10-K 1 a2050480z10-k.htm 10-K Prepared by MERRILL CORPORATION
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended February 28, 2001

Commission File No: 000-16442

FIRST TEAM SPORTS, INC.
(Exact name of Registrant as specified in its charter)

Minnesota
(State or other jurisdiction
of incorporation or organization)		   41-1545748
(I.R.S. Employer Identification Number)

1201 Lund Boulevard
Anoka, Minnesota 55303
(Address of principal executive offices)

Registrant's telephone number, including area code:
 (763) 576-3500

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Preferred Stock Purchase Rights

    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 the 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 Common Stock held by non-affiliates of the Registrant as of May 10, 2001 was approximately $6,334,652 based upon the closing sale price of the Registrant's Common Stock on such date.

    Shares of $.01 par value Common Stock outstanding at May 10, 2001: 5,912,342.

DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting are incorporated by reference into Part III.


PART I

ITEM 1. BUSINESS

    (a) General Development of Business.

    First Team Sports, Inc. (the "Company") is engaged in the manufacture (through independent contract manufacturers) and distribution of in-line roller skates, ice skates, ice hockey sticks and equipment and related accessory products. In-line skates feature wheels mounted in a straight line on a lightweight metal or composite plastic frame, functioning much like the blade on an ice skate. First Team Sports, Inc. was incorporated under Minnesota law in May 1986. First Team Sports has the following wholly owned subsidiaries: Hespeler Hockey Company, a Nova Scotia, Canada unlimited liability company, Hespeler Hockey Holding, Inc., a Minnesota company, and First Team Sports GmbH, an Austrian company. Unless the context otherwise requires, references in this Form 10-K to the "Company" refer to First Team Sports, Inc. and its subsidiaries.

    During February 2001, the Company, in order to reduce costs, decided to close its European office and legally dissolve First Team Sports GMBH.

    (b) Financial Information about Industry Segments.

    The Company is engaged at the present time in only one industry segment, namely the manufacture (through independent contract manufacturers) and distribution of sporting and athletic goods. Financial information concerning the Company's business is included in Items 6, 7, 8 and 14.

    (c) Narrative Description of Business.

        (1) Products.

    The Company's principal products are in-line roller skates and ice hockey sticks marketed under the ULTRAWHEELS®, SKATE ATTACK®, and HESPELER® brand names. The Company also supplies in-line roller skates under various third party labels. UltraWheels brand skates are marketed to specialty and chain sporting goods dealers. The Skate Attack products are produced for sales to the mass merchant market. The Hespeler brand is marketed primarily to specialty and sporting goods chain store customers. The Company's in-line roller skates consist of a boot constructed of either soft mesh and leather with internal supports or molded plastic, a frame that is either molded as an integrated part of the boot, or a frame riveted to the bottom of the boot, and high-density polyurethane wheels mounted on ball bearings.

        (2) Status of products in development.

    The Company continues to develop products for the recreational, and fitness categories, as well as, improving upon existing in-line skate models. The Company also continues to develop products for the ice hockey market, including pro-style sticks and protective equipment.

    From time to time the Company introduces new products as testing is completed to its satisfaction and when funding is available. There is no assurance, however, that the Company will be successful in introducing new products or that such new products will prove commercially acceptable.

        (3) Source of Materials.

    The Company's products are sourced from independent contract manufacturers located in the United States and foreign countries. These suppliers manufacture, assemble and package the Company's products under the detailed specifications of the Company. The independent contract manufacturers are responsible for shipment to the Company's warehouse in Minneapolis, Minnesota or directly to certain major customers' distribution centers and warehouses.

    The components for the Company's products are manufactured by independent suppliers located in the United States and foreign countries, which have been identified by the Company's contract manufacturers or, frequently, by the Company.

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    The Company submits purchase orders to its manufacturers for the production of specific amounts of its products and has not entered into any long-term contracts for production. All purchase orders are in U.S. dollars.

        (4) Patents, trademarks, licenses, franchises and concessions.

    The Company markets its products under a number of trade names and trademarks, including the following principal trademarks or registered trademarks of the Company: "UltraWheels", "Skate Attack", "Street Attack", "Ultra Ice", and "Hespeler". The Company owns numerous trademark registrations and has several pending trademark applications in the United States and numerous foreign countries. The Company also relies to varying degrees upon its common law rights of trademark and copyright ownership. The Company has licenses to use the names and likeness of various hockey players. In addition, the Company has also filed eleven patent applications covering various parts of in-line skates and methods of producing its products.

        (5) and (6) Seasonality and Working Capital.

    The Company markets its products to customers in North America, South America, Europe, Australia and the Far East. This large and diverse marketing area, along with the acceptance of the Company's products by athletes and recreational users, have helped reduce the seasonal variations in the Company's sales, which in turn has reduced the periodic fluctuations in the demand on its working capital. The Company's products are primarily used outdoors in the spring and summer months and therefore, are dependent on weather conditions. With approximately 97% of the Company's sales occurring in North America and Europe, the Company does have increased sales and demands on its working capital during the Spring selling season.

        (7) Major Customers.

    The Company believes that its customer relationships are excellent. Certain customers of the Company have accounted for more than 10% of the Company's sales in one or more of the past three fiscal years.  In fiscal 2001, The Sports Authority, based in Fort Lauderdale, Florida, accounted for approximately 16% of the Company's net sales. In fiscal 2001, Dick's Clothing and Sporting Goods, based in Coraopolis, Pennsylvania, accounted for approximately 11% of the Company's net sales. In fiscal 2000, and 1999 Wal-Mart, based in Bentonville, Arkansas, accounted for approximately 12% and 23% respectively, of the Company's net sales.

        (8) Backlog.

    The Company had approximately $5.1 million in unfilled purchase orders as of May 17, 2001, compared to approximately $7.9 million in unfilled purchase orders as of May 17, 2000. Approximately $4.2 million of these backlog orders are a result of spring booking orders to be shipped at future dates and approximately $900,000 result from orders of products that are temporarily unavailable. The backlog may be subject to cancellation or other adjustments and is not necessarily indicative of future sales.

        (9) Government contracts.

    The Company has no government contracts.

        (10) Competition.

    The principal competitive factors in the in-line roller skate industry are name recognition, price and product performance. The main differences in product performance are in the weight and strength of the boot and frame, the hardness of the wheels and the quality and lubrication of the wheel bearings. The Company offers a 90-day warranty on its products, which the Company believes is an important competitive factor. Beyond such warranty, the Company does not offer service on its products and does not believe that service is an important competitive factor.

    The Company believes it has a significant share of the in-line roller skate market. K2 Inc. and Rollerblade, Inc. are considered to be the market leaders. The Company competes with K2 Inc., and

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Rollerblade, Inc. in all price and quality ranges. The Company believes that it would not be difficult for other companies, both new enterprises and established members of the sporting goods industry, to enter the in-line roller skate market, and, in fact, many new companies have entered this market in recent years.

        (11) Research and development.

    Research and development expenses for Company-sponsored research activities relating to the development of new products, services or techniques or the improvement of existing products, services or techniques were not material in fiscal 2001, 2000, or 1999.

        (12) Effect of environmental regulation.

    To the extent that the Company's management can determine, there are no federal, state or local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment with which compliance by the Company has had or is expected to have a material effect upon the capital expenditures, earnings or competitive position of the Company.

        (13) Employees.

    As of May 1, 2001, the Company employed 59 full-time employees and 5 part-time employees.

    (d) Export Sales.

    In fiscal 2001, 2000, and 1999 the Company had export sales of $14.6 million, $19.0 million, and $16.4 million representing approximately 33%, 42%, and 39% respectively, of the net sales of the Company. Canadian net sales were $10.8 million (25% of net sales) in fiscal 2001, $12.8 million (28% of net sales) in fiscal 2000, and $10.4 million (25% of net sales) in fiscal 1999.  Sales outside North America were $3.8 million (8% of net sales) in fiscal 2001, $6.2 million (14% of net sales) in fiscal 2000, and $6.0 million (14% of net sales) in fiscal 1999.

ITEM 2. PROPERTIES

    The Company owns and occupies approximately 25,000 square feet of office space and 180,000 square feet of warehouse space located at 1201 Lund Boulevard, Anoka, Minnesota, a suburb of Minneapolis, Minnesota. The Company has a real estate mortgage on the property, which had a balance of approximately $4,125,000 as of May 1, 2001.

    The Company also occupies approximately 2,000 to 4,000 square feet of office space in Graz, Austria for its subsidiary, First Team Sports GmbH. The Company leases this facility through June 2001.

