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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1998;
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22716
BOLLINGER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2502577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
602 FOUNTAIN PARKWAY
GRAND PRAIRIE, TEXAS 75050
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (972) 343-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on June 4, 1998, was $1,126,325.
The number of shares of common stock of the registrant outstanding on June 4,
1998, was 4,000,210.
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TABLE OF CONTENTS
<TABLE>
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ITEM PAGE
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PART I
1. Business......................................................................................... 1
2. Properties....................................................................................... 5
3. Legal Proceedings................................................................................ 5
4. Submission of Matters to a Vote of Security Holders.............................................. 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ........................... 8
6. Selected Financial Data.......................................................................... 8
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................... 10
8. Financial Statements and Supplemental Data....................................................... 18
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................................... 18
PART III
10. Directors and Executive Officers of the Registrant............................................... 19
11. Executive Compensation........................................................................... 21
12. Security Ownership of Certain Beneficial Owners and Management................................... 22
13. Certain Relationships and Related Transactions................................................... 24
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................. 25
</TABLE>
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PART I
ITEM 1. BUSINESS.
Bollinger Industries, Inc. (the "Company"), a corporation incorporated
under the laws of the state of Delaware in 1993, is a leading domestic supplier
of consumer fitness products. The Company imports and distributes, primarily to
mass retailers, an extensive consumer fitness line, including barbells and
dumbbells, aerobic steps, exercise mats, weightlifting belts and gloves,
reducing belts, suits and shorts, ankle and wrist weights, abdominal exercisers,
weightlifting bars, walking accessories including pedometers and pulse monitors,
and stationary exercise bicycles.
RESULTS OF RESTRUCTURING OF OPERATIONS
During the fiscal years ended March 31, 1996 ("fiscal 1996") and March
31, 1997 ("fiscal 1997"), the Company suffered substantial operating losses as
it changed its marketing focus from celebrity-endorsed products to Bollinger
branded items and reduced its significant investment in inventory. (Please refer
to the Company's Annual Reports on Form 10-K for fiscal 1996 and fiscal 1997 for
additional information). This restructuring effort was completed in the fiscal
year ended March 31, 1998 ("fiscal 1998") and operating losses were reduced by
$1.6 million between fiscal 1997 and fiscal 1998. Inventory levels decreased
from a high of $35.3 million in fiscal 1996 to $5.8 million at the end of fiscal
1998, and the Company anticipates further reductions in the first quarter of
fiscal 1999. The reductions in inventory level have a broad based effect on
operating income as labor, warehouse space, insurance and inventory carrying
costs are reduced.
Fiscal 1998 also saw the sale of the Company's trampoline product line
to Hedstrom Corporation in November 1997. The sale of this product line was
opportune for the Company, providing much needed capital and debt reduction.
Liabilities at the end of fiscal 1997 were $33.4 million comprised of $18.5
million in long term debt and $14.9 million in trade, other payables and the
reserve for restructuring. Liabilities at the end of fiscal 1998 were reduced to
$6.5 million comprised of trade and other payables and no indebtedness to a
financial institution. The debt reduction led to an overall improvement in net
income by reducing the Company's interest payments experienced in prior years
and improving the Company's negotiating position with overseas vendors.
Additionally, the Company has ceased manufacture and assembly of its
products, and commenced to source its product line from overseas vendors. This
has allowed the Company to experience a higher gross margin on the products it
markets and distributes, particularly in the hand-held accessory lines.
PRODUCTS AND MARKETS
The Company imports and sells a complete line of more than 200 fitness
accessory products, including barbells and dumbbells, aerobic steps and other
aerobic products, weightlifting belts and gloves, exercise mats, ankle and wrist
weights, weight lifting bars, waist trimmers, compression shorts and walking
accessories. Other fitness products include weight sets, supports and support
belts, hand grips, jump ropes and stationary bicycles. The majority of the
Company's products (with the exception of the stationary bicycles) retail for
less than $20.
In addition to the Bollinger Fitness (TM) trademark, the Company's
fitness accessories are sold under various trademarks to promote consumer
identification and coordinate affiliated products. Weightlifting products
include Starlock(C) weightlifting systems and BrightBells(C) dumbbells. Aerobics
items include the Step by Step(TM), Flex Step(TM) and Soft Step(TM) low impact
aerobic steps and RibMat(TM) exercise mats. Solar(TM)
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trimming products, Softone(C) wrist weights, and Exergrip(TM) strengthening
putty are examples of other fitness accessory products available through the
Company. The Company's stationary bicycles are sold under the ProTec(TM) mark.
The Company markets its fitness accessories primarily to mass
retailers, which include discount chains, department stores, sporting goods
retailers and sports superstores, warehouse clubs and direct response
television. In fiscal 1998, 1997 and 1996, the Company served approximately 300
to 500 accounts, although the Company's ten largest fitness accessory products
customers accounted for approximately 91%, 88% and 80%, of the Company's total
net sales in those years, respectively. In fiscal 1998 Wal-Mart accounted for
43.8% of gross sales and KMart accounted for 23.0% of gross sales. Examples of
discount chain customers include Wal-Mart, KMart and Target. Sears is a
representative department store customer. The mass retailer category also
encompasses catalog customers like J.C. Penney and catalog showroom customers
such as Service Merchandise. Sporting goods retailers and sports superstore
customers include The Sports Authority, Oshman's Sporting Goods, H. Modell &
Company, and Academy Sports. QVC and The Home Shopping Network are shop-at-home
cable television networks that provide a direct response television outlet for
the Company. Wal-Mart, KMart and Oshman's have been customers of the Company for
approximately 20 years. The loss of one or more of the major customers could
have a material adverse impact on the Company.
Quality is an important element of the Company's merchandising
strategy. To convey the image of quality to the consumer, the Company uses a
merchandising approach that emphasizes quality through easily recognizable
packaging and graphics. The Company's packaging style is uniform, with bright,
coordinating colors, which has enabled it to increase the in-store merchandising
impact of its products and awareness of the Bollinger brand name.
The Company employs a program approach in marketing and selling its
products to retailers. The products are presented to retailers as part of an
integrated line rather than as single items. The Company offers program
management services to help retail customers maximize results from the
presentation, merchandising, and sale of its products. These services include
(1) helping to plan product mix and merchandise the product, and (2) providing
responsive inventory management. The Company uses a computerized graphics system
to create customized planograms and other individualized marketing and sales
presentations for customers. Such presentations quickly illustrate how the
optimum selection of fitness accessory products would fit into a given amount of
shelf space. The depth and diversity of the Company's product line makes such
presentations possible, and enhances the Company's ability to present complete
category merchandising programs to retailers. The Company analyzes and validates
its recommendations with product tracking and store level research.
PRODUCT SOURCING
As part of the restructuring plan of fiscal 1996, which continued in
fiscal 1997 and 1998, the Company decided to cease the domestic manufacture of
its products and instead to source its products globally, with the lowest cost,
highest quality providers. This increased overseas sourcing enabled the Company
to lower the cost of its products, take advantage of freight savings as a result
of increased levels of product shipments, and, when products are shipped
directly to customers from overseas, to decrease warehouse facility expenses.
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The need for more overseas suppliers created a competitive pricing
environment that the Company plans to continue to use to its advantage. The
Company currently imports from China, Taiwan, Pakistan, Thailand, Malaysia and
Mexico. The Company's imported products are packaged in custom packaging
designed and monitored by the Company.
During fiscal 1998, as Company manufacturing was phased out,
approximately 24% of the Company's net sales were derived from products that
were manufactured domestically, as compared to approximately 49% and 50% in
fiscal 1997 and 1996, respectively. The Company's disposition of its trampoline
product line in fiscal 1998 provided further decreases in the Company's
manufacturing activities.
SALES
The Company uses independent sales representatives and in-house sales
personnel to market its products. In-house personnel are responsible for
overseeing the independent representatives and for direct sales to major
customers. The independent sales representatives work on a commission only
basis, and specialize in the sale of sporting goods products to mass retailers.
The independent sales representatives market a variety of sporting goods and
therefore generally have strong relationships with the trade customers. The
in-house sales personnel and the independent sales representatives coordinate
with the Company's marketing department to produce a unified marketing and sales
effort.
The Company's executive officers directly manage the accounts of the
largest customers and focus on the development of new customers. They are also
responsible for all other customers and the management of the independent sales
representatives.
The Company continues to support the development of international
sales. Through its separate international marketing group, it implements
programs which allow the Company to take advantage of its sourcing flexibility,
its merchandising expertise, and the depth of its product line to move into
foreign markets. It uses a variety of distributorship and trading partner
arrangements to allow access to these markets. Currently, the Company's products
are sold in 31 nations and export sales in fiscal 1998 were approximately $1.4
million.
PRODUCT DEVELOPMENT
The Company launched new initiatives at the beginning of fiscal 1998 to
focus on creating, obtaining and developing new and innovative products and
product ideas. The Company also regularly evaluates its existing products to
determine how they may be repositioned to enhance the Company's competitive
position in the marketplace. Additionally, the Company frequently reviews many
unsolicited product ideas submitted to it, but generally does not make any
advance commitments to purchase or license a new product submission. New
products and product ideas are derived from individual inventors, small
companies that do not have sufficient manufacturing capability or the
relationships with mass retailers needed to market a new product, or consumers
who submit new ideas based on personal experience. Once the Company has
identified a product that it decides to distribute and market, it determines
appropriate sourcing for the product to attempt to ensure both quality
manufacture and low costs. The Company's product lines currently include more
than 200 fitness accessory products.
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COMPETITION
The Company participates in a highly competitive industry, competing
with a number of established manufacturers, importers and distributors of
fitness products. Many competitors have significantly greater financial and
other resources than those available to the Company. The Company believes that
the principal competitive factors affecting its business include customer
service, manufacturing and distribution capabilities, price, marketing and
merchandising expertise, quality, brand name recognition and the ability to
create and develop a broad variety of innovative products and concepts.
The Company believes its principal competitors are large fitness
equipment manufacturers, which also sell fitness accessory products, and smaller
importers, which offer a more limited assortment of products than the Company or
its larger competitors. There are relatively few barriers to entry into the
fitness accessory products market.
The Company believes that one of the largest fitness and exercise
equipment manufacturers is Icon Health & Fitness, Inc. ("Icon"), which markets
products under the brand names of Weslo, Healthrider, Weider and ProForm. Icon
offers, among many other items, a line of packaged fitness accessory products
similar to the Company's fitness accessory products. Although the Company
believes that the majority of Icon's sales come from treadmills, exercise
machines, and weight benches, Icon competes directly with the Company for sales
of a large number of hand-held fitness accessory products. The Company believes
that Icon has larger net sales than the Company.
PATENTS AND TRADEMARKS
The Company has rights to a number of patented inventions, trademarks
and trade names used in connection with the sale and marketing of its products.
The Company does not believe it infringes on any patent, trademark or trade name
rights.
The Company currently owns and protects the rights to a number of U.S.
patents and additionally has a number of exclusive and nonexclusive licenses
under various other U.S. patents. It does not hold any foreign patents. The
Company does not view any single patent as critical to its business and most of
its patents or trademarks extend (with renewal options) for the next five years,
except for the exclusive rights to the name and likeness of Nolan Ryan in
connection with his endorsement of the Company's products, which expired in May
1997.
The Company owns a number of trademarks and has licensed the use of
additional trademarks in the U.S. The Company intends to protect such trademarks
to the fullest extent practicable. The Company has registered its trademark in a
number of foreign countries.
EMPLOYEES
As of March 31, 1998, the Company employed 120 persons on a full-time
basis (including 49 leased and 2 contract), of which 81 employees were engaged
in receiving, purchasing, warehousing, and shipping activities, and 39 employees
were engaged in sales, customer service, accounting, information technology, and
other administrative functions. In addition, the Company, from time to time,
uses part-time workers and/or contract labor. None of the Company's employees
are represented by a union, and the Company believes relations with its
employees are good.
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REGULATIONS
The Company and its products are subject to numerous federal, state,
and local laws, rules and regulations ("Regulations"). Among the more
significant of such Regulations are consumer product safety laws under which a
company's products can be barred from sale or subject to recall if found to be
hazardous; occupational safety and health laws; and environmental laws.
The Company is not a party to any threatened or pending material
regulatory action, other than as discussed below in "Item 3. Legal Proceedings."
ITEM 2. PROPERTIES.
The Company leases approximately 300,000 square feet of space in Grand
Prairie, Texas, which is currently used as the corporate offices and houses its
accounting and sales staff, as well as the main warehouse and shipping facility
(exclusive of bonded warehouse facilities that are located in California for
handling products). The lease on this facility expires May 1, 2004 and contains
a renewal option to extend the lease for an additional three years.
On December 31, 1997 the Company relinquished approximately 102,000
square feet of leased space at the Grand Prairie location without penalty.
Additionally, prior to the sale of the trampoline product line, the Company
moved from approximately 60,000 square feet of leased space in Americus,
Georgia. This lease was assumed by a local Georgia concern and the Company was
released from all obligations.
In September 1997 the Company sold a facility in Irving, Texas, which
contained 43,000 square feet, and previously housed the corporate, sales and
accounting staff.
The Company believes the current facility in Grand Prairie, Texas is in
excess of its needs and intends to continue to reduce warehouse space in the
future.
ITEM 3. LEGAL PROCEEDINGS.
Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust
Retirement Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D.
Bollinger, Bobby D. Bollinger, Curtis D. Logan, Michael J. Beck, John L.
Maguire, William Blair & Company, Rauscher Pierce Refsnes, Inc. and Grant
Thornton, L.L.P.; in the 68th Judicial District Court of Dallas County, Texas
(the "Suntrust Lawsuit"):
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Curtis D. Logan (former CFO), Michael J. Beck (former CAO), John L.
Maguire (Director), William Blair & Company (former underwriters of initial
public offering), Rauscher Pierce Refsnes, Inc. (former underwriters of initial
public offering) and Grant Thornton, L.L.P. (former independent accountants),
are defendants in a lawsuit filed on March 22, 1996, by shareholder Suntrust
Bank Atlanta, as Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf
of themselves, and all persons similarly situated. This lawsuit was filed as a
class action suit on behalf of those who purchased securities through a public
offering that were issued by the Company, alleging that the prices were
artificially inflated and maintained in violation of the anti-fraud provisions
of the securities law as well as common law. Initial briefing on the class
certification issues was completed following extensive discovery. Prior to the
certification hearing, plaintiff's amended their petition asserting claims on
behalf of a new plaintiff. Additional discovery is required on these new claims
before the Court can consider whether the case should proceed as a class action.
