SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM 10SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
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Bullhide Corporation
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(Exact name of Registrant as specified in its charter)
Washington 91-1605108
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
10 Fairway Drive, Suite 211
Deerfield Beach, Florida 33441
- ---------------------------------------- --------
(Address of Principal Executive Officer) Zip Code
(954) 571-2400
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Registrant's Telephone Number and Area Code
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
TO BE REGISTERED ON WHICH EACH CLASS IS TO
------------------- BE REGISTERED
-------------------------
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, .002 par value per share
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(Title of Class)
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TABLE OF CONTENTS
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ITEM 1. DESCRIPTION OF BUSINESS........................................ 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.................. 9
ITEM 3. DESCRIPTION OF PROPERTIES...................................... 16
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................................... 16
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS.................................. 17
ITEM 6. EXECUTIVE COMPENSATION......................................... 18
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................................... 19
ITEM 8. DESCRIPTION OF SECURITIES TO BE REGISTERED..................... 20
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................... 22
ITEM 2. LEGAL PROCEEDINGS.............................................. 22
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS.................................................... 23
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................ 23
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...................... 24
FINANCIAL STATEMENTS AND EXHIBITS.............................. 25
PART III
ITEM 1. INDEX TO EXHIBITS.............................................. 25
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ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Bullhide was established in 1993 to take advantage of the multiple uses
and markets for a patent pending high performance polyurethane material with
superior protective coating properties. Bullhide(R) products protect metal,
wood, fiberglass and concrete from wear and deterioration. The target markets
for the Bullhide products are the pickup truck protective bedliner market and
the industrial flooring market.
Bullhide has established a licensed dealership program. Under its
dealership program, dealers buy Bullhide's equipment and marketing materials as
a system and do not pay a franchise fee. As of January 14, 1999, Bullhide had 54
dealerships, 5 master distributors and 2 franchises in 25 states and 2
countries. Bullhide also has a prototype store in Spokane, Washington where it
conducts many proprietary training classes for its dealers.
HISTORY
In 1990, Ronald Grossman started the PolyChem Corporation, a Washington
corporation, ("PolyChem") to research and develop new polyurethane technology.
Mr. Grossman discovered a method of making high performance polyurethane
elastomers out of a unique combination of materials so that the material was
affordable to many previously untapped markets. Elastomers are synthetic
materials made with elasticity so that they can expand and contract without
losing their essential properties. As Mr. Grossman looked for applications for
this new technology, the automotive/truck accessory industry expressed a need
for the "next generation" pickup truck bedliner to improve on the shortcomings
of drop-in liners.
In January 1992, a prototype shop was established in Spokane,
Washington to enable the development and refinement of the product, application
equipment and marketing methods. On April 2, 1993, Bullhide was incorporated in
the state of Washington as "The Bullhide Corporation" and changed its name to
"The Bullhide Liner Corporation" on June 8, 1994. Subsequently, on July 6 1999,
Bullhide changed its name to "Bullhide Corporation." After the initial success
of marketing the spray molded bedliner concept locally, it was decided to expand
the concept and the business nationally.
Bullhide initially granted franchises for spray on liner application
shops, but discontinued that practice in July 1996 and now sells dealerships
under licensing agreements. In addition to individual dealerships, Bullhide has
recently switched its marketing emphasis to sales of master distributorships.
Under a master distributorship agreement, the master distributor obtains the
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exclusive right to open a specified number of stores within a specified
geographic area. As a result, Bullhide is able to obtain a greater return on the
costs associated with expanding its dealer network.
During its initial four years of operations from April 1993 until June
1997, Bullhide purchased all of its products under an exclusive arrangement with
PolyChem. However, on June 30, 1997, Bullhide obtained an exclusive license from
PolyChem for the use of the technology and production of the materials used in
the pickup bed liner process. Under the terms of the license agreement, Bullhide
will pay PolyChem a royalty based on five percent of total gross revenues of
Bullhide up to a maximum of $200,000. See "Certain Relationships and Related
Transactions."
In October 1998, Bullhide created the QUARRA(R) Coating Division to
market industrial applications of its polyurethane based coatings. Three new
products designed specifically to meet industrial user demand will be marketed
under the registered trademark QUARRA(R).
OPERATIONS AND PRODUCTS
Bullhide has established a licensed dealership program to distribute
its products and services. Under its licensed dealership program, dealers buy
Bullhide's equipment and marketing materials as a system and do not pay a
franchise fee. As of January 14, 2000, Bullhide had 54 dealerships, 5 master
distributors and 2 franchises in 25 states and 2 countries. Bullhide also has a
prototype store in Spokane, Washington where it conducts many proprietary
training classes for its dealers.
In the summer of 1999, Bullhide began selling master distributorship
agreements to master distributors, who have agreed to develop multiple outlets
for Bullhide's products within a specified geographic area. Bullhide began to
emphasize selling master distributorship agreements because it allows for a
greater return on the costs associated with expanding Bullhide's dealer network.
As of January 14, 2000, Bullhide had sold 5 master distributorship agreements.
In June 1999, Bullhide announced that it had signed Performance
Surfacing, Inc, as its sixth master distributor. According to the contract's
ramp-up schedule, Bullhide's management estimates that Performance Surfacing
will add $180,000 in revenue within the first year and approximately $800,000 in
annual revenue once all the locations are fully operational. These projections
are based upon the requirement that Performance Surfacing open a minimum of
eight stores by December 15, 2002, and upon what Bullhide believes are
reasonable projections of sales from these stores as they become fully
operational.
On July 7, 1999, Bullhide issued a press release announcing that it had
signed New England Polycote, as its seventh master distributor. In the July 7,
1999 press release, Bullhide stated that approximately $360,000 in annual
revenues were expected from New England
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Polycote, once all locations were fully operational. This expectation is based
upon the requirement under the agreement that New England Polycote open a
minimum of seven stores by September 15, 2002, and upon what Bullhide believes
are reasonable projections of sales from those stores as they become fully
operational.
Bullhide offers its licensees, master distributors and customers a
turn-key operation that is complete with superior products and application
processes, full training and support, and on-going research and development.
Bullhide markets its licensed dealership program and multi-area
development agreements predominately through advertising and participation in
trade shows. See "Business - Markets and Customers." The specific industries and
markets served by Bullhide are primarily determined by the industries and
markets in which its dealers and master distributors have expertise. Bullhide's
's primary markets are the pickup truck bedliner market, the flooring market and
the original equipment manufacturer ("OEM"). The OEM market includes
manufacturers or prefabricated staircase covers, manufacturers of trailers for
animal transport and metal boat manufacturers.
When a dealer is signed, it must attend a week of training at the
corporate training center, or designated training facility, and purchase certain
equipment and materials from Bullhide. Bullhide's marketing material has been
designed to be a turn-key program for each new licensed dealership. It includes
point-of-purchase displays, finished product samples, color brochures,
nationally-syndicated advertising jingles and other commercially produced
advertising materials for print, radio and TV media. Although offered,
Bullhide's dealers are not required to purchase these marketing materials.
Bullhide developed and conducts its own proprietary training classes
for its dealers, which are designed to enable each shop crew to learn the many
aspects of running its business. The program provides hands-on experience in the
areas of: masking and preparation, spray molding, machine maintenance,
marketing, advertising, shop location, shop layout and design and office support
systems. Advanced training is available for licensees interested in going mobile
or expanding to other applications of the Bullhide(R) family of products.
Advanced training involves learning the basic elements of estimating and
contracting, as well as the legal aspects of getting bonded and complying with
the regulations involved in a particular state, county or city.
The key people within Bullhide have years of experience handling
situations that their licensees and dealers may encounter. Answers to most
operating questions are routinely provided over the phone. Specific product
recommendations for an unusual job can be dealt with quickly by experienced
personnel. More in-depth questions about the equipment or the material can be
referred to in-house equipment engineering and product development departments.
Technical bulletins are sent regularly to all dealers concerning new
product applications,
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equipment developments, production techniques and unique marketing ideas.
PRODUCTS AND MANUFACTURING
Products
The Bullhide(R) system consists of a patent pending proprietary
polyurethane material and certain technologies for the manufacturing and
application of the product. Bullhide's primary products are Bullhide 2000 and
QUARRA 2000.
Bullhide 2000 is the primary product used in the Bullhide(R) system. It
is a two-component fast reacting polyurethane elastomer that is 100% solid,
surpassing all other known 100% solid linings in the "combined toughness index
(PSI tensile strength and elongation). The product is (i) resistant to water,
fuels, oils and most chemicals, (ii) available in a variety of colors, (iii)
available with either a smooth or non-slip surface, (iii) permanently flexible
to -40F, (iv) adheres to virtually anything and (v) retains toughness up to
+250F. Other products include Bullhide 1500 and certain primers used to prepare
the surface for the Bullhide(R) product.
QUARRA 2000 is the primary product in the QUARRA(R) product line, which
markets industrial formulations of the well-established bed liner products.
QUARRA 2000 is a rubbery tough coating (up to 1/4") with extreme abrasion and
impact resistance, stretchability and non- slip properties. Applications include
parking decks, warehouse floors, shipping docks, rail ore cars, secondary
chemical and waste water containment and waterproofing. Other products in the
QUARRA(R) line include QUARRA 1500 and QUARRA 2400.
The heart and the brains of the Bullhide(R) system is the Spray Master
3030. This is a plural component, high volume low pressure spray molding
machine. The electronically controlled metering system assures a perfectly
"on-ratio" application every time. In conjunction with the new Quarra(R)
products, Bullhide developed a high output application machine to shorten the
industrial job times. The Spraymaster 3050 is a high-output application machine
with four times the output of the 3030 machine and the capacity to coat 10,000
square feet per day of QUARRA coatings.
Manufacturing and Raw Materials
The manufacturing of the products is carried out by utilizing strict
secrecy and non- disclosure, non-compete agreements with a select number of
manufacturers. The manufacturers are involved in producing and marketing other
polyurethane products, such as polyurethane foam, not in competition with the
end use markets of Bullhide's customers. Multiple manufacturers give Bullhide
production capability in various locations and also serve to keep transportation
costs as low as possible
The primary raw materials used in the manufacture of Bullhide's
products are Polyol,
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which is a resin, and Diisocyanate, which is a hardening agent. When combined,
these materials form polyurethanes. The raw materials required by Bullhide are
obtained from regular commercial sources of supply and, in most cases, multiple
sources. The capacity, supply and demand for raw materials are subject to
cyclical and other market factors. Under normal conditions, there is no
difficulty in obtaining requirements at competitive prices. In addition, no
shortages have been experienced by Bullhide in obtaining its required raw
materials.
PROPRIETARY RIGHTS
Bullhide and PolyChem have registered their Bullhide(R) and QUARRA(R)
trademarks, respectively, with the United States Patent and Trademark Office. In
addition, Bullhide has applied for a patent on its application process.
MARKET AND CUSTOMERS
Bullhide markets its licensed dealership program, master
distributorship agreements and products and services primarily through
advertising and participation in trade shows. Bullhide attends national trade
shows for (1) the general automotive after parts market and (2) the industrial
coating market. Bullhide encourages its dealers and master distributors to
attend local trade shows in these areas. Advertising and attendance at trade
shows serve two purposes. One, Bullhide is looking for persons who wish to buy
its dealership and master distributorship programs. Two, through advertising and
attendance at trade shows, Bullhide products and services achieve greater
visibility.
The specific industries and markets served by Bullhide are primarily
determined by the industries and markets in which its dealers and master
distributors have expertise, including the following.
Pickup Truck Bedliner Market
One of Bullhide's primary target markets is the pickup truck protective
bedliner market. Accordingly to Automotive Week, more than 3 million pickup
trucks were sold in the U.S. in 1997. The market has been growing at an average
of 10% a year since 1991 and estimates indicate that there are an additional 11
million trucks on the U.S. highways today that are less than five years old.
Since initializing its development in 1992, Bullhide has installed more than
4,000 liners in pickup trucks.
The primary wholesale customers for Bullhide's pick-up bed liners are
the pickup truck/auto dealers. The auto-truck dealers sell the liner as part of
the accessory package at the point of sale of the truck, and can thereby include
it as part of the financing package. It is then installed by the local Bullhide
shop. Bullhide has developed a sales video which is utilized as part of a point
of purchase display. The display contains a photo album, product samples and
brochures as well as a video. Other wholesale customers include leasing
companies that supply
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the leasing needs of large fleet customers and local accessory installers.
Potential fleet customers include government, businesses with delivery services
such as soft drink distributors, construction companies, and lawn care services.
Flooring Market
In January 1999, Bullhide announced that it had established a firm
marketing plan for its QUARRA 2000 products which are primarily sold in the
commercial and industrial flooring markets. The potential market is large, being
in the tens of millions of square feet. Applications include warehouse floors,
shipping docks, secondary chemical and waste water containment as well as
waterproofing and more.
Examples of some of the industrial applications are as follows. In
January 1999, one of Bullhide's distributors in Florida completed the spraying
of a beverage cooler room at Pro Player Stadium in preparation for Super Bowl
XXXIII. Bullhide's QUARRA 2000 was sprayed onto the steel floor and walls of the
room creating a containment barrier which eliminated the problem of liquid
leaking through the floor and onto the seats in the Club Level of the stadium.
The flooring also provided some "give" so that the 160 pound kegs no longer
buckled the floor when dropped.
The City of Spokane, Washington approved the use of Bullhide's Quarra
2000 on pedestrian sidewalks. The approval was based on the anti-skid properties
and positive test results over a 3,800 square foot test area. This was followed
by a recent government coefficient of Friction Test which was performed
according to ASTM (American Standard Testing Method) D 1894. The results show
that Bullhide's QUARRA 2000 meets and exceeds these specifications in both the
static and kinetic state, as well as wet and dry conditions. Through the
American with Disabilities Act, the government stated that flooring materials
with a coefficient of Friction measurement above .60 meet the requirements of
"non-slip" flooring. Bullhide's Quarra 2000 grades out in the mid .90's and
above.
Original Equipment Manufacturers
OEM or Original Equipment Manufacturers, represent a unique market
separate from the bedliner market. At least three potential markets for OEM
applications are manufacturers of prefabricated staircase covers, manufacturers
of trailers for animal transport and metal boat manufacturers.
Manufacturers of Prefabricated Staircase Covers. Bullhide is currently
being used by Mountain States Home Improvement, Inc., a manufacturer who
produces Tread-Ex(TM) , a prefabricated staircase cover, designed as a low cost,
permanent solution to concrete and wood stairs that are worn and in disrepair.
Tread Ex(TM) , which consists of a steel base formed to match existing stairs
and landings covered with Bullhide 2000, is applied to existing stairs in
multi-family housing condominiums and apartment complexes.
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Horse Trailer and Other Trailer Manufacturers. Bullhide's market
research shows that the best way to achieve penetration into this market is by
selling the Bullhide(R) system directly to those trailer manufacturers or their
largest distributors. There are over 120 trailer manufacturers, excluding
semi-truck trailers, in the United States. As in many industries, the top 20
manufacturers control about 80% of the market.
Cargo trailers and horse trailers can be protected with Bullhide both
inside and out. Bullhide's rock guard protection shields the outside of the
horse trailers while giving anti-slip coating protection to the wheel covers and
fenders. Bullhide has also been used on the trailers' floors to give horses and
livestock padding which prevents injuries during transport. Bullhide has
demonstrated this application in more than 50 trailers. On the inside, the floor
can be totally sealed, so that it is easier to keep clean.