ITEM 3. LEGAL PROCEEDINGS

    In May 2000, Rollerblade, Inc. filed a lawsuit against the Company in U.S. District Court for the District of New Jersey alleging that the Company's Xpander® and Transformer™ models of children's in-line skates infringe a Rollerblade patent. Rollerblade seeks an injunction and monetary damages. The Company filed a counterclaim alleging the invalidity of the patent and the non-infringement thereof. The Company also modified the design of a component of its skates at issue, which strengthens the Company's claim of non-infringement. The Company intends to continue to defend vigorously such suit.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matter was submitted to a vote of the Company's shareholders during the quarter ended February 28, 2001.

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EXECUTIVE OFFICERS OF THE COMPANY

    The following sets forth the names and ages of the current executive officers of the Company in addition to information regarding their positions with the Company, their periods of service in such positions and their business experience for the past five years. Executive officers generally serve in office for terms of approximately one year. There are no family relationships among the officers named below.

Name and Age of
Executive Officer
   Current Positions with Company and Principal
Occupations for the Past Five Years
John J. Egart, 51   President and Chief Executive Officer of the Company since January 1994; Director of the Company since the Company's inception in May 1986; Executive Vice President of the Company from the Company's inception in May 1986 to January 1994.

David G. Soderquist, 52
 
Vice Chairman of the Company since January 1994; Director of the Company since the Company's inception in May 1986; President and Chief Executive Officer of the Company from the Company's inception in May 1986 to January 1994.

Kent A. Brunner, 40
 
Vice President and Chief Financial Officer of the Company since September 1998; Vice President/Finance of the Company from September 1996 to September 1998; Controller of the Company from November 1994 to September 1996; Audit Manager for McGladrey & Pullen, LLP, a national certified public accounting firm, from June 1988 to November 1994.

Richard Jackson, 47
 
Vice President of Production and Product Development of the Company since March 2000; Vice President of Manufacturing of the Company from October 1997 to March 2000; Manufacturing and Product Development Manager of the Company from September 1990 to October 1997.

Thomas W. Schultz, 35
 
Vice President of Sales of the Company since January 2001; Director of Worldwide Sales of the Company from June 1997 to January 2001; Manager of International Sales and Marketing of the Company from September 1994 to June 1997; Assistant Marketing Manager of the Company from January 1992 to September 1994.

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PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED  STOCKHOLDER MATTERS

    (a) Market Information.

    The range of bid quotations for the Company's Common Stock during fiscal 2001 and fiscal 2000 was as follows:

Quarter Ended
   High
   Low
May 31, 1999   $ 3.250   $ 1.344
August 31, 1999   $ 3.313   $ 1.875
November 30, 1999   $ 2.469   $ 1.500
February 29, 2000   $ 3.500   $ 1.313

May 31, 2000
 
$
3.125
 
$
1.859
August 31, 2000   $ 2.563   $ 1.500
November 30, 2000   $ 2.000   $ 0.906
February 28, 2001   $ 1.625   $ 0.938

    The Company's Common Stock is traded on the Nasdaq National Market under the symbol "FTSP". The above prices are bid quotations and may not necessarily represent actual transactions.

    (b) Holders.

    As of May 1, 2001, there were approximately 404 holders of record of the Company's Common Stock.

    (c) Dividends.

    The Company has never paid cash dividends and has no present intention to pay cash dividends in the foreseeable future. Under the Company's bank line of credit, the Company may not pay dividends without the bank's consent.

ITEM 6. SELECTED FINANCIAL DATA

    Years ended February 28, 2001, February 29, 2000, February 28, 1999, 1998 and 1997.

 
   2001
   2000
   1999
   1998
   1997
Operations Data:                              
Net Sales   $ 43,578,922   $ 45,003,424   $ 42,397,426   $ 56,336,906   $ 76,435,022
Net (Loss)/Income   $ (1,592,730 ) $ 17,505   $ (5,845,104 ) $ (2,609,233 ) $ 2,725,282
Net (Loss)/Income                              
  Per Share:                              
    Basic   $ (.27 ) $ .00   $ (1.01 ) $ (.45 ) $ .47
    Diluted   $ (.27 ) $ .00   $ (1.01 ) $ (.45 ) $ .46
Balance Sheet Data:                              
Total Assets   $ 37,431,468   $ 42,502,008   $ 39,299,894   $ 51,690,373   $ 52,343,501
Working Capital     19,100,582     19,214,465     17,371,669     25,051,180     27,921,689
Long-Term Debt     5,173,456     5,693,696     5,576,967     6,774,496     6,217,936
Shareholders' Equity     22,935,880     24,040,672     24,093,362     30,240,864     32,745,931

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    First Team Sports, Inc. is a leading manufacturer, designer and marketer of brand name sporting goods. The Company's product groups consist of in-line skates; in-line accessories and parts (primarily protective wear and replacement wheels and bearings) ice hockey sticks and ice hockey protective wear and accessories. Within the product groups, the Company maintains UltraWheels® and Skate Attack® in-line skate product lines and a Hespeler® ice hockey line. The UltraWheels line consists of higher quality and higher priced products that are targeted for the specialty and sporting goods chain store customers. The Skate Attack line consists of lower priced products for the mass merchant customers. The Hespeler ice hockey line consists of high quality products that are targeted primarily for the specialty and sporting goods chain stores.

RESULTS OF OPERATIONS:

COMPARISON OF FISCAL 2001 TO 2000

    Net Sales.  Net sales decreased 3% to $43.6 million in fiscal 2001 from $45.0 million in fiscal 2000. The reduction was primarily due to a decrease in the Company's overall in-line skate and accessory unit sales.

    A breakdown and analysis of the Company's main product lines is as follows:

 
   Fiscal 2001
    
   Fiscal 2000
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
In-line Skates   $ 30.8   70 % $ 32.5   72 % (5 %)
In-line Accessories And Parts     4.3   10 %   5.7   13 % (25 %)
Ice Skates     .8   2 %   —   —   100 %
Ice Hockey Sticks     2.5   6 %   2.5   6 % — %
Ice Hockey Protective And Access     5.2   12 %   4.3   9 % 21 %
Total Net Sales   $ 43.6   100 % $ 45.0   100 % (3 %)

    The Company currently distributes products to numerous countries worldwide. A geographic breakdown of the Company's net sales is as follows:

 
   Fiscal 2001
   Fiscal 2000
    
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
Domestic   $ 29.0   67 % $ 26.0   58 % 12 %
Canada     10.8   25 %   12.8   28 % (16 %)
Europe     2.2   5 %   4.5   10 % (51 %)
Other International     1.6   3 %   1.7   4 % (6 %)
Total Net Sales   $ 43.6   100 % $ 45.0   100 % (3 %)

    Several factors contributed to the Company's sales performance in fiscal 2001. Domestic sales increased due to the strong acceptance of the Company's UltraWheels products and significantly increased sales to the large national sporting goods chains ("big box" retailers). The Company also introduced a limited line of ice skate products in the United States. These increases were offset by the significant decline in sales of the Company's Skate Attack products to mass merchant customers due to their reduction in branded in-line skate offerings.

    The decrease in Canadian sales was primarily the result of poor weather in the Spring and Summer months which resulted in slow sales at retail. The decrease in European sales was primarily the result of continued competitive pressures in the European in-line skate market, in-line skate

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customers continuing to buy direct from Pacific Rim manufacturers and the effects of the strong U.S. dollar versus European currencies.

    The Company believes both the national and international markets continue to be very competitive and subject to extreme price competition.

    Gross Profit.  The Company's gross profit increased to $13.2 million (or 30.2% of net sales) in fiscal 2001, from $13.1 million (or 29.2% of net sales) in fiscal 2000.

    The increase in the gross margin in fiscal 2001 was primarily due to an increase in the percentage of UltraWheels in-line skate sales as compared to Skate Attack in-line skate sales, and secondarily to an increase in the percentage of total sales related to Hespeler products. The Company's Skate Attack brand, which is sold to mass merchant customers, is more of a commodity product in nature and generally has lower gross margin percentages than the Company's UltraWheels' brand and Hespeler products.

    The Company's UltraWheels brand accounted for approximately 71% of total net sales in fiscal 2001 compared to 61% in fiscal 2000. The Company's Skate Attack brand accounted for approximately 9% of total net sales in fiscal 2001 compared to 24% in fiscal 2000. The Hespeler brand accounted for approximately 20% of total net sales in fiscal 2001 compared to 15% in fiscal 2000.