Significant additional discovery is also ongoing with regard to the merits of
plaintiffs' claims. The lawsuit seeks recovery of actual, treble, and exemplary
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damages, attorneys' fees and expert fees, as well as rescission, pre-judgment
interest and extraordinary equitable and/or injunctive relief. The case is
currently set for trial in October 1998 although it is unlikely that the case
will be ready for trial at that time. The Company believes it has several
meritorious defenses to plaintiffs' claims, and continues to explore the factual
basis for such defenses through the discovery process. Also note the STI lawsuit
described in the following paragraph, involving similar issues.
Civil Action No. 3:96C-V-0823-R; STI Classic Fund and STI Classic
Sunbelt v. Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger,
Curtis D. Logan, and Michael J. Beck; in the United States District Court for
the Northern District of Texas, Dallas Division ("the STI Lawsuit"):
The Company, Glenn D. Bollinger, Bobby D. Bollinger, Mr. Logan and Mr.
Beck, are defendants in this lawsuit filed on March 22, 1996, in the United
States District Court for the Northern District of Texas, Dallas Division, by
shareholders STI Classic Fund and STI Classic Sunbelt, on behalf of themselves
and all persons similarly situated. Like the Suntrust Lawsuit, this lawsuit was
also filed as a class action on behalf of a class of persons who purchased
securities issued by the Company at prices which allegedly were artificially
inflated and maintained in violation of the anti-fraud provisions under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 10b-5 thereunder. The plaintiffs seek damages, costs,
and expenses. Briefing on whether the case should proceed as a class action was
completed in May 1998 although the court has not ruled on the issue as of the
issue date of this Report. In the interim, plaintiffs' amendment of the state
court action resulted in the Company's filing of a motion to stay in this case.
The court has not ruled on the Company's request to stay this action pending
resolution of the substantially similar state court matter. Significant
discovery has been conducted, and is continuing simultaneously with discovery in
the state court action. The Company believes it has several meritorious defenses
to plaintiffs' claims, and is actively pursuing such defenses. The case is
currently set for trial October 1998.
The Company filed a lawsuit against Denise Austin on December 2, 1996
in the 162nd District Court of Dallas County, Texas that was subsequently
removed to the United States District Court for the Northern District of Texas,
Dallas Division Case Number 3-97-CV-0246-G on February 6, 1997. Subsequently a
suit was filed on December 30, 1996 by Denise Austin in the United States
District Court, Eastern District of Virginia. The suit was filed for payment of
royalties alleged to be due of approximately $655,000. The Company filed counter
claims in excess of such amount. Both of these suits were settled in July 1997.
In connection with the settlement, the Company recorded the reversal of accrued
royalty commission of $508,000, which is reflected in the income of the second
quarter of fiscal 1998.
The Company was contacted by the Department of Labor ("DOL") in fiscal
1996 in regard to certain questions about its former Employee Stock Ownership
Plan (the "ESOP"). Assets of the ESOP are held in the Company's 401(k) plan
which is the successor to the ESOP. The Company has responded to and cooperated
with the DOL. The DOL has not initiated any proceeding with respect to the ESOP
or any other of the Company's employee benefit plans.
The Internal Revenue Service ("IRS") is currently examining the
Bollinger Employees Retirement Plan and Trust ("Plan"). In order to maintain its
tax exempt status, the Plan must comply with certain tests and limitations of
the Internal Revenue Code of 1986, as amended (the "Code"). The Plan currently
has excess participant elective contributions over the maximum amount of such
contributions permitted. As a result, the possible violation of tax laws and
regulations could adversely effect the Plan's tax status. The Company has
retained counsel for representation in this matter. At this time, the effect of
such an IRS examination on the Company or the Plan, if any, cannot be
determined.
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In connection with an investigation by the Securities and Exchange
Commission, the Company consented to the entry of an order of permanent
injunction which enjoins the Company from violating the antifraud, periodic
reporting, record keeping and internal accounting controls provisions of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
regulations promulgated thereunder in the future in the conduct of its business.
Glenn Bollinger also consented to the entry of an order of permanent injunction
enjoining him from violations of the antifraud, record keeping, periodic
reporting and internal accounting controls provisions of the Exchange Act and
regulations promulgated thereunder in the future, and agreed to the payment of a
monetary penalty in the amount of $40,000. Ronald Bollinger also consented to
the entry of an order of permanent injunction enjoining him from violations of
the antifraud, record keeping, periodic reporting and internal accounting
controls provisions of the Exchange Act and regulation promulgated thereunder in
the future, and agreed not to act as a director or officer of a registered or
reporting entity.
From time to time, the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a party
to any other material litigation and is not aware of any litigation threatened
against the Company, arising in the ordinary course of business, that could have
a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the stockholders of the Company
during the fourth quarter of fiscal 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company completed its initial public offering ("IPO") of its common
stock $0.01 par value (the "Common Stock") during November 1993 at a price of
$12.50 per share. The Common Stock was quoted on the NASDAQ National Market
under the trading symbol "BOLL." However, due to delinquencies in filing certain
reports with the Securities and Exchange Commission and other matters, the
NASDAQ "delisted" the Company's Common Stock in August 1995. The Company's
Common Stock is currently traded over-the-counter. The following table sets
forth, on a per share basis for the periods indicated, the high and low closing
sale prices for the Common Stock as reported by a market maker of the Company's
Common Stock or the over-the-counter Bulletin Board.
<TABLE>
<CAPTION>
PRICE RANGE
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FISCAL 1998 FISCAL 1997
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HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
First Quarter ............... $ 1.50 $ 0.50 $ 3.00 $ 1.25
Second Quarter .............. 1.87 0.62 2.37 1.31
Third Quarter ............... 1.12 0.62 1.69 0.56
Fourth Quarter .............. 1.00 0.63 1.00 0.56
</TABLE>
On June 4, 1998 the closing sale price of the Common Stock as reported
by the over-the-counter Bulletin Board was $0.6875 per share. As of June 4, 1998
there were approximately 54 holders of record of the Common Stock.
The Company has not paid cash dividends on its Common Stock since its
inception. The Company's board of directors does not anticipate payment of any
cash dividends by the Company in the foreseeable future and such payments are
restricted by agreements with its primary lender.
ITEM 6. SELECTED FINANCIAL DATA.
The selected historical financial data presented below is derived from
the consolidated financial statements of the Company. The consolidated financial
data for the fiscal year ended March 31, 1994 is derived from the historical
consolidated financial statements of the Company, which have been audited by
Grant Thornton, L.L.P., independent certified public accountants. The
consolidated financial data for the fiscal years ended March 31, 1995, 1996,
1997 and 1998 are derived from the historical consolidated financial statements
of the Company, which have been audited by King Griffin & Adamson P.C. The
selected financial data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Company's consolidated financial statements and related notes included
elsewhere in this Report.
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<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
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1998 1997 1996 1995 1994
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (1)
Net sales ......................................... $ 58,794 $ 82,599 $ 80,300 $ 67,894 $ 38,746
Cost of goods sold ................................ 47,803 69,723 62,197 50,546 26,982
---------- ---------- ---------- ---------- ----------
Gross profit ................................. 10,991 12,876 18,103 17,348 11,764
Selling expenses .................................. 4,890 6,879 7,877 6,862 4,070
Distribution, general and administrative expenses . 9,963 11,506 12,115 8,422 4,224
Restructuring of operations ....................... -- -- 3,960 -- --
---------- ---------- ---------- ---------- ----------
14,853 18,385 23,952 15,284 8,294
---------- ---------- ---------- ---------- ----------
Operating profit (loss) ....................... (3,862) (5,509) (5,849) 2,064 3,470
Other expense (income)
Interest expense .............................. 1,749 2,552 2,252 1,167 667
Gain on sale of assets ........................ (11,248) -- -- -- --
Other ......................................... (55) (50) (105) (47) (65)
---------- ---------- ---------- ---------- ----------
(9,554) 2,502 2,147 1,120 602
---------- ---------- ---------- ---------- ----------
Earnings (loss) from continuing operations
before income tax expense (benefit) ... 5,692 (8,011) (7,996) 944 2,868
Income tax expense (benefit) ...................... 226 (92) (1,135) 350 1,042
---------- ---------- ---------- ---------- ----------
Earnings (loss) from continuing operations (2). 5,466 (7,919) (6,861) 594 1,826
Discontinued operations
Earnings (loss) from operations net of income
tax benefit ................................ -- -- (592) (525) 550
Gain (loss) on disposal, net of income tax
benefit including a $1,199,118 and
$325,380 provision for operating losses
during phase out period in 1996 and 1994 ... -- 478 (770) -- (573)
---------- ---------- ---------- ---------- ----------
Earnings (loss) from discontinued operations(3) . -- 478 (1,362) (525) (23)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) .............................. $ 5,466 $ (7,441) $ (8,223) $ 69 $ 1,803
========== ========== ========== ========== ==========
Per share data (basic):
Earnings (loss) from continuing operations ..... $ 1.37 $ (1.98) $ (1.85) $ 0.15 $ 0.59
========== ========== ========== ========== ==========
Net earnings (loss) ............................ $ 1.37 $ (1.86) $ (2.22) $ 0.02 $ 0.59
========== ========== ========== ========== ==========
Weighted average common and common equivalent
shares outstanding ............................. 4,000 4,000 3,710 3,967 3,079
========== ========== ========== ========== ==========
</TABLE>
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<TABLE>
<CAPTION>
MARCH 31,
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1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital .................................. $ 8,839 $ 15,994 $ 8,322 $ 15,725 $ 18,038
Total assets ..................................... 17,001 38,389 58,381 55,422 27,632
Total long term debt and capital leases .......... 815 15,642 577 223 500
Total debt and capital leases .................... 1,170 18,483 23,260 26,810 4,977
Stockholders' equity ............................. 10,487 5,021 12,463 20,467 19,398
</TABLE>
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(1) The Statements of Operations for fiscal 1995 and 1994 have been
reclassified to reflect the discontinued operations of the Healthcare
Division.
(2) The Company sold substantially all of the assets of the Healthcare
Division during September 1996. Earnings from continuing operations does
not reflect the results of operations for the Healthcare Division. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note C of "Notes to Consolidated Financial
Statements."
(3) Represents results of discontinued operations of the Healthcare Division.
See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note C of "Notes to Consolidated Financial
Statements."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto appearing elsewhere
in this Report.
GENERAL
The Company currently designs, imports, and distributes a variety of
fitness equipment accessories and related products.
During the fourth quarter of fiscal 1996, management undertook a
comprehensive review of the Company's marketing strategy, profitability and
liquidity, which resulted in the adoption of a three point plan (refer to Annual
Report on Form 10-K for fiscal 1996) (the "Restructuring Plan"). The components
of the Restructuring Plan are as follows: dispose of certain targeted inventory
and phase out certain celebrity-endorsed products; dispose of the Company's
sports medicine and safety products business (the "Healthcare Division"), and
revise certain operating policies and procedures. The Restructuring Plan was
implemented in fiscal 1997 and completed in fiscal 1998.
Additionally, on November 13, 1997 the Company and its wholly-owned
subsidiary, NBF, Inc., entered into an asset purchase agreement for the sale of
its Trampoline Product Line to Hedstrom Corporation. The transaction was
consummated on November 21, 1997, and the purchase price was $14,549,000 after
adjustments for inventory at closing. The Company received $13,549,000 in cash
and recorded $1,000,000 in escrow receivable payable to the Company in fiscal
1999.
RESTRUCTURING OF OPERATIONS
The most significant elements of the Restructuring Plan were to
substantially reduce inventory levels, and to reduce the emphasis on
celebrity-endorsed products. Through the implementation of the Restructuring
Plan, the Company expected to reduce interest costs, generate much needed
capital, reduce warehousing and
10
<PAGE> 13
related costs, reduce royalty expense, improve gross profit, and increase net
earnings per share. Inventory levels at fiscal year end have decreased
substantially from $30.1 million in fiscal 1996 to $16.2 million in fiscal 1997
to $5.8 million in fiscal 1998 and inventory originally targeted for expedient
disposal has been reduced from approximately $12.0 million in fiscal 1996 to
approximately $4.0 million in fiscal 1997 and completely disposed of by the end
of fiscal 1998. The Company has reduced interest costs from $2,552,000 in fiscal
1997 to $1,749,000 in fiscal 1998. The Company has also reduced warehousing
costs by reducing available space from 546,000 square feet in fiscal 1996 to
302,000 square feet the end of fiscal 1998. Royalty expenses for
celebrity-endorsed products have been substantially eliminated, and gross margin
as a percent of net trade sales has improved 3% from fiscal 1997 to fiscal 1998.
The Company did not experience improved gross margin dollars and related
earnings per share from this restructuring due to a decline in the overall sales
level of fitness accessory products. The Company has now achieved the principal
purposes of the Restructuring Plan.
DISCONTINUED OPERATIONS-HEALTHCARE DIVISION
Management determined in January of 1996 that it would be in the best
interest of the Company to dispose of its Healthcare Division. The largest
portion of this division was sold in September 1996, with the remainder disposed
of or abandoned in January 1997. The Company recorded a one time gain in
relation to this sale of $477,000 net of income tax expense of $246,000.
PROFITABILITY
The Company has experienced many areas of improvement, due to the
successful implementation of the Restructuring Plan, but there are several areas
that must continue to be addressed in fiscal 1999 for the Company to attain
operating profitability as discussed below.
NET SALES: The Company has experienced excessive customer returns and
allowances in the past, but has been able to stabilize the number and dollar
amount of these returns and allowances. Sales of the Company's fitness accessory
line weakened in fiscal 1998 due partially to increasing competition from
changes in a mass retailers' buying habits that include direct importation of
many fitness accessory items.
The demand for the Company's fitness accessory products often tracks
the demand for heavily promoted "infomercial" items presented by other light
equipment suppliers. The light equipment industry and the fitness accessory
category did not experience any significant promotions in fiscal 1998, which led
to a decline in demand for the Company's products.
COST OF SALES AND GROSS MARGIN: The Company experienced improved
margins due to lower inventory acquisition costs made possible by new sourcing
activities which was offset to a significant degree by the disposition of the
remaining targeted inventory at losses that exceeded the restructuring reserves.
The blended effect of these items was a 3 % improvement in gross margin from
fiscal 1997 to fiscal 1998 but a dollar erosion of $1.9 million due to reduced
sales volume. The Company believes that continuing to source its products from
lowest cost and highest quality providers will enable it to improve gross
margins in fiscal 1999, and further believes the addition of new product
offerings will significantly reduce sales erosion.
