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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, 1999;
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
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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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on June 1, 1999, was $1,118,118.
The number of shares of common stock of the registrant outstanding on June 1,
1999, was 4,400,210.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
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1. Business......................................................................................... 1
2. Properties....................................................................................... 4
3. Legal Proceedings................................................................................ 4
4. Submission of Matters to a Vote of Security Holders.............................................. 6
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ........................... 7
6. Selected Financial Data.......................................................................... 7
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................... 9
7A. Quantitative and Qualitative Disclosures About Market Risk....................................... 17
8. Financial Statements and Supplemental Data....................................................... 17
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................................... 17
PART III
10. Directors and Executive Officers of the Registrant............................................... 18
11. Executive Compensation........................................................................... 20
12. Security Ownership of Certain Beneficial Owners and Management................................... 21
13. Certain Relationships and Related Transactions................................................... 23
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................. 24
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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. Use of fitness products and equipment is important
for the health and well being of many American consumers. "For many Americans,
home exercise equipment is now seen as an amenity, a possession that contributes
to the quality of life." according to the Sporting Goods Manufacturers
Association in a recent publication. American adults are primarily interested in
home exercise to improve their health. "For a growing portion of the population,
vanity is no longer the dominant motivation for exercising. Equally important
goals are health and quality of life, "according to Greg Hartley of the Fitness
Products Council. The home exercise category, in which the Company operates, is
focused on those issues that prompt most Americans to purchase equipment and
accessories for home use; privacy, convenience and safety.
COMPANY AND INDUSTRY OVERVIEW
In recent data released by the Fitness Products Council, sales of
fitness equipment rose over the $3 billion mark in 1997, pushed by the sales of
treadmills for the home. Additionally, exercise equipment is now the largest
selling category of sporting goods equipment as ranked by the Sporting Goods
Manufacturers Association, ahead of golf ($2.7 billion at wholesale), hunting
($1.9 billion) and camping ($1.7 billion). The Fitness Products Council further
segments the fitness equipment market into equipment categories; treadmills,
aerobic riders, cross country ski machines, home gyms, stationary bicycles, free
weights, benches, stair climbing machines, abdominal trainers, and "all other".
The Company currently has product offerings in several of these categories,
primarily stationary bicycles, free weights, abdominal trainers and "all other".
The total market for the specific categories in which the Company offers
products at wholesale was estimated at $760 million for 1997, the last year for
which data is available.
PRODUCTS AND MARKETS
The Company imports and sells a complete line of over 800 fitness
accessory products and pieces of fitness equipment, including free weights such
as barbells, dumbbells, weight lifting bars, and weight sets, stationary
bicycles and kinetic exercise stands, abdominal trainers, weightlifting belts
and gloves, exercise mats, reducing belts, suits and shorts, ankle and wrist
weights, aerobic steps, therapeutic magnets, hand exercisers, supports and
support belts, and jump ropes. Additionally, with the purchase of the
Multi-Grip(TM) product line in October 1998 the Company added a line of boxing
accessories. The majority of the Company's products (with the exception of the
stationary bicycles and kinetic exercise stands) retail for less than $20.00.
In addition to the Bollinger(TM) design 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)(TM) dumbbells.
Aerobics items include the FlexStep(TM) and SoftStep(TM) low impact aerobic
steps and RibMat(TM) exercise mats. Solar(TM) trimming products, Softone(C)
wrist weights, and Exergrip(TM) strengthening putty are examples of other
fitness accessory products available through the Company. In addition, the
Company markets a complete line of accessory and boxing products under the
Multi-Grip(TM) and Upper Cuts(TM) trademarks and a full assortment of aerobic
Step products under the original The Step(TM) mark. The "Multi-Grip,(TM)"
"Upper Cuts(TM)" and "The Step(TM)" trademarks were acquired through business
acquisitions in October 1998.
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 1999, 1998 and 1997, the Company served approximately 500
accounts, although the
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Company's ten largest fitness accessory customers accounted for approximately
87%, 91% and 88% of the Company's total net sales in those years, respectively.
In fiscal 1999 Wal-Mart accounted for 44.6% of gross sales and The Sports
Authority accounted for 17.4% of gross sales. Examples of discount chain
customers include Wal-Mart, KMart and Target. 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, known for its bright, innovative,
consistent packaging approach, is embarking on a major packaging update to
anticipate changing consumer color and style preferences. Preliminary
presentations, including the new packaging format, have been well received. The
Company expects the transition to the new packaging to be substantially
completed for the fall selling season of fiscal 2000.
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
helping to plan product mix and merchandise the product, and 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
In March 1998 the Company ceased the domestic manufacture of its
products and sourced its products globally, with the lowest cost, highest
quality providers. 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 1999 approximately 13% of the Company's net sales were
derived from products manufactured domestically, although not in Company-owned
facilities, as compared to approximately 24% and 49% in fiscal 1998 and 1997,
respectively.
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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 is currently re-evaluating its approach to the
international market while continuing to use a variety of distributorship and
trading partner arrangements. The Company's products are sold in 31 nations, and
export sales in fiscal 1999 were approximately $0.3 million.
PRODUCT DEVELOPMENT
The Company constantly focuses 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 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 ensure both quality manufacturing and
low costs. The Company's product lines currently include more than 800 fitness
products.
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.
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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) over the next five
years. The Company believes its ability to offer a large number of patented or
unique products enhances its overall product offering.
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, 1999 the Company employed 102 persons on a full-time
basis (including 36 leased and one contract), of which 65 employees were engaged
in receiving, purchasing, warehousing, and shipping activities, and 37 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.
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 the
Company's 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. Subsequent to year end, the Company reduced its leased space by
subleasing approximately 45,000 square feet in its Grand Prairie warehouse. This
sublease runs concurrent with the Company's existing lease. The Company believes
the current facility in Grand Prairie, Texas, after the sublease, is adequate
for its needs.
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
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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 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. The substantive terms of a memorandum of settlement have
been mutually agreed to by the Company and counsel for the plaintiffs. The
memorandum is being finalized for signature and will then be presented for
acceptance by the class and the court in both this cause and the STI lawsuit
described in the following paragraph. The memorandum of settlement provides for
the following payments totaling $3.0 million: (1) $400,000 upon the execution of
the memorandum; (2) $400,000 after the court's preliminary approval; (3)
$200,000 on December 1, 1999; and (4) monthly payments of $40,000 to $60,000 per
month over forty months, beginning on the earlier of October 1, 1999 or the
court's final orders settling the litigation. As additional consideration, the
class will receive 300,000 shares of the Company's Common Stock.
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. The substantive terms of a memorandum of
settlement have been mutually agreed to by the Company and counsel for the
plaintiffs. The memorandum is being finalized for signature and will then be
presented for acceptance by the class and the court. The payments discussed
above for the Suntrust litigation will also apply to the STI lawsuit.
Civil Action No. 3-98CV0039X; Breathe Better, Inc. v. Bollinger
Industries, L.P. in the United States District Court for the Northern District
of Texas. This cause was tried in December 1998, and a judgment in the amount of
$218,000 plus interest was entered against Bollinger Industries, L.P. in favor
of Breathe Better, Inc. The judgment was satisfied shortly after the end of
fiscal 1999.
An investigation of the Company's Employee Stock Ownership Plan (the
"ESOP") is presently pending before the U.S. Department of Labor ("USDoL").
Assets of the ESOP are held in the Company's 401(k) Plan, which is the successor
to the ESOP. This investigation, begun in 1996, pertains to transactions in
1994, and is ongoing. The USDoL has asserted various breaches of fiduciary
duties by the Company and the Plan trustees arising out of the administration of
the ESOP. The Company intends to vigorously pursue all available defenses.
The Internal Revenue Service ("IRS") has examined the Company's
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"). Based on the 1994 plan
year audit, the IRS has proposed to disqualify the Plan for purposes of Section
401(a) of the Code. The Company has filed a protest of the proposed
disqualification which is presently pending before the Appeals Division of the
IRS. At this time, the effect of such an IRS disqualification 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, in September 1996, 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 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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.
