<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _________ to _________
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)
(972) 343-1000
(Registrant's telephone number, including area code)
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
----- -----
As of August 2, 1999, 4,400,210 shares of the registrant's common stock,
$0.01 par value per share, were outstanding.
1
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BOLLINGER INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
June 30, 1999 (unaudited) and March 31, 1999 3
Consolidated Statements of Earnings -
Quarters Ended June 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows -
Quarters Ended June 30, 1999 and 1998 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES
</TABLE>
2
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1999 March 31, 1999
------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 24,528 $ 125,719
Accounts receivable - trade net allowance for doubtful accounts of
$487,560 and $476,619 and allowance for returns and allowances of
$1,460,905 and $1,419,955 and allowance for advertising of
$276,676 and $236,273 5,189,922 7,114,315
Other 21,671 9,621
Inventories 6,723,006 6,859,686
Prepaid expenses 59,417 88,245
------------- -------------
Total current assets 12,018,544 14,197,586
PROPERTY PLANT AND EQUIPMENT - NET 1,621,131 1,797,832
OTHER ASSETS
Goodwill, net of accumulated amortization of $266,475 and $177,650 3,286,525 3,375,350
License rights, net of accumulated amortization of $53,625 and $35,720 661,375 679,250
Notes receivable and other 111,825 113,531
Deferred financing fees - net of accumulated amortization of $599,894
and $562,727 161,060 198,227
------------- -------------
Total other assets 4,220,785 4,366,358
------------- -------------
TOTAL ASSETS $ 17,860,460 $ 20,361,776
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 4
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1999 March 31, 1999
------------- --------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long term debt and other debt $ 1,311,356 $ 1,379,139
Current portion of capital lease obligations 242,102 237,568
Accounts payable - trade 4,866,462 3,744,514
Income tax payable 79,459 61,279
Other current liabilities 895,300 1,085,619
Accrued product liability 154,534 226,817
------------- -------------
Total current liabilities 7,549,213 6,734,936
------------- -------------
LONG-TERM LIABILITIES
Contingency for legal settlement 3,000,000 3,000,000
Other long-term obligations 33,335 -
Long-term debt, net of current portion 4,256,561 6,904,552
Long-term capital lease obligations 470,334 532,587
------------- -------------
Total long-term liabilities 7,760,230 10,437,139
------------- -------------
Total liabilities 15,309,443 17,172,075
------------- -------------
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 shares issued and outstanding 44,002 44,002
Capital in excess of par 15,519,058 15,519,058
Accumulated deficit (13,012,043) (12,373,359)
------------- -------------
Total stockholders' equity 2,551,017 3,189,701
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,860,460 $ 20,361,776
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------
QUARTER ENDED JUNE 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales $ 7,165,588 $ 7,403,069
Cost of goods sold 4,797,924 5,422,043
----------- -----------
Gross profit 2,367,664 1,981,026
Selling expenses 726,886 945,632
Distribution, general and
administrative expenses 2,033,056 2,122,962
----------- -----------
2,759,942 3,068,594
----------- -----------
Operating loss (392,278) (1,087,568)
Other expense (income)
Interest expense 251,865 119,237
Gain on sale of assets (4,685) (1,209)
Other (774) (34,759)
----------- -----------
246,406 83,269
----------- -----------
Loss before income tax expense
(benefit) (638,684) (1,170,837)
Income tax expense (benefit) -- --
----------- -----------
Net loss $ (638,684) $(1,170,837)
=========== ===========
Per share data (basic and diluted):
Basic loss per share $ (0.15) $ (0.29)
=========== ===========
Diluted loss per share $ (0.15) $ (0.29)
=========== ===========
Shares used in the calculation of per share amounts:
Basic common shares 4,400,210 4,000,210
Dilutive impact of stock options -- --
----------- -----------
Diluted common shares 4,400,210 4,000,210
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------
QUARTER ENDED JUNE 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (638,684) $(1,170,837)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities
Gain on disposal of assets (4,685) (1,209)
Depreciation and amortization 307,848 141,663
Provision for returns and allowances 513,982 638,315
Provision for doubtful accounts 15,000 60,000
Provision for obsolete inventory -- 80,838
Changes in operating assets and liabilities
Accounts receivable-trade 1,395,411 (628,017)
Other receivables (12,050) 382,182
Income tax refund -- (292,500)
Inventories 136,680 1,206,743
Prepaid expenses 28,828 6,723
Notes receivable and other assets 1,008 2,840
Accounts payable-trade 1,121,948 (185,498)
Income tax payable 18,180 (177,500)
Other current liabilities (262,602) 760,988
----------- -----------
Net cash provided by operating activities 2,620,864 824,731
Cash flows from investing activities
Reimbursements (purchases) of property and equipment 12,000 (229,705)
Payments on note receivable -- 50,497
Proceeds from sale of assets 6,103 14,181
Proceeds from sub-lease deposit 33,335
Escrow receivable -- (11,912)
----------- -----------
Net cash provided by (used in) investing activities 51,438 (176,939)
Cash flows from financing activities
Net payments on long term debt (2,715,774) (57,053)
Payments on capital lease obligations (57,719) (74,661)
----------- -----------
Net cash used in financing activities (2,773,493) (131,714)
Net increase (decrease) in cash (101,191) 516,078
Cash at beginning of period 125,719 136,369
----------- -----------
Cash at end of period $ 24,528 $ 652,447
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - GENERAL
The consolidated interim financial statements include the accounts of Bollinger
Industries, Inc., its wholly-owned subsidiaries, and Bollinger Industries, L.P.,
a partnership wholly-owned by Bollinger's subsidiaries (collectively the
"Company").
The consolidated interim financial statements included herein have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the consolidated
financial statements and notes for the fiscal year ended March 31, 1999
contained in the Company's Annual Report on Form 10-K.
In the opinion of management, the unaudited interim consolidated financial
statements of the Company contain all adjustments, consisting only of those of a
normal recurring nature, necessary to present fairly the Company's financial
position and the results of its operations and cash flows for the periods
presented. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities, as well as the disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expense during the reporting period.
Actual results could differ from these estimates.
Reclassifications
Certain prior year amounts may have been reclassified to conform to the current
year presentation.
