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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 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)
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Registrant's telephone number, including area code: (972) 343-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on May 22, 2000 was $797,953.00.
The number of shares of common stock of the registrant outstanding on May 22,
2000 was 4,400,210.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business......................................................................................... 1
2. Properties....................................................................................... 4
3. Legal Proceedings................................................................................ 4
4. Submission of Matters to a Vote of Security Holders.............................................. 6
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ........................... 7
6. Selected Financial Data.......................................................................... 7
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................... 9
7A. Quantitative and Qualitative Disclosures About Market Risk....................................... 16
8. Financial Statements and Supplemental Data....................................................... 17
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................................... 17
PART III
10. Directors and Executive Officers of the Registrant............................................... 18
11. Executive Compensation........................................................................... 20
12. Security Ownership of Certain Beneficial Owners and Management................................... 21
13. Certain Relationships and Related Transactions................................................... 23
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................. 24
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PART I
ITEM 1. BUSINESS.
Bollinger Industries, Inc. (the "Company"), a corporation incorporated
under the laws of the state of Delaware in 1993, is a leading U.S. based
supplier of consumer fitness products. Use of fitness products and equipment is
important for the health and well being of many American consumers. "For many
Americans, home exercise equipment is now seen as an amenity, a possession that
contributes to the quality of life." according to the Sporting Goods
Manufacturers Association in a recent publication. American adults are primarily
interested in home exercise to improve their health. "For a growing portion of
the population, vanity is no longer the dominant motivation for exercising.
Equally important goals are health and quality of life, " according to Greg
Hartley of the Fitness Products Council. Almost fifty million American adults
own or use home exercise equipment at least once a week according to a study by
American Sports Data Inc. The home exercise category, in which the Company
operates, is focused on those issues that prompt most Americans to purchase
equipment and accessories for home use; privacy, convenience and safety.
COMPANY AND INDUSTRY OVERVIEW
In recent data released by the Fitness Products Council, sales of
fitness equipment rose to the $3.6 billion mark in 1999, pushed by the sales of
innovative home products. Additionally, exercise equipment is now the largest
selling category of sporting goods equipment as ranked by the Sporting Goods
Manufacturers Association, ahead of golf ($2.6 billion at wholesale), outdoor
($1.8 billion) and water sports ($0.5 billion). The Fitness Products Council
further segments the fitness equipment market into equipment categories;
treadmills, aerobic riders, cross country ski machines, home gyms, stationary
bicycles, free weights, benches, stair climbing machines, abdominal trainers,
and "all other". The Company currently has product offerings in several of these
categories, primarily stationary bicycles, free weights, abdominal trainers and
"all other". The total market for the specific categories in which the Company
offers products at wholesale was in excess of $800 million for 1999.
PRODUCTS AND MARKETS
The Company imports and sells a complete line of over 800 fitness
accessory products and pieces of fitness equipment, including free weights such
as barbells, dumbbells, weight lifting bars, and weight sets, stationary
bicycles and kinetic exercise stands, abdominal trainers, weightlifting belts
and gloves, exercise mats, reducing belts, suits and shorts, ankle and wrist
weights, aerobic steps, therapeutic magnets, hand exercisers, supports and
support belts, and jump ropes. Additionally, with the purchase of the
Multi-Grip(TM) product line in October 1998 the Company added a line of boxing
accessories and with the addition of The Step(TM) license expanded the product
offering in aerobic step products. The majority of the Company's products (with
the exception of the stationary bicycles and kinetic exercise stands) retail for
less than $20.00.
In addition to the Bollinger(R) design trademark, the Company's fitness
accessories are sold under various trademarks to promote consumer identification
and coordinate affiliated products. Weightlifting products include StarLock(C)
weightlifting systems and BrightBells(C)(TM) dumbbells. Aerobics items include
the FlexStep(TM) and SoftStep(TM) low impact aerobic steps and RibMat(TM)
exercise mats. Solar(TM) trimming products, Softone(C) wrist weights, and
Exergrip(TM) strengthening putty are examples of other fitness accessory
products available through the Company. In addition, the Company markets a
complete line of accessory and boxing products under the Multi-Grip(TM)
trademark and a full assortment of aerobic step products under the original The
Step(TM) mark.
The Company markets its fitness accessories primarily to mass
retailers, which include discount chains, department stores, sporting goods
retailers and sports superstores, warehouse clubs and direct response
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television. In fiscal 2000, 1999 and 1998, the Company served approximately 535
accounts, although the Company's ten largest fitness accessory customers
accounted for approximately 86%, 87% and 91% of the Company's total net sales in
those years, respectively. In fiscal 2000 Wal-Mart accounted for 33% of gross
sales, KMart accounted for 20% of gross sales and The Sports Authority accounted
for 17% of gross sales. Examples of discount chain customers include Wal-Mart
and KMart. The mass retailer category also encompasses catalog customers like
J.C. Penney. Sporting goods retailers and sports superstore customers include
The Sports Authority, Oshman's Sporting Goods, H. Modell & Company, and Academy
Sports. QVC and The Home Shopping Network are shop-at-home cable television
networks that provide a direct response television outlet for the Company.
Wal-Mart, KMart and Oshman's have been customers of the Company for
approximately 20 years. The loss of one or more of the major customers could
have a material adverse impact on the Company.
Quality is an important element of the Company's merchandising
strategy. To convey the image of quality to the consumer, the Company uses a
merchandising approach that emphasizes quality through easily recognizable
packaging and graphics. The Company, known for its bright, innovative,
consistent packaging approach, has introduced a major packaging update to
reflect the changing consumer color and style preferences. "Innovation is the
hallmark of the fitness movement" according to John Riddle, President of the
Sporting Goods Manufacturers Association and the Company's often imitated
package style plays an important part in the overall perception of innovation.
The Company employs a "program" approach in marketing and selling its
products to retailers. The products are presented to retailers as part of an
integrated line rather than as single items. The Company offers program
management services to help retail customers maximize results from the
presentation, merchandising, and sale of its products. These services include
helping to plan product mix and merchandising the product, and providing
responsive inventory management. The Company provides graphic representations of
planograms customized to the retailers store layout and consumer demographics.
The depth and diversity of the Company's product line makes such presentations
possible, and enhances the Company's ability to present complete category
merchandising programs to retailers. The Company analyzes and validates its
recommendations with product tracking and store level research.
PRODUCT SOURCING
The Company sources its products globally, with the lowest cost,
highest quality providers from around the world. The Company currently imports
from China, Taiwan, Pakistan, Thailand, Malaysia and Mexico. The Company's
imported products are packaged in custom packaging designed and monitored by the
Company.
During fiscal 2000 approximately 9% of the Company's net sales were
derived from products manufactured domestically, although not in Company-owned
facilities, as compared to approximately 13% and 24% in fiscal 1999 and 1998,
respectively.
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SALES
The Company uses in-house sales personnel and independent sales
representatives to market its products. In-house personnel are responsible for
overseeing the independent representatives and for direct sales to major
customers. The independent sales representatives work on a commission-only
basis, and specialize in the sale of sporting goods products to mass retailers.
The independent sales representatives market a variety of sporting goods and
therefore generally have strong relationships with the trade customers. The
in-house sales personnel and the independent sales representatives coordinate
with the Company's marketing department to produce a unified marketing and sales
effort. The Company's executive officers directly manage the accounts of the
largest customers and focus on the development of new customers.
The majority of the Company's sales efforts are concentrated in the
United States and Canadian markets with international sales coordinated through
a distributor. International sales for fiscal 2000, excluding Canada, were de
minimis.
PRODUCT DEVELOPMENT
The Company focuses on creating, obtaining and developing new and
innovative products and product ideas. The Company also regularly evaluates its
existing products to determine how they may be repositioned to enhance the
Company's competitive position in the marketplace. Additionally, the Company
frequently reviews new product ideas submitted to it, and enters into licensing
or distributing agreements for those items that are proprietary in nature or
represent significant placement opportunities in retail stores. New products and
product ideas are derived from individual inventors, small companies that do not
have sufficient capability or the relationships with mass retailers needed to
market a new product, or consumers who submit new ideas based on personal
experience. Once the Company has identified a product that it decides to
distribute and market, it determines appropriate sourcing for the product to
ensure both quality and low manufacturing costs. The Company's product lines
currently include more than 800 fitness products.
COMPETITION
The Company participates in a highly competitive industry, competing
with a number of established manufacturers, importers and distributors of
fitness products. Many competitors have significantly greater financial and
other resources than those available to the Company. The Company believes that
the principal competitive factors affecting its business include customer
service, manufacturing and distribution capabilities, price, marketing and
merchandising expertise, quality, brand name recognition and the ability to
create and develop a broad variety of innovative products and concepts.
The Company believes its principal competitors are large fitness
equipment manufacturers, which also sell fitness accessory products, smaller
importers, which offer a more limited assortment of products than the Company,
and some of the Company's mass merchandiser customers that have overseas buying
offices and direct importing capabilities. There are relatively few barriers to
entry into the fitness accessory products market.
The Company believes that one of the largest fitness and exercise
equipment manufacturers is Icon Health & Fitness, Inc. ("Icon"), which markets
products under the brand names of Weslo, Healthrider, Weider, Nordic Trac and
ProForm. Icon offers, among many other items, a line of packaged fitness
accessory products similar to the Company's fitness accessory products. Although
the Company believes that the majority of Icon's sales come from treadmills,
exercise machines, and weight benches. Icon competes directly with the Company
for sales of a large number of hand-held fitness accessory products. The Company
believes that Icon has larger net sales than the Company.
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PATENTS AND TRADEMARKS
The Company has rights to a number of patented inventions, trademarks
and trade names used in connection with the sale and marketing of its products.
The Company does not believe it infringes on any patent, trademark or trade name
rights.
The Company currently owns and protects the rights to a number of U.S.
patents and additionally has a number of exclusive and nonexclusive licenses
under various other U.S. patents. It does not hold any foreign patents. The
Company does not view any single patent as critical to its business and most of
its patents or trademarks extend (with renewal options) over the next five to
twenty years. The Company believes its ability to offer a large number of
patented or unique products enhances its overall product offering.
The Company owns a number of trademarks and has licensed the use of
additional trademarks in the U.S. The Company intends to protect such trademarks
to the fullest extent practicable. The Company has registered its trademarks in
a number of foreign countries.
EMPLOYEES
As of March 31, 2000 the Company employed 95 persons on a full-time
basis (including 33 leased and 1 contract), of which 59 employees were engaged
in receiving, purchasing, warehousing, and shipping activities, and 36 employees
were engaged in sales, customer service, accounting, information technology, and
other administrative functions. In addition, the Company, from time to time,
uses part-time workers and/or contract labor. None of the Company's employees
are represented by a union, and the Company believes relations with its
employees are good.
REGULATIONS
The Company and its products are subject to numerous federal, state,
and local laws, rules and regulations ("Regulations"). Among the more
significant of such Regulations are consumer product safety laws under which a
company's products can be barred from sale or subject to recall if found to be
hazardous; occupational safety and health laws; and environmental laws.
The Company is not a party to any threatened or pending material
regulatory action, other than as discussed below in "Item 3. Legal Proceedings".
ITEM 2. PROPERTIES.
