower average borrowings
and lower interest rates.
Other Income, Net. Other income decreased approximately $181,000 for the
fiscal year ended March 28, 2003 as compared to the fiscal year ended March
29, 2002. This decrease is due primarily to the casualty gain on insurance
proceeds received in the prior year for assets lost in a flood that occurred
in our corporate facility. These proceeds were used to purchase replacement
assets.
Net Loss before Cumulative Effect of Accounting Change. Net loss before
cumulative effect of accounting change for the fiscal year ended March 28,
2003 decreased by $2.0 million (56.4%) as compared to the fiscal year ended
March 29, 2002.
Cumulative Effect of Accounting Change. On March 30, 2002 we adopted
Financial Accounting Standards Board Statement No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 requires that goodwill not be
amortized but instead be tested for impairment at least annually by
reporting unit. Goodwill is required to be tested for impairment in a
transitional test upon adoption and then at least annually by reporting
unit. As a result of our impairment testing, we recorded a non-cash
"cumulative effect of accounting change" impairment write down of
approximately $7.4 million. We now have no remaining goodwill on our
financial statements.
Net Loss. Net loss increased approximately $5.4 million for the fiscal year
ended March 28, 2003 as compared to the fiscal year ended March 29, 2002.
Net loss per share increased to $(1.01) from $(0.40) for the fiscal year
ended March 28, 2003 as compared to the fiscal year ended March 29, 2002.
This increase is due to the cumulative effect of accounting change.
2002 Compared to 2001
The following table summarizes certain financial information relating
to our results of operations for the fiscal year ended March 29, 2002 and
the comparable twelve months ended March 30, 2001:
2002 2001
----------- -----------
Net Revenues $103,601,428 $113,060,806
Gross Profit 29,495,185 32,252,079
SG&A 31,928,924 34,274,170
Internet expenses 355,766 1,352,635
Nonrecurring charges -- 253,239
Interest expense 985,509 2,046,656
Other income, net 192,586 29,433
Income tax benefit -- 2,085,736
Net loss $ (3,582,428) $ (3,559,452)
Net Revenues. Net revenues decreased approximately $9.5 million (8.4%) for
the fiscal year ended March 29, 2002 as compared to the comparable twelve
months ended March 30, 2001. The decrease in net revenues was primarily the
result of a general slow-down in the economy, reduced participation in
traditional youth sports, a reduced sales force, and the discontinuation of
certain unprofitable and low margin product lines.
Gross Profit. Gross profit decreased approximately $2.8 million (8.7%) for
the fiscal year ended March 29, 2002 as compared to the same period in
fiscal 2001. As a percentage of net revenues, gross profit remained at 28.5%
for the fiscal year ended March 29, 2002 as compared to the comparable
twelve months ended March 30, 2001. The decrease in gross profit was
directly attributable to the decrease in net revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $2.3 million (6.8%) for the
fiscal year ended March 29, 2002 as compared to the same period in fiscal
2001. As a percentage of net revenues, selling, general and administrative
expenses increased to 30.8% from 30.3% for the fiscal year ended March 29,
2002 as compared to the comparable twelve months ended March 30, 2001. The
decrease in selling, general and administrative expenses for the fiscal year
ended March 29, 2002 as compared to the comparable twelve months ended March
30, 2001 was primarily a result of the following:
(i.) A decrease in payroll and related expense of approximately $1.2
million; primarily a result of reduced headcount.
(ii.) A decrease in selling and promotional expenses of approximately
$774,000; primarily a result of reduced catalog expenses.
(iii.) A decrease in depreciation and amortization expense of approximately
$276,000; primarily a result of assets reaching their full
depreciation levels.
(iv.) A decrease in tax expense of approximately $195,000; primarily a
result of lower sales & use tax expense.
Internet Expenses. Internet related expenses decreased approximately $1.0
million (73.7%) for the fiscal year ended March 29, 2002 as compared to the
comparable twelve months ended March 30, 2001. These expenses are related
to the continued support and enhancement of our websites and web development
to post electronic catalogs on our websites. Internet expenses were
significantly higher in the twelve months ended March 30, 2001 because we
were still developing our e-commerce sites.
Nonrecurring Charges. In the twelve months ended March 30, 2001, we
consolidated our manufacturing facility located in Cerritos, CA with
our facilities located in Anniston, AL. In association with this plant
consolidation, we recorded additional nonrecurring expenses of approximately
$114,000, which included employee termination costs, facility closure costs
and moving costs. In addition, we recorded approximately $139,000 of
nonrecurring expenses in the twelve month period ended March 30, 2001
related to the accelerated amortization of loan fees due to our change in
lenders in March 2001. During the quarter ended March 2001, we mutually
agreed with our lender to an early termination of the credit agreement so
that we could establish a credit arrangement with a lender that could better
service our working capital needs. This change in lenders resulted in a
lower interest rate and increased borrowing availability.
Interest Expense. Interest expense decreased approximately $1.1 million
(51.8%) for the fiscal year ended March 29, 2002 as compared to comparable
twelve months ended March 30, 2001. This decrease was due to lower average
borrowings and lower interest rates.
Other Income, Net. Other income increased approximately $163,000 for the
fiscal year ended March 29, 2002 as compared to the comparable twelve months
ended March 30, 2001. This increase was due primarily to the casualty gain
on insurance proceeds received for assets lost in a flood that occurred in
our corporate facility. These proceeds were used to purchase replacement
assets.
Income Tax Provision (Benefit). The benefit for income taxes decreased
approximately $2.1 million to a benefit of $0 in the fiscal year ended March
29, 2002 as compared to the comparable twelve months ended March 30, 2001.
Based upon our operating results for the fiscal year ended March 29, 2002,
we did not provide an income tax benefit related to our loss before income
taxes.
Net Loss. Net loss increased approximately $23,000 for the fiscal year
ended March 29, 2002 as compared to the comparable twelve months ended March
30, 2001. Net loss per share decreased to $(0.40) from $(0.45) for the
fiscal year ended March 29, 2002 as compared to the comparable twelve months
ended March 30, 2001. The weighted average shares outstanding increased by
approximately 12.0% for the fiscal year ended March 29, 2002, as compared to
the comparable twelve months ended March 30, 2001. The increase in weighted
average shares outstanding was primarily due to the sale of treasury stock
to Emerson Radio Corp. in January 2001.
2001 Compared to 2000
The following table summarizes certain financial information relating
to our results of operations for the six month period ended March 30, 2001
and the comparable six month period ended March 31, 2000:
2001 2000
----------- -----------
Net Revenues $ 50,336,524 $ 56,596,700
Gross Profit 13,935,999 17,853,869
SG&A 15,775,650 16,366,932
Internet expenses 317,808 101,322
Nonrecurring charges 253,239 605,000
Interest expense 957,270 932,391
Other income, net 14,400 1,904
Income tax benefit 1,231,053 69,203
Net loss $ (2,122,515) $ (80,669)
Net Revenues. Net revenues decreased approximately $6.3 million (11.1%) for
the six month period ended March 30, 2001 as compared to the same period in
fiscal 2000. We believe the decrease in net revenues was primarily a result
of competitive pressures in the marketplace, a decline in youth baseball
registrations, unusually cold and wet weather in warm weather states
delaying spring sports, a reduction in our sales force, a reduction in the
number of catalogs mailed and a general slow-down in the economy.
Gross Profit. Gross profit decreased approximately $3.9 million (21.9%) for
the six month period ended March 30, 2001 as compared to the same period in
fiscal 2000. As a percentage of net revenues, gross profit decreased to
27.7% from 31.5% for the six month period ended March 30, 2001 as compared
to the same period in fiscal 2000. Gross profit decreased due to product
mix shifts and pricing pressure in the institutional sporting goods
marketplace.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $591,000 (3.6%) for the six
month period ended March 30, 2001 as compared to the same period in fiscal
2000. As a percentage of net revenues, selling, general and administrative
expenses increased to 31.3% from 28.9% for the six month period ended March
30, 2001 as compared to the same period in fiscal 2000. The decrease in
selling, general and administrative expenses for the six month period ended
March 30, 2001 as compared to the six month period ended March 31, 2000 was
primarily a result of the following:
(i.) A decrease in selling and promotional expense of approximately
$565,000. This decrease is primarily a result of lower catalog expense
as part of our cost reduction programs initiated in 2001.
(ii.) A decrease in payroll related expense of approximately $364,000. This
decreases is a result of reduced headcount, primarily in the sales and
sales administration areas.
(iii.) A decrease in legal fees of approximately $200,000. This decrease
is primarily the result of a reduction in litigation.
(iv.) A decrease in facility expenses of approximately $156,000. This
decrease is primarily a result of lower rent and telephone expense due
to renegotiations of certain leases and contracts.
These decreases in selling, general and administrative expenses were
partially offset by an increase of approximately $632,000 in computer
related expenses and an increase of approximately $104,000 in license and
royalty related expenses. Fiscal 2001 was the first year of normal, fully
functional MIS department operating expenses. The increase in license and
royalty related expenses was primarily due to the Amended and Restated
License Agreement with MacMark, entered into on December 21, 2000, which
requires us to pay an annual royalty based upon sales of MacGregor branded
products, with the minimum annual royalty set at $100,000.
Internet Expenses. We incurred Internet related expenses of approximately
$318,000 for the six month period ended March 30, 2001 as compared to
approximately $101,000 for the six month period ended March 31, 2000. These
expenses were related to the continued support and enhancement of our
websites and web development to post electronic catalogs on the websites. We
incurred approximately $1.1 million of Internet expenses during fiscal year
2000 to develop and launch fully functional e-commerce web sites that offer
our customers electronic on-line catalogs, customer specific pricing,
on-line ordering and other on-line customer service functions. This
development effort was completed in fiscal 2000.
