<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 September 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 incorporation (I.R.S. Employer
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 November 4, 1999, 4,400,210 shares of the registrant's common
stock, $0.01 par value per share, were outstanding.
<PAGE> 2
BOLLINGER INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 1999 (unaudited) and March 31, 1999 3
Consolidated Statements of Earnings -
Three and Six Months Ended September 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows -
Six Months Ended September 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 Risks 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 19
SIGNATURES
</TABLE>
2
<PAGE> 3
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, March 31,
1999 1999
------------- -------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 134,136 $ 125,719
Accounts receivable - trade net allowance for doubtful accounts
of $699,800 and $476,619 and allowance for returns and
allowances of $1,048,501 and $1,419,955 and allowance for
advertising of $524,775 and $236,273 7,066,494 7,114,315
Other 50,175 9,621
Inventories 6,782,958 6,859,686
Prepaid expenses 249,796 88,245
------------- -------------
Total current assets 14,283,559 14,197,586
PROPERTY PLANT AND EQUIPMENT - NET 1,477,842 1,797,832
OTHER ASSETS
Goodwill, net of accumulated amortization of $355,300 and
$177,650 3,197,700 3,375,350
License rights, net of accumulated amortization of $71,500 and
$35,750 643,500 679,250
Notes receivable and other 109,608 113,531
Deferred financing fees - net of accumulated amortization of
$637,062 and $562,727 123,892 198,227
------------- -------------
Total other assets 4,074,700 4,366,358
------------- -------------
TOTAL ASSETS $ 19,836,101 $ 20,361,776
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, March 31,
1999 1999
------------- -------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long term debt and other debt $ 1,311,177 $ 1,379,139
Current portion of capital lease obligations 246,722 237,568
Accounts payable - trade 4,296,530 3,744,514
Income tax payable 109,907 61,279
Other current liabilities 1,052,798 1,085,619
Accrued product liability 154,534 226,817
------------- -------------
Total current liabilities 7,171,668 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 6,593,514 6,904,552
Long-term capital lease obligations 406,894 532,587
------------- -------------
Total long-term liabilities 10,033,743 10,437,139
------------- -------------
Total liabilities 17,205,411 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 (12,932,370) (12,373,359)
------------- -------------
Total stockholders' equity 2,630,690 3,189,701
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,836,101 $ 20,361,776
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 9,532,873 $ 7,092,170 $ 16,698,461 $ 14,495,239
Cost of goods sold 5,941,168 5,011,901 10,739,092 10,433,944
------------------- ------------------- ------------------- -------------------
Gross profits 3,591,705 2,080,269 5,959,369 4,061,295
Selling expenses 1,045,892 697,780 1,772,778 1,643,412
Distribution, general and
administrative expenses 2,202,631 2,392,297 4,235,687 4,515,259
------------------- ------------------- ------------------- -------------------
3,248,523 3,090,077 6,008,465 6,158,671
------------------- ------------------- ------------------- -------------------
Operating profit (loss) 343,182 (1,009,808) (49,096) (2,097,376)
Other expense (income)
Interest expense 267,310 136,956 519,175 256,193
Gain on sale of assets (1,067) (5,933) (5,752) (7,142)
Other (2,734) 51,830 (3,508) 17,071
------------------- ------------------- ------------------- -------------------
263,509 182,853 509,915 266,122
------------------- ------------------- ------------------- -------------------
Earnings (loss) before
income tax expense (benefit) 79,673 (1,192,661) (559,011) (2,363,498)
Income tax expense (benefit) -- -- -- --
------------------- ------------------- ------------------- -------------------
Net earnings (loss) $ 79,673 $ (1,192,661) $ (559,011) $ (2,363,498)
=================== =================== =================== ===================
Per share data (basic and diluted):
Basic earnings (loss per
share) $ 0.02 $ (0.30) $ (0.13) $ (0.59)
=================== =================== =================== ===================
Diluted earnings (loss) per
share $ 0.02 $ (0.30) $ (0.13) $ (0.59)
=================== =================== =================== ===================
Shares used in the
calculation of per share
amounts:
Basic common shares 4,400,210 4,000,210 4,400,210 4,000,210
Dilutive impact of stock
options -- -- -- --
------------------- ------------------- ------------------- -------------------
Diluted common shares 4,400,210 4,000,210 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>
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (559,011) $ (2,363,498)
Adjustments to reconcile net earnings (loss) to net cash
Provided by (used in) operating activities
Gain on disposal of assets (5,752) (7,142)
Depreciation and amortization 606,287 398,442
Provision for returns and allowances 556,731 1,199,581
Provision for doubtful accounts 230,000 120,000
Provision for obsolete inventory -- 156,366
Changes in operating assets and liabilities
Accounts receivable -trade (738,910) (969,464)
Other (40,554) 390,354
Inventories 76,728 614,926
Prepaid expenses (161,551) 70,130
Notes receivable and other assets 2,527 4,280
Accounts payable-trade 552,016 242,805
