<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ______________ to
_____________
Commission file number 0-22716
BOLLINGER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2502577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
602 FOUNTAIN PARKWAY, GRAND PRAIRIE, TEXAS 75050
(Address of principal executive offices)
(Zip Code)
(972) 343-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of February 1, 2000, 4,400,210 shares of the registrant's common
stock, $0.01 par value per share, were outstanding.
1
<PAGE> 2
BOLLINGER INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
December 31, 1999 (unaudited) and March 31, 1999 3
Consolidated Statements of Operations -
Three and Nine Months Ended December 31, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows -
Nine Months Ended December 31, 1999 and 1998 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risks 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES
</TABLE>
2
<PAGE> 3
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 45,176 $ 125,719
Accounts receivable - trade net allowance for doubtful accounts
of $686,041 and $476,619 and allowance for returns and
allowances of $1,699,429 and $1,419,955 and allowance for
advertising of $434,049 and $236,273 8,544,423 7,114,315
Other receivables 135,873 9,621
Inventories 9,746,270 6,859,686
Prepaid expenses 183,059 88,245
------------ ------------
Total current assets 18,654,801 14,197,586
PROPERTY PLANT AND EQUIPMENT - NET 1,782,070 1,797,832
OTHER ASSETS
Goodwill, net of accumulated amortization of $444,125 and
$177,650 3,108,875 3,375,350
License rights, net of accumulated amortization of $89,375 and
$35,750 625,625 679,250
Notes receivable and other 108,105 113,531
Deferred financing fees - net of accumulated amortization of
$674,229 and $562,727 86,725 198,227
------------ ------------
Total other assets 3,929,330 4,366,358
------------ ------------
TOTAL ASSETS $ 24,366,201 $ 20,361,776
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt and other debt $ 1,323,751 $ 1,379,139
Current portion of capital lease obligations 75,603 237,568
Accounts payable - trade 6,330,091 3,744,514
Income tax payable 53,104 61,279
Other current liabilities 1,024,595 1,085,619
Accrued product liability 72,687 226,817
------------ ------------
Total current liabilities 8,879,831 6,734,936
------------ ------------
LONG-TERM LIABILITIES
Contingency for legal settlement 3,000,000 3,000,000
Other long-term obligations 33,335 --
Long-term debt, net of current portion 8,837,736 6,904,552
Long-term capital lease obligations 933,070 532,587
------------ ------------
Total long-term liabilities 12,804,141 10,437,139
------------ ------------
Total liabilities 21,683,972 17,172,075
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value;
1,000,000 shares authorized; none issued -- --
Common stock -- $.01 par value; 8,000,000 shares authorized;
4,400,210 shares issued and outstanding 44,002 44,002
Capital in excess of par 15,519,058 15,519,058
Accumulated deficit (12,880,831) (12,373,359)
------------ ------------
Total stockholders' equity 2,682,229 3,189,701
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,366,201 $ 20,361,776
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 10,895,874 $ 10,844,056 $ 27,594,335 $ 25,339,295
Cost of goods sold 7,572,965 7,583,354 18,312,057 18,017,298
------------ ------------ ------------ ------------
Gross profits 3,322,909 3,260,702 9,282,278 7,321,997
Selling expenses 792,228 993,070 2,565,006 2,636,482
Distribution, general and
administrative expenses 2,039,989 2,554,459 6,275,676 7,069,718
------------ ------------ ------------ ------------
2,832,217 3,547,529 8,840,682 9,706,200
------------ ------------ ------------ ------------
Operating profit (loss) 490,692 (286,827) 441,596 (2,384,203)
Other expense (income)
Interest expense 308,599 232,119 827,774 488,312
Gain on sale of assets (98) -- (5,850) (7,147)
Other 130,652 61,899 127,144 78,975
------------ ------------ ------------ ------------
439,153 294,018 949,068 560,140
------------ ------------ ------------ ------------
Earnings (loss) before
income tax expense
(benefit) 51,539 (580,845) (507,472) $ (2,944,343)
Income tax expense
(benefit) -- -- -- --
------------ ------------ ------------ ------------
