<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 25, 1999
--------------------
Commission File No. 0-23204
-------
BOSS HOLDINGS, INC.
-------------------
(Exact name of registrant as specified in its charter)
DELAWARE 58-1972066
- -------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
221 West First Street
KEWANEE, ILLINOIS 61443
-----------------------
(Address of principal executive offices)
(309) 852-2131
--------------
(Issuer's telephone number)
Check 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 at least
the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at October 15, 1999
- ----- -------------------------------
Common Stock, $.25 par value 1,949,072
<PAGE>
PART I.- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 25, DECEMBER 26,
1999 1998
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,022 $ 2,131
Accounts receivable, net 5,092 6,484
Inventories 12,338 13,777
Prepaid expenses & other 833 611
-------- --------
Total current assets 21,285 23,003
-------- --------
PROPERTY AND EQUIPMENT, NET 4,972 4,743
NOTE RECEIVABLE, NET 1,038 1,038
OTHER ASSETS 31 186
-------- --------
$ 27,326 $ 28,970
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 572 $ 1,278
Current portion of long-term
obligations 4,009 840
Accrued payroll and related expenses 631 629
Accrued liabilities & other 2,140 1,893
-------- --------
Total current liabilities 7,352 4,640
-------- --------
LONG-TERM OBLIGATIONS, NET OF CURRENT
PORTION 359 4,495
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Common stock 488 486
Additional paid-in capital 67,433 67,453
Accumulated deficit (46,466) (46,235)
Currency translation (90) (119)
-------- --------
21,365 21,585
Less: treasury shares and warrants
- at cost 1,750 1,750
-------- --------
Total stockholders' equity 19,615 19,835
-------- --------
$ 27,326 $ 28,970
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
QUARTER ENDED QUARTER ENDED ENDED ENDED
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $8,019 $8,583 $24,632 $27,114
Cost of Sales 5,842 6,246 17,471 19,477
--------- --------- --------- ---------
Gross profit 2,177 2,337 7,161 7,637
Operating expenses 1,421 2,573 7,013 7,870
--------- --------- --------- ---------
756 (236) 148 (233)
Gain on sale of operating assets 0 893 0 893
--------- --------- --------- ---------
Operating profit 756 657 148 660
Other income and (expense)
Interest (107) (82) (377) (182)
Other 0 0 0 16
--------- --------- --------- ---------
Income (loss) before income tax 649 575 (229) 494
Income tax expense 0 3 0 24
--------- --------- --------- ---------
Net income (loss) $649 $572 $(229) $470
========= ========= ========= =========
Weighted average shares outstanding 1,949,072 1,923,811 1,943,229 1,898,945
Basic earnings (loss) per common
share $0.33 $0.30 $(0.12) $0.25
========= ========= ========= =========
Diluted earnings (loss) per common
share $0.33 $0.30 $(0.12) $0.25
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 25, 1999 SEPTEMBER 26, 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss) $ (229) $ 470
Adjustments to reconcile net income (loss) to net
cash provided (used) by operations:
Depreciation and amortization 268 241
(Gain) on disposal of property and equipment 0 (893)
(Increase) decrease in operating assets:
Accounts receivable 1,392 2,592
Inventories 1,439 (2,084)
Prepaid expenses and other current assets (222) 202
Deferred charges and other assets 155 227
Increase (decrease) in operating liabilities:
Accounts payable (706) (398)
Accrued liabilities 249 (1,240)
------- -------
Net cash provided (used) by operating
activities 2,346 (883)
------- -------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Purchases of property and equipment (499) (481)
Proceeds from sale of operating assets 0 893
------- -------
Net cash provided (used) by investing activities (499) 412
------- -------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net borrowings (payments) on long-term obligations (966) 552
Purchase and retirement of stock (43) 0
Proceeds from exercise of stock options and warrants 24 121
------- -------
Net cash provided (used) by financing activities (985) 673
------- -------
Effect of exchange rates on cash and cash equivalents 29 (34)
------- -------
Net increase in cash during period 891 168
Cash and cash equivalents at the beginning of the period 2,131 2,122
------- -------
Cash and cash equivalents at the end of the period $3,022 $2,290
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 25, 1999
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements included in this report have been
prepared by Boss Holdings, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission for interim reporting and
include all normal and recurring adjustments which are, in the opinion of
management, necessary for a fair presentation. These financial statements have
not been audited by an independent accountant. The consolidated financial
statements include the accounts of the Company and its subsidiaries.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations
for interim reporting. The Company believes that the disclosures are adequate to
make the information presented not misleading. However, these financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K, for the year ended
December 26, 1998. The financial data for the interim periods presented may not
necessarily reflect the results to be anticipated for the complete year.