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PRICE RANGE
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FISCAL 1999 FISCAL 1998
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HIGH LOW HIGH LOW
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First Quarter .................. $1.13 $0.63 $1.50 $0.50
Second Quarter ................. .88 .25 1.87 0.62
Third Quarter .................. .75 .38 1.12 0.62
Fourth Quarter ................. .63 .31 1.00 0.63
</TABLE>
As of June 1, 1999 there were approximately 63 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 years ended March 31, 1995, 1996, 1997, 1998 and 1999 are
derived from the historical consolidated financial statements of the Company,
which have been audited by King Griffin & Adamson P.C. for the past five fiscal
years. 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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1999(4) 1998(4) 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS(1)
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Net sales............................................ $ 33,824 $ 58,794 $ 82,599 $ 80,300 $ 67,894
Cost of goods sold................................... 24,476 47,803 69,723 62,197 50,546
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Gross profit..................................... 9,348 10,991 12,876 18,103 17,348
Selling expenses..................................... 3,532 4,890 6,879 7,877 6,862
Distribution, general and administrative expenses.... 9,428 9,963 11,506 12,115 8,422
Restructuring of operations.......................... -- -- -- --
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12,960 14,853 18,385 23,952 15,284
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Operating profit (loss).......................... (3,612) (3,862) (5,509) (5,849) 2,064
Other expense (income
Interest expense................................. 774 1,749 2,552 2,252 1,167
Gain on sale of assets........................... (9) (11,248) -- -- --
Contingency for legal settlement................. 3,000 -- -- -- --
Other............................................ 121 (55) (50) (105) (47)
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3,886 (9,554) 2,502 2,147 1,120
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Earnings (loss) from continuing operations
before income tax expense (benefit)....... (7,498) 5,692 (8,011) (7,996) 944
Income tax expense (benefit) ........................ -- 226 (92) (1,135) 350
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations(2).... (7,498) 5,466 (7,919) (6,861) 594
Discontinued operations..............................
Earnings (loss) from operations net of income
tax benefit................................... -- -- -- (592) (525)
Gain (loss) on disposal, net of income tax
benefit including a $1,199,118 provision
for operating losses during phase out
period in 1996................................ -- -- 478 (770) --
-------- -------- -------- -------- --------
Earnings (loss) from discontinued operations(3).. -- -- 478 (1,362) (525)
-------- -------- -------- -------- --------
Net earnings (loss).................................. $ (7,498) $ 5,466 $ (7,441) $ (8,223) $ 69
======== ======== ======== ======== ========
Per share data (basic):
Earnings (loss) from continuing operations....... $ (1.79) $ 1.37 $ (1.98) $ (1.85) $ 0.15
======== ======== ======== ======== ========
Net earnings (loss).............................. $ (1.79) $ 1.37 $ (1.86) $ (2.22) $ 0.02
======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding.................... 4,179 4,000 4,000 3,710 3,967
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------------
1999(4) 1998(4) 1997 1996 1995
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BALANCE SHEET DATA
Working capital ..................................... $ 7,463 $ 8,839 $ 15,994 $ 8,322 $ 15,725
Total assets ........................................ 20,362 17,001 38,389 58,381 55,422
Total long term debt and capital leases ............. 7,437 815 15,642 577 223
Total debt and capital leases ....................... 9,054 1,170 18,483 23,260 26,810
Stockholders' equity ................................ 3,190 10,487 5,021 12,463 20,467
</TABLE>
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(1) The Statement of Operations for fiscal 1995 has 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.
(3) Represents results of discontinued operations of the Healthcare Division.
(4) On November 21, 1997 the Company disposed of its Trampoline Products line.
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 fitness equipment products designed primarily
for home use.
ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
Effective October 1, 1998 Bollinger Industries L.P., acquired certain
inventory, accounts receivable and trademarks from Self Image Sports and Fitness
Co., Inc. (d.b.a. Multi-Grip), a Tennessee corporation. The purchase price for
these assets was approximately $1,500,000 in cash (after settlement of
receivables) and 100,000 shares of the Company's restricted Common Stock.
Additionally, effective October 1, 1998 Bollinger Industries L.P.,
entered into various agreements with The Step Company, a Georgia corporation.
These agreements provide for the license or sublicense of various fitness
related products and concepts in exchange for cash and note of $3,575,000,
300,000 shares of the Company's restricted Common Stock and a consulting and
non-compete agreement with annual payments in the initial five year term.
DISPOSITIONS
Effective November 21, 1997 the Company and its wholly-owned
subsidiary, NBF, Inc., entered into an asset purchase agreement for the sale of
its Trampoline Products line for $14,549,000 after adjustments for inventory at
closing.
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PROFITABILITY
The Company has experienced many areas of improvement, due to the
successful implementation of the Company's new computer operating system and
continued success in reducing both product costs and operating costs, but there
are several areas that must continue to be addressed in fiscal 2000 for the
Company to attain operating profitability.
NET SALES: Sales of the Company's fitness accessory line weakened in
fiscal 1998 and continued to show softness in 1999 due partially to changes in a
mass retailer's buying habits that include direct importation of many fitness
accessory items, as well as the loss of a significant customer in September
1998. These trends were substantially offset by the addition of the
Multi-Grip(TM) and The Step(TM) Product lines acquired in October 1998.
COST OF SALES AND GROSS MARGIN: The Company experienced improved
margins due to lower inventory acquisition costs made possible by aggressive
purchasing and by stringent controls on customer returns and allowances. The
blended effect of these items was a 9.7% improvement in gross margin from fiscal
1998 to fiscal 1999 and a dollar improvement of $3.4 million on slightly
increased sales volume (after eliminating the Trampoline Products line sales
from fiscal 1998). The Company believes that continuing to source its products
from the lowest cost and highest quality providers will enable it to improve
gross margins in fiscal 2000, although not to the extent experienced in fiscal
year 1999, and further believes the addition of new product offerings should
improve sales volume.
DISTRIBUTION, SELLING, AND GENERAL AND ADMINISTRATIVE EXPENSES: During
fiscal 1999, the Company continued to see improvements in the fixed costs
associated with warehousing and storing of its products. The Company reduced
distribution, selling, and general and administrative expenses in fiscal 1999 by
$1.9 million after a $3.5 million improvement the year before. The Company
installed a fully integrated computer system which provides faster access to
critical information with less manual and clerical intervention, the effect of
which is to continue to lower costs through reduced staffing, improved inventory
management and knowledge of the customers ordering patterns.
SALE OF ASSETS
In November 1997 the Company sold its Trampoline Products line for
$14,549,000. In September 1997 the Company sold the Irving, Texas facility for
$1,200,000 and received $1,106,000 cash after commission and other expenses.
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.
10
<PAGE> 13
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
PERCENTAGE OF NET SALES (DECREASE)
---------------------------- -------------------
FISCAL FISCAL
FISCAL YEAR ENDED MARCH 31, 1999 1998
OVER FISCAL
STATEMENT OF OPERATIONS 1999 1998 1997 1998 1997
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0 100.0 100.0 (42) (29)
Cost of goods sold......................... 72.4 81.3 84.4 (49) (31)
------ ------ ------
Gross profit........................... 27.6 18.7 15.6 (15) (15)
Selling expenses .......................... 10.4 8.3 8.4 (28) (29)
Distribution general and administrative
expenses............................... 27.9 17.0 13.9 (5) (13)
------ ------ ------
38.3 25.3 22.3 (13) (19)
------ ------ ------
Operating profit (loss)................ (10.7) (6.6) (6.7) (6) (30)
Interest expense........................... 2.3 3.0 3.1 (56) (31)
Gain on sale of assets..................... 0.0 (19.2) 0.0 (100) 100
Contingency for legal settlement........... 8.9 0.0 0.0 (100) 0
Other expense (income)-net................. .3 (0.1) (0.1) (320) 10
------ ------ ------
11.5 (16.3) 3.0 141 482
Earnings (loss) from continuing
operations before income tax
expense (benefit)................... (22.2) 9.7 (9.7) (232) 171
Income tax expense (benefit)............... 0.0 0.4 (0.1) (100) 346
------ ------ ------
Earnings (loss) from continuing
operations.......................... (22.2) 9.3 (9.6) (237) 169
====== ====== ======
</TABLE>
11
<PAGE> 14
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
The Company's fitness accessory products ("Fitness Accessory Products")
consisted of two major product categories - trampoline products ("Trampoline
Products") and other fitness accessory products ("Other Fitness Accessory
Products"). The Trampoline Products line was sold in November 1997.
Net sales in fiscal 1999 increased by approximately $407,000 from
fiscal 1998, an increase of 1.2%, after eliminating the effect of the sale of
the Trampoline Products line from fiscal 1998. Trampoline Products sales were
approximately $25.0 million in fiscal 1998. The increase in net sales of Other
Fitness Accessory Products resulted from acquisitions that were made in October
1998, but were partially offset by the loss of a significant customer in
September 1998.
Returns and deductions from customers ranged from a low of
approximately 4% of sales in the second quarter to a high of approximately 9% in
the fourth quarter, with an average of 6% for the year. This is a marked
improvement of 2% to 6% over previous years.
Gross profit for Other Fitness Accessory Products in fiscal 1999
improved by approximately $3.4 million over fiscal 1998, and increased as a
percentage of net sales from 17.9% in fiscal 1998 to 27.6% in fiscal 1999 (after
eliminating the effect of the Trampoline Products sales in fiscal 1998). The
improvement in gross margin was due to aggressive purchasing from suppliers,
improved control of customer returns and deductions, and effective inventory
monitoring controls.