The Company leases approximately 300,000 square feet of space in Grand
Prairie, Texas, which is currently used as the corporate offices and houses the
Company's accounting and sales staff, as well as the main warehouse and shipping
facility. The lease on this facility expires May 1, 2004 and contains a renewal
option to extend the lease for an additional three years. Subsequent to the end
of fiscal 1999, the Company reduced its leased space by subleasing approximately
45,000 square feet in its main facility. This sublease runs concurrent with the
Company's existing lease. The Company believes the current facility in Grand
Prairie, Texas, after the sublease, is adequate for its needs.
ITEM 3. LEGAL PROCEEDINGS.
Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust
Retirement Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D.
Bollinger, Bobby D. Bollinger, 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"):
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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 are due to be filed by June 30, 2000.
The Company believes that it has several meritorious defenses to Plaintiffs'
claims. 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 subsequent to
March 31, 2000 for $150,000.
An investigation of the Company's Employee Stock Ownership Plan (the
"ESOP") had been pending before the U.S. Department of Labor ("USDoL") since
1996. Assets of the ESOP are held in the Company's 401(k) Plan, which is the
successor to the ESOP. The USDoL had asserted various breaches of fiduciary
duties by the Company and the Plan trustees arising out of the administration of
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the ESOP. During the quarter ended December 31, 1999 the Company entered into a
closing agreement with the USDoL that allows for the continuation of the Plan
provided the Company completes certain corrective measures resulting from the
1994 time period, including a payment of $114,094 into the Plan, with the first
installment in the amount of $48,547 paid into the Plan and the balance due in
January 2001. Accordingly, the Company deposited the first installment payment
of $48,547 into the Plan in January 2000.
The Internal Revenue Service ("IRS") has examined the Company's
Employees Retirement Plan and Trust (the "Plan"). Based on the 1994 plan year
audit, the IRS proposed to disqualify the Plan for purposes of Section 401(a) of
the Code. During the quarter ended December 31, 1999 the Company entered into a
closing agreement with the IRS that allows for the continuation of the Plan
provided the Company completes certain corrective measures resulting from the
1994-1995 time period including the payment of $52,000 which was deposited into
the Plan in October 1999.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the stockholders of the Company
during the fourth quarter of fiscal 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently traded on the Bulletin Board.
The following table sets forth, on a per share basis for the periods indicated,
the high and low closing sale prices for the Common Stock.
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PRICE RANGE
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FISCAL 2000 FISCAL 1999
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HIGH LOW HIGH LOW
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First Quarter .................. $ .75 $ .34 $1.13 $ .63
Second Quarter ................. .72 .28 .88 .25
Third Quarter .................. .53 .25 .75 .38
Fourth Quarter ................. .56 .25 .63 .31
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As of May 22, 2000 there were approximately 62 holders of record of the
Common Stock.
The Company has not paid cash dividends on its Common Stock since its
inception. The Company's board of directors does not anticipate payment of any
cash dividends by the Company in the foreseeable future and such payments are
restricted by agreements with its primary lender.
ITEM 6. SELECTED FINANCIAL DATA.
The selected historical financial data presented below is derived from
the consolidated financial statements of the Company. The consolidated financial
is derived from the historical consolidated financial statements of the Company,
which have been audited by King Griffin & Adamson P.C. for the past five fiscal
years. The selected financial data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements and related
notes included elsewhere in this Report.
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FISCAL YEAR ENDED MARCH 31,
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2000 1999(3) 1998(3) 1997 1996
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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STATEMENT OF OPERATIONS
Net sales ................................................... $ 38,387 $ 33,824 $ 58,794 $ 82,599 $ 80,300
Cost of goods sold .......................................... 25,767 24,476 47,803 69,723 62,197
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Gross profit ........................................... 12,620 9,348 10,991 12,876 18,103
Selling expenses ............................................ 3,497 3,532 4,890 6,879 7,877
Distribution, general and administrative expenses ........... 8,384 9,428 9,963 11,506 12,115
Restructuring of operations ................................. -- -- -- -- 3,960
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11,881 12,960 14,853 18,385 23,952
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Operating profit (loss) ................................. 739 (3,612) (3,862) (5,509) (5,849)
Other expense (income)
Interest expense ........................................ 1,201 774 1,749 2,552 2,252
Gain on sale of assets .................................. (17) (9) (11,248) -- --
Contingency for legal settlement ........................ -- 3,000 -- -- --
Other ................................................... 126 121 (55) (50) (105)
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1,310 3,886 (9,554) 2,502 2,147
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Earnings (loss) from continuing operations
before income tax expense (benefit) ............. (571) (7,498) 5,692 (8,011) (7,996)
Income tax expense (benefit) ................................ -- -- 226 (92) (1,135)
-------- -------- -------- -------- --------
Earnings (loss) from continuing operations (1) .......... (571) (7,498) 5,466 (7,919) (6,861)
Discontinued operations
Earnings (loss) from operations net of income
tax benefit .......................................... -- -- -- -- (592)
Gain (loss) on disposal, net of income tax
benefit including a $1,199,118 provision
for operating losses during phase out
period in 1996 ....................................... -- -- -- 478 (770)
-------- -------- -------- -------- --------
Earnings (loss) from discontinued operations(2) ........... -- -- -- 478 (1,362)
-------- -------- -------- -------- --------
Net earnings (loss) ........................................ $ (571) $ (7,498) $ 5,466 $ (7,441) $ (8,223)
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Per share data (basic):
Earnings (loss) from continuing operations ............... $ (0.13) $ (1.79) $ 1.37 $ (1.98) $ (1.85)
======== ======== ======== ======== ========
Net earnings (loss) ...................................... $ (0.13) $ (1.79) $ 1.37 $ (1.86) $ (2.22)
======== ======== ======== ======== ========
Weighted average common and common equivalent
shares outstanding ....................................... 4,400 4,179 4,000 4,000 3,710
======== ======== ======== ======== ========
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MARCH 31,
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2000 1999(3) 1998(3) 1997 1996
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BALANCE SHEET DATA
Working capital ............................. $ 8,065 $ 7,463 $ 8,839 $15,994 $ 8,322
Total assets ................................ 24,198 20,362 17,001 38,389 58,381
Total long term debt and capital leases ..... 9,615 7,437 815 15,642 577
Total debt and capital leases ............... 11,029 9,054 1,170 18,483 23,260
Stockholders' equity ........................ 2,619 3,190 10,487 5,021 12,463
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(1) The Company sold substantially all of the assets of the Healthcare
Division during September 1996. Earnings from continuing operations does
not reflect the results of operations for the Healthcare Division.
(2) Represents results of discontinued operations of the Healthcare Division.
(3) On November 21, 1997 the Company disposed of its Trampoline Products
line.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto appearing elsewhere
in this Report.
GENERAL
The Company currently designs, imports, and distributes a variety of
fitness equipment accessories and fitness equipment products designed primarily
for home use.
PROFITABILITY
The Company took an important step forward in fiscal 2000 by achieving
operating profitability.
The Company generated operating income of $739,000 in fiscal 2000
compared to an operating loss of $3,612,000 in fiscal 1999 and a loss of
$3,862,000 in fiscal 1998. This significant milestone for the Company reflects
the cost cutting measures and gross margin improvements that have been
undertaken in the last few years.
In fiscal 1999 the Company identified three major steps important to
the Company's future:
o Final settlement of the shareholder lawsuits (see "Item 3.
Legal Proceedings.")
o Securing placement of a substantial program with a major mass
merchandiser
o Securing additional capital to fund future acquisitions
While it appeared settlement of the Suntrust and STI lawsuits was
imminent at the time of filing of the Form 10-K for the fiscal year ended March
31, 1999, the settlement process stalled shortly thereafter. Several attempts
have been made to revitalize these negotiations but, to date, a settlement has
not been reached. Without a settlement of the shareholder lawsuits, it is
unlikely the Company will be able to secure additional capital to fund future
acquisitions.
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The Company obtained placement of a substantial program with a major
mass merchandiser in July 1999. This program contributed directly to the
increase in net sales of $4.6 million from fiscal 1999 to fiscal 2000.
NET SALES: Sales of the Company's fitness accessory line improved
substantially in fiscal 2000 due to the addition of a major mass merchandiser
and expanded programs at several other retailers.
COST OF SALES AND GROSS MARGIN: The Company experienced improved
margins due to lower inventory acquisition costs made possible by aggressive
purchasing and by stringent controls on customer returns and allowances. The
blended effect of these items was a 5.3% improvement in gross margin from fiscal
1999 to fiscal 2000 and a dollar improvement of $3.3 million. The Company
believes that continuing to source its products from the lowest cost and highest
quality providers, as well as continuing to aggressively manage customer
returns, will enable it to maintain gross margins in fiscal 2001, and further
believes the addition of new product offerings should improve sales volume.
DISTRIBUTION, SELLING, AND GENERAL AND ADMINISTRATIVE EXPENSES: During
fiscal 2000 the Company continued to see improvements in the fixed costs
associated with general operations. The Company reduced distribution, selling,
and general and administrative expenses in fiscal 2000 by $1.1 million after a
$1.9 million improvement the year before. The majority of this improvement in
fiscal 2000 came from a reduction in legal fees. Additionally, the Company
installed a fully integrated computer system in fiscal 1999 which provides
faster access to critical information with less manual and clerical
intervention, the effect of which is to continue to lower costs through reduced
staffing, improved inventory management and knowledge of the customers ordering
patterns.
ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
Effective October 1, 1998 Bollinger Industries L.P. acquired certain
inventory, accounts receivable and trademarks from Self Image Sports and Fitness
Co., Inc. (d.b.a. Multi-Grip), a Tennessee corporation. The purchase price for
these assets was approximately $1,500,000 in cash (after settlement of
receivables) and 100,000 shares of the Company's restricted Common Stock.
Additionally, effective October 1, 1998 Bollinger Industries L.P.
entered into various agreements with The Step Company, a Georgia corporation.
These agreements provide for the license or sublicense of various fitness
related products and concepts in exchange for cash and a note of $3,575,000,
300,000 shares of the Company's restricted Common Stock and a consulting and
non-compete agreement with annual payments in the initial five year term and
performance based renewal provisions.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
derived from the Company's consolidated statements of operations expressed as a
percentage of net sales. The trends in sales or earnings illustrated in the
following table may not be indicative of future results.
10
<PAGE> 13
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
PERCENTAGE OF NET SALES (DECREASE)
--------------------------- -------------------
FISCAL FISCAL
FISCAL YEAR ENDED MARCH 31, 2000 1999
OVER FISCAL
STATEMENT OF OPERATIONS 2000 1999 1998 1999 1998
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales ..................................... 100.0 100.0 100.0 13 (42)
Cost of goods sold ............................ 67.1 72.4 81.3 5 (49)
----- ----- -----
Gross profit ............................. 32.9 27.6 18.7 35 (15)
Selling expenses .............................. 9.1 10.4 8.3 (1) (28)
Distribution general and administrative
expenses .................................. 21.9 27.9 17.0 (11) (5)
----- ----- -----
31.0 38.3 25.3 (8) (13)
----- ----- -----
Operating profit (loss) .................. 1.9 (10.7) (6.6) 120 (6)
Interest expense .............................. 3.1 2.3 3.0 55 (56)
Gain on sale of assets ........................ 0.0 0.0 (19.2) 94 (100)
Contingency for legal settlement .............. 0.0 8.9 0.0 (100) 100
Other expense (income)-net .................... .3 .3 (0.1) 4 320
----- ----- -----
3.4 11.5 (16.3) 66 141
Earnings (loss) from operations before
income tax expense (benefit) ........... (1.5) (22.2) 9.7 92 (232)
Income tax expense (benefit) .................. 0.0 0.0 0.4 0.0 (100)
----- ----- -----
Earnings (loss) from operations .......... (1.5) (22.2) 9.3 92 (237)
===== ===== =====
</TABLE>
11
<PAGE> 14
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999
The Company sells fitness accessory products under a variety of brand
names, in addition to the Bollinger(R) design trademark.