Revenue Recognition and Provisions for Chargebacks and Buybacks
The Company recognizes sales revenue at the time products are shipped to its
customers. 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
payments or to apply for credit amounts for items such as volume discounts or
rebates under marketing programs or pricing discrepancies, penalties, vendor
compliance issues, shipping shortages and any other similar item under vendor
compliance guidelines established by the customer.
7
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - CONTINUED)
NOTE A - GENERAL-CONTINUED
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 customers, 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
"buyback" is amortized over the life of the program, which typically has been
two to three years.
NOTE B - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
----------------------
QUARTER ENDED JUNE 30,
----------------------
1999 1998
--------- --------
<S> <C> <C>
Interest paid $ 205,957 $ 90,329
</TABLE>
Shortly before the 1998 fiscal year-end, the Company received $1,125,000 in cash
from a major customer that should have been properly payable to the purchaser of
the trampoline product line. The Company received another $818,000 from the
customer during the first quarter of fiscal 1999. The Company advised the
customer of this payment, but the customer did not request an immediate
repayment. By the end of the third quarter of fiscal 1999, the overpayment was
eliminated by the customer's continued purchases of product from the Company.
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Raw materials $ 440,930 $ 857,612
Finished goods 7,493,886 7,548,291
Reserve for obsolescence (1,211,810) (1,546,217)
----------- -----------
$ 6,723,006 $ 6,859,686
=========== ===========
</TABLE>
8
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE D - NOTES PAYABLE AND LONG TERM DEBT
The Company currently has a revolving credit facility with a financial
institution providing a maximum line of $15 million, subject to certain
borrowing base requirements and covenants, which expires in August 2002. In June
1999 the loan agreement was amended, primarily revising certain negative
performance covenants involving tangible net worth and debt to tangible net
worth ratios. The outstanding balance under the credit line is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory. As of June 30, 1999 there was $4,175,000 outstanding. Availability
under the line was $903,000 at June 30, 1999.
The Company has a convertible subordinated note payable for $1,400,000 and a
five-year term pursuant to the asset purchase agreement with The Step Company.
The note bears interest at the rate of prime plus one percent adjusted
quarterly. The holder has the right to convert the outstanding principal balance
into fully paid and non-assessable shares of the Company's unregistered common
stock subject to predefined ratios.
NOTE E - INCOME TAXES
The Company's effective income tax rates for the three months ended June 30,
1998 and 1999 was 0% based on utilization of a tax loss carry-forward (and lack
of income). At June 30, 1999 the Company had net operating losses available to
offset future taxable income of approximately $11.4 million which begin expiring
in 2011.
NOTE F - COMMITMENTS AND CONTINGENCIES
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 had been
mutually agreed to by the Company and counsel for the plaintiffs as of June 30,
1999, but the plaintiffs withdrew the negotiated settlement offer subsequent to
the end of the quarter. See "Part II-Other Information, Item 1. Legal
Proceedings."
9
<PAGE> 10
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F - COMMITMENTS AND CONTINGENCIES-CONTINUED
The Company, Glenn D. Bollinger, Bobby D. Bollinger, Curtis D. Logan and Michael
J. Beck are defendants in a 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 in the 68th Judicial District Court of Dallas
County, Texas. The substantive terms of a memorandum of settlement had been
mutually agreed to by the Company and counsel for the plaintiffs as of June 30,
1999, but the plaintiffs withdrew the negotiated settlement offer subsequent to
the end of the quarter. See "Part II - Other Information, Item 1. Legal
Proceedings."
In March 1999, the Company recorded a contingent liability of $3,000,000 in
anticipated settlement of both the STI action and the Suntrust action mentioned
above.
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,
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
10
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F- COMMITMENTS AND CONTINGENCIES-CONTINUED
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 regulations
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, which could have a
material adverse effect on the Company.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's Annual
Reports on Form 10-K and consolidated financial statements for the fiscal years
ended March 31, 1999 and March 31, 1998; the Company's Form 10-Q for the quarter
ended June 30, 1998; and the consolidated financial statements and related notes
for the quarter ended June 30, 1999 found elsewhere in this report.
QUARTER ENDED JUNE 30, 1999 COMPARED WITH QUARTER ENDED JUNE 30, 1998
Net sales decreased for the quarter ended June 30, 1999 by $237,000 on a
comparative basis with the prior year. The decrease in net sales resulted from
the loss of a major customer in September 1998 significantly offset by increases
in net sales resulting from acquisitions in October 1998.
Gross profits as a percent of net sales increased dramatically for fitness
accessory products to 33.0% in the quarter ended June 30, 1999 from 26.8% in the
quarter ended June 30, 1998. The improvement was primarily due to improved
pricing from overseas vendors and better controls over related expenses.
Selling expenses for the quarter ended June 30, 1999 decreased by $219,000 as
compared to the quarter ended June 30, 1998, and decreased as a percentage of
net sales to 10.1% from 12.8%. The dollar and percentage decrease in selling
expense were primarily related to lower commission, royalty and advertising
expenses.
Distribution, general and administrative expenses for the quarter ended June 30,
1999 decreased by $90,000 as compared to the quarter ended June 30, 1998, and
decreased as a percentage of net sales to 28.4% in 1999 from 28.7% in 1998. The
decrease in distribution, general and administrative expenses resulted from
lower payroll and legal costs partially offset by increased depreciation and
amortization expenses.
The Company sustained an operating loss of $392,000 for the quarter ended June
30, 1999, as compared to an operating loss of $1,088,000 in the same quarter
last year. As a percentage of net sales, the operating loss decreased from 14.7%
in 1998 to 5.5% in 1999. The reduction of the operating loss was primarily from
improved gross margin.