Nonrecurring Charges. In the six months ended March 30, 2001, we
consolidated our manufacturing facility located in Cerritos, CA with our
facilities located in Anniston, AL. In association with this plant
consolidation, we recorded for the six month period ended March 30, 2001,
nonrecurring expenses of approximately $114,000 which included employee
termination costs, facility closure and moving costs. In addition, we
recorded approximately $139,000 of nonrecurring expenses in the six month
period ended March 30, 2001 related to the accelerated amortization of loan
fees due to the change in lenders in March 2001. During the quarter ended
March 2001, we mutually agreed with our lender to an early termination of
the credit agreement so that we could establish a credit arrangement with a
lender that could better service our working capital needs. This change in
lenders resulted in a lower interest rate and increased borrowing
availability. In the six month period ended March 31, 2000, we recorded a
nonrecurring charge related to the settlement of two different lawsuits in
the amount of $605,000. The first lawsuit involved a former employee. The
second lawsuit related to a marketing program. No previous accrual was made
because the final settlement was not measurable nor probable at the balance
sheet date.
Interest Expense. Interest expense increased approximately $25,000 (2.7%)
for the six month period ended March 30, 2001 as compared to the same period
in fiscal 2000. This increase was due to higher average borrowings.
Other Income, Net. Other income increased approximately $12,000 for the six
month period ended March 30, 2001 as compared to the same period in fiscal
2000.
Income Tax Provision (Benefit). The benefit for income taxes increased
approximately $1.2 million to a benefit of $1.2 million in the six months
ended March 30, 2001 as compared to the same period in fiscal 2000. Our
effective tax rate decreased to 36.7% in the six month ended March 30, 2001
as compared to 46.2% for the same period in fiscal 2000.
Net Loss. Net loss increased approximately $2.0 million for the six month
period ended March 30, 2001 as compared to the same period in fiscal 2000.
Net loss per share increased to $(0.27) from $(0.01) for the six month
period ended March 30, 2001 as compared to the same period in fiscal 2000.
The weighted average shares outstanding increased by approximately 9.5% for
the six month period ended March 30, 2001 as compared to the same period in
fiscal 2000. The increase in weighted average shares outstanding was
primarily due to the sale of treasury stock to Emerson Radio Corp.
Liquidity and Capital Resources
Our working capital increased approximately $739,000 during the fiscal
year ended March 28, 2003, from $27.0 million at March 29, 2002 to $27.7
million at March 28, 2003. The increase in working capital is primarily the
result of an increase in cash of approximately $1.6 million, an increase in
inventories of approximately $1.2 million, and an increase in trade accounts
receivable of approximately $932,000. These increases wer partially offset
by an increase in trade accounts payable of $2.3 million and an increase in
accrued liabilities of approximately $792,000.
We have a credit agreement with Congress Financial Corporation to
finance our working capital requirements through March 2004. The credit
agreement provides for a $25 million revolving credit facility. Borrowings
under our credit agreement are subject to an accounts receivable and
inventory collateral base and are secured by substantially all of our
assets. We are required to maintain certain net worth levels and as of
March 28, 2003 we were in compliance with this requirement. As of March 28,
2003, we had total available borrowings under our senior credit facility of
approximately $22.4 million, of which approximately $17.5 million were
outstanding. Congress Financial Corporation has expressed an interest in
extending this credit agreement. We intend to have a long-term credit
agreement in place well in advance of March 2004. Although no assurance
can be made, we believe we will be able to extend the term of our credit
agreement with Congress Financial Corporation prior to its maturity date of
March 27, 2004.
We believe we can satisfy our short-term and long-term working capital
requirements to support our current operations from borrowings under our
credit facility and cash flows from operations.
We have undertaken revenue enhancement programs in the past two fiscal
years, including our associate programs in which associates share in the
revenue generated from their website links to our websites. We have also
initiated successful marketing alliances with American Heart Association and
American Diabetes Association. See Part I. Item 1. "Business - Sales and
Marketing" for more information on these programs.
The following table sets forth our contractual obligations at March 28, 2003
for the periods shown:
Due in Due in
Due within two to four to
one year three years five years Thereafter Total
------------------------------------------------------------
Notes payable $ 53,563 $17,595,180 $ -- $ -- $17,648,743
Capital lease
obligations 17,519 16,573 -- -- 34,092
Leases 1,790,962 1,674,007 226,154 -- 3,691,123
------------------------------------------------------------
Total $1,862,044 $19,285,760 $226,154 $ -- $21,373,958
============================================================
On May 28, 1997, the Board of Directors approved the repurchase of up
to 1,000,000 shares of our issued and outstanding common stock in the open
market and/or privately negotiated transactions. On October 28, 1998, the
Board of Directors approved a second repurchase program of up to an
additional 1,000,000 shares of our issued and outstanding common stock in
the open market and/or privately negotiated transactions. As of March 28,
2003, we had repurchased approximately 1,333,000 shares of our issued and
outstanding common stock in the open market and privately negotiated
transactions. Any future purchases will be subject to price and
availability of shares, working capital availability and any alternative
capital spending programs. Our credit agreement currently prohibits the
repurchase of any additional shares without the lender's prior consent.
As of March 28, 2003, we did not have any material commitments for
capital expenditures.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. We consider certain accounting
policies related to inventories and trade accounts receivables, impairment
of long lived assets and valuation of deferred tax assets to be critical
policies due to the estimation processes involved in each.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the weighted-average and standard cost methods for items
manufactured by us and weighted-average cost for items purchased for resale.
The inventory allowance for obsolete or slow moving items is determined
based upon our periodic assessment of the net realizable value of our
inventory. If actual market conditions are less favorable than those we
have projected, additional inventory write-downs may be required.
Trade Accounts Receivable
We extend credit based upon evaluations of a customer's financial
condition and provide for any anticipated credit losses in our financial
statements based upon management's estimates and ongoing reviews of recorded
allowances. If the financial conditions of our customers deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Intangible Assets
We have significant intangible assets related to acquired intangibles.
The determination of related estimated useful lives and whether or not these
assets are impaired involves significant judgments. Changes in strategy
and/or market conditions could significantly impact these judgments and
require adjustments to recorded asset balances.
Income Taxes
We record a valuation allowance to reduce the amount of our deferred
tax assets to the amount that is more likely than not to be realized. While
we have considered future taxable income and ongoing tax planning strategies
in assessing the need for the valuation allowance, in the event that we
determine that we would be able to realize our deferred tax assets in the
future in excess of the net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, if we determine that we would not be able to realize all or part
of the net deferred tax asset in the future, an adjustment to the deferred
tax asset would be charged to income in the period such determination was
made.
Certain Factors that May Affect Our Business or Future Operating Results
------------------------------------------------------------------------
This report contains various forward looking statements and information
that are based on our beliefs as well as assumptions made by and information
currently available to us. When used in this report, the words
"anticipate," "believe," "estimate," "expect," "predict," "intend,"
"project" and similar expressions are intended to identify forward looking
statements. Such statements are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, expected or projected.
Several key factors that may have a direct bearing on our results are set
forth below.
Future trends for revenues and profitability remain difficult to
predict. We continue to face many risks and uncertainties, including:
1. general and specific market and economic conditions;
2. budgetary restrictions of schools and government agencies;
3. unanticipated disruptions or slowdowns in operations;
4. high fixed costs;
5. competitive factors;
6. continuation of existing license agreement;
7. foreign supplier related issues;
8. use of deferred tax asset; and
9. product liability and insurance.
General and Specific Market and Economic Conditions
---------------------------------------------------
The general economic condition in the United States could affect
pricing and availability of raw materials such as metals, petroleum and
other commodities used in manufacturing certain products and certain
purchased finished goods as well as transportation costs. Any material price
increases to our customers could have an adverse effect on revenues and any
price increases from vendors could have an adverse effect on our costs.
Professional sports have a significant impact on the market conditions for
each individual sport. Collective bargaining, labor disputes, lockouts or
strikes by a professional sport could have a negative impact on our
revenues.
Budgetary Restrictions of Schools and Government Agencies
---------------------------------------------------------
Much of our business is dependent on the budgetary allowances of
schools, as well as local, state and federal government agencies.
Restrictions to the funding or budgeted spending of these entities could
adversely affect our results of operations.
Unanticipated Disruptions or Slowdowns in Operations
----------------------------------------------------
Our ability to provide high quality customer service, process and
fulfill orders and manage inventory depends on: (i.) the efficient and
uninterrupted operation of our call center, distribution center,
manufacturing facilities, and management information systems and (ii.) the
timely performance of vendors, catalog printers and shipping companies. Any
material disruption or slowdown in the operation of our call center,
distribution center, manufacturing facilities or management information
systems, or comparable disruptions or slowdowns suffered by our principal
service providers, could cause delays in our ability to receive, process and
fulfill customer orders and may cause orders to be canceled, lost or
delivered late, goods to be returned or receipt of goods to be refused.
We ship approximately 70% of our products using United Parcel Service
("UPS"). As experienced in 1997, a strike by UPS or any of our other major
carriers could adversely affect our results of operations due to not being
able to deliver our products in a timely manner and using other more
expensive freight carriers. Although we have analyzed the cost-benefit
effect of using other carriers, we continue to utilize UPS for the majority
of our small package shipments and believe this is most advantageous to our
company.
