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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ x ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from September 30, 2000 to March 30, 2001
Commission File number 1-10704
Sport Supply Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2241783
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234 - 8914
------------------------------------------ ------------
(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
----------------------------------------------------------------------------
(Title of Class)
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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on June 15, 2001 based on the closing price of the common
stock on the Over the Counter Bulletin Board on such date, was approximately
$5,700,000.
Indicated below is the number of outstanding shares of each class of
the registrant's common stock, as of June 15, 2001.
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
Common Stock, $.01 par value 8,914,606 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TABLE OF CONTENTS
Item Page
---- ----
PART I
1 Business.......................................... 3
2 Properties........................................ 9
3 Legal Proceedings................................. 9
4 Submission of Matters to a Vote of Security Holders 9
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters............................. 10
6 Selected Financial Data........................... 11
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 12
8 Financial Statements and Supplementary Data....... 19
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............ 35
PART III
10 Directors and Executive Officers of the Registrant 36
11 Executive Compensation............................ 38
12 Security Ownership of Certain Beneficial Owners
and Management.................................. 43
13 Certain Relationships and Related Transactions.... 47
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ............................ 49
15 Signatures........................................ 50
PART I.
Item 1. Business.
General
Sport Supply Group, Inc. is a leading direct mail marketer of sports
related equipment and leisure products 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 and several manufacturing
facilities. We currently offer approximately 10,000 sports related
equipment products to over 100,000 customers.
In recent years, we believe sales of sports related equipment in the
United States has been characterized by a rapidly growing shift in non-store
sales through media such as printed catalogs, broadcast and cable
infomercials, home shopping channels, and the Internet. This growth is due
to the convenience of home shopping for the time constrained dual-career
consumer households and the increasingly high level of customer service
offered by leading direct marketing firms.
We believe the institutional sporting goods market is highly fragmented
and that most of our competitors lack the necessary capital, support
systems, and economies of scale to effectively exploit available
opportunities for growth. We believe that we are well positioned to grow
our business because of our high capacity order-taking, processing and
fulfillment, our well-developed expertise in catalog design and
merchandising and our Information Technology (IT) platform.
One of the most important contributions of the IT platform is that the
data available in the system is channeled to a host of 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 allows for more convenience and added flexibility for our
customers, many of whom are part-time coaches with day jobs and parenting
responsibilities.
We believe the majority of customers have access to the Internet and
view placing orders and accessing their account information over the
Internet as a significant benefit. We also believe that, in the future, a
large 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.
Our sourcing, warehousing, distribution and fulfillment capabilities
and our fully integrated SAP information system, provide the necessary
capacities, logistics and information technological support to meet the
demands and growth potential of E-Commerce. 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 30, 2001, we
had two wholly-owned subsidiaries: Athletic Training Equipment, Inc., a
Delaware Corporation ('ATEC") and Sport Supply Group Asia, Ltd., a Hong Kong
Corporation. Our ATEC subsidiary purchased substantially all of the assets
of Athletic Training Equipment Company, Inc., ("ATEC"), a Nevada corporation
in December, 1997. On September 25, 2000, we acquired the stock of Sport
Supply Group Asia, Ltd., a Hong Kong corporation from Emerson Radio
Corporation. (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, sportsupplygroup.com, provides certain additional
information about us.
Products
We believe we manufacture and distribute one of the broadest lines of
sports related equipment and leisure products to the institutional market.
We offer approximately 10,000 sporting goods and sports and recreational
leisure products, over 3,000 of which we manufacture. Our product lines
include, but are not limited to: archery, baseball, softball, basketball,
camping, football, tennis and other racquet sports, gymnastics, indoor
recreation, 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 to us. We believe many of our trade names and trademarks are well
recognized among institutional purchasers of sports related equipment. 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 related equipment and products,
including inflated balls and baseball and softball products --
(licensed from Voit Sports, Inc. - see discussion below).
* MacGregor[R] -- certain equipment and accessories relating to baseball,
softball, basketball, soccer, football, volleyball, and general
exercise (e.g., dumbbells, curling bars, etc.) (licensed from MacMark
Corporation - see discussion below).
* Huffy[R] -- early childhood development products (sublicensed from
Huffy Corporation - see discussion below).
* Alumagoal[R] -- track and field equipment, including starting blocks,
hurdles, pole vault and high jump standards and crossbars.
* AMF[R] -- gymnastics equipment (licensed from AMF Bowling, Inc. - see
discussion below).
* ATEC [R] -- pitching machines and related baseball and softball
training equipment.
* BSN[R] -- sport balls.
* Champion -- 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 -- field and floor hockey equipment, soccer equipment,
scorebooks, coaching equipment and table tennis equipment.
* GSC Sports -- gymnastics equipment.
* Hammett & Sons -- indoor table-top games.
* 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.
* Pro Net -- nets, net assemblies and frames and practice cages.
* Rol-Dri[R] and Tidi-Court -- golf course and tennis court maintenance
equipment.
* Safe-Squat -- specialty weight lifting squat machines.
* Toppleball[R] -- recreational ball games.
* U.S. Games, Inc.[R] -- goals, nets, and playing equipment for physical
exercise games and mail order catalogs.
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. The initial term of the Voit
license expired on December 31, 1989, and was subject to three renewal
options for consecutive terms of five years each. Subject to the terms of
the license agreement, we are permitted to use the Voit trademark through
December 31, 2004.
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 term of the sublicense expires September
30, 2003.
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
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 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".
On August 19, 1993, we entered into an exclusive license agreement with
AMF Bowling, Inc. to use the AMF 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. Subject to the terms of the AMF license, we are
permitted to use the AMF name through December 31, 2001 with the option to
renew the agreement through December 31, 2003.
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 U.S. 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 well 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 10 different direct mail
catalogs, an inside sales and customer service staff of over 100 people, an
outside sales force of over 25 people traveling in significant metropolitan
sales territories, and twelve 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, Early
Childhood Development, 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], Reebok Team Uniforms, Spaulding, PortaPit, Champion
Barbell, Voit[R], Huffy[R], AMF[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 intangible assets.
We also have licenses and marketing alliances with national
organizations including Little League BaseballTM, Major League Baseball[R],
YMCA, Hershey Chocolate USA, Antigua[R], and Amway Corp. In 1996, we entered
into a five-year advertising and distribution agreement with Hershey
Chocolate USA. We are currently in discussions with Hershey to extend this
agreement. Pursuant to this agreement, we market and distribute promotional
fund raising literature and programs to our customers, and service the fund
raising needs of many nontraditional customers.
In an effort to maximize the performance of the catalogs and increase
market penetration, we have opened "Team Hubs" in key underperforming
markets. The purpose of these hubs is to provide a local presence and allow
field sales representatives to make live presentations to customers and
potential customers. These local team sales hubs focus on promoting product
to the institutional and youth sports markets.
During fiscal year 1999, we expanded our local team sales hubs by
acquiring two local team dealers. These local team sales hub acquisitions
continue to service the local institutional customers and teams with a full
line of athletic products. We will also use this local presence to expand
our product sales to the local institutional customer base. 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 further expanded our local team sales hubs by
acquiring two more local team dealers: Spaulding Athletic, located in Little
Rock Arkansas, and LAKCO Team Sports, located in Southern California.
Conlin and LAKCO Team Sports have been consolidated with our existing sales
office in California.
During fiscal year 1998, we acquired certain assets of Athletic
Training Equipment Company, Inc., a Nevada Corporation ("ATEC"). ATEC
manufactures and markets pitching machines and other baseball 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.
During the past two years, we have made a significant investment in
launching twelve Internet sites listed below:
BSNsports.com -- targets the longstanding customer of SSG
who recognizes the BSN sports name
LeagueDirect.com -- targets Little League and other league
sports
US-Games.com -- targets the early childhood development
buyer
ChampionBarbell.com -- targets fitness
BSNgsanaf.com -- targets the government
NewEnglandCamp.com -- targets camping and outdoor leisure
Portapit.com -- targets track and field
eSportsonline.com -- targets all customers
ATEC-sports.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
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 for more convenience and added flexibility for our
customers.
Over the years, 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 customers. We are beginning to
target individual consumers on our esportsonline.com website. Sales growth
is the result of strengthening our marketing and selling expertise and
constantly updating our product lines while expanding our selling and
distribution channels.
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.
We believe our customer base in the United States is the largest in the
institutional direct mail market for sports related equipment. 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.
Approximately 7%, 9%, 7% and 7% of our sales in the fiscal years 2001,
2000, 1999 and 1998 respectively, were to 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, 2001. Although we intend to extend the expiration date of this
contract, no assurance can be made that it will be extended. Under the GSA
Contract, we agree to sell approximately 550 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 have a separate contract with the General Services
Administration for the sale of approximately 10 camp related products with
terms similar to the GSA Contract. This contract is scheduled to expire
August 31, 2002.
We also sell products to United States Government customers from a NAF
contract (Non-Appropriated Funds). Our entire product line is included on
this contract and offers pricing to the U.S. 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, 2001. Although we intend to extend the expiration
date of this contract, no assurance can be made that it will be extended.
Seasonal Factors and Backlog
Historically, our revenues are lowest in the quarter ending December 31
and peak in the quarter ending March 31. Our revenues reflect a level cycle
during the quarters ending June 30 and September 30. The peak in revenues
in the quarter ending March 31 is primarily due to the volume generated by
spring and summer sports, favorable outdoor weather conditions and school
needs before summer closing.
We had a backlog of approximately $2,638,000 at March 30, 2001,
$2,329,000 at September 29, 2000 and $2,458,000 at October 1, 1999.
Manufacturing and Suppliers
We manufacture, assemble and distribute many of our products from five
of our facilities. See Item 2. -- "Properties" for details. Game tables,
gym mats, netting, and tennis and baseball field equipment are manufactured
in our three Anniston, Alabama plants. Baseball and softball pitching
machines are manufactured at our ATEC subsidiary in Sparks, Nevada. Items
of steel and aluminum construction, such as soccer field equipment and
weight equipment, are principally manufactured at our facilities in Farmers
Branch, Texas.
Certain products manufactured by us are custom-made (such as tumbling
mats ordered in color or size specifications), while others are
standardized. 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, steel and aluminum tubing,
wood, slate and cloth.
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 readily available
from other sources. We purchase most of our finished product in U.S.
dollars and are, therefore, not subject to direct foreign exchange rate
differences. See Part II. Item7. - 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 mail 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 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 ability to control the availability of
goods we manufacture enables us to respond more rapidly to customer demand.
We believe our direct mail competitors operate primarily as wholesalers and
distributors, with little or no manufacturing capability.
Government Regulation
Many of our products are subject to 15 U.S.C.A. SS 2051-2084 (1998 and
Supp. 1998), 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".
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 May 25, 2001, we had approximately 462 full-time employees, of whom
134 were involved in our manufacturing operations. We also hire part-time
and temporary employees primarily during the summer months. None of our
employees are represented by unions, and we believe our relations with
employees are good.
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 135,000 Farmers December, 2004
corporate headquarters Branch, TX
Warehouse and fulfillment 181,000 Farmers December, 2004
processing Branch, TX
Sub-leased to a third party 45,000 Cerritos, CA December, 2001
Pitching equipment 62,500 Sparks, NV July, 2004
manufacturing
Cloth and netting product 35,000 Anniston, AL Owned
manufacturing
Game table manufacturing 45,000 Anniston, AL Owned
Foam and Vinyl Manufacturing 38,500 Anniston, AL November, 2001
We believe the facilities used in our operations are in satisfactory
condition and adequate for our present and anticipated future operations.
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.
Not Applicable.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Our common stock, par value $.01 per share (the "Common Stock") is
quoted on the Over-the-counter Bulletin Board under the symbol SSPY. On
February 7, 2001, our common stock was suspended from trading on the New
York Stock Exchange ("NYSE") because we did not meet the NYSE's continued
listing criteria relating to total global market capitalization of $50
million and total stockholders equity of $50 million. Although we have
applied to list our common stock on the American Stock Exchange ("AMEX"),
the AMEX has declined to list our common stock because we do not meet the
$3.00 minimum stock price requirement. We have requested that the AMEX
Adjudicatory Council review the decision rendered by the AMEX Committee on
Securities. No assurance can be made that the AMEX will approve our
application to list our shares of common stock. As of May 16, 2001, there
were 1,526 holders of the Common Stock (including individual security
position listings). The following table sets forth the high/low sales range
for the periods indicated. 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
----------- -------------- ------ -----
1999 Ended December 9.313 5.875
Ended March 11.875 7.750
Ended June 10.750 8.750
Ended September 10.313 8.125
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
We have not declared dividends in the past three fiscal years and
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends on our capital stock in the foreseeable
future.
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 ofMarch 30,
2001, 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 alternative
capital spending programs. Our bank agreement currently prohibits the
repurchase of any additional shares without the bank's prior consent.
On January 14, 1998, we issued 50,000 shares of restricted stock to
John P. Walker, President and a Director of Sport Supply Group, Inc., in a
privately negotiated transaction pursuant to Section 4(2) of the Securities
Act of 1933, as amended (i.e. a transaction by an issuer not involving a
public offering). These shares vested over a two-year period. We did not
receive any cash proceeds from the issuance of these shares.
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.