Selling expenses for Other Fitness Accessory Products in fiscal 1999
decreased by approximately $1.4 million compared to fiscal 1998 and increased as
a percentage of net sales of Other Fitness Accessory Products from 8.3% in
fiscal 1998 to 10.4% in fiscal 1999. Eliminating the effect of the Trampoline
Products expenses, selling expense decreased $500,000 and decreased as a
percentage of sales from 12.2% to 10.4% in fiscal 1999. The dollar decrease in
selling expense is attributed to the decrease in sales commissions, travel
expenses, and advertising expenses.
Distribution, general and administrative expenses for Other Fitness
Accessory Products decreased by approximately $535,000 in fiscal 1999 compared
to fiscal 1998 and increased as a percentage of net sales of Other Fitness
Accessory Products from 16.9% in fiscal 1998 to 27.9% in fiscal 1999. The
decrease in distribution, general and administrative expenses resulted 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 reduced staffing levels, reduced costs of container storage
and a reduction in the amount of damaged items. The percentage increase resulted
because most distribution, general and administrative costs are fixed and do not
fluctuate significantly with volume and the sale of the Trampoline Products line
did not reduce these costs proportionately.
Operating loss from continuing operations in fiscal 1999 as compared to
fiscal 1998 improved by $250,000. As a percentage of net sales, operating loss
increased from 6.6% in fiscal 1998 to 10.7% in fiscal 1999. However, after
eliminating the effect of the Trampoline Products line, operating losses
improved $3.0 million or 9%.
Interest expense on continuing operations in fiscal 1999 decreased
approximately $975,000 from fiscal 1998 primarily due to the reduction of debt
after receiving proceeds from the sale of the Trampoline Products line. Interest
rates, experienced by the Company, decreased from 10.25% in fiscal 1998 to 9.25%
in fiscal 1999.
The Company recorded a contingency for settlement of the shareholder
lawsuits of $3,000,000 in March 1999.
12
<PAGE> 15
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 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 Products line (an
approximate $8.0 million decline based on a partial year of Trampoline Products
sales) 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 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 five 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 of fiscal 1998 to approximately
5% by fiscal year end; however, the average of 8% for the year is in line with
the Company's anticipated cost for returns.
Gross profit for Fitness Accessory Products decreased by approximately
$1.9 million from fiscal 1997 to fiscal 1998, and increased as a percentage of
net sales from 15.6% in fiscal 1997 to 18.7% in fiscal 1998. Gross profit
percentage on Other Fitness Accessory Products improved by 2% from fiscal 1997
to fiscal 1998 due to improved cost of products from overseas suppliers. The
remaining improvement was attributable to the Trampoline Products 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 resulted 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 improved slightly from a 6.7% operating loss in fiscal 1997 to a 6.6%
operating loss in fiscal 1998.
Interest expense on 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 Products 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.
13
<PAGE> 16
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 Products
sales which tend to be higher in the spring and Christmas selling seasons. The
sale of the Trampoline Products 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 1999, 1998 and 1997. 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 1999 FISCAL 1998 FISCAL 1997
---------------------------------- ------------------------------------ ----------------------------------
JUNE SEPT. DEC. MAR. JUNE SEPT. DEC. MAR. JUNE SEPT. DEC. MAR.
30, 30, 31, 31, 30, 30, 31, 31, 30, 29, 29, 31,
1998 1998 1998 1999 1997 1997 1997 1998 1996 1996 1996 1997
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......... $ 7,403 $ 7,092 $10,844 $ 8,485 $20,517 $15,107 $15,889 $ 7,281 $22,434 $19,093 $24,609 $16,463
Operating profit
(loss)........... (1,088) (1,010) (287) (1,227) (21) (811) (1,474) (1,556) (124) (440) (1,300) (3,645)
Earnings (loss)
from continuing
operations....... (1,170) (1,193) (581) (4,554)(1) (638) (474) 7,646(2) (1,068) (765) (1,074) (2,017) (4,062)
Earnings (loss) per
share from
continuing (.29) (.30) (.13) (1.07) (.16) (.12) 1.91 (.26) (0.19) (0.27) (0.50) (1.02)
operations.......
</TABLE>
(1) Includes contingent liability of $3,000,000 in anticipated settlement of
shareholder derivative lawsuits.
(2) Includes gain on sale of Trampoline Products line in November 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of financing in the past several years
have been short-term borrowings from banks and asset-based lenders. The
Company's cash used in operations was approximately $3.4 million for fiscal 1999
compared to cash provided by operations of approximately $3.6 million for fiscal
1998. The increase in cash flows from operations for fiscal 1998 was due
primarily to the sale of inventory and the collection of accounts receivable,
offset by a reduction in trade payables, while the decrease in fiscal 1999 was
primarily due to net increases in operating assets.
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. In May 1998 the loan
agreement was renegotiated with the financial institution. 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. As of March 31, 1999 there was a $6,758,000 outstanding balance.
Availability under the line of credit was $1,376,000 at March 31, 1999. During
fiscal 1999 the
14
<PAGE> 17
Company received waivers for noncompliance of certain negative performance
covenants of the loan agreement involving tangible net worth and debt to
tangible net worth ratios.
The current credit facility initially bore interest at the rate of
10.00% through March 26, 1997, at which time it increased to 10.25%. The
interest rate on March 31, 1999 was 9.25%.
Capital expenditures during fiscal 1999 were approximately $640,000
primarily for computer equipment. The Company has budgeted approximately
$400,000 for capital expenditures for fiscal 2000.
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 was completed during the second quarter of fiscal
1999. The Company has begun to analyze the external factors, such as the impact
on those vendors and customers adversely affected by the year 2000 issue, in
assessing the related potential effect on the Company's business, financial
condition and results of operations. Since much of the Company's products are
imported, the Company has developed redundant suppliers to help alleviate risk.
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.
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 Report, 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 continue
to improve gross margin, 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.
15
<PAGE> 18
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
continues to believe both actions are without merit, a contingent reserve has
been established for settlement of these actions. A prolonged and protracted
court battle would consume the Company's ability to respond to market conditions
and trends, and interfere with the proper management of the Company's affairs.
The substantive terms of a memorandum of settlement have been mutually
agreed to by the Company and counsel for the plaintiffs. The memorandum is being
finalized for signature and will then be presented for acceptance by the class
and the courts. See "Item 3. Legal Proceedings."
The Company is occasionally 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, which could
have a material adverse effect on the Company.
ONGOING OPERATIONAL LOSSES AND LIQUIDITY
The Company has continued to suffer operational losses in spite of
significant progress made in many areas. These losses have absorbed much of the
Company's cash reserves and borrowing availability. Management believes three
major steps are important for the Company's future:
o Final settlement of the shareholder class action lawsuits. (See
"Item 3. Legal Proceedings")
o Securing placement of a substantial program with a major mass
merchandiser.
o Securing additional capital to fund future acquisitions.
While the initial cash outlay, and that for the following three years,
under the memorandum of settlement for the securities litigation is substantial,
settlement of these matters is imperative to the future of the Company.
Unresolved uncertainties prohibit the Company from obtaining additional
financing and prevent management from returning to growth and profitability.
Several of the Company's customers have attempted direct importation
and private label branding of their fitness accessory product offerings. At
least one of these customers is reconsidering that strategy and considering
alternatives presented by Company sales management. The placement of the
"Bollinger" Brand program would have a significant impact on the Company's sales
and income projections.
The Company believes there are many competitors in the fitness
accessory category, as well as competitors offering an assortment of general
sports and fitness products (See "Item 1. Business - Competition"). The Company
believes the current market is highly fragmented with many of those companies
struggling to cover fixed costs and attain consistent profitability. It is the
Company's strategy to acquire or consolidate several smaller companies into a
stronger resultant entity. To implement this strategy, the
16
<PAGE> 19
Company would require additional sources of capital. The acquisition of several
smaller companies would have a significant impact on the Company's sales and
income projections.
Management believes increasing sales volume as outlined in the
three-point strategy above, should reduce the Company's operating losses. To the
extent this strategy is realized, the Company's operating losses should be
eliminated.
The Company's relationship with its lender is good but the Company
continues to request waivers of two financial covenants in connection with
tangible net worth. Subsequent to year-end, the Company has requested an
additional waiver to enter into the memorandum of settlement in connection with
the shareholder lawsuits. There can be no assurance that the Company will obtain
these waivers, and failure to obtain waivers on these issues could have a
material adverse effect on the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company does not believe that its exposures to interest rate risk
or foreign currency exchange risk, risks from commodity prices, equity prices
and other market changes that affect market risk sensitive instruments are
material to its results of operations.
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 financial disclosure to report under this Item 9.
