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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 30, 2000
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Commission File No. 0-23204
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BOSS HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-1972066
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
221 West First Street
Kewanee, Illinois 61443
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(Address of principal executive offices)
(309) 852-2131
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(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 31, 2000
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Common Stock, $.25 par value 1,934,904
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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<TABLE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<CAPTION>
SEPTEMBER 30, December 25,
2000 1999
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<S>
CURRENT ASSETS <C> <C>
Cash and cash equivalents $ 1,114 $ 3,997
Accounts receivable, net 6,700 6,773
Inventories 12,636 9,700
Prepaid expenses & other 444 648
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Total current assets 20,894 21,118
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PROPERTY AND EQUIPMENT, NET 3,721 5,145
OTHER ASSETS 29 29
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$ 24,644 $ 26,292
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 884 $ 1,161
Current portion of long-term obligations 146 968
Current portion of capital lease obligation 84 86
Accrued payroll and related expenses 445 736
Accrued liabilities & other 2,194 3,835
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Total current liabilities 3,753 6,786
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LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 3,814 1,816
STOCKHOLDERS' EQUITY
Common stock 484 484
Additional paid-in capital 67,437 67,437
Accumulated deficit (48,995) (48,391)
Currency translation (99) (90)
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18,827 19,440
Less: treasury shares and warrants - at cost 1,750 1,750
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Total Stockholders' equity 17,077 17,690
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$ 24,644 $ 26,292
======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
NINE MONTHS Nine Months
QUARTER ENDED Quarter ended ENDED ended
SEPTEMBER 30, September 25, SEPTEMBER 30, September 25,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 7,987 $ 8,019 $ 25,620 $ 24,632
Cost of Sales 5,326 5,842 17,328 17,471
---------- ---------- ---------- ----------
Gross Profit 2,661 2,177 8,292 7,161
Operating Expenses 2,865 2,564 8,895 8,217
---------- ---------- ---------- ----------
Operating Loss (204) (387) (603) (1,056)
---------- ---------- ---------- ----------
Other Income and (Expense)
Interest Income 48 25 147 73
Interest Expense (108) (107) (269) (377)
Other 113 1,118 139 1,131
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Income (Loss) Before Income Tax (151) 649 (586) (229)
Income Tax (Benefit) Expense (1) 0 18 0
---------- ---------- ---------- ----------
Net Income (Loss) $ (150) $ 649 $ (604) $ (229)
========== ========== ========== ==========
Weighted Average Shares Outstanding 1,934,905 1,949,072 1,934,905 1,943,229
Basic Income (Loss) Per Common Share $ (0.08) $ 0.33 $ (0.31) $ (0.12)
========== ========== ========== ==========
Diluted Income (Loss) Per Common Share $ (0.08) $ 0.33 $ (0.31) $ (0.12)
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
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<TABLE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED Nine Months ended
SEPTEMBER 30, 2000 September 25, 1999
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<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net Loss $ (604) $ (229)
Adjustments to reconcile net loss to net cash provided (used)
by operations:
Depreciation and amortization 314 268
(Increase) decrease in operating assets:
Accounts receivable 73 1,392
Inventories (2,936) 1,439
Prepaid expenses and other current assets 204 (222)
Deferred charges and other assets 0 155
Increase (decrease) in operating liabilities:
Accounts payable (277) (706)
Accrued liabilities (1,558) 249
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Net cash provided (used) by operating activities (4,784) 2,346
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CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from disposition of operating assets 769 0
Purchases of property and equipment (33) (499)
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Net cash provided (used) by investing activities 736 (499)
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CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net borrowings (payments) on long-term obligations 1,174 (966)
Purchase and retirement of stock 0 (43)
Proceeds from exercise of stock options and warrants 0 24
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Net cash provided (used) by financing activities 1,174 (985)
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Effect of exchange rates on cash and cash equivalents (9) 29
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Net increase (decrease) in cash during period (2,883) 891
Cash and cash equivalents at the beginning of the period 3,997 2,131
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Cash and cash equivalents at the end of the period $ 1,114 $3,022
======= ======
The accompanying notes are an integral part of these statements.