In addition to the foregoing, the International Longshore and Warehouse
Union ("ILWU"), which is the union of dock workers that move the cargo (such
as import containers) along the West Coast, reached a contract agreement on
November 23, 2002 with the Pacific Maritime Association ("PMA"), a group of
global ship owners and terminal operators. A strike by the ILWU, or lockout
by the PMA, as experienced in September 2002, would significantly slow the
receipt of our import products and could cause delays in our ability to
process and fulfill customer orders. Any strike or lockout could also cause
an increase in backlog and freight charges such as port congestion
surcharges, extended peak season surcharges, charges as a result of force
majeure clauses, etc.
High Fixed Costs
----------------
Operations and maintenance of our call center, distribution center,
manufacturing facilities and management information systems involve
substantial fixed costs. Paper, packaging, shipping and postage are
significant components of our costs. Catalog marketing entails substantial
paper, postage, and costs associated with catalog development. Each of
these is subject to price fluctuations.
Competitive Factors
-------------------
The institutional market for sporting goods and leisure products is
highly competitive and there are no significant barriers to enter this
market. The size of this market has encouraged the entry of new competitors
as well as increased competition from established companies. Competitors
include large retail operations that also sell to the institutional market,
other catalog and direct marketing companies, team dealers, and Internet
sellers. Increased competition could result in pricing pressures, increased
marketing expenditures and loss of market share and could have a material
adverse effect on our results of operations.
Continuation of Existing License Agreement
------------------------------------------
In February 1992, we acquired two separate licenses to use several
trade names, styles, and trademarks (including, but not limited to,
MacGregor[R]). On December 21, 2000, the license relating to the use of the
MacGregor[R] trademark was amended and restated in its entirety. The
license agreement permits us to manufacture, promote, sell, and distribute
to designated customers throughout the world, specified sports related
equipment and products relating to baseball, softball, basketball, soccer,
football, volleyball, and general exercise. The license agreement requires
us to pay royalties based upon sales of MacGregor[R] branded products, with
the minimum annual royalty set at $100,000. Futhermore, the license
agreement is exclusive with respect to certain customers and non-exclusive
with respect to others. The license agreement has an original term of
forty (40) years, but will automatically renew for successive forty (40)
year periods unless terminated in accordance with the terms of the license.
We have converted a substantial portion of our products to the MacGregor[R]
brand, which is believed to be a widely recognized trade name in the
sporting goods industry. Termination of this license agreement could have a
material adverse effect on our results of operations.
Foreign Supplier Related Issues
-------------------------------
Approximately 30% of our total product costs are from products
purchased directly from foreign suppliers located primarily in the Far East.
In addition, we believe foreign manufacturers produce many of the products
we purchase from domestic suppliers. We are subject to risks of doing
business abroad, including delays in shipments, adverse fluctuations in
foreign currency exchange rates, increases in import duties, decreases in
quotas, changes in custom regulations, acts of God (such as earthquakes),
war and political turmoil. The occurrence of any one or more of the
foregoing could adversely affect our operations.
Use of Deferred Tax Asset
-------------------------
We believe our net deferred tax assets will be realized through tax
planning strategies available in future periods and future profitable
operating results. Although realization is not assured, we believe it is
more likely than not that our remaining net deferred tax assets will be
realized. The amount of the deferred tax asset considered realizable,
however, could be reduced or eliminated in the near term if certain tax
planning strategies are not successfully executed or estimates of future
taxable income during the carryforward period are reduced. If we determine
that we would not be able to realize all or part of the net deferred tax
asset in the future, an adjustment to the deferred tax asset would be
charged to income in the period such determination was made.
Product Liability and Insurance
-------------------------------
Because of the nature of our products, we are periodically subject to
product liability claims resulting from personal injuries. We may become
involved in various lawsuits incidental to our business, some of which
relate to claims allegedly resulting in substantial permanent paralysis.
Significantly increased product liability claims continue to be asserted
successfully against manufacturers and distributors of sports equipment
throughout the United States resulting in general uncertainty as to the
nature and extent of manufacturers' and distributors' liability for personal
injuries. See Item 3. -- "Legal Proceedings".
In recent years, product liability insurance has become much more
expensive, more restrictive and more difficult to obtain. There can be no
assurance that our general product liability insurance will be sufficient to
cover any successful product liability claims made against us. In our
opinion, any ultimate liability arising out of currently pending product
liability claims will not have a material adverse effect on our financial
condition or results of operations. However, any claims substantially in
excess of our insurance coverage, or any substantial claim not covered by
insurance, could have a material adverse effect on our financial condition
and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
An increase in interest rates could have a material adverse effect on
our results of operations and our financial position. Assuming borrowing
levels remain at the same level for fiscal year 2004 as at the end of fiscal
year 2003, each additional 1% increase in interest rates would increase
interest expense by approximately $150,000 to $200,000.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
Index to Financial Statements Page
----------------------------- ----
Report of Independent Auditors 24
Consolidated Balance Sheets as of March 28, 2003,
March 29, 2002, and March 30, 2001 25
Consolidated Statements of Operations for the Fiscal Year
Ended March 28, 2003, the Fiscal Year ended March 29, 2002,
the Six Months Ended March 30, 2001, and the Year Ended
September 29, 2000 26
Consolidated Statements of Stockholders' Equity for the Fiscal
Year Ended March 28, 2003, the Fiscal Year ended March 29,
2002, the Six Months Ended March 30, 2001 and the Year Ended
September 29, 2000 27
Consolidated Statements of Cash Flows for the Fiscal Year
Ended March 28, 2003, the Fiscal Year ended March 29, 2002,
the Six Months Ended March 30, 2001 and the Year Ended
September 29, 2000 28
Notes to Consolidated Financial Statements 29
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Sport Supply Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sport
Supply Group, Inc. and subsidiaries as of March 28, 2003 and March 29, 2002,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the two fiscal years in the period ended March
28, 2003, the six month period ended March 30, 2001 and the fiscal year
ended September 29, 2000. Our audits also included the financial statement
schedule listed in the Index to Exhibits at Item 16(a)(2). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Sport Supply Group, Inc. and subsidiaries as of March 28, 2003,
and March 29, 2002, and the consolidated results of their operations and
their cash flows for each of the two fiscal years ended March 28, 2003, the
six month period ended March 30, 2001 and the fiscal year ended September
29, 2000 in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
As discussed in Note 1 to the consolidated financial statements, Sport
Supply Group, Inc. and subsidiaries changed its method of accounting for
goodwill end other purchased intangible assets during the year ended March
28, 2003.
ERNST & YOUNG LLP
Dallas, Texas
May 10, 2003
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 28, March 29,
2003 2002
----------- -----------
CURRENT ASSETS :
Cash and equivalents $ 2,142,302 $ 586,911
Accounts receivable:
Trade, less allowance for doubtful accounts
of $500,000 at March 28, 2003 and $524,000
at March 29, 2002 19,756,947 18,824,829
Other 488,728 235,008
Inventories, net 19,564,314 18,368,392
Other current assets 576,653 560,362
Deferred tax assets 1,525,472 1,659,039
----------- -----------
Total current assets 44,054,416 40,234,541
----------- -----------
DEFERRED CATALOG EXPENSES 1,912,346 2,017,280
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663
Buildings 1,605,102 1,605,102
Computer Equipment & Software 11,461,375 11,231,120
Machinery and equipment 6,558,502 6,358,546
Furniture and fixtures 1,508,393 1,673,683
Leasehold improvements 2,497,209 2,384,335
----------- -----------
23,639,244 23,261,449
Less -- Accumulated depreciation and amortization (15,119,308) (13,310,710)
----------- -----------
8,519,936 9,950,739
----------- -----------
DEFERRED TAX ASSETS 3,974,753 3,841,186
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $2,171,000
at March 29, 2002 - 7,442,432
TRADEMARKS
less accumulated amortization of $995,000 at
March 28, 2003 and $1,114,000 at March 29, 2002 2,926,288 3,044,888
OTHER ASSETS
less accumulated amortization of $798,000 at
March 28, 2003 and $589,000 at March 29, 2002 607,900 775,839
----------- -----------
$ 61,995,639 $ 67,306,905
=========== ===========
CURRENT LIABILITIES :
Accounts payable $ 11,823,287 $ 9,532,407
Other accrued liabilities 4,443,990 3,652,310
Notes payable and capital lease
obligations, current portion 71,082 73,132
----------- -----------
Total current liabilities 16,338,359 13,257,849
----------- -----------
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS,
net of current portion 17,611,753 17,000,139
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, par value $0.01, 100,000 shares
authorized, no shares outstanding - -
Common stock, par value $0.01, 20,000,000 shares
authorized, 9,362,397 shares issued at March 28,
2003 and March 29, 2002, and 8,917,244 shares
outstanding at March 28, 2003 and March 29, 2002 93,624 93,624
Additional paid-in capital 48,101,331 48,101,331
Accumulated deficit (16,348,146) (7,344,756)
Treasury stock, at cost, 445,153 shares,
at March 28, 2003 and March 29, 2002 (3,801,282) (3,801,282)
----------- -----------
Total Stockholders' Equity 28,045,527 37,048,917
----------- -----------
$ 61,995,639 $ 67,306,905
=========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended March 28, 2003, The Year Ended March 29, 2002,