Net sales in fiscal 2000 increased by approximately $4,563,000 from
fiscal 1999, an increase of 13.5%. The placement of a complete Bollinger product
line in a major mass merchandiser account contributed directly to the increase
in sales.
Returns and deductions from customers ranged from a low of
approximately 4% of sales in the first quarter to a high of approximately 8% in
the fourth quarter, with an average of 6% for the year. This is in line with
fiscal 1999 and represents an improvement over years prior to fiscal 1999.
Gross profit for Fitness Accessory Products in fiscal 2000 improved by
approximately $3.3 million over fiscal 1999, and increased as a percentage of
net sales from 27.6% in fiscal 1999 to 32.9% in fiscal 2000, an increase of
5.3%. The improvement in gross margin was due to aggressive purchasing from
suppliers, improved control of customer returns and deductions, and effective
inventory monitoring controls.
Selling expenses for fitness accessory products in fiscal 2000
decreased by approximately $35,000 compared to fiscal 1999 and decreased as a
percentage of net sales of Fitness Accessory Products from 10.4% in fiscal 1999
to 9.1% in fiscal 2000. The dollar decrease in selling expense is the net effect
of higher royalties and commissions on higher sales and the reduction of sales
salaries for a portion of the year.
Distribution, general and administrative expenses for fitness accessory
products decreased by approximately $1,044,000 in fiscal 2000 compared to fiscal
1999 and decreased as a percentage of net sales from 27.9% in fiscal 1999 to
21.8% in fiscal 2000. The decrease in distribution, general and administrative
expenses resulted from the reduction of legal fees paid to defend the
shareholder lawsuits. In addition, distribution, general and administrative
expenses were lower than the previous fiscal year due to reductions in salaries
and other controllable expenses offset by the amortization of goodwill and other
intangibles.
Operating profit, in fiscal 2000 as compared to fiscal 1999, improved
by approximately $4,351,000. As a percentage of net sales, operating profit
increased from a loss of 10.7% in fiscal 1999 to a gain of 1.9% in fiscal 2000.
Interest expense on operations in fiscal 2000 increased approximately
$428,000 from fiscal 1999 primarily due to an increase in the borrowed balance
and a slight increase in the interest rate assessed by a financial institution.
Interest rates experienced by the Company increased from 9.25% in fiscal 1999 to
10.02% in fiscal 2000.
12
<PAGE> 15
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
The Company's fitness accessory products ("Fitness Accessory Products")
consisted of two major product categories - trampoline products ("Trampoline
Products") and other fitness accessory products ("Other Fitness Accessory
Products"). The Trampoline Products line was sold in November 1997.
Net sales in fiscal 1999 increased by approximately $407,000 from
fiscal 1998, an increase of 1.2%, after eliminating the effect of the sale of
the Trampoline Products line from fiscal 1998. Trampoline Products sales were
approximately $25.0 million in fiscal 1998. The increase in net sales of Other
Fitness Accessory Products resulted from acquisitions that were made in October
1998, but were partially offset by the loss of a significant customer in
September 1998.
Returns and deductions from customers ranged from a low of
approximately 4% of sales in the second quarter to a high of approximately 9% in
the fourth quarter, with an average of 6% for the year. This is a marked
improvement over previous years.
Gross profit for Other Fitness Accessory Products in fiscal 1999
improved by approximately $3.4 million over fiscal 1998, and increased as a
percentage of net sales from 17.9% in fiscal 1998 to 27.6% in fiscal 1999 (after
eliminating the effect of the Trampoline Products sales in fiscal 1998). The
improvement in gross margin was due to aggressive purchasing from suppliers,
improved control of customer returns and deductions, and effective inventory
monitoring controls.
Selling expenses for Other Fitness Accessory Products in fiscal 1999
decreased by approximately $1.4 million compared to fiscal 1998 and increased as
a percentage of net sales of Other Fitness Accessory Products from 8.3% in
fiscal 1998 to 10.4% in fiscal 1999. Eliminating the effect of the Trampoline
Products expenses, selling expense decreased $500,000 and decreased as a
percentage of sales from 12.2% to 10.4% in fiscal 1999. The dollar decrease in
selling expense is attributed to the decrease in sales commissions, travel
expenses, and advertising expenses.
Distribution, general and administrative expenses for Other Fitness
Accessory Products decreased by approximately $535,000 in fiscal 1999 compared
to fiscal 1998 and increased as a percentage of net sales of Other Fitness
Accessory Products from 16.9% in fiscal 1998 to 27.9% in fiscal 1999. The
decrease in distribution, general and administrative expenses resulted from the
reduction of warehouse supplies, rent and labor costs. In addition,
distribution, general and administrative expenses were lower than the previous
fiscal year due to reduced staffing levels, reduced costs of container storage
and a reduction in the amount of damaged items. The percentage increase resulted
because most distribution, general and administrative costs are fixed and do not
fluctuate significantly with volume and the sale of the Trampoline Products line
did not reduce these costs proportionately.
Operating loss from continuing operations in fiscal 1999 as compared to
fiscal 1998 improved by $250,000. As a percentage of net sales, operating loss
increased from 6.6% in fiscal 1998 to 10.7% in fiscal 1999. However, after
eliminating the effect of the Trampoline Products line, operating losses
improved $3.0 million or 9%.
Interest expense on continuing operations in fiscal 1999 decreased
approximately $975,000 from fiscal 1998 primarily due to the reduction of debt
after receiving proceeds from the sale of the Trampoline Products line. Interest
rates experienced by the Company decreased from 10.25% in fiscal 1998 to 9.25%
in fiscal 1999.
The Company recorded a contingency for settlement of the shareholder
lawsuits of $3,000,000 in March 1999.
13
<PAGE> 16
SEASONALITY; QUARTERLY RESULTS
In the past, the Company's net sales and earnings have been higher in
the last six months of the fiscal year compared to the first six months of the
fiscal year. This trend was mitigated by the seasonality of Trampoline Products
sales which tended to be higher in the spring and Christmas selling seasons. Net
earnings for the Company will generally rise and fall with sales volume,
although not directly in proportion to the change in net sales due to certain of
the Company's expenses being relatively fixed while others are variable. The
Company's quarterly operating results may also vary depending on such other
factors as the timing of significant customer orders, the mix of products sold,
and the efficiency of operations.
The following table sets forth selected quarterly unaudited information
for fiscal 2000, 1999 and 1998. In the opinion of the Company, such information
reflects all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the information set forth below. The operating
results for any quarter are not necessarily indicative of the results for any
future period. Dollars are in thousands, except per share data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL 1998 FISCAL 1999
---------------------------------------- ------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT.30, DEC. 31, MAR. 31,
1997(3) 1997(3) 1997(3) 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ........ $ 20,517 $ 15,107 $ 15,889 $ 7,281 $ 7,403 $ 7,092 $ 10,844 $ 8,485
Operating
profit (loss) ... (21) (811) (1,474) (1,556) (1,088) (1,010) (287) (1,227)
Earnings (loss)
from
operations ...... (638) (474) 7,646(2) (1,068) (1,170) (1,193) (581) (4,554)(1)
Earnings (loss)
per share
from
operations ...... (.16) (.12) 1.91 (.26) (.29) (.30) (.13) (1.07)
<CAPTION>
THREE MONTHS ENDED
FISCAL 2000
------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1999 1999 1999 2000
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales ........ $ 7,166 $9,533 $10,896 $ 10,792
Operating
profit (loss) ... (392) 343 491 297
Earnings (loss)
from
operations ...... (639) 80 51 (63)
Earnings (loss)
per share
from
operations ...... (.15) .02 .01 (.01)
</TABLE>
(1) Includes contingent liability of $3,000,000 in anticipated settlement of
shareholder lawsuits.
(2) Includes gain on sale of Trampoline Products line in November 1997.
(3) Includes trampoline sales until the disposal date.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of financing in the past several years
have been short-term borrowings from an asset-based lender. The Company's cash
used in operations was approximately $0.5 million for fiscal 2000 compared to
approximately $3.4 million for fiscal 1999.
In August 1996 the Company secured a revolving credit facility with a
financial institution providing a maximum line of credit of $25 million, subject
to certain borrowing base requirements and covenants. In May 1998 the loan
agreement was renegotiated with the financial institution. The maximum line of
credit was reduced to $15 million subject to certain borrowing base
requirements. The facility was extended to August 16, 2002 and several of the
performance covenants were revised or removed. Subsequent to the date of this
report, the Company amended the loan agreement to revise certain covenants.
The outstanding balance under the credit line is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory. As of March 31, 2000 there was a $8,753,000 outstanding balance.
Availability under the line of credit was $22,000 at March 31, 2000. During
fiscal 2000 the
14
<PAGE> 17
Company received waivers for noncompliance of certain negative performance
covenants of the loan agreement involving tangible net worth and debt to
tangible net worth ratios. Some of the financial covenants have been removed or
restated subsequent to year-end with the execution of a second amendment.
The current credit facility initially bore interest at the rate of
10.00% through March 26, 1997, at which time it increased to 10.25%. The
interest rate on March 31, 2000 was 11.0%.
Capital expenditures requiring cash during fiscal 2000 were
approximately $205,000 primarily for computer equipment. The Company has
budgeted approximately $200,000 for capital expenditures for fiscal 2001.
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
To date, inflation and foreign currency fluctuations have not had a
material impact on the Company's operations. There can be no assurance, however,
that future inflation or foreign currency fluctuations will not have a material
adverse effect on the Company, or that the Company will be able to pass on
resulting cost increases without experiencing a reduction in demand for its
products. A substantial portion of the Company's existing indebtedness bears,
and future indebtedness may bear, interest that fluctuates with the prime rate.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
Certain statements contained in this Report, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute "forward-looking
statements". Such forward-looking statements involve numerous assumptions about
known and unknown risks, uncertainties and other factors which may ultimately
prove to be inaccurate. Certain of these factors are discussed in more detail
elsewhere in this Report, including without limitation under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 1. Business" and include the Company's ability to continue
to improve gross margin, to 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.
15
<PAGE> 18
PRODUCTS AND MARKETS
The Company believes there will continue to be an adequate market for
its products and product lines, but a substantial change in consumer preference
away from a particular product could seriously affect the Company's ability to
produce sales at the current level.
The Company's customer base is highly concentrated with a few key mass
merchandisers. Insolvency, a slow down in payments, or a change in buying habits
of any of these customers could have a material adverse effect on the Company.
ONGOING OPERATIONAL ISSUES AND LIQUIDITY
The Company has made significant strides in improving operating income
over the last few years. Operational efficiencies, sales gains, cost
improvements and full system upgrades have provided a solid foundation for
continuing the rebuilding process. Two major hurdles remain to ensure financial
stability:
1) Resolution of the Suntrust and STI lawsuits (See "Item 3.