Net earnings (loss) $ 51,539 $ (580,845) $ (507,472) $ (2,944,343)
============ ============ ============ ============
Per share data (basic and
diluted):
Basic earnings (loss per
share) $ 0.01 $ (0.13) $ (0.12) $ (0.72)
============ ============ ============ ============
Diluted earnings (loss) per
share $ 0.01 $ (0.13) $ (0.12) $ (0.72)
============ ============ ============ ============
Shares used in the
calculation of per
share amounts:
Basic common shares 4,400,210 4,318,688 4,400,210 4,106,755
Dilutive impact of stock
options -- -- -- --
------------ ------------ ------------ ------------
Diluted common shares 4,400,210 4,318,688 4,400,210 4,106,755
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities $ (507,472) $ (2,944,343)
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities
Gain on disposal of assets (5,850) (7,147)
Depreciation and amortization 893,644 760,301
Provision for returns and allowances 1,468,982 2,190,161
Provision for doubtful accounts 245,000 180,000
Provision for obsolete inventory -- 268,167
Changes in operating assets and liabilities
Accounts receivable-trade (3,144,090) (3,748,142)
Other receivables (126,252) 419,208
Inventories (2,886,584) (3,048,647)
Prepaid expenses (94,814) 234,521
Notes receivable and other assets 3,332 (34,507)
Accounts payable-trade 2,585,577 4,086,623
Income tax payable (8,175) (177,500)
Other current liabilities (215,154) (1,302,358)
------------ ------------
Net cash used in operating activities (1,791,856) (3,123,663)
Cash flows from investing activities
Purchases of property and equipment (31,911) (588,569)
Cash portion of acquisition of licenses rights and businesses -- (3,575,000)
Payments on note receivable -- 121,523
Proceeds from sale of assets 8,575 20,120
Proceeds from sub-lease deposit 33,335 --
Escrow receivable -- 1,012,296
------------ ------------
Net cash provided by (used in) investing activities 9,999 (3,009,630)
Cash flows from financing activities
Net proceeds from long term debt 1,877,796 6,482,000
Payments on capital lease obligations (176,482) (163,628)
------------ ------------
Net cash provided by financing activities 1,701,314 6,318,372
Net increase (decrease) in cash (80,543) 185,079
Cash at beginning of period 125,719 136,369
------------ ------------
Cash at end of period $ 45,176 $ 321,448
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE> 7
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A-GENERAL
The consolidated interim financial statements include the accounts of Bollinger
Industries, Inc., its wholly-owned subsidiaries, and Bollinger Industries, L.P.,
a partnership wholly-owned by Bollinger Industries, Inc.'s subsidiaries
(collectively the "Company").
The consolidated interim financial statements included herein have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the consolidated
financial statements and notes for the fiscal year ended March 31, 1999
contained in the Company's Annual Report on Form 10-K.
In the opinion of management, the unaudited interim consolidated financial
statements of the Company contain all adjustments, consisting only of those of a
normal recurring nature, necessary to present fairly the Company's financial
position and the results of its operations and cash flows for the periods
presented. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities, as well as the disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expense during the reporting period.
Actual results could differ from these estimates.
Reclassifications
Certain prior year amounts may have been reclassified to conform to the current
year presentation.
Revenue Recognition and Provisions for Chargebacks and Buybacks
The Company recognizes sales revenue at the time products are shipped to its
customers. Provision is made currently for estimated product returns and
deductions, which may occur. These returns are generally for products that are
salable with minor reworking of packaging or replacement of missing components.
The term "chargebacks" refers to the action taken by the customer to withhold
payments or to apply for credit amounts for items such as volume discounts or
rebates under marketing programs or pricing discrepancies, penalties, vendor
compliance issues, shipping shortages and any other similar item under vendor
compliance guidelines established by the customer.
