<PAGE> 1
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 April 1, 2000
-------------
Commission File No. 0-23204
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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 April 30, 2000
- ----- -----------------------------
Common Stock, $.25 par value 1,934,904
<PAGE> 2
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE> 3
<TABLE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<CAPTION>
April 01, December 25,
2000 1999
------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,418 $ 3,997
Accounts receivable, net 7,178 6,773
Inventories 9,832 9,700
Prepaid expenses & other 354 648
------------ ------------
Total current assets 20,782 21,118
------------ ------------
PROPERTY AND EQUIPMENT, NET 5,057 5,145
OTHER ASSETS 29 29
------------ ------------
$ 25,868 $ 26,292
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 881 $ 1,161
Current portion of long-term obligations 1,005 968
Current portion of capital lease obligation 88 86
Accrued payroll and related expenses 591 736
Accrued liabilities & other 3,597 3,835
------------ ------------
Total current liabilities 6,162 6,786
------------ ------------
LONG-TERM OBLIGATIONS, NET OF CURRENT PORTION 1,756 1,816
STOCKHOLDERS' EQUITY
Common stock 484 484
Additional paid-in capital 67,437 67,437
Accumulated deficit (48,138) (48,391)
Currency translation (83) (90)
------------ ------------
19,700 19,440
Less: treasury shares and warrants - at cost 1,750 1,750
------------ ------------
Total Stockholders' equity 17,950 17,690
------------ ------------
$ 25,868 $ 26,292
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE> 4
<TABLE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Quarter ended Quarter ended
April 01, 2000 March 27, 1999
-------------- ---------------
<S> <C> <C>
Net Sales $ 10,656 $ 9,130
Cost of Sales 7,113 6,269
-------------- --------------
Gross Profit 3,543 2,861
Operating Expenses 3,258 2,744
-------------- --------------
Operating Profit 285 117
-------------- --------------
Other Income and (Expense)
Interest Income 57 24
Interest Expense (90) (120)
Other 16 0
-------------- --------------
Income Before Income Tax 268 21
Income Tax Expense 14 1
-------------- --------------
Net Income $ 254 $ 20
============== ==============
Weighted Average Shares Outstanding 1,934,905 1,931,413
Basic Earnings Per Common Share $ 0.13 $ 0.01
============== ==============
Diluted Earnings Per Common Share $ 0.13 $ 0.01
============== ==============
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE> 5
<TABLE>
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Quarter ended Quarter ended
April 01, 2000 March 27, 1999
<S> -------------- --------------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: <C> <C>
Net income $ 254 $ 20
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization 114 81
(Increase) decrease in operating assets:
Accounts receivable (405) 1,281
Inventories (132) (166)
Prepaid expenses and other current assets 294 (82)
Deferred charges and other assets 0 137
Increase (decrease) in operating liabilities:
Accounts Payable (280) (564)
Accrued liabilities (383) (180)
------------- -------------
Net cash provided (used) by operating activities (538) 527
------------- -------------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchases of property and equipment (27) (161)
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Net cash used by investing activities (27) (161)
------------- -------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Net borrowings (payments) on long-term obligations (21) (452)
Purchase and retirement of stock 0 (43)
Proceeds from exercise of stock options and warrants 0 24
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Net cash used by financing activities (21) (471)
------------- -------------
Effect of exchange rates on cash and cash equivalents 7 13
------------- -------------
Net decrease in cash during period (579) (92)
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 $ 3,418 $ 2,039
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE> 6
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 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. 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 25, 1999. The financial
data for the interim periods presented may not necessarily reflect the
results to be anticipated for the complete year.
NOTE 2. EARNINGS 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>
April 1, Dec 25,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 1,456 $ 1,390
Work-in-process 304 335
Finished goods 8,072 7,975
----------- -----------
$ 9,832 $ 9,700
=========== ===========
</TABLE>
NOTE 3. LONG-TERM OBLIGATIONS
At April 1, 2000, the Company was in violation of certain loan covenants
under its current, primary working capital line of credit. This line of
credit will expire in May 2000. The Company has not requested a waiver for
such covenant violations because it is in the process of securing a new line
of credit with another bank on substantially improved terms. The Company has
received a commitment letter from the prospective new lender and expects to
complete its new working capital facility during May 2000.