The Six Month Period Ended March 30, 2001, and The Year Ended September 29, 2000
------------ ------------ ----------- -----------
2003 2002 2001 2000
------------ ------------ ----------- -----------
Net revenues $ 102,617,413 $ 103,601,428 $ 50,336,524 $119,320,982
Cost of sales 72,588,247 74,106,243 36,400,525 83,151,033
------------ ------------ ----------- -----------
Gross profit 30,029,166 29,495,185 13,935,999 36,169,949
Selling, general and
administrative expenses 30,511,651 31,928,924 15,775,650 34,865,452
Internet expenses 460,845 355,766 317,808 1,136,149
Nonrecurring charges - - 253,239 605,000
------------ ------------ ----------- -----------
Operating loss (943,330) (2,789,505) (2,410,698) (436,652)
Interest expense (629,026) (985,509) (957,270) (2,021,763)
Other income, net 11,398 192,586 14,400 16,924
------------ ------------ ----------- -----------
Net loss before income taxes
and cumulative effect of
accounting change (1,560,958) (3,582,428) (3,353,568) (2,441,491)
Income tax benefit - - (1,231,053) (923,885)
------------ ------------ ----------- -----------
Net loss before cumulative
effect of accounting change (1,560,958) (3,582,428) (2,122,515) (1,517,606)
Cumulative effect
of accounting change (7,442,432) - - -
------------ ------------ ----------- -----------
Net loss $ (9,003,390) $ (3,582,428) $ (2,122,515) $ (1,517,606)
============ ============ =========== ===========
Loss per share:
Net loss per share before
cumulative effect of
accounting change - basic $ (0.18) $ (0.40) $ (0.27) $ (0.21)
============ ============ =========== ===========
Cumulative effect of accounting
change - basic $ (0.83) $ - $ - $ -
============ ============ =========== ===========
Net loss per share - basic $ (1.01) $ (0.40) $ (0.27) $ (0.21)
============ ============ =========== ===========
Net loss per share before
cumulative effect of
accounting change - diluted $ (0.18) $ (0.40) $ (0.27) $ (0.21)
============ ============ =========== ===========
Cumulative effect of accounting
change - diluted $ (0.83) $ - $ - $ -
============ ============ =========== ===========
Net loss per share - diluted $ (1.01) $ (0.40) $ (0.27) $ (0.21)
============ ============ =========== ===========
Weighted average number of common
shares outstanding - basic 8,917,244 8,917,244 7,963,989 7,272,570
============ ============ =========== ===========
Weighted average number of common
shares outstanding - diluted 8,917,244 8,917,244 7,963,989 7,272,570
============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Year Ended March 28, 2003, The Year Ended March 29, 2002,
The Six Month Period Ended March 30, 2001, and The Year Ended September 29, 2000
Common Stock Additional Treasury Stock
------------------- Paid in Accumulated -----------------------
Shares Amount Capital Deficit Shares Amount Total
--------- ------- ---------- ----------- --------- ----------- ----------
Balance, October 1, 1999 9,333,241 $ 93,332 $59,743,384 $ (122,207) 2,059,342 $(17,606,352) $42,108,157
Issuances of common stock upon
exercises of outstanding options 5,000 50 50
Issuances of common stock 12,490 125 51,503 51,628
Purchase of treasury stock 16,420 (112,437) (112,437)
Reissuances of treasury shares (9,300) (980) 16,772 7,472
Net loss (comprehensive loss) (1,517,606) (1,517,606)
--------- ------- ---------- ----------- --------- ----------- ----------
Balance, September 29, 2000 9,350,731 $ 93,507 $59,785,587 (1,639,813) 2,074,782 $(17,702,017) $40,537,264
--------- ------- ---------- ----------- --------- ----------- ----------
Issuances of common stock 9,028 91 14,257 14,348
Sale of treasury shares (11,700,735) (1,629,629) 13,900,735 2,200,000
Net loss (comprehensive loss) (2,122,515) (2,122,515)
--------- ------- ---------- ----------- --------- ----------- ----------
Balance, March 30, 2001 9,359,759 $ 93,598 $48,099,109 $ (3,762,328) 445,153 $ (3,801,282) 40,629,097
--------- ------- ---------- ----------- --------- ----------- ----------
Issuances of common stock 2,638 26 2,222 2,248
Net loss (comprehensive loss) (3,582,428) (3,582,428)
--------- ------- ---------- ----------- --------- ----------- ----------
Balance, March 29, 2002 9,362,397 $ 93,624 $48,101,331 $ (7,344,756) 445,153 $ (3,801,282) 37,048,917
--------- ------- ---------- ----------- --------- ----------- ----------
Net loss (comprehensive loss) (9,003,390) (9,003,390)
--------- ------- ---------- ----------- --------- ----------- ----------
Balance, March 28, 2003 9,362,397 $ 93,624 $48,101,331 $(16,348,146) 445,153 $ (3,801,282) $28,045,527
========= ======= ========== =========== ========= =========== ==========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended March 28, 2003, The Year Ended March 29, 2002,
The Six Month Period Ended March 30, 2001, and The Year Ended September 29, 2000
2003 2002 2001 2000
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net loss $ (9,003,390) $ (3,582,428) $ (2,122,515) $(1,517,606)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,172,387 2,572,600 1,556,419 2,855,172
Provision for allowances for accounts receivable 451,367 351,306 220,884 319,025
Cumulative effect of accounting change 7,442,432 - - -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,637,205) 5,558 2,789,939 1,902,706
(Increase) decrease in inventories (1,195,922) 2,682,147 (1,197,480) (565,986)
(Increase) decrease in deferred catalog expenses
and other current assets 88,643 706,326 (578,491) 284,757
Increase (decrease) in accounts payable 2,290,880 (4,081,428) 3,742,767 1,161,798
(Increase) decrease in deferred taxes 133,567 (240,204) (77,632) (279,015)
Increase (decrease) in accrued liabilities 791,680 1,722,953 (675,323) 170,301
Increase in other assets (30,912) (187,490) (140,580) (284,426)
(Increase) decrease in noncurrent deferred
tax assets (133,567) 240,204 (1,214,480) (765,671)
----------- ----------- ----------- -----------
Net cash provided by operating activites 1,369,960 189,544 2,303,508 3,281,055
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant & equipment (424,133) (537,194) (97,030) (2,025,608)
Payments for acquisitions, net of cash acquired - - - (854,093)
----------- ----------- ----------- -----------
Net cash used in investing activities (424,133) (537,194) (97,030) (2,879,701)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable 112,456,629 123,834,275 17,134,214 2,205,620
Payments of notes payable and capital
lease obligations (111,847,065) (124,173,058) (20,395,961) (2,643,581)
Proceeds from common stock issuances - 2,248 2,214,348 59,150
Purchase of treasury stock - - - (112,437)
----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities 609,564 (336,535) (1,047,399) (491,248)
----------- ----------- ----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 1,555,391 (684,185) 1,159,079 (89,894)
Cash and equivalents, beginning of period 586,911 1,271,096 112,017 201,911
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 2,142,302 $ 586,911 $ 1,271,096 $ 112,017
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
Cash paid during the period for interest $ 686,518 $ 986,297 $ 824,353 $ 2,169,859
=========== =========== =========== ===========
Cash paid during the period for income taxes $ 88,697 $ 55,287 $ 73,435 $ 204,455
=========== =========== =========== ===========
We acquired the assets of certain entities. In
connection with these acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ - $ - $ - $ 1,968,685
Cash paid for the acquisitions, net - - - (854,093)
Debt issued for the acquisitions - - - (275,000)
----------- ----------- ----------- -----------
Liabilities assumed $ - $ - $ - $ 839,592
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 28, 2003
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Background
Sport Supply Group, Inc. ("SSG") was incorporated in 1982. The assets
of the Sports & Recreation Division of Aurora Electronics, Inc. (f/k/a BSN
Corp., "Aurora") were contributed to us effective September 30, 1988. We
were a wholly-owned subsidiary of Aurora before our initial public offering
in April 1991. Effective March 2001, Sport Supply Group, Inc is a majority-
owned subsidiary of Emerson Radio Corp. Our financial statements do not
include any purchase accounting adjustments to reflect our acquisition by
Emerson Radio Corp. Our operations are all within one financial reporting
segment: direct marketing of sports related equipment and leisure products
to institutional customers in the United States. We source most of the
products we sell and also manufacture some of the products we sell.
Manufactured products include, but are not limited to: 1) Football, baseball
and track and field equipment; 2.) Tennis, volleyball, and other sports
nets; 3.) Steel and aluminum construction items, such as football,
basketball, soccer and field hockey goals; and 4.) Track and field,
gymnastics and physical education mats.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of SSG and
our wholly owned subsidiaries, Athletic Training Equipment Company, Inc., a
Delaware corporation ("ATEC") and Sport Supply Group Asia Limited, a Hong
Kong corporation ("SSGA"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements also include estimates and assumptions made by us that
affect the reported amounts of assets and liabilities, the reported amounts
of revenues and expenses, provisions for and the disclosure of contingent
assets and liabilities. Actual results could materially differ from those
estimates.
Certain financial information for previous fiscal years has been
reclassified to conform to the fiscal 2003 presentation.
Change in Fiscal Year
In May 2001, we changed our financial reporting year end from September
30 to March 31. Accordingly, the fiscal year ended March 30, 2001 is a
transition period consisting of six months. We operate on a 52/53 week year
ending on the Friday closest to March 31. All twelve month periods
reflected in the consolidated statements of operations consist of 52 weeks.
The six month period ended March 30, 2001 consisted of 26 weeks.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the standard cost method for items manufactured by us and
weighted-average cost for items purchased for resale. As of March 28, 2003
and March 29, 2002, inventories consisted of the following:
Inventory Data: Mar. 28, 2003 Mar. 29, 2002
--------------- ------------ ------------
Raw materials $ 2,095,242 $ 2,153,634
Work-in-process 318,165 257,653
Finished and purchased goods 18,223,657 17,121,730
------------ ------------
Inventory, Gross 20,637,064 19,533,017
Less inventory allowance for obsolete or
slow moving items (1,072,750) (1,164,625)
------------ ------------
Inventory, Net $ 19,564,314 $ 18,368,392
============ ============
The inventory allowance for obsolete or slow moving items is determined
based upon our periodic assessment of the net realizable value of our
inventory. As of March 28, 2003 and March 29, 2002, approximately 24% and
23%, respectively, of total ending inventories were products manufactured by
us with the balance being products purchased from outside suppliers. Sales
of products manufactured by us accounted for approximately 24%, 26%, 30%,
and 31% of total net revenues in fiscal 2003, 2002, 2001, and 2000,
respectively.