</TABLE>
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BOSS HOLDINGS, INC. and SUBSIDIARIES
Notes to Unaudited Financial Statements
September 30, 2000
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. An independent accountant has
not audited these financial statements. 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 25, 1999. 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 2000 presentation.
NOTE 2. EARNINGS (LOSS) PER SHARE
Basic net earnings 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>
Sept. 30, Dec. 25,
2000 1999
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<S> <C> <C>
Raw materials $ 541 $1,390
Work-in-process 71 335
Finished goods 12,024 7,975
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$12,636 $9,700
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</TABLE>
NOTE 4. DISPOSAL OF OPERATING ASSETS
During the fourth quarter of 1999, the Company recorded a charge of
$1,100,000 in connection with the planned closing and disposition of
manufacturing facilities in Greenville, Alabama. The Company ceased
operations at this facility in August 2000 and sold the associated property
and equipment.
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BOSS HOLDINGS, INC. and SUBSIDIARIES
Notes to Unaudited Financial Statements
September 30, 2000
NOTE 4. DISPOSAL OF OPERATING ASSETS (continued)
Certain expenses of the Greenville facility incurred prior to the
disposition in August were charged to the estimated disposition liability
recorded in 1999. At this time, management believes the disposition
liability should be adequate to cover the remaining costs associated with
closing operations in Greenville. However, actual proceeds from the
liquidation of remaining raw material inventory and costs associated with the
continuation of benefits for former employees may vary from current
estimates.
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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, greater than anticipated operating asset disposition costs,
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>
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QUARTER YEAR-TO-DATE
SALES BY SEGMENT ---------------------------------------------------------
$(000) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 7,288 6,770 22,261 20,489
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Pet Supplies 467 875 2,094 2,796
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Corporate & Other 232 374 1,265 1,347
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Total Sales 7,987 8,019 25,620 24,632
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</TABLE>
Total revenues for the three months ended September 30, 2000 were
$7,987,000, down $32,000, or 0.4%, from the comparable quarter in 1999.
Sales in the work gloves and protective wear segment increased $518,000, or
7.7%. Sales in this segment increased on improved volume in the consumer
market due in large part to the addition of new customers. Selling prices
fell from the comparable period in 1999, continuing the trend that began in
1998, because of competitive pressure and lower purchase costs on imported
goods.
In the pet supplies segment, third quarter sales declined $408,000, or
46.6%, from the prior year due to the loss of two major accounts as
previously disclosed. The loss of these two accounts is expected to
significantly reduce 2000 sales in the pet supplies segment. The Company has
recruited a new sales team with industry experience to aggressively pursue
new business. However, the Company does not anticipate the benefit of this
expanded sales effort to occur until the second half of 2001.
Sales in the corporate and other segment consist primarily of balloon
revenues. Sales in this segment declined $142,000, or 38.0% on reduced
volume. The Company is in the process of transitioning its distribution
channel in this segment to broaden its presence in major markets. In
addition the Company has replaced sales management to improve the sales
performance in this area.
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For the nine-month period ended September 30, 2000, consolidated sales
totaled $25,620,000, an increase of $988,000, or 4.0%, from the comparable
period in 1999. This sales increase was attributable to the work gloves and
protective wear segment and resulted from volume increases primarily in the
first and third quarters due to an increased customer base. Increased sales
in the work gloves and protective wear segment were partially offset by
reduced sales in the pet supplies segment, which declined because of the loss
of certain key customers.