Certain amounts in prior year's financial statements have been
reclassified to conform to the 1999 presentation.
NOTE 2. EARNINGS (LOSS) PER SHARE
Basic net earnings (loss) per common share is based upon the weighted
average number of common shares outstanding during the period. Diluted net
earnings per common share is based upon the weighted average number of common
shares outstanding plus dilutive potential common shares, including options and
warrants outstanding during the period.
NOTE 3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
Sep 25, Dec 26,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 1,800 $ 2,056
Work-in-process 413 433
Finished goods 10,125 11,288
------------ ------------
$ 12,338 $ 13,777
============ ============
</TABLE>
NOTE 4. LONG-TERM LIABILITIES
The Company's current bank loan and security agreement expires in May
2000. Accordingly, the outstanding loan balance on this facility is classified
as a current liability in the September 25, 1999 balance sheet. The Company
believes extension or refinancing of the Company's debt agreement can be
reasonably obtained based on the Company's present financial condition.
6
<PAGE>
NOTE 5. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of
commercial disputes. Management believes the ultimate disposition of these
matters should not materially impair the Company's consolidated financial
position or liquidity.
In 1996, the Company commenced an action against Richard P. Smyth, a
former officer and director, alleging that Mr. Smyth committed fraudulent and
unlawful acts resulting in substantial harm to the Company and its shareholders.
Subsequently, Mr. Smyth filed a counterclaim seeking, among other things,
indemnification in connection with certain legal matters. In August, 1999, the
Company and Mr. Smyth concluded a settlement agreement. Under the terms of the
settlement agreement, the Company received a consent judgment against Mr. Smyth
in the principal sum of $997,800 and Smyth agreed to dismiss with prejudice his
pending counterclaim against the Company. The Company agreed not to pursue
collection of the judgment in exchange for a $50,000 initial cash payment
received from Smyth at the time of settlement and timely receipt of future
installment payments from Smyth totaling $435,000. The payment obligations of
Smyth under the settlement agreement are secured by a mortgage on his home
residence.
In 1998, the Company was named a defendant in an adversary proceeding
filed in the United States Bankruptcy Court for the Northern District of Alabama
in connection with the Company's 1997 sale of its stock in Alabaster Industries,
Inc. The suit sought to recover cash payments received by the Company and to
avoid a promissory note and mortgage held by the Company as a result of the
sale. Pursuant to a court-approved settlement agreement, the Company has settled
and released its mortgage on the Alabaster property in exchange for a lump sum
cash payment of $1,130,000 from the bankruptcy trustee and a complete release of
the Company from any liability or claims in connection with the Alabaster
transaction and bankruptcy. The Company expects to receive payment from the
trustee during the fourth quarter of 1999. Settlement proceeds, net of related
legal expenses, should approximate the current carrying value of the Alabaster
note receivable.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain statements, other than statements of historical fact, included
in this Quarterly Report including, without limitation, the statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are, or may be deemed to be, forward-looking statements that involve
significant risks and uncertainties, and accordingly, there is no assurance that
these expectations will be correct. These expectations are based upon many
assumptions that the registrant believes to be reasonable, but such assumptions
ultimately may prove to be materially inaccurate or incomplete, in whole or in
part and, therefore, undue reliance should not be placed on them. Several
factors which could cause actual results to differ materially from those
discussed in such forward-looking statements include, but are not limited to:
uncertainties and changes in general economic conditions, unusual weather
patterns which could affect domestic demand for the registrant's products,
performance and price issues with international suppliers, the unanticipated
impact of Year 2000 issues, pricing policies of competitors and the ability to
attract and retain employees in key positions. All subsequent forward-looking
statements attributable to the registrant or persons acting on its behalf are
expressly qualified in their entirety.