Accounts Receivable and Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of
credit risk are accounts receivable. Accounts receivable represent sales of
sporting goods and leisure products to all levels of public and private
schools, colleges, universities, and military academies, municipal and
governmental agencies, military facilities, churches, clubs, camps,
hospitals, youth sport leagues, nonprofit organizations, team dealers, and
certain other retailers. We did not have any individual customers that
accounted for more than 10% of outstanding accounts receivable as of March
28, 2003 or March 29, 2002. The majority of our sales are to publicly
funded institutional customers. We extend credit based upon evaluations of
a customer's financial condition and provide for any anticipated credit
losses in our financial statements based upon management's estimates and
ongoing reviews of recorded allowances. The allowance for doubtful accounts
was approximately $500,000 and $524,000, a as of March 28, 2003 and March
29, 2002, respectively.
Advertising and Deferred Catalog Expenses
We expense advertising costs as incurred, except for production costs
related to direct-response catalog activities, which are capitalized.
Direct response catalogs are product and order reference books for our
customers. Production and distribution costs, primarily printing and
postage, associated with catalogs are amortized over twelve months which
approximates customer usage of the catalogs produced. Our catalog
amortization for the fiscal year ended March 28, 2003, the fiscal year ended
March 29, 2002, the six month period ended March 30, 2001, and the fiscal
year September 29, 2000 were approximately $3,161,000 $3,026,000,
$1,312,000, and $4,122,000, respectively.
Internet Expenses
We expense the operating and development costs of our Internet websites
as incurred. Hardware and related software modules that interface with our
SAP AS/400 system are capitalized and subsequently amortized over the
remaining estimated useful life of the assets.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost and depreciated over
the estimated useful lives of the related assets using the straight-line
method. Leasehold improvements and property and equipment leased under
capital lease obligations are amortized over the terms of the related leases
or their estimated useful lives, whichever is shorter. The costs of
maintenance and repairs are charged to expense as incurred. Significant
renewals and improvements are capitalized and depreciated over the remaining
estimated useful lives of the related assets.
Depreciation of property, plant and equipment is provided by the
straight-line method as follows:
Buildings Thirty to forty years
Machinery and Equipment Five to ten years
Computer Equipment and Software Three to ten years
Furniture and Fixtures Five years
Leasehold Improvements Remaining lease term
Intangible Assets
Trademarks relate to costs incurred in connection with the acquisition
or licensing agreements for the use of certain trademarks and servicemarks
in conjunction with the sale of our products. Other intangible assets are
classified as other assets and consist principally of deposits, capitalized
loan and financing fees and patents. Capitalized loan and financing fees
are amortized over the term of the credit agreement.
Amortization of intangible assets is provided by the straight-line
method as follows:
Trademarks and servicemarks Five to forty years
Patents Seven to eleven years
We periodically assess the recoverability of the carrying value of
intangible assets in relation to projected earnings and projected
undiscounted cash flows. Based on our assessment, we believe our
investments in intangible assets are fully realizable as of March 28, 2003.
The cost of intangible assets and related accumulated amortization are
removed from our accounts during the year in which they become fully
amortized.
Income Taxes
Deferred tax assets and liabilities are determined quarterly based upon
the estimated future tax effects of the differences in the tax bases of
existing assets and liabilities and the related financial statement carrying
amounts, using currently enacted tax laws and rates in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (See Note 4).
Net Earnings (Loss) Per Share of Common Stock
Net earnings (loss) per share of common stock are based upon the
weighted average number of common and common equivalent shares outstanding.
Outstanding stock options and common stock purchase warrants are treated as
common stock equivalents when dilution results from their assumed exercise.
Revenue Recognition
Our policy is to recognize revenue upon shipment of inventory, and
record an estimate against revenues for possible returns based upon our
historical return rate. Subject to certain limitations, customers have the
right to return product within 60 days if they are not completely satisfied.
We believe sales are final upon shipment of inventory based upon the
following criteria under SFAS 48 and SAB 101:
- Our price to our customers is fixed at the time an order is placed.
- The customers have paid, or are obligated to pay, us.
- The customers' obligation to pay does not change in the event of theft,
damaged product, etc. (A claim must be filed to issue credit.)
- Customers are verified through credit investigations for economic
substance before products are shipped.
- We are not obligated for future performance to any of our customers.
- Future returns can be reasonably estimated based on historical data.
Shipping and Handling
On September 30, 2000, we adopted the provisions of the Emerging Issues
Task Force, EITF 00-10, Accounting for Shipping and Handling Fees and Costs.
Prior to September 30, 2000, we netted shipping fees against shipping costs.
The net difference was included in cost of sales in our consolidated
statements of operations. The provisions of EITF 00-10 provide that all
amounts billed to a customer in a sale transaction related to shipping and
handling, if any, represent revenues earned for the goods provided and
should be classified as revenue. Accordingly, we have classified shipping
and handling fees as revenues in our consolidated statements of operations
for the fiscal year ended March 28, 2003. Previous periods have been
restated to conform to fiscal 2003 presentation.
Stock-based Compensation
We have stock option plans under which certain officers and employees
have been granted options. All the options have been granted at prices equal
to the market value of the shares at the time of the grant and expire on the
tenth anniversary of the grant date. Our stock-based compensation is
measured in accordance with the provisions of Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and
related interpretations. Accordingly, no compensation expense is recognized
for fixed option plans because the exercise prices of Employee stock options
equal or exceed the market prices of the underlying stock on the dates of
grant.
The following table represents the effect on net loss and loss per
share if we had applied the fair value based method and recognition
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," to stock based Employee
compensation.
For the For the For the For the
Fiscal Fiscal Six Fiscal
Year Ended Year Ended Months Ended Year Ended
Mar. 28, Mar. 29, Mar. 30, Sept. 29,
2003 2002 2001 2000
---------- ---------- ---------- ----------
Net loss, as reported $(9,003,390) $(3,582,428) $(2,122,515) $(1,517,606)
Deduct: Total stock-based
employee compensation
expense determined under
the fair value method for
all awards, net of related
tax effects $(2,826) $(10,710) $(268,091) $(471,041)
Pro forma loss $(9,006,216) $(3,593,138) $(2,390,606) $(1,988,647)
Loss per share - basic
and diluted:
As reported $(1.01) $(0.40) $(0.27) $(0.21)
Pro forma $(1.01) $(0.40) $(0.30) $(0.27)
Recent Pronouncements
In June 2002, the Financial Accounting Standards Board issued Statement
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
(SFAS 146). SFAS 146 requires that a liability be recognized for exit and
disposal costs only when the liability has been incurred and when it can be
measured at fair value. This statement is effective for exit and disposal
activities that are initiated after December 31, 2002. This statement will
impact the timing of our recognition of liabilities for cost associated with
exit or disposal activities.
In August 2001, the Financial Accounting Standards Board issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144). This statement supersedes Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS No. 121), but carries over the key guidance
from SFAS 121 in establishing the framework for the recognition and
measurement of long-lived assets to be disposed of by sale and addresses
significant implementation issues. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001, with early adoption permitted. We
have adopted SFAS 144 effective March 30, 2002 and it did not have an impact
on our financial statements when adopted.
Adoption of Recent Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 142
requires that goodwill not be amortized but instead be tested for impairment
at least annually by reporting unit. We adopted SFAS 142 effective March
30, 2002. As a result, we ceased recording amortization of goodwill on
March 30, 2002. Had we ceased amortizing goodwill as of the beginning of
fiscal 2002, net loss for the fiscal year ended March 29, 2002 would have
decreased by $284,000 ($0.03 per basic and diluted share).
Goodwill is required to be tested for impairment in a transitional
test upon adoption and then at least annually by reporting unit. Goodwill
impairment testing must also be performed more frequently if events or other
changes in circumstances indicate that goodwill might be impaired. Under the
provisions of SFAS 142, a two step process is used to evaluate goodwill
impairment. Under step one of the evaluation process, the carrying value of
a reporting unit is compared to its fair value to determine if a potential
goodwill impairment exists. Under step two of the evaluation process, if a
potential goodwill impairment is identified during step one, then the amount
of goodwill impairment, if any, is measured using a hypothetical purchase
price allocation approach.
The results of our step one analysis indicated that we had a potential
impairment of goodwill. In our step two analysis, the fair value of the
goodwill was determined through a third party appraisal. The appraisal
determined fair value to be the price that the assets could be sold for in a
current arms-length transaction between willing parties. As a result of
our step two impairment testing, we recorded a non-cash "cumulative effect
of accounting change" increase in our net loss of approximately $7.4
million. As of March 28, 2003 and March 29, 2002, we had $0 and $7.4
million of goodwill recorded on our consolidated balance sheet,
respectively.
2. STOCKHOLDERS' EQUITY:
Stock Options
We maintain a stock option plan that provides up to 2,000,000 shares of
common stock for awards of incentive and non-qualified stock options to
directors and employees. Under the stock option plan, the exercise price of
options will not be less than: (i.) the fair market value of the common
stock at the date of grant; or (ii.) not less than 110% of the fair market
value for incentive stock options granted to certain employees, as more
fully described in the Amended and Restated Stock Option Plan. Options
expire ten years from the grant date, or five years from the grant date for
incentive stock options granted to certain employees, or such earlier date
as determined by our Board of Directors (or a Stock Option Committee
comprised of members of our Board of Directors).