7
<PAGE> 8
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - CONTINUED)
NOTE A - GENERAL-CONTINUED
The provision for returns is estimated based on current trends and historical
experience of returns. The provision for chargebacks is estimated based on the
marketing programs designed for customers and recent historical experience based
on volume.
In certain limited circumstances, the Company has followed a "buyback" policy
whereby the Company purchases competitors' products from a new customer in order
to obtain shelf space for the Company's product lines. The cost of such
"buyback" is amortized over the life of the program, which typically has been
two to three years.
NOTE B - CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures are as follows:
<TABLE>
<CAPTION>
------------------------
NINE MONTHS ENDED
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest paid $ 676,998 $ 268,688
Non-cash financing and investing
transactions:
Purchase of assets financed
by debt $ 415,000 $ --
</TABLE>
In December 1999 the Company entered into a capital lease for $415,000 of
additional computer equipment.
Shortly before March 1998 fiscal year-end, the Company received $1,125,000 in
cash from a major customer that should have been properly payable to the
purchaser of the trampoline product line, which was sold in November 1997. The
Company received another $818,000 from the customer during the quarter ended
June 1998. During the quarter ended September 1998 the overpayment was reduced
to $214,000 based on the customer's purchases of additional products from the
Company. By the end of December 1998 the overpayment was eliminated by the
customer's continued purchases of products from the Company.
NOTE C - INVENTORIES
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ------------
<S> <C> <C>
Raw materials $ 345,873 $ 857,612
Finished goods 10,426,454 7,548,291
Reserve for obsolescence (1,026,057) (1,546,217)
------------ ------------
$ 9,746,270 $ 6,859,686
============ ============
</TABLE>
8
<PAGE> 9
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE D - NOTES PAYABLE AND LONG TERM DEBT
The Company currently has a revolving credit facility with a financial
institution providing a maximum line of $15 million, subject to certain
borrowing base requirements and covenants, which expires in August 2002. In June
1999 the loan agreement was amended, primarily revising certain negative
performance covenants involving tangible net worth and debt to tangible net
worth ratios. The outstanding balance under the credit line is collateralized by
substantially all of the Company's assets, including accounts receivable and
inventory. As of December 31, 1999 there was a $8,758,000 outstanding balance
and availability under the line was $699,000. The Company is in default on a
certain financial covenant, specifically tangible net worth and the Company and
the lender have agreed to restate this financial covenant for future periods.
The Company's ability to utilize the credit facility is predicated on future
levels of accounts receivable and inventory and the forbearance of the lender
regarding covenants. If the loan is matured, the Company would seek alternative
financing; but there is no guarantee the Company would be successful in
obtaining this financing. This action would have a materially adverse effect on
the Company.
In October 1998 the Company issued a convertible subordinated note payable for
$1,400,000 with a five-year term requiring quarterly payments pursuant to an
asset purchase agreement with The Step Company. The balance of the note on
December 31, 1999 was $1,165,000. The note bears interest at the rate of prime
plus one percent adjusted quarterly. The holder has the right to convert the
outstanding principal balance into fully paid and non-assessable shares of the
Company's unregistered common stock subject to predefined ratios.
NOTE E - INCOME TAXES
The Company's effective income tax rates for the three and nine months ended
December 31, 1998 and 1999 was 0% based on utilization of a tax loss
carry-forward (and lack of income). At December 31, 1999 the Company had net
operating losses available to offset future taxable income of approximately $8.3
million which begin expiring in 2011.
NOTE F - COMMITMENTS AND CONTINGENCIES
Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust Retirement
Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D.
Bollinger, Curtis D. Logan, Michael J. Beck, John L. Maguire, William Blair &
Company, Rauscher Pierce Refsnes, Inc. and Grant Thornton, L.L.P.; in the 68th
Judicial District Court of Dallas County, Texas:
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Curtis D. Logan (former CFO), Michael J. Beck (former CAO), John L.