    Operating Expenses.  Selling expenses were $5.3 million (or 12.2% of total net sales) in fiscal 2001 compared to $4.5 million (or 10.1%) in fiscal 2000. The increase in selling expenses in fiscal 2001 was primarily due to an increase in commissions and co-op advertising costs associated with the increased sales volume to the big box retailers.

    General and administrative expenses were $7.8 million (or 17.8% of total net sales) in fiscal 2001 compared to $7.6 million (or 16.9% of total net sales) in fiscal 2000. The increase in the general and administrative expenses was primarily due to a slight increase in various general operating costs.

    Other Income and Expense.  Interest expense was $.9 million in both fiscal 2001 and fiscal 2000. Interest expense is primarily related to the Company's working capital line of credit and the mortgage note on the Company headquarters. The Company also incurred $1.0 million in currency translation charges due to the decline of the Austrian Schilling and the decision to close its European subsidiary.

    Provision for Income Taxes.  The Company's effective tax rate was 11.5% for fiscal 2001 compared to 45.4% for fiscal 2000. The decrease in fiscal 2001 was primarily due to the effect of foreign tax rates.

    Net Income/(Loss).  Net loss was ($1.6) million (or (3.6)% of net sales) in fiscal 2001 compared to a net income of $17,505 (or .04% of net sales) in fiscal 2000. The decline can be attributed to the decrease in the sales volume and the increase in other expenses as discussed above.

RESULTS OF OPERATIONS:

COMPARISON OF FISCAL 2000 TO 1999

    Net Sales.  Net sales increased 6% to $45.0 million in fiscal 2000 from $42.4 million in fiscal 1999. The improvement was primarily due to an increase in the Company's in-line skate unit sales and an increase in the unit sales of the Company's Hespeler ice hockey products.

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    A breakdown and analysis of the Company's main product lines is as follows:

 
   Fiscal 2000
    
   Fiscal 1999
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
In-line Skates   $ 32.5   72 % $ 31.1   73 % 5 %
In-line Accessories And Parts     5.7   13 %   5.8   14 % (2 %)
Ice Hockey Sticks     2.5   6 %   2.2   5 % 14 %
Ice Hockey Protective And Access     4.3   9 %   3.3   8 % 30 %
Total Net Sales   $ 45.0   100 % $ 42.4   100 % 6 %

    The Company currently distributes products to numerous countries worldwide. A geographic breakdown of the Company's net sales is as follows:

 
   Fiscal 2000
   Fiscal 1999
    
  
(dollar amounts in millions)
    
  
  Amount
   %
   Amount
   %
   Change
  
Domestic   $ 26.0   58 % $ 26.0   61 % —  
Canada     12.8   28 %   10.4   25 % 23 %
Europe     4.5   10 %   4.9   11 % (8 %)
Otner International     1.7   4 %   1.1   3 % 55 %
Total Net Sales   $ 45.0   100 % $ 42.4   100 % 6 %

    Several factors contributed to the Company's sales performance in fiscal 2000. Although domestic sales were relatively unchanged, the Company achieved strong acceptance of its UltraWheels products and significantly increased sales to the large national sporting goods chains ("big box" retailers). This increase offset the decline in sales of the Company's Skate Attack products to mass merchant customers due to their reduction in branded in-line skate offerings. The increase in Canadian sales was the result of continued acceptance of the Company's in-line products and an increase in sales of Hespeler ice hockey products. The decrease in European sales was primarily the result of continued competitive pressures in the European in-line skate market, in-line skate customers continuing to buy direct from Pacific Rim manufacturers and the effect of the strong U.S. dollar versus European currencies. The increase in other international sales was the result of continued efforts by the Company to increase its international presence and the acceptance of the Company's strong product lines.

    Gross Profit.  The Company's gross profit increased to $13.1 million (or 29.2% of net sales) in fiscal 2000, from $4.3 million (or 10.2% of net sales) in fiscal 1999. The gross profit in fiscal 1999 was net of a $6 million inventory write-down charge. Excluding the impact of this charge, the gross profit as a percentage of net sales in fiscal 1999 was 24.4%.

    The increase in the gross margin in fiscal 2000 was primarily due to an increase in the percentage of UltraWheels in-line skate sales as compared to Skate Attack in-line skate sales, as well as an increase in the percentage of total sales related to Hespeler products. The Company's Skate Attack brand, which is sold to mass merchant customers, is more of a commodity product in nature and generally has lower gross margin percentages than the Company's UltraWheels brand and Hespeler products. During the second quarter of fiscal 1999, the Company conducted a thorough review of its in-line business and as a result the Company wrote down certain inventories, by approximately $6.0 million, which was recorded in cost of goods sold. The major inventory reduction was in the Company's unfinished/component parts inventory. As a result of the Company's restructured production philosophy, the Company shifted the majority of its in-line skate production to offshore sources in an effort to reduce product costs.

    The Company's UltraWheels brand accounted for approximately 61% of total net sales in fiscal 2000 compared to 47% in fiscal 1999. The Company's Skate Attack brand accounted for approximately

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24% of total net sales in fiscal 2000 compared to 40% in fiscal 1999. The Hespeler brand accounted for approximately 15% of total net sales in fiscal 2000 compared to 13% in fiscal 1999.

    Operating Expenses.  Selling expenses were $4.5 million (or 10.1% of total net sales) in fiscal 2000 compared to $4.6 million (or 10.9%) in fiscal 1999. The decrease in selling expenses in fiscal 2000 was primarily due to management's efforts to control expenditures, which resulted in a reduction of tradeshow and license costs.

    General and administrative expenses were $7.6 million (or 16.9% of total net sales) in fiscal 2000 compared to $7.4 million (or 17.5% of total net sales) in fiscal 1999. The increase in the absolute dollar amount of the general and administrative expenses was primarily due to increased personnel costs. The decrease in general and administrative expenses as a percentage of net sales was primarily due to the increase in the Company's sales volume versus the somewhat fixed nature of certain general and administrative expenses.

    Other Income and Expense.  Interest expense was $.9 million in both fiscal 2000 and fiscal 1999. Interest expense is primarily related to the Company's working capital line of credit and the mortgage note on the Company headquarters.

    Provision for Income Taxes.  The Company's effective tax rate was 45.4% for fiscal 2000 compared to 32.4% for fiscal 1999. The increase in fiscal 2000 was primarily due to the effect of state and foreign tax rates.

    Net Income/(Loss).  Net income was $17,505 (or .04% of net sales) in fiscal 2000 compared to a net loss of ($5.8) million (or (13.8%) of net sales) in fiscal 1999. The improvement can be attributed to the increase in both the sales volume and the gross profits as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

    The Company's operations provided $4.6 million of cash in fiscal 2001 compared to using $1.7 million of cash in fiscal 2000. The cash provided by operations in the current year was primarily the result of a decrease in the Company's receivables. The cash used in operations in the prior year was primarily the result of an increase in the Company's receivables and inventory balances.

    Net cash used in investing activities was $.5 million in fiscal 2001 and $.3 million in fiscal 2000. The use of cash for this activity was primarily attributable to expenditures relating to new computer, office and production equipment.

    Net cash used in financing activities was $4.5 million in fiscal 2001 compared to net cash provided by financing activities of $2.2 million in fiscal 2000. The net cash used by this activity for fiscal 2001 was primarily due to the net payments on the Company's credit facility. The net cash provided by this activity in fiscal 2000 was primarily for funding the normal day-to-day operations of the Company.

    The Company's total debt to worth ratio was .6 to 1 as of February 28, 2001, compared to .8 to 1 as of February 29, 2000. The Company's long-term debt, which consists primarily of a mortgage note on the Company's facility and obligations under endorsement license agreements, less current maturities, was $5.2 million as of February 28, 2001 (see Note 6 in Notes to Financial Statements).

    The Company's primary financing facility is a $10 million revolving credit line, which is subject to a borrowing base that is calculated monthly and updated periodically during each month. The borrowing base is based on a percentage of eligible receivables and inventories. As of February 28, 2001 the borrowing base limitation was $10 million, of which $1.1 million was outstanding.

    In connection with this credit facility, the Company agreed, among other things, to maintain certain minimum financial ratios and income levels. The Company has been in compliance or has obtained a waiver for all covenants.

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    The Company believes its current cash position; funds available under existing bank arrangements and cash generated from operations will be sufficient to finance the Company's operating requirements through fiscal 2002.

Outlook: Issues And Uncertainties

    The Company does not provide forecasts of future financial performance. Certain statements contained in this report are based on current expectations. These statements are forward looking and are subject to certain risks and uncertainties. The Company's actual results may differ materially from those projected.