WAREHOUSING, SELLING, AND GENERAL AND ADMINISTRATIVE EXPENSES: During
fiscal 1998, as inventory levels were reduced and warehousing facilities
consolidated, the Company saw improvements in the fixed costs associated with
warehousing and storing of its products. The Company substantially reduced
warehousing, selling, and general and administrative expenses in fiscal 1998 for
an overall decline of $3.5
11
<PAGE> 14
million from the prior fiscal year based on improved internal controls, reduced
warehouse space and fewer royalties for celebrity-endorsed products. The Company
is currently installing a fully integrated computer system which should provide
faster access to critical information with less manual and clerical
intervention, the effect of which is to continue to lower costs through reduced
staffing and improved inventory management.
SALE OF ASSETS
In November 1997 the Company sold its trampoline product line for
$14,549,000 and received $13,250,000 cash from the sale of certain assets,
$299,000 cash for the sale of the adjusted inventory and $1,000,000 in an escrow
receivable.
In September of 1997, the Company sold the Irving, Texas facility for
$1,200,000 and received $1,106,000 cash after commission and other expenses.
In September 1996 the Company sold substantially all of the assets of
its Healthcare Division, which supplied sports medicine and safety products to
the medical markets. The Company realized a net gain from the sale of this
division of $477,000 net of income tax expense of $246,000. The results of
operations of the Healthcare Division are reflected in the Company's
consolidated financial statements for fiscal 1997 as discontinued operations.
RESULTS OF OPERATIONS
The following table presents for the periods indicated certain items
derived from the Company's consolidated statements of operations expressed as a
percentage of net sales. The trends in sales or earnings illustrated in the
following table may not be indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
PERCENTAGE OF NET SALES (DECREASE)
------------------------------------------ --------------------------
FISCAL FISCAL
FISCAL YEAR ENDED MARCH 31, 1998 1997
OVER FISCAL
1998 1997 1996 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales ................................... 100.0 100.0 100.0 (29) 3
Cost of goods sold .......................... 81.3 84.4 77.5 (31) 12
---------- ---------- ----------
Gross profit ........................... 18.7 15.6 22.5 (15) (29)
Selling expenses ............................ 8.3 8.4 9.8 (29) (13)
Distribution general and
administrative expenses ................. 17.0 13.9 15.1 (13) (5)
Restructuring of operations ................. 0.0 0.0 4.9 0 (100)
---------- ---------- ----------
25.3 22.3 29.8 (19) (23)
---------- ---------- ----------
Operating profit (loss) ................ (6.6) (6.7) (7.3) (30) (6)
Interest expense ............................ 3.0 3.1 2.8 (31) 13
Gain on sale of assets ...................... (19.2) 0.0 0.0 100 0
Other expense (income)-net .................. (0.1) (0.1) (0.1) 10 (52)
---------- ---------- ----------
(16.3) 3.0 2.7 482 16
Earnings (loss) from continuing
operations before income taxes ....... 9.7 (9.7) (10.0) 171 0
Income tax expense (benefit) ................ 0.4 (0.1) (1.5) 346 (91)
---------- ---------- ----------
Earnings (loss) from continuing
operations ........................... 9.3 (9.6) (8.5) 169 (15)
========== ========== ==========
</TABLE>
12
<PAGE> 15
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
The Company's fitness accessory products ("Fitness Accessory Products")
consist of two major product categories - trampoline products ("Trampoline
Products") and other fitness accessory products ("Other Fitness Accessory
Products"). The trampoline product category was sold in November 1997.
Net sales of Fitness Accessory Products in fiscal 1998 decreased by
approximately $23.8 million from fiscal 1997, a decrease of 28.8%. After
eliminating the effect of the sale of the trampoline product line before year
end (approximately an $8.0 million decline) the remaining $15.8 million decline
is attributable to net sales of Other Fitness Accessory Products, which
decreased 32.1%. The decrease in net sales of Other Fitness Accessory Products
resulted from an overall decline in demand for the Company's products and direct
importation by one of the Company's customers.
In fiscal 1995 and 1996 the Company had experienced a high rate of
product returns and customer chargebacks. The Company's method for recording and
analyzing chargebacks, including returned merchandise deductions, has improved
substantially over the last three years. The Company has improved internal
procedures for receiving and reworking product returns as they arrive in the
warehouse, increased the number and talent of the accounts receivable staff, and
included a full review of customer deductions and payment practices in the
management review process to avoid any significant unplanned adjustments to
earnings.
Returns and deductions from customers ranged from a high of
approximately 12% of sales in the first quarter to approximately 5% by fiscal
year end, however an average of 8% for the year is in line with the Company's
anticipated cost for returns.
Gross profit for Fitness Accessory Products in fiscal 1998 decreased by
approximately $1.9 million over fiscal 1997, and increased as a percentage of
net sales from 15.6% in fiscal 1997 to 18.7% in fiscal 1998. Other Fitness
Accessory Products improved by 2% from fiscal 1997 to fiscal 1998 due to
improved costs of products from overseas suppliers. The remaining improvement
was attributable to the trampoline product line.
Selling expenses for Fitness Accessory Products in fiscal 1998
decreased by approximately $2.0 million compared to fiscal 1997 and were 8.3% of
net sales in fiscal 1998 and in fiscal 1997. The dollar decrease in selling
expenses is attributed to the decrease in celebrity commissions, sales
commissions and royalties, as a result of discontinuing celebrity endorsements
and to reduced sales.
Distribution, general and administrative expenses for Fitness
Accessory Products decreased by approximately $1.5 million in fiscal 1998
compared to fiscal 1997 and increased as a percentage of net sales of Fitness
Accessory Products from 13.9% in fiscal 1997 to 16.9% in fiscal 1998. The
decrease in distribution, general and administrative expenses results from the
reduction of warehouse supplies, rent and labor costs. In addition,
distribution, general and administrative expenses were lower than the previous
fiscal year due to a decrease in insurance and bad debt expense, and better cost
controls partially offset by an increase in legal fees. The percentage increase
resulted because most distribution, general and administrative costs are fixed
and do not fluctuate with volume.
Operating loss from continuing operations in fiscal 1998 as compared to
fiscal 1997 improved by $1.6 million. As a percentage of net sales, operating
loss slightly improved from a 6.7% operating loss in fiscal 1997 to a 6.6%
operating loss in fiscal 1998.
13
<PAGE> 16
Interest expense for continuing operations in fiscal 1998 decreased
approximately $800,000 from fiscal 1997 primarily due to the reduction of debt
after receiving proceeds from the sale of the trampoline product line.
Additionally, the average loan balance was lower in fiscal 1998 due to
substantially lower inventory levels. Interest rates increased from 10.0% in
fiscal 1997 to 10.25% in fiscal 1998.
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
Net sales of Fitness Accessory Products in fiscal 1997 increased by
approximately $2.3 million from fiscal 1996, an increase of 2.9%. Approximately
$12.8 million of this growth is attributable to net sales of Trampoline Products
which increased 62.2%. The reduction of approximately $10.5 million is
attributable to net sales of Other Fitness Accessory Products, which decreased
17.6%. The decrease in net sales of Other Fitness Accessory Products resulted
from a continuing trend of a slow down of purchases of the Company's light
equipment items.
Returns and deductions from customers was reduced in fiscal 1997 from a
high of approximately 11% of sales in the first quarter to approximately 6% by
year end.
Gross profit for Fitness Accessory Products in fiscal 1997 decreased by
approximately $5.2 million over fiscal 1996, but decreased as a percentage of
net sales from 22.5% in fiscal 1996 to 15.6% in fiscal 1997. This is due, in
part, to Trampoline Products earning a lower gross margin than Other Fitness
Products and comprising a higher proportion of sales in fiscal 1997. Gross
margins of the Other Fitness Accessory Products were lower in fiscal 1997 than
fiscal 1996 due primarily to the sale of $5 million of inventory targeted for
disposal at a gross margin of 9% and the loss of the light equipment sales which
carry higher gross margin percentage than other fitness accessories.
Selling expenses for Fitness Accessory Products in fiscal 1997
decreased by approximately $1.0 million compared to fiscal 1996 and decreased as
a percentage of net sales of Fitness Accessory Products from 9.8% in fiscal 1996
to 8.3% in fiscal 1997. The dollar decrease and percentage decrease in selling
expenses in dollars is attributed to the decrease in celebrity endorsements.
Distribution, general and administrative expenses for Fitness
Accessory Products decreased by $600,000 compared to fiscal 1996 and decreased
as a percentage of net sales of Fitness Accessory Products from 15.1% in fiscal
1996 to 13.9% in fiscal 1997. The decrease in distribution, general and
administrative expenses in dollars is attributed to the reduction of excess
warehouse rent and labor costs. In addition, distribution, general and
administrative expenses were lower than in the previous fiscal year due to a
decrease in the use of temporary employees in the office and better cost
controls.
Operating loss from continuing operations in fiscal 1997 as compared to
fiscal 1996 decreased by $300,000. As a percentage of net sales, operating loss
decreased from a 7.3% operating loss in 1996 to a 6.7% operating loss in fiscal
1997.
Interest expense for continuing operations in fiscal 1997 increased
approximately $300,000 from fiscal 1996 primarily due to fees associated with
obtaining alternative financing. The average loan balance was lower in fiscal
1997 due to substantially lower inventory levels and decreases in accounts
payable. Interest rates improved from 11.75% to 10.0% in fiscal 1997.
14
<PAGE> 17
SEASONALITY; QUARTERLY RESULTS
In the past, the Company's net sales and earnings have been higher in
the last six months of the fiscal year compared to the first six months of the
fiscal year. This trend was mitigated by the seasonality of trampoline sales
which tend to be higher in the spring and Christmas selling seasons. The sale of
the trampoline product line in November 1997 substantially reduced sales during
the last two quarters of fiscal 1998. Net earnings for the Company will
generally rise and fall with sales volume, although not directly in proportion
to the change in net sales due to certain of the Company's expenses being
relatively fixed while others are variable. The Company's quarterly operating
results may also vary depending on such other factors as the timing of
significant customer orders, the mix of products sold, and the efficiency of
operations.
The following table sets forth selected quarterly unaudited information
for fiscal 1998, 1997 and 1996. In the opinion of the Company, such information
reflects all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the information set forth below. The operating
results for any quarter are not necessarily indicative of the results for any
future period. Dollars are in thousands, except per share data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL 1998 FISCAL 1997
-------------------------------------------- --------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 29, DEC. 29, MAR. 31,
1997 1997 1997 1998 1996 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales .......... $ 20,517 $ 15,107 $ 15,889 $ 7,281 $ 22,434 $ 19,093 $ 24,609 $ 16,463
Operating profit
(loss) .......... (21) (811) (1,474) (1,556) (124) (440) (1,300) (3,645)
Earnings (loss)
from continuing
operations ...... (638) (474) 7,646 (1,068) (765) (1,074) (2,017) (4,062)
Earnings (loss)
per share
from continuing
operations ...... (.16) (.12) 1.91 (.26) (0.19) (0.27) (0.50) (1.02)
<CAPTION>
FISCAL 1996
--------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .......... $ 12,762 $ 21,489 $ 31,648 $ 14,401
Operating profit
(loss) .......... (748) 1,434 1,683 (8,218)
Earnings (loss)
from continuing
operations ...... (703) 694 701 (7,553)
Earnings (loss)
per share
from continuing
operations ...... (0.19) 0.18 0.18 (2.03)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of financing in the past several years
have been short-term borrowings from banks, asset-based lenders and the IPO. The
Company's cash flow from operations was approximately $3.6 million for fiscal
1998 and approximately $5.0 million for fiscal 1997. The increase in cash flows
from operations for fiscal 1998 is due primarily to the sale of inventory and
the collection of accounts receivable.
In fiscal 1997 the Company secured a revolving credit facility with a
financial institution providing a maximum line of credit of $25 million, subject
to certain borrowing base requirements and covenants. As of March 31, 1998 there
was no outstanding balance. Availability under the line of credit was $3,755,000
at March 31, 1998. This facility matures August 16, 2000. The Company received
waivers for noncompliance of certain negative performance covenants of the loan
agreement involving compensation and repayment of subordinated debt. The Company
increased the overall aggregate compensation to executive officers and senior
management employees due to bonuses paid or accrued which had not been paid or
accrued in previous years. The Company paid the subordinated debt to the
officers following the sale of the Trampoline Product Line.
15
<PAGE> 18
Subsequent to the 1998 fiscal year end, at the request of the Company,
the loan agreement was favorably renegotiated with the financial institution
more closely reflecting the Company's current financial condition and financing
needs. The maximum line of credit was reduced to $15 million subject to certain
borrowing base requirements. The facility was extended to August 16, 2002 and
several of the performance covenants were revised or removed.
The outstanding balance under the credit line is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory. On March 31, 1998 the Company had no borrowings on the credit line.
Shortly before year end, the Company received $1,125,000 in cash from a major
customer that should have been properly payable to the purchaser of the
Trampoline Product Line. The Company advised the customer of this payment, but
the customer did not request an immediate repayment. Accordingly, this is
included in other payables on the Company's balance sheet at fiscal year-end.
From April 1, 1996 to August 16, 1996 the outstanding balances under a
previous credit facility bore interest at the bank's prime interest rate plus 3%
or approximately 11.75%. The current credit facility, as acquired August 16,
1996, initially bore interest at the rate of 10.00% through March 26, 1997, at
which time it increased to 10.25%.
Capital expenditures during fiscal 1998 were approximately $1.4
million. Approximately $1.0 million of the capital expenditure was for a new
computer system. The major components of the system are an IBM AS 400 computer
system connected to the users by a Novelle Network utilizing SAP Enterprise
Software named R-3. This system allows the Company to connect all its business
operations together, in an online, real time environment. Management expects
efficiencies of the system will provide improved customer service, enable
management to more precisely manage the Company's functions, especially
inventory, and allow the Company to operate with fewer employees. The Company
has budgeted approximately $200,000 for capital expenditures for fiscal 1999.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize data sensitive
information when the year 2000 arrives. Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail.
Although the Company's previous accounting system was believed to be
year 2000 compliant, in 1998 the Company began installing a new accounting
system that was confirmed by the vendor to address the year 2000 related issues.
