<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, 2000 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 November 8, 2000, 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> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 2000 (unaudited) and March 31, 2000 3
Consolidated Statements of Operations -
Three and Six Months Ended September 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows -
Six Months Ended September 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risks 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
2
<PAGE> 3
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
-------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 660,732 $ 959,242
Accounts receivable - trade, net allowance for doubtful accounts of
$565,666 and $543,387 and allowance for returns and allowances of
$914,464 and $1,748,847 and allowance for advertising of $527,610
and $327,510 6,015,243 6,277,077
Prepaid expenses 223,183 129,613
Inventories, net 9,946,175 9,581,676
Other current assets 18,614 47,788
-------------- --------------
Total current assets 16,863,947 16,995,396
PROPERTY AND EQUIPMENT - NET 1,569,968 1,815,695
OTHER ASSETS
Goodwill, net of accumulated amortization of $710,600 and $532,950
2,842,400 3,020,050
License rights, net of accumulated amortization of $143,000 and
$107,250 572,000 607,750
Notes receivable and other 103,714 106,254
Deferred marketing costs, net of accumulated amortization of $890,833
and $534,500 1,246,572 1,602,905
Deferred financing fees - net of accumulated amortization of $760,954
fully amortized and $711,398 -- 49,556
-------------- --------------
Total other assets 4,764,686 5,386,515
-------------- --------------
TOTAL ASSETS $ 23,198,601 $ 24,197,606
============== ==============
</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)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
-------------- --------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long term debt (Note D) $ 7,582,264 $ 1,336,426
Current portion of capital lease obligations 163,068 76,938
Accounts payable - trade 7,946,658 6,427,069
Taxes payable 51,304 53,104
Accrued liabilities 956,078 644,673
Accrued product liability 382,059 391,879
-------------- --------------
Total current liabilities 17,081,431 8,930,089
-------------- --------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 818,914 8,701,886
Capital lease obligations, less current portion 782,973 913,328
Contingency for legal settlement 2,850,000 3,000,000
Other long-term liabilities 33,335 33,335
-------------- --------------
Total long-term liabilities 4,485,222 12,648,549
-------------- --------------
Total liabilities 21,566,653 21,578,638
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note F)
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value;
1,000,000 shares authorized; none issued -- --
Common stock -- $.01 par value; 20,000,000 shares authorized;
4,400,210 shares issued 44,002 44,002
Capital in excess of par 15,519,058 15,519,058
Accumulated deficit (13,919,165) (12,944,092)
Treasury stock, at cost (11,947) --
-------------- --------------
Total stockholders' equity 1,631,948 2,618,968
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,198,601 $ 24,197,606
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 9,717,893 $ 9,532,873 $ 18,707,296 $ 16,698,461
Cost of goods sold 6,432,416 5,941,168 12,657,516 10,739,092
----------------- ----------------- ----------------- -----------------
Gross profit 3,285,477 3,591,705 6,049,780 5,959,369
Selling expenses 1,016,212 1,045,892 2,078,515 1,772,778
Distribution, general and
administrative expenses 2,076,472 2,202,631 4,230,622 4,235,687
----------------- ----------------- ----------------- -----------------
3,092,684 3,248,523 6,309,137 6,008,465
----------------- ----------------- ----------------- -----------------
Operating profit (loss) 192,793 343,182 (259,357) (49,096)
Other expense (income)
Interest expense 351,389 267,310 715,688 519,175
Gain on sale of assets -- (1,067) -- (5,752)
Other -- (2,734) 28 (3,508)
----------------- ----------------- ----------------- -----------------
351,389 263,509 715,716 509,915
----------------- ----------------- ----------------- -----------------
Earnings (loss) before
income tax expense (benefit)
(158,596) 79,673 (975,073) (559,011)
Income tax expense -- -- -- --
----------------- ----------------- ----------------- -----------------
Net earnings (loss) $ (158,596) $ 79,673 $ (975,073) $ (559,011)
================= ================= ================= =================
Basic earnings (loss per
share) $ (0.04) $ 0.02 $ (0.22) $ (0.13)
================= ================= ================= =================
Diluted earnings (loss) per
share $ (0.04) $ 0.02 $ (0.22) $ (0.13)
================= ================= ================= =================
Shares used in the
calculation of per share
amounts:
Basic common shares 4,400,210 4,400,210 4,400,210 4,400,210
================= ================= ================= =================
Diluted common shares 4,400,210 4,400,210 4,400,210 4,400,210
================= ================= ================= =================
</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,