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 )
Six Fiscal Fiscal Fiscal Eleven Fiscal
Months Year Year Year Months Year
Ended Ended Ended Ended Ended Ended
March 30, Sept 29, Oct 1, Oct 2, Sep 26, Nov 1,
Statement of Earnings Data: 2001(2) 2000 1999 1998 1997(1)(3) 1996(3)
------- ------- ------- ------- ------- -------
Net revenues $ 50,337 $119,321 $112,880 $101,935 $ 83,318 $ 84,547
Gross profit 13,936 36,170 37,283 32,303 26,811 25,001
Operating profit (loss) (2,411) (437) 8,445 7,782 4,226 (65)
Interest expense 957 2,022 1,196 474 757 1,372
Other income, net 14 17 63 215 83 38
Earnings (loss) from continuing operations (2,123) (1,518) 4,623 4,964 2,576 (964)
Loss from discontinued operations (3) -- -- -- -- (2,574) (17,773)
------- ------- ------- ------- ------- -------
Net earnings (loss) $ (2,123) $ (1,518) $ 4,623 $ 4,964 $ 2 $(18,737)
======= ======= ======= ======= ======= =======
Earnings (loss) per common share and
common equivalent share: (notes 1,
2 and 3)
Net earnings (loss) per common share
from continuing operations $ (0.27) $ (0.21) $ 0.63 0.62 $ 0.32 $ (0.14)
Net loss per common share from
discontinued operations -- -- -- -- (0.32) (2.64)
------- ------- ------- ------- ------- -------
Net earnings (loss) per common
share - basic $ (0.27) $ (0.21) $ 0.63 $ 0.62 $ - $ (2.78)
======= ======= ======= ======= ======= =======
Net earnings (loss) per common share from
continuing operations - diluted $ (0.27) $ (0.21) $ 0.60 $ 0.60 $ 0.32 $ (0.14)
Net loss per common share from discontinued
operations - diluted -- -- -- -- (0.32) (2.63)
------- ------- ------- ------- ------- -------
Net earnings (loss) per common
share - diluted $ (0.27) $ (0.21) $ 0.60 $ 0.60 $ - $ (2.77)
======= ======= ======= ======= ======= =======
Weighted average common and common
equivalent shares:
Weighted average common shares
outstanding - basic 7,964 7,273 7,390 8,026 8,146 6,747
Weighted average common shares
outstanding - diluted 7,964 7,273 7,728 8,237 8,151 6,768
At At At At At At
March 30 Sept 29, Oct 1, Oct 2, Sep 26, Nov 1,
Balance Sheet Data: 2001 (2) 2000 1999 1998 1997(1)(3) 1996(3)
------- ------- ------- ------- ------- -------
Working capital $ 28,383 $ 30,771 $ 31,873 $ 25,245 $ 24,006 $ 21,322
Total assets 73,584 73,687 73,249 54,804 50,484 70,009
Long-term obligations, net 17,333 19,034 18,426 5,161 4,418 24,338
Total liabilities 32,955 33,150 31,141 13,626 11,527 40,846
Stockholders equity 40,629 40,537 42,108 41,178 38,957 29,163
NOTES TO SELECTED FINANCIAL DATA (UNAUDITED)
(1) During 1997, we changed our financial reporting year-end from October
31 to September 30. Therefore, the fiscal year ended September 26, 1997
is a transition period consisting of eleven calendar months.
(2) 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.
(3) On May 20, 1996 we disposed of substantially all of the assets (other
than cash and accounts receivable) of the Gold Eagle Division to a
privately held corporation.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following table sets forth, for the periods indicated, certain
items related to our continuing operations as a percentage of net revenues.
For the For the For the For the
6 Months 12 Months 12 Months 12 Months
Ended Ended Ended Ended
March. 30, Sept. 29, Oct. 1, Oct. 2,
2001 2000 1999 1999
------- ------- ------- -------
Net revenues (in thousands) $ 50,337 $119,321 $112,880 $101,935
100.0% 100.0% 100.0% 100.0%
Cost of sales 72.3% 69.7% 66.9% 68.3%
Selling, general and
administrative expenses 31.3% 29.2% 25.6% 22.9%
Internet expenses 0.6% 1.0% 0.0% 0.0%
Nonrecurring Charges 0.5% 0.5% 0.0% 1.2%
Operating profit (loss) (4.7%) (0.4%) 7.5% 7.6%
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 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
Non-recurring charges $ 253,239 $ 605,000
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 is 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. We expect
revenues to continue this downward trend through the quarter ending June 29,
2001 as a result of the foregoing factors.
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. We expect to continue to experience a lower gross profit as a
percentage of net revenue as compared to the previous year due to these
factors.
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 is primarily a result of the
following:
(i.) A decrease in selling and promotional expense of approximately $565,000
for the six month period ended March 30, 2001 as compared to the six
month period ended March 31, 2000. This decrease is primarily a result
of lower catalog expense as part of our cost reduction programs
initiated this year.
(ii.) A decrease in payroll related expense of approximately $364,000 for
the six month period ended March 30, 2001 as compared to the six month
period ended March 31, 2000. This is a result of reduced headcount,
primarily in the sales and sales administration areas.
(iii.) A decrease in legal fees of approximately $200,000 for the six month
period ended March 30, 2001 as compared to the six month period ended
March 31, 2000. This is primarily the result of a reduction in
litigation.
(iv.) A decrease in facility expenses of approximately $156,000 for the six
month period ended March 30, 2001 as compared to the six month period
ended March 31, 2000. This 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 for the six month period ended March 30, 2001. We
do not expect any material increase in computer related expenses as
compared to prior fiscal periods in the quarters ending June 29, 2001 and
September 28, 2001. Fiscal 2001 was the first year of normal, fully loaded
MIS department operating expenses, which currently total approximately
$650,000 per quarter. The SAP computer system implementation is complete
and meets our current needs. We expect it to meet our needs into the
foreseeable future. The increase in license and royalty related expenses is
primarily due to the Amended and Restated License Agreement with MacMark,
entered in 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 are 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. Consequently, we expect our
future quarterly Internet expenses to be significantly less than the
comparable prior year quarters over the next two quarters.
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 additional nonrecurring expenses of approximately
$114,000 in the six month period ended March 30, 2001. 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. In the six month period
ended March 31, 2000, we recorded a nonrecurring charge related to the
settlement of two lawsuits in the amount of $605,000.
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 is 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.
Provision (Benefit) for Income Taxes. 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.
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. No valuation
allowance has been recorded for our deferred tax assets because we believe
it is more likely than not such assets will be realized. We believe the
deferred tax assets will be realized by future profitable operating results.
Realization of our net deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of loss carryforwards.
Although realization is not assured, we believe it is more likely than not
that all of the deferred tax assets will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward
period are reduced. See Note 4 to the consolidated financial statements
included in Item 8 -- "Financial Statements and Supplementary Data".
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, respectively as compared to the
sam e period in fiscal 2000. The increase in weighted average shares
outstanding is primarily due to the sale of treasury stock to Emerson Radio
Corp. See Part II, Item 2. "Changes in Securities and Proceeds."
2000 Compared to 1999
The following table summarizes certain financial information relating
to our results of operations for the fiscal years ended September 29, 2000
and October 1, 1999:
2000 1999
----------- -----------
Net Revenues $119,320,982 $112,879,817
Gross Profit $ 36,169,949 $ 37,282,908
SG&A $ 34,865,452 $ 28,838,366
Internet expenses $ 1,136,149 --
Nonrecurring charges $ 605,000 --
Net Earnings (loss) $ (1,517,606) $ 4,622,839
Net Revenues. Net revenues for the fiscal year ended September 29, 2000
("fiscal 2000") increased by approximately $6.4 million (5.7%) as compared
to the fiscal year ended October 1, 1999 ("fiscal 1999"). The increase in
net revenues reflects increases in revenues associated primarily with our
team dealers, fund-raising product sales and in-school and out-of-school
sales increases.
Gross Profit. Gross profit for fiscal 2000 decreased by approximately $1.1
million (3.0%) as compared to fiscal 1999. As a percentage of net revenues,
gross profit decreased to 31.9% in fiscal 2000 from 34.8% for fiscal 1999. A
portion of the decrease in gross profit is due to $500,000 in one-time
vendor rebates that were recorded during fiscal 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 2000 increased by approximately $6.0
million (20.9%) as compared to fiscal 1999. As a percentage of net
revenues, selling, general and administrative expenses increased to 30.8%
for fiscal year 2000 as compared to 26.9% for fiscal 1999. The increase in
these expenses as a percentage of net revenues was primarily due to the
following factors:
(i.) An increase in payroll and related costs of approximately $3.3
million for fiscal year 2000 as compared to fiscal year 1999. This
increase was primarily a result of the increased number of outside
sales employees, the employees of companies acquired during the second
quarter of the prior year and first quarter of fiscal year 2000 and
temporary help related to increased receivable collection efforts.
(ii.) An increase in computer related expenses of approximately $1.1 million
for fiscal year 2000 as compared to fiscal year 1999. This is
primarily the result of higher operating costs of maintaining the
SAP/AS400 system and support after the system was implemented.
(iii.) An increase in depreciation and amortization expense of approximately
$771,000 for fiscal year 2000 as compared to fiscal year 1999. This is
primarily the result of hardware and software acquisitions related to
our successful implementation of the SAP/AS400 ERP information system.
(iv.) An increase in selling and promotional expense of approximately
$539,000 for fiscal year 2000 as compared to fiscal year 1999. This is
primarily a result of higher catalog expense.
(v.) An increase in facility related expense of $448,000 for fiscal year
2000 as compared to fiscal year 1999. This is primarily due to the
full year impact of the additional facilities acquired during the
second quarter of the prior year and the additional facilities acquired
in first quarter of fiscal year 2000.
Internet Expenses. We incurred Internet related expenses of approximately
$1.1 million for the year ended September 29, 2000. These expenses are
related to significant enhancements, including the creation of shopping cart
capabilities and full integration with our SAP system.
Nonrecurring Charges. We successfully negotiated the settlement of two
lawsuits. Consequently, in fiscal year 2000, we recorded a non-recurring
charge related to these claims in the amount of $605,000.
Operating Profit. Operating profit decreased from a profit of $8.4 million
in fiscal 1999 to a loss of $437,000 in fiscal 2000. The decrease in
operating profit is due to reduced margins and increased SG&A expenses, as
described above.
Interest Expense. Interest expense increased in fiscal 2000 by
approximately $826,000 (69.0%) to $2.0 million compared to $1.2 million in
fiscal 1999. The increase in interest expense resulted from increased
overall levels of borrowing. The higher borrowing levels are a result of
the: (i.) cash payments for the acquisitions of Spaulding and LAKCO in
October 1999; (ii.) stock repurchased under our stock buyback program;
(iii.) cash paid for the SAP/AS400 ERP, Internet system implementation and
Internet development; and (iv.) funding the growth of inventories. In
addition, our borrowing rates increased as a result of amendments to our
credit agreement.
Other Income, Net. Other income decreased approximately $46,000 in fiscal
2000 as compared to fiscal 1999.
Provision (Benefit) for Income Taxes. The benefit for income taxes
increased approximately $3.6 million to a benefit of $924,000 in fiscal 2000
from a provision of $2.7 million in fiscal 1999. Our effective tax rate
increased to 37.8% in fiscal 2000 from 36.8% in fiscal 1999.
Net Earnings (Loss). Net earnings decreased approximately $6.1 million to a
net loss of $1.5 million in fiscal 2000 from net earnings of $4.6 million in
fiscal 1999. As a percentage of the net revenues, net earnings decreased to
(1.4%) in fiscal 2000 from 4.3% in fiscal 1999. Earnings per share before
dilution from continuing operations decreased to $(0.21) per share in fiscal
2000 from $0.63 per share in fiscal 1999. Fiscal year 2000 includes a
decrease of approximately 5.9% in weighted average shares outstanding.
1999 Compared to 1998
The following table summarizes certain financial information relating
to our results of operations for the fiscal years ended October 1, 1999 and
October 2, 1998:
1999 1998
----------- -----------
Net Revenues $112,879,817 $101,935,314
Gross Profit $ 37,282,908 $ 32,303,198
SG&A $ 28,838,366 $ 23,336,972
Net Earnings (loss) $ 4,622,839 $ 4,964,311
Net Revenues. Net revenues for the fiscal year ended October 1, 1999
("fiscal 1999") increased by approximately $10.9 million (10.7%) as compared
to the fiscal year ended October 2, 1998 ("fiscal 1998"). The increase in
net revenues reflects increases in revenues associated primarily with the
acquisitions of Larry Black Sporting Goods and Conlin Brothers and increased
ATEC sales.
Gross Profit. Gross profit for fiscal 1999 increased by approximately $5.0
million (15.4%) as compared to fiscal 1998. As a percentage of net
revenues, gross profit increased to 33.0% in fiscal 1999 from 31.7% for
fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 increased by approximately $5.5
million (23.6%) as compared to fiscal 1998. As a percentage of net
revenues, operating expenses increased to 25.5% for fiscal year 1999 as
compared to 24.1% for fiscal 1998. The increase in these expenses as a
percentage of net revenues was primarily due to the following factors:
(i.) An increase in payroll costs associated with the additional employees
hired during the fiscal year. The number of employees increased by
approximately 100 full-time employees.
(ii.) An increase in operating expenses, including catalog and advertising
expense, and rent and utilities related to acquisition facilities.
(iii.) An increase in the allowance for doubtful accounts receivable.
During the year the accounts receivable days sales outstanding
increased.
(iv.) An increase in depreciation and amortization expense is primarily
the result of hardware and software acquisitions related to our
successful Year 2000 compliant SAP/AS400 ERP information system
implementation and Internet technology. The depreciation of the IT
system began in May 1999.
These increases were partially offset by decreases in our insurance
expenses.
During fiscal years 1998 and 1999 we embarked on a significant computer
conversion, Year 2000 project and made capital expenditures of over
$8,800,000, plus operating leases and maintenance agreements for the IBM
AS/400 and NT office network hardware. MIS department operating expenses
during fiscal 1998 and fiscal 1999 totaled over $1,700,000.
Operating Profit. Operating profit increased by approximately $662,000
(8.5%) to a profit of $8.4 million in fiscal 1999, as compared to $7.8
million in fiscal 1998. As a percentage of net revenues, operating profit
decreased to 7.5% in fiscal 1999 from 7.6% for fiscal 1998.