Legal Proceedings."). These actions create a major uncertainty
for the Company's future. Unresolved uncertainties prohibit
the Company from obtaining additional financing, impede
capital raising efforts, and prevent management from
concentrating on other long-term issues.
2) Creation of adequate cash flow to fund ongoing operations.
While operating income has significantly improved over prior
years, cash provided by operating activities was negative
overall (although to a much lesser extent than in prior
years).
Several factors played a key role in the uses of cash for fiscal 2000,
and management believes that a substantial portion of those cash outlays will
not be repeated in the future but the Company's ability to continue to operate,
to settle the shareholder class action lawsuits or to engage in future
acquisitions is hampered by a shortage of cash.
The Company's relationship with its lender is good but the Company will
continue to require lender cooperation to resolve the issues listed above.
LEGAL PROCEEDINGS
The Company and certain officers and directors are defendants in two
separate lawsuits that purport to be class actions and allege certain
misrepresentations and fraudulent actions by the defendants. While the Company
continues to believe both actions are without merit, a contingent reserve was
established in fiscal 1999 for settlement of these actions. A prolonged court
battle would consume the Company's ability to respond to market conditions and
trends and interfere with the proper management of the Company's affairs (See
"Item 3. Legal Proceedings.").
The Company is occasionally a party to various legal proceedings
arising in the ordinary course of business (See "Item 3. Legal Proceedings.").
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company does not believe that its exposures to interest rate risk
or foreign currency exchange risk, risks from commodity prices, equity prices
and other market changes that affect market risk sensitive instruments are
material to its results of operations.
16
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The financial statements and supplementary data required to be included
in this Item 8 are set forth in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company had no changes in accountants or disagreements with it
accountants on accounting and financial disclosure to report under this Item 9.
17
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn D. Bollinger 49 Chairman of the Board, Chief Executive Officer and Director
Bobby D. Bollinger 47 Vice Chairman of the Board, President and Director
Rose Turner 43 Executive Vice President - Finance, Chief Financial Officer,
Chief Operating Officer, Treasurer and Secretary
Dell K. Bollinger 73 Senior Vice President - Administration
David Barr 41 Executive Vice President - Product Acquisition
Floyd DePauw 50 Controller and Chief Accounting Officer
John L. Maguire 69 Director
Stephen L. Parr 46 Director
</TABLE>
Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.
Glenn D. Bollinger is a co-founder of the Company and has served as
Chairman of the Board and Chief Executive Officer and a Director since 1979. Mr.
Bollinger is primarily responsible for the Company's overall operations,
including inventory, purchasing and warehousing. Mr. Bollinger is Bobby
Bollinger's brother and the son of Mrs. Dell Bollinger.
Bobby D. Bollinger is a co-founder of the Company and has served as
Vice Chairman of the Board and President and a Director since 1979. Mr.
Bollinger is primarily responsible for sales, marketing and product development.
Mr. Bollinger is Glenn Bollinger's brother and the son of Mrs. Dell Bollinger.
Rose Turner has served as Chief Financial Officer, Treasurer and
Secretary since January 1997, as Executive Vice President-Finance since October
1997, and as Chief Operating Officer of the Company since January 1999. She
previously served as the Company's Senior Vice President-Finance from January
1997 to October 1997. Ms. Turner joined the Company on a contract and then full
time basis in November 1995. Ms. Turner was previously employed by a variety of
food manufacturing companies including Mission Foods and Borden, Inc. Ms. Turner
is a certified public accountant.
Dell K. Bollinger accepted an integral role in the Company's business
when it was founded by her sons, Glenn and Bobby Bollinger, in 1974. Mrs.
Bollinger has served as a Vice President of the Company since 1979.
David Barr has served as Executive Vice President - Product Acquisition
of the Company since August 1996, and previously served as Vice President -
Product Development from July 1994 to August 1996. Prior to joining the Company
Mr. Barr was President and Owner of New Zone Corporation, a privately held
18
<PAGE> 21
distributor of children's safety and related products. Prior to that employment
Mr. Barr held various positions at Tandy Corporation, Fort Worth, Texas,
including Director of Marketing for Computer City.
Floyd DePauw became Controller and Chief Accounting Officer in October,
1996. Mr. DePauw is a certified public accountant. Before joining the Company,
Mr. DePauw previously served as the controller of Taylor Publishing Company, a
subsidiary of Insilco Corporation, a publicly owned company. He was employed by
Taylor in a variety of accounting positions for approximately sixteen years.
Prior to being employed by Taylor, Mr. DePauw was employed by Zoecon Industries,
Inc., a chemical manufacturer, for approximately five years.
John L. Maguire became a Director in September 1993 and served as
interim Chief Financial Officer from August 1992 to August 1993. In addition,
the Company retains Mr. Maguire as a consultant on certain financial matters and
acquisitions. Mr. Maguire is a certified public accountant. Since November 1,
1999 Mr. Maguire has served as Director of Administrative Services, City of
Fayetteville, Arkansas City Government. Since 1982, he has been self-employed,
concentrating on private family investments. He was previously Chief Financial
Officer of Tyson Foods, Inc. for twelve years.
Stephen L. Parr became a Director of the Company in November 1995. Mr.
Parr is currently President of Navigator Capital Management, LLC. Mr. Parr was
previously a Vice President of Goldman Sachs where he was an international
specialist. Mr. Parr was with Goldman Sachs from 1977 to 1995. Mr. Parr serves
on the board of directors of Braman, Ltd., a furniture manufacturing company,
Nextek, Inc., a Alabama electronics company, Corphealth, Inc., a Texas
behavioral healthcare company, NavTel, LLC, a competitive local exchange
carrier, and Aqua Dynamics, a specialty chemical and ozone services company.
The Company's board of directors is currently composed of four
directors. All of the current directors serve until the next annual
shareholders' meeting or until their successors have been duly elected and
qualified. Certain of the directors and officers are defendants to lawsuits as
discussed in "Item 3. Legal Proceedings."
19
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes the compensation paid to the Company's
chief executive officer and the Company's three other most highly compensated
officers for services rendered in all capacities to the Company during fiscal
2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL DIRECTORS
NAME AND SALARY BONUS COMPENSA- OPTIONS FEES
PRINCIPAL POSITION YEAR ($) ($) TION ($)(1) (#) ($)
------------------ ---- ------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Bollinger .......................... 2000 252,143 -- -- 25,716 10,000
Chairman of the Board and 1999 275,717 -- -- -- 10,000
Chief Executive Officer 1998 275,717 100,000 -- -- 50,000
Bobby D. Bollinger .......................... 2000 252,143 -- -- 25,716 10,000
Vice Chairman of the Board 1999 275,717 -- -- -- 10,000
and President 1998 275,717 100,000 -- -- 50,000
Rose Turner ................................. 2000 146,445 20,000 -- 7,000 --
Executive Vice President - 1999 132,700 -- -- -- --
Finance, Chief Operating Officer, 1998 117,488 40,000 -- -- --
Chief Financial Officer, Treasurer
and Secretary
David Barr .................................. 2000 109,732 8,000(2) -- 20,000 --
Executive Vice President - 1999 97,194 -- -- -- --
Product Acquisition 1998 89,422 60,000 -- -- --
</TABLE>
----------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits; however, do not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive officer.
(2) Mr. Barr's bonus for fiscal 2000 was paid subsequent to March 31, 2000.
OPTIONS EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during fiscal 2000 and
unexercised options held as of the end of fiscal 2000.
20
<PAGE> 23
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END(#) YEAR-END($)(1)
--------------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenn D. Bollinger(2) -- -- 25,716 -- -- --
Bobby D. Bollinger(3) -- -- 25,716 -- -- --
Rose Turner(4) -- -- 24,000 16,000 -- --
David Barr(5) -- -- 32,000 10,000 -- --
</TABLE>
----------
(1) Based on the closing sale price of the Common Stock on March 31, 2000 of
$0.375 per share as reported by the over-the-counter Bulletin Board (minus
the exercise or base price).
(2) Glenn D. Bollinger was granted options for the purchase of 25,716 shares of
Common Stock in exchange for a salary reduction, at an exercise price of
$1.00 per share in September 1999. These options vested in March 2000 and
expire five years from the date of grant.
(3) Bobby D. Bollinger was granted options for the purchase of 25,716 shares of
Common Stock in exchange for a salary reduction, at an exercise price of
$1.00 per share in September 1999. These options vested in March 2000 and
expire five years from the date of grant.
(4) Rose Turner was granted options for the purchase of 33,000 shares of Common
Stock at an exercise price of $0.63 per share in January 1997; and options
for the purchase of 7,000 shares of Common Stock at an exercise price of
$1.00 per share in April 1999. These options vest over a five-year period
and expire ten years from the date of grant.
(5) David Barr was granted options for the purchase of 10,000 shares of Common
Stock at an exercise price of $13.00 per share in October 1994. These
options vest over a five-year period and expire ten years from the date of
grant. Mr. Barr was granted options for the purchase of 2,000 shares of
Common Stock at an exercise price of $11.00 per share in December 1994.
These options vest over a four-year period and expire ten years from the
date of grant. Mr. Barr was granted options for the purchase of 10,000
shares of Common Stock at an exercise price of $3.00 per share in February
1996; and options for the purchase of 20,000 shares of Common Stock at an
exercise price of $1.00 per share in April 1999. These options vest over a
five-year period and expire ten years from the date of grant.
DIRECTORS' COMPENSATION
Glenn D. Bollinger and Bobby D. Bollinger each receive a fee of $10,000
annually for their services as Directors of the Company.
John L. Maguire and Stephen Parr were granted options to purchase 8,333
shares of Common Stock at the time they became a director. Stephen Parr receives
a fee of $30,000 annually for his services as a Director of the Company and is
reimbursed for out-of-pocket expenses incurred in connection with attendance at
board of directors and committee meetings. John L. Maguire receives $36,000
annually and acts as a consultant on certain financial matters and acquisitions.
See "Item 13. Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock of the Company, as of March 31,
2000, by (i) each director, (ii) the Company's chief executive officer and three
other most highly compensated executive officers in fiscal 2000, (iii) each
person deemed to beneficially own more than five percent of the outstanding
shares of Common Stock, and (iv) all officers and
21
<PAGE> 24
directors of the Company as a group. Except as otherwise indicated, each
stockholder identified in the table has sole voting and investment power with
respect to his shares.
<TABLE>
<CAPTION>
SHARES OWNED
--------------------------------
NAME NUMBER PERCENTAGE
---- --------- ----------
<S> <C> <C>
Glenn D. Bollinger(1)(2) 1,534,843 34.9
Bobby D. Bollinger(1)(3) 1,535,894 34.9
Rose Turner(4) 24,000 *
David Barr(5) 32,000 *
John L. Maguire(6) 108,333 2.5
Stephen L. Parr(7) 9,167 *
All directors and executive officers as a
Group (8 persons)(8)(9) 2,504,731 56.9
</TABLE>
----------
* Less than 1% of the outstanding shares of Common Stock.
(1) Business mailing address is 602 Fountain Parkway, Grand Prairie, Texas
75050.