6
<PAGE> 7
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 2000
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 plans to cease
operations at this facility by June 30, 2000 and is actively pursuing
disposition of all assets associated with the Greenville operation. During
the first quarter of 2000, certain Greenville expenses were charged to the
estimated disposition liability recorded in 1999.
7
<PAGE> 8
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, 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 $(000) 2000 1999
- ----------------------------------------------------------------------------
<S> <C> <C>
Work Gloves & Protective Wear 9,127 7,938
- ----------------------------------------------------------------------------
Pet Supplies 948 722
- ----------------------------------------------------------------------------
Corporate & Other 581 470
- ----------------------------------------------------------------------------
Total Sales 10,656 9,130
- ----------------------------------------------------------------------------
</TABLE>
Total revenues for the three months ended April 1, 2000 were
$10,656,000, up $1,526,000, or 16.7%, from the comparable quarter in 1999.
Sales increased in each of the Company's segments of business. In the work
gloves and protective wear segment, sales were up $1,189,000, or 15.0%, and
represented approximately 86% of the Company's total sales in the first
quarter of 2000. Sales in the Company's consumer market increased roughly
18% from 1999 on higher volume attributable in large part to new customers
added during the second half of 1999. The Company's industrial market sales
were up 7% from 1999. Average selling prices were again lower than in the
comparable quarter from the previous year because of competitive pressure and
lower purchase costs on imported goods.
In the pet supplies segment, first quarter 2000 sales were up $226,000,
or 31.3%, from the prior year. The sales increase in comparison to 1999 was
due in part to low sales activity in 1999 when volumes were depressed by the
relocation of its primary operating facilities from Florida to Kewanee,
Illinois, which temporarily reduced shipping efficiency. As previously
reported, the Company lost its second largest customer in this segment during
the fourth quarter of 1999. The loss of this customer may reduce sales
revenues during the upcoming quarters. The Company has increased its sales
and promotional efforts to attract new business and added several new
accounts in this segment.
8
<PAGE> 9
Sales in the corporate and other segment consist primarily of balloon
revenues. Sales volume improved in this area with existing customers
ordering earlier in the season than in the previous year. Balloon sales have
historically shown seasonal strength during the summer months.
COST OF SALES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
COST OF SALES BY SEGMENT $(000) 2000 % SALES 1999 % SALES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 6,350 69.6 5,527 69.6
- ----------------------------------------------------------------------------------------------------
Pet Supplies 546 57.6 445 61.6
- ----------------------------------------------------------------------------------------------------
Corporate & Other 217 37.3 297 63.2
- ----------------------------------------------------------------------------------------------------
Total Cost of Sales 7,113 66.8 6,269 68.7
- ----------------------------------------------------------------------------------------------------
</TABLE>
Cost of sales for the three months ended April 1, 2000 totaled
$7,113,000 compared to $6,269,000 in the corresponding period of 1999. While
up in total due to increased sales, as a percentage of sales, cost of sales
declined 1.9%. This drop in cost of sales percentage is due primarily to
lower product cost at the Company's balloon operations. Balloon operations
benefited from the outsourcing of production with the Company now importing
balloons from Mexico. Margins also improved in the Company's pet supplies
segment because of lower overhead at its facilities in Illinois and lower
costs on certain imported products.
OPERATING EXPENSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
OPERATING EXPENSES BY SEGMENT $(000) 2000 % SALES 1999 % SALES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 2,514 27.5 2,137 26.9
- ----------------------------------------------------------------------------------------------------
Pet Supplies 334 35.2 245 33.9
- ----------------------------------------------------------------------------------------------------
Corporate & Other 410 70.7 362 77.0
- ----------------------------------------------------------------------------------------------------
Total Operating Expenses 3,258 30.6 2,744 30.1
- ----------------------------------------------------------------------------------------------------
</TABLE>
Operating expenses (selling, general and administrative or "S, G & A"
expenses) were $3,259,000 for the three months ended April 1, 2000, compared
to $2,744,000 for the corresponding period in 1999. Such expenses increased
in each segment due in part to variable expenses associated with increased
sales such as commissions and shipping.