Interest Expense. Interest expense increased in fiscal 1999 by
approximately $722,000 (152.4%) to $1.2 million compared to $474,000 in
fiscal 1998. The increase in interest expense resulted from increased
overall levels of borrowing. The increase in borrowings under the senior
credit facility reflects: (i.) cash payments for the Larry Black, Conlin and
Flag- A-Tag acquisitions; (ii.) stock repurchased under our stock buyback
program; (iii.) cash paid for the Year 2000 project, SAP/AS400 ERP system
implementation and Internet technology development; and (iv.) funding the
growth of receivables and inventories.
Other Income, Net. Other income decreased approximately $152,000 in fiscal
1999 as compared to fiscal 1998.
Provision for Income Taxes. The provision for income taxes increased
approximately $129,000 to a provision of $2.7 million in fiscal 1999 from a
provision of $2.6 million in fiscal 1998. Our effective tax rate increased
to 36.8% in fiscal 1999 from 34.0% in fiscal 1998. The increase in the tax
rate from fiscal 1998 to fiscal 1999 is the result of a reduction in Net
Operating Loss carryforward benefit and state income taxes. See Note 4 to
the consolidated financial statements included in Item 8 -- "Financial
Statements and Supplementary Data".
Net Earnings. Net Earnings decreased approximately $341,000 to $4.6 million
in fiscal 1999 from $5.0 million in fiscal 1998. As a percentage of the net
revenues, net earnings decreased to 4.1% in fiscal 1999 from 4.9% in fiscal
1998. Earnings per share before dilution from continuing operations
increased to $0.63 per share in fiscal 1999 from $0.62 per share in fiscal
1998. Fiscal year 1999 includes a decrease of approximately 6.2% in
weighted average shares outstanding.
Liquidity and Capital Resources
Our working capital decreased approximately $2.4 million during the six
months ended March 30, 2001, from $30.8 million at September 29, 2000 to
$28.4 million at March 30, 2001. The seasonal decrease in working capital
is primarily a result of an increase of approximately $3.8 million in trade
payables and a decrease in trade receivables of approximately $2.6 million.
These working capital decreases were partially offset by a decrease in the
current portion of long-term debt of approximately $1.6 million, an increase
in inventories of approximately $1.2 million, and an increase in cash of
approximately $1.2 million.
We have a three-year 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 the Credit Agreement are subject to an accounts receivable
and inventory collateral base and are secured by substantially all of our
assets. As of March 30, 2001, we had total borrowings under our senior
credit facility of approximately $17.1 million.
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 an exemption
from the registration requirements of the Securities Act of 1933, as
amended, under Section 4(2). Proceeds of the sale were used to pay off our
term loan with Comerica Bank. Additional paid-in capital was reduced by
approximately $11.7 million as a result of the difference in proceeds from
the treasury stock sale and the treasury stock's related cost basis.
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.
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 30,
2001, 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 alternative
capital spending programs. Our bank agreement currently prohibits the
repurchase of any additional shares without the bank's prior consent.
We do not currently have any material commitments for capital
expenditures.
Certain Factors that May Affect the Company's Business or Future Operating
Results
This report contains various forward looking statements and information
that are based 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.
Among the 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. reduced sales to the United States Government due to
a reduction in Government spending;
3. unanticipated disruptions or slowdowns;
4. high fixed costs;
5. competitive factors;
6. risk of nonpayment of accounts receivable; and
7. foreign supplier related issues.
The general economic condition in the U.S. could affect pricing and
availability on raw materials such as metals, petroleum and other
commodities used in manufacturing certain products as well as finished
goods. Recently, increasing fuel prices have increased our cost of freight
and the cost of petroleum based products such as foam and vinyl. In
addition, the price of leather, which is a component of many of our products
such as baseballs, gloves, basketballs, footballs, weightlifting belts,
etc., has increased recently due to supply shortages caused by the hoof and
mouth disease among cattle. If these cost increases continue, we will be
forced to increase prices or recognize lower margins. Any material price
increases to the customer could have an adverse effect on revenues and any
price increases from vendors could have an adverse effect on our costs.
Approximately 7% of our fiscal year 2001 sales were made to the U.S.
Government, a majority of which were made to military installations.
Anticipated reductions in U.S. Government spending could reduce funds
available to various government customers for sports related equipment,
which could adversely affect our results of 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 and
manufacturing facilities and our 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 50% 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.
Operations and maintenance of our call center, distribution center,
manufacturing facilities and management information systems involve
substantial fixed costs. Paper and postage are significant components of our
operating costs. Catalog mailings entail substantial paper, postage,
merchandise acquisition and human resources costs, including costs
associated with catalog development. If net sales are substantially below
expectations, our results of operations will be adversely affected.
Paper-based packaging products, such as shipping cartons, constitute a
significant element of distribution expense. Paper prices have been
historically volatile. Future price increases could have a material adverse
affect on our results of operations. Postage for catalog mailings is also a
significant element of our operating expense. Postage rates increase
periodically and can be expected to increase in the future. There can be no
assurance that future increases will not adversely impact our operating
margins. We will be able to reduce our paper and postage costs if we
successfully migrate a significant portion of our business to the Internet
because we will be less reliant on paper catalogs.
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 many new
competitors as well as increased competition from established companies. We
are facing significant competitors and competition from new entrants. These
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.
We continue to closely monitor orders and the creditworthiness of our
customers. We have made allowances for the amount we believe to be adequate
to properly reflect the risk to accounts receivable; however, unforeseen
market conditions may compel us to increase the allowances.
We derive a significant portion of our revenues from sales of 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) and
political turmoil. The occurrence of any one or more of the foregoing could
adversely affect our operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We own no marketable securities nor have investments that are subject
to market risk. The interest on borrowings under our senior credit facility
is based on the prime rate. As our borrowing levels have increased, a
significant increase in interest rates could have a material adverse effect
on our financial condition and results of operations. Assuming borrowing
levels remain constant for fiscal 2002 at the same level as at the end of
fiscal year 2001, a 3% increase in interest rates would increase interest
expense by more than $500,000. Most financial and economic experts are not
predicting a significant increase in prime borrowing rates during the coming
year.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements Page
----------------------------- ----
Report of Independent Auditors 20
Consolidated Balance Sheets as of March 30, 2001,
September 29, 2000, and October 1, 1999 21
Consolidated Statements of Operations for the Six Months
Ended March 30, 2001, and the Years Ended September 29,
2000, October 1, 1999 and October 2, 1998 22
Consolidated Statements of Stockholders' Equity for the
Six Months Ended March 30, 2001 and the Years Ended
September 29, 2000, October 1, 1999, and October 2, 1998 23
Consolidated Statements of Cash Flows for the Six Months
Ended March 30, 2001 and the Years Ended September 29,
2000, October 1, 1999, and October 2, 1998 24
Notes to Consolidated Financial Statements 25
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 30, 2001, September 29, 2000
and October 1, 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the six month period ended March
30, 2001 and each of the three fiscal years in the period ended September
29, 2000. Our audits also included the financial statement schedule listed
in the Index at Item 14(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 30, 2001,
September 29, 2000 and October 1, 1999, and the consolidated results of
their operations and their cash flows for the six month period ended March
30, 2001 and each of the three fiscal years in the period 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.
ERNST & YOUNG LLP
Dallas, Texas
June 1, 2001
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, September 29, October 1,
2001 2000 1999
----------- ----------- -----------
CURRENT ASSETS :
Cash and equivalents $ 1,271,096 $ 112,017 $ 201,911
Accounts receivable:
Trade, less allowance for doubtful accounts
of $929,000 at March 30, 2001, $836,000 at
Sept. 29, 2000 and $465,000 at Oct. 1, 1999 19,128,835 21,699,695 22,926,169
Other 287,866 727,830 975,956
Inventories, net 21,050,539 19,853,059 18,509,262
Other current assets 847,212 1,152,639 911,972
Deferred tax assets 1,418,835 1,341,203 1,062,188
----------- ----------- -----------
Total current assets 44,004,383 44,886,443 44,587,458
----------- ----------- -----------
DEFERRED CATALOG EXPENSES 2,436,756 1,552,838 2,078,262
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663 8,663
Buildings 1,605,102 1,605,102 1,605,102
Computer Equipment & Software 11,635,763 11,589,567 10,038,530
Machinery and equipment 6,397,134 6,402,708 6,192,272
Furniture and fixtures 1,540,484 1,521,374 1,286,745
Leasehold improvements 2,434,451 2,425,562 2,368,439
----------- ----------- -----------
23,621,597 23,552,976 21,499,751
Less -- Accumulated depreciation and amortization (12,214,075) (11,131,183) (8,889,925)
----------- ----------- -----------
11,407,522 12,421,793 12,609,826
----------- ----------- -----------
DEFERRED TAX ASSETS 4,081,390 2,866,910 2,101,239
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $1,887,000 at
March 30, 2001, $1,745,000 at Sept. 29, 2000
and $1,464,000 at Oct. 1, 1999 7,726,516 7,867,222 7,937,809
TRADEMARKS
less accumulated amortization of $1,646,000 at
March 30, 2001, $1,547,000 at Sept. 29, 2000
and $1,339,000 at Oct. 1, 1999 3,192,523 3,235,996 3,079,010
OTHER ASSETS
less accumulated amortization of $655,000 at
March 30, 2001, $451,000 at Sept. 29, 2000
and $1,058,000 at Oct. 1, 1999 735,254 855,613 855,375
----------- ----------- -----------
$ 73,584,344 $ 73,686,815 $ 73,248,979
=========== =========== ===========
CURRENT LIABILITIES :
Accounts payable $ 13,613,835 $ 9,871,068 7,975,509
Other accrued liabilities 1,929,357 2,604,680 2,328,549
Notes payable and capital lease
obligations, current portion 78,604 1,639,458 2,410,839
----------- ----------- -----------
Total current liabilities 15,621,796 14,115,206 12,714,897
----------- ----------- -----------
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS,
net of current portion 17,333,451 19,034,345 18,425,925
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, 9,359,759, 9,350,731 and 9,333,241
shares issued at March 30, 2001, Sept. 29, 2000,
and Oct. 1, 1999 8,914,606, 7,275,949 and
7,273,899 shares outstanding at March 30, 2001,
Sept. 29, 2000 and Oct. 1, 1999 93,598 93,507 93,332
Additional paid-in capital 48,099,109 59,785,587 59,743,384
Accumulated deficit (3,762,328) (1,639,813) (122,207)
Treasury stock, at cost, 445,153, 2,074,782 and
2,059,342 shares at March 30, 2001, Sept. 29,
2000 and Oct. 1, 1999 (3,801,282) (17,702,017) (17,606,352)
----------- ----------- -----------
40,629,097 40,537,264 42,108,157
----------- ----------- -----------
$ 73,584,344 $ 73,686,815 $ 73,248,979
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Six Month Period Ended March 30, 2001, The Year Ended September 29, 2000,
and The Year Ended October 1, 1999, and The Year Ended October 2, 1998
------------ ------------ ----------- -----------
2001 2000 1999 1998
------------ ------------ ----------- -----------
Net revenues $ 50,336,524 $ 119,320,982 $112,879,817 $101,935,314
Cost of sales 36,400,525 83,151,033 75,596,909 69,632,116
------------ ------------ ----------- -----------
Gross profit 13,935,999 36,169,949 37,282,908 32,303,198
Selling, general and
administrative expenses 15,775,650 34,865,452 28,838,366 23,336,972
Internet expenses 317,808 1,136,149 - -
Nonrecurring charges 253,239 605,000 - 1,184,024
------------ ------------ ----------- -----------
Earnings (loss) before interest,
other income, and taxes (2,410,698) (436,652) 8,444,542 7,782,202
Interest expense (957,270) (2,021,763) (1,196,112) (473,899)
Other income, net 14,400 16,924 62,738 215,090
------------ ------------ ----------- -----------
Earnings (loss) before provision
for income taxes (3,353,568) (2,441,491) 7,311,168 7,523,393
Income tax provision (benefit) (1,231,053) (923,885) 2,688,329 2,559,082
------------ ------------ ----------- -----------
Net earnings (loss) $ (2,122,515) $ (1,517,606) $ 4,622,839 $ 4,964,311
============ ============ =========== ===========
Earnings (loss) per share:
Net earnings (loss) - basic $ (0.27) $ (0.21) $ 0.63 $ 0.62
------------ ------------ ----------- -----------
Net earnings (loss) - diluted $ (0.27) $ (0.21) $ 0.60 $ 0.60
------------ ------------ ----------- -----------
Weighted average number of common
shares outstanding - basic 7,963,989 7,272,570 7,390,274 8,025,606
============ ============ =========== ===========
Weighted average number of common
shares outstanding - diluted 7,963,989 7,272,570 7,727,777 8,236,530
============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Six Month Period Ended March 30, 2001, The Year Ended September 29, 2000,
and The Year Ended October 1, 1999, and The Year Ended October 2, 1998
Additional
Common Stock Paid in Accumulated Treasury Stock
Shares Amount Capital Deficit Shares Amount Total
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, September 26, 1997 9,158,749 $ 91,588 $58,574,218 $(9,709,357) 1,074,365 $ (9,999,130) $38,957,319
--------- ------- ---------- ---------- --------- ----------- ----------
Issuances of common stock upon
exercises of outstanding options 73,387 734 502,370 503,104
Issuances of common stock 11,059 110 70,293 70,403
Purchase of treasury stock 433,725 (3,486,453) (3,486,453)
Reissuances of treasury shares (46,694) (19,598) 215,722 169,028
Net earnings (comprehensive income) 4,964,311 4,964,311
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, October 2, 1998 9,243,195 $ 92,432 $59,100,187 $(4,745,046) 1,488,492 $(13,269,861) $41,177,712
--------- ------- ---------- ---------- --------- ----------- ----------
Issuances of common stock upon
exercises of outstanding options 81,445 814 598,071 598,885
Issuances of common stock 8,601 86 73,036 73,122
Purchase of treasury stock 595,900 (4,603,987) (4,603,987)
Reissuances of treasury shares (27,910) (25,050) 267,496 239,586
Net earnings (comprehensive income) 4,622,839 4,622,839
--------- ------- ---------- ---------- --------- ----------- ----------
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 upon
exercises of outstanding options
Issuances of common stock 9,028 91 14,257 14,348
Purchase of treasury stock
Reissuances of treasury shares
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
--------- ------- ---------- ---------- --------- ----------- ----------
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Month Period Ended March 30, 2001, The Year Ended September 29, 2000,
and The Year Ended October 1, 1999, and The Year Ended October 2, 1998
2001 2000 1999 1998
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net earnings (loss) $ (2,122,515) $ (1,517,606) $ 4,622,839 $ 4,964,311
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,556,419 2,855,172 2,072,117 1,390,178
Provision for (recovery of) allowances for
accounts receivable 220,884 319,025 411,512 (428,756)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 2,789,939 1,902,706 (6,602,602) 346,687
(Increase) decrease in inventories (1,197,480) (565,986) (3,039,248) (1,041,239)
(Increase) decrease in deferred catalog expenses
and other current assets (578,491) 284,757 57,542 (1,125,628)
Increase (decrease) in accounts payable 3,742,767 1,161,798 602,636 1,221,250
(Increase) decrease in deferred taxes (77,632) (279,015) (157,870) 1,165,360
Increase (decrease) in accrued liabilities (675,323) 170,301 (1,012,097) (688,080)
(Increase) decrease in other assets (140,580) (284,426) 132,638 (29,294)
(Increase) decrease in noncurrent deferred
tax assets (1,214,480) (765,671) 2,557,950 1,179,706
Other - - - (22,091)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activites 2,303,508 3,281,055 (354,583) 6,932,404
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant & equipment (97,030) (2,025,608) (6,438,359) (2,969,139)
Payments for acquisitions, net of cash acquired - (854,093) (4,260,100) 1,500,682
Proceeds from sale of investments - - 23,891 14,044
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities (97,030) (2,879,701) (10,674,568) (4,455,777)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable 17,134,214 2,205,620 21,099,089 2,916,984
Payments of notes payable and capital
lease obligations (20,395,961) (2,643,581) (7,211,099) (2,217,006)
Proceeds from common stock issuances 2,214,348 59,150 911,593 742,535
Purchase of treasury stock - (112,437) (4,603,987) (3,486,453)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities (1,047,399) (491,248) 10,195,596 (2,043,940)
----------- ----------- ----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 1,159,079 (89,894) (833,555) 432,687
Cash and equivalents, beginning of period 112,017 201,911 1,035,466 602,779
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 1,271,096 $ 112,017 $ 201,911 $ 1,035,466
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
Cash paid during the period for interest $ 824,353 $ 2,169,859 $ 1,181,529 $ 502,414
=========== =========== =========== ===========
Cash paid during the period for income taxes $ 73,435 $ 204,455 $ 160,000 $ 6,671
=========== =========== =========== ===========
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 $ 8,296,490 $ 2,388,750
Cash paid for the acquisitions, net - (854,093) (4,260,100) (1,500,682)
Debt issued for the acquisitions - (275,000) (700,000) (588,068)
----------- ----------- ----------- -----------
Liabilities assumed $ - $ 839,592 $ 3,336,390 $ 300,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 30, 2001
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: manufacturing and marketing of sports related equipment and leisure
products to institutional customers in the United States. We manufacture
many of the products we sell. Manufactured items include, but are not
limited to: 1.) Tennis, volleyball, and other sports nets; 2.) Steel and
aluminum construction items, such as soccer and field hockey goals and
volleyball, pole vault, and high jump standards; 3.) track and field
equipment; 4.) Gymnastic equipment and exercise mats; 5.) Weight lifting
equipment; and 6.) Tabletop games and various plastic items.