17
<PAGE> 20
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 48 Chairman of the Board, Chief Executive Officer and Director
Bobby D. Bollinger 46 Vice Chairman of the Board, President and Director
Rose Turner 42 Executive Vice President - Finance, Chief Financial Officer,
Chief Operating Officer, Treasurer and Secretary
James A. Burgin 57 Executive Vice President - Sales
Dell K. Bollinger 72 Senior Vice President - Administration
David Barr 40 Executive Vice President - Product Acquisition
Floyd DePauw 49 Controller and Chief Accounting Officer
John L. Maguire 68 Director
Stephen L. Parr 45 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 has served as Chief Financial Officer, Treasurer and
Secretary since January 1997, as Executive Vice President-Finance since October
1997, and as Chief Operating Officer of the Company since January 1999. She
previously served as the Company's Senior Vice President-Finance from January
1997 to October 1997. Ms. Turner joined the Company on a contract and then full
time basis in November 1995. Ms. Turner was previously employed by a variety of
food manufacturing companies including Mission Foods and Borden, Inc. Ms. Turner
is a certified public accountant.
James A. Burgin has served as Executive Vice President - Sales of the
Company since November 1994, and previously served as the Company's Vice
President - Sales from December 1993 to November 1994. Before joining the
Company, Mr. Burgin was Executive Vice President of Dynamic Classics, Ltd., a
distributor of fitness products. Mr. Burgin was employed by Dynamic for
approximately three years. Prior to
18
<PAGE> 21
his employment at Dynamic, Mr. Burgin was employed by various companies in the
fitness and toy industries for approximately twenty years.
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 has served as Executive Vice President - Product Acquisition
of the Company since August 1996, and previously served as Vice President -
Product Development from July 1994 to 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 previously served as 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 sixteen 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 twelve 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 Aqua Dynamics, a specialty chemical and ozone services company.
The Company's board of directors is currently composed of four
directors. All of the current directors serve until the next annual
shareholders' 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."
19
<PAGE> 22
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 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
<TABLE>
<CAPTION>
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................... 1999 275,717 -- -- -- 10,000
Chairman of the Board and 1998 275,717 100,000 -- -- 50,000
Chief Executive Officer.......... 1997 275,717 -- -- -- --
Bobby D. Bollinger................... 1999 275,717 -- -- -- 10,000
Vice Chairman of the Board 1998 275,717 100,000 -- -- 50,000
and President.................... 1997 275,717 -- -- -- --
James A. Burgin...................... 1999 132,869 -- -- -- --
Executive Vice President - 1998 121,201 60,000 -- -- --
Sales........................... 1997 118,120 3,008 -- -- --
Rose Turner.......................... 1999 132,700 -- -- -- --
Executive Vice President - 1998 117,488 40,000 -- -- --
Finance, Chief Operating Officer, 1997 75,365 -- -- 33,000 --
Chief Financial Officer, Treasurer
and Secretary
David Barr........................... 1999 97,194 -- -- -- --
Executive Vice President - 1998 89,422 60,000 -- -- --
Product Acquisition............. 1997 84,999 -- -- -- --
</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 $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive officer.
OPTIONS EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during fiscal 1999 and
unexercised options held as of the end of fiscal 1999. No options were granted
in fiscal 1999.
20
<PAGE> 23
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END (#) YEAR-END ($)(1)
--------------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James A. Burgin(2) -- -- 15,000 -- -- --
Rose Turner(3) -- -- 13,200 19,800 -- --
David Barr(4) -- -- 16,000 6,000 -- --
</TABLE>
- -------------------------
(1) Based on the closing sale price of the Common Stock on March 31, 1999 of
$0.3125 per share as reported by the over-the-counter Bulletin Board (minus
the exercise or base price).
(2) James A. Burgin was granted options for the purchase of 10,000 shares of
Common Stock at an exercise price of $10.00 per share in December 1993.
These options vest over a five year period and expire ten years from the
date of grant. Mr. Burgin was granted options for the purchase of 5,000
shares of Common Stock at an exercise price of $11.00 per share in December
1994. These options vest over a four year period and expire ten years from
the date of grant.
(3) Rose Turner was granted options for the purchase of 33,000 shares of Common
Stock at an exercise price of $0.63 per share in January 1997. These
options vest over a five year period and expire ten years from the date of
grant.
(4) David Barr was granted options for the purchase of 10,000 shares of Common
Stock at an exercise price of $13.00 per share in October 1994. These
options vest over a five year period and expire ten years from the date of
grant. Mr. Barr was granted options for the purchase of 2,000 shares of
Common Stock at an exercise price of $11.00 per share in December 1994.
These options vest over a four year period and expire ten years from the
date of grant. Mr. Barr was granted options for the purchase of 10,000
shares of Common Stock at an exercise price of $3.00 per share in February
1996. These options vest over a five year period and expire ten years from
the date of grant.
DIRECTORS' COMPENSATION
Glenn D. Bollinger and Bobby D. Bollinger each receive a fee of $10,000
annually for their services as Directors of the Company. This compensation was
paid in fiscal 1998 on a retroactive basis to 1994.
John L. Maguire and Stephen Parr were granted options to purchase 8,333
shares of Common Stock at the time they became a director. Stephen Parr receives
a fee of $30,000 annually for his services as a Director of the Company and is
reimbursed for out-of-pocket expenses incurred in connection with attendance at
board of directors and committee meetings. John L. Maguire receives $36,000
annually and acts as a consultant on certain financial matters and acquisitions.
See "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 shares of Common Stock of the Company, as of March 31,
1999, by (i) each director, (ii) the Company's chief executive officer and four
other most highly compensated executive officers in fiscal 1999, (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.
21
<PAGE> 24
<TABLE>
<CAPTION>
SHARES OWNED
-----------------------------
NAME NUMBER PERCENTAGE
- ---- --------- ----------
<S> <C> <C>
Glenn D. Bollinger(1)(2) 1,920,741 43.7
Bobby D. Bollinger(1)(3) 1,920,741 43.7
James A. Burgin(4) 15,000 *
Rose Turner(5) 13,200 *
David Barr(6) 16,000 *
John L. Maguire(7) 108,333 2.5
Stephen L. Parr(8) 7,500 *
All directors and executive officers as a
group (9 persons)(9)(10) 2,510,743 57.1
</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) 623,672 shares held by trustees of the Company's 401(k) Plan
successor to the Company's Employee Stock Ownership Plan (the "401(k)
Plan"), of which Glenn Bollinger is a trustee, 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 with Glenn Bollinger through each of
their 49.5% ownership 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) 623,672
shares held by the 401(k) Plan, of which Bobby Bollinger is a trustee and
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 15,000 shares of Common Stock that are
currently exercisable.
(5) Included options to purchase 13,200 shares of Common Stock that are
currently exercisable.
(6) Includes options to purchase 16,000 shares of Common Stock that are
currently exercisable.
(7) Includes options to purchase 58,333 shares of Common Stock that are
currently exercisable. 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.
(8) Includes options to purchase 5,000 shares of Common Stock that are
currently exercisable.
(9) Includes options to purchase 109,533 shares of Common Stock that are
currently exercisable.
22
<PAGE> 25
(10) Shares which are included beneficially under both Glenn and Bobby Bollinger
are only included once in the group total.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than ten percent (10%) of the Common Stock to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and reports of changes
in ownership of the Common Stock. Such persons are required by SEC regulations
to furnish the Company with copies of all Section 16(a) reports they file with
the SEC. Based solely on the Company's review of the copies of such forms
received during the year, the Company believes that during the year ended March
31, 1999, all the Company's directors, executive officers and holders of more
than ten percent (10%) of the Common Stock complied with all Section 16(a)
filing requirements.
To the best knowledge of management of the Company, during fiscal year
1999 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 was to 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 has been unsuccessful in obtaining
the return of the original investment from the new management of FFAC and has
reserved for write off of the investment in fiscal 1999.
The Company has a continuing arrangement with John L. Maguire, a
director of the Company, for financial, corporate and acquisition consulting
services. This arrangement currently provides for an annual fee of $36,000,
which includes the fee for his services as a director.
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.
23
<PAGE> 26
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, 1999 and 1998 F- 2
Consolidated Statements of Operations for each of the three years in the
period ended March 31, 1999 F- 4
Consolidated Statements of Changes in Stockholders' Equity for each of the
three years in the period ended March 31, 1999 F- 6
Consolidated Statements of Cash Flows for each of the three years in the
period ended March 31, 1999 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 II F-25
Schedule II - Valuation and Qualifying Accounts for the years ended
March 31, 1999, 1998 and 1997 F-26
All other schedules are omitted because they are inapplicable or the
information is otherwise shown in the financial statements or notes
thereto.
</TABLE>
3. EXHIBITS
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).
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).
24
<PAGE> 27
10.46 Eleventh Amendment to Loan and Security Agreement dated July 8, 1996,
between Bollinger Industries, L.P., 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, L.P. 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, L.P. 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,
L.P. (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, L.P., 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, L.P., 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, L.P., 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, L.P., 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, L.P. 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, L.P. 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).