Interest expense for the quarter ended June 30, 1999 was $252,000 compared to
$119,000 for the same quarter in the previous year. The increase in interest
expense was primarily due to increased borrowings to fund losses and interest
expense on acquisition costs.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of outside financing in the past several years
has been short-term borrowings from banks and asset-based lenders. Net cash
provided by operating activities for the quarter ended June 30, 1999 was
$2,621,000 compared to cash provided by operating activities for the same period
in the prior year of $825,000. Cash generated from the collection of accounts
receivable and the increase in accounts payable was used to fund operating
losses in the quarter ended June 30, 1999. Shortly before the fiscal year end on
March 31, 1998, the Company received $1,125,000 in cash from a major customer
that should have been properly payable to the purchaser of the trampoline
product line. The Company received another $818,000 from the customer during the
quarter ended June 30, 1998. The Company advised the customer of this payment,
but the customer did not request an immediate repayment. By the end of the third
quarter of fiscal 1999, the overpayment was eliminated by the customer's
continued purchases of product from the Company.
The Company has a revolving credit facility with a financial institution
providing a maximum line of $15 million, subject to certain borrowing base
requirements and covenants, which expires in August 2002. In June 1999 the loan
agreement was amended, primarily revising certain negative performance covenants
involving tangible net worth and debt to tangible net worth ratios. The
outstanding balance under the credit line is collateralized by substantially all
the Company's assets, including accounts receivable and inventory. As of June
30, 1999 there was $4,175,000 outstanding. Availability under the line was
$903,000 at June 30, 1999. Subsequent to June 30, 1999 the Company's primary
lender reduced the advance rate on inventory which significantly reduced
availability under the line. The Company is continuing discussions with its
lender for a return to a more favorable advance rate.
The Company has a convertible subordinated note payable for $1,400,000 and a
five year term pursuant to the asset purchase agreement with The Step Company.
The note bears interest at the rate of prime plus one percent adjusted
quarterly. The holder has the right to convert the outstanding principal balance
into fully paid and non-assessable shares of the Company's unregistered common
stock subject to predefined ratios.
Outstanding balances in the quarter ended June 30, 1999 bore interest at a rate
of 9.25% compared to an approximate rate of 10.13% for the quarter ended June
30, 1998.
In March 1999, the Company recorded a contingent liability of $3,000,000 in
anticipated settlement of both the STI and Suntrust lawsuits. The plaintiffs
withdrew the negotiated settlement offer subsequent to the end of June 1999. A
$3,000,000 accrual for legal contingency remains on the balance sheet in
anticipation of continuing negotiations. Whether the Company will be successful
in securing a final settlement is uncertain.
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
13
<PAGE> 14
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.
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 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations" 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.
Whether the STI and Suntrust lawsuits will be settled or will proceed through
the judicial process is uncertain. There can be no assurances that the Company
and the plaintiffs will ultimately reach an acceptable settlement and there can
be no assurances that the Company could fund an extensive legal proceeding or
withstand an unfavorable judgement at trial.
As discussed in "Part I, Item 2. Liquidity and Capital Resources" changes in the
inventory advance rate subsequent to quarter end have impaired the Company's
borrowing ability under its line of credit. The Company's ability to generate
sufficient funding for operations, including the resolution of the shareholder
derivative lawsuits, depend on future operating earnings, market conditions and
lender forbearance.
Investors are cautioned that forward-looking statements involve certain risks
and uncertainties that could cause actual results of the Company to differ
materially from those contained in the forward-looking statements. In addition
to the factors mentioned above, other important factors include, but are not
limited to: seasonality, advertising and promotional efforts, availability and
terms of capital, future acquisitions, economic conditions, consumer
preferences, lack of success of new products, loss of customer loyalty,
heightened competition and other factors discussed in this Report. The Company
disclaims any obligation to update or to publicly revise any of the
forward-looking statements contained herein to reflect future events or
developments.
14
<PAGE> 15
The Company continues to suffer operating losses. Nothing contained in these
financial statements or in Management's Discussion and Analysis of Financial
Condition and Results of Operations should be interpreted as a guarantee of
future earnings or a change in financial condition. The actual results of the
Company could differ materially from the statements found in this section and
elsewhere in this Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not Applicable.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust Retirement
Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D.
Bollinger, Curtis D. Logan, Michael J. Beck, John L. Maguire, William Blair &
Company, Rauscher Pierce Refsnes, Inc. and Grant Thornton, L.L.P.; in the 68th
Judicial District Court of Dallas County, Texas (the "Suntrust Lawsuit"):
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Curtis D. Logan (former CFO), Michael J. Beck (former CAO), John L.
Maguire (Director), William Blair & Company (former underwriters of initial
public offering), Rauscher Pierce Refsnes, Inc. (former underwriters of initial
public offering) and Grant Thornton, L.L.P. (former independent accountants) are
defendants in a lawsuit filed on March 22, 1996, by shareholder Suntrust Bank
Atlanta, as Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf of
themselves and all persons similarly situated. This lawsuit was filed as a class
action suit on behalf of those who purchased securities through a public
offering 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 had been
mutually agreed to by the Company and council for the plaintiffs as of June 30,
1999, but the plaintiffs subsequently withdrew the negotiated settlement offer
because the Company did not obtain consent from its lender that was in a form
acceptable to all parties.
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, Curtis D. Logan and Michael
J. Beck, are defendants in a 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. As with the similar suit mentioned above,
the substantive terms of a memorandum of settlement had been mutually agreed to
by the Company and council for the plaintiffs as of June 30, 1999, but the
plaintiffs subsequently withdrew the negotiated settlement offer because the
Company did not obtain consent from its lender that was in a form acceptable to
all parties.
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
16
<PAGE> 17
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.
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 regulations 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.
17
<PAGE> 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
10.69 Sublease and Modification and Ratification of Sublease
Agreements commencing June 1, 1999 between Bollinger
Industries, L.P. ("Sublessor") and Directory Distributing
Associates, Inc. ("Sublessee")
10.70 Modification and Ratification of Lease Agreement dated June 1,
1999 between Fountain Parkway, Ltd. ("Lessor") and Bollinger
Industries, L.P. ("Lessee")
10.71 Amendment No. 1 to Amended and Restated Loan and Security
Agreement dated June 29, 1999 between Bollinger Industries,
Inc., Bollinger Industries, L.P. and NBF, Inc., and Foothill
Capital Corporation
11 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month period
ended June 30, 1999.
</TABLE>
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements 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.
BOLLINGER INDUSTRIES, INC.