Boat Manufacturers. Bullhide's market research shows that there are
about 55 metal boat manufacturers in the United States. Bullhide(R) has
tremendous adhesion to aluminum. It functions as a sound deadener as well as an
easily cleanable, anti-slip covering. Since it is decorative as well as
functional, Bullhide can be installed on the deck, floor and interior of boats.
Bullhide has successfully installed in excess of 30 linings on aluminum boats.
BUSINESS ACTIVITIES AND REVISED PROJECTIONS
In December 1998, Bullhide entered into a one year License Agreement
with Sears, Roebuck and Co. Pursuant to the License Agreement, the two companies
had agreed to a two store test in the Orlando area in which Bullhide would make
use of two vacant automotive bays in each store. As a licensee of Sears,
Bullhide had intended to install Bullhide spray on bed liners and/or accessories
in truck beds, campers, trailers, and boat decks. Based on its contract with
Sears, Bullhide made certain statements on its web site that it intended to
establish over 800 installation centers over the next five years. Bullhide had
also predicted that its total sales in year five would approach $64 million,
generating $12 million in net income and that it would sell over 960 Spray
master machines over the next five years. However, in August 1999, when both
parties realized that they would not be able to perform their obligations under
the Licensing Agreement, Bullhide realized that it must revise its projections.
On January 26, 2000, Bullhide issued a press release informing the market that
the License Agreement with Sears was terminated and that the projected revenue
and income from the Agreement would not be achieved. See the Press Release
attached as Exhibit 99.1.
In June 1999, Bullhide entered into negotiations with Scorpion Truck
Bedlinings, Inc. Scorpion has a low-cost spray on truck bedliner system, which
it markets primarily to auto body and collision repair systems. Scorpion also a
network of 300 dealers in 17 countries. Bullhide had hoped that it could add
Scorpion's low cost spray-on truck bedliner system to its product line and
benefit from Scorpion's network of dealers. In its June 22, 1999 press release,
Bulhide had stated that the Scorpion acquisition could increase Bullhide's
revenues 100% to almost $5,000,0000. However, after completing its due diligence
investigation of Scorpion, Bullhide
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determined that the profitability of an acquisition with Scorpion would not be
as expected. Therefore, Bullhide has not proceeded any further with these
negotiations. On January 26, 2000, Bullhide issued a press release informing the
market that its negotiations with Scorpion had been terminated and that it did
not intend to proceed with this acquisition. See the Press Release attached as
Exhibit 99.1.
In June 1999, Bullhide issued a press release pertaining to Mountain
States Home Improvement, Inc., one of its original equipment manufacturers.
Mountain States produces Tread-Ex, a prefabricated staircase cover, designed as
a low cost permanent solution to concrete and wood stairs that are worn and in
disrepair. In June 1999, Mountain States completed a contract to cover
approximately 1,000 stairs, treads, risers and landings at a condominium complex
in Denver, Colorado. With approximately 50 signed contracts in hand, each
averaging 500-600 steps and $22,000 in revenue, Mountain States anticipated that
it would purchase at least $4,200 worth of Bullhide products per day. Based on
these representations from Mountain States, Bullhide estimated that Mountain
States purchases would generate revenues of approximately $1,500,000 and stated
such in a press release dated June 15, 1999. However, Mountain States has not
been making purchases in these quantities and Bullhide wishes to revise the
estimates contained in its June 15, 1999 press release. In a press release
issued on January 26, 2000, Bullhide informed the market that it Mountain States
had not been making purchases in the quantities predicted and that Bulhide is
unable, at this time, to predict or forecast the revenues from its relationship
with Mountain States. See the Press Release attached as Exhibit 99.1.
COMPETITION
Competition in the spray on truck bedliner market is highly
concentrated among a small number of suppliers. Management believes that there
are four primary competitors - Rhino Linings, Linex, Perma-Tech and Arma
Coating. The rest of the market is fragmented among several start-up companies,
who in the opinion of management, have either an inferior product, application
equipment and/or technique. All spray application competitors combined have
captured no more than 10% of the new truck market and 5% of the used truck
market. Management does not believe that there are direct competitors for
industrial uses of its product. Although, there are epoxy paint manufacturers
and other coating manufacturers, these do not compete directly with the use of
Bullhide as an industrial product.
EMPLOYEES
As of November 24,1999, Bullhide had approximately five (5) full-time
personnel and one (1) part-time employee. Of the full-time personnel, there are
two in management, one in research and development, one in sales and one in
purchasing/shipping. The part-time employee is in technical assistance and
training.
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ENVIRONMENTAL REGULATION
Bullhide's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of
certain materials, substances and wastes. To Bullhide's knowledge, Bullhide's
operations are in substantial compliance with the terms of all applicable
environmental laws and regulations as currently interpreted. In addition to
Bullhide's knowledge, there are no existing or potential environmental claims
against Bullhide, nor has Bullhide received any notification or knowledge of any
allegation of any actual, or potential responsibility for, or for any inquiry or
investigation regarding, any disposal, release, or threatened release at any
location of any hazardous substances generated or transported by Bullhide.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following analysis of Bullhide's results of operation and financial
condition should be read in conjunction with Bullhide's financial statements and
notes thereto included elsewhere in this Form 10-SB.
Results of Operations
Six Months ended September 30, 1999 ("first six months of 1999") compared with
Six months ended September 30, 1998 ("first six months of 1998")
Total revenues were $794,692 in the first six months of 1999 compared
with $1,037,021 in the first six months of 1998, a decrease of 23.4%. This
decrease in revenue is attributable to two factors: less equipment sales to new
dealers, $155,061 in 1999 compared to $435,956 in 1998, and sale of the Company
owned shop in Spokane, Washington on May 1, 1999, when the Company moved its
corporate office from Spokane to South Florida. Sales from application of
product in the Company owned shop were $136,333 for the six months ended
September 30, 1998 and $11,891 for the six months ended September 30, 1999,
which consisted of one month of activity. However, revenue from chemical sales
to dealers was $459,251 for the six months ended September 30, 1999 compared to
$385,451 for the same period in 1998. Revenue from sales of master dealerships
was $162,899 for the six months ended September 30, 1999 and $45,000 for the
same period in 1998. Management expects the trend of increased chemical sales
and sales of master dealership to continue as the dealer base gets larger and
the master dealership program continues.
Costs of sales was $474,201 in the first six months of 1999 compared
with $803,417 in the first six months of 1998, 59.7% and 77.5% of sales,
respectively. This decrease in cost of sales is due to the decreased application
of Bullhide's products by the Company owned shop during the first six months of
1999, more efficient operations and more advantageous chemical pricing from a
new supplier. Gross profit as a percentage of sales increased from 22.5% in the
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first six months of 1998 to 40.3% in the first six months of 1999.
General and administrative expenses were $474,813 in the first six
months of 1999 compared with $669,108 in the first six months of 1998, a
decrease of 29.0%. All general and administrative line item expenses decreased,
except legal and professional fees and bad debt expense. Legal and professional
fees increased from $26,469 in the first six months of 1998 to $58,026 in the
first six months of 1999 as a result of legal and accounting fees incurred in
connection with the preparation and filing of a Form 10SB with the Securities
and Exchange Commission, and outsourcing of bookkeeping and accounting tasks
which were performed by employees during 1998. Management decided to increase
the allowance for bad debts by $15,000 in the second quarter of 1999, while no
allowance was deemed necessary in the first six months of 1998. All other
expenses decreased as a result of a reorganization of Bullhide's operating
structure, including moving its corporate headquarters from Spokane, Washington
to South Florida in May 1999.
Thus, Bullhide's loss from operations was $154,322 in the first six
months of 1999 compared with a loss of $435,504 in the first six months of 1998.
Other income and expenses in the first six months of 1999 consisted of a $7,312
gain on the sale of certain assets from the Bullhide shop in Spokane and a
$47,681 loss on the abandonment of the Spokane facility.
As a result of the foregoing, Bullhide's net loss in the first six
months of 1999 was $201,555 compared with a net loss of $437,930 in the first
six months of 1998.
Fiscal Year ended March 31, 1999 ("fiscal 1999") Compared to Fiscal Year Ended
March 31, 1998 ("fiscal 1998")
Total revenues were $1,686,702 in fiscal 1999 compared with $656,471 in
fiscal 1998, an increase of 157%. This increase in revenue is attributable to
increased sales of Bullhide's products to an increased number of dealers, 55 at
March 31, 1999 versus 25 at March 31, 1998. The Company's sale of its QUARRA
product line accounted for only a small portion of the increase in revenues.
Cost of sales was $1,237,756 in fiscal 1999 compared to $427,954, an
increase of 189%. This increase is primarily attributable to the increased sales
and the costs involved in signing up new dealers. Gross profit as a percentage
of sales decreased to 28.9% in fiscal 1999 from 34.8% in fiscal 1998.
General and administrative expenses were $1,400,857 in fiscal 1999
compared to $779,099 in fiscal 1998. Operating expenses consisted mainly of
payroll, advertising, professional fees and royalty payments. The royalty
payments are those due to PolyChem for the purchase of technology rights.
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Thus, Bullhide's loss from operations was $951,911 in fiscal 1999
compared with $546,082 in fiscal 1998. Other income in fiscal 1999 consisted of
a $5,000 gain on disposal of certain assets. Other expenses in fiscal 1999
consisted of interest expenses of $30,822.
As a result of the foregoing, Bullhide's net loss in fiscal 1999 was
$977,643 compared with $653,361 in fiscal 1998.
Liquidity and Capital Resources
Bullhide has financed it working capital requirements primarily with
sales of its common stock and by receiving loans from officers, directors and
shareholders. Bullhide had negative working capital of $615,159 at March 31,
1999, compared to negative working capital of $203,232 at March 31, 1998.
Bullhide's working capital deficit increased greatly during fiscal 1999 as a
result of a significant increase in the above-mentioned loans, payroll taxes and
payables and accrued stock compensation due to officers, directors and
shareholders.
During fiscal 1999 and 1998, Bullhide raised approximately $1,000,000
of net proceeds in private offerings. Bullhide has also received financing in
the form of loans from Ronald Grossman, Bullhide's founder, in the amount of
$285,989 in fiscal 1999 and $373,600 in fiscal 1998.
Net cash used in operating activities increased from $610,033 in fiscal
1998 to $762,743 in fiscal 1999. This increase was primarily due to increased
losses and rapid growth. Net cash used in investing activities decreased from
$27,477 in fiscal 1998 to $7,269 in fiscal 1999. In fiscal 1998, Bullhide
repurchased a franchise for $10,000 and purchased securities for $5,000. Net
cash provided by financing activities increased from $643,359 in fiscal 1998 to
$765,282 in fiscal 1999.
As of September 30, 1999, Bullhide had cash on hand of $4,610 and a
working capital deficit of $224,154. Net cash used in operating activities
during the first six months of 1999 was $342,857. Net cash used by investing
activities during the first six months of 1999 was $9,460, which resulted from
Bullhide's payment of $15,930 of checks in excess of its bank balance offset by
proceeds of $6,470 received from the sale of property and equipment. Net cash
provided from financing activities during the first six months of 1999 was
$354,052, of which $348,831 came from the sale of common stock and $7,253 from
the borrowings on long term debt.
Although Bullhide has relied on the sale of common stock to fund
operations, operating costs have been substantially decreased by moving the
corporate headquarters to South Florida. Current cost savings and additional
planned cost cuts during the third fiscal quarter are projected to bring
Bullhide to break-even, or a slightly profitable position, by the end of the
calendar year. Additional funds received from payment of the promissory note
received by Bullhide from a sale of stock should allow Bullhide to achieve some
growth in sales and accounts receivable. Bullhide is seeking additional capital
from private sources to resume its previous rapid growth
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plans. If capital from private sources is not available, Bullhide's growth will
be slowed down and it will not be able to implement its rapid growth plan.
Bullhide may cut certain expenses in the fourth quarter. However, even if
Bullhide is not able to obtain capital from private sources, management expects
that Bullhide will be profitable for the fiscal year ended March 31, 2000.
Going Concern Qualification
Bullhide's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. Bullhide reported
net operating losses of $977,643 and $653,361 in fiscal 1999 and fiscal 1998,
respectively. Bullhide has taken several actions to keep itself viable and in
existence as a going concern. On June 30, 1997, the original founders of
Bullhide converted their long term debt into common stock. Additionally, in June
1997, Bullhide hired W. Gordon Freeman, as executive vice president of sales and
marketing. Mr. Freeman's job was to hire and train a team of independent sale
representatives and develop a national marketing plan. On January 27, 1998, Mr.
Freeman was promoted to President and on October 14, 1998 to Chief Executive
Officer.
In July 1997, Bullhide completed a private placement of its common
stock, which resulted in the issuance of 10,000 units at $5.00 per unit.
Bullhide received its symbol to trade on the OTC Bulletin Board on December 17,
1997.
The expanded marketing efforts of Bullhide resulted in the signing of
55 dealers as of the year ended March 31, 1999, an increase of 30 from March 31,
1998. On July 1, 1999, Bullhide entered into a master distributor agreement with
Performance Surfacing, Inc. pursuant to which this distributor has agreed to
open eight Bullhide stores in the Chicago metropolitan area by December 15,
2002. On August 9, 1999, Bullhide entered into another master distributor
agreement with New England Polycote pursuant to which this distributor has
agreed to open seven Bullhide stores in Suffolk and Middlesex Counties,
Massachusetts by September 15, 2002. In addition, recent marketing efforts in
the industrial flooring and chemical containment markets have resulted in
positive sales. Generally, jobs in the flooring and chemical containment markets
are much larger than the truck bed liner market and may result in a higher sales
volume of Bullhide materials per order and per dealer.
In order to decrease its short term capital needs, during April 1999,
Bullhide began the process of restructuring its operations and administration by
moving its corporate office from Spokane, Washington to South Florida. A fifth
master distributorship, serving the Northwest region, has been established in
Spokane by Mr. Grossman, Bullhide's founder. This restructuring will save the
Company in excess of $250,000 in annualized costs. Additionally, on October 31,
1999 in order to save operating expenses, Mr. Freeman resigned from his position
as Chief Executive Officer of Bullhide. However, Mr. Freeman continues to be on
Bullhide's Board of Directors.
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<PAGE>
On April 1, 1999, Bullhide sold 2,000,000 shares of common stock to
Southern Financial Services, Inc., under Rule 504 of Regulation D in return for
a promissory note in the amount of $1,000,000. As of September 30, 1999,
Bullhide has received $348,832 in payments against that promissory note.
Bullhide is currently seeking additional capital from private sources.
Factors That May Affect Future Results and Market Price of Stock
Bullhide operates in a rapidly changing environment that involves
numerous risks, some of which are beyond Bullhide's control. The following
discussion highlights some of these risks.
History of Losses and Going Concern Qualification. Bullhide has
incurred substantial losses since its inception, and may continue to incur
substantial losses in the future. In particular, Bullhide incurred losses of
$154,322 in the first six months of fiscal 1999, $951,911 in fiscal 1999 and
$546,082 in fiscal 1998. The footnotes to our financial statements for the
fiscal 1999 and fiscal 1998, include an explanatory paragraph relating to the
uncertainty of Bullhide's ability to continue as a going concern. There is no
assurance that we will ever be profitable.
Need for Additional Capital to Execute Bullhide's Business Strategy.