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 2001 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 will operate on a 52/53 week
year ending on the Friday closest to March 31.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and weighted-average cost methods
for items manufactured by us and weighted-average cost for items purchased
for resale. As of March 30, 2001, September 29, 2000 and October 1, 1999,
inventories consisted of the following:
Inventory Data: Mar. 30, 2001 Sept. 29, 2000 Oct. 1, 1999
--------------- ---------- ---------- ----------
Raw materials $ 3,727,855 $ 3,300,001 $ 3,209,581
Work-in-process 376,683 536,550 435,904
Finished and purchased goods 18,226,706 17,148,643 15,928,680
---------- ---------- ----------
Inventory, Gross 22,331,244 20,985,194 19,574,165
Less inventory allowance for
obsolete or slow moving items (1,280,705) (1,132,135) (1,064,903)
---------- ---------- ----------
Inventory, Net $21,050,539 $19,853,059 $18,509,262
========== ========== ==========
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 30, 2001, September 29, 2000 and October 1, 1999,
approximately 30%, 28% and 27%, 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 30%, 31% ,36%, and 31% of total net revenues in fiscal 2001,
2000, 1999, and 1998 respectively.
Advertising and Deferred Catalog Expenses
We expense the production costs of advertising as incurred, except for
production costs related to direct-response advertising activities, which
are capitalized. Direct response advertising consists primarily of catalogs
that include order forms for our products. Production costs, primarily
printing and postage, associated with catalogs are amortized using the
straight-line method over twelve months which approximates average usage of
the catalogs produced. Our advertising expenses for the six month period
ended March 30, 2001, and the fiscal years ended September 29, 2000, October
1, 1999 and October 2, 1998 were approximately $1,312,000, $4,122,000,
$3,571,000 and $2,864,000, 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 cost of
maintenance and repairs is charged to expense as incurred. Significant
renewals and betterments 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 years to ten years
Computer Equipment and Software Three years to ten years
Furniture and Fixtures Five years
Intangible Assets
Cost in excess of net assets acquired relates to acquisitions made by
us. Trademarks and servicemarks relate to costs incurred in connection with
the 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 patents.
Amortization of intangible assets is provided by the straight-line
method as follows:
Cost in excess of net assets acquired Principally thirty to
forty years
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 30, 2001.
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 annually 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 30 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.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), as amended, which we adopted on September 30, 2000. SFAS 133
requires that all derivatives be recorded on the balance sheet at fair
value. Changes in derivatives that are not hedges are adjusted to fair
value through income. Changes in derivatives that meet the Statement's
hedge criteria will either be offset through income, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
adoption of SFAS 133 on September 30, 2000 did not have any impact on our
financial condition, results of operations or cash flows.
On September 30, 2000, we adopted the provisions of 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, for the six month period ended March 30, 2001, we classified
shipping and handling fees of approximately $2.4 million as revenues in our
consolidated statement of operations. The fiscal years ended September 29,
2000, October 1, 1999, and October 2, 1998 have also been restated,
resulting in shipping and handling fees of approximately $6.0 million, $5.5
million, and $4.6 million respectively, being classified as revenues in our
consolidated statement of operations.
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 the Board of Directors of the Company (or a Stock Option
Committee comprised of members of the Board of Directors).
The following table contains transactional data for the Company's stock
option plan.
Exercise Price or
Stock Option Plan Shares Weighted Avg. Price
----------------- --------- -------------------
Outstanding at September 26, 1997 1,040,573 $7.26
Granted 286,675 $7.65
Exercised (73,387) $6.86
Forfeited (393,575) $8.06
--------- ----
Outstanding at October 2, 1998 860,286 $7.30
Granted 328,625 $8.52
Exercised (81,445) $6.63
Forfeited (19,667) $6.75
--------- ----
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
========= ====
Stock Options Outstanding Stock Options Exercisable
as of Mar. 30, 2001 as of Mar. 30, 2001
-------------------------------------------------- --------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Remaining Exercise Exercise
Exercise Prices Shares Life Price Shares Price
--------------- --------- --------- ------ ------- -----
$1.38 - $9.44 906,929 6.0 years $7.65 821,094 $7.59
All options granted under the stock option plan during the six month
period ended March 30, 2001, and the years ended September 29, 2000 and
October 1, 1999 were at exercise prices equal to or greater than the fair
market value of our stock on the date of the grant.
In addition to options granted pursuant to the stock option plan, we
periodically grant options to purchase shares of our common stock that are
not reserved for issuance under the stock option plan ("non-plan options").
Such exercise prices were equal to or greater than the fair market value of
our common stock on the dates of grant. At March 30, 2001 there were
options to acquire 100,000 shares of common stock for $6.88 per share that
were issued outside the plan. These options expired on May 3, 2001,
unexercised.
As of March 30, 2001, there were a total of 1,006,929 options
(including non-plan options) outstanding with exercise prices ranging from
$1.38 per share to $9.44 per share. As of March 30, 2001, 921,094 of the
total options outstanding were fully vested with 85,835 options vesting
through November 2002. As of September 29, 2000, 875,781 of the total
options outstanding were fully vested with 152,085 options vesting through
November 2002. As of October 1, 1999, there were 1,187,799 options
(including non-plan options) outstanding with exercise prices ranging from
$6.125 per share to $9.44 per share. As of October 1, 1999, 630,712 of the
total options outstanding were fully vested with 557,087 options vesting
through July 2002. As of October 2, 1998, there were 960,286 options
(including non-plan options) outstanding with exercise princes ranging from
$5.60 per share to $8.38 per share. As of October 2, 1998, 505,284 of the
total options outstanding were fully vested with 455,002 options vesting
through January 2001.
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 4.29%, 5.93%, 5.63% and 5.34% in 2001, 2000, 1999
and 1998 respectively; (ii.) dividend yield of 0% for all years; (iii.)
expected volatility of 55%, 49%, 30% and 25% in 2001, 2000, 1999 and 1998
respectively; and (iv.) weighted average expected life for each option of 3
years. The weighted average fair value of employee stock options granted in
2001, 2000, 1999 and 1998 are $0.59, $2.41, $2.34, and $1.81 respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period; therefore, our
proforma effect will not be fully realized until the completion of one full
vesting cycle. Our pro forma information is as follows:
For the Six For the Fiscal For the Fiscal For the Fiscal
Months Ended Year Ended Year Ended Year Ended
Mar. 30, 2001 Sept. 29, 2000 Oct. 1, 1999 Oct. 2, 1998
---------- ---------- --------- ---------
Net income (loss):
As reported $(2,122,515) $(1,517,606) $4,622,839 $4,964,311
Pro forma $(2,390,606) $(1,988,647) $4,119,255 $4,526,870
Earnings (loss) per share:
As reported - basic $(0.27) $(0.21) $0.63 $0.62
As reported - diluted $(0.27) $(0.21) $0.60 $0.60
Pro forma earnings (loss) - basic $(0.30) $(0.27) $0.56 $0.56
Pro forma earnings (loss) - diluted $(0.30) $(0.27) $0.53 $0.53
Common Stock Purchase Warrants
Pursuant to a Securities Purchase Agreement dated November 27, 1996
between Emerson Radio Corp. ("Emerson") and us, Emerson acquired directly
from us 5-year warrants to acquire 1,000,000 shares of Common Stock at an
exercise price of $7.50 per share, subject to standard antidilution
adjustments, for an aggregate cash consideration of $500,000. The warrants
expire on December 10, 2001.
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 30, 2001 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 bank agreement
currently prohibits the repurchase of any additional shares without the
bank's prior consent.
Net Earnings Per Common Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the Six
Month Period For the Fiscal For the Fiscal For the Fiscal
Ended Year Ended Year Ended Year Ended
Mar. 30, 2001 Sept. 29, 2000 Oct. 1, 1999 Oct. 2, 1998
---------- ---------- --------- ---------
Numerator:
---------
Net earnings (loss) $(2,122,515) $(1,517,606) $4,622,839 $4,964,311
========== ========== ========= =========
Denominator:
Weighted average
shares outstanding 7,963,989 7,272,570 7,390,274 8,025,606
Effect of dilutive
securities:
Warrants 0 0 148,577 94,884
Employee stock options 0 0 188,926 116,040
---------- ---------- --------- ---------
Adjusted weighted
average shares and
assumed conversions 7,963,989 7,272,570 7,727,777 8,236,530
========== ========== ========= =========
Per Share Calculations:
Basic earnings
(loss) per share $(0.27) $(0.21) $0.63 $0.62
========== ========== ========= =========
Diluted earnings
(loss) per share $(0.27) $(0.21) $0.60 $0.60
========== ========== ========= =========
Securities excluded
from weighted average
shares diluted because
their effect would be
antidilutive 2,006,929 2,027,866 0 6,250
3. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:
As of March 30, 2001 September 29, 2000, and October 1, 1999, notes
payable and capital lease obligations consisted of the following:
2001 2000 1999
---------- ---------- ----------
Note payable under revolving line of
credit, interest ranging from prime
minus 0.25% to prime plus 1.0% (8.50%
at Mar. 30, 2001, 8.53% - 10.50% at Sept.
29, 2000 and 7.75% at Oct. 1, 1999)
due Mar. 27, 2004 and collateralized
by substantially all assets. $17,088,314 $17,804,126 $11,044,264
Term loan, interest at prime plus 2%,
payable in monthly installments of
$125,000 plus accrued interest. Paid
in full January 15, 2001. 0 2,500,000 9,000,000
Promissory note, interest at 7.75%,
payable in monthly installments of
$29,167 plus accrued interest. Paid
in full December 20, 2001 0 79,214 466,667
Capital lease obligation, interest at
9%, payable in annual installments of
principal and interest totaling
$55,000 through August 2005. 196,038 196,038 230,311
Other 127,703 94,425 95,522
---------- ---------- ----------
Total 17,412,055 20,673,803 20,836,764
Less - current portion (78,604) (1,639,458) (2,410,839)
---------- ---------- ----------
Long-term debt and capital lease
obligations, net $17,333,451 $19,034,345 $18,425,925
========== ========== ==========
Credit Facilities
On March 27, 2001, we completed the refinancing of our senior secured
debt with Congress Financial Corporation. The three-year $25 million credit
agreement provides for lower interest rates and more favorable covenants.
The new credit agreement completely replaces the former credit facility
provided by Comerica Bank.