COST OF SALES
<TABLE>
<CAPTION>
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QUARTER YEAR-TO-DATE
COST OF SALES BY SEGMENT -----------------------------------------------------------
$(000) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 4,930 5,033 15,522 14,853
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Pet Supplies 275 585 1,270 1,809
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Corporate & Other 121 224 536 809
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Total Cost of Sales 5,326 5,842 17,328 17,471
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</TABLE>
Cost of sales for the three months ended September 30, 2000 totaled
$5,326,000 compared to $5,842,000 in the corresponding period of 1999. On a
percentage of sales basis, cost of sales totaled 66.7%, down from 72.9% for
the third quarter of 1999. This improvement resulted primarily from improved
margins in the Company's work gloves and protective wear segment and were
attributable to lower costs on imported products. Cost of sales declined in
the pet supplies and corporate and other segments due primarily to lower
sales in these segments.
On a year to date basis, cost of sales in 2000 totaled $17,328,000, down
$143,000 from 1999. As a percentage of sales, cost of sales declined to
67.6%, down 3.3% from 1999. The lower cost of sales percentage resulted
primarily from reduced costs in the work gloves and protective wear segment
and the corporate and other segment. The Company experienced improved
margins in the work glove and protective wear segment because of lower
pricing on imported goods. Margins in the corporate and other segment
improved because of lower purchase cost on balloons imported from Mexico.
OPERATING EXPENSES
<TABLE>
<CAPTION>
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QUARTER YEAR-TO-DATE
OPERATING EXPENSES BY SEGMENT -----------------------------------------------------------
$(000) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 2,328 2,207 6,982 6,318
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Pet Supplies 213 202 831 720
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Corporate & Other 324 155 1,082 1,179
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Total Operating Expenses 2,865 2,564 8,895 8,217
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</TABLE>
Operating expenses (selling, general and administrative expenses) totaled
$2,865,000 for the three months ended September 30, 2000, compared to
$2,564,000 for the corresponding period in 1999. The increase in operating
expenses in comparison to 1999 is due in large part to a favorable adjustment
recorded in the third quarter of 1999 upon settlement of the Hugo Boss
litigation to offset legal expenses incurred in connection with this
litigation earlier in that year. This favorable adjustment was recorded in
the corporate and other segment. In addition, operating expenses increased
in the work glove and protective wear segment due in part to higher
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depreciation and operating expenses on the Company's new computer system and
increased costs associated with the Company's improved sales in this segment.
For the nine-month period ended September 30, 2000 operating expenses
were $8,895,000, up $678,000 from the comparable period in 1999. Such
expenses increased in the work glove and protective wear segment due in part
to variable expenses associated with increased sales such as commissions and
shipping. In addition, operating expenses were up in this segment due to
higher depreciation and operating expenses on the new computer system and
increases in certain warehousing expenses.
OPERATING INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
QUARTER YEAR-TO-DATE
OPERATING INCOME (LOSS) BY ------------------------------------------------------
SEGMENT $(000) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
Work Gloves & Protective Wear 30 (470) (243) (682)
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Pet Supplies (21) 88 (7) 266
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Corporate & Other (213) (5) (353) (640)
-------------------------------------------------------------------------------------------
Total Operating Income (Loss) (204) (387) (603) (1,056)
-------------------------------------------------------------------------------------------
</TABLE>
For the third quarter of 2000, the Company's operating loss totaled
$204,000, an improvement of $183,000 in comparison to the third quarter of
1999. The work gloves and protective wear segment generated operating income
of $30,000 compared to a loss of $470,000 in 1999 because of increased sales
and improved margins. The Company experienced an operating loss in the pet
supplies segment due primarily to lower sales. In the corporate and other
segment, the Company's operating loss increased by $208,000 compared to the
third quarter of 1999 because of the favorable adjustment recorded upon the
settlement of the Hugo Boss litigation previously discussed and lower sales
from balloon operations.
The Company generated an operating loss of $603,000 for the nine month
period ended September 30, 2000 compared to a loss of $1,056,000 during the
first nine months of 1999. As previously discussed, improved results in the
work gloves and protective wear segment comprised the bulk of this
improvement. In addition, the Company benefited from improved results in the
corporate and other segment due to improved margins in the Company's balloon
operations. These favorable improvements in comparison to 1999 were partially
offset by a loss in operating earnings in the Company's pet supplies segment
attributable to reduced sales.