Bullhide will need to raise additional funds for operations to execute its
business strategy. One of Bullhide's business strategies is to increase sales of
its master distributor agreements. There can be no assurances that any such
additional financing will be available to Bullhide on commercial reasonable
terms, or at all. In light of Bullhide's limited resources, its anticipated
expenses and the competitive environment in which it operates, any inability to
obtain additional financing, will slow down Bullhide's efforts to expand its
business. The sale of additional equity, convertible preferred securities or
convertible debt securities will result in additional dilution to Bullhide's
shareholders. If additional funds are raised through the issuance of debt
securities, these securities could have certain rights senior to holders of
Bullhide's common stock, and could contain covenants that restrict Bullhide's
operations.
No Assurances that Bullhide's Operations will ever be Profitable.
Bullhide's ability to become profitable largely depends on (1) its ability to
sell its master distribution agreements and dealerships, (2) the ability of its
distributors to sell Bullhide's products to end-users and (3) Bullhide's ability
to cut costs. However, there can be no assurances that Bullhide will be able to
identify persons who want to purchase master distribution and dealership
agreements and that Bullhide's distributors will be able sell Bullhide's
products to end-users. Moreover, there are no assurances that Bullhide will be
able to cut its operating expenses. The problems and expenses frequently
encountered in developing a business and the competitive industry in which
Bullhide operates will impact whether it is successful. Furthermore, Bullhide
may encounter substantial delays and unexpected expenses related to production,
marketing, regulatory matters or other unforeseen difficulties.
Competitive Environment in the Spray on Truck Bedliner Market and for
Industrial Uses of Bullhide's Products. Competition in the spray on truck
bedliner market is
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highly concentrated among a small number of suppliers. Management believes there
are four primary competitors - Rhino Linings, Linex, Perma-Tech and Arma
Coating. The rest of the market is fragmented among several start-up companies,
who in the opinion of management have either an inferior product, application
equipment and/or technique. All spray application competitors combined have
captured no more than 10% of the new truck market and 5% of the used truck
market. Bullhide's management does not believe that there are any direct
competitors for industrial uses of its products. However, there are not many
barriers to enter the spray-on- truck liner market or the industrial product
market. If new companies enter these markets and introduce new competitive
products, it can have a material adverse effect on Bullhide's gross revenues and
net income.
Concentration of Stock Ownership. Bullhide's present officers and
directors beneficially own approximately 57.1% of the outstanding common stock
and 100% of the Bullhide's issued and outstanding preferred stock. The common
stock and preferred stock have one vote on each matter. As a result, current
management will be substantially able to exercise significant influence over all
matters requiring shareholder approval, including the election of directors and
approval of significant corporate transactions.
Dependence on Key Management. Bullhide's success largely depends on a
number of key employees. The loss of services or one or more of these employees
could have a material adverse effect on Bullhide's business. Bullhide is
especially dependent upon the efforts and abilities of certain of its senior
management, particular Ronald Grossman, its Chairman and Chief Technology
Officer. The loss of Mr. Grossman or any of its key executives could have a
material adverse effect on Bullhide and its operations and prospects. Bullhide
has no key man insurance on Mr. Grossman. Bullhide believes that its future
success will also depend, in part, upon its ability to attract, retain and
motivate qualified personnel. There is no assurance, however, that Bullhide will
be successful in attracting and retaining such personnel. See "Management."
No Dividends. Bullhide expects that it will retain all available
earnings generated by our operations for the development and growth of our
business. Accordingly, Bullhide does not anticipated paying any cash dividends
on its common stock
Dilution. Bullhide's Articles of Incorporation authorizes the issuance
of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. As
of July 15, 1999, Bullhide has 10,612,051 shares of its common stock issued and
outstanding and 60,000 shares of preferred stock issued and outstanding.
Bullhide's Board has the ability, without further shareholder approval, to issue
up to 39,387,949 additional shares of common stock and up to 4,940,000 shares of
preferred stock, with preferences designed by the Board of Directors. Any such
issuance may result in a reduction of the book value or market price, if any of
the outstanding common or preferred shares. Issuance of the additional common
stock will reduce the proportionate ownership and voting power of the then
existing shareholders. In addition, Bullhide's preferred stock is issuable in
series which may vary as to voting power, preferential dividend rate, redemption
terms and policies, liquidation preferences, conversion rights and sinking fund
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<PAGE>
requirements. Issuance of additional preferred shares may have an adverse
effect on the value of Bullhide's outstanding common stock. See "Description of
Securities."
Anti-Takeover Provisions. The foregoing provision in Bullhide's
Articles of Incorporation (namely the ability, without further shareholder
approval) to issue additional shares of common stock and/or preferred stock with
rights and preferences determined by the Board of Directors could be used as
anti-takeover measures. These provisions could prevent or discourage or delay a
non-negotiated change in control and result in shareholders receiving less for
their common stock than they otherwise might in the event of a takeover attempt.
See "Description of Securities."
Trading Activity (if any) may be reduced if "penny stock" rules apply.
Bullhide's common stock is considered a low priced security under rules
promulgated under Securities Exchange Act of 1934 (the "Exchange Act"). Under
these rules, broker-dealers participating in transactions in low priced
securities must first deliver a risk disclosure document which describes risks
associated with such stocks, the broker-dealer's duties, the customer's rights
and remedies, certain market and other information, and make a suitability
determination approving the customer for low priced stock transactions based on
financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing, provide monthly account statements
to the customer, and obtain specific written consent of the customer. With these
restrictions, the likely effect of designation as a low priced stock is to
decrease the willingness of broker-dealers to make a market for the stock, to
decrease the liquidity of the stock and increase the transaction cost of sales
and purchases of such stocks compared to other securities.
No Assurance of a Liquid Public Market for the Shares. Bullhide's
common stock is quoted on the National Quotation Bureau Pink Sheets (the "Pink
Sheets"). The Pink Sheets are a highly limited market and are subject to
substantial restrictions and limitations. To date, there has not been an active
market in Bullhide's stock. Bullhide cannot predict the extent to which investor
interest in Bullhide will lead to the development of a trading market or how
liquid that trading market might become. If a trading market does not develop or
is not sustained, it may be difficult for investors to sell shares of Bullhide's
common stock at a price that is attractive. As a result, an investment in
Bullhide's common stock may be totally illiquid and investors may not be able to
liquidate their investment readily or at all when he/she desires to sell.
Year 2000 Readiness
Bullhide has completed an assessment of whether its systems and those
of third parties which could have a material impact on its business will
function properly with respect to dates in 2000 and thereafter. Bullhide has
determined that none of its systems require modification. Bullhide believes the
only third parties (which includes its customers and vendors) that could have a
material impact on its business are the major financial institutions that
process its collections of accounts receivables and monthly dues by the
electronic payment methods. Bullhide believes these financial institutions are
currently working on modifications to their internal systems to insure these
systems will function properly with respect to dates in 2000 and thereafter and
expects these modifications will be completed in 1999. Bullhide does not
anticipate that noncompliance, if any, with Year 2000 of any non-information
technology systems, such as
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embedded micro controllers, will materially or adversely affect its business.
Bullhide is currently undertaking an analysis of worst-case scenarios and
developing contingency plans to deal with these scenarios.
As of January 14, 2000, Bullhide has not experienced any problems
association with Year 2000 issues.
ITEM 3. DESCRIPTION OF PROPERTY
Bullhide's corporate offices and conference centers are located in
Deerfield Beach, Florida. Bullhide leases the building facilities from an
unrelated third party at a monthly rental rate of approximately $570 per month.
The lease is a month-to-month lease, and Bullhide can terminate by giving thirty
(30) days written notice.
Bullhide moved its corporate office from Spokane, Washington to
Deerfield Beach, Florida in April 1999. Bullhide is still obligated to make
monthly rental payments in the amount of $4,240.50 per month under its corporate
lease in Spokane, Washington, which expires on November 30, 2000. Bullhide is in
the process of trying to sublease this space.
ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the number
of shares of Common Stock beneficially owned by (i) each director of Bullhide,
(ii) the executive officers named in the Summary Compensation Table, (iii) all
directors and officers of Bullhide as a group and (iv) each shareholder known by
Bullhide to be a beneficial owner of more than 5% of any class of Bullhide's
voting securities as of November 24, 1999. Except as otherwise indicated, each
of the shareholders listed below has voting and investment power over the shares
beneficially owned and the address of each beneficial owner is c/o Bullhide, 10
Fairway Drive, Suite 211, Deerfield Beach, Florida 33441. As of November 24,
1999, Bullhide had 10,612,051 shares of its common stock issued and outstanding.
An asterisk indicates beneficial ownership of less than 1% of the outstanding
Bullhide common stock. As of November 24 1999, Bullhide had 60,000 shares of its
Series A Preferred Stock outstanding, all of which is held by Ronald Grossman.
<TABLE>
<CAPTION>
Name of Individuals or Number Amount and Nature of
of Persons in Group Beneficial Ownership Percentage of Class
- ----------------------------- -------------------- -------------------
<S> <C> <C>
Ronald Grossman 3,898,294(1) 36.7
W. Gordon Freeman 653,190 5.9
</TABLE>
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Jeffrey Dale Welsh 638,574(2) 9.3
H. Logan Pierson 555,000 7.7
Danny E. Robertson 300,000 2.8
Cecil C. and Judith F. Ram 625,800 5.9
All Officers and Directors
As a Group (6 persons) 6,056,758 57.1
(1) Includes 3,684,580 shares held jointly by Ronald Grossman and Cheryle Hart
Grossman, his wife, and 163,714 shares held by PolyChem, a corporation
controlled by Mr. Grossman.
(2) Includes 205,000 shares held by The Southern Companies and 433,574 shares
held by Southern Financial Services, Inc., companies that are controlled by Mr.
Welsh.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Bullhide are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Ronald Grossman 42 Chairman, Chief Technology Officer
Ronald R. Sanders 30 Acting President
Charles Tokarz 53 Chief Financial Officer,Treasurer
W. Gordon Freeman 55 Director
Jeffrey Welsh 48 Director
Danny E. Robertson 54 Director
</TABLE>
Ronald Grossman, has served as Chairman of Bullhide since its formation
in April 1993 and as its Chief Technology Officer since October 1998. He also
served as President from April 1993 until January 23, 1998 and as Chief
Executive Officer from April 1993 until October 1998. He has worked in the high
performance coatings field since 1978. Mr. Grossman has developed the current
line of Bullhide's products and is responsible for research and development of
future products. Mr. Grossman has a Master of Science degree in Polymer Science
and Engineering from the University of Massachusetts and a Bachelor of Science
degree in Business Management from Arizona State University.
Ronald R. Sanders, General Manager has worked for Bullhide since 1997,
and has been Acting President since October, 1999. Mr. Sanders began work for
Bullhide shortly after receiving his AA degree in Applied Science/Chemistry from
Phoenix College in the spring of 1997. Throughout his college career, Mr.
Sanders managed an oil analysis laboratory in Phoenix, Arizona, where he was
responsible for an increase in testing capacity and production of over 300% in
just over six months. This has given him a thorough background in preventive
maintenance, quality control, safety, training and management. Mr. Sanders
served in the United States Navy from 1987 to 1990. During this time, he
attended Naval Nuclear Power School and Electrician's Mate 'A' School in
Orlando, Florida.
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Charles Tokarz has served as the Chief Financial Officer and Treasurer
of Bullhide since October 1998. He is a CPA and has over twenty years of
business, financial and financial planning experience. His prior professional
experience includes responsibilities as Chief Financial Officer and Treasurer
for a publicly traded wholesale distributor, Vice President of Finance for a
developer and manager of elderly housing and nursing home facilities, Vice
President and Controller for two developers of luxury condominiums and office
buildings, Controller of a country club owned by a NYSE company, and as
President of a small NASD broker/dealer specializing in equity funding for real
estate projects. Having served four years as a United States Navy air crewman,
Mr. Tokarz has a BS Degree and an MBA from the University of Massachusetts.
W. Gordon Freeman has served as a Director since July 1997. He also
served as Bullhide's Chief Operating Officer from January 1998 to October 1998,
and as Bullhide's Chief Executive Officer from October 1998 to October 1999,
when he resigned as part of Bullhide's efforts to reduce operating expenses. Mr.
Freeman started his career in the automotive industry in 1968 with General
Motors. After fifteen years and eight progressive promotions he was the National
Director of Sales for GM's insurance division, Motors Insurance Corporation. He
left GM in 1984 to develop his own consulting firm. In 1992, he became Vice
President of Sales for Jim Moran and Associates, a subsidiary of Southeast
Toyota, where he recruited and developed a sales staff that increased their
customer base from 450 to 1,023 active dealers in five years.
Jeffrey Dale Welsh has served as a Director of Bullhide since January
1998. Mr. Welsh is the founder and President of Southern Financial Services,
Inc., which facilitates equity financing for small and medium sized companies.
He practiced law in New York for approximately thirteen years, with an emphasis
on securities law. Mr. Welsh is a graduate of the U.S. Naval Academy, having
served in the U.S. Navy for five years. He is also a graduate of the University
of Pittsburgh School of Law.
Danny E. Robertson has served as a director since June 15, 1999. Mr.
Robertson was the co-founder, director, officer and business advisor of Access
Conference Call Service ("Access"). He is responsible for growing Access from
one employee in 1987 to 120 employees in 1997, with gross sales of $13 million.
Having qualified for Inc.'s list of 500 fastest growing companies, with a growth
rate of 1025% over five (5) years, Access was positioned for the next level of
growth. Recently, Access was sold as part of a roll-up. A certified public
accountant, Mr. Robertson has, from 1971 through 1999, served as Chief Financial
Officers and/or Senior Vice President, Finance & Administration, for the
National Machine Tool Builders' Association, the National Association of Retail
Druggists, the Aluminum Association, Inc. and most recently, the Printing
Industries of American, Inc. At Bullhide, we will use his expertise in the areas
of financial forecasts and the management of liquid and fixed assets. he will
also head Bullhide's Finance and Audit Committee.
Directors serve until the next annual meeting of shareholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors. Bullhide intends to institute a program whereby it grant
each Board Member 50,000 shares of Bullhide's common stock and 50,000 shares on
the anniversary date of each year of service.
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ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table sets forth compensation paid by Bullhide
for the three fiscal years ended March 31 for services in all capacities for its
CEO and President. No other principal executive officer received a total annual
salary and bonus from Bullhide which exceeded $100,000.
<TABLE>
<CAPTION>
Other
Name and Position Year Salary Bonus Compensation
- ----------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Ronald Grossman, 1999 $86,500(1) 0 84,265(2)
Chairman and Chief 1998 $60,000(1) 0 27,863(2)
Technology Officer 1997 $ 0 0 0
W. Gordon Freeman 1999 $170,500(4) $45,050(5) 0
Chief Executive Officer 1998 $144,000 0 0
and Chief Operating 1997 $144,000 0 0
Officer(3)
</TABLE>
(1) Includes stock awarded to Mr. Grossman his service as a director of Bullhide
during fiscal 1999. Mr. Grossman received 50,000 shares of Bullhide's common
stock on February 24, 1999 and the fair market value of Bullhide's stock on the
date of the grant was $ 0.53 per share.
(2) Represents royalty payments that Mr. Grossman received in fiscal 1999 and
fiscal 1998 under a royalty agreement between Bullhide and PolyChem, a company
which is solely owned by Mr. Grossman and his wife.
(3)Mr. Freeman served as the Chief Operating Officer of Bullhide from January
1998 to October 12, 1998, and as Bullhide's Chief Executive Officer from October
1998 to October 12, 1999.
(4) Includes stock awarded to Mr. Freeman for his service as a director of
Bullhide during fiscal 1999. Mr. Freeman received 50,000 shares of Bullhide's
common stock on February 24, 1999 and the fair market value of Bullhide's stock
on such date was $0.53 per share.