    The Company believes that the total number of in-line skating participants worldwide will continue to remain strong in fiscal 2002, especially in the younger age categories. The Company believes the industry's innovative new products currently on the market will continue to intrigue avid participants of in-line skating and will improve the recruitment of new participants. The Company also believes that the number of ice hockey participants worldwide, especially in the United States, will continue to grow in fiscal 2002.

    The Company's strategy has been, and continues to be, to introduce high-quality, innovative, price-valued products designed specifically for the recreational, fitness and youth market segments. Future production capacity is planned based on the continued implementation of the Company's strategy. If the market does not grow and move toward value-priced products, revenues and earnings will likely be adversely impacted.

    The Company's gross margin is a sensitive function of the product mix sold, pricing and the market conditions in any given period. As a result of the Company's Skate Attack brand being sold to the mass merchant customers, the product is more like a commodity and generally has lower gross margin percentages than the Company's UltraWheels brand and Hespeler Hockey products. As a result, future gross margin percentages are difficult to predict.

    While management is optimistic about the Company's long-term prospects, the following issues and uncertainties, among others, should be considered in evaluating its growth outlook.

    Competition.  The Company competes with numerous manufacturers of in-line skates domestically and internationally, and anticipates future competition from other large and well-established sporting goods manufacturers. K2 and Rollerblade are the Company's primary competitors and each of them has substantially greater resources than the Company. The intense price competition in the in-line skate market continues to put pressure on the Company's profit margins. The Company's ability to remain competitive in the in-line skate market depends on several factors including its ability to: (i) offer innovative products at commercially-acceptable prices; (ii) develop new innovative products and generate market demand for such products; and (iii) continue to develop and expand its international business.

    Dependence on Key Customers.  During the fiscal year ended February 28, 2001, sales to The Sports Authority and Dick's Clothing and Sporting Goods accounted for 16% and 11% of the Company's revenues respectively. Increased competition from other manufacturers, decreased demand for the Company's products or other circumstances may have an adverse impact upon the Company's relationship with The Sports Authority and Dick's Clothing and Sporting Goods and/or other major customers. Decreased orders from these customers or other major customers would have a material adverse impact on the Company's financial results.

    Other.  The Company's products are primarily used outdoors and therefore adverse weather conditions can have a negative impact on consumer demand. Because the Company's products are of a recreational nature and not considered basic necessities, a general decline in overall economic conditions may have a greater adverse effect on the Company's sales.

11

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Market Risk.  The Company's sales and results of operations are subject to foreign currency fluctuations. The Company's foreign operations are in countries with fairly stable currencies; therefore, the effect of foreign currencies has not been significant. The Company attempts to limit its exposure to translation gains and losses by maintaining and controlling its foreign cash flows whenever possible.

    Considering both the anticipated foreign sales and results of operations for the next year, a hypothetical 10% weakening of the U.S. dollar relative to all other currencies would not materially adversely affect expected fiscal 2002 sales and results of operations.

    The Company's line-of-credit agreement and mortgage note payable are at the bank's prime rate of interest, which is subject to federal interest rate fluctuations. While the federal rate is somewhat stable, a material change in this rate could have an adverse effect on the Company's results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The financial statements and schedules listed below are included herein immediately following the signature page of this Form 10-K on the pages set forth:

 
   Page
Independent Auditor's Report on Consolidated Financial Statements and Schedule for the years ended February 28, 2001, February 29, 2000 and February 28, 1999   F-1

Consolidated Balance Sheets as of February 28, 2001 and February 29, 2000
 
F-2

Consolidated Statements of Operations for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
 
F-3

Consolidated Statements of Shareholders' Equity for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
 
F-4

Consolidated Statements of Cash Flows for the years ended February 28, 2001, February 29, 2000 and February 28, 1999
 
F-5

Notes to Consolidated Financial Statements
 
F-6

Schedule II—Reserve Accounts
 
F-16

    All other schedules are omitted since they are not applicable, not required or the information is presented in the consolidated financial statements or related notes.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    None.

12


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

    Other than "Executive Officers of the Company", which is set forth at the end of Part I of this Form 10-K, the information required by Item 10 is incorporated herein by reference to the sections labeled "Election of Directors" and "Compliance With Section 16(a) of the Exchange Act", which appear in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

    The information required by Item 11 is incorporated herein by reference to the sections labeled "Management Compensation" and "Election of Directors", which appear in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required by Item 12 is incorporated herein by reference to the section labeled "Principal Shareholders and Management Shareholdings," which appears in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required by Item 13 is incorporated herein by reference to the section labeled "Management Compensation," which appears in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not later than 120 days after the close of fiscal 2001 in connection with the Company's 2001 Annual Meeting of Shareholders.


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a) Documents filed as part of this report.

        (1) Financial Statements. The following financial statements are included in Part II; Item 8 of this Annual Report on Form 10-K:

  Independent Auditor's Report on Consolidated Financial Statements and Schedule for the years ended February 28, 2001, February 29, 2000 and February 28, 1999.    
  Consolidated Balance Sheets as of February 28, 2001 and February 29, 2000.    
  Consolidated Statements of Operations for the years ended February 28, 2001, February 29, 2000, and February 28, 1999.    
  Consolidated Statements of Shareholders' Equity for the years ended February 28, 2001, February 29, 2000, and February 28, 1999.    
  Consolidated Statements of Cash Flows for the years ended February 28, 2001, February 29, 2000, and February 28, 1999.    

Notes to Consolidated Financial Statements

13

        (2) Financial Statement Schedules. The following is included in Part II, Item 8, of this Annual Report on Form 10-K:

    Schedule II—Reserve Accounts.

    All other schedules are omitted since they are not applicable, not required or the information is presented in the consolidated financial statements or related notes.

        (3) Exhibits.

    The following exhibits are included in this reports: See "Exhibit Index to Form 10-K" beginning at page E-1 immediately following the financial statements which follow the signature page of this Form 10-K.

    (b) Reports on Form 8-K.

    The Company filed no reports on Form 8-K during the quarter ended February 28, 2001.

14


SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    FIRST TEAM SPORTS, INC.

May 25, 2001
 
By:
 
/s/ JOHN J. EGART   
John J. Egart
 President and Chief Executive Officer

    Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Company, in the capacities, and on the dates, indicated.

(Power of Attorney)

    Each person whose signature appears below constitutes and appoints John J. Egart as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorney-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Signature and Title
   Date

 
 
 
/s/ JOHN J. EGART   
John J. Egart
 President/Chief Executive Officer and Director (Principal executive officer)		   May 25, 2001

/s/ DAVID G. SODERQUIST   
David G. Soderquist
 Vice Chairman and Director
 
May 25, 2001

/s/ JOE MENDELSOHN   
Joe Mendelsohn
 Chairman and Director
 
May 25, 2001

/s/ TIMOTHY G. RATH   
Timothy G. Rath
 Director
 
May 25, 2001

/s/ STANLEY E. HUBBARD   
Stanley E. Hubbard
 Director
 
May 25, 2001

15


/s/ WILLIAM J. MCMAHON   
William J. McMahon
 Director
 
May 25, 2001

/s/ KENT A. BRUNNER   
Kent A. Brunner
 Vice President and Chief Financial Officer (Principal financial and accounting officer)
 
May 25, 2001

16


Report of Independent Auditors

Shareholders and Board of Directors
First Team Sports, Inc.

    We have audited the accompanying consolidated balance sheets of First Team Sports, Inc. as of February 28, 2001 and February 29, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended February 28, 2001. Our audit also included the Financial Statement Schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with 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 financial statements referred to above present fairly, in all material respects the consolidated financial position of First Team Sports, Inc. at February 28, 2001 and February 29, 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended February 28, 2001, 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.

                        /s/ ERNST & YOUNG LLP

Minneapolis, Minnesota
April 20, 2001

F–1

First Team Sports, Inc.