SALES
<TABLE>
<CAPTION>
----------------------------------------- ------------------------------- -------------------------------
SALES BY SEGMENT QUARTER YEAR-TO-DATE
$(000) --------------- --------------- --------------- ---------------
1999 1998 1999 1998
----------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 6,770 7,312 20,489 22,358
----------------------------------------- --------------- --------------- --------------- ---------------
Pet Supplies 875 838 2,795 3,104
----------------------------------------- --------------- --------------- --------------- ---------------
Corporate & Other 374 433 1,348 1,652
----------------------------------------- --------------- --------------- --------------- ---------------
Total Sales 8,019 8,583 24,632 27,114
----------------------------------------- --------------- --------------- --------------- ---------------
</TABLE>
Total revenues for the three months ended September 25, 1999 were
$8,019,000, down $564,000, or 6.6%, from the comparable quarter in 1998.
Essentially all of this sales decline was attributable to the work gloves and
protective wear segment. The bulk of the sales reduction in this segment
occurred in the consumer market and was attributable in large part to lower
selling prices. Selling prices continued to fall during the third quarter in
comparison to 1998 because of competitive pressure and lower purchase costs on
imported goods. The Company ended the quarter with a substantial backlog and
expects improved revenues during the fourth quarter, which is historically the
Company's strongest.
In the pet supplies segment, third quarter sales increased $37,000, or
4.4%, from the prior year due to stronger customer demand from existing
customers. The Company has completed the relocation of facilities and change of
the management team and plans to broaden its customer base in this segment.
Sales prospects for the balance of the year appear favorable.
8
<PAGE>
Balloon revenues comprise the bulk of sales in the corporate and other
segment. Sales in this segment declined $59,000 during the third quarter in
comparison to 1998 due primarily to reduced demand from key retail accounts. The
Company has developed improved product displays for selected accounts and
expanded its distributor network in an effort to increase balloon sales.
For the nine month period ended June 26, 1999, consolidated sales
totaled $24,632,000, a decline of $2,482,000, or 9.2%, from the comparable
period in 1998. The bulk of this sales decline occurred in the work gloves and
protective wear segment and was due in large part to lower selling prices as
previously discussed. In addition, customer demand was down in the Company's
industrial market, particularly for products sold into the energy exploration
industry.
COST OF SALES
<TABLE>
<CAPTION>
----------------------------------------- ------------------------------- -------------------------------
COST OF SALES BY SEGMENT QUARTER YEAR-TO-DATE
$(000) --------------- --------------- --------------- ---------------
1999 1998 1999 1998
----------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 5,033 5,270 14,853 16,013
----------------------------------------- --------------- --------------- --------------- ---------------
Pet Supplies 585 674 1,809 2,307
----------------------------------------- --------------- --------------- --------------- ---------------
Corporate & Other 224 302 809 1,157
----------------------------------------- --------------- --------------- --------------- ---------------
Total Cost of Sales 5,842 6,246 17,471 19,477
----------------------------------------- --------------- --------------- --------------- ---------------
</TABLE>
Cost of sales for the three months ended June 26, 1999 were $5,842,000
compared to $6,246,000 in the corresponding period of 1998. The drop in cost of
sales reflects the sales decline previously discussed as well as the reduction
in the purchase price of goods. On a percentage of sales basis, cost of sales
totaled 72.9%, essentially unchanged from 1998. Management expects the relative
margin stability in comparison to last year to continue through year-end, though
final LIFO adjustments could potentially have an unfavorable impact should the
Company achieve its inventory reduction goals.
On a year to date basis, cost of sales in 1999 totaled $17,471,000,
down $2,006,000 from 1998. This decline was due primarily to the reduction in
sales for the period. As a percentage of sales, cost of sales declined to 70.9%,
down 0.9% from 1998. The lower cost of sales percentage resulted primarily from
reduced costs in the pet supplies segment associated with the relocation of
facilities.