Maguire (Director), William Blair & Company (former underwriters of initial
public offering), Rauscher Pierce Refsnes, Inc. (former underwriters of initial
public offering) and Grant Thornton, L.L.P. (former independent accountants) are
defendants in a lawsuit filed on March 22, 1996, by shareholder Suntrust Bank
Atlanta, as Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf of
themselves and all persons similarly situated. Further, Grant Thornton has cross
claimed against the underwriter and against
9
<PAGE> 10
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F - COMMITMENTS AND CONTINGENCIES-CONTINUED
the Company, Glenn D. Bollinger and Bobby D. Bollinger generally seeking
contribution. Curtis D. Logan was released from the lawsuit and has cross
claimed against the Company for a combined indemnity and recovery of legal fees
in excess of $250,000.
William Blair & Company and Rauscher Pierce Refsnes, Inc. entered into a
settlement with the plaintiffs. This lawsuit was filed as a class action suit on
behalf of those who purchased securities through a public offering by the
Company, alleging that the prices were artificially inflated and maintained in
violation of the anti-fraud provisions of the securities law as well as common
law.
Although the substantive terms of a memorandum of settlement had been mutually
agreed to by the Company and counsel for the plaintiffs as of June 30, 1999, the
plaintiffs withdrew the negotiated settlement offer. This action is not
currently scheduled for trial. See "Part II - Other Information, Item 1. Legal
Proceedings."
Civil Action No. 3:96C-V-0823-R; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, Curtis D.
Logan, and Michael J. Beck; in the United States District Court for the Northern
District of Texas, Dallas Division:
The Company, Glenn D. Bollinger, Bobby D. Bollinger, Curtis D. Logan and Michael
J. Beck are defendants in a lawsuit filed on March 22, 1996 in the United States
District Court for the Northern District of Texas, Dallas Division, by
shareholders STI Classic Fund and STI Classic Sunbelt, on behalf of themselves
and all persons similarly situated in the 68th Judicial District Court of Dallas
County, Texas. Curtis D. Logan was released from this lawsuit and has cross
claimed against the Company for a combined indemnity and recovery of legal fees
in excess of $250,000.
Although the substantive terms of a memorandum of settlement had been mutually
agreed to by the Company and counsel for the plaintiffs as of June 30, 1999, the
plaintiffs withdrew the negotiated settlement offer. This action is not
currently scheduled for trial however the Company has appealed the class
certification, which is pending. See "Part II - Other Information, Item 1. Legal
Proceedings."
In March 1999 the Company recorded a contingent liability of $3,000,000 in
anticipated settlement of both the Suntrust action and the STI action mentioned
above.
An investigation of the Company's Employee Stock Ownership Plan (the "ESOP") has
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.
Accordingly the Company has accrued $114,000 to be deposited into the Plan in
two installments in January 2000 and January 2001.
10
<PAGE> 11
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F - COMMITMENTS AND CONTINGENCIES-CONTINUED
The Internal Revenue Service ("IRS") has examined the Company's Employees
Retirement Plan and Trust (the "Plan"). In order to maintain its tax exempt
status, the Plan must comply with certain tests and limitations of the Internal
Revenue Code of 1986, as amended (the "Code"). Based on the audit of the 1994
plan year, the IRS proposed to disqualify the Plan for purposes of Section
401(a) of the Code. The Company filed a protest of the proposed
disqualification, which was reviewed by the Appeals Division of the IRS. 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
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
regulations promulgated thereunder in the future in the conduct of its business.
Glenn Bollinger also consented to the entry of an order of permanent injunction
enjoining him from violations of the antifraud, record keeping, periodic
reporting and internal accounting controls provisions of the Exchange Act and
regulations promulgated thereunder in the future, and agreed to the payment of a
monetary penalty in the amount of $40,000. Ronald Bollinger also consented to
the entry of an order of permanent injunction enjoining him from violations of
the antifraud, record keeping, periodic reporting and internal accounting
controls provisions of the Exchange Act and regulations promulgated thereunder,
and agreed not to act as a director or officer of a registered or reporting
entity in the future.