The upgrade to the new system should be completed during the second quarter of
fiscal 1999. The Company has not analyzed the external factors, such as the
impact on those vendors and customers adversely affected by the year 2000 issue,
and has not assessed the related potential effect on the Company's business,
financial condition or results of operations. There can be no assurance that
computer systems and applications of other companies on which the Company's
operations rely will be converted in a timely fashion, or that such failure to
correct by another company would not have a material adverse effect on the
Company.
16
<PAGE> 19
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
To date, inflation and foreign currency fluctuations have not had a
material impact on the Company's operations. There can be no assurance, however,
that future inflation or foreign currency fluctuations will not have a material
adverse effect on the Company, or that the Company will be able to pass on
resulting cost increases without experiencing a reduction in demand for its
products. A substantial portion of the Company's existing indebtedness bears,
and future indebtedness may bear, interest that fluctuates with the prime rate.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
Certain statements contained in this Annual Report on Form 10-K,
including without limitation, statements containing the words "believes",
"anticipates", "intends", "expects", and words of similar import, constitute
"forward-looking statements". Such forward-looking statements involve numerous
assumptions about known and unknown risks, uncertainties and other factors which
may ultimately prove to be inaccurate. Certain of these factors are discussed in
more detail elsewhere in this Report, including without limitation under Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 1. "Business" and include the Company's ability to reverse
the erosion of gross margin efficiencies, to reduce distribution, general and
administrative expenses, including those associated with litigation, and to
achieve profitability. Actual results may differ materially from any future
results expressed or implied by such forward-looking statements. The Company
disclaims any obligation to update any forward-looking statements or publicly
revise any of the forward-looking statements contained herein to reflect future
events or developments.
PRODUCTS AND MARKETS
The Company believes there will continue to be an adequate market for
its products and product lines, but a substantial change in consumer preference
away from a particular product could seriously affect the Company's ability to
produce sales at the current level.
The Company's customer base is highly concentrated with a few key mass
merchandisers. Insolvency, a slow down in payments, or a change in buying habits
of any of these customers could have a material adverse impact on the Company.
LEGAL PROCEEDINGS
The Company and certain officers and directors are defendants in two
separate lawsuits that purport to be class actions and allege certain
misrepresentations and fraudulent actions by the defendants. While the Company
believes both actions are without merit, a negative outcome would have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Item 3. Legal Proceedings."
The Company is a party to various legal proceedings arising in the
ordinary course of business. The Company is not currently a party to any other
material litigation and is not aware of any litigation threatened against the
Company, arising in the ordinary course of business, that could have a material
adverse effect on the Company.
17
<PAGE> 20
ONGOING OPERATIONAL LOSSES
The improvements mentioned here and elsewhere in this Report were
implemented in fiscal 1997 and 1998, and other additional improvements are
continuing to be implemented in fiscal 1999. Management believes that based on
fully implementing these plans in fiscal 1999, and realizing the benefit of the
these improvements in fiscal 1999 and 2000, the Company's operating losses will
continue to be reduced.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The financial statements and supplementary data required to be included
in this Item 8 are set forth in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no changes in accountants or disagreements with it
accountants on accounting and disclosure to report under this Item 9.
18
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn D. Bollinger 47 Chairman of the Board, Chief Executive Officer and Director
Bobby D. Bollinger 45 Vice Chairman of the Board, President and Director
Rose Turner 41 Executive Vice President - Finance, Chief Financial Officer,
Treasurer and Secretary
James A. Burgin 55 Executive Vice President - Sales
Jack P. Carrithers 50 Executive Vice President - Marketing
Dell K. Bollinger 71 Senior Vice President - Administration
David Barr 39 Executive Vice President - Product Acquisition
Floyd DePauw 48 Controller and Chief Accounting Officer
John L. Maguire 67 Director
Stephen L. Parr 44 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.
Glenn D. Bollinger is a co-founder of the Company and has served as
Chairman of the Board and Chief Executive Officer and a Director since 1979. Mr.
Bollinger is primarily responsible for the Company's overall operations,
including inventory, purchasing and warehousing. Mr. Bollinger is Bobby
Bollinger's brother and the son of Mrs. Dell Bollinger.
Bobby D. Bollinger is a co-founder of the Company and has served as
Vice Chairman of the Board and President and a Director since 1979. Mr.
Bollinger is primarily responsible for sales, marketing and product development.
Mr. Bollinger is Glenn Bollinger's brother and the son of Mrs. Dell Bollinger.
Rose Turner became Senior Vice President - Finance, Chief Financial
Officer, Treasurer and Secretary of the Company in January 1997 and Executive
Vice President of Finance, Chief Financial Officer, Treasurer and Secretary in
October 1997 after joining the Company on a contract and then full time basis in
November 1995. Ms. Turner is a certified public accountant. Ms. Turner was most
recently employed by Mission Foods, a Division of Gruma Corporation, a privately
held company headquartered in Los Angeles, California. Ms. Turner served as
Regional Controller, Southwest Region. Previously she was employed by a variety
of food manufacturing companies for approximately thirteen years in increasing
roles of responsibility.
19
<PAGE> 22
James A. Burgin became Vice President - Sales in December 1993. He
became Executive Vice President Sales in November 1994. Before joining the
Company, Mr. Burgin was Executive Vice President of Dynamic Classics, Ltd.,
distributor of fitness products. Mr. Burgin was employed by Dynamic for
approximately three years. Prior to Dynamic, Mr. Burgin was employed by various
companies in the fitness and toy industries for approximately twenty years.
Jack P. Carrithers became acting Vice President - Marketing in December
1993 and was elected Vice President Marketing in May 1994. He became Executive
Vice President in November 1994. Before joining the Company, Mr. Carrithers was
a Vice President and Creative Director of Penny & Speier Advertising Agency from
July 1991 to November 1993. Prior to that employment, he was an Executive Vice
President and Creative Director of Evans Communications for six years. In these
past positions, Mr. Carrithers had responsibility for developing marketing and
advertising programs and materials for a broad range of products and services.
Dell K. Bollinger accepted an integral role in the Company's business
when it was founded by her sons, Glenn and Bobby Bollinger, in 1974. Mrs.
Bollinger has served as a Vice President of the Company since 1979.
David Barr became Vice President - Product Development in July 1994 and
became Executive Vice President Product Acquisition in August 1996. Prior to
joining the Company Mr. Barr was President and Owner of New Zone Corporation, a
privately held distributor of children's safety and related products. Prior to
that employment Mr. Barr held various positions at Tandy Corporation, Fort Worth
Texas, including Director of Marketing for Computer City.
Floyd DePauw became Controller and Chief Accounting Officer in October,
1996. Mr. DePauw is a certified public accountant. Before joining the Company,
Mr. DePauw was most recently the controller of Taylor Publishing Company, a
subsidiary of Insilco Corporation, a publicly owned company. He was employed by
Taylor in a variety of accounting positions for approximately 16 years. Prior to
being employed by Taylor, Mr. DePauw was employed by Zoecon Industries, Inc., a
chemical manufacturer, for approximately five years.
John L. Maguire became a Director in September 1993 and served as
interim Chief Financial Officer from August 1992 to August 1993. In addition,
the Company employs Mr. Maguire as a consultant on certain financial matters and
acquisitions. Mr. Maguire is a certified public accountant. Since 1982, he has
been self-employed, concentrating on private family investments. He was
previously Chief Financial Officer of Tyson Foods, Inc. for 12 years. Mr.
Maguire was a director of Arkansas Equity Growth Fund, Inc., a publicly-held
investment company, which was liquidated in July 1993 and subsequently
dissolved.
Stephen L. Parr became a Director of the Company in November 1995. Mr.
Parr is currently President of Navigator Capital Management, LLC. Mr. Parr was
previously a Vice President of Goldman Sachs where he was an international
specialist. Mr. Parr was with Goldman Sachs from 1977 to 1995. Mr. Parr serves
on the board of directors of Braman, Ltd., a furniture manufacturing company,
Nextek, Inc., a Alabama electronics company, Corphealth, Inc., a Texas
behavioral healthcare company, NavTel, LLC, a competitive local exchange
carrier, and Tominy, Inc., a year 2000 solution software company.
The Company's board of directors is currently composed of four
directors. All of the current directors serve until the next annual
shareholder's meeting or until their successors have been duly elected and
qualified. Certain of the directors and officers are defendants to lawsuits as
discussed in "Item 3. Legal Proceedings."
20
<PAGE> 23
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to file
reports of ownership with the Securities and Exchange Commission.
Based upon a review of Forms 3, 4, and 5 and amendments thereto furnished
to the Company, management of the Company has determined that during fiscal
year 1998 the following directors, officers and/or ten percent (10%) beneficial
owners of Common Stock of the Company failed to timely file with the Securities
and Exchange Commission one or more required reports on Form 3, 4, or 5
regarding transactions in securities of the Company:
<TABLE>
<CAPTION>
REPORTING NUMBER OF NUMBER OF
PERSON REPORTS TRANSACTIONS
<S> <C> <C>
Rose Turner 1 1
Floyd DePauw 1 1
</TABLE>
To the best knowledge of management of the Company, during fiscal year 1998 no
director, officer or ten percent (10%) beneficial owner of Common Stock of the
Company failed to file with the Securities and Exchange Commission any required
reports on Form 3, 4 or 5 regarding transactions in securities of the Company.
20A
<PAGE> 24
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation paid to the Company's
chief executive officer and the Company's four other most highly compensated
executive officers for services rendered in all capacities to the Company during
fiscal 1998, 1997 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
OTHER ANNUAL DIRECTORS
NAME AND SALARY BONUS COMPENSA- OPTIONS FEES
PRINCIPAL POSITION YEAR ($) ($) TION ($)(1) (#) ($)
------------------ ---- --- --- ----------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Bollinger ......................... 1998 275,717 100,000 -- -- 50,000
Chairman of the Board and 1997 275,717 -- -- -- --
Chief Executive Officer ................. 1996 275,717 -- -- -- --
Bobby D. Bollinger ......................... 1998 275,717 100,000 -- -- 50,000
Vice Chairman of the Board 1997 275,717 -- -- -- --
and President ........................... 1996 275,717 -- -- -- --
James A. Burgin ............................. 1998 121,201 60,000 -- -- --
Executive Vice President - 1997 118,120 3,008 -- -- --
Sales .................................. 1996 115,465 -- -- -- --
Rose Turner ................................. 1998 117,488 40,000 -- -- --
Executive Vice President - 1997 75,365 -- -- 33,000 --
Finance 1996 -- -- -- -- --
Chief Financial Officer,
Treasurer and Secretary
David Barr .................................. 1998 89,422 60,000 -- -- --
Executive Vice President - 1997 84,999 -- -- -- --
Product Acquisition .................... 1996 70,187 -- -- 10,000 --
</TABLE>
- -------------------------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits, however, do not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive.
OPTIONS EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executives concerning the exercise of options during fiscal 1998 and unexercised
options held as of the end of fiscal 1998. No options were granted in fiscal
1998.
21
<PAGE> 25
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END (#) YEAR-END ($) (1)
-------------------------- ---------------------------
SHARES
ACQUIRED ON
EXERCISE VALUE
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Burgin(2) -- -- 11,750 3,250 -- --
Rose Turner(3) -- -- -- 33,000 -- --
David Barr(4) -- -- 11,500 10,500 -- --
</TABLE>
- -------------------------
(1) Based on the closing sale price of the common stock on March 31, 1998, of
$0.8125 per share as reported by the over-the-counter Bulletin Board (minus
the exercise or base price).
(2) James A. Burgin was granted 10,000 options for $10.00 each in December
1993. These options vest over a five year period and expire in ten years.
James A. Burgin was granted 5,000 options for $11.00 each in December
1994. These options vest over a four year period and expire in ten years.
(3) Rose Turner was granted 33,000 options for $0.63 each in January 1997.
These options vest over a five year period and expire in ten years.
(4) David Barr was granted 10,000 options for $13.00 each in October 1994.
These options vest over a five year period and expire in ten years.
David Barr was granted 2,000 options for $11.00 each in December 1994.
These options vest over a four year period and expire in ten years. David
Barr was granted 10,000 options for $3.00 each in February 1996. These
options vest over a five year period and expense in ten years.
DIRECTOR'S COMPENSATION
Glenn Bollinger and Bob Bollinger receive $10,000 annually each.
This compensation was paid in fiscal 1998 on a retroactive basis to 1994.
Stephen Parr receives a fee of $30,000 annually and is reimbursed for
out-of-pocket expenses incurred in connection with attendance at board of
directors and committee meetings. Each independent director was granted options
to purchase 8,333 shares of Common Stock at the time he became a director. John
Maguire receives $36,000 annually and acts as a consultant on certain financial
matters and acquisitions. Please refer to Item 13. "Certain Relationships and
Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the shares of Common Stock of the Company, as of June 4,
1998, by (i) each director, (ii) the Company's chief executive officer and four
other most highly compensated executive officers in fiscal 1998, (iii) each
person deemed to beneficially own more than five percent of the outstanding
shares of Common Stock and (iv) all officers and directors of the Company as a
group. Except as otherwise indicated, each stockholder identified in the table
has sole voting and investment power with respect to his shares.
22
<PAGE> 26
<TABLE>
<CAPTION>
SHARES OWNED
------------------------------------
NAME NUMBER PERCENTAGE
- ---- ------ ----------
<S> <C> <C>
Glenn D. Bollinger (1)(2) 1,880,150 47.0
Bobby D. Bollinger (1)(3) 1,880,150 47.0
James A. Burgin (4) 11,750 *
Rose Turner -- *
David Barr (5) 11,500 *
John L. Maguire (6) 106,666 2.7
Richard J. Tucker 3,333 *
Stephen L. Parr 5,833 *
All directors and executive officers as a
group (11 persons) (7) (8) 2,456,501 61.4
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Business mailing address is 602 Fountain Parkway, Grand Prairie, Texas
75050.
(2) Includes (i) 425,069 shares over which Glenn Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Glenn Bollinger
Family Enterprises, Ltd., a Texas limited partnership, over which Glenn
Bollinger has shared voting and investment power with Bobby Bollinger
through each of their 49.5% ownership of the outstanding stock of the
sole general partner; (iii) 436,000 shares held by Bob Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Glenn
Bollinger has shared voting and investment power with brother Bobby
Bollinger through each of their ownership of 49.5% of the outstanding
stock of the sole general partner; and (iv) 583,081 shares held as one of
the trustees of the Company's 401(k) Plan successor to the Company's
Employee Stock Ownership Plan (the "401(k) Plan"), including Glenn
Bollinger, and over which he has shared voting and investment power.