Date: August 6, 1999 /S/ Glenn D. Bollinger
-----------------------------------------------------
Glenn D. Bollinger
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: August 6, 1999 /S/ Rose Turner
-----------------------------------------------------
Rose Turner
Executive Vice President - Finance, Chief Financial
Officer, Chief Operating Officer, Treasurer and
Secretary
(Principal Financial Officer)
Date: August 6, 1999 /S/ Floyd DePauw
-----------------------------------------------------
Floyd DePauw
Controller and Chief Accounting Officer (Principal
Accounting Officer)
19
<PAGE> 20
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
- -------- -----------
<S> <C>
10.69 Sublease and Modification and Ratification of Sublease
Agreements commencing June 1, 1999 between Bollinger Industries,
L.P. ("Sublessor") and Directory Distributing Associates, Inc.
("Sublessee")
10.70 Modification and Ratification of Lease Agreement dated June 1,
1999 between Fountain Parkway, Ltd. ("Lessor") and Bollinger
Industries, L.P. ("Lessee")
10.71 Amendment No. 1 to Amended and Restated Loan and Security
Agreement dated June 29, 1999 between Bollinger Industries,
Inc., Bollinger Industries, L.P. and NBF, Inc., and Foothill
Capital Corporation
11 Computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.69
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT is entered into as of the 31st day of May 1999,
(but effective as specified below in Paragraph 2), by and between Bollinger
Industries, L.P., a Texas Limited Partnership, as Sublessor and Directory
Distributing Associates, Inc., a Missouri Corporation, as Sublessee.
1. Sublessor hereby leases to Sublessee, and Sublessee hereby leases
from Sublessor, approximately 45,200 square feet of office/warehouse space
more commonly know as Building 4, 602 Fountain Parkway, Grand Prairie,
Texas 75050 (the "Premises"), as further described on attached Exhibit "A".
2. The term of this Sublease shall commence upon occupancy of the
premises by Sublessee or on June 1, 1999, whichever shall first occur, and
end on April 30, 2004 (i.e., 59 months).
3. Sublessee shall pay to Sublessor as rent for the Premises, $10,735
per month for months 1 through 35 and $11,300 per month for months 36
through 59, payable on or before the first day of each month.
4. Sublessee hereby waives any claims against Sublessor with respect
to the space and improvements covered by Lease and accepts the Premises in
"as is" condition except as noted on attached Exhibit "B".
5. Except as modified herein, Sublessee hereby agrees to observe and
perform all duties, covenants and obligations of Sublessor under that
certain Lease of the Premises between Sublessor, as Tenant, and Fountain
Parkways, Ltd., as Landlord, and any amendments thereto, a full and
complete copy attached as "Exhibit C" and Sublessee hereby acknowledges
receipt hereof (the "Lease"), and any failure by Sublessee to so observe
and perform such duties, covenants, and obligations shall be a default
hereunder.
6. Sublessee warrants and represents to Sublessor and Landlord that
the leased premises shall be used and occupied only for the purposes of
office storage and distribution of phone books associated with Sublessee's
business.
7. Nothing contained herein shall relieve Sublessor of any liability
it may have as Tenant under the Lease.
8. In the event of default (as described in the Lease or herein) by
Sublessee hereunder, Sublessor shall have all of the remedies of Landlord
set forth in the Lease.
9. Sublessee herewith tenders to Sublessor the sum of $33,335. (the
"Funds") to be applied as follows:
(a) $10,735. shall be applied to the first month's rental due
hereunder:
(b) $22,600. Shall be held by Sublessor without obligation to pay
interest as a Security Deposit for Sublessee's faithful
performance of its obligations hereunder. If Sublessee defaults
in the payment of rent or in performing any of its obligations
hereunder Sublessor may apply said Security Deposit or any
portion thereof, to cure such default, and within 10 days of
Sublessor's notice that the Security Deposit has been reduced by
such application, Sublessee shall deposit with Sublessor such
amount as may be necessary to restore the Security Deposit.
Sublessor agrees to apply $11,300 of Security Deposit or balance
thereof to the rental payment due by Sublessee for the last
calendar month of the term of this Sublease.
Initials: GG
GB
----
Page 1 of 2
<PAGE> 2
10. Sublessee shall pay rent to Sublessor, at the following address:
Bollinger Industries, L.P.
602 Fountain Parkway
Grand Prairie, Texas 75050
11. Landlord shall notify Sublessor of any items of default by
Sublessee or Lessee under the Lease and Sublessor shall have fifteen (15)
days to cure such items of default, or as specified in Lease.
12. Sublessor shall pay to Robert Lynn Company, "Principal Realtor," a
commission for negotiating this Sublease equal to six percent (6%) of the
total rent to become due to Sublessor during the term of this Sublease
Agreement. One-half of commissions shall be paid upon execution and receipt
of the funds by Sublessor and balance of commission shall be paid by August
1, 1999.
13. Sublessor shall deliver the facility in a broom-clean condition.
14. Sublessee shall not assign this Sublease or sublet the premises
without the prior written consent of both Sublessor and Landlord.
SUBLESSOR: SUBLESSEE:
Bollinger Industries, L.P. Directory Distributing Associates, Inc.
By: /s/ GLENN BOLLINGER By: /s/ GARY L. GRIMIS
----------------------------- -----------------------------------
Glenn Bollinger
CEO of Bollinger Operating Printed Name: Gary L. Grimis
Corp., its General Partner -------------------------
602 Fountain Parkway Title: Vice President
Grand Prairie, Texas 75050 --------------------------------
Address: 160 Corporate Woods Ct.
------------------------------
Bridgeton, MO 63044
--------------------------------------
PRINCIPAL REALTOR: COOPERATING REALTOR:
Robert Lynn Company Bradford Companies
By: /s/ JOHN [ILLEGIBLE] By: /s/ SHANE CLARK
----------------------------- -----------------------------------
Shane Clark
Vice President
Bradford Realty Services
of Dallas, Inc.
APPROVED:
FOUNTAIN PARKWAY, LTD.