This credit 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. Amounts outstanding under the senior credit
facility are secured by substantially all the assets of the Sport Supply
Group, Inc. and subsidiaries. At March 30, 2001 the available borrowings
under this facility was approximately $20.4 million of which approximately
$17.1 million was outstanding. At March 30, 2001, the interest rate of the
outstanding borrowings was 8.5%, which was the prime rate at the beginning
of March 2001. 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.
Maturities of our capital lease obligations and borrowings under the
senior credit facility as of March 30, 2001, by fiscal year and in the
aggregate, are as follows:
2002 $ 78,604
2003 72,962
2004 17,161,157
2005 74,130
2006 25,202
Thereafter 0
-----------
Total 17,412,055
Less current portion (78,604)
-----------
Total long term portion $ 17,333,451
===========
As of March 30, 2001 the carrying value of our long-term debt
approximates its fair value.
4. INCOME TAXES:
As of March 30, 2001, September 29, 2000, October 1, 1999, and October
2, 1998 the components of the net deferred tax assets and liabilities are as
follows:
2001 2000 1999
Current deferred tax ---------- ---------- ----------
assets (liabilities):
---------------------
Allowances for
doubtful accounts $ 315,904 $ 389,000 $ 239,696
Inventories 959,270 897,767 817,890
Other accrued liabilities 143,661 54,436 4,602
---------- ---------- ----------
Total $ 1,418,835 $ 1,341,203 $ 1,062,188
========== ========== ==========
Noncurrent deferred tax
assets (liabilities):
---------------------
Cost in excess of
net assets acquired $ (298,034) $ (218,807) $ (216,222)
Other intangible assets (2,921,841) (2,892,670) (2,687,228)
Net operating loss
carryforward 6,815,029 5,492,151 4,504,802
Minimum tax credit
carryforward 486,236 486,236 499,887
---------- ---------- ----------
Total $ 4,081,390 $ 2,866,910 $ 2,101,239
========== ========== ==========
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. No
valuation allowance has been recorded for our deferred tax assets because we
believe it is more likely than not such assets will be realized. We believe
the deferred tax assets will be realized by future profitable operating
results. Realization of our net deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of loss
carryforwards. Although realization is not assured, we believe it is more
likely than not that all of the net deferred tax assets will be realized.
The amount of the deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
The income tax provision (benefit) in the accompanying statements of
operations for the six month period ended March 30, 2001 and the fiscal
years ended September 29, 2000, October 1, 1999 and October 2, 1998
consisted of the following:
2001 2000 1999 1998
---------- ---------- ---------- ----------
Current $ (6,333) $ 118,115 $ 288,249 $ 214,016
Deferred (1,224,720) (1,042,000) 2,400,080 2,345,066
---------- ---------- ---------- ----------
Income tax
provision (benefit) $(1,231,053) $ (923,885) $ 2,688,329 $ 2,559,082
========== ========== ========== ==========
The provision (benefit) for income taxes in the accompanying statements
of operations for the six month period ended March 30, 2001 and the fiscal
years ended September 29, 2000, October 1, 1999, and October 2, 1998 differ
from the statutory federal rate as follows:
2001 2000 1999 1998
---------- -------- --------- ---------
Income tax provision
(benefit) at statutory
federal rate $(1,140,213) $(830,107) $2,485,797 $2,557,954
State income taxes,
net of federal effect (105,254) (75,865) 124,964 --
Other 14,414 (17,913) 77,568 1,128
---------- -------- --------- ---------
Total provision (benefit)
for income taxes $(1,231,053) $(923,885) $2,688,329 $2,559,082
========== ======== ========= =========
5. ACQUISITIONS:
During October 1999, we acquired, for cash and the assumption of
certain liabilities, certain assets of LAKCO, Inc. and Spaulding, Inc., both
distributors of sporting goods equipment to the institutional market. On
September 25, 2000, we acquired the stock of Sport Supply Group Asia
Limited, a shell corporation, from Emerson Radio. We have accounted for
these acquisitions using the purchase method and, as such, our results of
operations are combined with the acquired company's results of operations
subsequent to the acquisition date.
No proforma information for the above acquisitions is presented herein
because the proforma information, individually or in aggregate, would not
materially differ from actual results.
6. MAJOR CUSTOMERS AND CONCENTRATION OF BUSINESS RISK:
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.
We did not have any individual customers that accounted for more than
10% of net revenues for the six month period ended March 30, 2001, and
fiscal years ended September 29, 2000, October 1, 1999 or October 2, 1998.
The majority of our sales are to publicly funded institutional
customers. We extend credit based upon an evaluation 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.
7. COMMITMENTS AND CONTINGENCIES:
Leases
We lease a 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:
2002 $2,152,229
2003 1,911,095
2004 1,497,931
2005 959,611
2006 11,591
---------
Total $6,532,457
=========
Rent expense was approximately $1,056,000, $1,935,000, $1,815,000 and
$1,645,000 for the six month period ended March 30, 2001, and the fiscal
years ended September 29, 2000, October 1, 1999, and October 2, 1998
respectively.
Product Liability and Other Claims
Because of the nature of our products, 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.
8. EMPLOYEES' SAVINGS PLAN:
Effective June 1, 1993, we established a defined contribution profit
sharing plan (the "401(k) Plan") for the benefit of eligible employees. All
employees with one year of service and who have attained the age of 21 are
eligible to participate in the 401(k) Plan. Beginning January 1, 2001, the
one year waiting period was reduced to 90 days. 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 U.S. Internal Revenue Code.
The 401(k) Plan contains provisions that allow us to make discretionary
contributions during each plan year. Employer contributions for the six
month period ended March 30, 2001, and the fiscal years ended September 29,
2000, October 1, 1999 and October 2, 1998 were approximately $26,000,
$89,000, $84,000, and $78,000 respectively. We pay all administrative
expenses of the 401(k) Plan.
9. UNAUDITED STATEMENT OF OPERTIONS DATA:
The following table sets forth certain information regarding our
results of operations for each full quarter within the six month period
ended March 30, 2001 and the fiscal years ended September 29, 2000 and
October 1, 1999, with amounts in thousands, except for per share data. Due
to rounding, quarterly amounts may not fully sum to yearly amounts.
2001 Fiscal Year 2000 Fiscal Year
Statement of -------------------------- ---------------------------------------------------------------
Operations Data:
Six Six
Month Month
Period Qtr Qtr Period Qtr Qtr Qtr Qtr
ended ended ended ended ended ended ended ended
Mar. Dec. Mar. Year Mar. Dec. Mar. June Sept.
------ ------ ------ ------- ------ ------ ------ ------ ------
Net revenues $50,336 $18,201 $32,135 $119,321 $56,596 $20,070 $36,526 $30,757 $31,968
Gross profit 13,936 4,917 9,019 36,170 17,855 6,341 11,514 9,400 8,915
Operating profit (loss) (note 1) (2,411) (2,994) 583 (437) 780 (1,330) 2,110 (81) (1,136)
Interest expense 957 533 424 2,022 933 414 519 445 644
Other income (expense), net 14 2 12 17 2 (6) 8 (2) 17
Income tax provision (benefit) (1,231) (1,297) 66 (924) (71) (643) 572 (199) (655)
Net earnings (loss) $(2,123) $(2,228) $105 $(1,518) $(80) $(1,107) $1,027 $(329) $(1,108)
------ ------ ------ ------- ------ ------ ------ ------ ------
Net earnings (loss)
per share - basic $(0.27) $(0.31) $0.01 $(0.21) $(0.01) $(0.15) $0.14 $(0.05) $(0.15)
Net earnings (loss)
per share - diluted $(0.27) $(0.31) $0.01 $(0.21) $(0.01) $(0.15) $0.14 $(0.05) $(0.15)
Weighted average
shares outstanding - basic 7,964 7,270 8,643 7,273 7,270 7,270 7,270 7,273 7,273
Weighted average
shares outstanding - diluted 7,964 7,273 8,649 7,273 7,273 7,270 7,273 7,273 7,273
1999 Fiscal Year
Statement of -----------------------------------------------
Operations Data: Qtr Qtr Qtr Qtr
ended ended ended ended
Year Dec. Mar. June Sept.
------ ------ ------ ------ ------
Net revenues $112,879 $15,741 $37,215 $27,916 $32,007
Gross profit 37,283 5,079 12,139 10,025 10,040
Operating profit (loss) (note 1) 8,445 (751) 5,172 3,179 845
Interest expense 1,196 165 334 371 326
Other income (expense), net 63 18 13 21 11
Income tax provision (benefit) 2,688 (338) 1,831 1,070 126
Net earnings (loss) $4,623 $(560) $3,020 $1,759 $404
Net earnings (loss)
per share - basic $0.63 $(0.07) $0.41 $0.24 $0.06
Net earnings (loss)
per share - diluted $0.60 $(0.07) $0.39 $0.22 $0.05
Weighted average
shares outstanding - basic 7,390 7,607 7,388 7,360 7,281
Weighted average
shares outstanding - diluted 7,728 7,607 7,748 7,826 7,673
(1) The 2nd quarter of fiscal year 2000 includes $605,000 of nonrecurring
charges. 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.
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
Year First
Became Director
Name Age Position or Officer
---- --- -------- ----------
Geoffrey P. Jurick 60 Chairman of the Board and 1996
Chief Executive Officer
John P. Walker 38 President and Director 1996
Terrence M. Babilla 39 Chief Operating Officer, 1996
Executive Vice President,
General Counsel and Secretary
Eugene J.P. Grant 53 Executive Vice President, 1999
Sales and Marketing
Michael P. Glassman 55 Vice President, Sales and 2001
Marketing
Robert K. Mitchell 49 Chief Financial Officer 2000
Douglas E. Pryor 45 Vice President, Manufacturing 1999
and Purchasing
Kenneth A. Corby 40 Vice President, Corporate 1998
Development
Thomas P. Treichler 57 Director 1997
Peter G. Bunger 61 Director 1996
Johnson C.S. Ko 50 Director 1996
Geoffrey P. Jurick has served as a director since December 10, 1996.
Mr. Jurick has served as our Chairman of the Board since December 11, 1996
and as our Chief Executive Officer since January 23, 1997. Mr. Jurick has
served as a director of Emerson Radio Corp., a Delaware corporation listed
on the American Stock Exchange under the symbol "MSN" since 1990, and as
Emerson's Chief Executive Officer and Chairman since July 1992 and December
1993, respectively. Emerson beneficially owns approximately 55% of our
issued and outstanding common stock. For more information about Emerson,
see "Certain Relationships and Related Transactions."
John P. Walker has served as a director since December 10, 1996 and has
served as our President since July 28, 1998. Mr. Walker served as our Chief
Financial Officer from December 11, 1996 to November 10, 1999, as our Chief
Operating Officer from July 28, 1998 to July 28, 1999 and as an Executive
Vice President from December 11, 1996 to July 28, 1998. Mr. Walker served
as Executive Vice President and Chief Financial Officer of Emerson from
April 1996 until March 2001. Mr. Walker served as Emerson's Senior Vice
President from April 1994 until March 1996, Vice President-Finance from
February 1993 to April 1994, Assistant Vice President-Finance from June 1991
to January 1993, and Director of Financial Management from September 1989
to May 1991. Emerson beneficially owns approximately 55% of our issued
and outstanding common stock. See "Certain Relationships and Related
Transactions" for more information about Emerson.
Terrence M. Babilla has served as Chief Operating Officer since July
28, 1999, as General Counsel since March 13, 1995, as Secretary since
May 13, 1996 and as Executive Vice President since January 13, 1998. From
September 1987 to March 1995, Mr. Babilla was an attorney with the law firm
of Hughes & Luce, L.L.P. in Dallas, Texas.
Eugene J.P. Grant has served as Executive Vice President Sales and
Marketing of Sport Supply Group since January 2001, and continues as
President of Athletic Training Equipment Company Inc. since January 1996.
Mr. Grant has over 25 years experience in the sporting goods industry in the
areas of General Management , Marketing, Sales, International Distribution
and Sourcing, and Manufacturing.
Michael P. Glassman has served as Vice President-Sales and Marketing
since April 1, 2001. From June, 1998 to March 2001, Mr. Glassman was buyer
of Sporting Goods for Sears, Roebuck and Company in Hoffman Estates,
Illinois. From December, 1990 to June, 1998 he was a sales executive with
Escalade Sports in Evansville, Indiana serving as Executive Vice President
of Sales from June 1995 to June, 1998.
Robert K. Mitchell has served as Chief Financial Officer since November
1999. From April 1996 to October 1999, Mr. Mitchell served as Vice President
- Finance for Athletic Training Equipment Company, Inc.
Douglas E. Pryor has served as our Vice President of Purchasing and
Manufacturing since January 29, 1999. Mr. Pryor served as our Director of
Purchasing from 1992 to 1998 and our Senior Buyer and Merchandiser from 1988
to 1991.
Kenneth A. Corby has served as our Vice President, Corporate Development
since September, 1997. Mr. Corby has served with Emerson since 1996 in
various financial roles with increasing responsibilities. May, 1996 Finance
Manager, July, 1996 Finance Director, March 1997, Assistant Chief Financial
Officer, June 2000 Senior Vice President - Finance, May 2001 Executive Vice
President, Chief Financial Officer. He has served as a Director of Emerson
Radio International since September 1998. Prior to joining Emerson,
Mr. Corby had experience with Nabisco Brands, Inc. in various financial
positions. He is a Certified Public Accountant.
Dr. Thomas P. Treichler has been a director since March 23, 1997.
Since 1983 Dr. Treichler has been the Chairman of the Board and Chief
Executive Officer of Orient Financial Corporation, a San Francisco based
financial and investment banking firm. Dr. Treichler is also an independent
director of the Shanghai Growth Fund, a fund for direct investments into the
greater Shanghai region that is listed on the Hong Kong Stock Exchange.
Peter G. Bunger has been a director since December 10, 1996. Mr.