Neither the inclusion of shares owned by Bob Bollinger Family
Enterprises, Ltd., nor the inclusion of any 401(k) Plan shares not
allocated to Glenn Bollinger's 401(k) participant account is to be
construed as an admission that he is the beneficial owner of such shares.
(3) Includes (i) 425,069 shares over which Bobby Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Bob Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Bobby
Bollinger has shared voting and investment power because he and his
brother Glenn Bollinger each own 49.5% of the outstanding stock of the
sole general partner; (iii) 436,000 shares held by Glenn Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Bobby
Bollinger has shared voting and investment power with Glenn Bollinger
through each of their 49.5% ownership of the outstanding stock of the
sole general partner; and (iv) 583,081 shares held by the trustees of the
401(k) Plan, including Bobby Bollinger over which he has shared voting
and investment power. Neither the inclusion of shares owned by Glenn
Bollinger Family Enterprises, Ltd., nor the inclusion of any 401(k) Plan
shares not allocated to Bobby Bollinger's 401(k) participant account is
to be construed as an admission that he is the beneficial owner of such
shares.
(4) Includes options to purchase 11,750 shares of Common Stock that are
exercisable within sixty days.
(5) Includes options to purchase 11,500 shares of Common Stock that are
exercisable within sixty days.
(6) Includes options to purchase 56,666 shares of Common Stock that are
currently exercisable or will be exercisable within sixty days. Does not
include 26,000 shares of Common Stock held in trust for which Mr. Maguire
is the trustee and is a contingent beneficiary. Mr. Maguire disclaims
beneficial ownership of these shares.
(7) Includes options to purchase 94,582 shares of Common Stock that are
exercisable within sixty days.
23
<PAGE> 27
(8) Shares which are included beneficially under both Glenn and Bobby
Bollinger are only included once in the group total.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1993, Glenn, Bobby and Dell Bollinger, purchased third party notes
payable of $500,000 with interest payable at 10% annum. They assumed the same
terms of the notes which matured on March 31, 1996. On March 29, 1996 the
Company paid Glenn and Bobby Bollinger $110,000 each on the notes. The Company
extended the maturity of the $100,000 note to March 31, 1998 and remaining notes
of $180,000 to August 16, 2000. The Company paid the $100,000 note in full on
December 4, 1997 to Dell Bollinger. On September 19, 1997 the Company paid
$33,000 to Glenn Bollinger and October 31, 1997 the Company paid $33,000 to
Bobby Bollinger. On December 31, 1997 the Company paid the $57,000 remaining
balance of each note to Glenn and Bobby Bollinger.
The Company believes that the terms of the above transaction were at
least as favorable to the Company as those which could have been obtained in an
arm's length transaction with an unaffiliated party.
During July 1995 the Company retained Richard Tucker as a consultant.
Shortly after his retention, Mr. Tucker became a director of the Company.
Pursuant to the consulting agreement, Mr. Tucker received $75,000 per year for 2
years, of which $75,000 was paid in fiscal 1997 and $56,250 was paid in fiscal
1996. The remaining $18,750 was paid in the first quarter of fiscal 1998 at
which time the consulting arrangement was terminated.
During October 1997 the Company entered into a marketing agreement with
First Fidelity Acceptance Corp. (FFAC). Mr. Tucker was the Chairman and Chief
Executive Officer of FFAC and also served as a Director of the Company. The
agreement called for an initial investment of $200,000 which was to return
monthly revenues based on the successful acquisition by FFAC of retail
installment sales contracts. Additionally, FFAC shall return the shortfall, if
any, between the monthly revenues and three times the original investment on the
first anniversary of the investment. Subsequent to the end of fiscal 1998, Mr.
Tucker resigned his directorship with the Company. The Company is seeking the
return of the original investment from the new management of FFAC.
All other transactions, if any, between the Company and any of its
directors, officers, principal stockholders, employees and other affiliates are
subject to the approval of a majority of the independent directors of the
Company who are disinterested in the transactions. All such transactions and
loans must be on terms no less favorable to the Company than those generally
available from unaffiliated third parties.
24
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
<TABLE>
<CAPTION>
1. FINANCIAL STATEMENTS PAGE
<S> <C>
Report of Independent Certified Public Accountants F- 1
Consolidated Balance Sheets as of March 31, 1998 and 1997 F- 2
Consolidated Statements of Operations for each of the three years in the period ended F- 4
March 31, 1998
Consolidated Statements of Changes in Stockholders' Equity for each of the three
years in the period ended March 31, 1998 F- 6
Consolidated Statements of Cash Flows for each of the three years in the period ended March 31, 1998 F- 7
Notes to Consolidated Financial Statements F- 8
</TABLE>
<TABLE>
<CAPTION>
2. FINANCIAL STATEMENT SCHEDULES PAGE
<S> <C>
Report of Independent Certified Public Accountants on Schedule F-28
Schedule II - Valuation and Qualifying Accounts for the years ended March 31, 1996, 1997 and 1998 F-29
All other schedules are omitted because they are inapplicable or the information
is otherwise shown in the financial statements or notes thereto.
</TABLE>
<TABLE>
<CAPTION>
3. EXHIBITS
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's
Form S-1 Registration Statement No. 33-69708)
3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Form S-1 Registration
Statement No. 33-69708)
4.1 Form of certificate representing shares of the Company's Common Stock (incorporated by reference to Exhibit
4.1 to the Company's Form S-1 Registration Statement No. 33-69708)
10.1 Bollinger Industries 1993 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's
Form S-1 Registration Statement No. 33-69708)
</TABLE>
25
<PAGE> 29
10.4 Bollinger Industries, Inc. 1991 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's Form S-1
Registration Statement No. 33-69708)
10.46 Eleventh Amendment to Loan and Security Agreement dated July 8, 1996,
between Bollinger Industries, LP, and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.46 to the Company's Form
10-Q for the quarter ended September 29, 1996)
10.47 Loan and Security Agreement dated August 16, 1996 between Bollinger
Industries, Inc., Bollinger Industries, LP and NBF, Inc. and Foothill
Capital Corporation and related schedules. (incorporated by reference
to Exhibit 10.47 to the Company's Form 10-Q for the quarter ended
September 29, 1996)
10.48 Collateral Assignment of Patents and Trademarks dated August 16, 1996
between Bollinger Industries, LP and Foothill Capital Corporation.
(incorporated by reference to Exhibit 10.48 to the Company's Form
10-Q for the quarter ended September 29, 1996)
10.49 Subordination Agreement dated August 16, 1996 between Glenn D.
Bollinger, Bobby D. Bollinger, Dell Bollinger and Foothill Capital
Corporation. (incorporated by reference to Exhibit 10.49 to the
Company's Form 10-Q for the quarter ended September 29, 1996)
10.50 Deed of Trust dated August 16, 1996 executed by Bollinger Industries,
LP (incorporated by reference to Exhibit 10.50 to the Company's Form
10-Q for the quarter ended September 29, 1996)
10.51 Asset Purchase Agreement dated August 29, 1996 between Bollinger
Industries, LP, and Rehab Plus Therapeutic Products, Inc.
(incorporated by reference to Exhibit 10.51 to the Company's Form
10-Q for the quarter ended September 29, 1996)
10.52 Tenth Amendment to Loan and Security Agreement dated July 8,1996,
between Bollinger Industries, LP, and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended June 30, 1996)
10.53 Asset Purchase Agreement dated August 29, 1996 between Bollinger
Industries, LP, and Rehab Plus Therapeutic Products, Inc.
(incorporated by reference to Exhibit 2.01 to the Company's Form 10-Q
for the quarter ended September 29, 1996)
10.54 Asset Purchase Agreement dated November 7, 1996, between Bollinger
Industries, LP, and SST Acquisition Corporation (incorporated by
reference to Exhibit 2.01 to the Company's Form 10-Q for the quarter
ended December 29, 1996)
10.55 First Amendment to Loan and Security Agreement dated August 16, 1996,
between Bollinger Industries, Inc., Bollinger Industries, LP and NBF,
Inc. and Foothill Capital Corporation. (Incorporated by reference to
Exhibit 10.55 to the Company's Form 10-K for the year ended March 31,
1997.)
10.56 Second Amendment to Loan and Security Agreement dated August 16,
1996, between Bollinger Industries, Inc., Bollinger Industries, LP
and NBF, Inc. and Foothill Capital Corporation. (Incorporated by
reference to Exhibit 10.56 to the Company's Form 10-K for the year
ended March 31, 1997.)
26
<PAGE> 30
10.57 Lease Agreement dated December 1, 1996 between Southwest Properties
Group, Inc. and Bollinger Industries, LP. (Incorporated by reference
to Exhibit 10.57 to the Company's Form 10-K for the year ended March
31, 1997.)
10.58 Third Amendment to Loan and Security Agreement dated June 11, 1997,
between Bollinger Industries, L.P. and NBF and Foothill Capital
Corporation. (Incorporated by reference to Exhibit 10.58 to the
Company's Form 10-Q for the quarter ended June 30, 1997.)
10.59 Twelfth Amendment to Loan and Security Agreement dated March 15,
1997, between Bollinger Industries, L.P. and Nations Bank of Texas
N.A. (Incorporated by reference to Exhibit 10.59 to the Company's
Form 10-Q for the quarter ended June 30, 1997.)
10.60 Commercial Contract of Sale dated July 18, 1997 between Bollinger
Industries, Inc. and Hsiehs Investments, Inc. (Incorporated by
reference to Exhibit 10.60 to the Company's Form 10-Q for the quarter
ended September 30, 1997.)
10.61 Asset Purchase Agreement dated November 13, 1997, between Bollinger
Industries, Inc., NBF, Inc., and Hedstrom Corporation. (Incorporated
by reference to Exhibit 10.61 to the Company's Form 8-K dated
November 26, 1997.)
10.62 Assignment and Assumption of Lease dated effective September 20, 1997
between Americus Sumter Payroll Development Authority, NBF, Inc., and
Plains Products, Inc. (Incorporated by reference to Exhibit 10.61 to
the Company's Form 10-Q for the quarter ended December 31, 1997.)
10.63 Lease Termination Agreement dated December 9, 1997 between National
Life Insurance Company and Bollinger Industries, Inc. (Incorporated
by reference to Exhibit 10.62 to the Company's Form 10-Q for the
quarter ended December 31, 1997.)
11 Statement regarding Computation of Per Share Data.*
21 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule.*
27.2 Restated Financial Data Schedule*
- ------------------
* Filed herewith.
(b) REPORTS ON FORM 8-K.
On January 28, 1998 the Company filed a Current Report on Form 8-K/A
(Amendment No. 1) to amend its Current Report on Form 8-K for an event
dated November 26, 1997. The purpose of the amendment was to provide
certain financial statements and pro forma financial information
regarding the sale of the Company's Trampoline Products line.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
The exhibits listed in Part IV, Item 14(a)(3) of this report, and not
incorporated by reference to a separate file, are included after
"Signatures," below.
(d) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X.
(INCLUDED UNDER PART IV, ITEM 14(a)(2)).
All schedules are omitted because they are not required, inapplicable
or the information is otherwise shown in the financial statements or
notes thereto.
27
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
June, 1998.
BOLLINGER INDUSTRIES, INC.
By: /S/ Glenn D. Bollinger
-----------------------------------
Glenn D. Bollinger
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of the 26th day of June, 1998.
/s/ Glenn D. Bollinger Chairman of the Board, President, and Chief
- ----------------------------- Executive Officer (principal executive
Glenn D. Bollinger officer)
/s/ Bobby D. Bollinger Vice Chairman of the Board and President
- -----------------------------
Bobby D. Bollinger
/s/ Rose Turner Executive Vice President - Finance, Chief
- ----------------------------- Financial Officer, Treasurer, and Secretary
Rose Turner (principal financial officer)
/s/ Floyd DePauw Controller and Chief Accounting Officer
- ----------------------------- (principal accounting officer)
Floyd DePauw
/s/ John L. Maguire Director
- -----------------------------
John L. Maguire
/s/ Stephen L. Parr Director
- -----------------------------
Stephen L. Parr
S-1
<PAGE> 32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1998. 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 that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1998, in conformity with generally accepted accounting
principles.
KING GRIFFIN & ADAMSON, P.C.