OPERATING EXPENSES
<TABLE>
<CAPTION>
----------------------------------------- ------------------------------- -------------------------------
OPERATING EXPENSES BY SEGMENT QUARTER YEAR-TO-DATE
$(000) --------------- --------------- --------------- ---------------
1999 1998 1999 1998
----------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 2,176 1,881 6,299 5,902
----------------------------------------- --------------- --------------- --------------- ---------------
Pet Supplies 202 199 720 759
----------------------------------------- --------------- --------------- --------------- ---------------
Corporate & Other (957) 493 (6) 1,209
----------------------------------------- --------------- --------------- --------------- ---------------
Total Operating Expenses 1,421 2,573 7,013 7,870
----------------------------------------- --------------- --------------- --------------- ---------------
</TABLE>
9
<PAGE>
Operating expenses (selling, general and administrative expenses)
totaled $1,421,000 for the three months ended September 25, 1999, compared to
$2,573,000 for the corresponding period in 1998. This decrease in comparison to
1998 was due primarily to settlement proceeds received by the Company in
settlement of its trademark litigation and related claims against Hugo Boss AG
and its subsidiaries. The Company received a payment of $2,000,000 in this
settlement and recorded a gain of $1,500,000 after recognizing related expenses
associated with the settlement.
Third quarter operating expenses increased in the work gloves and
protective wear segment in comparison to 1998 due in large part to higher sales
and marketing expenses. The Company has stepped up its sales and marketing
efforts in addition to restructuring its sales management team to promote sales
growth.
For the nine month period ended September 25, 1999 operating expenses
were $7,013,000, down $857,000 from the comparable period in 1998. The bulk of
this decrease was attributable to reduced corporate expenses reflecting the
settlement proceeds in the Hugo Boss litigation previously discussed.
OPERATING INCOME
<TABLE>
<CAPTION>
----------------------------------------- ------------------------------- -------------------------------
OPERATING INCOME (LOSS) BY SEGMENT QUARTER YEAR-TO-DATE
$(000) --------------- --------------- --------------- ---------------
1999 1998 1999 1998
----------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear (439) 161 (663) 443
----------------------------------------- --------------- --------------- --------------- ---------------
Pet Supplies 88 (35) 266 38
----------------------------------------- --------------- --------------- --------------- ---------------
Corporate & Other 1,107 (362) 545 (714)
----------------------------------------- --------------- --------------- --------------- ---------------
Total Operating Income (Loss) 756 (236) 148 (233)
----------------------------------------- --------------- --------------- --------------- ---------------
</TABLE>
For the third quarter of 1999, operating income increased $992,000 in
comparison to the third quarter of 1998. This increase resulted from the
favorable impact of the Hugo Boss settlement and improved earnings in the pet
supplies segment partially offset by reduced earnings in the work gloves and
protective wear segment. Earnings in the pet supply segment were favorably
impacted by increased sales and reduced expenses due to the relocation of
facilities completed during the second quarter. Work glove and protective wear
segment earnings declined on lower sales and increased operating expenses during
the quarter as discussed above.
The Company generated operating income of $148,000 for the nine month
period ended September 25, 1999 compared to an operating loss of $232,000 during
the prior year. As previously discussed, litigation settlement proceeds and
reduced overhead in the pet supplies segment were the primary factors causing
the improvement in operating income.
OTHER INCOME (EXPENSE)
The Company incurred $107,000 in interest expense during the third
quarter of 1999, an increase of $25,000 from the comparable period in 1998.
Interest expense increased in 1999 due to higher borrowings under the Company's
revolving line of credit during the quarter due in large part to increased
inventory levels for most of the period resulting from lower than expected
sales. By the end of the quarter, the Company's reduced purchasing and improved
seasonal sales resulted in lower inventory compared to year-end 1998.
10
<PAGE>
On a year to date basis through September 25, 1999, interest
expense totaled $377,000, up $195,000 from 1998. Higher than planned
inventory levels were the primary factor in this increase.
TAXES
Tax expense consists of estimated state income taxes for certain of the
Company's operations. Because of losses in prior years, the Company recorded no
federal income tax expense during the periods presented. The Company has
available net operating loss carryforwards for federal income tax purposes of
approximately $39,900,000. Utilization of these carryforwards is subject to an
annual limitiation of approximately $1,600,000 due to prior changes in control
as defined under Section 382 of the Internal Revenue Code. As a result of these
limitations, a significant portion of the tax loss carryforwards could expire
unused.
YEAR 2000
INFORMATION SYSTEMS
The Company deferred its planned third quarter implementation of new,
year 2000 compliant enterprise software by one month. In October 1999, the
Company began operating essentially all business functions under the new system.