(2) Includes (i) 425,069 shares over which Glenn Bollinger has sole voting and
investment control; (ii) 436,000 shares held by Glenn Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Glenn Bollinger
has shared voting and investment power with Bobby Bollinger through each of
their 49.5% ownership of the outstanding stock of the sole general partner;
(iii) 436,000 shares held by Bob Bollinger Family Enterprises, Ltd., a
Texas limited partnership, over which Glenn Bollinger has shared voting and
investment power with brother Bobby Bollinger through each of their
ownership of 49.5% of the outstanding stock of the sole general partner;
and (iv) 212,058 shares held by the 401(k) Plan representing his interest
in the plan as a participant. Neither the inclusion of shares owned by Bob
Bollinger Family Enterprises, Ltd., nor the inclusion of any 401(k) Plan
shares not allocated to Glenn Bollinger's 401(k) participant account is to
be construed as an admission that he is the beneficial owner of such
shares. Includes options to purchase 25,716 shares of Common Stock that are
currently exercisable.
(3) Includes (i) 425,069 shares over which Bobby Bollinger has sole voting and
investment control; (ii) 436,000 shares held by Bob Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Bobby Bollinger
has shared voting and investment power with Glenn Bollinger through each of
their 49.5% ownership of the outstanding stock of the sole general partner;
(iii) 436,000 shares held by Glenn Bollinger Family Enterprises, Ltd., a
Texas limited partnership, over which Bobby Bollinger has shared voting and
investment power with Glenn Bollinger through each of their 49.5% ownership
of the outstanding stock of the sole general partner; and (iv) 213,109
shares held by the 401(k) Plan representing his interest in the plan as a
participant. Neither the inclusion of shares owned by Glenn Bollinger
Family Enterprises, Ltd., nor the inclusion of any 401(k) Plan shares not
allocated to Bobby Bollinger's 401(k) participant account is to be
construed as an admission that he is the beneficial owner of such shares.
Includes options to purchase 25,716 shares of Common Stock that are
currently exercisable.
(4) Includes options to purchase 24,000 shares of Common Stock that are
currently exercisable.
(5) Includes options to purchase 32,000 shares of Common Stock that are
currently exercisable.
(6) Includes options to purchase 58,333 shares of Common Stock that are
currently exercisable. Does not include 26,000 shares of Common Stock held
in trust for which Mr. Maguire is the trustee and is a contingent
beneficiary. Mr. Maguire disclaims beneficial ownership of these shares.
(7) Includes options to purchase 6,667 shares of Common Stock that are
currently exercisable.
(8) Includes options to purchase 232,395 shares of Common Stock that are
currently exercisable.
(9) Shares which are included beneficially under both Glenn and Bobby Bollinger
are only included once in the group total.
22
<PAGE> 25
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and persons who own more
than ten percent (10%) of the Common Stock to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and reports of changes
in ownership of the Common Stock. Such persons are required by SEC regulations
to furnish the Company with copies of all Section 16(a) reports they file with
the SEC. Based solely on the Company's review of the copies of such forms
received during the year, the Company believes that during the year ended March
31, 2000, all the Company's directors, executive officers and holders of more
than ten percent (10%) of the Common Stock complied with all Section 16(a)
filing requirements.
To the best knowledge of management of the Company, during fiscal year
2000 no director, officer or ten percent (10%) beneficial owner of Common Stock
of the Company failed to file with the Securities and Exchange Commission any
required reports on Form 3, 4 or 5 regarding transactions in securities of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has a continuing arrangement with John L. Maguire, a
director of the Company, for financial, corporate and acquisition consulting
services. This arrangement currently provides for an annual fee of $36,000,
which includes the fee for his services as a director.
During 1998 Franklin Santagate became a marketing advisor on contract
to the Company. In March 1999 Mr. Santagate accepted the position of Vice
President of Marketing, again on a contract basis. In April 2000 Mr. Santagate's
responsibilities increased to include both sales and marketing. Mr. Santagate,
formerly known as Mr. Franklin Ross, was a vice president of marketing for the
Company until the time of the initial public offering in November 1993. He is
currently under contract with the Company until April 1, 2001.
All other transactions, if any, between the Company and any of its
directors, officers, principal stockholders, employees and other affiliates are
subject to the approval of a majority of the independent directors of the
Company who are disinterested in the transactions. All such transactions and
loans must be on terms no less favorable to the Company than those generally
available from unaffiliated third parties.
23
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of March 31, 2000 and 1999 F-2
Consolidated Statements of Operations for each of the three years in the period ended
March 31, 2000 F-4
Consolidated Statements of Changes in Stockholders' Equity for each of the three
years in the period ended March 31, 2000 F-5
Consolidated Statements of Cash Flows for each of the three years in the period
ended March 31, 2000 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants on Schedule II F-22
Schedule II - Valuation and Qualifying Accounts for the years ended March 31,
2000, 1999 and 1998 F-23
</TABLE>
All other schedules are omitted because they are inapplicable or the information
is otherwise shown in the financial statements or notes thereto.
3. EXHIBITS
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Form S-1
Registration Statement No. 33-69708).
3.2 By-Laws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Form S-1 Registration Statement No.
33-69708).
4.1 Form of certificate representing shares of the Company's
Common Stock (incorporated by reference to Exhibit 4.1 to the
Company's Form S-1 Registration Statement No. 33-69708).
10.1 Bollinger Industries 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to the Company's Form S-1
Registration Statement No. 33-69708).
10.4 Bollinger Industries, Inc. 1991 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.4 to the Company's
Form S-1 Registration Statement No. 33-69708).
24
<PAGE> 27
10.46 Eleventh Amendment to Loan and Security Agreement dated July
8, 1996, between Bollinger Industries, L.P., and NationsBank
of Texas, N.A. (incorporated by reference to Exhibit 10.46 to
the Company's Form 10-Q for the quarter ended September 29,
1996).
10.47 Loan and Security Agreement dated August 16, 1996 between
Bollinger Industries, Inc., Bollinger Industries, L.P. and
NBF, Inc. and Foothill Capital Corporation and related
schedules. (incorporated by reference to Exhibit 10.47 to the
Company's Form 10-Q for the quarter ended September 29, 1996).
10.48 Collateral Assignment of Patents and Trademarks dated August
16, 1996 between Bollinger Industries, L.P. and Foothill
Capital Corporation. (incorporated by reference to Exhibit
10.48 to the Company's Form 10-Q for the quarter ended
September 29, 1996).
10.49 Subordination Agreement dated August 16, 1996 between Glenn D.
Bollinger, Bobby D. Bollinger, Dell Bollinger and Foothill
Capital Corporation. (incorporated by reference to Exhibit
10.49 to the Company's Form 10-Q for the quarter ended
September 29, 1996).
10.50 Deed of Trust dated August 16, 1996 executed by Bollinger
Industries, L.P. (incorporated by reference to Exhibit 10.50
to the Company's Form 10-Q for the quarter ended September 29,
1996).
10.51 Asset Purchase Agreement dated August 29, 1996 between
Bollinger Industries, L.P., and Rehab Plus Therapeutic
Products, Inc. (incorporated by reference to Exhibit 10.51 to
the Company's Form 10-Q for the quarter ended September 29,
1996).
10.52 Tenth Amendment to Loan and Security Agreement dated July
8,1996, between Bollinger Industries, L.P., and NationsBank of
Texas, N.A. (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1996).
10.53 Asset Purchase Agreement dated August 29, 1996 between
Bollinger Industries, L.P., and Rehab Plus Therapeutic
Products, Inc. (incorporated by reference to Exhibit 2.01 to
the Company's Form 10-Q for the quarter ended September 29,
1996).
10.54 Asset Purchase Agreement dated November 7, 1996, between
Bollinger Industries, L.P., and SST Acquisition Corporation
(incorporated by reference to Exhibit 2.01 to the Company's
Form 10-Q for the quarter ended December 29, 1996).
10.55 First Amendment to Loan and Security Agreement dated August
16, 1996, between Bollinger Industries, Inc., Bollinger
Industries, L.P. and NBF, Inc. and Foothill Capital
Corporation. (incorporated by reference to Exhibit 10.55 to
the Company's Form 10-K for the year ended March 31, 1997).
10.56 Second Amendment to Loan and Security Agreement dated August
16, 1996, between Bollinger Industries, Inc., Bollinger
Industries, L.P. and NBF, Inc. and Foothill Capital
Corporation. (incorporated by reference to Exhibit 10.56 to
the Company's Form 10-K for the year ended March 31, 1997).
10.57 Lease Agreement dated December 1, 1996 between Southwest
Properties Group, Inc. and Bollinger Industries, L.P..
(incorporated by reference to Exhibit 10.57 to the Company's
Form 10-K for the year ended March 31, 1997).
25
<PAGE> 28
10.58 Third Amendment to Loan and Security Agreement dated June 11,
1997, between Bollinger Industries, L.P. and NBF and Foothill
Capital Corporation. (incorporated by reference to Exhibit
10.58 to the Company's Form 10-Q for the quarter ended June
30, 1997).
10.59 Twelfth Amendment to Loan and Security Agreement dated March
15, 1997, between Bollinger Industries, L.P. and Nations Bank
of Texas N.A. (incorporated by reference to Exhibit 10.59 to
the Company's Form 10-Q for the quarter ended June 30, 1997).
10.60 Commercial Contract of Sale dated July 18, 1997 between
Bollinger Industries, Inc. and Hsiehs Investments, Inc.
(incorporated by reference to Exhibit 10.60 to the Company's
Form 10-Q for the quarter ended September 30, 1997).
10.61 Asset Purchase Agreement dated November 13, 1997, between
Bollinger Industries, Inc., NBF, Inc., and Hedstrom
Corporation. (incorporated by reference to Exhibit 10.61 to
the Company's Form 8-K dated November 26, 1997).
10.62 Assignment and Assumption of Lease dated effective September
20, 1997 between Americus Sumter Payroll Development
Authority, NBF, Inc., and Plains Products, Inc. (incorporated
by reference to Exhibit 10.61 to the Company's Form 10-Q for
the quarter ended December 31, 1997).
10.63 Lease Termination Agreement dated December 9, 1997 between
National Life Insurance Company and Bollinger Industries, Inc.
(incorporated by reference to Exhibit 10.62 to the Company's
Form 10-Q for the quarter ended December 31, 1997).
10.64 Amendment to Loan and Security Agreement dated May 14, 1998,
between Bollinger Industries, Inc., Bollinger Industries, L.P.
and NBF, Inc. and Foothill Capital Corporation (incorporated
by reference to Exhibit 10.64 to the Company's Form 10-Q for
the quarter ended June 30, 1998).
10.65 Asset Purchase Agreement dated October 15, 1998 between
Bollinger Industries, L.P. Bollinger Industries, Inc., and The
Step Company. (incorporated by reference to Exhibit 10.65 to
the Company's Form 8-K dated October 22, 1998).
10.66 Asset Purchase Agreement dated October 8, 1998 between Self
Image Sports and Fitness Co., Inc., and Bollinger Industries,
L.P. (incorporated by reference to Exhibit 10.67 to the
Company's Form 10-Q dated September 30, 1998).
10.67 Convertible Subordinated Note Agreement dated October 15, 1998
between Bollinger Industries, L.P., Bollinger Industries,
Inc., and The Step Company. (incorporated by reference to
Exhibit 10.68 to the Company's Form 10-Q dated December 31,
1998).
10.68 Bollinger Industries, Inc. 1998 Stock Option Plan
(incorporated by reference to Annex 1 to the Company's
Definitive Proxy Statement dated August 25, 1998).
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"). (incorporated by reference to
Exhibit 10.69 to the Company's Form 10-Q dated June 30, 1999).