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (975,073) $ (559,011)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities
Gain on sale of assets -- (5,752)
Contingency for legal settlement (150,000) --
Depreciation and amortization 972,708 606,287
Provision for returns and allowances 744,389 556,731
Provision for doubtful accounts 24,755 230,000
Provision for advertising 602,097 512,000
Provision for obsolete inventory 261,563 --
Changes in operating assets and liabilities
Accounts receivable -trade (1,109,407) (1,250,910)
Other 29,174 (40,554)
Inventories (626,062) 76,728
Prepaid and other expenses (93,570) (161,551)
Notes receivable and other assets 1,144 2,527
Accounts payable-trade 1,519,589 552,016
Taxes payable (1,800) 48,628
Accrued liabilities 311,405 (88,685)
Accrued product liability (9,820) (16,419)
Other long-term liabilities -- 33,335
---------------- ----------------
Net cash provided by operating activities 1,501,092 495,370
Cash flows from investing activities
Reimbursements (purchases) of property and equipment (106,296) 1,416
Proceeds from sale of assets -- 7,170
---------------- ----------------
Net cash provided by (used in) investing activities (106,296) 8,586
Cash flows from financing activities
Net payments on long-term debt (1,637,134) (379,000)
Payments on capital lease obligations (44,225) (116,539)
Purchase of treasury stock (11,947) --
---------------- ----------------
Net cash used in financing activities (1,693,306) (495,539)
Net increase (decrease) in cash (298,510) 8,417
Cash at beginning of period 959,242 125,719
---------------- ----------------
Cash at end of period $ 660,732 $ 134,136
================ ================
</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, 2000
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
When necessary, certain prior year amounts 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 buybacks
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,
------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Interest paid $ 679,876 $ 447,716
</TABLE>
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
--------------- ---------------
<S> <C> <C>
Raw materials $ 236,739 $ 360,934
Finished goods 10,445,558 9,922,317
Reserve for obsolescence (736,122) (701,575)
--------------- ---------------
$ 9,946,175 $ 9,581,676
=============== ===============
</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
2000 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, 2000 there was a $7,197,000 outstanding balance
including a $273,000 overadvance on the credit line. The Company entered into a
forbearance agreement with the lender effective as of September 13, 2000
acknowledging the overadvance, the lender's forbearance of its rights and
remedies with respect to the overadvance and establishing October 16, 2000 as
the resolution date. The Company repaid the overadvance by October 16, 2000. As
of September 30, 2000 the Company was in default on certain financial
covenants, specifically the current ratio and tangible net worth covenants
which were not addressed by the forbearance agreement and which remain uncured;
therefore, this debt is classified as a current liability in the accompanying
financial statements. The Company's ability to utilize the credit facility is
predicated on future levels of accounts receivable and inventory and the
forbearance of the lender regarding covenant defaults. If the loan is
accelerated, the Company would seek alternative financing, but there is no
guarantee the Company would be successful in obtaining this financing. This
action would have a materially adverse effect on the Company.
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. As
of September 30, 2000 there was a $979,000 outstanding balance. 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, 1999 and 2000 was 0% as the Company generated losses for financial
and income tax reporting purposes. Such losses are offset by a 100% valuation
allowance. At September 30, 2000 the Company had net operating losses available
to offset future taxable income of approximately $10.2 million which begin
expiring in 2011.
NOTE F- COMMITMENTS AND CONTINGENCIES
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, Michael J. Beck, John L. Maguire, and Grant Thornton, L.L.P.; in the
191st (originally filed in the 68th Judicial District Court) Judicial District
Court of Dallas County, Texas (the "Suntrust Lawsuit"):
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Michael J. Beck (former CAO), John L. Maguire (Director), and Grant
Thornton, L.L.P. (former independent
9
<PAGE> 10
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F - COMMITMENTS AND CONTINGENCIES-CONTINUED
accountants) are defendants in a securities fraud 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 on behalf of those who purchased
securities through a public offering of the Company's stock, alleging that the
price of the stock was artificially inflated and maintained in violation of the
anti-fraud provisions of the securities law as well as common law. Further,
Grant Thornton has cross-claimed against the underwriters, and against the
Company, Glenn D. Bollinger and Bobby D. Bollinger, generally seeking
contribution.