Income tax payable 48,628 (177,500)
Other current liabilities (105,104) (880,611)
------------------ ------------------
Net cash provided by (used in) operating activities 462,035 (1,201,331)
Cash flows from investing activities
Reimbursements (purchases) of property and equipment 1,416 (447,420)
Payments on note receivable -- 87,225
Proceeds from sale of assets 7,170 20,114
Proceeds from sub-lease deposit 33,335 --
Escrow receivable -- 504,297
------------------ ------------------
Net cash provided by investing activities 41,921 164,216
Cash flows from financing activities
Net proceeds from (payments on) long term debt (379,000) 1,047,169
Payments on capital lease obligations (116,539) (108,051)
------------------ ------------------
Net cash provided by (used in) financing activities (495,539) 939,118
Net increase (decrease) in cash 8,417 (97,997)
Cash at beginning of period 125,719 136,369
------------------ ------------------
Cash at end of period $ 134,136 $ 38,372
================== ==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
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 Industries, Inc.'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
<PAGE> 8
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' products 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>
--------------------------------
SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Interest paid $ 447,716 $ 265,051
</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, which was sold in November 1997. The Company
received another $818,000 from the customer during the quarter ended June 1998.
The Company advised the customer of this payment, but the customer did not
request an immediate repayment. During the quarter ended September 1998, the
overpayment had been reduced to $214,000 based on the customer's purchases of
additional products from the Company. By the end of December 1998, the
overpayment was eliminated by the customer's continued purchases of product from
the Company.
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- -------------
<S> <C> <C>
Raw materials $ 334,315 $ 857,612
Finished goods 7,483,520 7,548,291
Reserve for obsolescence (1,034,877) (1,546,217)
------------- -------------
$ 6,782,958 $ 6,859,686
============= =============
</TABLE>
8
<PAGE> 9
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 September 30, 1999 there was $6,515,000 outstanding,
availability under the line was $558,000 and the Company was in compliance with
the loan provisions.
The Company has a convertible subordinated note payable for $1,400,000 with a
five-year term pursuant to an 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 and six months ended
September 30, 1998 and 1999 was 0% based on utilization of a tax loss
carry-forward (and lack of income). At September 30, 1999 the Company had net
operating losses available to offset future taxable income of approximately
$11.3 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. Curtis D. Logan was released from
the lawsuit. William Blair & Company and Rauscher Pierce Refsnes, Inc. entered
into a settlement with the plaintiffs. 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. Although 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, the plaintiffs withdrew the negotiated settlement offer. This action
is not currently scheduled for trial. 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. Curtis D. Logan was released from this lawsuit. Although 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, the plaintiffs
withdrew the negotiated settlement offer. This action is not currently scheduled
for trial. 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 Suntrust action and the STI 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. 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 has entered
into settlement negotiations with the USDoL but a definitive agreement has not
been reached.
The Internal Revenue Service ("IRS") has examined the Company's Employees
Retirement Plan and Trust (the "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 proposed to disqualify the Plan for purposes of Section
401(a) of the Code. The Company filed a protest of the proposed
disqualification, which was reviewed by the Appeals Division of the IRS.
Subsequent to September 30, 1999 the Company entered into a closing agreement
with the IRS that allows for the continuation of the plan providing the Company
completes certain corrective measures resulting from the 1994-1995 time period.
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 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
<PAGE> 11
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, and agreed not to act as a director or officer of a
registered or reporting entity in the future.
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 Quarterly Reports on Form
10-Q for the fiscal quarters ended June 30, 1998, September 30, 1998, December
31, 1998, and June 30, 1999; and the consolidated financial statements and
related notes for the quarter ended September 30, 1999 found elsewhere in this
report.
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS
AND SIX MONTHS ENDED SEPTEMBER 30, 1998
Net sales increased for the quarter ended September 30, 1999 by $2,441,000 on a
comparative basis with the prior year, an increase of 34.4%. Net sales increased
for the six months by $2,203,000 on a comparative basis with the same period of
the prior year, an increase of 15.2%. The increase in net sales resulted
primarily from acquisitions completed in October 1998.