The following table contains transactional data for our stock option
plan.
Exercise Price or
Stock Option Plan Shares Weighted Avg. Price
----------------- --------- -------------------
Outstanding at October 1, 1999 1,087,799 $7.695
Granted 44,375 $7.43
Exercised (5,000) $6.50
Forfeited (199,308) $7.90
--------- -------------------
Outstanding at September 29, 2000 927,866 $7.64
Granted 9,375 $1.46
Exercised -- --
Forfeited (30,312) $7.87
--------- -------------------
Outstanding at March 30, 2001 906,929 $7.65
Granted 29,375 $1.30
Exercised -- --
Forfeited (10,125) $8.09
--------- -------------------
Outstanding at March 29, 2002 926,179 $7.45
Granted 19,375 $1.69
Exercised -- --
Forfeited (637,112) $7.64
--------- -------------------
Outstanding at March 28, 2003 308,442 $6.695
========= ===================
Options Outstanding Options Exercisable
-------------------------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Range of Amount Remaining Exercise Amount Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- -------- ----------- --------
$0.95 - $2.00 58,125 8.71 $ 1.46 34,791 $ 1.38
$6.13 - $7.50 91,817 4.88 7.07 91,817 7.07
$7.88 - $9.44 158,500 6.25 8.40 158,500 8.40
------- -------
308,442 6.30 $ 6.695 285,108 $ 7.11
======= =======
All options granted under the stock option plan were at exercise prices
equal to or greater than the fair market value of our stock on the date of
the grant.
As of March 28, 2003, there were a total of 308,442 options outstanding
with exercise prices ranging from $0.95 to $9.44. As of March 28, 2003,
285,108 of the total options outstanding were fully vested with an
additional 23,334 vesting through January 2006. As of March 29, 2002, there
were a total of 926,179 options outstanding. As of March 29, 2002, 896,178
of the total options outstanding were fully vested with an additional 30,001
vesting through April 2003. As of March 30, 2001, 921,094 of the total
options outstanding were fully vested with an additional 85,835 options
vesting through November 2002. As of September 29, 2000, 875,781 of the
total options outstanding were fully vested with an additional 152,085
options vesting through November 2002.
Pro forma information regarding net income and net income per share has
been determined as if we had accounted for employee stock options subsequent
to December 31, 1995 under the fair value method. The fair value for those
options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions: (i.) risk-
free interest rates of 4.10%, 4.15%, 4.29%, and 5.93% in 2003, 2002, 2001,
and 2000 respectively; (ii.) dividend yield of 0% for all years; (iii.)
expected volatility of 36%, 39%, 55%, and 49% in 2003, 2002, 2001, and 2000,
respectively; and (iv.) weighted average expected life for each option of 3
years. The weighted average fair value of employee stock options granted in
2003, 2002, 2001, and 2000 are $0.49, $0.41, $0.59, and $2.41, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period; therefore, our pro
forma effect will not be fully realized until the completion of one full
vesting cycle. Our pro forma information is as follows:
For the For the For the For the
Fiscal Fiscal Six Fiscal
Year Year Months Year
Ended Ended Ended Ended
Mar. 28, Mar. 29, Mar. 30, Sept. 29,
2003 2002 2001 2000
---------- ---------- ---------- ----------
Net loss:
As reported $(9,003,390) $(3,582,428) $(2,122,515) $(1,517,606)
Pro forma $(9,006,216) $(3,593,138) $(2,390,606) $(1,988,647)
Loss per share -
basic and diluted:
As reported $(1.01) $(0.40) $(0.27) $(0.21)
Pro forma $(1.01) $(0.40) $(0.30) $(0.27)
Repurchase of Common Stock
On May 28, 1997, we approved the repurchase of up to 1,000,000 shares
of our issued and outstanding common stock in the open market and/or
privately negotiated transactions. On October 28, 1998, we approved a second
repurchase program of up to an additional 1,000,000 shares of our issued and
outstanding common stock in the open market and/or privately negotiated
transactions. As of March 28, 2003 we repurchased approximately 1,333,000
shares of our issued and outstanding common stock in the open market and
privately negotiated transactions. Any future purchases will be subject to
price and availability of shares, working capital availability and any of
our alternative capital spending programs. Our credit agreement currently
prohibits the repurchase of any additional shares without the lender's prior
consent.
Net Earnings Per Common Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the For the For the For the
Fiscal Fiscal Six Month Fiscal
Year Year Period Year
Ended Ended Ended Ended
Mar. 28, Mar. 29, Mar. 30, Sept. 29,
2003 2002 2001 2000
---------- ---------- ---------- ----------
Numerator:
---------
Net loss $(9,003,390) $(3,582,428) $(2,122,515) $(1,517,606)
========== ========== ========== ==========
Denominator:
-----------
Weighted average
shares outstanding 8,917,244 8,917,244 7,963,989 7,272,570
Effect of dilutive
securities:
Warrants -- -- -- --
Employee stock
options -- -- -- --
---------- ---------- ---------- ----------
Adjusted weighted
average shares and
assumed conversions 8,917,244 8,917,244 7,963,989 7,272,570
========== ========== ========== ==========
Per Share Calculations:
----------------------
Basic and diluted
loss per share $(1.01) $(0.40) $(0.27) $(0.21)
========== ========== ========== ==========
Securities excluded
from weighted average
shares diluted because
their effect would be
antidilutive 308,442 926,179 2,006,929 2,027,866
3. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:
As of March 28, 2003 and March 29, 2002, notes payable and capital
lease obligations consisted of the following:
2003 2002
---------- ----------
Note payable under revolving line of credit,
Interest ranging from prime minus 0.25% to
prime plus 1.0% (4.25% at Mar. 28, 2003 and
4.75% at Mar. 29, 2002) and LIBOR (3.76% at
Mar. 28, 2003 and 4.35% at Mar. 29, 2002)
due Mar. 27, 2004 and collateralized by
substantially all assets. $17,521,601 $16,838,905
Capital lease obligation, interest at 9%,
payable in annual installments of principal
and interest Totaling $55,000 through
August 2005. 117,963 158,682
Other 43,271 75,684
---------- ----------
Total 17,682,835 17,073,271
Less - current portion (71,082) (73,132)
---------- ----------
Long-term debt and capital lease
obligations, net $17,611,753 $17,000,139
========== ==========
Credit Facilities
We have a Loan and Security Agreement with Congress Financial
Corporation to finance our working capital requirements through March 2004.
This agreement provides for revolving loans and letters of credit which, in
the aggregate, cannot exceed the lesser of $25 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivable and
inventories. We are required to maintain certain net worth levels and as of
March 28, 2003 we were in compliance with this requirement. As of March 28,
2003, we had total available borrowings under our senior credit facility of
approximately $22.4 million of which approximately $17.5 million were
outstanding. Amounts outstanding under the senior credit facility are
secured by substantially all the assets of the Sport Supply Group, Inc. and
our subsidiaries. Pursuant to the Loan and Security Agreement, we are
restricted from, among other things, paying cash dividends and entering into
certain transactions without the lender's prior consent and we are required
to maintain certain net worth levels.
Maturities of our capital lease obligations and borrowings under the
senior credit facility as of March 28, 2003, by fiscal year and in the
aggregate, are as follows:
2004 $ 71,082
2005 17,586,551
2006 25,202
Thereafter --
------------
Total 17,682,835
Less current portion (71,082)
------------
Total long term portion $ 17,611,753
============
As of March 28, 2003 the carrying value of our long-term debt
approximates its fair value.
4. INCOME TAXES:
As of March 28, 2003 and March 29, 2002 the components of the net
deferred tax assets and liabilities are as follows:
2003 2002
---------- ----------
Current deferred tax assets
(liabilities):
---------------------------
Allowances for doubtful accounts $ 189,800 $ 198,910
Inventories 933,698 1,068,038
Other accrued liabilities 401,975 392,091
Valuation allowance for
deferred tax assets -- --
---------- ----------
Total current deferred tax assets,
net of valuation allowance $ 1,525,472 $ 1,659,039
Noncurrent deferred tax assets
(liabilities):
------------------------------
Depreciation expense $ (95,745) $ (212,890)
Intangible assets including goodwill
and SAP costs (414,755) (3,172,755)
Net operating loss 9,560,691 8,926,654
Tax credit 486,236 486,236
Valuation allowance for deferred
tax assets (5,561,674) (2,186,059)
---------- ----------
Total non current deferred tax assets,
net of valuation allowance $ 3,974,753 $ 3,841,186
========== ==========
We have a net operating loss carryforward that can be used to offset
future taxable income and can be carried forward for 15 to 20 years. As
of March 28, 2003 we have net deferred tax assets of approximately $5.5
million, inclusive of a $5.6 million valuation allowance. We believe the
net deferred tax assets will be realized through tax planning strategies
available in future periods and future profitable operating results.
Although realization is not assured, we believe it is more likely than not
that our remaining net deferred tax assets will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced or
eliminated in the near term if certain tax planning strategies are not
successfully executed or estimates of future taxable income during the
carryforward period are reduced.