10.70 Modification and Ratification of Lease Agreement dated June 1,
1999 between Fountain Parkway, Ltd. ("Lessor") and Bollinger
Industries, L.P. (Lessee"). (incorporated by reference to
Exhibit 10.70 to the Company's Form 10-Q dated June 30, 1999).
26
<PAGE> 29
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. (incorporated by reference to Exhibit
10.71 to the Company's Form 10-Q dated June 30, 1999).
11 Statement Regarding Computation of Per Share Date (filed
herewith).
12 Subsidiaries (filed herewith).
27 Financial Data Schedule (filed herewith).
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth
quarter of the fiscal year ended March 31, 2000.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.
The exhibits listed in Part IV, item 14(a)(3) of this
report, and not incorporate by reference to a
separate file, are included after "Signatures,"
below.
(d) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION
S-X. (INCLUDED UNDER PART IV, ITEM 14(a)(2)
All schedules are omitted because they are not
required, inapplicable or the information is
otherwise shown in the financial statements or notes
thereto.
27
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
June, 2000.
BOLLINGER INDUSTRIES, INC.
By: /s/ Glenn D. Bollinger
-------------------------------------------------
Glenn D. Bollinger
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of the 28th day of June, 2000.
<TABLE>
<S> <C>
/s/ Glenn D. Bollinger Chairman of the Board, and Chief Executive Officer
------------------------------ (principal executive officer)
Glenn D. Bollinger
/s/ Bobby D. Bollinger Vice Chairman of the Board and President
------------------------------
Bobby D. Bollinger
/s/ Rose Turner Executive Vice President - Finance, Chief Financial Officer, Chief
------------------------------ Operating Officer, Treasurer, and Secretary (principal financial officer)
Rose Turner
/s/ Floyd DePauw Controller and Chief Accounting Officer (principal accounting officer)
------------------------------
Floyd DePauw
/s/ John L. Maguire Director
------------------------------
John L. Maguire
/s/ Stephen L. Parr Director
------------------------------
Stephen L. Parr
</TABLE>
<PAGE> 31
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended March 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three year
period ended March 31, 2000, in conformity with generally accepted accounting
principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
June 14, 2000
F-1
<PAGE> 32
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 959,242 $ 125,719
Accounts receivable-trade, net of allowance for doubtful
accounts of $543,387 and $476,619, allowance for returns
and allowances of $1,748,847, $1,419,955, allowance for
advertising of $327,510 and $236,273 6,277,077 7,114,315
Prepaid expense 129,613 88,245
Inventories, net 9,581,676 6,859,686
Other 47,788 9,621
----------- -----------
Total current assets 16,995,396 14,197,586
PROPERTY AND EQUIPMENT - NET 1,815,695 1,797,832
OTHER ASSETS
Goodwill, net of accumulated amortization of $532,950 and
$177,650 3,020,050 3,375,350
License rights, net of accumulated amortization of $107,250
and $35,750 607,750 679,250
Notes receivable and other 106,254 113,531
Deferred marketing costs, net of accumulated amortization of
$534,500 and 0 1,602,905 --
Deferred financing fees, net of accumulated amortization of
$711,398 and $562,727 49,556 198,227
----------- -----------
Total other assets 5,386,515 4,366,358
----------- -----------
TOTAL ASSETS $24,197,606 $20,361,776
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE> 33
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
<TABLE>
<CAPTION>
MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 1,336,426 $ 1,379,139
Current portion of capital lease obligations 76,938 237,568
Accounts payable-trade 6,427,069 3,744,514
Taxes payable 53,104 61,279
Accrued liabilities 644,673 848,368
Accrued product liability 391,879 464,068
------------ ------------
Total current liabilities 8,930,089 6,734,936
LONG-TERM LIABILITIES
Long-term debt, less current portion 8,701,886 6,904,552
Capital lease obligations, less current portion 913,328 532,587
Contingency for legal settlement 3,000,000 3,000,000
Other 33,335 --
------------ ------------
Total long-term liabilities 12,648,549 10,437,139
------------ ------------
Total liabilities 21,578,638 17,172,075
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes H and M)
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 (12,944,092) (12,373,359)
------------ ------------
Total stockholders' equity 2,618,968 3,189,701
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,197,606 $ 20,361,776
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 34
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 38,386,650 $ 33,823,947 $ 58,793,757
Cost of goods sold 25,766,203 24,476,190 47,803,060
------------ ------------ ------------
Gross profit 12,620,447 9,347,757 10,990,697
Selling expenses 3,497,300 3,531,858 4,889,999
Distribution, general and administrative expenses 8,383,972 9,427,538 9,962,820
------------ ------------ ------------
11,881,272 12,959,396 14,852,819
------------ ------------ ------------
Operating profit (loss) 739,175 (3,611,639) (3,862,122)
Other expense (income)
Interest expense 1,201,130 773,579 1,748,646
Gain on sale of assets (16,628) (8,582) (11,247,513)
Contingency for legal settlement -- 3,000,000 --
Other 125,406 121,021 (55,008)
------------ ------------ ------------
1,309,908 3,886,018 (9,553,875)
------------ ------------ ------------
Earnings (loss) before income tax expense (570,733) (7,497,657) 5,691,753
Income tax expense -- -- 225,528
------------ ------------ ------------
Net earnings (loss) $ (570,733) $ (7,497,657) $ 5,466,225
============ ============ ============
Per share data (basic and diluted):
Basic earnings (loss) per share $ (0.13) $ (1.79) $ 1.37
------------ ------------ ------------
Diluted earnings (loss) per share $ (0.13) $ (1.79) $ 1.36
============ ============ ============
Shares used in the calculation of per share amounts:
Basic common shares 4,400,210 4,178,840 4,000,210
Dilutive impact of stock options -- -- 25,329
------------ ------------ ------------
Diluted common shares 4,400,210 4,178,840 4,025,539
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 35
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
--------------------- EXCESS OF ACCUMULATED
SHARES AMOUNT PAR DEFICIT TOTAL
--------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1997 4,000,210 $40,002 $15,323,058 $(10,341,927) $ 5,021,133
Net earnings -- -- -- 5,466,225 5,466,225
--------- ------- ----------- ------------ ------------
Balance at March 31, 1998 4,000,210 40,002 15,323,058 (4,875,702) 10,487,358
Shares issued in Acquisition
Agreement 300,000 3,000 147,000 -- 150,000
Shares issued for Non-Compete
Agreement 100,000 1,000 49,000 -- 50,000
Net Loss -- -- -- (7,497,657) (7,497,657)
--------- ------- ----------- ------------ ------------
Balance at March 31, 1999 4,400,210 44,002 15,519,058 (12,373,359) 3,189,701
Net Loss -- -- -- (570,733) (570,733)
--------- ------- ----------- ------------ ------------
Balance at March 31, 2000 4,400,210 $44,002 $15,519,058 $(12,944,092) $ 2,618,968
========= ======= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of this
consolidated financial statement.
F-5
<PAGE> 36
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
2000 1999 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (570,733) $(7,497,657) $ 5,466,225
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities
Gain on sale of assets (16,628) (8,582) (11,247,513)
Contingency for legal settlement -- 3,000,000 --
Depreciation and amortization 1,177,063 1,149,249 1,206,358
Provision for returns and allowance 2,012,981 2,971,638 3,228,908
Provision for doubtful accounts 255,000 240,000 253,441
Provision for advertising 807,000 746,389 972,782
Provision for obsolete inventory -- 729,762 1,433,367
Provision for restructuring operations -- -- (2,160,169)
Changes in operating assets and liabilities, net of
effect of acquisitions and dispositions
Accounts receivable-trade (2,237,743) (4,231,651) 5,699,509
Other (38,167) 414,714 (247,127)
Inventories (2,721,990) (1,251,435) 7,149,772
Prepaid marketing and other (1,644,273) 705,266 (260,296)
Other 4,485 (26,896) 39,610
Accounts payable-trade 2,682,555 1,048,949 (9,024,802)
Taxes payable (8,175) (163,421) 224,700
Accrued liabilities (203,695) (1,257,010) 592,235
Accrued product liability (72,189) (4,651) 294,026
Other long-term liabilities 33,335 -- --
----------- ----------- ------------
Net cash provided by (used in) operating activities (541,174) (3,435,336) 3,621,026
Cash flows from investing activities
Purchases of property and equipment (204,686) (639,927) (1,022,443)
Acquisition of license rights and assets -- (3,575,000) --
Payments made on notes receivable -- 121,523 339,310
Proceeds from sale of assets 19,651 21,554 15,789,008
Escrow receivable -- 1,012,296 (1,012,296)
----------- ----------- ------------
Net cash provided by (used in) investing activities (185,035) (3,059,554) 14,093,579
Cash flows from financing activities
Net proceeds from (payments on) debt 1,754,621 6,704,505 (17,865,765)
Net proceeds from (payments on) capital lease obligations (194,889) (220,265) 689,048
Net payments to officers -- -- (280,000)
Payment of financing fees -- -- (125,000)
----------- ----------- ------------
Net cash provided by (used in) financing activities 1,559,732 6,484,240 (17,581,717)
----------- ----------- ------------
Net increase (decrease) in cash 833,523 (10,650) 132,888
Cash at beginning of year 125,719 136,369 3,481
----------- ----------- ------------
Cash at end of year $ 959,242 $ 125,719 $ 136,369
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 37
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
BUSINESS ACTIVITY
The Company is a supplier of consumer fitness equipment and accessories.
(See Note B for a discussion of acquisitions and disposal of the
Trampoline Products line.)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bollinger
Industries, Inc. ("Bollinger"), its wholly-owned subsidiaries, and
Bollinger Industries, L.P., a partnership wholly-owned by Bollinger's
subsidiaries (collectively the "Company"). All significant intercompany
accounts and transactions have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market (determined product by product based on
management knowledge of current market conditions and existing stock
levels).
The provision for obsolete and slow-moving inventory is adjusted based on
current inventory levels, historical and expected future sales levels.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using
straight-line and accelerated methods for financial reporting purposes
over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements 5 - 20 years
Equipment 2 - 7 years
Motor vehicles 3 - 10 years
Furniture and fixtures 3 - 5 years
Amortization for capitalized leases (primarily
computer equipment and software) is provided for
over the lease terms 4 years
</TABLE>
Maintenance and repairs are expensed as incurred. Major renewals and
improvements are capitalized.
CAPITALIZED SOFTWARE COSTS
The Company, under the provisions of Statement of Positions 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use," capitalizes certain software development costs. The
development costs are charged to expense as incurred until the
application development stage for the product has been established, at
which time the costs are capitalized until design of chosen
F-7
<PAGE> 38
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
path, coding, installation of hardware and testing are completed. The
Company begins amortization of the capitalized software as it is placed
in use. The Company capitalized $109,945 and $149,713 for software costs
during fiscal 2000 and 1999 respectively.
ADVERTISING COSTS
Advertising and promotional costs are expensed as incurred. Advertising
expense amounted to $824,516, $778,228 and $1,610,722 in fiscal 2000, 1999
and 1998, respectively.
FAIR VALUE
The Company believes that the carrying amounts of its current assets and
current liabilities approximate the fair value of such items due to their
short-term nature. The carrying amount of long-term debt approximates its
fair value because interest rates approximate market.
INCOME TAXES
Deferred income taxes are determined using the asset and liability method,
under which deferred tax assets and liabilities are calculated based on
differences between financial accounting and tax basis of assets and
liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense or benefit is the payable or refund for the period plus or minus
the change during the period in deferred tax assets and liabilities.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share of Common Stock is based upon the weighted
average number of common shares actually outstanding during each year.