By: Inner Fountain, Inc., its General
Partner
By: /s/ CLIFFORD A. BOOTH
-----------------------------
By: Clifford A. Booth, President
Date: 5-10-99
---------------------------
Address: 701 Commerce Street, Suite 200
Dallas, Texas 75202
Page 2 of 2
<PAGE> 3
EXHIBIT A
[SITE PLAN]
602 Fountain Parkway
GRAND PRAIRIE, TEXAS 75050
Initials: GG
GB
----
<PAGE> 4
EXHIBIT B
LEASE MODIFICATIONS &
LEASEHOLD IMPROVEMENTS
1. Toilet facilities as currently installed will be in good working order at
time of occupancy.
2. Lights and mechanical systems as currently installed will be in good
working order at time of occupancy.
3. Sublessor at Sublessor's expense will install a demising wall in workman-
like manner at northwest corner of Premises similar in construction
to current demising wall at southwest corner of Premises.
4. Sublessor at Sublessor's expense will install:
o Two (2) new dock-high garage doors (10'x 8') with bumper pads at south
end of Premises.
o Approximately 750 sq. ft. of reinforced concrete paving from new dock
doors to existing asphalt paving.
5. Sublessee's monthly payment shall be inclusive of building taxes and
insurance of Premises without adjustment for Base Operating Year Expenses.
Sublessee shall be responsible for insurance and taxes of Sublessee
property and inventory.
6. Sublessor shall pay for Common Area Maintenance and electric, water and gas
services, if any, for the Premises.
7. Sublessor shall pay for monthly alarm fee for the Premises. Sublessor shall
not be responsible for maintenance, additions nor modifications to alarm
system in Premises. Sublessor shall not be responsible for security of
Sublessee property, inventory nor Premises.
8. Sublessor shall be granted access to Premises for security, maintenance,
and normal business operations.
Initials: G
GB
----
<PAGE> 5
MODIFICATION AND RATIFICATION OF SUBLEASE
This Modification and Ratification of Sublease Agreement is made and entered
into between Bollinger Industries, L.P. ("Sublessor") and Directory Distributing
Associates, Inc. ("Sublessee") subject to the terms and conditions of the
Sublease Agreement commencing the 1st day of June 1999 by and between Sublessor
and Sublessee for and in consideration of One Dollar ($ 1.00) and other good and
valuable consideration, receipt of which is hereby acknowledged.
WITNESSETH;
1. Sublessor and Sublessee hereby confirm and ratify, except as modified
below, all of the terms, conditions and covenants in that certain Sublease
Agreement commencing on June 1, 1999, between Sublessor and Sublessee for
the rental of the property at 602 Fountain Parkway, Grand Prairie, Texas
containing approximately 45,200 square feet.
2. Sublessee represents that use of premises is for storage and distribution
of printed material; Sublessee will notify Sublessor of any change of use.
3. Sublessor and Sublessee agree to modify Article 14 of Sublease Article
9.02, and Article 9.03 of Lease and any other pertinent provisions, subject
to Landlord's approval below, to allow Southwestern Bell Yellow Pages
("SWBYP") the right to assume all obligations of the Sublessee under this
Sublease Agreement.
GG, GB
4. Sublessor and Sublessee agree to modify Article 15.03 of Lease, subject to
Landlord's approval below, to substitute all references to "Paragraph
16.03" to read "Paragraph 15.03".
5. Sublessor and Landlord, by approval below, represent and warrant that
subject sublease space has neither asbestos hazard nor other hazardous or
toxic substances. Sublessor and Landlord further agree to indemnify,
defend and hold harmless Sublessee and its officers, employees and agents
from any claims, fines, penalties or loss which arise in connection with
the presence or suspected presence of hazardous or toxic substances in the
premises prior to occupancy and not due to the Sublessee's operation.
6. This Modification and Ratification of Sublease is not effective until
execution by and delivery to Sublessor, Sublessee and Landlord.
EXECUTED THIS 10th DAY OF JUNE 1999.
SUBLESSOR: Bollinger Industries, L.P.
BY:/s/ GLENN BOLLINGER
-----------------------------------------------
Glenn Bollinger, Chief Executive Officer
of Bollinger Operating Corp., its General Partner
EXECUTED THIS 9th DAY OF JUNE 1999.
SUBLESSEE: Directory Distributing Associates, Inc.
BY:/s/ GARY L GRIMS
-----------------------------------------------
TITLE: Vice President
--------------------------------------------
ADDRESS: 110 Corporate Woods Ct
------------------------------------------
Bridgeton, MO 63044
------------------------------------------
APPROVED THIS 11th DAY OF JUNE 1999.
LANDLORD: Fountain Parkway, Ltd.
BY:
-----------------------------------------------
Clifford A. Booth, President
Inner Fountain, Inc., its General Partner
<PAGE> 1
EXHIBIT 10.70
MODIFICATION AND RATIFICATION OF LEASE
This Modification and Ratification of Lease Agreement is made and entered into
between Fountain Parkway, Ltd. ("Lessor") and Bollinger Industries, L.P.
("Lessee") subject to the terms and conditions of the Lease Agreement commencing
the 1st day of December 1996 by and between Lessor and Lessee for and in
consideration of One Dollar ($1.00) and other good and valuable consideration,
receipt of which is hereby acknowledged.
WITNESSETH;
1. Lessor and Lessee hereby confirm and ratify, except as modified below, all
of the terms, conditions and covenants in that certain written Lease
Agreement commencing on December 1, 1996, between Lessor and Lessee for the
rental of the property containing approximately 300,000 square feet.
2. Lessor and Lessee agree to modify Article 9.03 of subject Lease Agreement
to accept attached Sublease Agreement between Bollinger Industries, L.P.
and Directory Distributing Associates, Inc. for approximately 45,200 square
feet of Leased Premises.
3. Lessee acknowledges that Lessor has no responsibility to Sublessee to
perform responsibilities of Sublessor (Lessee) and Lessee affirms its
obligations to fulfill responsibility for entire Leased Premises.
4. Lessee agrees to pay leasing commissions for Sublease Agreement.
5. Lessee agrees to pay for Leasehold Improvements of Sublease Agreement and
acknowledges that improvements shall remain property of Lessor.
6. As additional consideration for consenting to this Modification, Lessor and
Lessee agree that the monthly base rent of subject Lease shall increase by
$2,000. per month for months 66 through 89 (i.e., $48,000.) of Lease
Agreement.