Modules implemented included sales order processing as well as distribution and
inventory control.
Implementation of these modules represents an important undertaking for
the Company affecting virtually every business process. The Company continues to
utilize a specialized consulting group to assist in post-implementation problem
resolution. Delays and unplanned difficulties are common in implementations of
this magnitude. The Company is likely to experience at least minor operational
difficulties during the early stages of operation under the new system until all
employees become familiar with changes in processes and procedures.
Due in part to delays in implementation, the Company's new enterprise
system is expected to cost $600,000 to $700,000 including hardware, software and
implementation training and consulting. Approximately $500,000 had been expended
as of September 25, 1999. Essentially all costs will be capitalized and
depreciated over the expected useful life. These costs do not include internal
management time which is included in periodic operations expenses.
Beyond providing Year 2000 compliance, the new enterprise system should
enable the Company to operate more efficiently through system integration and
on-line information capabilities. Availability of real-time information is
expected to help the Company improve asset utilization as well as customer
support.
OTHER SYSTEMS
Based on its initial evaluation, the Company believes it has limited
reliance on systems or equipment in other operational areas which rely on
embedded chips. Management plans to further assess the Company's exposure to
such systems prior to year-end.
11
<PAGE>
OTHER YEAR 2000 ISSUES
The scope of the Year 2000 issue remains uncertain. The Company may be
subject to numerous associated risks, many beyond its control, such as failure
of communications, power, inbound and outbound shipping and financial systems.
At this time, the Company cannot quantify the potential impact of these
failures.
Assuming no major systemic failures, the most reasonably likely worst
case scenario would center around operational difficulties after system
implementation and inability to obtain certain imported products. The Company
believes appropriate loss minimization strategies such as retaining on-site
consultants after implementation and maintaining alternative import suppliers
should limit the cost and down-time of such a scenario without materially
impacting the Company's liquidity or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $2,346,000 in cash flows through the
first nine months of 1999, up $3,229,000 from 1998. This improvement resulted
from working capital changes with inventory reductions and reduced funding of
accrued liabilities providing cash in 1999 rather than using cash as in the
prior year. Payment of accrued liabilities in 1998 included certain legal and
professional, employee benefit and settlement expenses accrued in 1997.
Cash used by investing activities totaled $499,000 for the nine months
ended September 25, 1999, a reduction of $911,000 from 1998. This reduction in
comparison to the prior year was primarily attributable to the Company's third
quarter 1998 proceeds from the sale of certain assets. The bulk of the Company's
capital expenditures in 1999 were associated with system implementation
activities.
The Company used the cash generated by operating activities to pay down
long-term obligations by $986,000. In addition, the Company bought and retired
stock from certain shareholders holding fewer than 100 shares during the first
quarter of 1999.
Under the terms of its $10,000,000 revolving line of credit, the
Company had drawn approximately $3,200,000 as of September 25, 1999, leaving
$6,800,000 available to be drawn. In addition, the Company had approximately $3
million in cash and cash equivalents at the end of the quarter. This cash and
the availability under the current credit facility should provide adequate
liquidity for the Company's expected working capital and operating needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company has minimal exposure to market risks such as changes in
foreign currency exchange rates and interest rates. The value of the Company's
financial instruments is generally not impacted by changes in interest rates and
the Company has no investments in derivatives. Fluctuations in interest rates
are not expected to have a material impact on the interest expense incurred
under the Company's revolving credit facility.
12
<PAGE>
PART II.--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of
commercial disputes. Management believes the ultimate disposition of these
matters should not materially impair the Company's consolidated financial
position or liquidity.
In August, 1999, the Company concluded a settlement in the trademark
infringement litigation styled BOSS MANUFACTURING COMPANY V. HUGO BOSS AG, ET
AL., which was filed by the Company in the U.S. District Court for the Southern
District of New York in November, 1997. Under the terms of the settlement, the
Company received a lump sum cash payment of $2,000,000 from Hugo Boss and the
parties agreed to certain provisions concerning use of their respective logos
and trademarks. The settlement payment and certain related expenses were
recorded during the Company's third quarter.