The case has been transferred to the 191st Judicial District Court and the trial
is currently stayed, pending an appeal of the class certification filed by Grant
Thornton and the Bollinger parties. The Appellants' Briefs of Grant Thornton and
the Bollinger parties were filed on June 30, 2000. This case continues to be
mediated through the ongoing efforts of a mediator.
Civil Action No. 3:96C-V-0823-L; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, 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, 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. Like the Suntrust lawsuit, this lawsuit was also filed as a
class action on behalf of a class of persons who purchased securities issued by
the Company at prices which allegedly were artificially inflated and maintained
in violation of the anti-fraud provisions under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5
thereunder. A class certification has been granted by the court. The Defendants
dispute the claims and are contesting the claims vigorously. The Plaintiffs have
filed a Motion for Partial Summary Judgment against Bollinger Industries, Inc.,
which has been briefed and is currently pending. The case is currently not set
for trial, and through the efforts of a mediator, mediation is ongoing.
Civil Action No. 00-1842-J Curtis Logan v. Bollinger Industries, Inc.; in the
191st Judicial District Court, Dallas County, Texas ("the Logan Lawsuit"):
Logan's cross-claim for indemnity against the Company was severed after the
Court granted summary judgment as to liability on Logan's indemnity claims, plus
his attorneys' fees and expenses, and this case is the result. Settlement
negotiations have produced a Rule 11 Agreement which was executed during the
quarter ending June 30, 2000 for $150,000. The Company paid $30,000 during June
2000 and the remaining $120,000 was paid in October 2000.
At September 30, 2000 the Company has a $975,387 standby letter of credit with a
financial institution. The standby letter of credit collateralizes certain
capitalized leased equipment and related software.
10
<PAGE> 11
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F - COMMITMENTS AND CONTINGENCIES-CONTINUED
Cause No. EDCV00-312-RT; Precise Exercise Equipment, Inc. and Fitness
Innovations and Technologies, Inc. ("FIT") v. Kmart Corporation and Bollinger
Industries, Inc.; in U.S. District Court for the Central District of California,
Eastern Division filed on January 24, 2000. The Plaintiffs have asserted claims
of patent infringement relating to a patent on a sit-up exerciser. Defendants
Bollinger and Kmart brought counterclaims alleging invalidity and
unenforceability of the patent.
Cause No. 400-CV-0135A; Bollinger Industries v. Precise Exercise Equipment and
Fitness Innovations and Technologies, Inc. ("FIT") was filed in U.S. District
Court in the Northern District of Texas, Fort Worth Division on February 29,
2000 seeking a declaratory judgment that Precise's patent being asserted in the
California litigation is invalid or unenforceable and not infringed. This case
involves the same subject matter as the California litigation.
Subsequent to the date of this report, the Company and Precise Exercise
Equipment, Inc. and Fitness Innovations and Technologies, Inc. entered into a
Patent Settlement Agreement which allows the Company to sell its remaining
inventory of the sit-up exerciser through March 1, 2001 in the normal course of
business and requires the Company to assist in the transition of the Company's
customer base for the sit-up exerciser to Precise Exercise Equipment, Inc.
Concurrently, the Company has entered into a Sublicense Agreement with Precise
which grants Precise rights for a period of three years to an unrelated
Bollinger held patented product. This settlement agreement settles both the
California action, as well as the Texas action.
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 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
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.
11
<PAGE> 12
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE G - ONGOING OPERATIONS
The Company's ability to continue as a going concern is dependent on its
ability to generate sufficient funding from operations, the resolution of the
shareholder lawsuits and continued lender forbearance related to the Company's
line of credit.
The consolidated financial statements do not include any adjustments to reflect
the possible effects on the recoverability and classification of assets or
classification of liabilities which may result from the inability of the
Company to continue as a going concern.