7. Lessor and Lessee agree that all other terms and conditions as set forth in
the Lease commencing on December 1, 1996 will remain in full force and
effect for this Modification and Ratification of Lease commencing on June
1, 1999.
8. This Modification and Ratification of Lease is not effective until
execution by and delivery to both Lessor and Lessee.
EXECUTED THIS 10th DAY OF MAY, 1999.
LESSOR: FOUNTAIN PARKWAY, LTD.
By: Inner Fountain, Inc. its General Partner
BY: /s/ CLIFFORD A. BOOTH
------------------------------------------------
By: Clifford A. Booth, President
EXECUTED THIS 12th DAY OF MAY, 1999.
LESSEE: Bollinger Industries, L.P.
BY: /s/ GLENN BOLLINGER
-------------------------------------------------
Glenn Bollinger, Chief Executive Officer
of Bollinger Operating Corp., its General Partner
<PAGE> 1
EXHIBIT 10.71
AMENDMENT NO. 1 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment No. 1 to Amended and Restated Loan and Security Agreement
(this "Amendment") is entered into as of June 29, 1999, by and among BOLLINGER
INDUSTRIES, INC., a Delaware corporation ("BII") BOLLINGER INDUSTRIES, L.P., a
Texas limited partnership ("BILP"), and NBF, INC., a Georgia corporation
("NBF"), jointly and severally (collectively, the "Borrower"), with their chief
executive office located at 602 Fountain Parkway, Grand Prairie, Texas 75050 and
FOOTHILL CAPITAL CORPORATION, a California corporation ("Lender"), with a place
of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, in light of the following facts:
BACKGROUND
FACT ONE: Lender and Borrower have entered into that certain Amended and
Restated Loan and Security Agreement, dated May 14, 1998 (the "Loan Agreement").
FACT TWO: Lender and Borrower desire to further modify, supplement and
amend the Loan Agreement as provided herein. Terms defined in the Loan Agreement
which are used herein shall have the same meanings as set forth in the Loan
Agreement, unless otherwise specified.
NOW, THEREFORE, Lender and Borrower hereby supplement, modify and amend the
Loan Agreement as follows:
ARTICLE I
Definitions
1.01 Capitalized terms used in this Amendment, to the extent not otherwise
defined herein, shall have the same meaning as in the Loan Agreement, as amended
hereby.
ARTICLE II
Effective Date
2.01 This Amendment shall be effective on the date (the "Effective Date")
upon which Lender has received each of the following: (a) one or more
counterparts of this Amendment duly executed by Lender and each Borrower; (b) a
consent and reaffirmation of the obligations of each Individual Guarantor and
each Corporate Guarantor under their respective guaranties, in such form as
Lender may require; and (c) the fee required to be paid by Borrower pursuant to
Section 6.03 of this Amendment.
1
<PAGE> 2
ARTICLE III
AMENDMENTS AND ADDITIONS TO LOAN AGREEMENT
3.01 AMENDMENTS TO SECTION 1.1 OF THE LOAN AGREEMENT. As of the Effective
Date, the definitions of "Applicable Margin" and "Change of Control" contained
in Section 1.1 of the Loan Agreement are hereby amended and restated to read in
their entirety as follows:
"'Applicable Margin' means two percent(2%)."
"'Change of Control' shall be deemed to have occurred at such time: (a) as
a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of more than twenty-five percent (25%) of the total voting power of all classes
of stock then outstanding or of partnership interests of Borrower normally
entitled to vote in the election of directors or a vote of partners; provided,
however, no Change of Control shall be deemed to occur solely as a result of
increases in the number of shares of stock or percentage of partnership
interests beneficially owned by Glenn D. Bollinger or Bobby D. Bollinger; or (b)
as any Senior Manager of Borrower fails for any reason to be actively involved
in the management of Borrower in a senior executive capacity and is not replaced
within sixty (60) days with a Person of comparable expertise, experience and
capabilities as determined by Foothill in the exercise of its reasonable credit
judgment."
3.02 ADDITION TO SECTION 1.1 OF THE LOAN AGREEMENT. As of the Effective
Date, the following definition of "Senior Manager" is added, in appropriate
alphabetical order, to Section 1.1 of the Loan Agreement to read in its
entirety as follows:
"'Senior Manager' means the President, Chief Executive Officer, Chief
Operating Officer, the Chief Financial Officer or Treasurer of Borrower, or
any Person charged with all or a significant portion of the duties or
responsibilities generally associated with such offices, in each case as
determined by Foothill."
3.03 AMENDMENTS TO SECTION 6.12 OF THE LOAN AGREEMENT. As of the Effective
Date, Section 6.12 of the Loan Agreement is hereby amended and restated to read
in its entirety as follows:
"6.12 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets divided by
Consolidated Current Liabilities of at least one and one-half to one
(1.50:1.0) measured on a fiscal quarter-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. At each fiscal
quarter-end following September 30, 2000, a ratio of Borrower's total
liabilities divided by Tangible Net Worth of not more than two to one
(2.00:1.00), measured in each case on a fiscal quarter-end basis; and
2
<PAGE> 3
(c) Tangible Net Worth. At each fiscal quarter-end set forth below, a
Tangible Net Worth in excess of the Tangible Net Worth set forth adjacent
to such fiscal quarter-end:
<TABLE>
<CAPTION>
Fiscal Quarter-End Tangible Net Worth
------------------ ------------------
<S> <C> <C>
June 30, 1999 ($1,550,000)
September 30, 1999 ($1,500,000)
December 31, 1999 ($550,000)
March 31, 2000 ($750,000)
June 30, 2000 ($750,000)
September 30, 2000 ($500,000)
December 31, 2000 $500,000
March 31, 2001 $250,000
June 30, 2001 $1,000,000
September 30, 2001 $1,250,000
Each Fiscal Quarter-End Thereafter: $2,000,000"
</TABLE>
ARTICLE IV
WAIVER
4.01 Borrower has notified Lender that one or more Events of Default have
occurred under the Loan Agreement as a result of Borrower's failure to comply
with the Total Liabilities to Tangible Net Worth Ratio set forth in Section
6.12(b) of the Loan Agreement and the Tangible Net Worth covenant set forth in
Section 6.12(c) of the Loan Agreement, in each case at the fiscal quarter ended
March 31, 1999 (collectively, the "Financial Covenant Defaults"). Having advised
Lender of the Financial Covenant Defaults, Borrower has requested that Lender
waive the Financial Covenant Defaults. In the exercise of its discretion as a
prudent lender, Lender hereby waives the Financial Covenant Defaults for the
fiscal quarter ended March 31, 1999. Except as expressly set forth in this
Section 4.01, nothing contained in this Amendment or any other communication
between Lender and Borrower shall be a waiver of any other present or future
violation or Event of Default under the Loan Agreement or any agreement,
document or instrument entered into in connection therewith (collectively, the
"Other Violations"), including without limitation, any Event of Default arising
by virtue of a violation of the covenants contained in Sections 6.12(b) and
6.12(c) of the Loan Agreement for any period after March 31,
3
<PAGE> 4
1999. Similarly, nothing contained in this Amendment shall directly or
indirectly in any way: (i) impair, prejudice or otherwise adversely affect
Lender's right at any time to exercise any right, privilege or remedy in
connection with the Loan Agreement or any agreement, document or instrument
entered into in connection therewith with respect to any Other Violations, or
(ii) constitute any course of dealing or other basis for altering any obligation
of Borrower under the Loan Agreement or any agreement, document or instrument
entered into in connection therewith or any right, privilege or remedy of Lender
under the Loan Agreement or any agreement, document or instrument entered into
in connection therewith with respect to any Other Violations. Nothing in this
Amendment shall be construed to be a consent by Lender to any Other Violations.