10.57 Lease Agreement dated December 1, 1996 between Southwest Properties
Group, Inc. and Bollinger Industries, L.P.. (incorporated by reference to
Exhibit 10.57 to the Company's Form 10-K for the year ended March 31,
1997).
25
<PAGE> 28
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).
10.64 Amendment to Loan and Security Agreement dated May 14, 1998, between
Bollinger Industries, Inc., Bollinger Industries, L.P. and NBF, Inc. and
Foothill Capital Corporation (incorporated by reference to Exhibit 10.64
to the Company's Form 10-Q for the quarter ended June 30, 1998).
10.65 Asset Purchase Agreement dated October 15, 1998 between Bollinger
Industries, L.P. Bollinger Industries, Inc., and The Step Company.
(incorporated by reference to Exhibit 10.65 to the Company's Form 8-K
dated October 22, 1998).
10.66 Asset Purchase Agreement dated October 8, 1998 between Self Image Sports
and Fitness Co., Inc., and Bollinger Industries, L.P. (incorporated by
reference to Exhibit 10.67 to the Company's Form 10-Q dated September 30,
1998).
10.67 Convertible Subordinated Note Agreement dated October 15, 1998 between
Bollinger Industries, L.P., Bollinger Industries, Inc., and The Step
Company. (incorporated by reference to Exhibit 10.68 to the Company's
Form 10-Q dated December 31, 1998).
10.68 Bollinger Industries, Inc. 1998 Stock Option Plan (incorporated by
reference to Annex 1 to the Company's Definitive Proxy Statement dated
August 25, 1998).
11 Statement regarding Computation of Per Share Data*
21 Subsidiaries of the Registrant*
27.1 Financial Data Schedule*
* Filed herewith
26
<PAGE> 29
(b) REPORTS ON FORM 8-K.
On November 5, 1998 the Company filed a Current Report on Form 8-K for an
event dated October 22, 1998 to provide certain financial statements and
pro forma financial information regarding the purchase of the retail
products division of The Step Company.
(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
incorporate 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> 30
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 28th day of
June, 1999.
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 28th day of June, 1999.
/s/ Glenn D. Bollinger Chairman of the Board, and Chief Executive
- ------------------------------ Officer (principal executive officer)
Glenn D. Bollinger
/s/ Bobby D. Bollinger Vice Chairman of the Board and President
- ------------------------------
Bobby D. Bollinger
/s/ Rose Turner Executive Vice President - Finance, Chief
- ------------------------------ Financial Officer, Chief Operating Officer,
Rose Turner Treasurer, and Secretary (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
<PAGE> 31
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, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 1999. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1999, in conformity with generally accepted accounting
principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
June 11, 1999
F-1
<PAGE> 32
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 125,719 $ 136,369
Accounts receivable-trade, net of allowance for doubtful
accounts of $476,619 and $450,000 and allowance for
returns and allowances of $1,419,955 and $910,025 and
allowance for advertising of $236,273 and $250,000 7,114,315 6,351,691
Escrow receivable -- 1,012,296
Other 9,621 424,335
Inventories 6,859,686 5,820,013
Prepaid expenses 88,245 793,511
------------ ------------
Total current assets 14,197,586 14,538,215
PROPERTY, PLANT AND EQUIPMENT - NET 1,797,832 1,864,993
OTHER ASSETS
Goodwill, net of accumulated amortization of $177,650 3,375,350 --
License rights, net of accumulated amortization of $35,720 679,250 --
Notes receivable and other 113,531 209,554
Deferred financing fees, net of accumulated amortization of
$562,727 and $372,390 198,227 388,564
------------ ------------
Total other assets 4,366,358 598,118
------------ ------------
TOTAL ASSETS $ 20,361,776 $ 17,001,326
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE> 33
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt and other debt $ 1,379,139 $ 142,681
Current portion of capital lease obligations 237,568 212,101
Accounts payable - trade 3,744,514 2,595,565
Income tax payable 61,279 224,700
Other current liabilities 1,085,619 1,016,513
Accrued product liability 226,817 381,957
Other payables - customer overpayment -- 1,125,627
------------ ------------
Total current liabilities 6,734,936 5,699,144
LONG-TERM LIABILITIES
Contingency for legal settlement 3,000,000 --
Long-term debt, net of current portion 6,904,552 36,505
Long-term capital lease obligations 532,587 778,319
------------ ------------
Total long-term liabilities 10,437,139 814,824
------------ ------------
Total liabilities 17,172,075 6,513,968
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes B, I and O)
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value;
1,000,000 shares authorized; none issued -- --
Common stock - $.01 par value; 8,000,000 shares authorized;
4,400,210 and 4,000,210 shares issued and outstanding 44,002 40,002
Capital in excess of par 15,519,058 15,323,058
Accumulated deficit (12,373,359) (4,875,702)
------------ ------------
Total stockholders' equity 3,189,701 10,487,358
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 20,361,776 $ 17,001,326
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 34
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 33,823,947 $ 58,793,757 $ 82,598,593
Cost of goods sold 24,476,190 47,803,060 69,723,015
------------ ------------ ------------
Gross profit 9,347,757 10,990,697 12,875,578
Selling expenses 3,531,858 4,889,999 6,878,803
Distribution, general and administrative expenses
(including $116,000, $166,250 and $121,500
in 1999, 1998 and 1997 to Directors) 9,427,538 9,962,820 11,505,641
------------ ------------ ------------
12,959,396 14,852,819 18,384,444
------------ ------------ ------------
Operating profit (loss) (3,611,639) (3,862,122) (5,508,866)
Other expense (income)
Interest expense 773,579 1,748,646 2,551,703
Gain on sale of assets (8,582) (11,247,513) --
Contingency for legal settlement 3,000,000 -- --
Other 121,021 (55,008) (50,243)
------------ ------------ ------------
3,886,018 (9,553,875) 2,501,460
------------ ------------ ------------
Earnings (loss) from continuing operations
before income tax expense (benefit) (7,497,657) 5,691,753 (8,010,326)
Income tax expense (benefit) -- 225,528 (91,964)
------------ ------------ ------------
Earnings (loss) from continuing operations (7,497,657) 5,466,225 (7,918,362)
Discontinued operations
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
------------ ------------ ------------
Earnings (loss) from discontinued operations -- -- 476,967
------------ ------------ ------------
Net earnings (loss) $ (7,497,657) $ 5,466,225 $ (7,441,395)
============ ============ ============
Per share data (basic and diluted):
Basic earnings per share
Continuing operations $ (1.79) $ 1.37 $ (1.98)
Discontinued operations -- -- 0.12
------------ ------------ ------------
Net earnings (loss) $ (1.79) $ 1.37 $ (1.86)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 35
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Dilutive earnings per share
Continuing operations $ (1.79) $ 1.36 $ (1.98)
Discontinued operations -- -- 0.12
------------ ------------ ------------
Net earnings (loss) $ (1.79) $ 1.36 $ (1.86)
============ ============ ============
Shares used in the calculation of per share
amounts:
Basic common shares 4,178,840 4,000,210 4,000,210
Dilutive impact of stock options -- 25,329 --
------------ ------------ ------------
Diluted common shares 4,178,840 4,025,539 4,000,210
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 36
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, 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
Shares issued on Acquisition
Agreement 300,000 3,000 147,000 -- 150,000
Shares issued on Non-Compete
Agreement 100,000 1,000 49,000 -- 50,000
Net Loss -- -- -- (7,497,657) (7,497,657)
--------- -------- ------------ ------------- -------------
Balance at March 31, 1999 4,400,210 $ 44,002 $ 15,519,058 $ (12,373,359) $ 3,189,701
========= ======== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE> 37
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (7,497,657) $ 5,466,225 $ (7,441,395)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities
(Gain) loss on disposal of assets (8,582) (11,247,513) (476,967)
Contingency for legal settlement 3,000,000 -- --
Deferred income tax benefit -- -- (245,709)
Depreciation and amortization 1,149,249 1,206,358 891,417
Provision for returns and allowance 2,971,638 3,228,908 5,631,906
Provision for doubtful accounts 240,000 253,441 540,193
Provision for obsolete inventory 729,762 1,433,367 430,523
Changes in operating assets and liabilities
Accounts receivable-trade (3,485,262) 6,672,291 (4,782,231)
Other receivables 414,714 (247,127) 52,527
Inventories (1,251,435) 7,149,772 12,775,619
Income tax refund -- -- 2,307,235
Prepaid expenses 705,266 (260,296) 58,366
Other assets (26,896) 39,610 405,611
Current assets of discontinued operations -- -- 1,601,954
Accounts payable-trade 1,048,949 (9,024,802) (5,309,916)
Income tax payable (163,421) 224,700 (43,847)
Other current liabilities (1,261,661) 886,261 233,323
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 (3,435,336) 3,621,026 4,990,777
Cash flows from investing activities
Purchases of property, plant and equipment (639,927) (1,022,443) (621,146)
Acquisition of license rights and assets (3,575,000) -- --
Payments made on notes receivable 121,523 339,310 187,097
Proceeds from sale of assets 21,554 15,789,008 1,418,129
Escrow receivable 1,012,296 (1,012,296) --
------------ ----------- ------------
Net cash provided by (used in) investing activities (3,059,554) 14,093,579 984,080
Cash flows from financing activities
Net proceeds from (payments on) debt 6,704,505 (17,865,765) (5,744,293)
Net proceeds from (payments on) capital lease obligations (220,265) 689,048 --
Net advance from (payments to) officers -- (280,000) --
Deferred financing fees -- (125,000) (635,954)
------------ ----------- ------------
Net cash provided by (used in) financing activities 6,484,240 (17,581,717) (6,380,247)
------------ ----------- ------------
Net increase (decrease) in cash (10,650) 132,888 (405,390)
Cash at beginning of year 136,369 3,481 408,871
------------ ----------- ------------
Cash at end of year $ 125,719 $ 136,369 $ 3,481
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE> 38
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 acquisitions, discontinued operations and
disposal of the Trampoline Products 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 based 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
Motor vehicles 3 - 10 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.