(5)Includes 85,000 shares awarded to Mr. Freeman as a bonus on February 24, 1999
and the fair market value of Bullhide's stock on such date was $0.53 per share.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1999, Bullhide sold a master distributorship for the
northwestern United States and Western Canada to Ronald Grossman, Bullhide's
Chairman and Chief Technology Officer, in exchange for a reduction of $75,000 in
amounts due Mr. Grossman from Bullhide.
On June 30, 1997, Bullhide purchased certain technology rights for the
materials used in the pickup truck bedliner process from PolyChem, a company
owned solely owned by Ronald Grossman, Bullhide's Chairman and Chief Technology
Officer and his wife, Cheryle Hart Grossman. Under the terms of the license
agreement, Bullhide will pay PolyChem a royalty based on five percent of total
gross revenues of the Company to a maximum of $200,000. Under the terms of the
purchase agreement, Bullhide is scheduled to make a royalty payments of $166,500
in fiscal 2000.
In June 1997, Bullhide planned to raise capital in a private offering.
Prior to commencing the private offering, Bullhide wanted to convert certain
debts into equity in order to reflect the true financial status of Bullhide.
Between October 20, 1993 and July 31, 1997, Ronald Grossman and Cheryle Hart
Grossman advanced $352,961 to Bullhide. The Grossman's converted this debt into
restricted common stock at the rate of $1.00 per share, reflecting a discount
over its issue price to reflect the current risk of
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<PAGE>
collection associated with the debt.
Bullhide was also indebted to various credit card companies in the
total amount of $51,690. Ronald Grossman and Cheryle Grossman assumed the credit
card debt personally in return for Bullhide issuing them 147,686 shares of
restricted common stock valued at $.35 per share.
Bullhide was also indebted to PolyChem, a company solely owned by Mr.
Grossman and his wife, in the amount of $54,270 for previous product purchases.
PolyChem converted this debt into restricted stock at the rate of $.35 per share
and was issued 155,914 shares of Bullhide's restricted common stock.
During December 1998, PolyChem sold 78,000 shares of Bullhide's common
stock and lent the net proceeds of $37,744 to Bullhide. As repayment to
PolyChem, Bullhide issued 85,800 shares of its common stock to PolyChem on
February 24, 1999.
Since July 31, 1997, Ron Grossman has advanced an aggregate of $157,405
dollars to Bullhide. These loans are evidenced in a $118,276 promissory note
dated March 31, 1998 bearing interest at the rate of eight (8%) per annum and a
$39,129 promissory note dated December 31, 1998 bearing interest at the rate of
twelve (12%) per annum. The $118,276 promissory note is a demand note and
interest is payable annually on March 31. As of September 30, 1999, Bullhide had
repaid Mr. Grossman $15,871 on the $118,276 note. The principal and interest
under the $39,129 promissory note are due on June 30, 2000.
On April 1, 1999, Bullhide's Board of Directors approved the sale of
2,000,000 shares of Bullhide's common stock to Southern Financial Services, Inc.
under Rule 504 of Regulation D at a price of $0.50 per share in return for a
promissory note in the amount of $1,000,000. Jeff Welsh is a director of
Bullhide and a director and controlling shareholder of Southern Financial
Services, Inc.
ITEM 8. DESCRIPTION OF SECURITIES
Bullhide's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.001 par value and 5,000,000 shares of Preferred Stock, $1.00 par
value. As of November 24, 1999, 10,612,051 shares of Common Stock and 60,000 of
Preferred Stock were issued and outstanding.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per each share
and have the right to vote on all matters on which a vote of stockholders is
taken. Voting rights are non-cumulative. The holders of shares of Common Stock
are entitled to receive dividends when, as and if declared by the Board of
Directors, out of funds legally available therefore and to share pro rata in any
distribution to stockholders. Upon liquidation, dissolution, or winding up of
Bullhide, the holders of the Common Stock are entitled to receive the net assets
of Bullhide in proportion to the respective number of shares held by them after
payment of liabilities which may be outstanding. The holders of Common Stock do
not have any preemptive right to subscribe for or to purchase any shares of any
class of stock.
PREFERRED STOCK
Bullhide's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock in one or more series, and to fix by
resolutions, conditional, full, limited or no voting powers and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the
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<PAGE>
qualifications, limitations or restrictions thereof, if any, including the
number of shares in such series (which the Board may increase or decrease as
permitted by Washington law), liquidation preferences, dividends rates,
conversion or exchange rights, redemption provisions of the shares constituting
any series, and such other special rights and protective provisions with respect
to any class or series as the Board may deem advisable without any further vote
or action by the shareholders. Any shares of Preferred Stock so issued would
have priority over the Common Stock with respect to dividend or liquidation
rights or both and could have voting and other rights of shareholders. Bullhide
has no present plans to issue shares of Preferred Stock.
Bullhide has issued one class of Series A Preferred Stock. Holders of
the Series A Preferred Stock have equal voting rights with common stockholders.
The Series A Preferred Stock is redeemable at the option of Bullhide at $1 per
share. As of July 15, 1999, Bullhide has not exercised the option to redeem any
of the Preferred Stock. Upon liquidation, the holders of the Series A Preferred
Stock are entitled to receive, as a preferential distribution, the par value of
the preferred stock before any assets are distributed to the common
shareholders.
CERTAIN WASHINGTON LEGISLATION
Washington has enacted legislation that may deter or frustrate
takeovers of Washington corporations. The Washington Business Corporation Act
imposes restrictions on certain transactions between a corporation and certain
"Interested Shareholders." First, subject to certain exceptions, a merger, share
exchange, sale of assets other than in the regular course of business or
dissolution of a corporation involving an Interested Shareholder owning
beneficially 20% or more of the corporation's voting securities must be approved
by the holders of two-thirds of the corporation's outstanding voting securities,
other than those of the Interested Shareholder. This restriction does not apply
if the consideration received as a result of the transaction by the
noninterested shareholders is not less than the highest consideration by the
Interested Shareholders for shares of the corporation's stock during the
preceding two years or if the transaction is approved by a majority of directors
who are not affiliated with the Interested Shareholder. A Washington
corporation, may, in its articles of incorporation, exempt itself from coverage
of this provision; however, Bullhide has not done so.
Washington law prohibits a "target corporation," with certain
exceptions, from engaging in certain "significant business transactions" with a
person or group of persons who beneficially own 10% or more of the voting
securities of a target corporation (an "Acquiring Person") for a period of five
years after the acquisition of such securities, unless the transaction or
acquisition of shares is approved by a majority of the members of the target
corporation's board of directors prior to the date of the acquisition.
Significant business transactions include, among others, merger or consolidation
with, disposition of assets to or with, or issuance or redemption of stock to or
from, the Acquiring Person, termination of 5% or more of the employees of the
target corporation employed in Washington State as a result of the Acquiring
Person's acquisition of 10% or more of the shares or allowing the Acquiring
Person to receive any disproportionate benefit as a stockholder. Target
corporations include domestic corporations with their principal executive
offices in Washington, and either a majority or over 1,000 of their employees
resident in Washington. Bullhide does not meet these standards, and is not
subject to this statute. A corporation may not "opt out" of this statute. This
statue exempts shares acquired prior to March 23, 1988.
TRANSFER AGENT
Bullhide's Transfer Agent is Florida Atlantic Stock Transfer, 7130 Nob
Hill Road, Tamarac, Florida 33321.
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<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRATION'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Bullhide's common stock is traded in the National Quotation Bureau Pink
Sheet under the symbol "BULH". The following table set forth the high and low
bid prices, as reported by the National Quotation Bureau, Inc. for Bullhide's
Common Stock for the calendar periods indicated. These quotations reflect
intermediate prices, without retail mark-ups, mark-downs or commissions, and may
not represent actual transactions. Bullhide's common stock began trading in the
OTC Bulletin Board on December 11, 1997, so information is provided beginning in
the first quarter of 1998. Bullhide's common stock was delisted from the OTC
Bulletin Board on October 7, 1999. After Bullhide clears all SEC comments on its
Form 10- SB, it will apply submit an application to have its stock relisted on
the OTC Bulletin Board.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
March 31, 1998 1.625 1.0625
June 30, 1998 1.59375 1.0625
September 30, 1998 1.4375 1.01
December 31, 1998 1.25 0.40625
March 31, 1999 0.7813 0.3750
June 30, 1999 0.7900 0.2813
Prior to December 11, 1997, Bullhide's common stock was traded
privately and there was not active trading market for its common stock.
The approximate number of common stockholders of record of Bullhide's
common stock as of July 15, 1999 was 55.
DIVIDEND POLICY
Bullhide has never paid cash dividends on its Common Stock. Payment of
dividends will be within the sole discretion of Bullhide's Board of Directors
and will depend, among other factors, upon earnings, capital requirements and
the operating and financial condition of Bullhide. At the present time,
Bullhide's anticipated financial capital requirements are such that it intends
to follow a policy of retaining earnings in order to finance the development of
its business.
ITEM 2. LEGAL PROCEEDINGS
Bullhide is involved in a legal proceeding with a former franchisee
regarding an agreement for Bullhide to repurchase the franchise. Bullhide
stopped making payments under the agreement based upon an alleged breach of the
agreement by the former franchisee. When mediation of the dispute failed, the
former franchisee filed suit for payment and for certain consequential damages.
Bullhide is defending the suit and believes that, while Bullhide may be
ultimately liable for the payments required under the
22
<PAGE>
agreement, the claims for damages are without merit.
Bullhide is involved in another legal proceeding with a former dealer
whose business failed. The former dealer has brought suit against Bullhide
alleging breach of contract, fraud and violation of the Tennessee Consumer
Protection Act. Bullhide believes the allegations to be without merit and is
vigorously defending the lawsuit.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the last two fiscal years, Bullhide has not had any changes in
or disagreements with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth the Company's sale of securities during the
last three years, which securities were not registered under the Securities Act
of 1933, as amended (the "Securities Act"). No underwriters were employed with
respect to the sale of any of the securities listed below. All shares were
issued in reliance on Section 4(2) and/or Section 3(b) of the Securities Act.
1. Prior to commencing a private offering of its common stock in 1997,
on June 30, 1997, Bullhide converted certain debts into equity. The Grossmans
converted a loan in the amount of $352,961 into 352,961 shares of Bullhide's
common stock. The conversion rate of $1.00 per share reflected a discount over
Bullhide's issue price to reflect the current risk of collection associated with
the debt. Bullhide also has a debt to certain credit card companies in the total
amount of $51,690. The Grossmans were willing to assume the credit card debt
personally in exchange for 147,686 shares of restricted common stock valued at
$.35 per share. Bullhide was also indebted to PolyChem in the amount of $54,270.
PolyChem agreed to convert this debt into restricted stock at the rate of $.35
per share and issued 155,914 shares of its restricted common stock to PolyChem.
Inasmuch as the Grossmans were knowledgeable, sophisticated and have
access to comprehensive information about Bullhide, the shares of common stock
were issued to the Grossmans and PolyChem in reliance upon Section 4(2) of the
Securities Act. A legend was placed on the certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
2. The Company completed a private placement of its common stock during
July 1997 which resulted in the issuance of 10,000 units at $5.00 per unit. Each
unit consisted of 50 shares of common stock and 95 redeemable stock purchase
warrants. As of July 10, 1998, all warrants were exercised and the Company
received net proceeds of $783,629. The offering and sale of the units was made
in reliance on Regulation D - Rule 504 of the Securities Act of 1933, as
amended. The Units were only offered and sold to accredited investors or persons
who represented that they had no need for liquidity in their investment and have
adequate financial resources to withstand a total loss on their investment.
3. On April 1, 1999, Bullhide sold 2,000,000 shares of common stock to
Southern Financial Services, Inc., under Rule 504 of Regulation D in return for
a promissory note in the amount of $1,000,000. To date, Bullhide has received
$348,832 in payments against that promissory note. The promissory note, as
amended, is due and payable on June 30, 2000, and is secured by the 2,000,000
shares sold
23
<PAGE>
4. On April 13, 1999, Bullhide issued 736,000 shares of its common
stock to its officers, directors, consultants, employees and lenders as
consideration for services rendered to Bullhide. The shares were issued to:
Number of
Name of Recipient Shares Received
----------------- ---------------
Donald M. Whaley 7,500
Ronald R. Sanders 8,000
Ronald Grossman 50,000
H. Logan Pierson 100,000
Jack Bertoglio 50,000
The Southern Companies, Inc. 205,000
W. Gordon Freeman 135,800
Charles Tokarz 8,700
PolyChem Corporation 85,800
Cecil C. Ram and
Judith F. Ram, joint tenants 85,800
Inasmuch as the officers, directors, consultants, employee and lenders
were knowledgeable, sophisticated or had access to comprehensive information
about Bullhide, such transactions were issued in reliance upon Section 4(2) of
the Securities Act. A legend was placed on the certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bullhide's Bylaws provide that Bullhide shall indemnify any person who
was or is a party or is threatened to be made a party to any civil, criminal,
administrative or investigation action, suit or proceeding by reason of the fact
that he is or was a director, or acted in any other capacity as an agent of the
Bullhide, against expenses, judgements, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the full extent permitted by the Washington Business Corporation
Act.. The general effect of the Bylaws provision is to indemnify any officer,
director, employee or agent against any liability arising from any action or
suit to the fullest extent permitted by the Washington Business Corporation Act.
The WBCA provides that a corporation's articles of incorporation may
include a provision that eliminates or limits the personal liability of a
director to the corporation or its shareholders for monetary damages for conduct
as a director. However, the provision may not eliminate or limit liability of a
director for acts or omissions that involve intentional misconduct by a
director, a knowing violation of law by a director for, unlawful distributions
or for any transaction from which the director will personally receive a benefit
in money, property or services to which the director is not legally entitled.
The WBCA also provides that if authorized by the articles of incorporation, a
bylaw adopted or ratified by shareholders, or a resolution adopted or ratified,
before or after the event, by the shareholders, a corporation has the power to
indemnify a director or officer made party to a proceeding, or advance or
reimburse expenses incurred in a proceeding, under any circumstances, except
that no such indemnification shall be allowed on account of: (a) acts or
omissions of the directors finally adjusted to be intentionally misconduct or a
knowing violation of the law; (b) conduct of the directors finally adjusted to
be an unlawful distribution; or (c) any transactions with respect to which it
was finally adjusted that such director personally received a benefit in
24
<PAGE>
money, property, or services to which the director was not legally entitled.
Written commentary by the drafters of the WBCA, which as the status of
legislative history, specifically indicates that a corporation may indemnify its
directors and officers for amounts paid in settlement of derivative actions,
provided that the director's or officer's conduct does not fall within one of
the categories set forth above. Bullhide's Articles of Incorporation do not
contain any provisions relating to indemnification; however its Bylaws contain
provisions relating to indemnification.