Dallas, Texas
June 11, 1998
F-1
<PAGE> 33
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 136,369 $ 3,481
Accounts receivable-trade, net of allowance for
doubtful accounts of $450,000 and $844,312
and allowance for returns and allowances of
$910,025 and $1,855,000 6,351,691 16,804,959
Escrow receivable 1,012,296 --
Other 424,335 177,208
Inventories 5,820,013 16,201,780
Prepaid expenses 793,511 533,215
----------- -----------
Total current assets 14,538,215 33,720,643
PROPERTY, PLANT AND EQUIPMENT - NET 1,864,993 2,083,402
OTHER ASSETS
Goodwill, net of accumulated amortization of $-
and $213,346 -- 1,138,654
Notes receivable and other 209,554 951,085
Deferred financing fees, net of accumulated
amortization of $372,390 and $140,385 388,564 495,568
----------- -----------
Total other assets 598,118 2,585,307
----------- -----------
TOTAL ASSETS $17,001,326 $38,389,352
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE> 34
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt and other debt (including $ 142,681 $ 2,841,645
$100,000 note payable to officer and shareholder in 1997)
Current portion of capital lease obligations 212,101 --
Accounts payable - trade 2,595,565 11,620,367
Income tax payable 224,700 --
Other current liabilities 1,016,513 1,104,318
Accrued product liability 381,957 --
Other payables - customer overpayment 1,125,627 --
Provision for restructuring of operations -- 2,160,169
------------- -------------
Total current liabilities 5,699,144 17,726,499
LONG-TERM LIABILITIES
Long-term debt, net of current portion (including $180,000 notes
payable to officers and shareholders in 1997) 36,505 15,641,720
Long-term capital lease obligations 778,319 --
------------- -------------
Total long-term liabilities 814,824 15,641,720
------------- -------------
Total liabilities 6,513,968 33,368,219
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes B, E and N) -- --
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value;
1,000,000 shares authorized; none issued -- --
Common stock - $.01 par value; 8,000,000 shares authorized;
4,000,210 shares issued and outstanding 40,002 40,002
Capital in excess of par 15,323,058 15,323,058
Accumulated deficit (4,875,702) (10,341,927)
------------- -------------
Total stockholders' equity 10,487,358 5,021,133
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,001,326 $ 38,389,352
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 35
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 58,793,757 $ 82,598,593 $ 80,300,431
Cost of goods sold 47,803,060 69,723,015 62,197,227
-------------- -------------- --------------
Gross profit 10,990,697 12,875,578 18,103,204
Selling expenses 4,889,999 6,878,803 7,876,538
Distribution, general and Administrative expenses
(including $166,250, $121,500 and $110,754 in 1998,
1997 and 1996 to Directors) 9,962,820 11,505,641 12,115,284
Restructuring of operations -- -- 3,960,000
-------------- -------------- --------------
14,852,819 18,384,444 23,951,822
-------------- -------------- --------------
Operating profit (loss) (3,862,122) (5,508,866) (5,848,618)
Other expense (income)
Interest expense 1,748,646 2,551,703 2,251,807
Gain on sale of assets (11,247,513) -- --
Other (55,008) (50,243) (103,921)
-------------- -------------- --------------
(9,553,875) 2,501,460 2,147,886
-------------- -------------- --------------
Earnings (loss) from continuing operations before
income tax expense (benefit) 5,691,753 (8,010,326) (7,996,504)
Income tax expense (benefit) 225,528 (91,964) (1,135,098)
-------------- -------------- --------------
Earnings (loss) from continuing operations 5,466,225 (7,918,362) (6,861,406)
Discontinued operations
Gain (loss) from operations, net of income tax
benefit -- -- (591,886)
Gain (loss) on disposal, net of income tax expense
(benefit) including a $1,199,118 provision
for operating losses during the phase-out
period in 1996 -- 476,967 (770,068)
-------------- -------------- --------------
Earnings (loss) from discontinued operations -- 476,967 (1,361,954)
-------------- -------------- --------------
Net earnings (loss) $ 5,466,225 $ (7,441,395) $ (8,223,360)
============== ============== ==============
Per share data (basic and diluted):
Basic earnings per share
Continuing operations $ 1.37 $ (1.98) $ (1.85)
Discontinued operations -- 0.12 (0.37)
-------------- -------------- --------------
Net earnings (loss) $ 1.37 $ (1.86) $ (2.22)
============== ============== ==============
</TABLE>
F-4
<PAGE> 36
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Dilutive earnings per share
Continuing operations $ 1.36 $ (1.98) $ (1.85)
Discontinued Operations -- 0.12 (0.37)
------------- ------------- -------------
Net earnings (loss) $ 1.36 $ (1.86) $ (2.22)
============= ============= =============
Shares used in the calculation of per share amounts:
Basic common shares 4,000,210 4,000,210 3,710,484
Dilutive impact of stock options 25,329 -- --
------------- ------------- -------------
Diluted common shares 4,025,539 4,000,210 3,710,484
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 37
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------------------- CAPITAL IN EARNINGS
EXCESS OF (ACCUMULATED
SHARES AMOUNT PAR DEFICIT) TOTAL
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1995 3,708,090 $ 37,081 $ 15,107,487 $ 5,322,828 $ 20,467,396
Shares issued on exercise of stock
options 292,120 2,921 215,571 -- 218,492
Net loss -- -- -- (8,223,360) (8,223,360)
-------------- -------------- -------------- -------------- --------------
Balance at March 31, 1996 4,000,210 40,002 15,323,058 (2,900,532) 12,462,528
-------------- -------------- -------------- -------------- --------------
Net loss -- -- -- (7,441,395) (7,441,395)
-------------- -------------- -------------- -------------- --------------
Balance at March 31, 1997 4,000,210 40,002 15,323,058 (10,341,927) 5,021,133
-------------- -------------- -------------- -------------- --------------
Net earnings -- -- -- 5,466,225 5,466,225
-------------- -------------- -------------- -------------- --------------
Balance at March 31, 1998 4,000,210 $ 40,002 $ 15,323,058 $ (4,875,702) $ 10,487,358
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 38
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 5,466,225 $ (7,441,395) $ (8,223,360)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities
(Gain) loss on disposal of assets (11,247,513) (476,967) --
Deferred income tax benefit -- (245,709) 1,148,050
Depreciation and amortization 1,206,358 891,417 651,500
Provision for restructuring of operations -- -- 3,960,000
Provision for returns and allowance 3,228,908 5,631,906 8,677,585
Provision for doubtful accounts 253,441 540,193 (311,514)
Provision for obsolete inventory 1,433,367 430,523 365,794
Changes in operating assets and liabilities
Accounts receivable-trade 6,672,291 (4,782,231) (10,191,049)
Other receivables (247,127) 52,527 81,476
Inventories 7,149,772 12,775,619 581,276
Income tax refund -- 2,307,235 (2,307,235)
Prepaid expenses (260,296) 58,366 658,348
Other assets 39,610 405,611 (44,161)
Current assets of discontinued operations -- 1,601,954 (1,601,954)
Accounts payable-trade (9,024,802) (5,309,916) 10,274,464
Income tax payable 224,700 (43,847) (389,849)
Other current liabilities 886,261 233,323 660,813
Provision for restructuring operation (2,160,169) (1,799,831) --
Non-current assets from discontinued operations -- 161,999 --
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 3,621,026 4,990,777 3,990,184
Cash flows from investing activities
Purchases of property, plant and equipment (1,022,443) (621,146) (425,041)
Payments made on notes receivable 339,310 187,097 --
Proceeds from sale of assets 15,789,008 1,418,129 58,329
Escrow receivable (1,012,296) -- --
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 14,093,579 984,080 (366,712)
Cash flows from financing activities
Proceeds from (payments on) long-term debt (433,458) 287,774 395,449
Net proceeds from (payments on) capital lease obligations 689,048 -- --
Payments made on long-term debt (17,432,307) (1,030,116) (445,018)
Net change in lines of credit -- (5,001,951) (3,500,000)
Net advance from (payments to) officers (280,000) -- --
Proceeds from issuance of common stock -- -- 218,492
Deferred financing fees (125,000) (635,954) --
--------------- --------------- ---------------
Net cash provided by (used in) financing activities (17,581,717) (6,380,247) (3,331,077)
--------------- --------------- ---------------
Net increase (decrease) in cash 132,888 (405,390) 292,395
Cash at beginning of year 3,481 408,871 116,476
--------------- --------------- ---------------
Cash at end of year $ 136,369 $ 3,481 $ 408,871
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 39
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BUSINESS ACTIVITY
The Company is a supplier of consumer fitness equipment and accessories.
(See Note C for a discussion of discontinued operations and sale of the
Trampoline Product Line.)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bollinger
Industries, Inc. ("Bollinger") which was reincorporated in Delaware in
September 1993, its wholly-owned subsidiaries, and Bollinger Industries,
L.P., a partnership wholly-owned by Bollinger's subsidiaries (collectively
the "Company"). All significant intercompany accounts and transactions
have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market (determined product by product on management
knowledge of current market conditions and existing stock levels).
The provision for obsolete and slow moving inventory is adjusted based on
current inventory levels, historical and expected future sales levels.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using
straight-line and accelerated methods for financial reporting purposes
over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements 5 - 20 years
Equipment 3 - 7 years
Automobiles 3 years
Furniture and fixtures 3 - 5 years
Amortization for capitalized leases (primarily
computer equipment and software) is provided
for over the shorter of the assets life or
lease terms 4 years
</TABLE>
Maintenance and repairs are expensed as incurred. Major renewals and
improvements are capitalized.
ADVERTISING COSTS
Advertising and promotional costs are expensed as incurred. The
advertising expense amounted to $1,610,722, $1,627,464, and $1,558,397 in
fiscal 1998, 1997 and 1996, respectively.
F-8
<PAGE> 40
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
FAIR VALUE
The Company believes that the carrying amounts of its current assets and
current liabilities approximate the fair value of such items due to their
short-term nature. The carrying amount of long-term debt approximates its
fair value because interest rates approximate market.
INCOME TAXES
Deferred income taxes are determined using the asset and liability method,
under which deferred tax assets and liabilities are calculated based on
differences between financial accounting and tax basis of assets and
liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense or benefit is the payable or refund for the period plus or minus
the change during the period in deferred tax assets and liabilities.
EARNINGS (LOSS) PER COMMON SHARE
The Company adopted SFAS No. 128, "Earnings per Share" ("SFAS 128")
effective December 15, 1997. This statement requires the replacement of
primary earnings per share with basic earnings per share and fully diluted
earnings per share with diluted earnings per share. Basic earnings per
share of common stock is based upon the weighted average number of common
shares actually outstanding during each period. Diluted earnings per share
of common stock includes the impact of outstanding dilutive stock options
for the year ended March 31, 1998. There were no dilutive options during
the two years ended March 31, 1997 and 1996.
GOODWILL AND COVENANT NOT TO COMPETE
The excess of the purchase price of acquired companies over the fair value
of net identifiable assets at the date of acquisition had been recorded as
goodwill and was being amortized on a straight line basis over a twenty
year period. If necessary the goodwill would be written down to fair
market value. The unamortized balance of goodwill and the covenant not to
compete were included in the sale of the trampoline product line. (See
Note C)
REVENUE RECOGNITION AND PROVISIONS FOR CHARGEBACKS AND BUYBACKS
The Company recognizes sales revenue at the time the products are shipped
to its customer. Provision is made currently for estimated product returns
and deductions which may occur. These returns are generally for products
that are salable with minor reworking of packaging or replacement of
missing components. The term "Chargebacks" refers to the action taken by
the customer to withhold from payments or to apply for credit amounts for
items such as volume discounts or rebates under marketing
F-9
<PAGE> 41
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
programs or pricing discrepancies, penalties, vendor compliance issues,
shipping shortages and any other similar item under vendor compliance
guidelines established by the customer. The provision for returns is
estimated based on current trends and historical experience of returns.
The provision for chargebacks is estimated based on the marketing programs
designed for the customer, and recent historical experience based on
volume.
In certain circumstances, the Company has followed a "buyback" policy
whereby the Company purchases competitors' product from a new customer in
order to obtain shelf space for the Company's product lines. The cost of
such "buybacks" is amortized over the life of the program, which typically
has been two to three years.
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used. In particular, the provision for chargebacks and
buybacks is subject to estimation. The actual chargebacks and buybacks
could vary from the estimate.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1998
presentation and to retroactively account for the discontinued Healthcare
Division.
STOCK OPTIONS
Prior to April 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On April 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of the grant. Alternatively, SFAS No. 123
also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock options grants made in 1996 and future
years as if the fair value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123 commencing in its March 31, 1997 financial statements.
ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting
F-10
<PAGE> 42
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
Comprehensive Income" ("SFAS 130"), which is effective for fiscal years
beginning after December 15, 1997. SFAS 130 requires companies to classify
items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid in capital in
the equity section of a statement of financial position. Management does
not believe this statement will have a material impact on the consolidated
financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure About Segments of an Enterprise and Related
Information" ("SFAS 131"), which is effective for fiscal years beginning
after December 15, 1997. SFAS 131 establishes additional standards for
segment reporting in the financial statements. Management has not
determined the extent of the disclosure required by, if any, SFAS 131.
NOTE B - ONGOING OPERATIONAL LOSSES AND LIQUIDITY
As indicated in the accompanying financial statements, the Company
generated net income of $5,466,225 after recording a one time gain on sale
of assets for $11,247,513 and incurred of a net loss of $7,441,395 during
the years ended March 31, 1998 and 1997, respectively.
Funds provided by operating activities for fiscal 1998 were generated
primarily by the reduction of inventory, the sale of the trampoline
product line and the reduction of accounts receivable. These funds were
used to fund operating losses and to decrease outstanding accounts payable
and long term debt. Funds provided by operating activities for fiscal 1997
were generated primarily by the reduction of inventory, the sale of the
Healthcare Division and the receipt of an income tax refund.
In fiscal 1999 management intends to substantially improve operating
gross margins on all product lines. Due to the highly competitive nature
of the overseas market, it has become cost advantageous to source more
items from overseas. The Company believes that sourcing its product from
the lowest cost, highest quality providers will have a positive impact on
gross margin and provide the Company with a competitive advantage in the
market place. Additionally, since the sell off of the targeted inventory
is complete, the negative effect of those sales will no longer be
experienced.
The Company plans to continue to further consolidate warehouse facilities
in fiscal 1999 thereby continuing to lower fixed costs. The Company is
also using freight expediters on the west coast to receive product from
the Orient, unload and inspect, and repack for shipment to the customer.
The Company intends to continue to reduce warehouse space, outside
facilities, staffing levels and related overhead expenses.
F-11
<PAGE> 43
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ONGOING OPERATIONAL LOSSES AND LIQUIDITY - Continued
The Company has begun to upgrade its Management Information System to
enhance the long-term commitment to its customers and to lower the cost of
doing business. To provide a stable platform to deliver its commitments,
the Company has selected hardware and software from IBM, SAP, and Holland
Technology as the source of its Enterprise Resource Planning (ERP),
system. The upgrade to the new system should be completed during the
second quarter of fiscal 1999.
Some of these changes were implemented in late fiscal 1998 and the other
additional improvements are continuing to be implemented in fiscal 1999.
Management believes that based on fully implementing these plans in fiscal
1999, and realizing the benefit of these improvements in fiscal 1999 and
2000, the Company's operating losses will be reduced and its liquidity
improved.
F-12
<PAGE> 44
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - DISCONTINUED OPERATIONS, RESTRUCTURING OF OPERATIONS AND DISPOSAL OF
TRAMPOLINE PRODUCT LINE
DISCONTINUED OPERATIONS
The Company determined during January 1996 to dispose of its Healthcare
Division, which manufactured a line of sports medicine and safety
products. The Company sold the largest portion of the Healthcare Division
in September 1996 with the balance sold or disposed of through January
1997. A gain on the sale of $476,967, net of taxes was recorded, in fiscal
1997. Result of operations in prior years have been restated to reclassify
the Healthcare Division as discontinued operations.
Interest expense has been allocated to discontinued operations based on
the proportion of average net assets of the discontinued Healthcare
Division operations as compared to consolidated average net assets of the
Company.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------
1997 1996
------------ -------------
<S> <C> <C>
NET SALES OF DISCONTINUED OPERATIONS:
Healthcare Division $ 1,398,400 (1) $ 3,327,893 (2)
------------ -------------
Total net sales of discontinued operations $ 1,398,400 $ 3,327,893
============ =============
LOSS (GAIN) FROM DISCONTINUED OPERATIONS (PRIOR TO THE
MEASUREMENT DATE):
Healthcare Division $ -- $ 689,784 (2)
Less: Tax (expense) benefit -- 97,898
------------ -------------
Net loss (gain) from discontinued operations - Healthcare Division $ -- $ 591,886
============ =============
LOSSES ON DISPOSAL, INCLUDING PROVISION FOR OPERATING
LOSSES DURING PHASE-OUT PERIOD:
Healthcare Division $ -- $ 897,574
Less: Tax benefit -- 127,506
------------ -------------
Net loss on disposal - Healthcare Division $ -- $ 770,068
============ =============
</TABLE>
(1) April 1, 1996 to December 31, 1996 (final disposition).