CAPITALIZED SOFTWARE COSTS
The Company, under the provisions of Statement of Positions 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use," is capitalizing software development costs. The development
costs are charged to expense when incurred until the application
development stage for the product has been established, at which time the
costs are capitalized until design of chosen path, coding, installation of
hardware and testing are completed. On July 1, 1998 the Company completed
the application development stage, and upon placing the software in use,
began
F-8
<PAGE> 39
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
amortizing the capitalized software. The Company capitalized $149,713 and
$1,164,025 for software costs during fiscal 1999 and 1998 respectively.
ADVERTISING COSTS
Advertising and promotional costs are expensed as incurred. Advertising
expense amounted to $778,228, $1,610,722, and $1,627,464 in fiscal 1999,
1998 and 1997, respectively.
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
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 years ended March 31, 1999 and 1997,
respectively.
GOODWILL AND OTHER INTANGIBLES
Goodwill resulting from the purchase of customer lists and patents and
intangibles resulting from license rights are amortized utilizing the
straight-line method over a period of 10 years. The Company periodically
evaluates the carrying value and the periods of amortization of goodwill
and other intangibles based on the current and expected future undiscounted
cash flows from operations of the business giving rise to the intangible to
determine whether revisions to the carrying value or useful lives is
warranted.
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> 40
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 limited 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
When necessary, certain prior year amounts have been reclassified to
conform with the current year presentation.
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.
F-10
<PAGE> 41
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standard Board issued Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
standard establishes accounting and reporting standards for derivative
instruments including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives), and for hedging
activities. The new standard is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. The Company does not expect the
adoption of the new standard to have a material impact on its financial
position or results of operations.
NOTE B - ONGOING OPERATIONAL LOSSES AND LIQUIDITY
As indicated in the accompanying financial statements, the Company incurred
an operating loss of $3,611,639 during the year ended March 31, 1999 and
recorded a contingent liability of $3,000,000 in anticipation of a
settlement of the shareholder lawsuit in other expense (income). The
Company generated an operating loss of $3,862,122 before recording a one
time gain on sale of assets for $11,247,513 for the year ended March 31,
1998.
Operating losses from operations decreased slightly in fiscal 1999, but the
Company has continued to suffer operational losses. Management believes
three major steps are important for the Company's future.
1) Final settlement of the shareholder class action lawsuits, which have
drained the Company of time and resources.
2) Securing placement of a substantial program with a major mass
merchandiser, which has attempted private label direct importation in
the past, and is currently reconsidering that strategy in favor of a
"Bollinger" Brand Program.
3) Securing additional capital to fund future acquisitions to effect a
consolidation of several of the smaller fitness accessory suppliers
into a stronger resultant entity.
Management believes, based on the three major steps outlined above, the
Company's operating losses should continue to be reduced, and to the extent
the strategy is realized, the Company's operating losses should be
eliminated.
An appropriate liquidity of the Company is also based on the three major
steps outlined above. While the cash outlay in connection with the
settlement of the shareholder class action lawsuits is substantial,
Management believes the placement of a "Bollinger" Brand program at a major
retailer will provide the necessary cash and borrowing availability.
The Company's relationship with its lender is good but the Company
continues to request waivers of two financial covenants in connection with
tangible net worth. Subsequent to year-end, the Company has requested an
additional waiver to enter into the memorandum of settlement in connection
with the shareholder lawsuits. There can be no assurance that the Company
will obtain these waivers, and failure to obtain waivers on these issues
could have a material adverse effect on the Company.
F-11
<PAGE> 42
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - ACQUISITIONS, DISCONTINUED OPERATIONS AND DISPOSAL OF TRAMPOLINE
PRODUCTS LINE
ACQUISITIONS
Effective October 1, 1998 the Company acquired certain inventory, accounts
receivable, and trademarks from Self Image Sports and Fitness Co., Inc. (d.b.a.
Multi-Grip), a Tennessee corporation. This acquisition was made by the Company's
controlled operating entity, Bollinger Industries, L.P., a Texas limited
partnership (the "Partnership"). The purchase price for these assets was
approximately $1,400,000 paid in cash at closing, a deferred cash payment of
$100,000 (subject to adjustment for uncollected accounts receivable), and the
assumption of approximately $60,000 in trade payables. As a part of this
transaction, Multi-Grip's principal shareholder entered into a non-competition
agreement with the Company in exchange for 100,000 shares of the Company's
restricted Common Stock. The transaction also involved a Registration Rights and
Option Agreement pursuant to which the owner of the shares may participate in
any qualified public offering made by the Company. The owner of the shares may
also require the Company to repurchase the shares at anytime after April 8,
2001. The per share price under this option is ninety percent of the then thirty
day average closing price for the Company's Common Stock.
Effective October 1, 1998 the Company and the Partnership entered into various
agreements with The Step Company, a Georgia corporation. These agreements
provide for the license or sublicense of various fitness related products and
concepts from The Step Company, the Partnership's sale of the licensed products
to the sporting goods, mass merchandising, and catalog retail markets, and for
the Partnership's purchase of customer lists, price lists, and cost information
related to the licensed products. The consideration for these rights and assets
was a cash payment of $2,175,000 at closing, a $1,400,000 convertible
subordinated note, and 300,000 shares of the Company's restricted Common Stock
valued at $150,000 for purposes of the transaction.
The convertible subordinated note received by The Step Company provides for
quarterly installments of approximately $88,000 (subject to future adjustments
for interest rate changes) beginning January 4, 1999, with the last installment
scheduled for October 1, 2003. The holder of the note may convert part or all of
the note balance at anytime into the Company's Common Stock at $4.00 per share.
The Common Stock issued on a conversion of the note, the 300,000 shares of stock
issued at closing, and the shares covered by the option described below are
subject to a registration rights agreement with the Company. This agreement
permits the owner of the shares to participate in any qualified public offering
made by the Company.
The Step Company transaction also involved a consulting and non-competition
agreement relating to the licensed and sublicensed products. This agreement
provides for a first year payment of $200,000. Subsequent annual payments, if
any, during the agreement's initial five year term will range from $200,000 to
$300,000 based on the sales volume of the products sold under The Step Company
license agreement. The Step Company's sublicense of certain exercise routines to
the Partnership involved the Company's grant of an option to purchase 200,000
shares of the Company's Common Stock at $5.00 per share. The exercise of this
option is subject to the Company reaching certain sales levels of products under
the sublicense before January 1, 2002.
F-12
<PAGE> 43
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - ACQUISITIONS, DISCONTINUED OPERATIONS AND DISPOSAL OF TRAMPOLINE
PRODUCTS LINE - Continued
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.
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. YEARS
ENDED MARCH 31,
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
NET SALES OF DISCONTINUED OPERATIONS:
<S> <C> <C>
Healthcare Division $ -- $ 1,398,400(1)
----------- -----------
Total net sales of discontinued operations $ -- $ 1,398,400
=========== ===========
</TABLE>
(1)April 1, 1996 to December 31, 1996 (final disposition).
Following is a summary of the discontinued operations:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
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-13
<PAGE> 44
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - ACQUISITIONS, DISCONTINUED OPERATIONS AND DISPOSAL OF TRAMPOLINE
PRODUCTS LINE - Continued
DISPOSAL OF TRAMPOLINE PRODUCTS LINE
On November 21, 1997, the Company disposed of its Trampoline Products line for
total cash consideration of $14,560,924. Included in the consideration was
$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 was paid to the
Company during fiscal 1999. The gain on sale of this product line was
$10,361,614.