Pursuant to the sale by the Company of its stock in Alabaster
Industries, Inc. ("Alabaster") in June, 1997, the Company received a $1.5
million note and first mortgage on certain property of Alabaster located in
Alabaster, Alabama. Alabaster filed for Chapter 11 bankruptcy reorganization in
April, 1998, and subsequently initiated an adversary proceeding against the
Company styled ALABASTER INDUSTRIES, INC. V. BOSS HOLDINGS, INC. AND W.R. HILL
CO., INC., filed in the U.S. Bankruptcy Court for the Northern District of
Alabama, Southern Division. Because of the bankruptcy filing, the Company
established a valuation reserve of approximately $450,000 to reduce its note and
first mortgage on Alabaster assets to the estimated net realizable value.
Alabaster's bankruptcy was converted to a Chapter 7 liquidation in early 1999,
and the bankruptcy trustee subsequently sold at auction the real estate which
was subject to the Company's first mortgage. Pursuant to a court-approved
settlement agreement, the Company has settled and released its mortgage on the
Alabaster property in exchange for a lump sum cash payment of $1,130,000 from
the bankruptcy trustee and a complete release of the Company from any liability
or claims in connection with the Alabaster transaction and bankruptcy. The
Company expects to receive payment in full from the trustee during the fourth
quarter of 1999.
In June, 1996, the Company sued its former president, Richard Smyth, in
a matter styled BOSS HOLDINGS, INC. (FORMERLY VISTA 2000, INC.) V. RICHARD
SMYTH, filed in the Superior Court of Cobb County, Georgia. The Company alleged
breach of contract, conversion of company funds, unjust enrichment, breach of
fiduciary duty and fraud by Mr. Smyth, claiming damages and seeking recovery of
funds alleged to be converted by Mr. Smyth. In August, 1999, the Company
successfully concluded its action against Mr. Smyth pursuant to a consent
judgment and settlement agreement between the parties. Under the settlement
agreement, the Company received a consent judgment against Mr. Smyth in the
principal sum of $997,800 and Smyth agreed to dismiss with prejudice his pending
counterclaim against the Company. The Company agreed not to pursue collection of
the judgment in exchange for a $50,000 initial cash payment received from Smyth
at the time of settlement and timely receipt of future installment payments from
Smyth totaling $435,000. The payment obligations of Smyth under the settlement
agreement are secured by a mortgage on his home residence. The Company intends
to continue diligent collection of all amounts due from Mr. Smyth.
13
<PAGE>
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
--------
27 Financial Data Schedule (filed electronically with the SEC only)
(b) REPORTS ON FORM 8-K
-------------------
For the current quarter, no reports on Form 8-K were filed.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BOSS HOLDINGS, INC.
Dated: NOVEMBER 9, 1999 By: /s/ J. BRUCE LANCASTER
---------------- -----------------------
J. Bruce Lancaster
Chief Financial Officer
(Principal financial officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 25, 1999 UNAUDITED FINANCIAL STATEMENTS OF BOSS HOLDINGS, INC., AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN FORM 10-Q
FOR FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 25, 1999.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-25-1999 DEC-25-1999
<PERIOD-START> JUN-27-1999 DEC-27-1998
<PERIOD-END> SEP-25-1999 SEP-25-1999
<CASH> 3,022,000 3,022,000
<SECURITIES> 0 0
<RECEIVABLES> 5,092,000 5,092,000
<ALLOWANCES> 0 0
<INVENTORY> 12,338,000 12,338,000
<CURRENT-ASSETS> 21,285,000 21,285,000
<PP&E> 4,972,000 4,972,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 27,326,000 27,326,000
<CURRENT-LIABILITIES> 7,352,000 7,352,000
<BONDS> 0 0
0 0
0 0
<COMMON> 488,000 488,000
<OTHER-SE> 19,127,000 19,127,000
<TOTAL-LIABILITY-AND-EQUITY> 27,326,000 27,326,000
<SALES> 8,019,000 24,632,000
<TOTAL-REVENUES> 8,019,000 24,632,000
<CGS> 5,842,000 17,471,000
<TOTAL-COSTS> 1,421,000 7,013,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 107,000 377,000
<INCOME-PRETAX> 649,000 (229,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 649,000 (229,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 649,000 (229,000)
<EPS-BASIC> 0.33 (0.12)
<EPS-DILUTED> 0.33 (0.12)
</TABLE>