The income tax provision (benefit) in the accompanying statements of
operations for the fiscal year ended March 28, 2003, the fiscal year ended
March 29, 2002, the six month period ended March 30, 2001 and the fiscal
year ended September 29, 2000 consisted of the following:
2003 2002 2001 2000
---------- ---------- ---------- ----------
Current $ -- $ -- $ (6,333) $ 118,115
Deferred -- -- (1,224,720) (1,042,000)
---------- ---------- ---------- ----------
Income tax benefit $ -- $ -- $(1,231,053) $ (923,885)
========== ========== ========== ==========
The provision (benefit) for income taxes in the accompanying statements
of operations for the fiscal year ended March 28, 2003, the fiscal year
ended March 29, 2002, the six month period ended March 30, 2001 and the
fiscal year ended September 29, 2000 differ from the statutory federal rate
as follows:
2003 2002 2001 2000
---------- ---------- ---------- ----------
Income tax benefit
at statutory
federal rate $(3,061,153) $(1,269,060) $(1,140,213) $ (830,107)
Permanent differences 37,683 65,965 -- --
State income taxes,
net of federal effect (352,145) (605,116) (105,254) (75,865)
Increase in valuation
reserve 3,375,615 2,186,059 -- --
Other -- (377,848) 14,414 (17,913)
---------- ---------- ---------- ----------
Total benefit for
income taxes $ -- $ -- $(1,231,053) $ (923,885)
========== ========== ========== ==========
5. COMMITMENTS AND CONTINGENCIES:
Leases
We lease a significant portion of our office, warehouse, distribution,
fulfillment, computer equipment and manufacturing locations under
noncancelable operating leases with terms ranging from one to five years.
The majority of our leases contain renewal options that extend the leases
beyond the current lease terms.
Future minimum lease payments under noncancelable operating leases for
office, warehouse, computer equipment and manufacturing locations, with
remaining terms in excess of one year are as follows:
2004 1,790,962
2005 1,333,661
2006 340,346
2007 225,045
2008 1,109
---------
Total $3,691,123
=========
Rent expense was approximately $2,288,000, $2,199,000, $1,056,000, and
$1,935,000 for the fiscal year ended March 28, 2003, the fiscal year ended
March 29, 2002, the six month period ended March 30, 2001, and the fiscal
year ended September 29, 2000, respectively.
Product Liability and Other Claims
Because of the nature of our products and industry, we are periodically
subject to product liability claims resulting from personal injuries. From
time to time we may become involved in various lawsuits incidental to our
business, some of which may relate to injuries allegedly resulting in
substantial permanent paralysis. Significantly increased product liability
claims continue to be asserted successfully against manufacturers throughout
the United States resulting in general uncertainty as to the nature and
extent of manufacturers' and distributors' liability for personal injuries.
See Part I. Item 3. - "Legal Proceedings".
There can be no assurance that our general product liability insurance
will be sufficient to cover any successful claim made against us. In our
opinion, any ultimate liability arising out of currently pending product
liability and other claims will not have a material adverse effect on
our financial condition or results of operations. However, any claims
substantially in excess of our insurance coverage, or any substantial claim
not covered by insurance, could have a material adverse effect on our
results of operations and financial condition.
During 2000, we successfully negotiated the settlement of two
outstanding lawsuits. Consequently, we recorded a nonrecurring charge
related to these claims in the amount of $605,000, which is included in
"Nonrecurring charges" on the Consolidated Statement of Operations.
6. EMPLOYEES' SAVINGS PLAN:
Effective June 1, 1993, we established a defined contribution profit
sharing plan (our "401(k) Plan") for the benefit of eligible employees. All
employees with 90 days of service and who have attained the age of 21 are
eligible to participate in our 401(k) Plan. Employees may contribute up to
20% of their compensation, subject to certain limitations, which qualifies
under the compensation deferral provisions of Section 401(k) of the United
States Internal Revenue Code.
Our 401(k) Plan contains provisions that allow us to make discretionary
contributions during each plan year. Employer contributions for the fiscal
year ended March 28, 2003, the fiscal year ended March 29, 2002, the six
month period ended March 30, 2001, and the fiscal year ended September 29,
2000 were approximately $0, $0, $26,000, and $89,000, respectively. We pay
all administrative expenses of our 401(k) Plan.
7. UNAUDITED STATEMENT OF OPERATIONS DATA:
The following table sets forth certain information regarding our
results of operations for each full quarter within the fiscal year ended
March 28, 2003, the fiscal year ended March 29, 2002, and the six month
period ended March 30, 2001, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not
fully sum to yearly amounts.
2003 Fiscal Year
----------------
Qtr Qtr Qtr Qtr
Statement of ended ended ended ended
Operations Data: Year June Sept. Dec. Mar.
--------------- ------- ------ ------ ------ ------
Net revenues $102,617 $26,773 $26,087 $18,518 $31,238
Gross profit 30,029 8,139 8,032 5,067 8,791
Operating profit (loss) (943) 513 175 (2,380) 749
Interest expense 629 168 147 136 177
Other income
(expense), net 11 (8) 4 21 (6)
Income tax provision
(benefit) -- 127 10 (136) --
Net earnings (loss)
before Cumulative
effect of Accounting
change 1,561 210 22 (2,359) 566
Cumulative effect of
Accounting change (7,442) (7,442) -- -- --
Net earnings (loss) $(9,003) $(7,232) $22 $(2,359) $566
Net earnings (loss)
per share Basic
and diluted $(1.01) $(0.81) $0.00 $(0.26) $0.06
Weighted average
shares outstanding -
basic 8,917 8,917 8,917 8,917 8,917
diluted 8,917 8,917 8,917 8,917 8,917
2002 Fiscal Year 2001 Fiscal Year
---------------- ----------------
Six Month
Qtr Qtr Qtr Qtr Period Qtr Qtr
Statement of ended ended ended ended ended ended ended
Operations Data: Year June Sept. Dec. Mar. Mar. Dec. Mar.
---------------- ------- ------ ------ ------ ------ ------ ------ ------
Net revenues $103,601 $27,955 $28,245 $17,043 $30,358 $50,336 $18,201 $32,135
Gross profit 29,495 7,939 7,888 4,832 8,835 13,936 4,917 9,019
Operating profit
(loss) (note 1) (2,790) (266) (246) (3,112) 834 (2,411) (2,994) 583
Interest expense 985 332 261 219 173 957 533 424
Other income, net 193 75 -- 11 107 14 2 12
Income tax provision
(benefit) -- (189) (186) 375 -- (1,231) (1,297) 66
Net earnings (loss) $ (3,582) $ (333) $ (322) $(3,695) $ 768 $(2,123) $(2,228) $ 105
------- ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)
per share -
Basic and diluted $(0.40) $(0.04) $(0.04) $(0.41) $0.09 $(0.27) $(0.31) $0.01
Weighted average
shares outstanding -
basic 8,917 8,915 8,915 8,915 8,917 7,964 7,270 8,643
diluted 8,917 8,915 8,915 8,915 8,917 7,964 7,273 8,649
(1) The 2nd quarter of fiscal year 2001 includes $253,239 of nonrecurring
charges.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
During our two most recent fiscal years, no independent accountant who
was engaged as the principal accountant to audit our financial statements,
or any independent accountant who was engaged to audit a significant
subsidiary on whom the principal accountant expressed reliance in its report
has resigned or was dismissed.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
See the discussion under the captions "Election of Directors" and
"Executive Compensation and Other Information" contained in the Proxy
Statement for the Annual Meeting of Stockholders to be held on or about
August 28, 2003, which information is incorporated herein by reference, and
Part I. Item 1. -- "Business - Directors and Executive Officers".
Item 11. Executive Compensation.
----------------------
See the discussion under the caption "Executive Compensation and Other
Information" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held on or about August 28, 2003, which information,
except the Performance Graph and the Report of the Compensation Committee
and Stock Option Committee on Executive Compensation, is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
See the discussion under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Proxy Statement for the
Annual Meeting of Stockholders to be held on or about August 28, 2003, which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
See the discussion under the caption "Certain Relationships and Related
Transactions" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held on or about August 28, 2003, which information is
incorporated herein by reference.
Item 14. Controls and Procedures
-----------------------
Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14.) Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of our disclosure
controls and procedures were effective. No significant changes were made in
our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Item 15. Principal Accountant Fees and Services
--------------------------------------
See the discussion under the caption "Principal Accountant Fees and
Services" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held on or about August 28, 2003, which information is
incorporated herein by reference.
PART IV.
Item 16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
(a) (1) Financial Statements. See Item 8.
(a) (2) Supplemental Schedule Supporting Financial Statements. See Page 45
(a) (3) Management Contract or Compensatory Plan. [See Index to
Exhibits]. [Each of the following Exhibits described on
the Index to Exhibits is a management contract or compensatory
plan: Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7,
10.8, 10. 27, 10.31, 10.32, and 10.33].
(b) Reports on Form 8-K. A report on Form 8-K was filed with
the Securities and Exchange Commission on May 14, 2001
relating to a press release concerning our change of fiscal
year-end from September 30 to March 31.
(c) Exhibits. See Index to Exhibits
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.
Dated: July 11, 2003
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
----------------------
Geoffrey P. Jurick
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on July 11, 2003 by the following persons
on behalf of the registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Geoffrey P. Jurick Chairman of the Board and
---------------------- Chief Executive Officer
Geoffrey P. Jurick
/s/ John P. Walker President
----------------------
John P. Walker
/s/ Robert K. Mitchell Chief Financial Officer
----------------------
Robert K. Mitchell
/s/ Carl D. Harnick Director
----------------------
Carl D. Harnick
/s/ Peter G. Bunger Director
----------------------
Peter G. Bunger
/s/ Thomas P. Treichler Director
----------------------
Thomas P. Treichler
CERTIFICATIONS
I, Geoffrey P. Jurick, certify that:
1. I have reviewed this annual report on Form 10-K of Sport Supply Group,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: July 11, 2003
By: /s/ Geoffrey P. Jurick
--------------------------
Geoffrey P. Jurick
Chief Executive Officer
I, Robert K. Mitchell, certify that:
1. I have reviewed this annual report on Form 10-K of Sport Supply Group,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: July 11, 2003
By: /s/ Robert K. Mitchell
--------------------------
Robert K. Mitchell
Chief Financial Officer
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
Schedule II -- Valuation and Qualifying Accounts
For The Year Ended March 28, 2003, The Year Ended March 29, 2002,
The Six Month Period Ended March 30, 2001, and The Year Ended September 29, 2000
-------Additions-------
Balance at Charged to Charged to Balance at
Beginning costs and other End of
of Period expense accounts (1) Deductions (2) Period
---------- ---------- ----------- ---------- ----------
Allowance for Doubtful Accounts
-------------------------------
Year ended March 28, 2003 $ 524,406 $ 451,367 $ - $ 475,687 $ 500,086
Year ended March 29, 2002 $ 929,128 $ 351,306 $ - $ 756,028 $ 524,406
Six Month period ended March 30, 2001 $ 836,356 $ 220,884 $ - $ 128,112 $ 929,128
Year ended September 29, 2000 $ 465,497 $ 319,025 $ 503,612 $ 451,778 $ 836,356
(1) Amounts consist primarily of reserves added for acquired entities.