From time to time the Company is a party to various legal proceedings arising in
the ordinary course of business. The Company is not currently a party to any
other material litigation and is not aware of any litigation threatened against
the Company, arising in the ordinary course of business, which could have a
material adverse effect on the Company.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's Annual
Reports on Form 10-K and consolidated financial statements for the fiscal years
ended March 31, 1999 and March 31, 1998; the Company's Quarterly Reports on Form
10-Q for the fiscal quarters ended June 30, 1998, September 30, 1998, December
31, 1998, June 30, 1999 and September 30, 1999; and the consolidated financial
statements and related notes for the quarter ended December 31, 1999 found
elsewhere in this report.
THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH THREE MONTHS
AND NINE MONTHS ENDED DECEMBER 31, 1998
Net sales increased for the quarter ended December 31, 1999 by $52,000 on a
comparative basis with the prior year, an increase of 0.5%. Net sales increased
for the nine months by $2,255,000 on a comparative basis with the same period of
the prior year, an increase of 8.9%. The increase in net sales resulted
primarily from acquisitions completed in October 1998 and the renewed placement
of the Company's products by a major mass retailer.
Gross profits as a percent of net sales increased to 30.5% in the quarter ended
December 31, 1999 from 30.1% in the quarter ended December 31, 1998. Gross
profits as a percent of net sales increased to 33.6% in the nine months ended
December 31, 1999 from 28.9% in the nine months ended December 31, 1998. The
improvement was primarily due to improved pricing from overseas vendors and
better controls over customer returns, allowances and related expenses partially
offset by increased freight costs.
Selling expenses for the quarter ended December 31, 1999 decreased by $201,000
as compared to the quarter ended December 31, 1998, and decreased as a
percentage of net sales to 7.3% from 9.2%. The dollar and percentage decrease in
selling expense was primarily related to lower salary and advertising expenses
partially offset by higher commission and royalty expenses. Selling expenses for
the nine months ended December 31, 1999 decreased by $71,000 as compared to the
nine months ended December 31, 1998, and decreased as a percentage of net sales
to 9.3% from 10.4%. The dollar decrease in selling expense was primarily related
to lower salaries while the percentage decrease was related to expenses that
vary with increased sales in the current year.
Distribution, general and administrative expenses for the quarter ended December
31, 1999 decreased by $514,000 as compared to the quarter ended December 31,
1998, and decreased as a percentage of net sales to 18.7% in 1999 from 23.6% in
1998. Distribution, general and administrative expenses for the nine months
ended December 31, 1999 decreased by $794,000 as compared to the same period in
1998 and decreased as a percentage of net sales to 22.7% from 27.9%. The
decrease in distribution, general and administrative expenses for both the three
month and the nine month periods resulted from lower legal costs and lower
salaries partially offset by increased bad debts, depreciation and amortization
expenses associated with the October 1998 acquisitions.
12
<PAGE> 13
The Company generated an operating profit of $491,000 for the quarter ended
December 31, 1999, as compared to an operating loss of $287,000 in the same
quarter in 1998. As a percentage of net sales, the operating profit increased to
4.5% in 1999 from (2.6%) in 1998. The Company generated an operating profit of
$442,000 for the nine months ended December 31, 1999 as compared to an operating
loss of $2,384,000 in the same period of 1998. As a percentage of net sales, the
operating profit increased to 1.6% in 1999 from (9.4%) in 1998.