Consolidated Balance Sheets

 
   February 28,
2001
   February 29,
2000
  
Assets              
Current assets:              
  Cash and cash equivalents   $ 317,978   $ 860,671  
  Trade receivables, less allowance for doubtful accounts:
2001—$948,000; 2000—$765,000		     11,848,775     15,918,474  
  Inventories     13,120,398     12,079,722  
  Prepaid expenses     948,923     1,331,238  
  Deferred income taxes     1,619,000     1,179,000  
   
 
 
Total current assets     27,855,074     31,369,105  
Property, plant and equipment              
Land     600,000     600,000  
Building     4,997,840     4,988,680  
Production equipment     2,140,423     2,382,555  
Office furniture and equipment     2,061,527     1,956,004  
Warehouse equipment     982,740     945,377  
Vehicles     94,211     97,007  
   
 
 
      10,876,741     10,969,623  
Less accumulated depreciation     4,716,737     4,411,801  
   
 
 
      6,160,004     6,557,822  
Deferred income taxes     1,525,500     2,074,500  
Other assets              
License agreements, less accumulated amortization:
2001—$4,385,000; 2000—$4,036,000		     981,424     1,330,704  
Goodwill, less accumulated amortization:
2001—$578,000; 2000—$463,000		     842,994     1,029,528  
Other     66,472     140,349  
   
 
 
      1,890,890     2,500,581  
   
 
 
    $ 37,431,468   $ 42,502,008  
   
 
 
Liabilities and shareholders' equity              
Current liabilities:              
  Notes payable to bank   $ 1,140,095   $ 4,912,275  
  Trade accounts payable     5,347,605     4,656,107  
  Accrued expenses     1,746,552     1,735,399  
  Current maturities of long-term debt     520,240     850,859  
   
 
 
Total current liabilities     8,754,492     12,154,640  
Long-term debt, less current maturities     5,173,456     5,693,696  
Deferred income taxes     60,000     90,000  
Deferred revenue     507,640     523,000  
Shareholders' equity              
Common Stock, par value $.01 per share
Authorized 10,000,000 shares
Issued and outstanding:
2001—5,912,342 shares; 2000—5,860,140 shares		     59,124     58,602  
Additional paid-in capital     10,011,482     9,926,180  
Retained earnings     13,072,531     14,665,261  
Accumulated other comprehensive loss     (207,257 )   (609,371 )
   
 
 
      22,935,880     24,040,672  
   
 
 
    $ 37,431,468   $ 42,502,008  
   
 
 

See accompanying notes.

F–2

First Team Sports, Inc.

Consolidated Statements of Operations

 
   Year ended
  
 
   February 28,
2001
   February 29,
2000
   February 28,
1999
  
Net sales   $ 43,578,922   $ 45,003,424   $ 42,397,426  
Cost of goods sold     30,406,584     31,871,379     38,051,179  
   
 
 
 
Gross profit     13,172,338     13,132,045     4,346,247  
Operating expenses:                    
  Selling     5,311,855     4,532,710     4,619,077  
  General and administrative     7,765,099     7,621,020     7,420,735  
   
 
 
 
      13,076,954     12,153,730     12,039,812  
   
 
 
 
Operating income (loss)     95,384     978,315     (7,693,565 )
Interest expense     (939,990 )   (946,242 )   (953,843 )
Other expense, net     (955,105 )   —     —  
   
 
 
 
(Loss) income before income tax benefit (expense)     (1,799,711 )   32,073     (8,647,408 )
Income tax benefit (expense)     206,981     (14,568 )   2,802,304  
   
 
 
 
Net (loss) income   $ (1,592,730 ) $ 17,505   $ (5,845,104 )
   
 
 
 
Net (loss) income per share:                    
  Basic   $ (.27 ) $ .00   $ (1.01 )
  Diluted   $ (.27 ) $ .00   $ (1.01 )
Shares used in computation of net (loss) income per share:                    
  Basic     5,885,075     5,839,021     5,796,377  
  Diluted     5,885,075     5,953,730     5,796,377  

See accompanying notes.

F–3

First Team Sports, Inc.

Consolidated Statement of Shareholders' Equity

 
   Common Stock
    
    
   Accumulated
Other
Comprehensive
Loss
    
  
 
   Additional
Paid-In
Capital
   Retained
Earnings
   Total
Shareholders'
Equity
  
 
   Shares
   Amount
  
Balance at February 28, 1998   5,792,240   $ 57,923   $ 9,806,341   $ 20,492,860   $ (116,260 ) $ 30,240,864  
  Exercise of stock options   11,608     116     18,899     —     —     19,015  
  Comprehensive loss, net of tax:                                    
    Foreign currency translation   —     —     —     —     (321,413 )   (321,413 )
    Net loss   —     —     —     (5,845,104 )   —     (5,845,104 )
                               
 
  Total comprehensive loss, net of tax                                 (6,166,517 )
   
 
 
 
 
 
 
Balance at February 28, 1999   5,803,848     58,039     9,825,240     14,647,756     (437,673 )   24,093,362  
  Exercise of stock options   56,292     563     100,940     —     —     101,503  
  Comprehensive loss, net of tax:                                    
    Foreign currency translation   —     —     —     —     (171,698 )   (171,698 )
    Net income   —     —     —     17,505     —     17,505  
                               
 
  Total comprehensive loss, net of tax                                 (154,193 )
   
 
 
 
 
 
 
Balance at February 29, 2000   5,860,140     58,602     9,926,180     14,665,261     (609,371 )   24,040,672  
  Exercise of stock options   52,202     522     85,302     —     —     85,824  
  Comprehensive loss, net of tax:                                    
    Foreign currency translation   —     —     —     —     402,114     402,114  
    Net loss   —     —     —     (1,592,730 )   —     (1,592,730 )
                               
 
  Total comprehensive loss, net of tax   —     —     —     —     —     (1,190,616 )
   
 
 
 
 
 
 
Balance at February 28, 2001   5,912,342   $ 59,124   $ 10,011,482   $ 13,072,531   $ (207,257 ) $ 22,935,880  
   
 
 
 
 
 
 

See accompanying notes.

F–4

First Team Sports, Inc.

Consolidated Statements of Cash Flows

 
   Year ended
  
 
   February 28,
2001
   February 29,
2000
   February 28,
1999
  
Cash flows from operating activities                    
Net (loss) income   $ (1,592,730 ) $ 17,505   $ (5,845,104 )
Adjustments required to reconcile net (loss) income to net cash provided by (used in) operating activities:                    
  Depreciation     879,766     1,101,379     1,332,718  
  Amortization     609,692     577,557     602,784  
  Loss on retirement of equipment     35,714     —     —  
  Deferred income taxes     79,000     58,000     (2,141,000 )
  Deferred revenue     (15,360 )   (77,000 )   —  
  Write-down of inventories     —     —     5,435,824  
  Write-off of Mothership goodwill and intangibles     —     —     293,000  
  Foreign Currency Loss     955,105     —     —  
  Change in operating assets and liabilities:                    
    Receivables     3,917,320     (3,874,204 )   (1,272,837 )
    Inventories     (1,216,277 )   (2,040,235 )   6,755,720  
    Prepaid expenses     376,891     1,235     116,296  
    Accounts payable     718,534     958,774     1,007,049  
    Accrued expenses     132,489     258,365     (333,730 )
    Income taxes     (311,333 )   1,319,425     541,547  
   
 
 
 
Net cash provided by (used in) operating activities     4,568,811     (1,699,199 )   6,492,267  
Cash flows from investing activities                    
Purchases of property, plant and equipment     (518,220 )   (250,986 )   (330,496 )
   
 
 
 
Net cash used in investing activities     (518,220 )   (250,986 )   (330,496 )
Cash flows from financing activities                    
Net (payments) proceeds on short-term borrowings     (3,772,180 )   2,387,275     (6,160,000 )
Principal payments on long-term borrowings     (850,717 )   (4,837,277 )   (1,134,158 )
Proceeds from long-term borrowings     —     4,500,000     —  
Net proceeds from exercise of stock options     85,824     101,503     19,015  
   
 
 
 
Net cash (used in) provided by financing activities     (4,537,073 )   2,151,501     (7,275,143 )
   
 
 
 
(Decrease) increase in cash and cash equivalents     (486,482 )   201,316     (1,113,372 )
Effect of foreign currency translation     (56,211 )   (64,219 )   (32,599 )
Cash and cash equivalents:                    
  Beginning of year     860,671     723,574     1,869,545  
   
 
 
 
  Ending of year   $ 317,978   $ 860,671   $ 723,574  
   
 
 
 

See accompanying notes.

F–5


First Team Sports, Inc.

Notes to Consolidated Financial Statements

1.  Nature of Business and Significant Accounting Policies

Nature of Business and Concentration of Credit Risk

    The Company, which operates in one business segment, sells in-line roller skates and related accessories under the brand names UltraWheels®, and Skate Attack®, and ice hockey equipment under the brand name Hespeler® to retail and sporting goods stores. These products are manufactured under outside production arrangements to the Company's specifications. Net sales to a specific geographic region for the years ended February 28, 2001, February 29, 2000 and February 28, 1999 totaled 25%, 28% and 25%, respectively, for Canada and 5%, 10% and 11%, respectively, for Europe.