ARTICLE V
RATIFICATIONS, COVENANT AND REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. Except as expressly amended and supplemented by this
Amendment, the terms and provisions of the Loan Agreement are ratified and
confirmed and shall continue in full force and effect. Borrower and Lender agree
that the Loan Agreement, as amended hereby, and each agreement and instrument
executed in connection therewith, shall continue to be legal, valid, binding and
enforceable in accordance with their respective terms.
5.02 COVENANT. Borrower covenants and agrees that within ninety (90) days
following the Effective Date, Borrower shall deliver to Lender a business plan,
including a description of the bonus plan for the Senior Managers of Borrower
and projections of cash flow and net operating income for the fiscal year to end
March 31, 2000, in such detail and with such supporting documentation as Lender
may request.
5.03 REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender that: (i) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate power or
limited partnership power, as appropriate, on the part of BII, BILP or NBF and
will not violate the articles of incorporation, certificate of incorporation,
by-laws, organizational documents, partnership agreement, certificate of limited
partnership or any other agreement to which BII, BILP or NBF are parties, by
which any of their respective properties may be bound; (ii) the representations
and warranties contained in the Loan Agreement, as amended hereby, and any other
Loan Document are true and correct on and as of the date hereof as though made
on and as of the date hereof, except to the extent such representations and
warranties relate to an earlier date; (iii) Borrower is in full compliance with
all covenants and agreements contained in the Loan Agreement, as amended hereby
(except to the extent such violations have been heretofore waived in writing by
Lender); and (iv) Borrower has consulted with, and retained, the services of a
reputable business consultant to assist Borrower in increasing its Tangible Net
Worth.
4
<PAGE> 5
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made herein and in the Loan Agreement shall survive the execution and
delivery of this Amendment, and no investigation by Lender or any closing shall
affect the representations and warranties or the right of Lender to rely upon
them.
6.02 REFERENCE TO LOAN AGREEMENT. The Loan Agreement, as amended hereby,
and all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms thereof are hereby amended so that any reference
in the Loan Agreement or such other agreements, documents and instruments shall
mean a reference to the Loan Agreement, as amended hereby.
6.03 EXPENSES OF LENDER AND WAIVER FEE. In consideration of the waiver
provided in Section 4.01 hereof, Borrower shall pay to Lender a waiver fee in
the amount of $25,000, which fee shall be carried by Lender and shall be due and
payable upon the execution by Lender of a counterpart of this Amendment. In
addition to such waiver fee and as provided in the Loan Agreement, Borrower
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation and execution of this Amendment, including,
without limitation, the costs and fees of Lender's legal counsel, and all costs
and expenses incurred by Lender in connection with the enforcement or
preservation of any rights under the Loan Agreement, as amended hereby, or any
agreement, document or instrument executed in connection therewith.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall inure
to the benefit of Lender and Borrower and their respective successors and
assigns, except Borrower may not assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by Lender
to or of any breach of or deviation from any covenant or condition by Borrower
shall be deemed a consent to or waiver of any other breach of the same or any
other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND
5
<PAGE> 6
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
6.10 FINAL AGREEMENT. THE LOAN DOCUMENTS, AS AMENDED HEREBY, REPRESENT THE
ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON
THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN DOCUMENTS, AS AMENDED HEREBY, MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. NO MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY
PROVISION OF THIS AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED
BY BORROWER AND LENDER.
6.11 RELEASE. BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE OBLIGATIONS (AS DEFINED IN THE LOAN AGREEMENT) OR TO SEEK
AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM LENDER. BORROWER HEREBY
VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES LENDER, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE
CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND
LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED,
SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN
EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS
EXECUTED, WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE AGAINST LENDER, ITS
PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS, IF ANY, AND
IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION
OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY OBLIGATIONS (AS
DEFINED IN THE LOAN AGREEMENT), INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING
FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF
THE MAXIMUM RATE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE LOAN
AGREEMENT OR ANY AGREEMENT, DOCUMENT OR INSTRUMENT ENTERED INTO IN CONNECTION
THEREWITH.
6
<PAGE> 7
IN WITNESS WHEREOF, each Borrower and Lender have caused this Amendment to
be executed on the date first written above by their duly authorized officers.
FOOTHILL CAPITAL CORPORATION BOLLINGER INDUSTRIES, L.P.
By: Bollinger Operating Corp., its
General Partner
By: By: /s/ GLENN BOLLINGER
-------------------------------- ------------------------------
Name: Name: Glenn Bollinger
Title: Title: Chief Executive officer
BOLLINGER INDUSTRIES, INC.