(2) Amounts consist primarily of asset write-offs.
INDEX TO EXHIBITS
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
2.1 Securities Purchase Agreement dated November 27, 1996
by and between the Company and Emerson Radio Corp.
("Emerson") (incorporated by reference from Exhibit 2
to the Company's Report on Form 8-K filed on December
12, 1996).
3.1 Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference from Exhibit
4.1 to the Company's Registration Statement on Form
S-8 (Registration No. 33-80028)).
3.1.1 Certificate of Amendment of Amended and Restated
Certificate of Incorporation of the Company
(incorporated by reference from Exhibit 4.1 to
the Company's Registration Statement on Form S-8
(Registration No. 33-80028)).
3.2 Amended and Restated Bylaws of the Company
(incorporated by reference from Exhibit 3.2 to the
Company's Report on Form 10-K for the Fiscal Year
ended November 1, 1996).
4.1 Specimen of Common Stock Certificate (incorporated by
reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-39218)).
10.1 Form of Severance Agreement entered into between
the Company and Mitch Labov dated March 24, 1999
(incorporated by reference from Exhibit 10.31 to the
Company's Report on Form 10-K for the fiscal year
ended March 29, 2002).
10.2 Employment Agreement entered into by and between the Company
and Michael Glassman dated April 1, 2001 (incorporated by
reference from Exhibit 10.27 to the Company's Report on Form
10-K for the fiscal year ended March 30, 2001).
10.3 Restricted Stock Agreement by and between the Company and
John P. Walker (incorporated by reference from Exhibit 10.6
to the Company's Report on Form 10-Q for the quarter ended
April 3, 1998).
10.4 Consulting and Separation Agreement dated as of September 16,
1994 by and between the Company and Jerry L. Gunderson
(incorporated by reference from Exhibit 10.4 to the Company's
Report on Form 10-K for the fiscal year ended November 1,
1996).
10.5 Form of Severance Agreement entered into between the Company
and each of Messrs. John P. Walker and Terrence M. Babilla
(incorporated by reference from Exhibits 10.2 and 10.3 to the
Company's Report on Form 10-Q for the quarter ended April 2,
1999).
10.6 Form of Severance Agreement between the Company and Doug
Pryor (incorporated by reference from Exhibit 10.7 to the
Company's Report on Form 10-Q for the quarter ended April 3,
1998).
10.7 Form of Severance Agreement entered into between the Company
and John Bals dated February 8, 2002 (incorporated by
reference from Exhibit 10.32 to the Company's Report on Form
10-K for the fiscal year ended March 29, 2002).
10.8 Form of Indemnification Agreement entered into between the
Company and each of the directors of the Company and the
Company's General Counsel (incorporated by reference from
Exhibit 10.3 to the Company's Registration Statement on Form
S-1 (Registration No. 33-39218)).
10.9 Sport Supply Group, Inc. Amended and Restated Stock Option
Plan (incorporated by reference from Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (Registration
No. 33-27193)).
10.10 Registration Rights Agreement by and among the Company,
Emerson and Emerson Radio (Hong Kong) Limited (incorporated
by reference from Exhibit 4(b) to the Company's Report on
Form 8-K filed on December 12, 1996).
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
10.11 Assignment of Agreement and Inventory Purchase Agreement to
Affiliate by Aurora (incorporated by reference from Exhibit
10.10 to the Company's Registration Statement on Form S-1
(Registration No. 33-39218)).
10.12 Form of Tax Indemnity Agreement by and between the Company
and Aurora (incorporated by reference from Exhibit 10.16 to
the Company's Registration Statement on Form S-1
(Registration No. 33-39218)).
10.13 Assignment and Assumption Agreement, dated to be effective as
of February 28, 1992, by and between Aurora and the Company
(incorporated by reference from Exhibit 10.27 to the
Company's Report on Form 10-K for the year ended 1991).
10.14 Amendment No. 1 to AMF Licensing Agreement (incorporated by
reference from Exhibit 10 to the Company's Report on Form
10-Q for the quarter ended January 1, 1999).
10.15 Amended Lease Agreement entered into between the Company
and ACQUIPORT DFWIP, Inc., dated as of July 13, 1998
(incorporated by reference from Exhibit 10 to the Company's
Report on Form 10-Q filed on August 14, 1998).
10.15.1 Second Amendment to Lease Agreement entered into between the
Company and ACQUIPORT DFWIP, Inc., dated as of July 30, 2000
(incorporated by reference from Exhibit 10.3 to the Company's
Report on Form 10-Q for the quarter ended June 30, 2000).
10.16 Lease, dated July 28, 1989, by and between Merit Investment
Partners, L.P. and the Company (incorporated by reference
from Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (Registration No. 33-39218)).
10.17 Industrial Lease Agreement, dated April 25, 1994, by and
between the Company and Centre Development Co. regarding the
property at 13700 Benchmark (incorporated by reference from
Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended June 30, 1994).
10.17.1 Amendment to Industrial Lease Agreement, dated July 8, 1994,
by and between the Company and Centre Development Co.
regarding the property at 13700 Benchmark (incorporated by
reference from Exhibit 10.19.1 to the Company's Report on
Form 10-K for the fiscal year ended December 31, 1994).
10.18 License Agreement, dated as of September 23, 1991, by and
between Proacq Corp. and the Company (incorporated by
reference from Exhibit 10.17 to the Company's Report on
Form 10-K for the year ended 1991).
10.19 Sport Supply Group Employees' Savings Plan dated June 1,
1993 (incorporated by reference from Exhibit 10.27 to the
Company's Report on Form 10-K for the year ended 1993).
10.20 Management Services Agreement dated July 1, 1997 to be
effective as of March 7, 1997 by and between the Company and
Emerson (incorporated by reference from Exhibit 10.2 to the
Company's Report on Form 10-Q for the quarter ended August 1,
1997).
10.21.1 Letter Agreement dated October 18, 1997 amending the
Management Services Agreement (incorporated by reference from
Exhibit 10.31.1 to the Company's Report on Form 10-K for the
fiscal year ended September 26, 1997).
10.22 Lease Agreement by and between Athletic Training Equipment
Company, Inc. and The Northwestern Mutual Life Insurance
Company, dated January 29, 1999 regarding the property
located in Sparks, NV (incorporated by reference from
Exhibit 10.4 to the Company's Report on Form 10-Q for the
quarter ended April 2, 1999).
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
10.22.1 First Amendment to Lease Agreement by and between Athletic
Training Equipment Company, Inc. and The Northwestern Mutual
Life Insurance Company, dated January 29, 1999 regarding the
property located in Sparks, NV (incorporated by reference
from Exhibit 10.2 to the Company's Report on Form 10-Q for
the quarter ended June 28, 2002).
10.23 Services Agreement between the Company and EJB Development
dated March 1, 2001 (incorporated by reference from Exhibit
10.27 to the Company's Report on Form 10-K for the fiscal
year ended March 30, 2001).
10.24 Loan and Security Agreement dated March 27, 2001 by and
between the Company and Congress Financial Corporation
(incorporated by reference from Exhibit 10.29 to the
Company's Report on Form 10-K for the year ended March 30,
2001).
10.24.1 First Amendment to Loan and Security Agreement dated October
1, 2002 by and between the Company and Congress Financial
Corporation (incorporated by reference from Exhibit 10.2 to
the Company's Report on Form 10-Q for the quarter ended
December 27, 2002).
10.25 Amended and Restated License Agreement dated as of December
21, 2000 by and between MacMark Corporation, Equilink
Licensing Corporation and the Company (incorporated by
reference from Exhibit 10.23.2 from the Company's Report
on Form 10-Q for the quarter ended December 29, 2000).
10.26 Employment Agreement by and between the Company and Eugene
J.P. Grant dated January 1, 2001 (incorporated by reference
from Exhibit 10.1 from the Company's Report on Form 10-Q for
the quarter ended June 28, 2002).
10.27 Employment Agreement by and between the Company and Wayne
Merritt dated January 16, 2003 (incorporated by reference
from Exhibit 10.1 from the Company's Report on Form 10-Q for
the quarter ended December 27, 2002).
10.28 (*) Form of Indemnification Agreement by and between the Company
and the Company's General Counsel and Carl D. Harnick dated
April 1, 2003.
21 (*) Subsidiaries of the Registrant.
23.1 (*) Consent of Independent Auditors.
99 Pledge and Security Agreement, dated December 10, 1996 by
Emerson in favor of Congress Financial Corporation
(incorporated by reference from Exhibit 99 to the Company's
Report on Form 8-K filed on December 12, 1996.)
99.1 (*) Certification of the Company's Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 (*) Certification of the Company's 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