12
<PAGE> 13
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, 2000 and March 31, 1999; the Company's Quarterly Reports on Form
10-Q for the fiscal quarters ended June 30, 1999, September 30, 1999, December
31, 1999, and June 30, 2000; and the consolidated financial statements and
related notes for the quarter ended September 30, 2000 found elsewhere in this
report.
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS
AND SIX MONTHS ENDED SEPTEMBER 30, 1999
Net sales for the quarter and six months ended September 30, 2000 increased over
prior year. Net sales for the quarter increased $185,000 or 1.9% and net sales
for six months increased $2,009,000 or 12.0%. Distribution with a major mass
merchandiser was reacquired in July 1999 partially accounting for the percentage
increase on a year to date basis. Additionally, distribution of the Company's
products has been expanded with a television shopping channel. A component of
net sales is returns and discounts. The Company allowed a higher percentage of
returns and discounts in the first six months of the current year, which
depressed the overall sales gain by approximately $349,000. While not readily
apparent in the net sales numbers, the returns and discounts have a direct
effect on gross profits as discussed below.
The Company continues to source its products from the highest quality low cost
providers available. Many of the Company's products are sourced globally and
consolidated for inspection, review and reshipping from the Grand Prairie, Texas
facility. Several of the Company's major customers have specific shipping
guidelines that require specialized handling and dedicated electronic
interfaces. The ability to provide these services enables the Company to remain
price competitive and further- more allows the Company to offer sales "programs"
to the mass merchandisers. The cost of these programs is reflected in returns
and discounts as a deduction from net sales which directly affects the gross
profit of the Company on a percentage basis.
Gross profits as a percent of net sales decreased for fitness accessory products
to 33.8% in the quarter ended September 30, 2000 from 37.7% in the quarter ended
September 30, 1999. Gross profits as a percent of net sales decreased for
fitness accessory products to 32.3% in the six months ended September 30, 2000
from 35.7% in the six-month period ended September 30, 1999. These percentage
decreases are directly related to the "program" costs mentioned above.
Selling expenses for the quarter ended September 30, 2000 decreased by $30,000
as compared to the quarter ended September 30, 1999 and decreased as a
percentage of net sales to 10.5% from 11.0%. Advertising expense decreased from
prior year offset by increases in small package freight, commissions and sales
salaries. Selling expenses for the six months ended September 30, 2000 increased
by $306,000 as compared to the six months ended September 30, 1999, and
increased as a percentage of net sales to 11.1% from 10.6%. Increases in
advertising, payroll, royalties and freight were the primary components of the
dollar increase.
13
<PAGE> 14
Distribution, general and administrative expenses for the quarter ended
September 30, 2000 decreased by $126,000 as compared to the quarter ended
September 30, 1999, and decreased as a percentage of net sales to 21.4% in 2000
from 23.1% in 1999. The Company experienced decreases in bad debt expense, as
well as decreases in consulting costs partially offset by the increased cost of
freight demurrage. Distribution, general and administrative expenses for the six
months ended September 30, 2000 decreased by $5,000 as compared to the same
period in 1999 and decreased as a percentage of net sales to 22.6% from 25.4%.
In March 2000 the Company suspended the use of fulfillment contractors in
California and transferred the product to the Grand Prairie warehouse for
servicing. Savings in the first six months of comparative expenses were exceeded
by the cost of the freight demurrage incurred due to the Company's restricted
cash flow. Additional contributing factors include higher depreciation,
salaries, legal expenses and electronic interchange expenses offset by
improvements in bad debt and consulting expense.
The Company generated an operating profit of $193,000 for the quarter ended
September 30, 2000, as compared to an operating profit of $343,000 in the same
quarter in 1999. As a percentage of net sales, the operating profit decreased to
2.0% in 2000 from 3.6% in 1999. The reduced gross profit of $306,000 due to
discounts offered the customers was partially offset by overall improvement in
operating expenses of $156,000 for a net quarterly reduction of $150,000. The
Company sustained an operating loss of $259,000 for the six months ended
September 30, 2000 as compared to an operating loss of $49,000 in the same
period last year. As a percentage of net sales, the operating loss increased to
(1.4%) in 2000 from (0.3%) in 1999. Increases in selling expenses, particularly
related to advertising, payroll and freight were contributing factors to the
greater loss.