Gross profits as a percent of net sales increased dramatically for fitness
accessory products to 37.7% in the quarter ended September 30, 1999 from 29.3%
in the quarter ended September 30, 1998. Gross profits as a percent of net sales
increased for fitness accessory products to 35.7% in the six months ended
September 30, 1999 from 28.0% in the six-month period ended September 30, 1998.
The improvement was primarily due to improved pricing from overseas vendors and
better controls over customer returns, allowances and related expenses.
Selling expenses for the quarter ended September 30, 1999 increased by $348,000
as compared to the quarter ended September 30, 1998, and increased as a
percentage of net sales to 11.0% from 9.8%. The dollar and percentage increase
in selling expense was primarily related to higher advertising expenses. Selling
expenses for the six months ended September 30, 1999 increased by $129,000 as
compared to the six months ended September 30, 1998, and decreased as a
percentage of net sales to 10.6% from 11.3%. The dollar increase in selling
expense was primarily related to higher advertising expenses while the
percentage decrease was related to increased sales in the current year.
Distribution, general and administrative expenses for the quarter ended
September 30, 1999 decreased by $190,000 as compared to the quarter ended
September 30, 1998, and decreased as a percentage of net sales to 23.1% in 1999
from 33.7% in 1998. Distribution, general and administrative expenses for the
six months ended September 30, 1999 decreased by $280,000 as compared to the
same period in 1998 and decreased as a percentage of net sales to 25.4% from
31.1%. The decrease in distribution, general and administrative expenses for
both the three month and the six month period resulted from lower legal costs
and lower salaries partially offset by increased bad debts, depreciation and
amortization expenses associated with the October 1998 acquisitions.
12
<PAGE> 13
The Company generated an operating profit of $343,000 for the quarter ended
September 30, 1999, as compared to an operating loss of $1,010,000 in the same
quarter in 1998. As a percentage of net sales, the operating profit increased to
3.6% in 1999 from (14.3%) in 1998. The Company sustained an operating loss of
$49,000 for the six months ended September 30, 1999 as compared to an operating
loss of $2,097,000 in the same period last year. As a percentage of net sales,
the operating loss improved to (0.3%) in 1999 from (14.5%) in 1998.
Interest expense for the quarter ended September 30, 1999 was $267,000 compared
to $137,000 for the same quarter in 1998. Interest expense for the six months
ended September 30, 1999 was $519,000 compared to $256,000 for the same period
in 1998. The increase in interest expense was primarily due to increased
borrowings to fund acquisitions made in October 1998.
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 six months ended September 30, 1999 was
$462,000 compared to cash used in operating activities for the same period in
1998 of $1,201,000. The $1,663,000 improvement in net cash provided by operating
activities was primarily from the reduction of operating loss in the current
year. 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, which was sold in November
1997. The Company received another $818,000 from the customer during the quarter
ended June 1998. The Company advised the customer of this payment, but the
customer did not request an immediate repayment. During the quarter ended
September 1998, the overpayment had been reduced to $214,000 based on the
customer's purchases of additional products from the Company. By the end of
December 1998, 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
of the Company's assets, including accounts receivable and inventory. As of
September 30, 1999 there was $6,515,000 outstanding, availability under the line
was $558,000 at September 30, 1999 and the Company was in compliance with the
loan provisions.
The Company has a convertible subordinated note payable for $1,400,000 with a
five year term pursuant to an 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.
13
<PAGE> 14
Outstanding loan balances in the quarter ended September 30, 1999 bore interest
at a rate of 9.76% compared to an approximate rate of 10.04% for the quarter
ended September 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 a negotiated settlement or final resolution at trial.
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 in July 1998. 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
many 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 continue to achieve operating profitability. Actual results may differ
materially from any future results expressed or implied by such forward-looking
statements. The Company
14
<PAGE> 15
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 judgment at trial.
The Company's ability to generate sufficient funding for operations, including
the resolution of the Suntrust and STI lawsuits, depend on future operating
earnings, market conditions and lender cooperation.
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.
The Company generated operating profits for the quarter ended September 30, 1999
but continues to suffer operating losses on a year-to-date basis. 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. Curtis D. Logan was released from
the lawsuit. William Blair & Company and Rauscher Pierce Refsnes, Inc. entered
into a settlement with the plaintiffs. 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. Although 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, the plaintiffs subsequently withdrew the negotiated settlement offer.