FINANCIAL STATEMENTS AND EXHIBITS
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1999 AND
1998
Independent Auditors' Report F-2
Balance Sheet F-3
Statement of Operations F-5
Statements of Change in Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
Balance Sheet F-20, F-21
Statement of Operations F-22
Statements of Change in Stockholders' Equity F-24
Statements of Cash Flows F-23
Notes to Financial Statements F-25
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Articles of Incorporation of Bullhide filed with the
Washington Secretary of State on April 2, 1993*
2.2 Amendment to Articles of Incorporation of Bullhide filed
with the Washington Secretary of State on January 24, 1994*
2.3 Amendment to Articles of Incorporation of Bullhide filed
with the Washington Secretary of State on June 8, 1994*
2.4 Amendment to Articles of Incorporation of Bullhide filed
with the Washington Secretary of State on December 26,
1996*
2.5 Amendment to Articles of Incorporation of Bullhide filed
with the Washington Secretary of State on June 8, 1999*
2.6 Bylaws, as amended**
10.1 Manufacturing/Licensing Agreement dated January 1, 1994, by
and between PolyChem Corporation and The Bullhide Liner
Corporation*
10.2 Lease for the office and conference center in Spokane,
Washington*
10.3 Lease for the East Coast sales office in Boca Raton,
Florida*
10.4 Development and Distribution Agreement between Bullhide
and Performance Surfacing, Inc. dated July 1, 1999**
25
<PAGE>
10.5 Standard Unit License Agreement between Bullhide and
Performance Surfacing, Inc. dated July 1, 1999**
10.6 Development and Distribution Agreement between Bullhide and
New England Polycote dated August 9, 1999**
10.7 Standard Unit License Agreement between Bullhide and New
England Polycote dated August 17, 1999**
27.1 Financial Data Schedule for the fiscal year ended March 31,
1999**
27.2 Financial Data Schedule for the second quarter ended
September 30, 1999***
99.1 Press Release issued on January 26, 2000***
* Incorporated by reference to the Bullhide's Registration Statement on Form
10-SB filed with the SEC on October 1, 1999.
** Incorporated by reference to Post-Effective Amendment No. 1 to Bullhide's
Registration Statement on Form 10-SB filed with the SEC on December 3, 1999.
***Filed herewith.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
Bullhide caused this Post- Effective Amendment No. 2 to its Registration
Statement on Form 10-SB to be signed on its behalf by the undersigned thereunto
duly authorized on this 1st day of February, 2000.
THE BULLHIDE CORPORATION.
/s/Ronald Grossman
------------------------------------------------------
Ronald Grossman, Chairman and Chief Technology Officer
26
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3 - 4
Statements of operations F-5 - 6
Statements of stockholders' equity (deficit) F-7 - 8
Statements of cash flows F-9 - 10
Notes to financial statements F-11 - 23
UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998
Balance sheets F-24 - 25
Statement of operations F-26
Statement of change in stockholders' equity F-27
Statement of cash flows F-28
Notes to financials F-29 - 39
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Bullhide Liner Corporation
Spokane, Washington
We have audited the accompanying balance sheets of The Bullhide Liner
Corporation as of March 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 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 financial position of The Bullhide Liner Corporation
as of March 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 13 to the
financial statements, the Company's recurring losses from operations and limited
capital resources raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 13. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ LeMaster & Daniels PLLC
- ---------------------------
Spokane, Washington
May 28, 1999
- --------------------------------------------------------------------------------
F-2
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Balance Sheets
- --------------------------------------------------------------------------------
March 31,
-------------------
1999 1998
---- ----
Assets
CURRENT ASSETS:
Cash $ 2,875 $ 7,595
Accounts receivable, net of allowance for doubtful
accounts of $20,000 and $25,000, respectively 111,461 44,116
Inventory 49,219 72,810
Investments - 5,000
Prepaid expenses and deposits - 522
-------- --------
Total current assets 163,555 130,043
-------- --------
FURNITURE AND EQUIPMENT:
Cost 147,483 128,517
Less accumulated depreciation 78,177 58,476
-------- --------
69,306 70,041
-------- --------
OTHER ASSETS:
Mississippi franchise repurchase 10,000 10,000
Systems development 46,830 46,830
Trademark 1,450 1,450
-------- --------
58,280 58,280
Less accumulated amortization 25,954 21,235
-------- --------
32,326 37,045
-------- --------
$265,187 $237,129
======== ========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
- --------------------------------------------------------------------------------
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
CURRENT LIABILITIES:
Accounts payable $ 195,582 $ 136,749
Checks issued in excess of bank balance 15,930 14,233
Accrued taxes 72,487 14,667
Accrued payroll and employee benefits 4,144 8,560
Accrued expenses 95,960 -
Accrued interest 31,825 7,891
Royalty payable 73,628 22,863
Customer deposits 22,650 66,834
Current obligations under capital lease 7,508 -
Current maturities of long-term debt 259,000 61,478
----------- -----------
Total current liabilities 778,714 333,275
OBLIGATIONS UNDER CAPITAL LEASE 12,119 -
LONG-TERM DEBT, less current maturities 172,921 130,968
----------- -----------
Total liabilities 963,754 464,243
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock--50,000,000 shares, $.002 par value, authorized;
7,875,451 and 7,171,451 shares issued and outstanding, respectively 15,751 14,343
Preferred stock--1,000,000 shares, $1.00 par value, authorized;
60,000 shares issued and outstanding 60,000 60,000
Additional paid-in capital 1,552,872 1,048,090
Retained earnings (deficit) (2,327,190) (1,349,547)
----------- -----------
Total stockholders' equity (deficit) (698,567) (227,114)
----------- -----------
$ 265,187 $ 237,129
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
F-4
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
Years Ended
March 31,
--------------------------
1999 1998
---- ----
SALES $1,686,702 $656,471
COST OF SALES 1,237,756 427,954
---------- --------
GROSS PROFIT 448,946 228,517
CONSULTING FEE REVENUE FROM RELATED PARTY - 4,500
---------- --------
448,946 233,017
---------- --------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Advertising 85,001 65,869
Trade shows and exhibits 13,477 16,113
Marketing 36,615 13,601
Travel, lodging and auto 40,099 31,235
Travel, meals 7,831 -
Postage and shipping 86,436 21,417
Salaries and wages 492,407 320,915
Payroll taxes 41,737 27,326
Temporary labor 6,158 -
Employee benefits 37,005 18,249
Consulting fees 17,658 -
Taxes and licenses 11,747 647
Vehicle expense 6,328 4,135
Directors' fees 36,000 -
Dues and subscriptions 1,480 1,782
Fines and penalties 14,429 -
Legal and professional fees 99,814 36,353
Dealer training 1,531 -
Office supplies 14,571 11,696
Shop supplies 34,493 23,312
Research and development 55,583 -
Rent 58,844 38,702
Repairs and maintenance 1,703 -
Utilities 51,528 35,717
Insurance 21,869 -
Depreciation 19,701 17,352
Amortization 4,719 4,717
Bad debts 8,172 41,278
Bank fees 8,963 -
Royalties 84,265 27,863
Equipment rental 2,329 -
Other (1,636) 20,820
---------- --------
1,400,857 779,099
---------- --------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Operations (Continued)
- --------------------------------------------------------------------------------
Years Ended
March 31,
------------------------
1999 1998
---- ----
LOSS FROM OPERATIONS $ (951,911) $(546,082)
---------- ---------
OTHER INCOME (EXPENSE):
Interest income 90 -
Gain (loss) on disposal of assets 5,000 (957)
Loss on franchise repurchase - (76,203)
Interest expense (30,822) (30,119)
---------- ---------
(25,732) (107,279)
---------- ---------
NET LOSS $ (977,643) $(653,361)
========== =========
BASIC AND DILUTED LOSS PER SHARE $ (.1273) $ (.1031)
========== =========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
Common Stock
-----------------------
Shares
Issued and
Outstanding Amount
----------- ------
BALANCES (DEFICIT), MARCH 31, 1997 5,618,000 $ 11,236
ADD (DEDUCT):
Issuance of common stock 896,890 1,794
Stock offering costs - -
Issuance of common stock on conversion of debt 656,561 1,313
Contributed capital - -
Net loss - -
--------- ---------
BALANCES (DEFICIT), MARCH 31, 1998 7,171,451 14,343
ADD (DEDUCT):
Issuance of common stock 704,000 1,408
Net loss - -
--------- ---------
BALANCES (DEFICIT), MARCH 31, 1999 7,875,451 $ 15,751
========= =========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-7
<PAGE>
- --------------------------------------------------------------------------------
Years Ended March 31, 1999 and 1998
- --------------------------------------------------------------------------------
Preferred Stock
- ----------------------
Shares Additional Retained
Issued and Paid-in Earnings
Outstanding Amount Capital (Deficit) Total
- ----------- ------ ------- --------- -----
60,000 $ 60,000 $ 172,803 $ (696,186) $ (452,147)
- - 478,932 - 480,726
- - (126,254) - (126,254)
- - 457,609 - 458,922
- - 65,000 - 65,000
- - - (653,361) (653,361)
- ---------- ---------- ---------- ---------- ----------
60,000 60,000 1,048,090 (1,349,547) (227,114)
- - 504,782 - 506,190
- - - (977,643) (977,643)
- ---------- ---------- ---------- ---------- ----------
60,000 $ 60,000 $1,552,872 $(2,327,190) $ (698,567)
========== ========== ========== =========== ==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-8
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
March 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Increase (Decrease) in Cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(977,643) $(653,361)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of investment (5,000) -
Bad debts 8,276 41,278
Loss on disposal of assets - 957
Depreciation and amortization 24,421 22,069
(Increase) decrease in assets:
Receivables (75,621) (1,096)
Inventory 23,591 (69,280)
Prepaid expenses and deposits 522 1,059
Franchise fee receivable - 4,780
Increase (decrease) in liabilities:
Accounts payable 58,833 72,406
Payable to related party - (96,467)
Accrued taxes 57,819 6,317
Accrued expenses 95,960 -
Customer deposits (44,184) 44,984
Royalty payable 50,765 22,863
Accrued payroll and employee benefits (4,416) 7,223
Accrued interest 23,934 (13,765)
--------- ---------
Net cash used in operating activities (762,743) (610,033)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available-for-sale securities 10,000 -
Checks issued in excess of bank balance 1,697 14,233
Repurchase of franchise - (10,000)
Purchase of available-for-sale securities - (5,000)
Purchases of property and equipment (2,066) (26,710)
--------- ---------
Net cash provided by (used in) investing activities 9,631 (27,477)
--------- ---------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-9
<PAGE>
- --------------------------------------------------------------------------------
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ 506,190 $ 480,726
Stock offering costs paid - (120,266)
Stockholder contributed capital - 65,000
Stockholders' loan 279,415 291,200
Borrowings on long-term debt 6,574 82,400
Principal payments to stockholders - (65,169)
Principal payments on long-term debt and lease obligations (43,787) (90,533)
--------- ---------
Net cash provided by financing activities 748,392 643,358
--------- ---------
NET INCREASE (DECREASE) IN CASH (4,720) 5,848
CASH, BEGINNING OF YEAR 7,595 1,747
--------- ---------
CASH, END OF YEAR $ 2,875 $ 7,595
========= =========
Supplemental Disclosures:
Cash paid for interest $ 6,888 $ 43,884
Cash paid for income taxes - -
Schedule of Noncash Investing and Financing Activity:
Related-party debt and accrued interest converted to common stock - 458,922
Fixed assets acquired through long-term capital lease 16,900 -
</TABLE>
- --------------------------------------------------------------------------------
F-10
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
Organization:
The Company has granted franchises for the operation of pickup truck bed liner
spray application shops initially targeted for the pickup truck bed liner
market. In July 1996, the Company discontinued the sale of franchises for the
operation of pickup truck bed liner spray application shops. Subsequent to July
1996, the Company commenced selling dealerships under exclusive licensing
agreements and expanded into the industrial flooring market. As of March 31,
1999, the Company has sold fifty-five dealerships and has three operating
franchises. The Company grants credit to customers for sales of equipment and
materials throughout the United States. In addition, the Company operates a
pickup truck bed liner spray application shop in Spokane, Washington.
Summary of Significant Accounting Policies:
a. Method of accounting -- The Company prepares its financial statements on
the accrual method of accounting, recognizing income when earned and
expenses when incurred.
b. Accounts receivable -- The Company provides an allowance for doubtful
accounts based upon historical experience and a review of current
receivables.
c. Inventory -- Inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market.
d. Furniture and equipment -- Furniture and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial
reporting purposes. For federal income tax purposes, accelerated methods
are used.
e. Intangible assets -- Intangible assets subject to amortization include
system development costs and logo/trademark development costs. System
costs are being amortized using the straight-line method over the
estimated life of 10 years. Logo/trademark costs are being amortized on a
straight-line basis over 40 years.
f. Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
g. Sales -- Spray application equipment is manufactured by a third-party
manufacturer to customer specifications and is recorded as a sale when
the equipment is shipped and customer acceptance is received.
h. Advertising costs -- Advertising (marketing) costs are expensed as
incurred. Advertising expense was $85,001 and $65,869 for the years ended
March 31, 1999 and 1998, respectively.
i. Loss per share -- Loss per share is calculated based on the weighted
average of common shares outstand ing. Diluted loss per share, based on
potential common stock such as warrants, operations, or contingent stock
agreements, is not presented as such items are antidilutive.
- --------------------------------------------------------------------------------
F-11
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies (continued):
j. Research and development -- Research and development costs are expensed as
incurred.
k. Royalty expenses -- Royalty expenses are recognized concurrently with the
recognition of the related revenue.
l. Training and support -- The Company provides training in the field and
ongoing support to licensed dealers. Costs are expensed and/or billed as
incurred.
NOTE 2 -- INVENTORIES:
- --------------------------------------------------------------------------------
Inventories consisted of the following:
March 31,
-----------------
1999 1998
---- ----
Raw materials $37,991 $50,196
Machine parts 6,398 7,667
Dealer marketing materials 4,830 14,947
------- -------
$49,219 $72,810
======= =======
The Company's raw materials consist of polyurethane resins. There was no work in
process production of materials at year end. Production of spray application
equipment was outsourced during the fiscal year ended March 31, 1999.
NOTE 3 -- FRANCHISING OPERATIONS:
- --------------------------------------------------------------------------------
a. Significant commitments and obligations -- The Company is obligated in
accordance with the terms of each franchisee's respective franchise
agreement to provide the following supervision assistance and services:
site location, spray application training, operations manual, and
advertising literature. In addition, franchisees are required to purchase
inventory from the Company.
b. Franchise activity -- The number of franchises sold and in operation
during each of the years ended March 31, 1999 and 1998, was three. Current
active franchises are located in Colorado, Canada, and Saudi Arabia.
c. Franchise fees -- Initial franchise fees and dealership fees are recorded
as revenue when all the significant services relating to the franchise and
dealership sales have been performed by the Company.
d. Royalty -- Each franchisee is required to pay a monthly royalty based on
sales, commencing one year after the franchise opens for business. The
Company has waived its right to receive royalties from franchisees through
March 31, 1999.
- --------------------------------------------------------------------------------
F-12
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 4 -- FURNITURE AND EQUIPMENT:
- --------------------------------------------------------------------------------
A summary of furniture and equipment follows:
March 31,
------------------
1999 1998
---- ----
Leasehold improvements $ 20,231 $ 20,231
Office furniture 11,194 11,194
Computer 10,171 8,105
Vehicles 28,200 28,200
Equipment 77,687 60,787
-------- --------
147,483 128,517
Less accumulated depreciation 78,177 58,476
-------- --------
Totals $ 69,306 $ 70,041
======== ========
NOTE 5 -- LONG-TERM DEBT:
- --------------------------------------------------------------------------------
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
Note payable to bank, due in monthly installments of $817 including variable
interest; collateralized by substantially all assets and personally
guaranteed by a stockholder* $ 25,303 $ 30,504
Note payable to bank, due in monthly installments of $367 including interest
at 10%, maturing June 20, 1999; collateralized by vehicle and
personally guaranteed by a stockholder 1,128 5,216
Note payable to ex-franchisee, due in monthly installments of $1,350
including interest at 8.5%, maturing July 31, 1999, including a $13,000
remaining balance of the down payment on the franchise repurchase, with no
stated interest rate, and which was due and payable October 15, 1997 (see
notes 9 and 15) 33,450 38,450
</TABLE>
- --------------------------------------------------------------------------------
F-13
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 -- LONG-TERM DEBT (continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Note payable to stockholders, interest at 8% and 10% of
the principal balance annually on March 31; unsecured $118,276 $118,276
Note payable to stockholders, interest at 12% of the
principal balance. Principal and interest due on
June 30, 2000; unsecured 39,129 -
Note payable to stockholders, interest at 12% of the
principal balance. Principal and interest due on
July 28, 2000; unsecured 20,000 -
Note payable to related party (see notes 7 and 9). Principal and interest are
to be repaid with 85,500 shares of the Company's common stock on or before
February 28, 1999, for the 78,000 shares previously received; unsecured.