Basis of Financial Statement Presentation and Accounting Estimates

    The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the year. Actual results could differ from those estimates.

Principles of Consolidation

    The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries including First Team Sports Exports, Inc. (a foreign sales corporation), First Team Sports GmbH and Hespeler Hockey Company. All material intercompany accounts and transactions have been eliminated.

Revenue Recognition

    Revenues from sales of product are recorded upon shipment. Allowances are provided for estimated sales returns at the time the sale is recorded based on the Company's historical rate of returns.

    The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables generally are due within sixty days for in-line skates and equipment and within six months for hockey equipment. Credit losses relating to customers consistently have been within management's expectations.

Foreign Currency Translation

    The functional currency for foreign operations is the local currency. Foreign currency financial statements are converted into United States dollars by translating balance sheet accounts at the current exchange rate at year-end and statement of operations items at the average exchange rate for the year, with the resulting translation adjustment included in accumulated other comprehensive loss in shareholders' equity.

Cash and Cash Equivalents

    The Company considers all demand deposit accounts and short-term cash investments with an initial maturity of three months or less at the date of purchase to be cash equivalents. Short-term investments are classified as available-for-sale. The carrying value of cash equivalents approximates fair value at February 28, 2001 and February 29, 2000.

F–6

Inventories

    Inventories are valued at the lower of cost (first-in, first-out method) or market.

Property, Plant and Equipment

    Property, plant and equipment is recorded at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets as follows:

Building   39 years
Production equipment   2—10 years
Office furniture and equipment   3—7 years
Warehouse equipment   6—10 years
Vehicles   5 years

Other Assets

    Costs capitalized related to license agreements' rights are being amortized over the terms of the agreements on a straight-line method.

    Goodwill arising from acquisitions is amortized on a straight-line basis over a period up to 10 years. Other intangibles, consisting principally of trademarks and patents, are amortized on a straight-line basis over 5 to 10 years.

Accounting for Long-Lived Assets

    The Company periodically reviews its property, plant, equipment, and other assets to determine potential impairment by comparing their carrying value with the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than the carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by computing the amount by which the carrying value exceeds the fair value (estimated discounted future cash flows) of the long-lived assets.

    In September 1997, the Company purchased the net assets of Mothership Distribution, Inc. (Mothership), a designer, manufacturer and marketer of aggressive in-line skate accessories and apparel. Subsequently during fiscal year 1999, Mothership was closed and the related goodwill and intangibles were written off in accordance with FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amount of the write-off totaled $293,000, which was included in General & Administrative Expenses.

    In August 1997, the Company created a European subsidiary, First Team Sports GmbH, to help improve its operations in Europe. During February 2001 the Company, in order to reduce costs, decided to close its European office and legally dissolve First Team Sports GmbH. As a result, the Company recognized in its fiscal 2001 statement of operations a foreign currency loss of approximately $955,000 and accrued for certain closing costs totaling $56,000, which are included in other expense and general and administrative expenses, respectively.

Advertising Costs

    The costs of advertising are expensed as incurred. Advertising expense for the fiscal years 2001, 2000 and 1999 was $1,506,000, $956,000 and $911,000, respectively.

F–7

Income Taxes

    The Company accounts for income taxes utilizing the liability method. Deferred income taxes are recorded to reflect the tax consequences of differences between the tax and financial reporting basis of assets and liabilities.

Net (Loss) Income Per Share

    Basic net (loss) income per share is the Company's net (loss) income divided by the weighted average number of Common Shares outstanding during the period. Diluted net (loss) income per share reflects the potential dilutive effects of stock options and warrants.

 
   Basic
   Diluted
  
 
   2001
   2000
   1999
   2001
   2000
   1999
  
 
   (In thousands, except per share data)

  
Net (loss) income   $ (1,593 ) $ 18   $ (5,845 ) $ (1,593 ) $ 18   $ (5,845 )
   
 
 
 
 
 
 
Weighted average common shares outstanding     5,885     5,839     5,796     5,885     5,839     5,796  
Dilutive stock options     —     —     —     —     115     —  
   
 
 
 
 
 
 
Total common shares outstanding for diluted calculation     5,885     5,839     5,796     5,885     5,954     5,796  
   
 
 
 
 
 
 
Net (loss) income per share   $ (.27 ) $ .00   $ (1.01 ) $ (.27 ) $ .00   $ (1.01 )

Fair Value of Financial Instruments

    The consolidated financial statements include the following financial instruments: cash and cash equivalents, trade receivables, notes payable to bank, trade accounts payable and long-term debt. At February 28, 2001, no separate comparison for fair values versus carrying values is presented for the aforementioned financial instruments since their fair values are not significantly different than their balance sheet carrying amounts. The aggregate fair values of the financial instruments would not represent the underlying value of the Company.

Comprehensive Loss

    Comprehensive loss consists of the Company's net (loss) income and foreign currency translation adjustment and is presented in the consolidated statement of stockholders' equity, net of taxes.

2.  Sales Information and Major Suppliers

Major Customers and Credit Risk

    Net sales for fiscal years 2001, 2000 and 1999 include sales to certain major customers as follows:

 
   Percent of Net Sales
 
   2001
   2000
   1999
Customer A   16   7   —
Customer B   11   5   3
Customer C   4   12   23

    At February 28, 2001, 24% of the Company's trade receivables were due from the aforementioned customer and 32% were due from customers outside of the United States. Credit, including foreign credit, is determined on an individual customer basis. The Company utilizes letter-of-credit arrangements and wire transfers to minimize its foreign credit risk.

F–8

Export Sales

    The Company's export sales approximated 33%, 42% and 39% of net sales for fiscal years 2001, 2000 and 1999, respectively.

Major Suppliers

    The Company had 66% of its products produced by two suppliers during fiscal 2001. Management believes that alternative suppliers are available in the event the Company is unable to obtain services from its two major suppliers.

3.  Inventories

Inventories consist of the following:

 
   February 28, 2001
   February 29, 2000
Finished goods   $ 12,549,337   $ 11,103,385
Component parts     571,061     976,337
   
 
    $ 13,120,398   $ 12,079,722
   
 

4.  Notes Payable

    The Company has a line-of-credit agreement with a bank subject to renewal on August 31, 2002, whereby it may borrow up to $10,000,000. Borrowings bear interest, payable monthly, at the bank's prime lending rate (8.50% at February 28, 2001). Borrowings under the credit arrangement are collateralized by substantially all corporate assets, excluding land and building. Outstanding borrowings under this arrangement totaled $1,140,095 and $4,912,275 at February 28, 2001 and February 29, 2000, respectively.

    In connection with the line-of-credit agreement, the Company agreed, among other things, to maintain a minimum tangible net worth, to not exceed a certain debt to tangible net worth ratio, to attain a certain net income level, to limit capital expenditures to certain amounts, and to not pay dividends without the bank's consent. The Company has been in compliance or has obtained a waiver for all covenants.

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5.  Long-Term Debt

    Long-term debt consists of the following:

 
   February 28, 2001
   February 29, 2000
Obligations under license agreements, due in varying installments, with interest imputed at 9.25%, through 2004 (see note 8)   $ 1,187,446   $ 1,468,306

Mortgage note payable, due in monthly installments of $18,750 to August 2002, plus interest at the bank's prime rate (8.50% at February 28, 2001), secured by the building
 
 
4,181,250
 
 
4,406,250

Subordinated convertible exchangeable debentures, due in principal installments of $325,000 on October 1, 2002 plus interest at 5%
 
 
325,000
 
 
525,000

Other
 
 
—
 
 
144,999

 
 

 

 
 
 
5,693,696
 
 
6,544,555

Less current maturities
 
 
520,240
 
 
850,859

 
 

 

 
 
$
5,173,456
 
$
5,693,696

 
 

 

    Aggregate future maturities of long-term debt for the fiscal years after February 28, 2001 are as follows:

2002   $ 520,240
2003     4,591,607
2004     326,248
2005     255,601
   
    $ 5,693,696
   

    The subordinated convertible debentures were issued with triggerable warrants attached which enable the debenture holder to purchase 69,565 shares of common stock of the Company. The debentures are convertible at any time, in whole or in part, into shares of common stock of the Company at a conversion price of $5.75.