OTHER INCOME (EXPENSE)
The Company incurred $108,000 in interest expense during the third
quarter of 2000, essentially unchanged from the comparable period in 1999.
Interest income for the quarter ended September 30, 2000 totaled $48,000, an
increase of $23,000 from the previous year due to increased cash on hand
which resulted from litigation settlement proceeds in the second half of
1999. The Company recorded other income of $113,000 in the third quarter of
2000, the bulk of this represented the reversal of an accrued liability
established upon the Hugo Boss litigation settlement to cover anticipated
legal, handling and inventory disposition costs associated with certain
requirements of the settlement. Other income of $1,118,000 in the third
quarter of 1999 represented the income recognized upon the Hugo Boss
litigation settlement net of legal costs and the estimated cost of certain
compliance provisions.
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On a year to date basis through September 30, 2000, interest expense
totaled $269,000, down $108,000 from 1999. Reduced inventory during the
first half of 2000 in comparison to the same period in 1999 was the primary
factor in this decrease. Interest income for the nine month period increased
from $73,000 in 1999 to $147,000 in 2000 due to increased cash on hand as
discussed above. Other income of $139,000 for the nine months ended
September 30, 2000 and $1,131,000 for the comparable period in 1999 consisted
primarily of the Hugo Boss settlement in 1999 and adjustment of the
associated accrued liability in 2000 as discussed above.
TAXES
Tax expense reflects estimated state income taxes on certain of the
Company's operations. Because of losses in prior years, the Company recorded
no federal income tax expense during the periods presented and has available
substantial net operating loss carryforwards for federal income tax purposes.
These carryforwards have certain limitations due to changes in control
experienced in previous years.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used $4,784,000 in cash flow through the first nine
months of 2000, compared with $2,346,000 of cash provided by operating
activities during the same period in 1999. The use of cash during 2000 was
due in large part to increased inventory levels in comparison to the end of
1999. The Company's substantially reduced 1999 year-end inventory levels
did not adequately support first quarter 2000 shipping requirements. The
Company began building inventory during the second quarter of 2000 to improve
shipping performance and meet expected demand during the second half of the
year. In addition to the change in inventory, the Company's seasonal decline
in accounts receivable was smaller in 2000 than in the previous year due to
higher sales in 2000. A further component in the increased use of cash by
operating activities in 2000 was the payment of certain liabilities recorded
in 1999. These liabilities included costs to close the Greenville, Alabama
manufacturing facility and certain legal and other costs incurred in
connection with the Hugo Boss settlement.
Cash provided by investing activities totaled $736,000 for the nine
months ended September 30, 2000, compared with a $499,000 use of cash in
1999. The Company realized cash proceeds of $769,000 from the sale of
Greenville, Alabama property and equipment while purchases of property and
equipment were nominal in 2000. Capital expenditures in 1999 were primarily
associated with the implementation of the Company's new computer system.
Financing activities provided cash of $1,174,000 through the first nine
months of 2000 as the Company borrowed funds to support working capital
requirements. The Company's second quarter refinancing of its $10,000,000
revolving line of credit resulted in the reclassification of the outstanding
loan under this line from a current obligation at the end of 1999 to a
long-term obligation in the balance sheet presented for September 30, 2000.
The balance outstanding on this line totaled $823,000 as of December 25,
1999.
The Company had borrowed approximately $2,170,000 under its revolving
line of credit as of September 30, 2000. Based on the provisions of the
credit agreement, the Company had additional availability of $6,000,000 under
its line of credit as of September 30, 2000. The Company expects the
availability under the current credit facility and current cash on hand to
provide adequate liquidity for the Company's expected working capital and
operating needs.
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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.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
27.1 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.
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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 13, 2000 By: /s/ J. Bruce Lancaster
----------------- -----------------------------
J. Bruce Lancaster
Chief Financial Officer
(principal financial officer)
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