Interest expense for the quarter ended December 31, 1999 was $309,000 compared
to $232,000 for the same quarter in 1998. Interest expense for the nine months
ended December 31, 1999 was $828,000 compared to $488,000 for the same period in
1998. The increase in interest expense was primarily due to increased borrowings
to fund acquisitions made in October 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of outside financing in the past several years
has been short-term borrowings from banks and asset-based lenders. Net cash used
in operating activities for the nine months ended December, 1999 was $1,792,000
compared to cash used in operating activities for the same period in 1998 of
$3,124,000. The $1,332,000 improvement in net cash provided by operating
activities was primarily from the reduction of operating loss in the current
year. Shortly before the fiscal year end on March 31, 1998, the Company received
$1,125,000 in cash from a major customer that should have been properly payable
to the purchaser of the trampoline product line, which was sold in November
1997. The Company received another $818,000 from the customer during the quarter
ended June 1998. During the quarter ended September 1998 the overpayment was
reduced to $214,000 based on the customer's purchases of additional products
from the Company. By the end of December 1998 the overpayment was eliminated by
the customer's continued purchases of products from the Company.
The Company has a revolving credit facility with a financial institution
providing a maximum line of $15 million, subject to certain borrowing base
requirements and covenants, which expires in August 2002. In June 1999 the loan
agreement was amended, primarily revising certain negative performance covenants
involving tangible net worth and debt to tangible net worth ratios. The
outstanding balance under the credit line is collateralized by substantially all
of the Company's assets, including accounts receivable and inventory. As of
December 31, 1999 there was a $8,758,000 outstanding balance and availability
under the line was $699,000. The Company is in default on a certain financial
covenant, specifically tangible net worth and the Company and the lender have
agreed to restate this financial covenant for future periods. The Company's
ability to utilize the credit facility is predicated on future levels of
accounts receivable and inventory and the forbearance of the lender regarding
covenants. If the loan is matured, the Company would seek alternative financing;
but there is no guarantee the Company would be successful in obtaining this
financing. This action would have a materially adverse effect on the Company.
In October 1998 the Company issued a convertible subordinated note payable for
$1,400,000 with a five-year term requiring quarterly payments pursuant to an
asset purchase agreement with The Step Company. The balance of the note on
December 31, 1999 was $1,165,000. The note bears interest at the rate of prime
plus one percent adjusted quarterly. The holder has the right to convert the
outstanding principal balance into fully paid and non-assessable shares of the
Company's unregistered common stock subject to predefined ratios.
13
<PAGE> 14
Outstanding loan balances in the quarter ended December 31, 1999 bore interest
at a rate of 10.4% compared to an approximate rate of 9.4% for the quarter ended
December 31, 1998.
In March 1999 the Company recorded a contingent liability of $3,000,000 in
anticipated settlement of both the STI and Suntrust lawsuits. The plaintiffs
withdrew the negotiated settlement offer subsequent to the end of June 1999. A
$3,000,000 accrual for legal contingency remains on the balance sheet in
anticipation of a negotiated settlement or final resolution at trial.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
Certain statements contained in this Report, including without limitation,
statements containing the words "believes," "anticipates," "intends," "expects,"
and words of similar import, constitute "forward-looking statements." Such
forward-looking statements involve numerous assumptions about known and unknown
risks, uncertainties and other factors which may ultimately prove to be
inaccurate. Certain of these factors are discussed in more detail elsewhere in
this Report, including without limitation under "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations" and include the
Company's ability to continue to improve gross margin, to reduce distribution,
general and administrative expenses, including those associated with litigation,
and to continue to achieve operating profitability. Actual results may differ
materially from any future results expressed or implied by such forward-looking
statements. The Company disclaims any obligation to update any forward-looking
statements or publicly revise any of the forward-looking statements contained
herein to reflect future events or developments.
Whether the STI and Suntrust lawsuits will be settled or will proceed through
the judicial process is uncertain. There can be no assurances that the Company
and the plaintiffs will ultimately reach an acceptable settlement and there can
be no assurances that the Company could fund an extensive legal proceeding or
withstand an unfavorable judgment at trial.
The Company's ability to generate sufficient funding for operations, including
the resolution of the Suntrust and STI lawsuits, depend on future operating
earnings, market conditions and lender cooperation.