This action is not currently scheduled for trial.
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. Curtis D. Logan was released from this
lawsuit. As with the similar suit mentioned above, although 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, the plaintiffs subsequently
withdrew the negotiated settlement offer. This action is not currently scheduled
for trial.
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. 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 has entered
into settlement negotiations with the USDoL but a definitive agreement has not
been reached.
16
<PAGE> 17
The Internal Revenue Service ("IRS") has examined the Company's Employees
Retirement Plan and Trust (the "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 proposed to disqualify the Plan for purposes of Section 401(a) of
the Code. The Company filed a protest of the proposed disqualification, which
was reviewed by the Appeals Division of the IRS. Subsequent to September 30,
1999 the Company entered into a closing agreement with the IRS that allows for
the continuation of the plan providing the Company completes certain corrective
measures resulting from the 1994-1995 time period.
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
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, and agreed not to act as a director or officer of a
registered or reporting entity in the future.
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
The Company held its annual meeting of stockholders on September 23, 1999.
During this meeting four directors, which constitute the entire Board of
Directors, were elected to serve until the next annual meeting of stockholders
or until their successors are elected and qualified. The following individuals
were elected:
<TABLE>
<CAPTION>
VOTING SUMMARY
--------------------------------------------------------
BROKER
Name FOR AGAINST WITHHELD NON VOTES
- ---- --------- ------- -------- ---------
<S> <C> <C> <C> <C>
Glenn D. Bollinger 3,962,707 201,862 -- 235,641
Bobby D. Bollinger 4,100,707 63,862 -- 235,641
John L. Maguire 4,109,632 54,937 -- 235,641
Stephen L. Parr 3,971,632 192,937 -- 235,641
</TABLE>
The results of the voting for the appointment of King Griffin & Adamson P.C. as
the Company's auditors for fiscal 2000 were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------
BROKER
Name FOR AGAINST WITHHELD NON VOTES
- ---- --------- ------- -------- ---------
<S> <C> <C> <C> <C>
4,148,769 14,400 1,400 235,641
</TABLE>
ITEM 5. OTHER INFORMATION
None.
18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 September 30, 1999.
19
<PAGE> 20
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.
<TABLE>
<S> <C>
BOLLINGER INDUSTRIES, INC.
Date: November 11, 1999 /s/ Glenn D. Bollinger
----------------- -----------------------------------------------------------
Glenn D. Bollinger
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 11, 1999 /s/ Rose Turner
----------------- -----------------------------------------------------------
Rose Turner
Executive Vice President - Finance, Chief
Financial Officer, Chief Operating Officer
Treasurer and Secretary
(Principal Financial Officer)
Date: November 11, 1999 /s/ Floyd DePauw
----------------- -----------------------------------------------------------
Floyd DePauw
Controller and Chief Accounting Officer
(Principal Accounting Officer)
</TABLE>
<PAGE> 21
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<S> <C>
11 Computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
A reconciliation of basic to diluted earnings per share for the six months ended
September 30, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
BASIC DILUTED BASIC DILUTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (559,011) $ (559,011) $ (2,363,498) $ (2,363,498)
============= ============= ============= =============
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 $ (0.13) $ (0.13) $ (0.59) $ (0.59)
============= ============= ============= =============
</TABLE>
As the Company incurred a net loss for the six months ended September 30, 1999
and 1998, there were no adjustments for potentially dilutive securities as the
adjustments would have been antidilutive.
<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 SIX MONTHS ENDED
SEPTEMBER 30, 1999 SHOWN ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 134,136
<SECURITIES> 0
<RECEIVABLES> 7,066,494
<ALLOWANCES> 699,800
<INVENTORY> 6,782,958
<CURRENT-ASSETS> 14,283,559
<PP&E> 3,406,881
<DEPRECIATION> 1,929,039
<TOTAL-ASSETS> 19,836,101
<CURRENT-LIABILITIES> 7,171,668
<BONDS> 0
0
0
<COMMON> 44,002
<OTHER-SE> 2,586,688
<TOTAL-LIABILITY-AND-EQUITY> 19,836,101
<SALES> 16,698,461
<TOTAL-REVENUES> 16,698,461
<CGS> 10,739,092
<TOTAL-COSTS> 1,772,778
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 230,000
<INTEREST-EXPENSE> 519,175
<INCOME-PRETAX> (559,011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (559,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (559,011)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