Bunger has been a director of Emerson since July 1992. Emerson beneficially
owns approximately 55% of our issued and outstanding common stock. See
"Certain Relationships and Related Transactions" for more information about
Emerson. Presently, Mr. Bunger is a consultant with Savarina AG, an entity
engaged in the business of portfolio management monitoring in Zurich,
Switzerland. Since October 1992, Mr. Bunger has served as a director of
Savarina AG, and since 1992, as a director of ISCS, a computer software
company.
Johnson C.S. Ko has been a director since December 10, 1996. Since
February 1994, Mr. Ko has served as the Chairman and Director of Universal
Appliances Limited, a Hong Kong corporation listed on the Hong Kong Stock
Exchange. Universal Appliance is engaged in manufacturing and distributing
consumer electronics, household electrical and telecommunication products,
in the dissemination of international financial market information and
consumer data, the sale of computer monitors and the business of electronic
and digital data transmission (including digital sound and image
transmission). Universal Appliances is a holding company for the Universal
Group that owns or controls numerous subsidiary companies. Mr. Ko has also
served on certain boards of these subsidiaries since February 1994. Since
September 1997, Mr. Ko was also the executive director (acting Chairman from
September 1997 to December 1999) of Cybersonic Technology Limited, a
corporation listed on the Hong Kong Stock Exchange. Cybersonic is engaged
in manufacturing and distributing consumer electronic products and footwear
products. From February 1999, Mr. Ko also served as Chairman of DVB
(holdings) Limited, a company incorporated in Bermuda and listed on the Hong
Kong Stock Exchange. DVB is principally engaged in the sale of computer
monitors and Electronic Data Transmission business including digital image
and sound transmission and related software business. Mr. Ko has also served
since October 1992 as the Chairman and Director of Kwan Wing Holdings
Limited, ("Kwan Wing Holdings") the holding company of Universal Appliances
and an investment vehicle whose activities encompass trading, real property
holdings and financial services. Kwan Wing Holdings' principal operating
company in Hong Kong is its wholly-owned subsidiary, Kwan Wing Development
Ltd., in which Mr. Ko has served as a director since 1989. In November
1999, Mr. Ko was appointed as a non-executive director of The DII Group,
Inc., a company lishted on NASDAQ. The DII Group, Inc. in principally
engaged in the electronics subcontracting business with global manufacturing
capabilities. From November 1992 to April 1995, Mr. Ko also served as
Chairman and director of Mandarin Dragon Holding Limited, a Hong Kong
corporation listed on the Hong Kong Stock Exchange, which was also an
investment holding company with business in the manufacturing and
distribution of pharmaceuticals.
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth certain information regarding
compensation paid during each of our last three fiscal years to our Chief
Executive Officer and each of our other most highly compensated executive
officers, based on salary and bonus earned during fiscal 2001.
The information set forth in the following table is for the fiscal
years ended October 1, 1999, September 29, 2000 and the six months ended
March 30, 2001.
Securities
Restricted Underlying
Other Annual Stock Options/ All Other
Name and Fiscal Salary Bonus Compensation Awards SARs Compensation
Principal Position Year ($) ($) (1) ($) ($) (#) ($)
------------------ ---- ------- ------- ------------ ------ -------- ------------
Geoffrey P. Jurick,
Chairman of the 2001 $125,000 -- --- --- --- ---
Board and Chief 2000 $250,000 -- --- --- --- ---
Executive 1999 $250,000 $63,000 --- --- --- ---
Officer (1)
John P. Walker, 2001 $165,000 --- $ 9,892 --- --- ---
President (2) 2000 $330,000 --- $12,929 --- --- $113,641
1999 $320,000 $80,000 $15,004 --- --- $2,550
Terrence M. Babilla, 2001 $120,000 --- $14,635 --- --- ---
Chief Operating 2000 $240,000 --- $28,667 --- --- $2,625
Officer, Executive 1999 $235,000 $60,000 $26,901 --- --- $2,250
Vice President,
General Counsel
and Secretary (3)
(1) Mr. Jurick has served as our Chairman of the Board since December 10,
1996 and as our Chief Executive Officer since January 23, 1997. Mr.
Jurick has served as a director of Emerson and as Emerson's Chairman
and Chief Executive Officer since July 1992 and December 1993,
respectively. See "Certain Relationships and Related Transactions" for
more information about Emerson.
(2) Mr. Walker has served as our President since July 28, 1998. Mr. Walker
served as Chief Financial Officer from December 11, 1996 to November
10, 1999, as our President and Chief Operating Officer from July 28,
1998 to July 28, 1999, and as an Executive Vice President from December
11, 1996 to July 28, 1998. Mr. Walker served as Executive Vice
President and Chief Financial Officer of Emerson from April 1996 until
March 2001. Emerson reimbursed us $70,833, $100,000 and $50,000 of the
amount included in "Salary" for fiscal 1999, fiscal 2000 and fiscal
2001, respectively, in reimbursement of salary paid by us to Mr. Walker
for the benefit of Emerson.
The amount in "Other Annual Compensation" consists of: (a) for fiscal
2001, country club related dues and expenses of $2,228 and automobile
related expenses of $3,000, and tax gross-ups related to these expenses
of $4,100, (b) for fiscal 2000, country club related dues and expenses
of $4,380 and automobile related expenses of $3,190, and tax gross-ups
related to these expenses of $5,359, and (c) for fiscal 1999, country
club related dues and expenses of $7,166 and automobile related
expenses of $7,838.
The amount in "All Other Compensation" for fiscal 1999 is comprised of
matching 401(k) contributions. The amount in "All Other Compensation"
for fiscal 2000 is comprised of $2,625 in matching 401(k) contributions
and $65,000 in forgiveness of indebtedness. During 1997, the Company
loaned Mr. Walker $100,000, interest free, to purchase a residence in
Texas. During fiscal 2000 Mr. Walker's loan was restructured whereby
(i) $65,000 of the loan was forgiven, (ii) the $65,000 forgiven amount
was grossed-up for taxes by 40% or $46,016, and (iii) Mr. Walker was
required to pay the remaining $35,000 of the loan in quarterly
installments of $5,000 each. There are two (2) quarterly installments
remaining to be paid, with the last quarterly installment being due to
be paid on or before June 30, 2001. See "Executive Compensation and
Other Information - Employment Agreements" for more information about
Mr. Walker's Compensation.
(3) Mr. Babilla has served as Chief Operating Officer since July 28, 1999,
as General Counsel since March 13, 1995, as Secretary since May 13,
1996 and as Executive Vice President since January 13, 1998. From
September 1987 to March 1995, Mr. Babilla was an attorney with the law
firm of Hughes & Luce, L.L.P. in Dallas, Texas. The amount in "Other
Annual Compensation" consists of: (a) for fiscal 2001, country club
dues and expenses of $3,000 and automobile related expenses of $5,569
and tax gross-ups related to these expenses of $ 6,066, (b) for fiscal
2000, country club dues and fees of $6,000 and automobile related
expenses of $10,790 and tax gross-ups related to these expenses of
$11,887 , and (c) for fiscal 1999, country club dues and fees of
$10,248 and automobile related expenses of $16,653. The amount in
"All Other Compensation" is comprised of matching 401(k) contributions.
See "Executive Compensation and Other Information-Employment
Agreements" for more information regarding Mr. Babilla's compensation.
Option Grants During 2001 Fiscal Year
No options were granted to our named executive officers during fiscal
2001.
Option Exercises During 2001 Fiscal Year and Fiscal Year End Option Values
The following table provides information related to options exercised
by our executive officers during the 2001 fiscal year and the number and
value of options held at the end of our 2001 fiscal year by our executive
officers. We do not have any outstanding stock appreciation rights.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options/SARs Options/SARs
Acquired at FY-End at FY-End
on Value (#) ($)(1)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
------------------ -------- -------- ------------- -------------
Geoffrey P. Jurick -0- -0- 300,000/0 $0/$0
John P. Walker -0- -0- 150,000/0 $0/$0
Terrence M. Babilla -0- -0- 0/0 $0/$0
(1) The closing price for our common stock as reported by the Over the
Counter Bulletin Board on March 30, 2001 was $1.44. Value is
calculated on the basis of the difference between $1.44 and the option
exercise price of "in the money" options, multiplied by the number of
shares of our common stock underlying the option.
Employment Agreements
John P. Walker. Effective January 14, 1998, we entered into a three
year employment agreement with John P. Walker. We amended the Employment
Agreement on February 25, 2000, which amendment extended the term of the
Employment Agreement to December 31, 2002. Pursuant to Mr. Walker's
employment agreement, Mr. Walker receives base annual compensation (subject
to annual increases by our Board) of $330,000. The employment agreement
also provides for (1) an annual bonus equal to an amount up to 30% of Mr.
Walker's base salary upon attainment of our business plan and other agreed
upon benchmarks, (2) an additional annual performance bonus to be approved
at the discretion of our Board, or a committee thereof, (3) country club
dues, (4) car allowance, (5) relocation expenses, including an interest free
bridge loan in the amount of $100,000 secured by the real estate purchased,
(6) participation in our health insurance plans, and (7) certain tax gross-
ups. A portion of Mr. Walker's bridge loan was forgiven in 2000. See
"Executive Compensation and Other Information - Summary Compensation Table."
Mr. Walker's employment agreement also provides for certain severance
payments if Mr. Walker is terminated without cause or constructively
discharged prior to December 31, 2002. We also agreed to make available to
Mr. Walker an interest free loan for six months to purchase shares of our
common stock underlying his stock options, which loan would be secured by
the shares of common stock. Pursuant to Mr. Walker's employment agreement,
Mr. Walker may devote up to 33% of his working time fulfilling his
obligations as an officer of Emerson. For more information about Mr.
Walker's compensation, see "Executive Compensation and Other Information-
Summary Compensation Table."
Terrence M. Babilla. Effective January 14, 1998, we entered into a
three year employment agreement with Terrence M. Babilla. We amended the
Employment Agreement on February 25, 2000, which amendment extended the term
of the Employment Agreement to December 31, 2002. Pursuant to Mr. Babilla's
employment agreement, Mr. Babilla receives base annual compensation (subject
to annual increases by our Board) of $240,000. The employment agreement
also provides for (1) an annual bonus of up to 30% of Mr. Babilla's base
salary upon attainment of our business plan and other agreed upon
benchmarks, (2) an additional annual performance bonus to be approved at the
discretion of our Board, or a committee thereof, (3) country club dues, (4)
car allowance, (5) participation in our health insurance plans, and (6)
certain tax gross-ups. Mr. Babilla's employment agreement also provides for
certain severance payments if he is terminated without cause or
constructively discharged prior to December 31, 2002. Pursuant to Mr.
Babilla's employment agreement, Mr. Babilla may devote up to 10% of his
working time fulfilling his obligations as an employee of Emerson and
Emerson will pay any salary directly to Mr. Babilla. For more information
about Mr. Babilla's compensation, please see "Executive Compensation and
Other Information-Summary Compensation Table."
Eugene J.P. Grant. Effective March 24, 1998, we entered into a three
year employment agreement with Eugene J.P. Grant. Pursuant to Mr. Grant's
employment agreement, Mr. Grant receives base annual compensation of
$127,500. The employment agreement also provides for (1) an annual bonus of
up to 60% of Mr. Grant's base salary upon attainment of our business plan
and other agreed upon benchmarks, (2) an additional annual performance bonus
to be approved at the discretion of our Board, or a committee thereof, and
(3) car allowance. We entered into a new three year employment agreement
with Mr. Grant effective January 1, 2001. Pursuant to Mr. Grant's employment
agreement, Mr. Grant receives base annual compensation of $205,000.
Michael P. Glassman. Effective April 1, 2001, we entered into a three
year employment agreement with Michael P. Glassman. Pursuant to Mr.
Glassman's employment agreement, Mr. Glassman receives base annual
compensation of $150,000. The employment agreement also provides for (1) an
annual bonus up to 30% of Mr. Glassman's base salary upon attainment of our
business plan and other agreed upon benchmarks, (2) an additional annual
performance bonus to be approved at the discretion of our Board, or a
committee thereof, and (3) car allowance. Mr. Glassman's employment
agreement also provides for certain payments if he is terminated without
cause prior to March 31, 2004. Mr. Glassman's employment agreement is
scheduled to expire on March 31, 2004.
We may terminate our obligations under any of the above employment
agreements if the employee covered by the employment agreement is discharged
for cause (as defined in each applicable agreement). Each of the foregoing
employees may be discharged without cause, provided that we continue to pay
the remaining compensation payments due under the agreements. Each of the
foregoing employees may terminate their employment prior to expiration of
the agreements and, if we have not breached any provision of the agreements,
we will be required to pay only the compensation earned to the date of
termination.
Severance Agreements
Messrs. Walker and Babilla. In March 1999 we entered into severance
agreements with Messrs. Walker and Babilla. The severance agreements
provide that for a period of 180 days following a change in control (as
defined in each agreement) of the company, the employee has the right to
elect to receive cash compensation. The cash compensation is equivalent to
299% of the sum of: (a) his highest annual salary at any time during the 36
months prior to the change in control, plus (b) the highest bonus or
incentive compensation paid to him by us for any of the last three fiscal
years preceding a change in control. The cash compensation is generally
designed to compensate for the loss of the employee's compensation,
including salary and bonuses, less any amounts the payment of which might
cause adverse consequences under federal income tax laws (as described in
the agreements). In exchange for the cash compensation, the employee will
release all of his rights under his employment agreement. As of June 15,
2001, the maximum aggregate contingent liability under the severance
agreements was approximately $2,300,000.
Messr. Pryor. Effective February 15, 1999 we entered into a Non-
Competition, Confidentiality and Severance Agreement with Mr. Pryor.
Subject to the terms of this Agreement, if Mr. Pryor is terminated by us
without "cause" (as defined in the Agreement), we have agreed to pay Mr.
Pryor his then current bi-weekly salary for a period of twenty-four (24)
bi-weekly periods from the date of termination. As of June 15, 2001, the
maximum aggregate contingent liability under Mr. Pryor's severance agreement
was approximately $93,000.