Investors are cautioned that forward-looking statements involve certain risks
and uncertainties that could cause actual results of the Company to differ
materially from those contained in the forward-looking statements. In addition
to the factors mentioned above, other important factors include, but are not
limited to: seasonality, advertising and promotional efforts, availability and
terms of capital, future acquisitions, economic conditions, consumer
preferences, lack of success of new products, loss of customer loyalty,
heightened competition and other factors discussed in this Report. The Company
disclaims any obligation to update any forward-looking statements or publicly
revise any of the forward-looking statements contained herein to reflect future
events or developments.
The Company generated operating profits for the nine months ended December 31,
1999 but suffered net losses for the same period. Nothing contained in these
financial statements or in
14
<PAGE> 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be interpreted as a guarantee of future earnings or a change
in financial condition. The actual results of the Company could differ
materially from the statements found in this section and elsewhere in this
Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
Not applicable.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust Retirement
Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D.
Bollinger, Curtis D. Logan, Michael J. Beck, John L. Maguire, William Blair &
Company, Rauscher Pierce Refsnes, Inc. and Grant Thornton, L.L.P.; in the 68th
Judicial District Court of Dallas County, Texas (the "Suntrust Lawsuit"):
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Curtis D. Logan (former CFO), Michael J. Beck (former CAO), John L.
Maguire (Director), William Blair & Company (former underwriters of initial
public offering), Rauscher Pierce Refsnes, Inc. (former underwriters of initial
public offering) and Grant Thornton, L.L.P. (former independent accountants) are
defendants in a lawsuit filed on March 22, 1996, by shareholder Suntrust Bank
Atlanta, as Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf of
themselves and all persons similarly situated. Further, Grant Thornton has cross
claimed against the underwriters, and against the Company, Glenn D. Bollinger
and Bobby D. Bollinger, generally seeking contribution. Curtis D. Logan was
released from the lawsuit and has cross claimed against the Company for a
combined indemnity and recovery of legal fees in excess of $250,000.
William Blair & Company and Rauscher Pierce Refsnes, Inc. entered into a
settlement with the plaintiffs. This lawsuit was filed as a class action suit on
behalf of those who purchased securities through a public offering by the
Company, alleging that the prices were artificially inflated and maintained in
violation of the anti-fraud provisions of the securities law as well as common
law.
Although the substantive terms of a memorandum of settlement had been mutually
agreed to by the Company and counsel for the plaintiffs as of June 30, 1999, the
plaintiffs subsequently withdrew the negotiated settlement offer. This action is
not currently scheduled for trial.
Civil Action No. 3:96C-V-0823-R; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, Curtis D.
Logan, and Michael J. Beck; in the United States District Court for the Northern
District of Texas, Dallas Division (the "STI Lawsuit"):
The Company, Glenn D. Bollinger, Bobby D. Bollinger, Curtis D. Logan and Michael
J. Beck are defendants in a lawsuit filed on March 22, 1996 in the United States
District Court for the Northern District of Texas, Dallas Division, by
shareholders STI Classic Fund and STI Classic Sunbelt, on behalf of themselves
and all persons similarly situated. Curtis D. Logan was released from this
lawsuit and has cross claimed against the Company for a combined indemnity and
recovery in excess of $250,000. As with the similar suit mentioned above,
although the substantive terms of a memorandum of settlement had been mutually
agreed to by the Company and counsel for the plaintiffs as of June 30, 1999, the
plaintiffs subsequently withdrew the negotiated settlement offer. This action is
not currently scheduled for trial however the Company has appealed the class
certification, which is pending.
An investigation of the Company's Employee Stock Ownership Plan (the "ESOP") has
been pending before the U.S. Department of Labor ("USDoL") since 1996. Assets of
the ESOP are held
16
<PAGE> 17
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. Accordingly the
Company has accrued $114,000 to be deposited into the Plan in two installments
in January 2000 and January 2001.