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6.  Income Taxes

    Net deferred income taxes consist of the following components:

 
   February 28, 2001
   February 29, 2000
  
Deferred tax assets:              
  Receivable allowances   $ 325,000   $ 269,000  
  Inventory costs     240,000     193,000  
  Accrued expenses     704,000     317,000  
  License and patent agreements     257,000     323,000  
  Other comprehensive loss     46,500     253,500  
  Net operating loss carryforwards     1,956,000     2,098,000  
   
 
 
      3,488,500     3,453,500  

Less: valuation allowance
 
 
(384,000
)
 
(200,000
)

Deferred tax liabilities:
 
 
 
 
 
 
 
  Depreciation     (60,000 )   (90,000 )
   
 
 
Net deferred tax assets   $ 3,084,500   $ 3,163,500  
   
 
 

    For financial reporting purposes, the (loss) income before income tax effect is as follows:

 
   February 28,
2001
   February 29,
2000
   February 28,
1999
  
(Loss) income before income taxes:                    
  Domestic   $ (951,742 ) $ 371,628   $ (8,652,382 )
  Foreign     (847,969 )   (339,555 )   4,974  
   
 
 
 
    $ (1,799,711 ) $ 32,073   $ (8,647,408 )
   
 
 
 

    The provisions for income tax (expense) benefit for fiscal years 2001, 2000 and 1999 are as follows:

 
   2001
   2000
   1999
  
Current:                    
  Federal   $ 170,981   $ (66,568 ) $ 637,304  
  State     27,000     (5,000 )   26,000  
  Foreign     70,000     115,000     (2,000 )
   
 
 
 
Total current     267,981     43,432     661,304  

Deferred:
 
 
 
 
 
 
 
 
 
 
  Federal     (55,000 )   (54,000 )   1,985,000  
  State     (6,000 )   (4,000 )   156,000  
   
 
 
 
Total deferred     (61,000 )   (58,000 )   2,141,000  
   
 
 
 
Total income taxes   $ 206,981   $ (14,568 ) $ 2,802,304  
   
 
 
 

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    The provisions for income tax benefit (expense) for fiscal years 2001, 2000 and 1999 differ from the amounts obtained by applying the federal income tax rate to pretax (loss) income as follows:

 
   2001
   2000
   1999
  
Computed "expected" federal tax benefit (expense)   $ 609,000   $ (11,000 ) $ 3,034,000  
(Increase) decrease in taxes resulting from:                    
  State income taxes or benefit, net of federal effect     (5,000 )   (5,000 )   173,000  
  Valuation reserve     (184,000 )   —     (200,000 )
  Foreign     (201,000 )   (18,000 )   (88,000 )
  Other items individually insignificant, net     (12,019 )   19,432     (116,696 )
   
 
 
 
    $ 206,981   $ (14,568 ) $ 2,802,304  
   
 
 
 

    At February 28, 2001, the Company had net operating loss carryforwards of approximately $5.1 million that expire through 2021.

7.  Shareholders' Equity

Stock Options

    The Company has reserved 975,000 common shares for issuance under the First Team Sports, Inc. 1987 Stock Option Plan (the 1987 Plan) and 1,725,000 common shares under the First Team Sports, Inc. 1994 Stock Option and Incentive Compensation Plan (the 1994 Plan). Both plans provide for the granting of incentive stock options under Section 422 of the Internal Revenue Code and nonqualified options not meeting the requirements of Section 422. All key employees of the Company are eligible to receive incentive and nonqualified stock options pursuant to the 1987 and 1994 Plans. Directors of the Company who are not employees may be granted nonqualified options under the Plans. Options are granted at the discretion of the Stock Option Committee. Options are nontransferable and generally granted at a price equal to the quoted market price of the shares at the date of grant.

    The Company also established the First Team Sports, Inc. 1993 Employee Stock Purchase Plan (the 1993 Plan) and reserved 300,000 common shares for issuance thereunder. The 1993 Plan is intended to encourage stock ownership by all employees and is intended to qualify under Section 423 of the Internal Revenue Code. All employees are eligible to participate in the 1993 Plan, with the exception of any employees owning 5% or more of the Company's total voting stock.

    The Company has also issued several nonqualified options to purchase its common stock in connection with various transactions. In January 1997, the Company issued incentive stock options covering 68,251 shares that are not covered by the aforementioned plans.

    Transactions involving stock options during fiscal year 2001, 2000 and 1999 are summarized as follows:

 
   2001
   2000
   1999
 
   Options
   Weighted Average Exercise Price
   Options
   Weighted Average Exercise Price
   Options
   Weighted Average Exercise Price
Outstanding at beginning of year   1,890,700   $ 2.62   1,797,703   $ 2.70   1,375,703   $ 3.06
Exercised   (41,500 )   1.67   (30,500 )   2.18   —     —
Canceled   (184,500 )   2.02   (256,503 )   2.54   (9,000 )   2.75
Expired   191,250     2.75   —     —   —     —
Granted   365,000     1.51   380,000     2.31   431,000     1.55
   
 
 
 
 
 
Outstanding at end of year   1,838,450   $ 2.47   1,890,700   $ 2.62   1,797,703   $ 2.70
   
 
 
 
 
 

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    Weighted average fair value of options granted during 2001, 2000 and 1999 was $.80, $.91 and $.65, respectively.

    As of February 28, 2001, February 29, 2000 and February 28, 1999 options covering 1,557,288, 1,468,540 and 1,137,369 shares, respectively, were exercisable at a weighted average exercise price of $2.63, $2.80 and $2.91 per share, respectively. In addition, the remaining stock options outstanding at February 28, 2001 become exercisable in the following fiscal years:

 
   Shares
   Price Per Share
2002   182,830   $.9375—$2.250
2003   98,332   $.9375—$1.875

    The following table summarizes information about stock options outstanding at February 28, 2001:

 
    
   Options Outstanding
   Options Exercisable
Range of
Exercise Prices
   Number
Outstanding
   Weighted
Average
Remaining
Contractual Life
(Years)
   Weighted
Average
Exercise Price
   Number
Exercisable
   Weighted
Average
Exercise Price
 .9375—2.625   911,500   2.6   1.71   630,338   1.76
2.75  —3.125   701,450   6.2   2.75   701,450   2.75
4.25  —6.250   225,500   5.3   4.64   225,500   4.64
   
         
   
    1,838,450           1,557,288    
   
         
   

    In January 1998, the Company's Board of Directors repriced options covering 956,703 shares, representing all of the qualified outstanding options with exercise prices ranging from $5.33 to $23.38, to an exercise price of $2.75 per share. The vesting terms of these options remained unchanged.

    When stock options are exercised, the par value of the shares issued is credited to common stock and the excess proceeds over par value are credited to additional paid-in capital. Under certain circumstances, when shares acquired through these options are sold, income tax benefits may be realized by the Company and are recorded as additional paid-in capital.

    In May 1989, the Board of Directors adopted a resolution providing for accelerated vesting of outstanding options in the event of defined changes in control of the Company. The resolution provided that all outstanding incentive and nonqualified options granted under the Plans and all nonqualified stock options granted to consultants of the Company outside the Plans shall become fully exercisable upon the occurrence of such a change.

Pro Forma Information

    The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Accordingly, since options have been issued with exercise prices at or above market value of the Company's stock, no compensation expense has been recognized for the stock option plans. Had compensation expense for the Company's stock options been determined based on the fair value at the grant date for awards in

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2001, 2000 and 1999 consistent with the provisions of SFAS 123, the Company's net (loss) income and the net (loss) income per share would be the pro forma amounts reflected in the following table:

 
   2001
   2000
   1999
  
Net (loss) income—as reported   $ (1,592,730 ) $ 17,505   $ (5,845,104 )
Net (loss)—pro forma   $ (1,959,354     (414,965 )   (6,515,977 )
Net (loss) income per share—as reported:                    
  Basic   $ (.27 ) $ .00   $ (1.01 )
  Diluted   $ (.27 ) $ .00   $ (1.01 )
Net (loss) per share—pro forma:                    
  Basic   $ (.33 ) $ (.07 ) $ (1.12 )
  Diluted   $ (.33 ) $ (.07 ) $ (1.12 )

    The above pro forma effects on net (loss) income and net (loss) income per share are not likely to be representative of the effects on reported net income for future years because options vest over several years and additional awards generally are made each year.