The unaudited pro forma results of operations for the years ended March 31, 1998
and 1997 stated as though the disposition occurred on April 1, 1996, is as
follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 33,416,828 $ 49,203,331
============ ============
Net earnings (loss) $ 3,700,903 $ (7,317,803)
============ ============
Net earnings (loss) per common share $ 0.93 $ (1.83)
============ ============
</TABLE>
NOTE D - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid $ 544,741 $ 1,696,583 $ 2,470,054
Income tax refund $ -- $ -- $(2,100,611)
Non-cash financing and investing
transactions:
Purchase of assets-financed by
notes from buyer $ 1,400,000 $ -- $ --
Purchases of assets and
agreements financed by stock $ 200,000 $ -- $ --
Purchase of assets financed by
debt $ 111,107 $ 322,912 $ 66,381
Sale of assets-paid in escrow by
buyer $ -- $ 1,012,296 $ 17,328
Escrow received $ 1,012,296 $ -- $ --
Notes receivable in connection
with sale of Healthcare
Division $ -- $ -- $ 293,547
Liabilities assumed by buyer in
connection with the sale of
Trampoline Products line in
1998 and Healthcare Division
in 1997 $ -- $ 179,954 $ 16,843
</TABLE>
F-14
<PAGE> 45
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
On July 18, 1997, the Company entered into an agreement for the sale of the
Irving facility. September 26, 1997 the contract was executed which netted cash
of $1,106,347.
On November 21, 1997 the Company and its wholly owned subsidiary NBF, Inc.
executed an asset purchase agreement for the sale of its Trampoline Products
line to Hedstrom Corporation. 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. The Company received
$1,012,296 cash held in escrow during fiscal 1999.
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 Products line. This cash was included in other payables on the
Company's balance sheet at year end March 31, 1998. During the 1999 fiscal year
the customer applied the overpayment to current invoices.
NOTE E - CREDIT RISK
The Company's assets 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 $280,000 at March 31, 1999).
To minimize risk, the Company places its cash with quality institutions.
F-15
<PAGE> 46
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Raw materials $ 857,612 $ 336,285
Finished goods 7,548,291 7,686,607
Reserve for obsolescence (1,546,217) (2,202,879)
----------- -----------
$ 6,859,686 $ 5,820,013
=========== ===========
</TABLE>
NOTE G - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Land, buildings and leasehold improvements $ 296,752 $ 317,245
Equipment and software development costs 2,079,379 1,908,322
Motor vehicles 122,607 21,430
Furniture and fixtures 943,159 1,113,115
----------- -----------
3,441,897 3,360,112
Less accumulated depreciation 1,644,065 1,495,119
----------- -----------
$ 1,797,832 $ 1,864,993
=========== ===========
</TABLE>
Depreciation expense for the years ended March 31, 1999, 1998, and 1997 was
approximately $692,000, $556,000, and $558,000, respectively. Included in
equipment at March 31, 1999 and 1998, is $990,420 of equipment under capital
lease and the related amortization expense charged to operations for the years
ended March 31, 1999, 1998 and 1997 was $185,703 and $0 and $0, respectively.
F-16
<PAGE> 47
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - NOTES PAYABLE AND LONG TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Convertible subordinated note payable for $1,400,000 with The
Step Company, bearing interest adjusted quarterly in 1999
(8.75% at March 31, 1999). Principal and interest payable in
the amount of $88,000 quarterly beginning January 4, 1999
through October 1, 2003. $ 1,285,332 $ --
Loan with a financial institution providing a maximum line of
credit of $15,000,000, bearing interest at the reference rate
(7.75% at March 31, 1999) plus 1.50% in 1999. Interest payable
monthly; collateralized by receivables and inventory.(1) 6,757,809 --
Other 240,550 179,186
----------- -----------
$ 8,283,691 $ 179,186
Less current portion 1,379,139 142,681
----------- -----------
$ 6,904,552 $ 36,505
=========== ===========
</TABLE>
Future maturities of notes payable and long-term debt at March 31, 1999 are as
follows:
<TABLE>
<S> <C> <C>
Year ending March 31, 2000 $ 1,379,139
2001 1,278,543
2002 1,299,945
2003 4,084,877
2004 153,967
Thereafter 87,220
-----------
$ 8,283,691
===========
</TABLE>
(1) 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 $15 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. During fiscal 1999, the Company
received waivers for non-compliance of certain negative performance covenants of
the loan agreement involving financial ratios for tangible net worth and related
calculations. At March 31, 1999 the Company had $1,376,000 available in
additional borrowing capacity under the loan agreement. The loan agreement has
an extended expiration date of August 16, 2002. Maturities include an estimated
pay down of $1,000,000 per year.
F-17
<PAGE> 48
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - CONTINGENCIES FOR LEGAL SETTLEMENT
The Company recorded a contingent liability of $3,000,000 in anticipation of a
settlement in connection with the shareholder lawsuits. Subsequent to the end of
fiscal 1999, the substantive terms of a memorandum of settlement were mutually
agreed to by the Company and counsel for the plaintiffs in both the Suntrust and
STI lawsuits. See "Note O - Commitments and Contingencies".
NOTE J - RELATED PARTY TRANSACTIONS
During October, 1997 the Company entered into a marketing agreement with First
Fidelity Acceptance Corp. ("FFAC"). Richard Tucker was the Chairman and Chief
Executive Officer of FFAC and also served as a Director of the Company at that
time. 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 was to return the shortfall, if
any, between the monthly revenues and three times the original investment on the
first anniversary of the investment. During fiscal 1999 Mr. Tucker resigned his
directorship with the Company. The Company has been unsuccessful in obtaining
the original investment from the new management of FFAC and therefore during
the year ended March 31, 1999 reserved for the investment.
NOTE K - 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 $10,000 or 15% of their annual
compensation. The Company may at its discretion contribute to the 401(k) plan.
No Company contributions were made for any of the three years ended March 31,
1999. See "Note O - Commitments and Contingencies."
NOTE L - STOCK OPTIONS
1993 PLAN
The 1993 Stock Option Plan provides for the grant of options covering a total
of 500,000 shares of Common Stock of the Company to be issued to key employees
and directors of the Company other than the Chief Executive Officer and the
President. Under the Plan, incentive stock options ("ISO's") 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 on the date of grant. The
options have a term of ten years and will generally vest in annual
installments. At March 31, 1999, a total of 285,334 options were available for
grant under this plan.
F-18
<PAGE> 49
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE L - STOCK OPTIONS - 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, 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
Granted -- -- --
Canceled (30,333) 4.00 - 12.50 (126,707)
----------- -------------- -----------
Outstanding at March 31, 1999 214,666 $ 0.56 - 13.00 $ 1,747,849
</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, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Avg. Weighted
Range of Remaining Avg.
Exercise Number Contractual Exercise Number Weighted Avg.
Prices Outstanding Life Price Exercisable Exercisable Price
- --------------- ----------- ------------- -------- ----------- -----------------
<C> <C> <C> <C> <C> <C>
$ 0.56 - $13.00 214,666 .86 years $ 7.942 167,133 $ 9.25
</TABLE>
The options granted during the fiscal year ended March 31, 1998 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 affect earnings and earnings per share.
F-19
<PAGE> 50
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE L - STOCK OPTIONS - Continued
1998 PLAN
The 1998 Stock Option Plan provides for the grant of options covering a total
of 500,000 shares of Common Stock of the Company to be issued to officers and
employees of the Company who are responsible for or contribute to the
management, growth and profitability of the business. No grant will be made
under this Plan to a director who is not an officer or a salaried employee of
the Company.
The exercise price per share purchasable under a stock option shall be
determined by the Board and set forth in the stock option agreement, and in the
case of an incentive stock option granted to a participant, the exercise price
shall not be less than 100% of the fair market value of the Common Stock
subject to the stock option on the date of grant (or 110% in the case of a
stock option granted to a participant who is a ten percent shareholder on the
date of grant).
Stock Options granted under the 1998 Plan may be of two types: Incentive Stock
Options and Nonqualified Stock Options. The board has the authority to grant to
any participant Incentive Stock Options, Nonqualified Stock Options or any
combination thereof.
As of March 31, 1999 no stock options had been granted under the 1998 Plan.
Subsequent to year-end, the Company issued 251,400 Incentive Stock Options with
a $1.00 exercise price.