(2) April 1, 1995 to December 31, 1995.
F-13
<PAGE> 45
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - DISCONTINUED OPERATIONS, RESTRUCTURING OF OPERATIONS AND DISPOSAL OF
TRAMPOLINE PRODUCT LINE - Continued
Following is a summary of the discontinued operations:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------------
OPERATING LOSSES DURING PHASE-OUT PERIOD (AFTER MEASUREMENT DATE) APRIL 1997 1996
1, 1996 TO SEPTEMBER 1996: ---------------------- ----------------------
<S> <C> <C>
Healthcare Division-January 1, 1996 to December 31, 1996 $ -- $ 1,397,574
Less: Tax benefit -- 198,456
---------------------- ----------------------
Total operating losses during phase-out period included above $ -- $ 1,199,118
====================== ======================
NET LOSS FROM DISCONTINUED OPERATIONS (AFTER MEASUREMENT DATE) APRIL, 1996 TO
DECEMBER 31, 1996 AND JANUARY 1, 1996 TO MARCH 31, 1996:
Operating loss from discontinued operations - Healthcare Division $ -- $ 497,574
Less: Tax benefit -- 70,656
---------------------- ----------------------
Net loss from discontinued operations January 1, 1996 to
March 31, 1996 $ -- $ 426,918
====================== ======================
ESTIMATED NET LOSS ON DISPOSAL OF HEALTHCARE
DIVISION:
Estimated operating loss during phase-out period
April 1, 1996 to December 31, 1996 $ -- $ 900,000
Less: Estimated gain on sale of assets -- 500,000
---------------------- ----------------------
-- 400,000
Less: Tax Benefit -- 56,850
---------------------- ----------------------
Estimated Net loss on disposal of Healthcare Division $ -- $ 343,150
====================== ======================
NET GAIN ON DISPOSAL OF HEALTHCARE DIVISION:
Loss during phase out period net of provision (April 1996 to
December 1997) $ -- $ --
Add: Gain on Sale of assets 722,676 --
---------------------- ----------------------
722,676 --
Less: Tax expense 245,709 --
---------------------- ----------------------
Net gain on disposal of Healthcare Division $ 476,967 $ --
====================== ======================
</TABLE>
Proceeds from the sale of the Healthcare Division were as follows; $1,418,130 in
cash and $293,547 as a note receivable.
F-14
<PAGE> 46
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - DISCONTINUED OPERATIONS, RESTRUCTURING OF OPERATIONS AND DISPOSAL OF
TRAMPOLINE PRODUCT LINE - Continued
RESTRUCTURING OF OPERATIONS
During the fourth quarter of 1996 the Company implemented a plan (the "Plan") to
reorganize and restructure its operations. The significant portion of this Plan
has been completed. In accordance with the Plan, management disposed of its
Healthcare Division, and sold a significant portion of the excess inventory
which it used to reduce accounts payable and debt, and fund operations.
At March 31, 1998, the Company had liquidated substantially all of the original
$11,800,000 targeted inventory and had less than $100,000 book value remaining
in inventory. The remaining inventory and reserve is included in inventories.
See "Note F-Inventories."
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997 March 31, 1996
-------------- -------------- --------------
Inventory Reserve Inventory Reserve Inventory Reserve
Value Amount Value Amount Value Amount
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Celebrity
Endorsed
Product $ 0 $ 0 $ 843,000 $ 250,000 $ 5,175,000 $ 1,730,000
Other Product 0 0 3,188,000 1,910,000 6,625,000 2,028,000
Other Costs -- -- -- -- -- 202,000
------------- ------------- ------------- ------------- ------------- -------------
Total $ 0 $ 0 $ 4,031,000 $ 2,160,000 $ 11,800,000 $ 3,960,000
============= ============= ============= ============= ============= =============
</TABLE>
DISPOSAL OF TRAMPOLINE PRODUCT LINE
On November 21, 1997, the Company disposed of its Trampoline Product Line for
total cash consideration of $14,560,924. Included in the consideration is
$1,012,296 held back by the purchaser as an escrow amount, and reflected as such
in the March 31, 1998, consolidated balance sheet. The escrow will be paid to
the Company during fiscal 1999. The gain on sale of this product line is
$10,361,614.
The unaudited pro forma results of operations for the years ended March 31,
1998, 1997 and 1996 stated as though the disposition occurred on April 1, 1995
is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 33,416,828 $ 49,203,331 $ 59,713,170
============= ============= =============
Net earnings (loss) $ 3,700,903 $ (7,317,803) $ (7,970,156)
============= ============= =============
Net earnings (loss) per common share $ 0.93 $ (1.83) $ (2.15)
============= ============= =============
</TABLE>
F-15
<PAGE> 47
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Interest paid $ 1,696,583 $ 2,470,054 $ 2,213,613
Income taxes paid (refund
received) $ -- $ (2,100,611) $ 200,000
Non-cash financing and investing transactions:
Purchase of assets financed by debt $ 322,912 $ 66,381 $ 42,488
Sale of assets-paid in escrow by
buyer $ 1,012,296 $ 17,328 $ --
Notes receivable in connection with
sale of Healthcare Division $ -- $ 293,547 $ --
Liabilities assumed by buyer in
connection with the sale of
Trampoline Product Line in 1998 and
Healthcare Division in 1997 $ 179,954 $ 16,843 $ --
</TABLE>
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
On July 18, 1997, the Company entered into an agreement for the sale of the
Irving facility. On September 26, 1997, the contract was executed with the
following cash flow effect:
<TABLE>
<S> <C>
Sales price $ 1,200,000
Commission and fees 81,224
-----------
Proceeds from sale of building 1,118,776
Liabilities assumed by buyer 12,429
-----------
Cash received $ 1,106,347
===========
</TABLE>
On November 13, 1997, the Company and its wholly owned subsidiary NBF, Inc.
entered into an asset purchase agreement for the sale of its trampoline product
line to Hedstrom Corporation. The contract was executed on November 21, 1997 and
the Company received $13,250,000 cash from the sale of assets and $298,628 cash
for sale of the adjusted inventory, with the balance of the consideration,
$1,012,296 held in escrow.
Shortly before the 1998 fiscal year end, the Company received $1,125,000 in cash
from a major customer that should have been properly payable to the purchaser
of the Trampoline Product Line. This cash is included in other payables on the
Company's balance sheet at year end.
F-16
<PAGE> 48
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - CREDIT RISK
The Company's assets which are subject to potential credit risk consist
primarily of trade accounts receivable and cash. The Company sells its products
primarily to retailers, including national chains, geographically dispersed
throughout the United States on an unsecured basis. Risks associated with
extension of credit to customers are affected by the economic condition of the
retail industry. The Company performs ongoing credit evaluations of its
customers' financial condition to reduce credit risk. The Company has provided
an allowance for doubtful accounts which reflects its estimate of uncollectible
accounts.
Cash is at risk to the extent that it exceeds Federal Deposit Insurance
Corporation ("FDIC") insured amounts (approximately $691,000 at March 31, 1998).
To minimize risk, the Company places its cash with high quality credit
institutions.
NOTE F - INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Raw materials $ 336,285 $ 9,013,914
Work-in-process -- 328,436
Finished goods 7,686,607 8,419,200
Reserve for obsolescence (2,202,879) (1,559,770)
--------------- ---------------
$ 5,820,013 $ 16,201,780
=============== ===============
</TABLE>
NOTE G - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land, buildings and improvements $ 317,245 $ 1,915,305
Equipment 1,908,322 1,699,103
Automobiles 21,430 53,860
Furniture and fixtures 1,113,115 1,453,910
------------ ------------
3,360,112 5,122,178
Less accumulated depreciation 1,495,119 3,038,776
------------ ------------
$ 1,864,993 $ 2,083,402
============ ============
</TABLE>
Depreciation expense for the years ended March 31, 1998, 1997, and 1996 was
approximately $556,000, $558,000, and $554,000, respectively. Included in
equipment at March 31, 1998, is $990,420 of equipment under capital lease.
Amortization expense on the capital lease will begin in fiscal 1999.
F-17
<PAGE> 49
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - NOTES PAYABLE AND LONG TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Note payable under a line of credit for $2,000,000 with a bank, bearing interest
at the prime rate 8.50% plus 3% in 1997. Principal and interest payable monthly;
collateralized by land and building located in Irving, Texas in 1997. (1) $ -- $ 1,700,000
Loan with a financial institution providing a maximum line of credit of
$25,000,000, bearing interest at the reference rate (8.50% at March 31, 1998)
plus 1.75% in 1998. Interest payable monthly; collateralized by
receivables and inventory.(2) -- 15,498,049
Notes to certain officers and shareholders of the Company bearing interest at
10%, due in March 1998, as extended; collateralized by real estate note
(purchased by officers and shareholders from an individual in December 1993) -- 280,000
Other 179,186 1,005,316
------------- -------------
179,186 18,483,365
Less current portion 142,681 2,841,645
------------- -------------
$ 36,505 $ 15,641,720
============= =============
</TABLE>
(1) The loan agreement with the bank provides that borrowings are reduced
monthly by the amount of required principal payments (approximately $25,000 per
month) in terms of an agreement reached in June 1997. The loan was paid off in
November, 1997.
(2) The loan agreement with the financial institution provides that borrowings
under the line of credit are subject to limitations based on the borrowing base,
as defined in the agreement with a maximum facility of $25 million. The terms of
the agreement require the Company to maintain specific current ratio levels,
levels of debt to net worth, levels of tangible net worth and other financial
covenants as defined in the loan agreement. At December 31, 1996 and March 31,
1997, the Company was not in compliance with all covenants. The financial
institution waived such defaults through March 31, 1997 and restated those
covenants on a going forward basis. During 1998, the Company received waivers
for non-compliance of certain negative performance covenants of the loan
agreement involving compensation and subordinated debt. The Company is currently
in compliance with the terms and covenants of a new agreement reached subsequent
to March 31, 1998. At March 31, 1998 the Company had $3,755,000 available in
additional borrowing capacity under the loan agreement. The loan agreement has
an extended expiration date of August 16, 2000. Subsequent to March 31, 1998, at
the request of the Company, the loan agreement was favorably renegotiated with
the financial institution more closely reflecting the Company's current
financial condition and financing needs. The maximum line of credit was reduced
to $15 million subject to certain borrowing base requirements. The facility was
extended to August 16, 2002 and several of the performance covenants were
revised or removed.
F-18
<PAGE> 50
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - CONTINUED
Future maturities of notes payable and long-term debt at March 31, 1998 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending March 31, 1999 $ 142,681
2000 33,755
2001 2,750
2002 --
----------
$ 179,186
==========
</TABLE>
NOTE I - RELATED PARTY TRANSACTIONS
In 1993 certain officers of the Company purchased third party notes payable
of $500,000 with interest payable at 10% per annum. The officers assumed
the same terms of the notes which matured on March 31, 1996. On March 29,
1996 the Company paid each of two shareholders $110,000 on the notes. The
Company extended the maturity of the $100,000 note to March 31, 1998 and
remaining notes of $180,000 to August 16, 2000. The Company paid the
$100,000 note in full on December 4, 1997. On September 19, 1997 the
Company paid $33,000 to one shareholder and on October 31,1997 the Company
paid $33,000 to the other shareholder. On December 31, 1997 the Company
paid the $57,000 balance of the notes to each of the two shareholders.
The Company retained a director of the Company as a consultant on certain
matters. Consulting fee expense recorded by the Company was $75,000 for the
year ended March 31, 1997 and $18,750 was paid during the first quarter of
fiscal 1998 at which time the consulting arrangement was terminated.
During October, 1997 the Company entered into a marketing agreement with
First Fidelity Acceptance Corp. ("FFAC"). Mr. Tucker was the Chairman and
Chief Executive Officer of FFAC and also served as a Director of the
Company. The agreement called for an initial investment of $200,000 which
was to return monthly revenues based on the successful acquisition by FFAC
of retail installment sales contracts. Additionally, FFAC shall return the
shortfall, if any, between the monthly revenues and three times the
original investment on the first anniversary of the investment. Subsequent
to the end of fiscal 1998, Mr. Tucker resigned his directorship with the
Company. The Company is seeking the return of the original investment from
the new management of FFAC.
F-19
<PAGE> 51
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - EMPLOYEE STOCK OWNERSHIP PLAN AND 401(K) PLAN
The Company had an employee stock ownership plan which provided for
discretionary contributions by the Company. During 1995 the Company amended
and restated the plan to qualify as a 401(k) employee deferred compensation
plan under the terms of which employees who have been employed for one year
or more are entitled to contribute up to the lesser of $9,500 or 15% of
their annual compensation. The Company may at its discretion contribute to
the 401(k) plan. No Company contributions were made under either plan for
any of the three years ended March 31, 1998.
F-20
<PAGE> 52
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE K - STOCK OPTIONS
1991 PLAN
The 1991 Stock Option Plan provides for options covering a total of 542,820
common shares, all of which were issued to the Chief Executive Officer and
the President. The exercise price of the options granted must be at least
110% of the fair value of the common stock at date of grant. The remaining
options were exercised on March 29, 1996. At March 31, 1998, there were no
options outstanding or available for grant.
Following is a summary of option activity under the 1991 Plan:
<TABLE>
<CAPTION>
OPTION PRICE
-------------------------
SHARES PER SHARE TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at March 31, 1995 292,120 $ 0.74795 $ 218,492
Granted -- -- --
Canceled -- -- --
Exercised (292,120) 0.74795 (218,492)
---------- ---------- ----------
Outstanding at March 31, 1996 -- -- --
Granted -- -- --
Canceled -- -- --
Exercised -- -- --
---------- ---------- ----------
Outstanding at March 31, 1997 -- -- --
Granted -- -- --
Canceled -- -- --
Exercised -- -- --
---------- ---------- ----------
Outstanding at March 31, 1998 -- -- --
========== ========== ==========
</TABLE>
1993 PLAN
The 1993 Stock Option Plan provides for options covering a total of 500,000
common shares to be issued to key employees and directors other than the
Chief Executive Officer and the President. Under the Plan, incentive stock
options (ISOs) and non-qualified stock options may be granted at prices no
less than 100% and 50%, respectively, of the fair value of the Company's
common stock. Options granted expire in ten years and will generally vest in
annual installments. At March 31, 1998, options for 255,001 shares were
available for grant.