    The fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2001, 2000 and 1999:

 
   2001
   2000
   1999
  
Expected dividend yield   —   —   —  
Expected stock price volatility   56.2 % 54.4 % 54.1 %
Risk-free interest rate   5.0 % 6.4 % 6.4 %
Expected life of options (years)   5.0   3.0   3.0  

Preferred Stock Purchase Rights

    In February 1996, the Board of Directors declared a dividend of one preferred stock purchase right for each outstanding share of Company common stock, which rights expire on March 14, 2006. The rights are transferable with common stock. Each right entitles the holder to purchase one one-hundredth of a share of Series A preferred stock at a price of $55, subject to adjustment. The rights are not exercisable until ten days after the public announcement that a person or group of persons has acquired a beneficial interest of at least 15% of the Company's outstanding common stock or the commencement or announcement of an intention by a person or group to make a tender or exchange offer whose consummation would result in the beneficial ownership of at least 15% of the Company's outstanding common stock. Each right would entitle the rightholder to receive shares of common stock of the acquiring company upon merger or other business combination having a market value of twice the exercise price of the right or, upon exercise, that number of shares of preferred stock having a market value of twice the exercise price of the right. Preferred stock purchasable upon exercise of the rights will be entitled to certain voting privileges, minimum preferential quarterly dividends, an aggregate dividend in relation to dividends declared on common stock, and minimum preferential liquidation payments. The rights have no voting privileges and may be redeemed by the Board of Directors at a price of $.01 per right at any time before they become exercisable.

8.  License Agreements

    The Company has entered into agreements with certain well-known celebrities to endorse the Company's products. The agreements, among other things, require the Company to make certain guaranteed payments, which have been recorded at their present value as both assets (license agreements) and liabilities (obligations under license agreements), and royalty payments based on

F–14

percentages of sales for certain products. The Company is only liable to make sales royalty payments for the amount that sales royalties exceed the guaranteed payments each year. Total royalties and amortization of license agreements were $340,964, $355,103 and $415,934 during fiscal years 2001, 2000 and 1999, respectively. In March 1997, the main license agreement was extended through 2004. The extension of the agreement does not require any guaranteed payments in aggregate above those required under the original agreement.

9.  Employee Benefit Plan

    The Company has a 401(k) Employee Benefit Plan for qualified employees. Company contributions to the plan are determined annually at the discretion of the Board of Directors. The Company's contributions to the plan were $165,000, $160,000 and $156,000 for fiscal years 2001, 2000 and 1999, respectively.

10. Land and Deferred Revenue

    In order to induce the Company to relocate its operation facility, the city of Anoka, Minnesota, gave the Company land in an industrial park with an approximate fair market value of $600,000. The gift was conditional upon the Company staying in the new building through December 31, 1999. The land and corresponding amount of deferred revenue have been recorded at $600,000, the estimated fair market value of the land. The $600,000 of deferred revenue is being recognized as a reduction of depreciation over the life of the building, 39 years.

11. Legal Matters

    The Company is a defendant in various suits, claims and investigations that arise in the normal course of business. In the opinion of the Company's management, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position, liquidity or results of operations of the Company.

12. Additional Cash Flow Information

 
   Year ended
 
   February 28,
2001
   February 29,
2000
   February 28,
1999
Supplemental disclosures of cash flow information:                  
  Cash payments for:                  
    Interest   $ 962,869   $ 913,799   $ 1,087,447
    Income taxes     23,955     16,409     9,200
  Non-cash:                  
    License agreement     —     —     262,760

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SCHEDULE II

FIRST TEAM SPORTS, INC.

RESERVE ACCOUNTS

Years Ended February 28, 2001, February 29, 2000 and February 28, 1999

 
   Balance at
Beginning
Of Year
   Additions
Charged to
Expenses
   Deductions*
   Balance at
End of Year
1999 allowance for doubtful accounts   $ 665,503   $ 486,475   $ 509,751   $ 642,227
2000 allowance for doubtful accounts     642,227     266,251     143,693     764,785
2001 allowance for doubtful accounts     764,785     430,067     246,544     948,308
(*)
Uncollectible accounts written off, net of recoveries.

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

EXHIBIT INDEX TO FORM 10-K

For the fiscal year ended:         Commission File No.: 000 -16422

February 28, 2001

FIRST TEAM SPORTS, INC.

Exhibit Number
   Description
 3.1   Articles of Incorporation, as amended—incorporated by reference to Exhibit 3.1 to the Company's Annual Report Form 10-K for the year ended February 28, 1997
 3.2   Bylaws—incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-18 Reg. No. 33-16345C
 4.1   Specimen of Common Stock Certificate—incorporated by reference to 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended February 28, 1991
 4.2   Certificate of Designations of Series A Preferred Stock (included in Restated Articles of Incorporation—see Exhibit 3.1)
 4.3   Rights Agreement dated as of March 15, 1996 between the Company and Norwest Bank Minnesota, N.A. as Rights Agent—incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form 8-A, Reg. No. 0-16422
 4.4   Form of Right Certificate—incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form 8-A, Reg. No. 0-16422
 4.5   Summary of Rights to Purchase Share of Series A Preferred Stock—incorporated by reference to Exhibit 2.3 to the Company's Registration Statement of Form 8-A, Reg. No. 0-16422
10.1   The Company's 1987 Stock Option, as amended by resolutions dated May 25, 1989—incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended February 28, 1997**
10.2   Amendment dated April 22, 1992 to the Company's 1987 Stock Option Plan—incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended February 29, 1992**
10.3   Form of Incentive Stock Option Agreement under 1987 Stock Option Plan—incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-18, Reg. No. 33-16345C**
10.4   Form of Nonqualified Stock Option Agreement under 1987 Stock Option Plan—incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-18, Reg. No. 33-16345C**
10.5   License Agreement between the Company, Wayne Gretzky and Janet Jones Gretzky dated as of December 1, 1994—incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended February 28, 1995

E–1

10.6   Amendment dated March 1, 1997 to License Agreement between the Company, Wayne Gretzky and Janet Jones Gretzky dated December 1, 1994—incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended February 28, 1997
10.7   License Agreement between the Company and Creative Sports Concepts, Inc. dated as of October 31, 1994—incorporated by reference to Exhibit 10.11 to the Company's Annual Report Form 10-K for the year ended February 28, 1995
10.8   Company Bonus Plan for certain executive officers of the Company for fiscal 2001—incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000**
10.9   The Company's 1990 Nonqualified Stock Option Plan, as amended by resolutions dated May 25, 1989—incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended February 28, 1991**
10.10   The Company's 1993 Employee Stock Purchase Plan—incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended February 28, 1993**
10.11   Employment Agreement dated January 23, 1996 between the Company and John J. Egart—incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended February 29, 1996**
10.12   Employment Agreement dated January 23, 1996 between the Company and David G. Soderquist—incorporated by reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended February 29, 1996**
10.13   1994 Stock Option and Incentive Compensation Plan, as amended through May 27, 1998—incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1998**
10.14   Employment Agreement dated August 18, 1997 between the Company and Kent Brunner—incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1997**
10.15   Amendment dated January 1, 1998 to Employment Agreement dated January 23, 1996 between the Company and John J. Egart—incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999**
10.16   Amendment dated January 1, 1998 to Employment Agreement dated January 23, 1996 between the Company and David G. Soderquist—incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999**
10.17   Amendment dated December 1, 1998 to employment agreement dated August 18, 1997 between the Company and Kent Brunner—incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999**
10.18   $8.5 million Revolving Note Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.19   $1.5 million Revolving Note Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000

E–2

10.20   $4.5 million Revolving Term Note Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.21   Credit and Security Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.22   Mortgage and Security Agreement dated September 8, 1999 between the Company and Norwest Bank Minnesota, N.A.—incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended February 29, 2000
10.23*   Employment Agreement dated July 12, 2000 between the Company and Richard Jackson**
10.24*   Employment Agreement dated January 10, 2001 between the Company and Thomas W. Schultz**
10.25*   First Amendment to Credit and Security Agreement, effective July 31, 2000 between the Company and Wells Fargo Bank Minnesota, N. A., formerly known as Norwest Bank Minnesota, N. A.
21*   List of Subsidiaries
23.1*   Consent of Ernst & Young LLP
24*   Power of Attorney (included in signature page on this Form 10-K)
*
Filed herewith

**
Management contract or compensatory plan or arrangement.

E–3



QuickLinks

PART I
EXECUTIVE OFFICERS OF THE COMPANY
PART II
PART III
PART IV
SIGNATURES
Report of Independent Auditors
First Team Sports, Inc. Consolidated Balance Sheets
First Team Sports, Inc. Consolidated Statements of Operations
First Team Sports, Inc. Consolidated Statement of Shareholders' Equity
First Team Sports, Inc. Consolidated Statements of Cash Flows
First Team Sports, Inc. Notes to Consolidated Financial Statements
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBIT INDEX TO FORM 10-K