Interest expense for the quarter ended September 30, 2000 was $351,000 compared
to $267,000 for the same quarter in 1999. Interest expense for the six months
ended September 30, 2000 was $716,000 compared to $519,000 for the same period
in 1999. The increase in interest expense was primarily due to an increase in
the borrowed balance and a 1.9% increase in the interest rate assessed by a
financial institution.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of outside financing in the past several years
has been short-term borrowings from an asset-based lender. Net cash provided by
operating activities for the six months ended September 30, 2000 was $1,501,092
compared to cash provided by operating activities for the same period in the
prior year of $495,370. The increase in cash provided was primarily from an
increase in accounts payable-trade.
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
2000 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, 2000 there was a $7,197,000 outstanding balance
including a $273,000 overadvance on the credit line. The Company entered into a
forbearance agreement with the lender effective as of September 13, 2000
acknowledging the overadvance, the lender's forbearance of its rights and
remedies with respect to the overadvance and establishing October 16, 2000 as
the resolution date. The Company repaid the overadvance by October 16, 2000. As
of September 30, 2000 the Company was in default on certain financial covenants,
specifically the current ratio and tangible net worth covenants which were not
addressed by the forbearance agreement and which remain uncured; therefore, this
debt is classified as a current liability in the accompanying financial
statements. The Company's ability to utilize the credit facility is
14
<PAGE> 15
predicated on future levels of accounts receivable and inventory and the
forbearance of the lender regarding covenant defaults. If the loan is
accelerated, the Company would seek alternative financing, but there is no
guarantee the Company would be successful in obtaining this financing. This
action would have a materially adverse effect on the Company.
Outstanding balances of the revolving credit facility in the quarter ended
September 30, 2000 bore interest at a rate of 11.5% compared to an approximate
rate of 9.76% for the quarter ended September 30, 1999.
The Company has a convertible subordinated note payable for $1,400,000 with a
five-year term pursuant to the asset purchase agreement with The Step Company.
As of September 30, 2000 there was a $979,000 outstanding balance. 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.
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.
After resolution of the Curtis Logan claim a $2,850,000 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.
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, and include the Company's ability to continue to improve gross
margin, to maintain good relationships with its customers and suppliers and to
generate sufficient cash to fund operations. 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 judgment at trial.
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, satisfactory availability under the
revolving credit facility 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
15
<PAGE> 16
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 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.
16
<PAGE> 17
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, Michael J. Beck, John L. Maguire, and Grant Thornton, L.L.P.; in the
191st (originally filed in the 68th Judicial District Court) Judicial District
Court of Dallas County, Texas (the "Suntrust Lawsuit"):
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Michael J. Beck (former CAO), John L. Maguire (Director), and Grant
Thornton, L.L.P. (former independent accountants) are defendants in a securities
fraud 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 on
behalf of those who purchased securities through a public offering of the
Company's stock, alleging that the price of the stock was artificially inflated
and maintained in violation of the anti-fraud provisions of the securities law
as well as common law. Further, Grant Thornton has cross-claimed against the
underwriters, and against the Company, Glenn D. Bollinger and Bobby D.
Bollinger, generally seeking contribution.
The case has been transferred to the 191st Judicial District Court and the trial
is currently stayed, pending an appeal of the class certification filed by Grant
Thornton and the Bollinger parties. The Appellants' Briefs of Grant Thornton and
the Bollinger parties were filed on June 30, 2000. This case continues to be
mediated through the ongoing efforts of a mediator.
Civil Action No. 3:96C-V-0823-L; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, 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, 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. Like the Suntrust lawsuit, this lawsuit was also filed as a
class action on behalf of a class of persons who purchased securities issued by
the Company at prices which allegedly were artificially inflated and maintained
in violation of the anti-fraud provisions under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5
thereunder. A class certification has been granted by the court. The Defendants
dispute the claims and are contesting the claims vigorously. The Plaintiffs have
filed a Motion for Partial Summary Judgment against Bollinger Industries, Inc.,
which has been briefed and is currently pending. The case is currently not set
for trial, and through the efforts of a mediator, mediation is ongoing.