The Internal Revenue Service ("IRS") has examined the Company's Employees
Retirement Plan and Trust (the "Plan"). In order to maintain its tax exempt
status, the Plan must comply with certain tests and limitations of the Internal
Revenue Code of 1986, as amended (the "Code"). Based on the 1994 plan year
audit, the IRS proposed to disqualify the Plan for purposes of Section 401(a) of
the Code. The Company filed a protest of the proposed disqualification, which
was reviewed by the Appeals Division of the IRS. 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 also consented to the entry of an order of
permanent injunction enjoining him from violations of the antifraud, record
keeping, periodic reporting and internal accounting controls provisions of the
Exchange Act and regulations promulgated thereunder in the future, and agreed to
the payment of a monetary penalty in the amount of $40,000. Ronald Bollinger
also consented to the entry of an order of permanent injunction enjoining him
from violations of the antifraud, record keeping, periodic reporting and
internal accounting controls provisions of the Exchange Act and regulations
promulgated thereunder, and agreed not to act as a director or officer of a
registered or reporting entity in the future.
From time to time, the Company is a party to various legal proceedings arising
in the ordinary course of business. The Company is not currently a party to any
other material litigation and is not aware of any litigation threatened against
the Company, arising in the ordinary course of business, that could have a
material adverse effect on the Company.
17
<PAGE> 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month period
ended December 31, 1999.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOLLINGER INDUSTRIES, INC.
Date: February 14, 2000 /s/ Glenn D. Bollinger
------------------------- ---------------------------------------
Glenn D. Bollinger
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2000 /s/ Rose Turner
------------------------- ---------------------------------------
Rose Turner
Executive Vice President - Finance,
Chief Financial Officer, Chief
Operating Officer Treasurer and
Secretary
(Principal Financial and Operating
Officer)
Date: February 14, 2000 /s/ Floyd DePauw
------------------------- ---------------------------------------
Floyd DePauw
Controller and Chief Accounting
Officer
(Principal Accounting Officer)
<PAGE> 20
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<S> <C>
11 Computation of Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
A reconciliation of basic to diluted earnings per share for the nine months
ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
BASIC DILUTED BASIC DILUTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (507,472) $ (507,472) $ (2,944,343) $ (2,944,343)
============ ============ ============ ============
Weighted average number of common
shares outstanding during the
period 4,400,210 4,400,210 4,106,755 4,106,755
Net effect of dilutive stock options
based on the treasury stock
method at market prices -- -- -- --
------------ ------------ ------------ ------------
Shares used for computation 4,400,210 4,400,210 4,106,755 4,106,755
============ ============ ============ ============
Net loss per share $ (0.12) $ (0.12) $ (0.72) $ (0.72)
============ ============ ============ ============
</TABLE>
As the Company incurred a net loss for the nine months ended December 31, 1999
and 1998, there were no adjustments for potentially dilutive securities as the
adjustments would have been antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheets, Consolidated Statements of Earnings,
Consolidated Statements of Cash Flows as of and for the nine months ended
December 31, 1999 shown elsewhere in this report and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 45,176
<SECURITIES> 0
<RECEIVABLES> 8,544,423
<ALLOWANCES> 686,041
<INVENTORY> 9,746,270
<CURRENT-ASSETS> 18,654,801
<PP&E> 3,853,902
<DEPRECIATION> 2,071,832
<TOTAL-ASSETS> 24,366,201
<CURRENT-LIABILITIES> 8,879,831
<BONDS> 0
0
0
<COMMON> 44,002
<OTHER-SE> 2,638,227
<TOTAL-LIABILITY-AND-EQUITY> 24,366,201
<SALES> 27,594,335
<TOTAL-REVENUES> 27,594,335
<CGS> 18,312,057
<TOTAL-COSTS> 2,565,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 245,000
<INTEREST-EXPENSE> 827,774
<INCOME-PRETAX> (507,472)
<INCOME-TAX> 0
<INCOME-CONTINUING> (507,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (507,472)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