Diluted earnings per share of Common Stock includes the impact of
outstanding dilutive stock options for the year ended March 31, 1998. The
effect of stock options for the years ended March 31, 2000 and 1999 is
anti-dilutive.
GOODWILL AND OTHER INTANGIBLES
Goodwill resulting from the purchase of customer lists and patents and
intangibles resulting from license rights are amortized utilizing the
straight-line method over a period of 10 years. The Company periodically
evaluates the carrying value and the periods of amortization of goodwill
and other intangibles based on the current and expected future
undiscounted cash flows from operations of the business giving rise to the
intangible to determine whether revisions to the carrying value or useful
lives is warranted.
DEFERRED MARKETING COSTS
In certain limited circumstances, the Company enters into agreements with
customers to provide ongoing marketing support in exchange for
advantageous and continuous placement of products for a specific period of
time. The cost of these arrangements is capitalized and amortized against
sales in a straight-line method over the term of the product placement.
The cost of this continuous placement is typically paid for in part by
selling inventory at reduced or no cost.
F-8
<PAGE> 39
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
REVENUE RECOGNITION AND PROVISIONS FOR CHARGEBACKS AND BUYBACKS
The Company recognizes sales revenue at the time the 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 from 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. The provision for returns is estimated based
on current trends and historical experience of returns. The provision for
chargebacks is estimated based on the marketing programs designed for the
customer, and recent historical experience based on volume.
In certain limited circumstances, the Company has followed a "buyback"
policy whereby the Company purchases competitors' product from a new
customer in order to obtain shelf space for the Company's product lines.
The cost of such "buybacks" is amortized over the life of the program,
which typically has been two to three years.
USE OF ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used. In particular, the provision for chargebacks and
buybacks is subject to estimation. The actual chargebacks and buybacks
could vary from the estimate.
RECLASSIFICATIONS
When necessary, certain prior year amounts have been reclassified to
conform with the current year presentation.
STOCK BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock Based
Compensation." Under APB Opinion No. 25, compensation expense for
employees is based on the excess, if any, on the date of grant, between
the fair value of the Company's stock over the exercise price.
F-9
<PAGE> 40
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued
ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133", which establishes accounting and reporting standards for
derivative instruments. SFAS No. 137 is effective for all fiscal quarters
beginning after June 15, 2000. The adoption of SFAS 137 is not expected to have
a significant impact on the Company's results of operations.
F-10
<PAGE> 41
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACQUISITIONS AND DISPOSAL OF TRAMPOLINE PRODUCTS LINE
ACQUISITIONS
Effective October 1, 1998 the Company acquired certain inventory, accounts
receivable, and trademarks from Self Image Sports and Fitness Co., Inc. (d.b.a.
Multi-Grip), a Tennessee corporation. This acquisition was completed by the
Company's controlled operating entity, Bollinger Industries, L.P., a Texas
limited partnership (the "Partnership"). The purchase price for these assets was
approximately $1,400,000 paid in cash at closing, a deferred cash payment of
$100,000 and the assumption of approximately $60,000 in trade payables. As a
part of this transaction, Multi-Grip's principal shareholder entered into a
non-competition agreement with the Company in exchange for 100,000 shares of the
Company's restricted Common Stock. The transaction also involved a Registration
Rights and Option Agreement pursuant to which the owner of the shares may
participate in any qualified public offering made by the Company. The owner of
the shares may also require the Company to repurchase the shares at anytime
after April 8, 2001. The per share price under this option is ninety percent of
the then thirty day average closing price for the Company's Common Stock.
Effective October 1, 1998 the Company and the Partnership entered into various
agreements with The Step Company, a Georgia corporation. These agreements
provide for the license or sublicense of various fitness related products and
concepts from The Step Company, the Partnership's sale of the licensed products
to the sporting goods, mass merchandising, and catalog retail markets, and for
the Partnership's purchase of customer lists, price lists, and cost information
related to the licensed products. The consideration for these rights and assets
was a cash payment of $2,175,000 at closing, a $1,400,000 convertible
subordinated note, and 300,000 shares of the Company's restricted Common Stock
valued at $150,000.
The convertible subordinated note received by The Step Company provides for
quarterly installments of approximately $88,000 (subject to future adjustments
for interest rate changes) beginning January 4, 1999, with the last installment
scheduled for October 1, 2003. The holder of the note may convert part or all of
the note balance at anytime into the Company's Common Stock at $4.00 per share.
The Common Stock issued on a conversion of the note, the 300,000 shares of
Common Stock issued at closing, and the shares covered by the option described
below are subject to a registration rights agreement with the Company. This
agreement permits the owner of the shares to participate in any qualified public
offering made by the Company.
The Step Company transaction also involved a consulting and non-competition
agreement relating to the licensed and sublicensed products. This agreement
provides for a first year payment of $200,000. Subsequent annual payments, if
any, during the agreement's initial five year term will range from $200,000 to
$300,000 based on the sales volume of the products sold under The Step Company
license agreement. The Step Company's sublicense of certain exercise routines to
the Partnership involved the Company's grant of an option to purchase 200,000
shares of the Company's Common Stock at $5.00 per share. The exercise of this
option is subject to the Company reaching certain sales levels of products under
the sublicense before January 1, 2002.
F-11
<PAGE> 42
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACQUISITIONS AND DISPOSAL OF TRAMPOLINE PRODUCTS LINE-Continued
DISPOSAL OF TRAMPOLINE PRODUCTS LINE
On November 21, 1997, the Company disposed of its Trampoline Products line for
total cash consideration of $14,560,924. Included in the consideration was
$1,012,296 held back by the purchaser as an escrow amount and reflected as such
in the March 31, 1998 consolidated balance sheet. The escrow was paid to the
Company during fiscal 1999. The gain on sale of this product line was
$10,361,614.
The unaudited pro forma results of operations for the year ended March 31, 1998
stated as though the disposition occurred on April 1, 1997, is as follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Net sales $33,416,828
===========
Net earnings (loss) $ 3,700,903
===========
Net earnings (loss) per common share $ 0.93
===========
</TABLE>
NOTE C - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
2000 1999 1998
-------- ---------- ----------
<S> <C> <C> <C>
Interest paid $999,468 $ 544,741 $1,696,583
Non-cash financing and investing
transactions:
Purchase of assets-financed by notes
from buyer $ -- $1,400,000 $ --
Purchases of assets and agreements
financed by stock $ -- $ 200,000 $ --
Purchase of assets financed by
Capital leases $415,000 $ 111,107 $ 322,912
Sale of assets-paid in escrow by buyer $ -- $ -- $1,012,296
Escrow received $ -- $1,012,296 $ --
Liabilities assumed by buyer in
connection with the sale of
Trampoline Products line in 1998 $ -- $ -- $ 179,954
</TABLE>
F-12
<PAGE> 43
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
On November 21, 1997 the Company and its wholly owned subsidiary NBF, Inc.
executed an asset purchase agreement for the sale of its Trampoline Products
line to Hedstrom Corporation. The Company received $13,250,000 cash from the
sale of assets and $298,628 cash for sale of the adjusted inventory, with the
balance of the consideration, $1,012,296 held in escrow. The Company received
$1,012,296 cash held in escrow during fiscal 1999.
NOTE D - CREDIT RISK
The Company's assets subject to potential credit risk consist primarily of trade
accounts receivable and cash. The Company sells its products primarily to
retailers, including national chains, geographically dispersed throughout the
United States on an unsecured basis. Risks associated with extension of credit
to customers are affected by the economic condition of the retail industry. The
Company performs ongoing credit evaluations of its customers' financial
condition to reduce credit risk. The Company has provided an allowance for
doubtful accounts which reflects its estimate of uncollectible accounts.
Cash is at risk to the extent that it exceeds Federal Deposit Insurance
Corporation ("FDIC") insured amounts. To minimize risk, the Company places its
cash with quality institutions and monitors the financial status of these
institutions.
NOTE E - INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 360,934 $ 857,612
Finished goods 9,922,317 7,548,291
Reserve for obsolescence (701,575) (1,546,217)
----------- -----------
$ 9,581,676 $ 6,859,686
=========== ===========
</TABLE>
NOTE F - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Leasehold improvements $ 302,641 $ 296,752
Equipment and software development costs 2,656,000 2,079,379
Motor vehicles 122,607 122,607
Furniture and fixtures 941,853 943,159
---------- ----------
4,023,101 3,441,897
Less accumulated depreciation and
amortization 2,207,406 1,644,065
---------- ----------
$1,815,695 $1,797,832
========== ==========
</TABLE>
Depreciation and amortization expenses related to property and equipment for the
years ended March 31, 2000, 1999, and 1998 was approximately $600,000, $692,000
and $556,000, respectively. Included in equipment at March 31, 2000 and 1999, is
$1,405,000 and $990,000 of software and equipment under capital leases. The
related amortization expense charged to operations for the years ended March 31,
2000 and 1999 was $247,605 and $185,703, respectively.
F-13
<PAGE> 44
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - LONG TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
2000 1999
----------- ----------
<S> <C> <C>
Convertible subordinated note payable for $1,400,000 with The Step Company,
bearing interest adjusted quarterly (9.5% at March 31, 2000). Principal and
interest payable in the amount of $88,000 quarterly beginning January 4, 1999
through October 1, 2003; uncollateralized. $ 1,103,278 $1,285,332
Loan with a financial institution providing a maximum line of credit of
$15,000,000, bearing interest at the reference rate plus 2% (11% at March 31,
2000) Interest payable monthly; collateralized by receivables and inventory.(1) 8,753,478 6,757,809
Other 181,556 240,550
----------- ----------
10,038,312 8,283,691
Less current portion 1,336,426 1,379,139
----------- ----------
$ 8,701,886 $6,904,552
=========== ==========
</TABLE>
Future maturities of long-term debt at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Including Excluding
Financial Financial
Institution Institution
----------- -----------
<S> <C> <C> <C>
Year Ending March 31, 2001 $ 1,336,426 $ 336,426
2002 1,286,925 286,925
2003 7,068,615 315,137
2004 259,126 259,126
2005 5,927 5,927
Thereafter 81,293 81,293
----------- ----------
$10,038,312 $1,284,834
=========== ==========
</TABLE>
(1) The loan agreement with the financial institution provides that borrowings
under the line of credit are subject to limitations based on the borrowing base,
as defined in the agreement with a maximum facility of $15 million. The terms of
the agreement require the Company to maintain specific current ratio levels,
levels of debt to net worth, levels of tangible net worth and other financial
covenants as defined in the loan agreement. During fiscal 2000, the Company
received waivers for non-compliance of certain negative performance covenants of
the loan agreement involving financial ratios for tangible net worth and related
calculations. After receiving waivers, the Company was in compliance with all
financial covenants at March 31, 2000. At March 31, 2000, the Company had
$22,000 available in additional borrowing capacity under the loan agreement. The
loan agreement has an extended expiration date of August 16, 2002. Maturities
include an estimated pay down of $1,000,000 per year. Subsequent to March 31,
2000, the Company entered into an amendment of the loan agreement restating or
removing certain financial covenants.