Balance was paid in full
on April 13, 1999 37,744 -
Note payable to stockholders. Principal and interest are to be
repaid with 85,500 shares of the Company's common stock for
the 78,000 shares received. Balance was paid in full on
April 13, 1999 36,158 -
Note payable to stockholder. Principal and interest are to be
repaid by 47,850 shares of the Company's common stock for
the 43,500 shares received. Balance was paid in full on
April 13, 1999 14,387 -
Note payable to an unrelated party. Principal and interest are to
be repaid by 211,428 shares of the Company's common stock
for the 192,207 shares received. Balance was paid in full
on April 13, 1999 106,346 -
-------- --------
431,921 192,446
Less current maturities 259,000 61,478
-------- --------
Totals $172,921 $130,968
======== ========
</TABLE>
* The Small Business Administration has guaranteed 90 percent of the original
amount ($50,000) of the note payable.
- --------------------------------------------------------------------------------
F-14
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 -- LONG-TERM DEBT (continued):
- --------------------------------------------------------------------------------
Total interest expense for the notes payable to stockholders was $22,525 and
$21,141 for the years ended March 31, 1999 and 1998, respectively.
Maturities of long-term debt are as follows:
Years Ending
March 31, Amount
--------- ------
2000 $259,000
2001 163,000
2002 8,800
2003 1,121
--------
$431,921
========
NOTE 6 -- OBLIGATIONS UNDER CAPITAL LEASE:
- --------------------------------------------------------------------------------
Future minimum lease payments under leases capitalized at March 31, 1999,
together with the present value of the minimum lease payments, are as follows:
Years Ending
March 31, Amount
--------- ------
2000 $10,186
2001 10,186
2002 3,396
-------
Total minimum payments 23,768
Less amount representing interest (4,141)
-------
Present value minimum lease payments 19,627
Less current portion (7,508)
-------
Long-term obligation $12,119
=======
At March 31, 1999, assets under capital lease had a cost of $16,900 and
accumulated depreciation of $1,408.
- --------------------------------------------------------------------------------
F-15
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 7 -- TRANSACTIONS WITH RELATED PARTIES:
- --------------------------------------------------------------------------------
The Company purchases materials used in the pickup bed liner and floor coating
processes from Poly Chem Corporation. Total purchases for the years ended March
31, 1999 and 1998, were $-0- and $38,809, respectively. Purchases of materials
were discontinued June 30, 1997, per the agreement as identified in note 9.
During December 1998, the Company borrowed 78,000 shares of the Company's common
stock from Poly Chem Corporation which is 100 percent owned by a majority
stockholder of the Company. The Company sold the stock and received net proceeds
of $37,744 (see note 5). The Company has agreed to issue 85,800 shares of common
stock as repayment to Poly Chem Corporation no later than February 28, 1999.
Balance was paid April 13, 1999.
NOTE 8 -- PREFERRED STOCK:
- --------------------------------------------------------------------------------
Holders of the preferred stock have equal voting rights with the common
stockholders. The preferred stock is redeemable at the option of the Company at
$1 per share. As of the reporting date, the Company has not exercised the option
to redeem any of the preferred stock. Upon liquidation, the holders of the
preferred stock are entitled to receive, as a preferential distribution, the par
value of the preferred stock before any assets are distributed to the common
stockholders.
NOTE 9 -- COMMITMENTS:
- --------------------------------------------------------------------------------
On June 30, 1997, the Company purchased the technology rights from Poly Chem
Corporation for the materials used in the pickup bed liner and floor coating
processes as well as other polyurathene technology. Under the terms of the
purchase agreement, the Company will pay Poly Chem Corporation a royalty based
on 5 percent of total gross revenues of the Company to a maximum of $200,000. As
of March 31, 1999, $107,128 of royalties had been accrued, of which $33,500 had
been paid. Upon payment of the full $200,000 in royalties, Poly Chem Corporation
will transfer all of its interests in the formulation and technology including,
but not limited to, all patent rights therein, including the current patent
application 08/493858, and any and all future patent rights to Bullhide, and
shall have no further rights therein. The Company is in the process of obtaining
a patent for the materials used in the pickup bed liner process.
Future minimum royalty payments are as follows:
Year Ending
March 31, Amount
--------- ------
2000 $ 166,500
==========
- --------------------------------------------------------------------------------
F-16
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 9 -- COMMITMENTS (continued):
- --------------------------------------------------------------------------------
On July 31, 1997, the Company repurchased the franchise rights together with
certain assets of an existing franchisee. Under the terms of the repurchase
agreement, the Company was obligated to pay the franchisee $88,700 under the
following terms:
Downpayment $ 2,500
Inventory 6,300
Monthly payments of $5,000 commencing October 15, 1997,
with no stated interest rate 38,200
Consulting services provided by the franchisee payable
at $1,000 per month commencing August 30, 1997 12,000
Remaining balance to be paid in monthly payments
of $1,350 including interest at 8.5%,
commencing August 30, 1997 29,700
-------
$88,700
=======
To date, $55,250 has been paid (see note 5).
NOTE 10 -- INCOME TAXES:
- --------------------------------------------------------------------------------
The Company's deferred tax asset was as follows:
<TABLE>
<CAPTION>
March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset arising from net operating loss carryforwards $ 782,000 $ 458,000
Valuation allowance (782,000) (458,000)
--------- ---------
Net deferred income tax asset $ - $ -
========= =========
</TABLE>
At March 31, 1999, the Company had approximately $2,300,000 in net operating
loss carryforwards which is available to reduce future taxable income. The
carryforwards begin to expire in 2011.
For the years presented, the income tax provision (benefit) differs from the
amount expected using statutory tax rates because of the effects of the deferred
tax asset valuation allowance.
- --------------------------------------------------------------------------------
F-17
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 11 -- RECAPITALIZATION:
- --------------------------------------------------------------------------------
During the year ended March 31, 1997, the Company recapitalized its common and
preferred stock. Under the terms of the recapitalization, the par values of the
common and preferred stock were changed to $.002 and $1.00, respectively. The
number of authorized shares of common and preferred stock was increased to
50,000,000 and 1,000,000, respectively.
NOTE 12 -- PRIVATE PLACEMENT:
- --------------------------------------------------------------------------------
On December 17, 1996, the Company was authorized to issue a private placement of
common stock. The Company is authorized to issue 10,000 units at $5.00 per unit.
As of July 10, 1998, all warrants were exercised (see note 13, paragraph 3).
Each unit consists of 50 shares of common stock and 95 redeemable stock purchase
warrants. The common stock purchase warrants are exercisable for one share of
common stock at $1.00 per share until December 17, 1998. The Company may redeem
the warrants at $.01 per warrant with 30-day prior written notice if the common
stock bid price equals or exceeds $2.50 per share for ten consecutive trading
days ending on the third day prior to or the date on which such notice was
given.
During the fiscal year ended March 31, 1998, all 10,000 units were sold, and
950,000 and 316,000 stock purchase warrants were exercised as of March 31, 1999
and 1998, respectively.
NOTE 13 -- GOING CONCERN:
- --------------------------------------------------------------------------------
As shown in the Company's financial statements, the Company incurred net losses
of $977,643. In addition, the Company has negative working capital of $615,159
and stockholders' deficit of $698,567. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management is committed to the future of the Company and has taken the following
actions to keep the Company viable and in existence as a going concern:
1. The Company has utilized long-term debt from the original stockholders to
fund the development of several key aspects of the national dealership
system including advertising for both the local and national promotion,
legal aspects such as state registrations, and improvements in application
equipment, as well as the employment and training of the needed personnel.
These developments are expected to benefit the organization in the future.
In addition, on June 30, 1997, the original stockholders of the Company
converted long-term debt plus accrued interest to common stock.
2. On July 6, 1997, the Company hired an executive vice president of sales
and marketing. The vice president's responsibilities included hiring and
training a team of independent sales representatives and developing a
national marketing plan. On January 27, 1998, he was promoted to president
and on October 14, 1998, to chief executive officer.
- --------------------------------------------------------------------------------
F-18
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 13 -- GOING CONCERN (continued):
- --------------------------------------------------------------------------------
3. The Company completed a private placement of common stock during July 1997
which resulted in the issuance of 10,000 units at $5.00 per unit. Each
unit consisted of 50 shares of common stock and 95 redeemable stock
purchase warrants. The Company received its symbol to trade on the NASD
Bulletin Board on December 17, 1997. A secondary market for the stock was
established. As of July 10, 1998, all warrants were exercised and the
Company received a net total of $783,629. The Company has utilized this
investment capital to expand national advertising and exhibits at national
and regional trade shows. Research and engineering activities have also
been expanded to produce the next generation of application equipment and
coating and lining products.
4. The expanded marketing efforts of the Company have resulted in the signing
of 55 dealers as of the year ended March 31, 1999, an increase of 30 from
March 31, 1998. The costs relating to the signing and setting up the new
dealers significantly contributed to the operating loss for the year ended
March 31, 1999. However, once the Bullhide dealerships are fully
operational, it is expected that sales to the dealers and to new
additional dealers will result in increased revenues for the Company.
5. Recent marketing efforts in the industrial flooring and chemical
containment markets have resulted in positive sales. Generally, jobs in
the flooring and chemical containment markets are much larger than the
truck bed liner market and may result in a higher sales volume of Bullhide
materials per order and per dealer. During August 1998, the Company's
northern Alabama dealer was contracted to spray wood treatment plants in
Alabama and other states. In September 1998, after the successful
completion of three test locations, Jiffy Lube awarded the Company up to
10 additional locations for flooring applications. In May 1999, the
Company's southern Colorado dealer completed a 2,000 square foot area at
the Pueblo Zoo. During May 1999, the Florida master distributor started
coating several seating areas in a major league baseball park.
6. During November 1998, the Company signed a contract with Sears, Roebuck &
Co. to operate Bullhide truck liner facilities in a two-store test market.
This is anticipated to develop into a national arrangement.
7. On May 6, 1999, the Company engaged a law firm to prepare a Registration
Statement on Form 10-SB for the registration of its securities with the
SEC. Beginning in January 1999, the NASD has required all prospective new
listing companies to become registered with the SEC in order to qualify
for listing on the OTC Bulletin Board exchange. Companies already on the
exchange were given deadlines to file a registration statement with the
SEC. The Company's deadline to complete its registration process with the
SEC is October 1999.
8. During April 1999, the Company began the process of restructuring the
Company's operations and administration by moving its corporate office
from Spokane, Washington, to south Florida. A fifth master
distributorship, serving the Northwest region, has been established in
Spokane by the Company's founder. This restructuring will save the Company
in excess of $250,000 in annualized costs.
9. During April 1999, the Company was approved to sell up to 2,000,000 common
shares on the OTC Bulletin Board exchange under its second Regulation D
Rule 504 offering. Management expects to raise $850,000 net proceeds
during the fiscal year ending March 31, 2000.
- --------------------------------------------------------------------------------
F-19
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 14 -- ISSUANCE OF COMMON STOCK ON CONVERSION OF DEBT:
- --------------------------------------------------------------------------------
On June 30, 1997, the following liabilities and long-term debt were converted to
common stock:
Notes payable to stockholders $378,096
Accrued interest payable to stockholders 26,555
Account payable to Poly Chem Corporation (a related party) 54,271
--------
$458,922
========
NOTE 15 -- PENDING LITIGATION:
- --------------------------------------------------------------------------------
On June 17, 1998, the holders of the note payable to ex-franchisee initiated
legal action to collect the remaining balance per the agreement. In addition,
the plaintiff has made a formal claim for compensation and lost opportunity to
pursue a successful business venture. The Company agrees to the note payable
liability and intends to vigorously defend the additional claims which the
Company considers groundless. The ultimate resolution of these matters is not
ascertainable at this time. No provision has been made in the financial
statements related to this claim.
On January 21, 1999, a Bullhide dealer initiated legal action for breach of
contract, fraud, and violation of the Tennessee Consumer Protection Act.
Plaintiff is seeking damages incurred. The Company intends to vigorously defend
the substantive claims in this case and is unable to estimate the success or the
amount or range of potential loss, if any.
NOTE 16 -- LEASE COMMITMENT:
- --------------------------------------------------------------------------------
The Company leases the building facilities from an unrelated third party. Rent
expense for the years ended March 31, 1999 and 1998, was $58,844 and $38,702,
respectively. Future minimum lease payments under the noncancellable operating
lease, with an option to renew, are as follows:
Years Ending
March 31, Amount
------------ ------
2000 $50,886
2001 33,924
-------
Total future minimum lease payments $84,810
=======
- --------------------------------------------------------------------------------
F-20
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 17 -- EARNINGS (LOSS) PER SHARE:
- --------------------------------------------------------------------------------
Basic earnings (loss) per share are calculated by dividing earnings (loss) by
the weighted average number of common shares outstanding during the period.
<TABLE>
<CAPTION>
Year Ended
March 31, 1999
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Income (loss) from continuing operations $(977,643) 7,681,951
Less preferred stock dividends - -
--------- ---------
Income (loss) available to common stockholders -
basic earnings (loss) per share $(977,643) 7,681,951 $(.1273)
========= ========= =======
</TABLE>
There were no dilutive securities, options, or warrants at March 31, 1999.
<TABLE>
<CAPTION>
Year Ended
March 31, 1998
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Income (loss) from continuing operations $(653,361) 6,334,643
Less preferred stock dividends - -
--------- ---------
Income (loss) available to common stockholders -
basic earnings (loss) per share $(653,361) 6,334,643 $(.1031)
========= ========= =======
</TABLE>
For the year ended March 31, 1998, the Company had warrants outstanding for
634,000 shares of common stock. Because the effect of the outstanding warrants
is antidilutive, the potential common stock shares have not been included in the
loss per share calculation.
- --------------------------------------------------------------------------------
F-21
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 18 -- REVENUES FROM CUSTOMERS:
- --------------------------------------------------------------------------------
Following is a summary of revenues from external customers for the Company's
product groups:
<TABLE>
<CAPTION>
Years Ended
March 31,
---------------------------------------------------
1999 1998
---------------------- ------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Product application sales $ 179,792 10.7% $172,076 26.2%
Chemical sales to dealers 701,961 41.6 207,284 31.6
Machine and machine parts 691,611 41.0 190,982 29.1
Dealer supply 58,274 3.5 77,691 11.8
Area development fees 55,000 3.2 - -
Other 64 - 8,438 1.3
---------- ----- -------- -----
Totals $1,686,702 100.0% $656,471 100.0%
========== ===== ======== =====
</TABLE>
- --------------------------------------------------------------------------------
F-23
<PAGE>
The Bullhide Liner Corporation
Balance Sheets
(Unaudited)
September 30, 1999 and 1998
1999 1998
-------- --------
Assets
CURRENT ASSETS:
Cash $ 4,610 $ 42,212
Accounts receivable, Net of allowance for doubtful
accounts of $34,746 and $25,000, respectively 262,917 202,198
Inventory 21,680 49,193
Investments -- --
Prepaid expenses and deposits 9,227 --
-------- --------
Total current assets 298,434 293,603
-------- --------
FURNITURE AND EQUIPMENT:
Cost 24,805 128,519
Less accumulated depreciation 19,877 67,476
-------- --------
4,928 61,043
-------- --------
OTHER ASSETS:
Mississippi Franchise 10,000 10,000
Deposits 7,217 --
Systems development 46,830 46,830
Trademark 1,450 1,450
-------- --------
65,497 58,280
Less accumulated amortization 28,354 23,635
-------- --------
37,143 34,645
-------- --------
$340,505 $389,291
======== ========
See accompanying notes to financial statements.