Civil Action No. 00-1842-J Curtis Logan v. Bollinger Industries, Inc.; in the
191st Judicial District Court, Dallas County, Texas ("the Logan Lawsuit"):
Logan's cross-claim for indemnity against the Company was severed after the
Court granted summary judgment as to liability on Logan's indemnity claims, plus
his attorneys' fees and expenses, and this case is the result. Settlement
negotiations have produced a Rule 11 Agreement
17
<PAGE> 18
which was executed during the quarter ending June 30, 2000 for $150,000. The
Company paid $30,000 during June 2000 and the remaining $120,000 was paid in
October 2000.
Cause No. EDCV00-312-RT; Precise Exercise Equipment, Inc. and Fitness
Innovations and Technologies, Inc. ("FIT") v. Kmart Corporation and Bollinger
Industries, Inc.; in U.S. District Court for the Central District of California,
Eastern Division filed on January 24, 2000. The Plaintiffs have asserted claims
of patent infringement relating to a patent on a sit-up exerciser. Defendants
Bollinger and Kmart brought counterclaims alleging invalidity and
unenforceability of the patent.
Cause No. 400-CV-0135A; Bollinger Industries v. Precise Exercise Equipment and
Fitness Innovations and Technologies, Inc. ("FIT") was filed in U.S. District
Court in the Northern District of Texas, Fort Worth Division on February 29,
2000 seeking a declaratory judgment that Precise's patent being asserted in the
California litigation is invalid or unenforceable and not infringed. This case
involves the same subject matter as the California litigation.
Subsequent to the date of this report, the Company and Precise Exercise
Equipment, Inc. and Fitness Innovations and Technologies, Inc. entered into a
Patent Settlement Agreement which allows the Company to sell its remaining
inventory of the sit-up exerciser through March 1, 2001 in the normal course of
business and requires the Company to assist in the transition of the Company's
customer base for the sit-up exerciser to Precise Exercise Equipment, Inc.
Concurrently, the Company has entered into a Sublicense Agreement with Precise
which grants Precise rights for a period of three years to an unrelated
Bollinger held patented product. This settlement agreement settles both the
California action, as well as the Texas action.
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 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
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.
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<PAGE> 19
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 21, 2000.
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
---------------------------------------------
NAME FOR AGAINST ABSTAIN
---- --------- ------- -------
<S> <C> <C> <C>
Glenn D. Bollinger 3,651,770 39,094 --
Bobby D. Bollinger 3,651,770 39,094 --
John Maguire 3,651,770 39,094 --
Stephen L. Parr 3,651,770 39,094 --
</TABLE>
The results of the voting for the approval of an amendment to increase the
number of authorized shares of Common Stock from 8,000,000 shares to 20,000,000
shares were as follows:
<TABLE>
<CAPTION>
---------------------------------------------
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C> <C>
3,599,649 89,515 1,700
</TABLE>
The results of the voting for the ratification of 2000 Stock Option Plan of the
Company were as follows:
<TABLE>
<CAPTION>
---------------------------------------------
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C> <C>
2,487,020 91,044 3,700
</TABLE>
The results of the voting for the appointment of King Griffin & Adamson P.C. as
the Company's auditors for fiscal 2001 were as follows:
<TABLE>
<CAPTION>
---------------------------------------------
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C> <C>
3,640,917 47,500 2,447
</TABLE>
19
<PAGE> 20
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.73 Forbearance agreement entered into effective as of
September 13, 2000 by and among Bollinger Industries,
Inc., Bollinger Industries, L.P. and NBF, Inc. and
Foothill Capital Corporation
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month period
ended September 30, 2000.
20
<PAGE> 21
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: November 17, 2000 /S/ Glenn D. Bollinger
---------------------------------------------
Glenn D. Bollinger
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 17, 2000 /S/ Rose Turner
---------------------------------------------
Rose Turner
Executive Vice President - Finance, Chief
Financial Officer, Chief Operating
Officer, Treasurer and Secretary
(Principal Financial Officer)
Date: November 17, 2000 /S/ Floyd DePauw
---------------------------------------------
Floyd DePauw
Controller and Chief Accounting Officer
(Principal Accounting Officer)
21
<PAGE> 22
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.73 Forbearance agreement entered into effective as of
September 13, 2000 by and among Bollinger Industries,
Inc., Bollinger Industries, L.P. and NBF, Inc. and
Foothill Capital Corporation
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