Anti-Takeover Effect of Certain Provisions
The provisions of the option agreements, employment agreements and
severance agreements that we have with certain of our executives may be
deemed to have an anti-takeover effect. The effect may be to delay, defer
or prevent a tender offer or takeover attempt that our stockholders may
consider to be in their best interest, including attempts that might result
in a premium over the market price for shares of our common stock held by
you.
Compensation Committee Interlocks and Insider Participation In Compensation
Decisions
The Compensation Committee is responsible for recommending to our Board
compensation arrangements for our Chairman of the Board and Chief Executive
Officer, which recommendation is subject to the approval of a majority of
the disinterested directors. The Chairman of the Board was responsible for
establishing compensation arrangements for all other executive officers,
subject to the review and approval of our Board. During our 2001 fiscal
year, Messrs. Treichler and Ko served as members of our Compensation
Committee.
Geoffrey P. Jurick serves as our Chairman of the Board and Chief
Executive Officer and also as Chairman of the Board and Chief Executive
Officer of Emerson. John P. Walker serves as our President and also served
as Executive Vice President and Chief Financial Officer of Emerson. Mr.
Walker is also a member of our Board. Mr. Bunger, who is a member of our
Board and also Emerson's Board, serves on our Compensation Committee and
also on Emerson's Compensation Committee. Messrs. Jurick and Walker, both
executive officers who were also members of our Board during fiscal 2001,
participated in deliberations concerning executive officer compensation.
Report of the Compensation and Stock Option Committee on Executive
Compensation
During fiscal 2001 the Compensation and Stock Option Committee and
Chairman of the Board shared the responsibility for establishing and
administering the company's executive compensation programs. The
Compensation and Stock Option Committee had responsibility for determining
compensation to be paid to the Chairman of the Board and Chief Executive
Officer, subject to the approval of a majority of the disinterested
directors. The Compensation and Stock Option Committee also had
responsibility for administering the company's stock option plan, including
authority regarding the selection of award recipients and the size and terms
of all option grants under the option plan. The Chairman of the Board,
subject to review and approval by the Board of Directors, determines on an
annual basis the compensation to be paid to the executive officers of the
company.
Under the supervision of the Compensation and Stock Option Committee
and the Board of Directors, the company developed and implemented
compensation policies, plans and programs that sought to enhance the
profitability of the company, and thus stockholder value, by aligning
closely the financial interests of the company's executives with those of
its stockholders. The specific objectives of the company's executive
compensation program were to:
* Support the achievement of the company's strategic operating
objectives.
* Provide compensation at competitive levels that will attract and
retain superior talent and reward executive officers based upon
performance.
* Align the executive officers' interests with the success of the
company by placing the majority of pay increases at risk (i.e.
increases that are dependent upon company performance).
The company's executive officer compensation program for fiscal 2001
was comprised of base salary, cash bonuses and long-term incentive
compensation in the form of stock options.
Base salaries for the executive officers of the company represent
compensation for the performance of defined functions and assumption of
defined responsibilities. The Compensation and Stock Option Committee
reviews the base salary for the Chairman of the Board and Chief Executive
Officer on an annual basis and recommends compensation arrangements for the
company's Chairman of the Board and Chief Executive Officer. Implementation
of the Chairman and Chief Executive Officer's compensation arrangement is
subject to the approval of a majority of the disinterested directors. The
Chairman of the Board reviews the base salary of all the other executive
officers on an annual basis and recommends compensation arrangements to the
Board of Directors for such executive officers. In determining salary
adjustments, the Compensation and Stock Option Committee and the Chairman of
the Board consider the company's growth in earnings and revenues, the
reduction in expenses, the company's results of operations as compared to
the company's business plan, and each executive's performance level, as well
as other factors relating to the executive's specific responsibilities.
Also considered are the executive's positions, experience, skills, potential
for advancement, responsibility and current salary in relation to the
expected level of pay for the positions in which the executive serves. The
Compensation and Stock Option Committee (with respect to compensation
arrangements for the Chairman and Chief Executive Officer) and the Chairman
(with respect to compensation arrangements for the other executive officers)
exercise their judgment based upon the above criteria and do not apply a
specific formula or assign a weight to each factor considered. The company
has entered into employment agreements with each of Messrs. Walker and
Babilla. For more information about these employment agreements, see
"Executive Compensation and Other Information -- Employment Agreements."
At the beginning of each fiscal year, management submits a business
plan to the Board of Directors and the Compensation and Stock Option
Committee. The business plan establishes performance goals of the company
for such fiscal year. Such goals may include target increases in sales, net
income and earnings per share, reduction in expenses, as well as more
subjective goals with respect to marketing, product introduction and
expansion of customer base. Cash bonuses are paid based upon successful
achievement of some or all of the foregoing factors.
The award of options to purchase common stock and the grant of shares
of restricted stock form the basis for the company's long-term incentive
plan for officers and key employees. The specific objective of all awards is
to align executive and stockholder long-term interests by creating a strong
correlation between executive pay and stockholder return. The company
intends that its executives develop and maintain a significant, long-term
stock ownership position in the company's common stock. No awards of stock
options were made to the named executive officers during the 2001 fiscal
year from the option plan administered by the Compensation and Stock Option
Committee.
The company paid Mr. Jurick, the Chief Executive Officer, $125,000 in
base salary during fiscal 2001. The salary paid to Mr. Jurick in fiscal
2001 was subjectively established by the Compensation and Stock Option
Committee and not subject to specific criteria.
The Board of Directors has considered the potential impact of Section
162(m) of the Internal Revenue Code of 1996, as amended (we refer to it as
the "Code"). Section 162(m) of the Code generally provides that a publicly
held corporation's deduction for compensation paid to its covered employees
is limited to $1 million per year, subject to certain exceptions. Since the
cash compensation of each of the company's current covered employees is
below the $1 million threshold and the company's stock option plan has been
revised to meet the requirements of Section 162(m) of the Code, the Board of
Directors believes that Section 162(m) will not reduce the federal income
tax deduction available to the company. The company's policy is to qualify,
to the extent reasonable, its executive officers' compensation for
deductibility under applicable tax laws. However, the Board of Directors
believes that its primary responsibility is to provide a compensation
program that will attract, retain and reward the executive talent necessary
to the company's success. Consequently, the Board of Directors recognizes
that the loss of a tax deduction could be necessary in some circumstances.
This report is submitted by the members of the Board of Directors, the
Compensation Committee and the Stock Option Committee that were in existence
at the end of fiscal 2001.
Board of Directors Compensation and Stock Option Committee
Geoffrey P. Jurick Thomas P. Treichler
John P. Walker Johnson C.S. Ko
Peter G. Bunger
Johnson C.S. Ko
Thomas P. Treichler
This report will not be deemed to be incorporated by reference in any
filing by Sport Supply Group under the Securites Act of 1933 (referred to as
the "Securities Act") or the Exchange Act, except to the extent that the
company specifically incorporates this report by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of May 30, 2001, the beneficial
ownership of: (1) each current director; (2) each nominee for director; (3)
each of our executive officers named in the Summary Compensation Table set
forth below in "Executive Compensation and Other Information"; (4) our
directors and executive officers as a group; and (5) each stockholder known
to us to own beneficially more than 5% of our outstanding shares of common
stock.
Except as otherwise indicated and based upon our review of information
as filed with the Securities and Exchange Commission (we refer to it as the
"SEC"), we believe that the beneficial owners of the securities listed below
have sole investment and voting power with respect to such shares, subject
to community property laws, where applicable.
Amount and
Nature of Percent
Beneficial Of
Name of Beneficial Owner Ownership Class
-------------------------------- ------------- ------
Emerson Radio Corp. 5,463,223 (1) 55.1%
Dimensional Fund Advisors, Inc. 494,015 (2) 5.5%
Oaktree Capital Management, LLC 403,100 (4) 4.5%
Wentworth Hauser & Violich, Inc. 536,165 (5) 6.0%
Geoffrey P. Jurick* 5,763,223 (6) 56.4%
John P. Walker* 187,106 (7) 1.9%
Peter G. Bunger* 15,625 (8) **
Johnson C.S. Ko* 25,625 (8) **
Thomas P. Treichler* 15,625 (9) **
Terrence M. Babilla 6,856 (10) **
Robert K. Mitchell 8,468 (11) **
Eugene J.P. Grant 50,000 (12) **
Douglas Pryor 19,024 (13) **
Kenneth A. Corby 20,545 (14) **
Executive Officers and 6,112,097 (15) 58.2%
Directors as a group
(10 persons)
(*) Director (all current directors are nominees for director).
(**) Less than one percent
(1) Emerson's address is Nine Entin Road, Parsippany, New Jersey 07054.
Emerson's beneficial ownership is based on information set forth in a
an Amendment No. 11to a Schedule 13D filed with the SEC by Emerson on
April 16,2001. Pursuant to the Amended Schedule 13D, Emerson reported
that it beneficially owned 5,463,223 shares of our common stock,
including (a) 1,000,000 shares issuable upon exercise of warrants owned
by Emerson and exercisable within 60 days, and (b) 1,098,900 shares of
our common stock held by Emerson Radio (Hong Kong) Limited, a
wholly-owned subsidiary of Emerson. Emerson has sole voting and
dispositive power with respect to all 5,463,223 shares.
Pursuant to a pledge and security agreement, Emerson pledged to
Congress Financial Corporation 500,000 shares of our common stock and
its warrants for 1,000,000 shares of our common stock, together with
all proceeds, dividends and other income and distributions with respect
thereto, and all rights of Emerson to have such shares of common stock
registered under a certain registration rights agreement.
(2) Dimensional Fund Advisors, Inc.'s address is 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401. Dimensional's beneficial
ownership is based on information set forth in a Schedule 13G filed
with the SEC by Dimensional dated February 2, 2001. Dimensional is an
investment advisor registered under Section 203 of the Investment
Advisors Act of 1940, and serves as investment manager to certain other
investment vehicles, including commingled group trusts. These
investment companies and investment vehicles are the "Portfolios." In
its role as investment advisor and investment manager, Dimensional
possessed both voting and investment power over 494,015 shares of
our common stock as of December 31, 2000. The Portfolios own all
securities reported in this statement, and Dimensional disclaims
beneficial ownership of such securities.
(4) Oaktree Capital Management, LLC's address is 333 South Grand Avenue,
28th Floor, Los Angeles, California 90071. Oaktree's beneficial
ownership is based on information set forth in an amendment to Schedule
13D filed with the SEC by Oaktree on December 2, 1999. Oaktree, an
investment advisor to institutional and individual investors, reported
it has sole voting power and sole dispositive power with respect to all
403,100 shares.
(5) Wentworth Hauser & Violich, Inc.'s address is 333 Sacramento Street,
San Francisco, California 94111. Laird Norton Financial Group, Inc.'s
("LNFG") address is 801 Second Avenue, Suite 1600, Seattle, Washington
98104. Wentworth's beneficial ownership is based on information set
forth in a amendment No. 1 to Scheduele 13G filed with the SEC by
Wentworth on April 16, 2001. Wentworth, a wholly-owned subsidiary of
LNFG and an investment adviser to certain persons, reported it has
shared voting and shared dispositive power with respect to all 395,000
shares. LNFG disclaims beneficial ownership of all such shares.
(6) Mr. Jurick's address is Sport Supply Group, Inc., 1901 Diplomat Drive,
Farmers Branch, Texas 75234. Mr. Jurick, directly and indirectly,
beneficially owns approximately 46%of the issued and outstanding shares
of Emerson's common stock and is the Chairman of the Board and Chief
Executive Officer of Emerson and, therefore, may be deemed to control
Emerson. As a result of such control, Mr. Jurick may be deemed to
beneficially own the 5,463,223 shares of our common stock beneficially
owned by Emerson. Mr. Jurick disclaims any such beneficial ownership.
See Note (1) above and "Certain Relationships and Related Transactions"
for more information about Emerson's investment. Mr. Jurick's
beneficial ownership also includes 300,000 shares of our common stock
issuable upon the exercise of stock options that are exercisable
currently or within 60 days of the date hereof.
(7) Consists of 36,106 shares of our common stock and 150,000 shares of our
common stock issuable upon the exercise of stock options that are
exercisable currently or within 60 days of the date hereof.
(8) Includes 15,625 shares of our common stock issuable upon exercise of
stock options that are exercisable currently or within 60 days of the
date hereof.
(9) Consists of 15,625 shares of our common stock issuable upon exercise of
stock options that are exercisable currently or within 60 days of the
date hereof.
(10) Consists of 6,856 shares of our common stock.
(11) Consists of 135 shares of our common stock and 8,333 shares of our
common stock issuable upon the exercise of stock options that are
exercisable currently or within 60 days of the date hereof.
(12) Consists of 50,000 shares of our common stock issuable upon the
exercise of stock options that are exercisable currently or within 60
days of the date hereof.
(13) Consists of 2,857 shares of our common stock and 16,167 shares of our
common stock issuable upon the exercise of stock options that are
exercisable currently or within 60 days of the date hereof.
(14) Consists of 545 shares of our common stock and 20,000 shares of our
common stock issuable upon the exercise of stock options that are
exercisable currently or within 60 days of the date hereof.
(15) Includes 588,250 shares of our common stock issuable upon the exercise
of stock options that are exercisable currently or within 60 days of
the date hereof and 1,000,000 shares of our common stock issuable upon
exercise of the Emerson warrants. Mr. Jurick disclaims beneficial
ownership of our securities owned by Emerson. See Note (6) above.
Compensation of Directors
During our 2001 fiscal year, each non-management director was entitled
to receive up to $8,000 in annual director's fees. In addition, the
Chairman of the Audit Committee and the Chairman of the Compensation and
Stock Option Plan Committee each receive an additional $2,500 in annual
fees. During fiscal 2001, Dr. Treichler, Mr. Ko and Mr. Bunger received
$6,500, $4,000 and $4,000, respectively, in director's fees. Our officers
do not receive compensation for serving on our Board. Non-employee
directors are automatically granted nonqualified stock options to purchase
3,125 shares of our common stock on an annual basis.