F-24
<PAGE>
The Bullhide Liner Corporation
Balance Sheets
(Unaudited)
September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
CURRENT LIABILITIES:
Accounts payable $ 253,897 $ 168,802
Accrued taxes 29,637 38,429
Accrued payroll and employee benefits -- 10,032
Accrued expenses 41,523 --
Accrued interest 26,352 11,659
Royalty payable 113,362 47,876
Customer deposits 17,767 11,547
Current obligations under capital lease -- 6,917
Current maturities of long-term debt 40,052 118,688
----------- -----------
Total current liabilities 522,590 413,951
OBLIGATIONS UNDER CAPITAL LEASE -- 16,035
LONG-TERM DEBT, less current maturities 100,803 127,688
----------- -----------
Total liabilities 623,393 557,674
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - 50,000,000 shares,$.002 par value, authorized;
10,612,051 and 7,808,451 shares issued and outstanding,respectively 21,224 15,617
Preferred stock - 1,000,000 shares, $1.00 par value,
authorized; 60,000 shares issued and outstanding 60,000 60,000
Additional paid-in capital 2,164,633 1,543,477
Retained earnings (deficit) (2,528,745) (1,787,477)
----------- -----------
Total stockholders' equity (deficit) (282,888) (168,383)
----------- -----------
$ 340,505 $ 389,291
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
The Bullhide Liner Corporation
Statement of Operations
(Unaudited)
For The Six Months Ended September 30, 1999 and 1998
1999 1998
----------- -----------
SALES $ 794,692 $ 1,037,021
COST OF SALES 474,201 803,417
----------- -----------
----------- -----------
GROSS PROFIT 320,491 233,604
----------- -----------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Advertising 33,043 33,082
Trade shows and exhibits -- 5,381
Marketing -- 33,834
Travel 2,050 34,992
Postage and shipping 5,772 13,854
Salaries and wages 222,895 294,794
Payroll taxes 16,150 21,614
Employee benefits 12,994 14,250
Taxes and Licenes (134) 7,390
Vehicle expense 744 2,051
Dues and subscriptions 348 1,319
Legal and professional fees 58,026 26,469
Office supplies 2,719 8,316
Shop supplies 2,316 20,202
Rent 24,740 42,801
Utilities 14,159 27,872
Depreciation 3,000 9,000
Amortization 2,400 2,400
Royalties 39,734 50,014
Other 18,857 19,473
Bad Debts 15,000 --
----------- -----------
474,813 669,108
----------- -----------
LOSS FROM OPERATIONS (154,322) (435,504)
GAIN ON THE SALE OF INVESTMENTS -- 5,000
GAIN ON THE SALE OF SPOKANE SHOP ASSETS 7,312 --
LOSS ON ABANDONMENT OF SPOKANE FACILITY (47,681) --
OTHER EXPENSE, interest (6,864) (7,426)
----------- -----------
NET LOSS $ (201,555) $ (437,930)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.0214) $ (0.0580)
=========== ===========
See accompanying notes to financial statements.
F-26
<PAGE>
The Bullhide Liner Corporation
Statement of Stockholders' Equity (Deficit)
(Unaudited)
For the Six Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------ ----------------------
Shares Shares Additional Retained
Issued and Issued and Paid-in Earnings
Outstanding Amount Outstanding Amount Capital (Deficit) Total
------------------------ ----------------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances (Deficit), March 31, 1999 7,875,451 $15,751 60,000 $ 60,000 $1,552,872 $(2,327,190) $(698,567)
ADD (DEDUCT):
Issuance of common stock 1,773,573 3,547 -- -- 667,375 -- 670,922
Stock offering costs -- -- -- -- (104,068) -- (104,068)
Issuance of common stock
on conversion of debt 483,827 968 207,540 -- 208,508
Officer and director stock awards 479,200 958 -- -- 59,450 -- 60,408
Stock subscription receivable -- -- (218,536) (218,536)
Net loss -- -- -- -- -- (201,555) (201,555)
----------- ------- -------- --------- ---------- ----------- ---------
Balances (Deficit), September 30, 1999 10,612,051 $21,224 60,000 $ 60,000 $2,164,633 $(2,528,745) $(282,888)
=========== ======= ======== ========= ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- -----------------------
Shares Shares Additional Retained
Issued and Issued and Paid-in Earnings
Outstanding Amount Outstanding Amount Capital (Deficit) Total
--------------------- ----------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances (Deficit), March 31, 1998 7,171,451 $14,343 60,000 $60,000 $1,048,090 $(1,349,547) $(227,114)
ADD (DEDUCT):
Issuance of common stock 637,000 1,274 -- -- 495,387 496,661
Net loss -- -- -- -- -- (437,930) (437,930)
--------- ------- ------ ------- ---------- ----------- ---------
Balances (Deficit), September 30, 1998 7,808,451 $15,617 60,000 $60,000 $1,543,477 $(1,787,477) $(168,383)
========= ======= ====== ======= ========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
The Bullhide Liner Corporation
Statement of Cash Flows
(Unaudited)
For the Six Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(201,555) $(437,930)
Adjustments to reconcile net loss to net cash
used in operating activities:
Net loss on sale and disposition of fixed assets 40,369 --
Depreciation and amortization 5,400 11,400
Sale of master distributorship for debt reduction (75,000)
(Increase) decrease in assets:
Receivables (151,456) (158,082)
Inventory 27,539 23,617
Prepaid expenses and deposits (9,227) 522
Security deposits (7,217) --
Increase (decrease) in liabilities:
Accounts payable 28,315 32,053
Accrued taxes (42,850) 23,763
Accrued payroll and employee benefits (4,144) 1,472
Accrued expenses 5,971 --
Accrued interest 6,147 3,768
Royalty payable 39,734 25,013
Customer deposits (4,883) (55,289)
--------- ---------
Net cash used in operating activities (342,857) (529,693)
--------- ---------
Cash Flows From Investing Activities:
Purchase of property and equipment -- --
Checks issued in excess of bank balance (15,930) (14,233)
Sale of property and equipment 6,470 --
Abandonment of leasehold improvements -- --
Proceeds from sale of investment -- 5,000
--------- ---------
Net cash used by investing acrtivities (9,460) (9,233)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 348,831 496,661
Stock offering costs paid (513) --
Borrowings on long term debt and lease obligations 7,253 82,022
Principal payments on long-term debt and lease obligations (1,519) (5,140)
--------- ---------
Net cash provided by financing activities 354,052 573,543
--------- ---------
Net Increase in Cash 1,735 34,617
Cash at the Beginning of the Period 2,875 7,595
--------- ---------
Cash at the End of the Period $ 4,610 $ 42,212
========= =========
Supplemental Disclosures:
Cash paid for interest $ 714 $ 2,754
Cash paid for income taxes -- --
Schedule of Noncash Investing and Financing Activity:
Debt converted to common stock 196,888 --
Accrued expenses and interest converted to common stock 72,028 --
Shop assets sold for assumption of notes payable 44,539 --
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements
(Unaudited)
Six Months Ended September 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
The Company has granted franchises for the operation of pickup truck bed liner
spray application shops initially targeted for the pickup truck bed liner
market. In July 1996, the Company discontinued the sale of franchises for the
operation of pickup truck bed liner spray application shops. Subsequent to July
1996, the Company commenced selling dealerships under exclusive licensing
agreements and expanded into the industrial flooring market. As of September 30,
1999, the Company has sold fifty-eight dealerships and has three operating
franchises. The Company grants credit to customers for sales of equipment and
materials throughout the United States. In addition, the Company operates a
pickup truck bed liner spray application shop in Spokane, Washington.
Summary of Significant Accounting Policies:
a. Method of accounting - The Company prepares its financial statements on
the accrual method of accounting, recognizing income when earned and
expenses when incurred.
b. Accounts receivable - The Company provides an allowance for doubtful
accounts based upon historical experience and a review of current
receivables.
c. Inventory - Inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market.
d. Furniture and equipment - Furniture and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial
reporting purposes. For federal income tax purposes, accelerated
methods are used.
e. Intangible assets - Intangible assets subject to amortization include
system development costs and logo/trademark development costs. System
costs are being amortized using the straight-line method over the
estimated life of 10 years. Logo/trademark costs are being amortized on
a straight-line basis over 40 years.
f. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
g. Sales - Spray application equipment is manufactured to customer
specifications and is recorded as a sale when the equipment is shipped
and customer acceptance is received.
(continued)
F-29
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
h. Advertising costs - Advertising (marketing) costs are expensed as
incurred. Advertising Expense was $33,043 and $33,082 for the six
months ended September 30, 1999 and 1998, respectively.
g. Loss per share - Loss per share is calculated based on the weighted
average of common shares outstanding. Diluted loss per share, based on
potential common stock such as warrants, options or contingent stock
agreements is not presented as such items are antidilutive.
h. Research and development - Research and development costs are expensed
as incurred.
i. Royalty expense - Royalty expenses are recognized concurrently with the
recognition of the related revenue.
j. Training and support - The Company provides training in the field and
ongoing support to licensed dealers. Costs are expensed and/or billed
as incurred.
NOTE 2 - INVENTORIES:
September 30,
----------------------
1999 1998
---- ----
Inventories consisted of the following:
Raw materials $ 16,899 $ 37,991
Machine parts 1,180 6,398
Dealer marketing materials 3,601 4,830
-------- --------
$ 21,680 $ 49,219
======== ========
The Company's raw materials consist of polyurethane resins. There was no work in
process production of materials at September 30, 1999. Production of spray
application equipment was outsourced during the six months ended September 30,
1999.
NOTE 3 - FRANCHISING OPERATIONS:
a. Significant commitments and obligations - The Company is obligated in
accordance with the terms of each franchisee's respective franchise
agreement to provide the following supervision assistance and services:
site location, spray application training, operations manual, and
advertising literature. In addition, franchisees are required to
purchase inventory from the Company.
b. Franchise activity - The number of franchises sold and in operation
during the six months ended September 30, 1999 and 1998 was three.
Current active franchises are located in Colorado, Canada, and Saudi
Arabia.
(continued)
F-30
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 3 - FRANCHISING OPERATIONS: (continued)
c. Franchise fees - Initial franchise fees and master dealership fees are
recorded as revenue when all the significant services relating to the
franchise and dealership sales have been performed by the Company.
d. Royalty - Each franchisee is required to pay a monthly royalty based on
sales, commencing one year after the franchise opens for business. The
Company has waived its right to receive royalties from franchisees
through September 30, 1999.
NOTE 4 - FURNITURE AND EOUIPMENT:
A summary of furniture and equipment follows:
September 30,
--------------------------
1999 1998
---- ----
Leasehold improvements $ - $ 20,231
Office furniture - 11,194
Computer 2,064 8,105
Vehicles - 28,200
Equipment 22,741 60,789
------- --------
24,805 128,519
Less accumulated depreciation 19,877 67,476
------- --------
Total $ 4,928 $ 61,043
======= ========
NOTE 5 - LONG-TERM DEBT:
Long-term debt consisted of the following:
September 30,
-------------
1999 1998
---- ----
Notepayable to bank, due in monthly installments of $817 including variable
interest; collateralized by substantially all assets and personally
guaranteed by a stockholder* $ - $ 28,740
Notepayable to bank, due in monthly installments of $367 including interest at
10%, maturing June 20, 1999; collateralized by vehicle and personally
guaranteed by a stockholder - 3,210
Notepayable to ex-franchisee, due in monthly installments of $1,350 including
interest at 8.5%, maturing July 31, 1999, including a $13,000 remaining
balance of the down payment on the franchise repurchase, with no stated
interest rate, and which was due and payable October 15, 1997 (see notes 8
and 15) 38,450 38,450
(continued)
F-31
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 5 - LONG-TERM DEBT: (continued)
September 30,
-------------
1999 1998
---- ----
Note payable to an unrelated party, principal and
interest are to be repaid by 105,400 shares of the
Company's stock for the 95,000 shares received. Balance
was paid in full on April 13, 1999. -- 57,700
Note payable to stockholders, interest at 8% and 10%
of the principal balance annually on March 31;
unsecured $102,405 $118,276
-------- --------
140,855 246,376
Less current maturities
Total 40,052 118,688
-------- --------
$100,803 $127,688
======== ========
* The Small Business Administration has guaranteed 90 percent of the original
amount ($50,000) of the note payable.
Total interest expense for the notes payable to stockholders was $6,147 and
$4,672 for the six months ended September 30, 1999 and 1998, respectively.
Maturities of long-term debt are as follows:
Six months ending
September 30, Amount
------------- ------
2000 $ 60,923
2001 79,932
2002 --
--------
$140,855
========
NOTE 6 - TRANSACTIONS WITH RELATED PARTIES:
During December the Company borrowed 78,000 shares of the Company's common stock
from Poly Chem Corporation which is 100% owned by a majority stockholder of the
Company. The Company sold the stock and received net proceeds of $37,744 (see
note 5). The Company agreed to issue 85,800 shares of common stock as repayment
to Poly Chem Corporation no later than February 28, 1999. The shares were issued
April 13, 1999.
During May 1999, the Company sold a master dealership for the northwestern
United States and Western Canada to its chairman (a majority stockholder) in
exchange for a reduction of $75,000 in the amount due him from the Company.
(continued)
F-32
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 7 - PREFERRED STOCK:
Holders of the preferred stock have equal voting rights with the common
stockholders. The preferred stock is redeemable at the option of the Company at
$1 per share. As of the reporting date, the Company has not exercised the option
to redeem any of the preferred stock. Upon liquidation, the holders of the
preferred stock are entitled to receive, as a preferential distribution, the par
value of the preferred stock before any assets are distributed to the common
stockholders.
NOTE 8 - COMMITMENTS:
On June 30, 1997, the Company purchased the technology rights from Poly Chem
Corporation for the materials used in the pickup bed liner and floor coating
processes as well as other polyurethane technology. Under the terms of the
purchase agreement, the Company will pay Poly Chem Corporation a royalty based
on five percent of total gross revenues of the Company to a maximum of $200,000.
As of September 30, 1999, $146,862 of royalties had been accrued, of which
$33,500 had been paid. Upon payment of the full $200,000 in royalties, Poly Chem
Corporation will transfer all of its interests in the formulation and technology
including, but not limited to, all patent rights therein, including the current
patent application 08/493858, and any and all future patent rights to Bullhide,
and shall have no further rights therein. The Company is in the process of
obtaining a patent for the materials used in the pickup bed liner process.