NOTE M - INCOME TAXES
Income tax expense (benefit) from continuing operations consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal
Current $ -- $ 123,000 $ 137,331
Deferred -- -- (245,709)
State -- 102,528 16,414
--------- --------- ---------
$ -- $ 225,528 $ (91,964)
========= ========= =========
</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,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0% 34.0% 34.0%
Amortization of goodwill 0.0% 0.7% (0.3)%
Permanent (0.5)% 0.2% (0.1)%
Change in prior tax estimates 0.9% 16.8% 2.3%
Valuation allowance (32.3)% (51.3)% (35.4)%
State income tax 0.0% 1.8% --
Other, net (2.1)% 1.8% (0.4)%
-------- -------- --------
0.0% 4.0% 0.1%
======== ======== ========
</TABLE>
F-20
<PAGE> 51
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE M - INCOME TAXES - Continued
Following are the components of deferred tax assets and deferred tax
liabilities:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1999 1998
------------ -----------
<S> <C> <C>
Net current deferred tax assets
Inventories $ 434,197 $ 243,694
Allowance for doubtful accounts 196,050 187,000
Inventory reserves -- 51,000
Accrued expenses 89,165 58,949
Less valuation allowance (571,177) (316,456)
------------ -----------
$ 148,235 $ 224,187
Net current deferred tax liability
Inventory reserves $ (124,060) --
Goodwill accumulated amortization (24,175) --
Installment sale -- (224,187)
------------ -----------
$ (148,235) $ (224,187)
Net current deferred taxes $ -- $ --
============ ===========
Non-current deferred tax assets
Accumulated depreciation $ 15,601 $ 55,530
Net operating loss 3,678,519 1,473,632
Less valuation allowance (3,694,120) (1,529,162)
------------ -----------
$ -- --
============ ===========
</TABLE>
At March 31, 1999 the Company had net operating losses available to offset
future taxable income of approximately $10,819,000 which begin expiring in 2011.
The valuation allowance increased by $2,419,680 during the year ended March 31,
1999.
NOTE N - 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>
1999
Wal-Mart 45%
The Sports Authority 17%
1998
Wal-Mart 44%
Kmart 23%
1997
Kmart 38%
Wal-Mart 34%
</TABLE>
F-21
<PAGE> 52
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE O - COMMITMENTS AND CONTINGENCIES
The Company leases certain warehouse space, warehouse and computer equipment and
other items. These leases are either operating or capital leases and have future
minimum lease payments, excluding sublease income, as follows:
<TABLE>
<CAPTION>
Operating Capital
----------- -----------
<C> <C> <C>
2000 $ 706,725 $ 287,844
2001 717,355 287,844
2002 693,690 287,844
2003 722,500 --
2004 752,500 --
Thereafter 599,500 --
----------- -----------
$ 4,192,270 $ 863,532
===========
Less amount representing interest 93,377
-----------
Present value of net minimum lease
payments (including the current
portion of $237,568) $ 770,155
===========
</TABLE>
Total lease expense for the years ended March 31, 1999, 1998 and 1997 was
approximately $654,587, $758,000 and $1,449,000 respectively. Subsequent to the
end of fiscal 1999, the Company reduced its lease space by subleasing
approximately 45,000 square feet in its Grand Prairie warehouse. This sublease
runs concurrent with the Company's existing lease, and the benefit is not
reflected in the above table.
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 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. The substantive terms of a memorandum of settlement have
been mutually agreed to by the Company and counsel for the plaintiffs. The
memorandum is being finalized for signature and will then be presented for
acceptance by the class and the court in both this cause and the STI lawsuit
described in the following paragraph. The memorandum of settlement provides for
the following payments totaling $3.0 million: (1) $400,000 upon the execution of
the memorandum; (2) $400,000 after the court's preliminary approval; (3)
$200,000 on December 1, 1999; and (4) monthly payments of $40,000 to $60,000 per
month over forty months, beginning on the earlier of October 1, 1999 or the
court's final orders settling the litigation. As additional consideration, the
class will receive 300,000 shares of the Company's Common Stock.
F-22
<PAGE> 53
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE O - COMMITMENTS AND CONTINGENCIES - Continued
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. The substantive terms of a memorandum of
settlement have been mutually agreed to by the Company and counsel for the
plaintiffs. The memorandum is being finalized for signature and will then be
presented for acceptance by the class and the court. The payments discussed
above for the Suntrust litigation will also apply to the STI lawsuit.
Civil Action No. 3-98CV0039X; Breathe Better, Inc. v. Bollinger Industries, L.P.
in the United States District Court for the Northern District of Texas. This
cause was tried in December 1998, and a judgment in the amount of $218,000 plus
interest was entered against Bollinger Industries, L.P. in favor of Breathe
Better, Inc. The judgement was satisfied shortly after the end of fiscal 1999.
An investigation of the Company's Employee Stock Ownership Plan (the "ESOP") is
presently pending before the U.S. Department of Labor ("USDoL"). Assets of the
ESOP are held in the Company's 401(k) Plan, which is the successor to the ESOP.
This investigation, begun in 1996, pertains to transactions in 1994, and is
ongoing. The USDoL has asserted various breaches of fiduciary duties by the
Company and the Plan trustees arising out of the administration of the ESOP. The
Company intends to vigorously pursue all available defenses.
The Internal Revenue Service ("IRS") has examined the Company's 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"). Based on the audit of the 1994 plan year,
the IRS has proposed to disqualify the Plan for purposes of Section 401(a) of
the Code. The Company has filed a protest of the proposed disqualification which
is presently pending before the Appeals Division of the IRS. At this time, the
effect of such an IRS disqualification on the Company or the Plan, if any,
cannot be determined.
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.
F-23
<PAGE> 54
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED
NOTE P - Subsequent Events
Subsequent to the end of fiscal 1999, the Company reduced its leased space by
subleasing approximately 45,000 square feet in its Grand Prairie warehouse. This
sublease runs concurrent with the Company's existing lease.
Subsequent to the end of fiscal 1999, the Company granted 251,500 incentive
stock options with a $1.00 exercise price under the 1998 Stock Option Plan.
Subsequent to the end of fiscal 1999, substantive terms of a memorandum of
settlement have been mutually agreed to by the Company and counsel for the
plaintiffs in the Suntrust and STI lawsuits. See "Note O - Commitments and
Contingencies".
F-24
<PAGE> 55
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II
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, 1999, we have also audited Schedule II for the years ended March 31,
1999, 1998 and 1997. 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, 1999
F-25
<PAGE> 56
Schedule II
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<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, 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
Year ended March 31, 1999
Allowance for doubtful
accounts $ 450,000 $ 240,000 $ -- $ (213,381) $ 476,619
Inventory obsolescence reserve 2,202,879 729,762 -- (1,386,424) 1,546,217
Returns and allowance reserve 910,025 2,971,638 -- (2,461,708) 1,419,955
</TABLE>
Note - Deductions represent uncollectible accounts, inventories written off, or
credits issued for returns and allowances.
F-26
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 Statement regarding Computation of Per Share Data
21 Subsidiaries of the Registrant
27.1 Financial Data Schedule
</TABLE>
F-27
<PAGE> 1
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Earnings (loss) from continuing operations $(7,497,657) $ 5,466,225 $(7,918,362)
Gain (loss) from discontinued operations -- -- 476,967
----------- ----------- -----------
Net earnings (loss) $(7,497,657) $ 5,466,225 $(7,441,395)
=========== =========== ===========
Per share data:
Basic earnings per share
Continuing operations $ (1.79) $ 1.37 $ (1.98)
Discontinued operations -- -- 0.12
----------- ----------- -----------
$ (1.79) $ 1.37 $ (1.86)
=========== =========== ===========
Dilutive earnings per share
Continuing operations $ (1.79) $ 1.36 $ (1.98)
Discontinued operations -- -- 0.12
----------- ----------- -----------
Net earnings (loss) $ (1.79) $ 1.36 $ (1.86)
=========== =========== ===========
Shares used in the calculation of per share
amounts:
Basic common shares 4,178,840 4,000,210 4,000,210
Dilutive impact of stock options -- 25,329 --
----------- ----------- -----------
Diluted common shares 4,178,840 4,025,539 4,000,210
=========== =========== ===========
</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 years ended March 31, 1999 and 1997.
<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, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 125,719
<SECURITIES> 0
<RECEIVABLES> 7,114,315
<ALLOWANCES> 476,619
<INVENTORY> 6,859,686
<CURRENT-ASSETS> 14,197,586
<PP&E> 3,441,897
<DEPRECIATION> 1,644,065
<TOTAL-ASSETS> 20,361,776
<CURRENT-LIABILITIES> 6,734,936
<BONDS> 0
0
0
<COMMON> 44,002
<OTHER-SE> 3,145,699
<TOTAL-LIABILITY-AND-EQUITY> 20,361,776
<SALES> 33,823,947
<TOTAL-REVENUES> 33,823,947
<CGS> 24,476,190
<TOTAL-COSTS> 3,531,858
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 240,000
<INTEREST-EXPENSE> 773,579
<INCOME-PRETAX> (7,497,657)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,497,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,497,657)
<EPS-BASIC> (1.79)
<EPS-DILUTED> (1.79)
</TABLE>