F-21
<PAGE> 53
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Following is a summary of option activity under the 1993 Plan:
<TABLE>
<CAPTION>
OPTION PRICE
-------------------------------
SHARES PER SHARE TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding at March 31, 1995 266,666 9.00 - 13.00 2,968,537
Granted 110,999 3.00 - 7.50 424,621
Canceled (109,666) 3.63 - 12.50 (1,148,079)
------------- ------------- -------------
Outstanding at March 31, 1996 267,999 3.00 - 13.00 2,245,079
Granted 110,000 0.56 - 6.00 329,439
Canceled (124,500) 0.56 - 12.50 (644,877)
------------- ------------- -------------
Outstanding at March 31, 1997 253,499 0.56 - 13.00 $ 1,929,641
Granted -- -- --
Canceled (8,500) 3.63 - 12.50 (55,085)
------------- ------------- -------------
Outstanding at March 31, 1998 244,999 $0.56 - 13.00 $ 1,874,556
============= ============= =============
</TABLE>
All the options are considered compensatory. The outstanding stock
options expire from November 1999 through January 2003.
The following summarizes information about compensatory options outstanding at
March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Avg.
Remaining Weighted
Range of Exercise Number Contractual Avg. Exercise Number Weighted Avg.
Prices Outstanding Life Price Exercisable Exercisable Price
------ ----------- ---- ----- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ 0.56- 13.00 244,999 1.73 years $ 7.48 123,282 $ 10.15
</TABLE>
The options granted during the fiscal years ended March 31, 1998, 1997 and 1996
have exercise prices which approximate fair value and accordingly, no
compensation cost has been recognized for compensatory stock options in the
consolidated financial statements. The effect of applying the pro-forma
requirements of SFAS No. 123 does not materially effect earnings and earnings
per share.
F-22
<PAGE> 54
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - INCOME TAXES
Income tax expense (benefit) from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal
Current $ 123,000 $ 137,331 $ (2,031,628)
Deferred -- (245,709) 891,354
State 102,528 16,414 5,176
---------------- ---------------- ----------------
$ 225,528 $ (91,964) $ (1,135,098)
================ ================ ================
</TABLE>
The Company's effective income tax rate from continuing operations differed
from the Federal statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0 % 34.0 % 34.0 %
Amortization of goodwill 0.7 % (0.3)% (0.5)%
Meals and entertainment 0.2 % (0.1)% (0.1)%
Change in prior tax estimates 16.8 % 2.3 % (0.7)%
Valuation allowance (51.3)% (35.4)% (17.6)%
State income tax 1.8 % -- --
Other, net 1.8 % (0.4)% (0.9)%
-------- -------- --------
4.0 % 0.1 % 14.2 %
======== ======== ========
</TABLE>
F-23
<PAGE> 55
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - INCOME TAXES - Continued
Following are the components of deferred tax assets and deferred tax
liabilities:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Net current deferred tax assets
Inventories $ 243,694 $ 463,534
Allowance for doubtful accounts 187,000 179,129
Inventory reserves 51,000 376,171
Accrued expenses 58,949 67,895
Less valuation allowance (316,456) (1,086,729)
----------------- -----------------
$ 224,187 $ --
Net current deferred tax liability
Installment sale $ (224,187) $ --
----------------- -----------------
$ (224,187) $ --
Net current deferred tax asset $ -- $ --
================= =================
Noncurrent deferred tax assets
Accumulated depreciation $ 55,530 $ --
Net operating loss 1,473,632 3,724,596
Less valuation allowance (1,529,162) (3,677,150)
----------------- -----------------
$ -- $ 47,446
Noncurrent deferred tax liabilities
Accumulated depreciation $ -- $ (47,446)
----------------- -----------------
Net Noncurrent deferred taxes $ -- $ --
================= =================
</TABLE>
At March 31, 1998, the Company has net operating losses available to offset
future taxable income of approximately $4,334,211 which begin expiring in 2011.
The valuation allowance decreased by $2,918,261 during the year ended March 31,
1998.
F-24
<PAGE> 56
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - MAJOR CUSTOMERS
Customers accounting for 10% or more of total net sales from continuing
operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERCENTAGE
- -------------------- ----------
<S> <C>
1998
Wal-Mart 44%
Kmart 23%
1997
Kmart 38%
Wal-Mart 34%
1996
Kmart 31%
Wal-Mart 25%
</TABLE>
NOTE N - COMMITMENTS AND CONTINGENCIES
The Company leases certain warehouse space, warehouse and computer equipment and
other items. These leases are operating and capital leases and have future
minimum lease payments, excluding sublease income, as follows:
<TABLE>
<CAPTION>
Operating Capital(1)
------------ ------------
<S> <C> <C>
1999 $ 625,728 $ 311,628
2000 681,248 311,628
2001 684,105 311,628
2002 692,500 311,628
2003 740,500 --
Thereafter 1,352,000 --
------------ ------------
$ 4,776,081 $ 1,246,512
============
Less amount representing interest 256,092
------------
Present value of net minimum lease payments $ 990,420
============
</TABLE>
(1) On December 18, 1997 the Company entered into a capital lease with IBM to
provide financing for the new computer system. This lease was intended to
finance all hardware and software required and all consulting costs.
Total lease expense for the years ended March 31, 1998, 1997 and 1996 was
approximately $758,000, $1,449,000 and $1,552,000 respectively.
The Company, certain of its officers and directors, former officers, former
independent auditors, and the underwriters of the Company's IPO are defendants
in certain shareholder lawsuits. The Company believes
F-25
<PAGE> 57
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE N - COMMITMENTS AND CONTINGENCIES - Continued
the lawsuits are without merit. However, if the plaintiffs prevail, the lawsuits
would have a material adverse effect on the operations and financial condition
of the Company. The Company is unable to estimate the range of loss, if any.
See "Item 3. Legal Proceedings."
The Company filed a lawsuit against Denise Austin on December 2, 1996 in the
162nd District Court of Dallas County, Texas that was subsequently removed to
the United States District Court for the Northern District of Texas, Dallas
Division Case Number 3-97-CV-0246-G on February 6, 1997. Subsequently a suit was
filed on December 30, 1996 by Denise Austin in the United States District Court,
Eastern District of Virginia. The suit was filed for payment of royalties
alleged to be due of approximately $655,000. The Company filed counter claims in
excess of such amount. Both of these suits were settled in July 1997. In
connection with the settlement, the Company recorded the reversal of accrued
royalty commission of $508,000, which is reflected in the income of the second
quarter of fiscal 1998.
The Company was contacted by the Department of Labor ("DOL") in fiscal 1996 in
regard to certain questions about its former Employee Stock Ownership Plan (the
"ESOP"). Assets of the ESOP are held in the Company's 401(k) plan which is the
successor to the ESOP. The Company has responded to and cooperated with the DOL.
The DOL has not initiated any proceeding with respect to the ESOP or any other
of the Company's employee benefit plans.
The Internal Revenue Service ("IRS") is currently examining the Bollinger
Employees Retirement Plan and Trust ("Plan"). In order to maintain its tax
exempt status, the Plan must comply with certain tests and limitations of the
Internal Revenue Code of 1986, as amended (the "Code"). The Plan currently has
excess participant elective contributions over the maximum amount of such
contributions permitted. As a result, the possible violation of tax laws and
regulations could adversely effect the Plan's tax status. The Company has
retained counsel for representation in this matter. At this time, the effect of
such an IRS examination on the Company or the Plan, if any, cannot be
determined.
In the normal course of business, the Company is involved in various litigation.
Management believes that the aggregate effect of any liability arising from such
items would not be material to the consolidated statements of operations or
financial position at March 31, 1998.
NOTE O - SUBSEQUENT EVENTS
Subsequent to the end of fiscal 1998, Mr. Tucker resigned his directorship with
the Company.
Subsequent to fiscal 1998 year end, at the request of the Company, the loan
agreement was favorably renegotiated with the financial institution more closely
reflecting the Company's current financial condition and financing needs. The
maximum line of credit was reduced to $15 million subject to certain borrowing
base requirements. This facility was extended to August 16, 2002 and several of
the performance covenants were revised or removed.
F-26
<PAGE> 58
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE O - SUBSEQUENT EVENTS - Continued
Subsequent to fiscal 1998 year end, the Company and Legacy International
(privately held) announced they had signed a letter of intent agreeing to the
acquisition of Legacy by Bollinger. Legacy is a leading maker of weight benches,
weight lifting equipment and related products.
Details of the proposed acquisition were not announced. The letter of intent is
non-binding and is subject to the negotiation and execution of a definitive
contract between the parties. Although no definitive time line has been
established for completion of the acquisition, plans are continuing as of the
date of this report.
F-27
<PAGE> 59
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
In connection with our audit of the consolidated financial statements of
Bollinger Industries, Inc. and Subsidiaries referred to in our report dated June
11, 1998, we have also audited Schedule II for the years ended March 31, 1998,
1997 and 1996. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
King Griffin & Adamson P.C.
Dallas, Texas
June 11, 1998
F-28
<PAGE> 60
Schedule II
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to
beginning costs and other Balance at end
Description of year expenses accounts Deductions of year
- ---------------------------------- ------------- -------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1996
Allowance for doubtful accounts $ 920,215 $ (311,514) $ -- $ (150,872) $ 457,829
Inventory obsolescence reserve 800,972 365,794 -- -- 1,166,766
Returns and allowance reserve 2,061,000 8,677,585 -- (7,773,494) 2,965,091
Year ended March 31, 1997
Allowance for doubtful accounts $ 457,829 $ 540,193 $ -- $ (153,710) $ 844,312
Inventory obsolescence reserve 1,166,766 430,523 -- (37,519) 1,559,770
Returns and allowance reserve 2,965,091 5,631,906 -- (6,741,997) 1,855,000
Year ended March 31, 1998
Allowance for doubtful accounts $ 844,312 $ 253,441 $ -- $ (647,753) $ 450,000
Inventory obsolescence reserve 1,559,770 1,433,367 -- (790,258) 2,202,879
Returns and allowance reserve 1,855,000 3,228,908 (4,173,883) 910,025
</TABLE>
Note - Deductions represent uncollectible accounts, inventories written off, or
credits issued for returns and allowances.
F-29
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
11 - Statement regarding Computation of Per Share Data
21 - Subsidiaries of the Registrant
27.1 - Financial Data Schedule
27.2 - Restated Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Earnings (loss) from continuing operations $ 5,466,225 $ (7,918,362) $ (6,861,406)
Gain (loss) from discontinued operations -- 476,967 (1,361,954)
------------- ------------- -------------
Net earnings (loss) $ 5,466,225 $ (7,441,395) $ (8,223,360)
============= ============= =============
Per share data:
Basic earnings per share
Continuing operations $ 1.37 $ (1.98) $ (1.85)
Discontinued operations -- 0.12 (0.37)
------------- ------------- -------------
$ 1.37 $ (1.86) $ (2.22)
============= ============= =============
Dilutive earnings per share
Continuing operations $ 1.36 $ (1.98) $ (1.85)
Discontinued Operations -- 0.12 (0.37)
------------- ------------- -------------
Net earnings (loss) $ 1.36 $ (1.86) $ (2.22)
============= ============= =============
Shares used in the calculation of per share amounts:
Basic common shares 4,000,210 4,000,210 3,710,484
Dilutive impact of stock options 25,329 -- --
------------- ------------- -------------
Diluted common shares 4,025,539 4,000,210 3,710,484
============= ============= =============
</TABLE>
Diluted earnings per share of common stock includes the impact of
outstanding dilutive stock options for the year ended March 31, 1998.
There were no dilutive options during the two years ended March 31, 1997
and 1996.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF BOLLINGER INDUSTRIES, INC.
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION OF ORGANIZATION
- ---------- ----------------------------
<S> <C>
Bollinger Operating Corp. Nevada
Bollinger Holding Corp. Delaware
C.G. Products, Inc. California
NBF, Inc. Georgia
Bollinger Industries, L.P. (Indirect) Texas
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF EARNINGS, AND
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AS OF AND FOR THE FISCAL YEAR
ENDED MARCH 31, 1998 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN
IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 136,369
<SECURITIES> 0
<RECEIVABLES> 6,351,691
<ALLOWANCES> 450,000
<INVENTORY> 5,820,013
<CURRENT-ASSETS> 14,538,215
<PP&E> 3,360,112
<DEPRECIATION> 1,495,119
<TOTAL-ASSETS> 17,001,326
<CURRENT-LIABILITIES> 5,699,144
<BONDS> 0
0
0
<COMMON> 40,002
<OTHER-SE> 10,447,356
<TOTAL-LIABILITY-AND-EQUITY> 17,001,326
<SALES> 58,793,757
<TOTAL-REVENUES> 58,793,757
<CGS> 47,803,060
<TOTAL-COSTS> 4,889,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 253,441
<INTEREST-EXPENSE> 1,748,646
<INCOME-PRETAX> 5,691,753
<INCOME-TAX> 225,528
<INCOME-CONTINUING> 5,466,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,466,225
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF EARNINGS, AND
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AS OF AND FOR THE FISCAL YEAR
ENDED MARCH 31, 1997 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN IT'S
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,481
<SECURITIES> 0
<RECEIVABLES> 16,804,959
<ALLOWANCES> 844,312
<INVENTORY> 16,201,780
<CURRENT-ASSETS> 33,720,643
<PP&E> 4,986,867
<DEPRECIATION> 2,903,465
<TOTAL-ASSETS> 38,389,352
<CURRENT-LIABILITIES> 17,726,499
<BONDS> 0
0
0
<COMMON> 40,002
<OTHER-SE> 4,981,131
<TOTAL-LIABILITY-AND-EQUITY> 38,389,352
<SALES> 82,598,593
<TOTAL-REVENUES> 82,598,593
<CGS> 69,723,015
<TOTAL-COSTS> 6,878,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 540,193
<INTEREST-EXPENSE> 2,551,703
<INCOME-PRETAX> (8,010,326)
<INCOME-TAX> (91,964)
<INCOME-CONTINUING> (7,918,362)
<DISCONTINUED> 476,967
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,441,395)
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