Future minimum royalty payments are as follows:
Year ending
September 30, Amount
------------- ------
2000 $166,500
========
On July 31, 1997, the Company repurchased the franchise rights together with
certain assets of an existing franchisee. Under the terms of the repurchase
agreement, the Company was obligated to pay the franchisee $88,700 under the
following terms:
Downpayment $ 2,500
Inventory 6,300
Monthly payments of $5,000 commencing October 15, 1997,
with no stated interest rate 38,200
Consulting services provided by the franchisee payable
at $1,000 per month commencing August 30, 1997 12,000
Remaining balance to be paid in monthly payments
of $1,350 including interest at 8.5%,
commencing August 30, 1997
29,700
--------
$ 88,700
========
To date, $45,250 has been paid (see note 5).
(continued)
F-33
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 9 - INCOME TAXES:
The Company's deferred tax asset was as follows:
September 30,
------------------
1999 1998
---- ----
Deferred tax asset arising from net
operating loss carryforwards $850,000 $607,000
Valuation allowance (850,000) (607,000)
-------- --------
Net deferred income tax asset $ - $ -
======== ========
At September 30, 1999, the Company had approximately $2,500,000 in net operating
loss carryforwards which are available to reduce future taxable income. The
carryforwards begin to expire in 2011.
For the years presented, the income tax provision (benefit) differs from the
amount expected using statutory tax rates because of the effects of the deferred
tax asset valuation allowance.
NOTE 10 - RECAPITALIZATION:
During the year ended March 31, 1997, the Company recapitalized its common and
preferred stock. Under the terms of the recapitalization, the par value of the
common and preferred stock were changed to $.002 and $1.00, respectively. The
number of authorized shares of common and preferred stock was increased to
50,000,000 and 1,000,000, respectively.
NOTE 11 - PRIVATE PLACEMENT:
On December 17, 1996, the Company was authorized to issue a private placement of
common stock. The Company is authorized to issue 10,000 units at $5.00 per unit.
As of July 10, 1998, all warrants were exercised (see note 12, paragraph 3).
Each unit consists of 50 shares of common stock and 95 redeemable stock purchase
warrants. The common stock purchase warrants are exercisable for one share of
common stock at $1.00 per share until December 17, 1998. The Company may redeem
the warrants at $.01 per warrant with 30-day prior written notice if the common
stock bid price equals or exceeds $2.50 per share for ten consecutive trading
days ending on the third day prior to or the date on which such notice was
given.
During the fiscal year ended March 31, 1998, all 10,000 units were sold, and
950,000 stock purchase warrants were exercised as of September 30, 1999 and
September 30, 1998.
(continued)
F-34
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 12 - SUBSCRIBED STOCK:
On April 1, 1999 an entity entered into an agreement with the Company to acquire
2,000,000 shares of free trading common stock at the stated price of $.50 per
share. The offering was completed on April 5, 1999 when the purchaser executed a
$1,000,000 promissory note payable to the Company with the stated interest rate
of twelve percent, and the unpaid principal and any earned interest due and
payable June 29, 1999. Subsequently, as the market price of the common stock
decreased, the agreement was periodically modified to amounts less than $.50 per
share. The remaining balance of the note was renegotiated for $412,000 as of
June 29,1999 and extended until June 30, 2000.
Under Emerging Issues Task Force (EITF) Issue 85-1, notes receivable for
subscribed stock may not be recorded as an asset. If such notes were recorded as
of September 30, 1999, assets and stockholders' equity would be increased by
$218,536.
Sales of the subscribed stock have been recorded as the proceeds were received
through September 30, 1999.
NOTE 13 - GOING CONCERN:
As shown in the Company's financial statements, the Company incurred net losses
of $201,555 for the six months ended September 30, 1999. In addition, the
Company has negative working capital of $224,154 and stockholders' deficit of
$282,886. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
Management is committed to the future of the Company and has taken the following
actions to keep the Company viable and in existence as a going concern:
1. The Company has utilized long-term debt from the original stockholders
to fund the development of several key aspects of the national
dealership system including advertising for both the local and national
promotion, legal aspects such as state registrations, and improvements
in application equipment, as well as the employment and training of the
needed personnel. These developments are expected to benefit the
organization in the future. In addition, on June 30, 1997, the original
stockholders of the Company converted long-term debt plus accrued
interest to common stock.
2. On July 6, 1997 the Company hired an executive vice president of sales
and marketing. The vice president's responsibilities included hiring
and training a team of independent sales representatives and developing
a national marketing plan. On January 27, 1998 he was promoted to
president and on October 14, 1998 to chief executive officer.
(continued)
F-35
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 13 - GOING CONCERN (continued):
3. The Company completed a private placement of common stock during July
1997 which resulted in the issuance of 10,000 units at $5.00 per unit.
Each unit consisted of 50 shares of common stock and 95 redeemable
stock purchase warrants. The Company received its symbol to trade on
the NASDAQ Bulletin Board on December 17, 1997. A secondary market for
the stock was established. As of July 10, 1998 all warrants were
exercised and the company received a net total of $783,629. The Company
has utilized this investment capital to expand national advertising and
exhibits at national and regional trade shows. Research and engineering
activities have also been expanded to produce the next generation of
application equipment and coating and lining products.
4. Recent marketing efforts in the industrial flooring and chemical
containment markets have resulted in positive sales. Generally, jobs in
the flooring and chemical containment markets are much larger than the
truck bed liner market and may result in a higher sales volume of
Bullhide materials per order and per dealer.
5. During April 1999, the Company began the process of restructuring the
Company's operations and administration by moving its corporate office
from Spokane, Washington, to south Florida. A fifth master
distributorship, serving the Northwest region, has been established in
Spokane by the Company's founder. This restructuring will save the
Company in excess of $250,000 in annualized costs.
6. On May 6, 1999, the Company engaged a law firm to prepare a
Registration Statement on Form 10-SB for the registration of its
securities with the SEC. Beginning in January 1999, the NASD has
required all prospective new listing companies to become registered
with the SEC in order to qualify for listing on the OTC Bulletin Board
exchange. Companies already on the exchange were given deadlines to
file a registration statement with the SEC. The Company's deadline to
complete its registration process with the SEC is October 1999.
NOTE 14 - ISSUANCE OF COMMON STOCK ON CONVERSION OF DEBT:
On April 13, 1999, the following liabilities were converted to common stock:
Notes payable to stockholders and officers $122,986
(related parties)
Note payable to stockholders 36,158
Note payable to Poly Chem Corporation 37,744
(a related party) --------
$196,888
========
(continued)
F-36
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 15 - PENDING LITIGATION:
On June 17, 1998, the holders of the note payable to ex-franchisee initiated
legal action to collect the remaining balance per the agreement. In addition,
the plaintiff has made a formal claim for compensation and lost opportunity to
pursue a successful business venture. The Company agrees to the note payable
liability and intends to vigorously defend the additional claims which the
Company considers groundless. The ultimate resolution of these matters is not
ascertainable at this time. No provision has been made in the financial
statements related to this claim.
On January 21, 1999, a Bullhide dealer initiated legal action for breach of
contract, fraud, and violation of the Tennessee Consumer Protection Act.
Plaintiff is seeking damages incurred. The Company intends to vigorously defend
the substantive claims in this case and is unable to estimate the success or the
amount or range of potential loss, if any.
NOTE 16 - LEASE COMMITMENT:
The Company leases the building facilities in Spokane, Washington from an
unrelated third party. During May, 1999, the Company moved its administrative
and accounting offices from the leased facilities to South Florida. The third
party lessor, the Company's Spokane dealer and the Company's officer remaining
in Spokane are exerting their best efforts to locate a suitable replacement
lessee or sub-lease. The Company has accrued an expense, which management
believes is adequate to cover future payments related to this lease, during the
six months ended September 30, 1999 as part of the loss on the abandonment of
the Spokane facility. Future minimum lease payments under the noncancellable
operating lease, with an option to renew, are as follows:
Year ended September 30, 2000 50,886
Year ended September 30, 2001 8,480
-------
Total future minimum lease payments $59,366
=======
(continued)
F-37
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 17 - EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share are calculated by dividing earnings (loss) per
share by the weighted average number of common shares outstanding during the
period.
Six Months Ended
September 30, 1999
------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
Income (loss) from continuing
operations $ (161,186) 9,401,649
Loss from sale/abandonment of
Spokane facility $ (40,369) 9,401,649
Less preferred stock dividends - -
---------- ---------
Income (loss) available to common
shareholders - Basic
earnings (loss) per share $ (201,555) 9,401,649 $(.0214)
========== ========= =======
There were no dilutive securities, options or warrants at September 30, 1999.
Six Months Ended
September 30, 1998
------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
Income (loss) from continuing
operations $(437,930) 7,547,380
Less preferred stock dividends - -
---------- ---------
Income (loss) available to common
shareholders - Basic
earnings (loss) per share $ (437,930) 7,547,380 $(.0580)
========== ========= =======
There were no dilutive securities, options or warrants at September 30, 1998
(continued)
F-38
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 18 - REVENUES FROM CUSTOMERS:
Following is a summary of revenues from external customers for the Company's
product groups:
Six Months Ended
September 30,
-------------
1999 1998
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
Product application sales $ 11,891 1.5% $136,333 13.1%
Chemical sales to dealers 459,251 57.8 385,451 37.2
Machines and machine parts 155,061 19.5 435,956 42.0
Dealer supply 5,590 0.7 34,191 3.3
Area development fees 162,899 20.5 45,000 4.3
Other - - 90 0.0
-------- ----- ---------- -----
Totals $794,692 100.0% $1,037,021 100.0%
======== ===== ========== =====
NOTE 19 - SUBSEQUENT EVENTS
The Company did not meet its October 6, 1999 deadline for registration with the
Securities and Exchange Commission (see NOTE 13). However, the Form 10-SB
Registration Statement was filed on October 1, 1999 and the Company's law firm
estimates a completed registration, with satisfactory response to Security and
Exchange Commission comments, during the period from November 30, 1999 to
January 31, 2000. As a result of the delayed registration, the Company's stock
trading has been transferred from the NASD O-T-C Bulletin Board to the O-T-C
"pink sheets." The NASD will probably return trading of the Company's stock to
the Bulletin Board as soon as the Securities and Exchange Commission
registration is completed.
F-39
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,875
<SECURITIES> 0
<RECEIVABLES> 111,461
<ALLOWANCES> 20,000
<INVENTORY> 49,219
<CURRENT-ASSETS> 163,555
<PP&E> 147,483
<DEPRECIATION> 78,177
<TOTAL-ASSETS> 265,187
<CURRENT-LIABILITIES> 778,714
<BONDS> 0
0
60,000
<COMMON> 7,857,451
<OTHER-SE> (698,567)
<TOTAL-LIABILITY-AND-EQUITY> 265,187
<SALES> 1,686,702
<TOTAL-REVENUES> 1,686,702
<CGS> 1,237,756
<TOTAL-COSTS> 2,638,613
<OTHER-EXPENSES> 25,732
<LOSS-PROVISION> (951,911)
<INTEREST-EXPENSE> 25,732
<INCOME-PRETAX> (951,911)
<INCOME-TAX> (951,911)
<INCOME-CONTINUING> (951,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (977,643)
<EPS-BASIC> (1273)
<EPS-DILUTED> (1273)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-START> Apr-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 4,610
<SECURITIES> 0
<RECEIVABLES> 262,917
<ALLOWANCES> 34,746
<INVENTORY> 21,680
<CURRENT-ASSETS> 298,434
<PP&E> 24,805
<DEPRECIATION> 19,877
<TOTAL-ASSETS> 298,434
<CURRENT-LIABILITIES> 522,590
<BONDS> 0
0
60,000
<COMMON> 9,985,218
<OTHER-SE> (202,888)
<TOTAL-LIABILITY-AND-EQUITY> 340,505
<SALES> 794,692
<TOTAL-REVENUES> 794,692
<CGS> 474,201
<TOTAL-COSTS> 320,491
<OTHER-EXPENSES> 474,813
<LOSS-PROVISION> (154,322)
<INTEREST-EXPENSE> 6,864
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (154,322)
<DISCONTINUED> (40,369)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (201,555)
<EPS-BASIC> (0214)
<EPS-DILUTED> (0214)
</TABLE>
EXHIBIT 99.1
NEWS RELEASE
Contact: Donald P. Visco
Vice President - Sales
Strategic Investors Group
954-567-1639
dvisco@stratego-net
-------------------
FOR IMMEDIATE RELEASE
- ---------------------
BULLHIDE UPDATES SHAREHOLDERS ON
PREVIOUSLY ANNOUNCED TRANSACTIONS
Deerfield Beach, Florida- January 26, 2000 - Bullhide Corporation (Pink
Sheets: BULH) is issuing this press release to revise and update certain
statements that it made in previous press releases over the past thirteen (13)
months.
In December 1998, Bullhide entered into a one year License Agreement
with Sears, Roebuck and Co. Pursuant to the License Agreement, the two companies
agreed to a two-store test in the Orlando area in which Bullhide would make use
of vacant space in these Sears Automotive Centers. As a licensee of Sears,
Bullhide had intended to install Bullhide spray-on bedliners and/or accessories
in truck beds, campers, trailers, and boat decks. Based on its contract with
Sears, Bullhide had made statements on its web site that it intended to
establish over 800 installation centers over the next five years. Bullhide had
also predicted that its total sales in year five would approach $64 million,
generating $12 million in net income and that it would sell over 960 Spraymaster
machines over the next five years. However, in August 1999, both parties
realized that they would not be able to perform as expected under the Licensing
Agreement. Accordingly, the License Agreement was terminated, and the projected
revenue and income from this Agreement will not be achieved.
In June 1999, Bullhide entered into negotiations with Scorpion Truck
Bedlinings, Inc. Scorpion has a low-cost spray-on truck bedliner system, which
it markets primarily to auto body and collision repair systems. Scorpion also
has a network of 300 dealers in 17 countries. Bullhide had hoped that it could
add Scorpion's low cost spray-on truck bedliner system to its product line and
benefit from Scorpion's network of dealers. In a June 22, 1999 press release,
Bullhide had stated that the Scorpion acquisition could increase Bullhide's
revenues 100% to almost $5,000,000. However, after completing its due diligence
investigation of Scorpion, Bullhide determined that the profitability of an
acquisition with Scorpion would not be as expected. Therefore, Bullhide has not
proceeded any further with these negotiations.
On June 15, 1999, Bullhide issued a press release pertaining to
Mountain States Home Improvement, Inc. ("MSHI"), one of its original equipment
manufacturers. MSHI produces Tread-Ex, a prefabricated staircase cover, designed
as a low cost permanent solution to concrete and
<PAGE>
wood stairs that are worn and in disrepair. In June 1999, MSHI completed a
contract to cover approximately 1,000 stairs, treads, risers and landings at a
condominium complex in Denver, Colorado. With approximately 50 signed contracts
in hand, each averaging 500 - 600 steps and $22,000 in revenue, MSHI anticipated
that it would purchase at least $4,200 worth of Bullhide products per day.
Based on these representations from MSHI, Bullhide estimated that MSHI's
purchases would generate revenues of approximately $1,500,000 and stated such in
a press release dated June 15, 1999. However, MSHI has not been making purchases
in these quantities and Bullhide is unable, at this time, to predict or forecast
the revenues from its relationship with MSHI.
Bullhide Corporation has a revolutionary patent pending
polyurethane-based material initially targeted for the pick-up truck bedliner
market. With its superior strength, toughness, anti-skid properties and
excellent chemical resistance, Bullhide has expanded into the industrial
flooring market. Additionally, when spray molded onto metal, wood, fiberglass or
concrete, this product provides: superior protection from corrosion and
deterioration, chemical containment; sound dampening; waterproofing; and,
equipment protection. For more information, visit Bullhide's web site at
www.bullhide.come.
- ------------------
2