Change of Voting Control:
On April 13, 2001, Emerson and Geoffrey Jurick jointly filed Amendment
No. 11 to their Report on Schedule 13D (as amended, the "Schedule 13D").
The Schedule 13D reported that Emerson increased it beneficial ownership in
SSG to 5,463,223 shares of our common stock, or 55.1% of the total issued
and outstanding common stock as of March 21, 2001. Pursuant to the
Schedule 13D, Emerson's beneficial ownership consists of (i.) 3,364,323
shares of our common stock owned directly by Emerson, (ii.) 1,098,900 shares
of our common stock owned directly by Emerson Radio (Hong Kong) Limited, a
wholly-owned subsidiary of Emerson ("Emerson HK"), and (iii.) warrants owned
by Emerson to purchase an additional 1,000,000 shares of our common stock
for $7.50 per share, which warrants are exercisable within 60 days. The
warrants expire on December 10, 2001.
Emerson is deemed to beneficially own the shares of our common stock
held by Emerson HK. Emerson reported that it has sole voting and dispositive
power with respect to the 5,463,223 shares of our common stock described
above.
Emerson's beneficial ownership excludes 300,000 shares of our common
stock issuable upon exercise of options owned by Geoffrey P. Jurick, which
options are exercisable within 60 days. The shares underlying these options
constitute approximately 3.3% of the total common stock deemed to be
outstanding. Mr. Jurick has sole voting and dispositive power with respect
to these shares. Mr. Jurick is the Chairman of the Board and Chief
Executive Officer of SSG. Mr. Jurick beneficially owns approximately 45.7%
of the issued and outstanding shares of Emerson. In addition, Mr. Jurick is
the Chairman of the Board, Chief Executive Officer and President of Emerson.
As a result of the foregoing, Mr. Jurick may be deemed to control Emerson.
As a result of such control, Mr. Jurick may be deemed to beneficially own
the shares of SSG beneficially owned by Emerson. Each of Emerson and Mr.
Jurick disclaims beneficial ownership of the shares of SSG beneficially
owned by the other.
Emerson's record ownership of 4,463,223 shares of our common stock
constitues 50.1% of our issued and outstanding common stock, which
translates into voting control. Pursuant to the terms of the Schedule 13D,
Emerson obtained voting control through open market purchases. Emerson
reported in the Schedule 13D that Emerson HK acquired an aggregate of 2,500
shares of our common stock for a total purchase price of $4,650 through
ordinary open market purchases on January 31 and February 21, 2001,utilizing
its working capital. Emerson also reported in the Schedule 13D that
Emerson acquired an aggregate of 134,694 shares of our common stock for a
total purchase price of $247,034 through a series of ordinary open market
purchases in March 2001, utilizing Emerson's working capital.
During the past 60 days, Emerson and Emerson HK purchased an aggregate
of 137,194 shares of common stock on the dates and at the prices set forth
below. All of such purchases were effected in ordinary open market
transactions or as otherwise disclosed in the Schedule 13D.
Transaction Date No. of Shares Price/Share
---------------- ------------- -----------
1/31/01 500 $ 2.100
2/21/01 2,000 1.800
3/14/01 91,694 1.850
3/21/01 43,000 1.800
------- -------
137,194 $251,684
No other person is known to us to have the right to receive or power to
direct dividends from, or proceeds from the sale of, shares of our common
stock beneficially owned by the Emerson and Mr. Jurick, except for 500,000
shares of our common stock pledged by Emerson to Congress Financial
Corporation, Emerson's senior secured lender.
Corporate Performance Graph
The following graph shows a comparison of cumulative total returns for
us, the S&P 500 Composite Index and an index of peer companies for the
period since October 1, 1996. The comparison assumes $100 was invested on
March 31, 1996 in our common stock and in each of the two indices and
assumes reinvestment of dividends. Companies in the peer group are as
follows: K2, Inc. (f/k/a Anthony Industries, Inc.), Escalade, Inc., and
Johnson Worldwide Associates, Inc. Media General Financial Services
provided the information in the graph.
The stock price performance depicted in the below graph is not
necessarily indicative of future price performance. The Corporate
Performance Graph will not be deemed to be incorporated by reference in any
filing by Sport Supply Group under the Securities Act or the Exchange Act,
except to the extent that the company specifically incorporates the graph by
reference.
[ PERFORMANCE GRAPH APPEARS HERE ]
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG SPORT SUPPLY GROUP, INC.,
S&P 500 INDEX AND PEER GROUP INDEX
FISCAL YEAR ENDING
COMPANY/INDEX/MARKET 3/29/1996 3/31/1997 3/31/1998 3/31/1999 3/31/2000 3/30/2001
--------------------- --------- --------- --------- --------- --------- ---------
Sport Supply Group 100.00 81.03 128.45 112.07 82.76 19.83
Customer Selected Stock List 100.00 94.20 100.29 44.89 43.92 50.83
S&P Composite 100.00 119.82 177.34 210.07 247.77 194.06
Assumes $100 Invested on March 29, 1996
Assumes Dividend Reinvested
Fiscal Year Ending March 30, 2001
Item 13. Certain Relationships and Related Transactions.
Ownership by Emerson Radio Corp.
Emerson Radio Corp. (we refer to it as "Emerson"), one of the nation's
largest volume consumer electronics distributors, directly and through
subsidiaries, designs, sources, imports and markets a variety of video and
audio consumer electronics and microwave oven products. Emerson has been
listed on the American Stock Exchange under the symbol "MSN" since 1990.
Emerson and Emerson's wholly-owned subsidiary Emerson Radio (Hong Kong) Ltd.
own 4,463,223 shares, or approximately 50%, of our issued and outstanding
common stock. Emerson also owns five-year warrants to acquire an additional
1,000,000 shares of our common stock at an exercise price of $7.50 per
share, subject to standard anti-dilution adjustments (the "1996 Warrants").
If all the 1996 Warrants are exercised by Emerson, Emerson will own
approximately 55% of our common stock.
Emerson and Emerson HK have certain demand and incidental registration
rights with respect to the resale of the shares of Common Stock they own, as
well as on the exercise and resale of the shares of Common Stock Emerson may
acquire under the Warrant Agreement governing the 1996 Warrants.
Pursuant to a Pledge and Security Agreement, Emerson has pledged to
Congress, its senior lender, 500,000 of its shares in SSG and the 1996
Emerson Warrants together with all proceeds thereof and all dividends and
other income and distributions thereon or with respect thereto and all
rights of Emerson to have the such shares (and any shares of Common Stock
acquired through the exercise of the 1996 Warrants (as permitted by
Congress) registered under the Registration Rights Agreements.
Our Board now includes the following people that are associated with
Emerson: (1) Geoffrey P. Jurick, who beneficially owns approximately 45.7%
of Emerson's issued and outstanding common stock and is Emerson's Chairman
and Chief Executive Officer; and (2) Peter G. Bunger, a member of Emerson's
Board of Directors. Mr. Jurick is currently our Chairman of the Board and
Chief Executive Officer and Mr. Bunger serves on the Compensation Committee
of each company. Mr. Jurick has an employment agreement with Emerson and us
and splits his time between the two companies. John P. Walker, our
President and director, was Executive Vice President and Chief Financial
Officer of Emerson until March 31, 2001. Terrence M. Babilla, our Chief
Operating Officer and General Counsel, also provides certain legal services
to Emerson.
Management Services Agreement with Emerson Radio Corp.
During fiscal 1997, we entered into a management services agreement
with Emerson in an effort to share certain administrative and logistic
functions and to enable Emerson and us to reduce certain costs. The
management services agreement implements a program whereby we perform
certain services for Emerson in exchange for a fee. The services include
human resources, banking, computer/management information systems, payables
management, warehouse services (including subleasing warehouse storage
space), provision of office space, design services and financial management
services. The management services agreement may be terminated by either
party upon 60 day's prior notice. During fiscal 2001, we invoiced Emerson
approximately $249,000 for services provided to Emerson, all of which has
been paid. For the same time period, Emerson invoiced us approximately
$202,000 for services they provided to us, all of which has been paid. For
more information about reimbursement of salaries/bonuses of certain
executive officers, see "Executive Compensation and Other Information-
Summary Compensation Table."
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act (we refer to it as "Section 16(a)")
requires our officers and directors, and persons who own more than 10% of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the SEC. Officers, directors and greater than 10%
stockholders are required by certain regulations to furnish us with copies
of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us,
we believe that, during fiscal 2001, our officers, directors and greater
than 10% beneficial owners have complied with all applicable filing
requirements with respect to our equity securities.
PART IV
Item 14. 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 51
(a) (3) Management Contract or Compensatory Plan. [See Index]. [Each of
the following Exhibits described on the Index to Exhibits is a
management contract or compensatory plan: Exhibits 10.1, 10.1.1,
10.2, 10.2.1, 10.3, 10.4, 10.5,10.5.1, 10.6, 10.7, 10.8, 10.9,
10.10, 10.11, and 10. 27].
(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 the Company's change of fiscal year-end
from September 30 to March 31.
(c) Exhibits. See Index.
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 our behalf by the undersigned, thereunto duly authorized.
Dated: June 27, 2001
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 on June 27, 2001 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/ Johnson C. S. Ko Director
----------------------
Johnson C. S. Ko
/s/ Peter G. Bunger Director
----------------------
Peter G. Bunger
/s/ Thomas P. Treichler Director
----------------------
Thomas P. Treichler
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
Schedule II -- Valuation and Qualifying Accounts
For The Six Month Period Ended March 30, 2001, The Year Ended September 29, 2000,
and The Year Ended October 1, 1999, and The Year Ended October 2, 1998
-----------Additions---------------
Balance at Charged to Charged to Balance at
Beginning costs and other End of
of Period expense accounts(1) Deductions Period
--------- -------- --------- -------- ---------
Allowance for Doubtful Accounts
-------------------------------
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
Year ended October 1, 1999 $ 372,340 $ 411,512 $ - $ 318,355 $ 465,497
Year ended October 2, 1998 $ 792,730 $ - $ 4,366 $ 428,756 $ 372,340
Inventory Allowance
-------------------
Six Month period ended March 30, 2001 $1,132,135 $ 150,000 $ - $ 1,431 $1,280,704
Year ended September 29, 2000 $1,064,903 $ 34,616 $ 297,364 $ 264,748 $1,132,135
Year ended October 1, 1999 $ 425,920 $ - $1,498,822 $ 859,839 $1,064,903
Year ended October 2, 1998 $ 710,016 $ 189,512 $ - $ 473,608 $ 425,920
(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)).
4.2 Warrant Agreement entered into between the Company and Emerson
relating to the purchase of up to 1,000,000 shares of the
Company's common stock for $7.50 per share, which expires on
December 10, 2001 (incorporated by reference from Exhibit 4(a)
to the Company's Report on Form 8-K dated December 12, 1996).
10.1 Employment Agreement entered into by and between the Company and
Terrence M. Babilla (incorporated by reference from Exhibit 10.3
to the Company's Report on Form 10-Q for the quarter ended April
13, 1999).
10.1.1 Amendment Number One to Employment Agreement between the Company
and Terrence M. Babilla dated to be effective as of February 25,
2000 (incorporated by reference from Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended June 30,
2000).
10.2 Employment Agreement by and between the Company and
John P. Walker (incorporated by reference from Exhibit 10.4 to
the Company's Report on Form 10-Q for the quarter ended April
13, 1999).
10.2.1 Amendment Number One to Employment Agreement between the Company
and John P. Walker dated to be effective as of February 25,
2000 (incorporated by reference from Exhibit 10.2 to the
Company's Report on Form 10-Q for the quarter ended June 30,
2000).
10.3 Employment Agreement by and between the Company and Eugene Grant
(incorporated by reference from Exhibit 10.2 to the Company's
Report on Form 10-Q for the quarter ended April 3, 1998).
10.4 Non-Qualified Stock Option Agreement by and between the Company
and Geoffrey P. Jurick (incorporated by reference from Exhibit
10.5 to the Company's Report on Form 10-Q for the quarter ended
August 1,1997).
10.5 Non-Qualified Stock Option 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
August 1, 1997).
10.5.1 Amendment No. 1 to Stock Option Agreement by and between the
Company and John P. Walker (incorporated by reference from
Exhibit 10.8 to the Company's Report on Form 10-Q for the
quarter ended April 3, 1998).
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
10.6 Form of Non-Qualified Stock Option Agreement by and between the
Company and John P. Walker (incorporated by reference from
Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended July 2, 1999).
10.7 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).
10.8 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 year ended December 31, 1996).
10.9 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 12,
1999).
10.10 Form of Severance Agreement entered into 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).
10.11 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)).
10.13 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)).
10.14 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).
10.15 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)).
10.16 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)).
10.17 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).
10.18 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).
10.19 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).
10.19.1 Amended 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)..
10.20 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)).
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
10.21 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).
10.21.1 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).
10.22 Lease, dated December 2, 1991, by and between Injans Investments
and the Company regarding the property located in Cerritos. CA
(incorporated by reference from Exhibit 10.20 to the Company's
Report on Form 10-K for the year ended December 31, 1991).
10.22.1 First Amendment to Standard Industrial Lease dated September 12,
1996 by and between Injans Investments and the Company regarding
the property located in Cerritos, CA (incorporated by reference
from Exhibit 10.23.1 to the Company's Report on Form 10-K for
the year ended November 1, 1996).
10.23 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).
10.24 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).
10.25 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).
10.25.1 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 year ended
September 26, 1997).
10.26 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).
10.27 (*) Employment Agreement entered into by and between the Company and
Michael Glassman dated April 1, 2001.
10.28 (*) Services Agreement between the Company and EJB Development dated
March 1, 2001.
10.29 (*) Loan and Security Agreement dated March 27, 2001 by and between
the Company and Congress Financial Corporation.
10.30 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.)
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.)
( * ) = Filed Herewith