F-14
<PAGE> 45
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - CONTINGENCIES FOR LEGAL SETTLEMENT
In fiscal 1999 the Company recorded a contingent liability of $3,000,000 in
anticipation of a settlement in connection with the shareholder lawsuits. See
"Note M and N".
NOTE I - 401(K) PLAN
The Company has a 401(k) employee deferred compensation plan under the terms of
which employees who have been employed for one year or more are entitled to
contribute up to the lesser of $10,500 or 15% of their annual compensation. The
Company may at its discretion contribute to the 401(k) plan and the Company paid
all plan expenses for each of the years in the three year period ending March
31, 2000. See "Note M".
NOTE J - STOCK OPTIONS
1993 PLAN
The 1993 Stock Option Plan provides for the grant of options covering a total of
500,000 shares of Common Stock of the Company to be issued to key employees and
directors of the Company other than the Chief Executive Officer and the
President. Under the Plan, incentive stock options ("ISO's") and non-qualified
stock options may be granted at prices no less than 100% and 50%, respectively,
of the fair value of the Company's Common Stock on the date of grant. The
options have a term of ten years and will generally vest in annual installments.
At March 31, 2000, a total of 321,334 options were available for grant under
this plan.
1998 PLAN
The 1998 Stock Option Plan provides for the grant of options covering a total of
500,000 shares of Common Stock of the Company to be issued to officers and
employees of the Company who are responsible for or contribute to the
management, growth and profitability of the business. No grant will be made
under this Plan to a director who is not an officer or a salaried employee of
the Company.
The exercise price per share shall be determined by the Board and set forth in
the stock option agreement, and in the case of an incentive stock option, the
exercise price shall not be less than 100% of the fair market value of the
Common Stock subject to the stock option on the date of grant (or 110% in the
case of a stock option granted to a participant who is a ten percent shareholder
on the date of grant).
Stock options granted under the 1998 Plan may be one of two types: Incentive
Stock Options and Nonqualified Stock Options. The board has the authority to
grant to any participant Incentive Stock Options, Nonqualified Stock Options or
any combination thereof. At March 31, 2000, a total of 170,505 options were
available for grant under this plan.
F-15
<PAGE> 46
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - STOCK OPTIONS - Continued
Following is a summary of option activity under both Stock Option Plans:
<TABLE>
<CAPTION>
OPTION PRICE
-------------------------------
SHARES PER SHARE TOTAL
------- ------------- ----------
<S> <C> <C> <C>
Outstanding at March 31, 1997 253,499 $0.56 - 13.00 $1,929,641
Granted -- -- --
Canceled (8,500) 3.63 - 12.50 (55,085)
------- ------------- ----------
Outstanding at March 31, 1998 244,999 0.63 - 13.00 1,874,556
Granted -- -- --
Canceled (30,333) 4.00 - 12.50 (126,707)
------- ------------- ----------
Outstanding at March 31, 1999 214,666 0.63 - 13.00 1,747,849
Granted 357,495 1.00 - 1.00 357,495
Canceled (64,000) 1.00 - 11.00 (358,480)
------- ------------- ----------
Outstanding at March 31, 2000 508,161 $0.63 - 13.00 $1,746,864
</TABLE>
All the options are compensatory. The outstanding stock options expire from
September 2003 through September 2009.
The following summarizes information about compensatory options outstanding at
March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------- ------------------------------------
Weighted Avg. Weighted
Range of Remaining Avg.
Exercise Number Contractual Exercise Number Weighted Avg.
Prices Outstanding Life Price Exercisable Exercisable Price
-------- ----------- ------------- -------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$0.63- $13.00 508,161 2.82 Years $3.44 397,695 $ 4.08
</TABLE>
The options granted during the fiscal year ended March 31, 2000 have exercise
prices in excess of fair value and accordingly, no compensation cost has been
recognized for compensatory stock options in the consolidated financial
statements. The effect of applying the pro-forma requirements of SFAS No. 123
does not significantly affect earnings (loss) and earnings (loss) per share for
the years ended March 31, 2000, 1999 and 1998.
F-16
<PAGE> 47
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
2000 1999 1998
------ ------ --------
<S> <C> <C> <C>
Federal
Current $ -- $ -- $123,000
Deferred -- -- --
State -- -- 102,528
------ ------ --------
$ -- $ -- $225,528
====== ====== ========
</TABLE>
The Company's effective income tax rate differed from the Federal statutory rate
as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
2000 1999 1998
------ ------ --------
<S> <C> <C> <C>
U.S. Federal statutory rate 34.0% 34.0% 34.0%
Amortization of goodwill 0.0% 0.0% 0.7%
Permanent differences (3.6)% (0.5)% 0.2%
Change in prior tax estimates (29.2)% 0.9% 16.8%
Change in valuation allowance (1.2)% (32.3)% (51.3)%
State income tax 0.0% 0.0% 1.8%
Other, net 0.0% (2.1)% 1.8%
------ ------ --------
0.0% 0.0% 4.0%
====== ====== ========
</TABLE>
F-17
<PAGE> 48
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - INCOME TAXES - Continued
Following are the components of deferred tax assets and deferred tax
liabilities:
<TABLE>
<CAPTION>
MARCH 31,
2000 1999
---------- -----------
<S> <C> <C>
Net current deferred tax assets
Inventories $ 544,942 $ 434,197
Allowance for doubtful accounts 184,752 196,050
Inventory reserves 7,809 16,783
Accrued expenses 108,291 89,165
Less valuation allowance (845,794) (736,195)
---------- -----------
Net current deferred taxes $ -- $ --
========== ===========
Non-current deferred tax asset
Contingency for legal settlement $1,020,000 $ 1,020,000
Property and equipment -- 15,601
Goodwill 72,556 24,175
Net operating loss 3,153,743 2,658,519
Less valuation allowance (3,602,026) (3,718,295)
---------- -----------
644,273 --
Non-current deferred tax liability
Property & Equipment (99,285)
Deferred Marketing Cost (544,988) --
---------- -----------
(644,273) --
---------- -----------
Net non-current deferred taxes $ -- $ --
========== ===========
</TABLE>
At March 31, 2000 the Company had net operating losses available to offset
future taxable income of approximately $9,275,000 which begin expiring in 2011.
The valuation allowance decreased by $6,670 during the year ended March 31,
2000.
NOTE L - MAJOR CUSTOMERS
Customers accounting for 10% or more of total net sales are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERCENTAGE
-------------------- ----------
<S> <C>
2000
Wal-Mart 33%
Kmart 20%
The Sports Authority 17%
1999
Wal-Mart 45%
The Sports Authority 17%
1998
Wal-Mart 44%
Kmart 23%
</TABLE>
F-18
<PAGE> 49
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain warehouse space, warehouse and computer equipment
and other assets. These leases are either operating or capital leases and have
future minimum lease payments, net of sublease income, as follows:
<TABLE>
<CAPTION>
Operating Capital
---------- ----------
<S> <C> <C> <C>
Year Ending March 31, 2001 $ 610,595 $ 144,000
2002 586,929 328,950
2003 609,308 390,600
2004 635,085 292,950
2005 115,016 --
Thereafter 477,000 --
---------- ----------
$3,033,933 1,156,500
==========
Less amount representing interest 166,234
----------
Present value of net minimum lease payments
(including the current portion of $76,938) $ 990,266
==========
</TABLE>
Total lease expense for the years ended March 31, 2000, 1999 and 1998 was
approximately $580,569, $654,587 and $758,000, respectively. During fiscal 2000,
the Company reduced its lease space by subleasing approximately 45,000 square
feet in its Grand Prairie warehouse. This sublease runs concurrent with the
Company's existing lease, and the benefit is reflected in the above table.
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.
F-19
<PAGE> 50
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - COMMITMENTS AND CONTINGENCIES - Continued
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 are due to be filed by June 30, 2000. The Company believes
that it has several meritorious defenses to Plaintiffs' claims. 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 subsequent to
March 31, 2000 for $150,000. This amount is included in the contingency for
legal settlement in the accompanying balance sheet.
An investigation of the Company's Employee Stock Ownership Plan (the "ESOP") had
been pending before the U.S. Department of Labor ("USDoL") since 1996. Assets of
the ESOP are held in the Company's 401(k) Plan, which is the successor to the
ESOP. The USDoL had asserted various breaches of fiduciary duties by the Company
and the Plan trustees arising out of the administration of the ESOP. During the
quarter ended December 31, 1999 the Company entered into a closing agreement
with the USDoL that allows for the continuation of the Plan provided the Company
completes certain corrective measures resulting from the 1994 time period,
including payment of $114,094 into the Plan, with the first installment in the
amount of $48,547 paid into the Plan in January 2000 and the balance of $65,547
to be paid in January 2001, which has been provided for.
The Internal Revenue Service ("IRS") has examined the Company's Employees
Retirement Plan and Trust (the "Plan"). Based on the 1994 plan year audit, the
IRS proposed to disqualify the Plan for purposes of
F-20
<PAGE> 51
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - COMMITMENTS AND CONTINGENCIES - Continued
Section 401(a) of the Code. During the quarter ended December 31, 1999 the
Company entered into a closing agreement with the IRS that allows for the
continuation of the Plan provided the Company completes certain corrective
measures resulting from the 1994-1995 time period including the payment of
$52,000 which was deposited into the Plan in October 1999.
At March 31, 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.
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.
NOTE N - SUBSEQUENT EVENTS
The Company has entered into a settlement with Curtis Logan and his attorneys in
reference to an indemnity claim filed by Mr. Logan. The Company made a payment
of $30,000 on June 14, 2000 and entered into a Rule 11 agreement for an
additional payment of $120,000 due October 14, 2000.
F-21
<PAGE> 52
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II
BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
In connection with our audit of the consolidated financial statements of
Bollinger Industries, Inc. and Subsidiaries referred to in our report dated June
14, 2000, we have also audited Schedule II for the years ended March 31, 2000,
1999 and 1998. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
King Griffin & Adamson P.C.
Dallas, Texas
June 14, 2000
F-22
<PAGE> 53
Schedule II
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged to
beginning costs and other Balance at end
Description of year expenses accounts Deductions of year
----------- ---------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1998
Allowance for doubtful accounts $ 844,312 $ 253,441 $ -- $ (647,753) $ 450,000
Inventory obsolescence reserve 1,559,770 1,433,367 -- (790,258) 2,202,879
Returns and allowance reserve 1,855,000 3,228,908 -- (4,173,883) 910,025
Advertising reserve 300,000 972,782 -- (1,022,782) 250,000
Year ended March 31, 1999
Allowance for doubtful accounts $ 450,000 $ 240,000 $ -- $ (213,381) $ 476,619
Inventory obsolescence reserve 2,202,879 729,762 -- (1,386,424) 1,546,217
Returns and allowance reserve 910,025 2,971,638 -- (2,461,708) 1,419,955
Advertising reserve 250,000 746,389 -- (760,116) 236,273
Year ended March 31, 2000
Allowance for doubtful accounts $ 476,619 $ 255,000 $ -- $ (188,232) $ 543,387
Inventory obsolescence reserve 1,546,217 -- -- (844,642) 701,575
Returns and allowance reserve 1,419,955 2,012,981 -- (1,684,089) 1,748,847
Advertising reserve 236,273 807,000 -- (715,763) 327,510
</TABLE>
Note - Deductions represent uncollectible accounts, inventories written off, or
credits issued for returns and allowances and advertising.
F-23
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
11 Statement Regarding Computation of Per Share Data
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