By: /s/ GLENN D. BOLLINGER
-----------------------------------
Name: Glenn D. Bollinger
Title: Chief Executive Officer
NBF, INC.
By: /s/ GLENN D. BOLLINGER
-----------------------------------
Name: Glenn D. Bollinger
Title: Chief Executive Officer
7
<PAGE> 8
REAFFIRMATION OF GUARANTORS
By its acceptance below this ___ day of June, 1999, the undersigned Corporate
Guarantor hereby reaffirms its Continuing Guaranty and Security Agreement dated
August 16, 1996 and consents to the above-stated terms.
BOLLINGER OPERATING CORP.,
a Nevada corporation
By: /s/ BOBBY D. BOLLINGER
----------------------------------
Name: Bobby D. Bollinger
Title:
By its acceptance below this ___ day of June, 1999, the undersigned Corporate
Guarantor hereby reaffirms its Continuing Guaranty and Security Agreement dated
August 16, 1996 and consents to the above-stated terms.
BOLLINGER HOLDING CORP.,
a Delaware corporation
By: /s/ BOBBY D. BOLLINGER
----------------------------------
Name: Bobby D. Bollinger
Title: President
By its acceptance below this ___ day of June, 1999, the undersigned Corporate
Guarantor hereby reaffirms its Continuing Guaranty and Security Agreement dated
August 16, 1996 and consents to the above-stated terms.
C.G. PRODUCTS, INC.,
a California corporation
By: /s/ GLENN D. BOLLINGER
----------------------------------
Name: Glenn D. Bollinger
Title: Vice President
8
<PAGE> 9
By his acceptance below this ______ day of June, 1999, the undersigned
Individual Guarantor hereby reaffirms its Amended and Restated Limited
Continuing Guaranty dated May 14, 1998, and consents to the above-stated terms.
/s/ GLENN D. BOLLINGER
---------------------------------------
Glenn D. Bollinger, an individual
By his acceptance below this _____ day of June, 1999, the undersigned
Individual Guarantor hereby reaffirms its Amended and Restated Guaranty dated
May 14, 1998, and consents to the above-stated terms.
/s/ BOBBY D. BOLLINGER
---------------------------------------
Bobby D Bollinger, an individual
9
<PAGE> 10
AMENDMENT NO. 1 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Amendment No. 1 to Amended and Restated Loan and Security Agreement
(this "Amendment") is entered into as of June 29, 1999, by and among BOLLINGER
INDUSTRIES, INC., a Delaware corporation ("BII") BOLLINGER INDUSTRIES, L.P., a
Texas limited partnership ("BILP"), and NBF, INC., a Georgia corporation
("NBF"), jointly and severally (collectively, the "Borrower"), with their chief
executive office located at 602 Fountain Parkway, Grand Prairie. Texas 75050 and
FOOTHILL CAPITAL CORPORATION, a California corporation ("Lender"), with a place
of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, in light of the following facts:
BACKGROUND
FACT ONE: Lender and Borrower have entered into that certain Amended and
Restated Loan and Security Agreement, dated May 14, 1998 (the "Loan Agreement").
FACT TWO: Lender and Borrower desire to further modify, supplement and
amend the Loan Agreement as provided herein. Terms defined in the Loan Agreement
which are used herein shall have the same meanings as set forth in the Loan
Agreement, unless otherwise specified.
NOW, THEREFORE, Lender and Borrower hereby supplement, modify and amend the
Loan Agreement as follows:
REAFFIRMATION OF GUARANTORS
By its acceptance below this _____ day of June, 1999, the undersigned Corporate
Guarantor hereby reaffirms its Continuing Guaranty and Security Agreement dated
August 16, 1996 and consents to the above-stated terms.
BOLLINGER OPERATING CORP.,
a Nevada corporation
By: /s/ BOBBY D. BOLLINGER
--------------------------------
Name: Bobby D. Bollinger
Title:
By its acceptance below this ___ day of June, 1999, the undersigned Corporate
Guarantor hereby reaffirms its Continuing Guaranty and Security Agreement dated
August 16, 1996 and Consents to the above-stated terms.
BOLLINGER HOLDING CORP.,
a Delaware corporation
By: /s/ BOBBY D. BOLLINGER
--------------------------------
Name: Bobby D. Bollinger
Title:
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
A reconciliation of basic to diluted earnings per share for the quarters ended
June 30, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss $ (638,684) $ (638,684) $(1,170,837) $(1,170,837)
=========== =========== =========== ===========
Weighted average number of
common shares
outstanding during
the period 4,400,210 4,400,210 4,000,210 4,000,210
Net effect of dilutive
stock options based
on the treasury
stock method at
market prices -- -- -- --
----------- ----------- ----------- -----------
Shares used for computation 4,400,210 4,400,210 4,000,210 4,000,210
=========== =========== =========== ===========
Net loss per share $ (0.15) $ (0.15) $ (0.29) $ (0.29)
=========== =========== =========== ===========
</TABLE>
As the Company incurred a net loss for the quarters ended June 30, 1999 and
1998, there were no adjustments for potentially dilutive securities as the
adjustments would have been antidilutive.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheets, Consolidated Statements of Earnings,
Consolidated Statements of Cash Flows as of and for the quarter ended June 30,
1999 shown elsewhere in this report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 24,528
<SECURITIES> 0
<RECEIVABLES> 5,189,922
<ALLOWANCES> 487,560
<INVENTORY> 6,723,006
<CURRENT-ASSETS> 12,018,544
<PP&E> 3,396,296
<DEPRECIATION> 1,775,165
<TOTAL-ASSETS> 17,860,460
<CURRENT-LIABILITIES> 7,549,213
<BONDS> 0
0
0
<COMMON> 44,002
<OTHER-SE> 2,507,015
<TOTAL-LIABILITY-AND-EQUITY> 17,860,460
<SALES> 7,165,588
<TOTAL-REVENUES> 7,165,588
<CGS> 4,797,924
<TOTAL-COSTS> 726,886
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 251,865
<INCOME-PRETAX> (638,684)
<INCOME-TAX> 0
<INCOME-CONTINUING> (638,684)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (638,684)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