In addition, S, G & A expenses in the work gloves and protective wear
segment were up compared to the prior year due to increases in point of sale
display cost, shipping expense, depreciation and systems consulting. Point
of sale display cost increases resulted from higher consumer product sales
and increased product assortment sales in which the Company provides racking
or other point of sale display materials. The Company's shipping expenses
increased due in part to more partial shipments resulting from reduced
inventory levels and also in part because of higher fuel surcharges. Due to
capital expenditures in the previous year to install new computer systems,
the Company's depreciation increased in 2000 and will continue to be higher
than 1999. The Company continued to utilize consultants to complete training
and report development for its new information system during the first
quarter. Such consulting assistance is expected to diminish substantially in
succeeding quarters.
9
<PAGE> 10
OPERATING INCOME
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
OPERATING INCOME BY SEGMENT $(000) 2000 % SALES 1999 % SALES
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Work Gloves & Protective Wear 263 2.9 274 3.5
- ---------------------------------------------------------------------------------------------------
Pet Supplies 68 7.2 32 4.4
- ---------------------------------------------------------------------------------------------------
Corporate & Other (46) (8.1) (189) (40.2)
- ---------------------------------------------------------------------------------------------------
Total Operating Income 285 2.7 117 1.3
- ---------------------------------------------------------------------------------------------------
</TABLE>
On a consolidated basis, operating income increased $168,000 for the
first quarter of 2000 compared to the comparable period in 1999. This
improvement was primarily attributable to improved results in the corporate
and other segment which resulted in large part from increased sales and
improved gross margins in the Company's balloon operations. Results from the
Company's balloon operations are included in the corporate and other segment.
In addition, operating income in the pet supplies segment increased on
greater sales volume.
OTHER INCOME (EXPENSE)
The Company incurred $90,000 in interest expense during the first
quarter of 2000, a decrease of $30,000 from the comparable period in 1999.
Interest expense decreased due to lower borrowings under the Company's
revolving line of credit because of reduced inventory levels in comparison to
the first quarter of 1999. Interest income increased from $24,000 in 1999 to
$57,000 in the first quarter of 2000 on the Company's cash holdings.
TAXES
Tax expense reflects state income taxes on certain of the Company's
operations. Because of loss carryforwards from 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 consumed $538,000 in cash in the first quarter of
2000 compared to providing cash of $527,000 in the first quarter of 1999.
The Company's improved sales in 2000 resulted in an increase in accounts
receivable which consumed cash of $405,000 during the period. In comparison,
the Company's reduced sales in the first quarter of 1999 caused a reduction
in accounts receivable and provided $1,281,000 in cash.
Cash used by investing activities totaled $27,000 during the first
quarter of 2000, down from $161,000 in 1999. Investing activities for both
years consisted solely of capital expenditures. First quarter 1999 capital
expenditures included system implementation costs and expenditures to
renovate Kewanee facilities in connection with the relocation of the pet
supplies operations.
10
<PAGE> 11
The Company's cash used by financing activities totaled $21,000 in 2000,
down from $471,000 in the prior year. Because of the reduced cash provided
by operating activities in the current year, the Company made fewer payments
to reduce its revolving line of credit during the first quarter of 2000 than
in the previous year.
Under the terms of its $10,000,000 revolving line of credit, the Company
had drawn approximately $860,000 leaving $9,140,000 available as of April 1,
2000. The Company's current credit facility expires in May 2000 and
management expects to replace its current line with another bank on
substantially improved terms. The Company has entered into a commitment
letter with the prospective new lender and expects to complete the new credit
facility during May 2000. The Company's cash on hand and the new 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.
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various legal actions incident to the normal
operations of its 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 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.
11
<PAGE> 12
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: May 16, 2000 By: /s/ J. Bruce Lancaster
---------------- ------------------------
J. Bruce Lancaster
Chief Financial Officer
(principal financial officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
APRIL 01, 2000 UNAUDITED FINANCIAL STATEMENTS OF BOSS HOLDINGS, INC., AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN FORM
10-Q FOR THE QUARTER ENDED APRIL 01, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> DEC-26-1999
<PERIOD-END> APR-01-2000
<CASH> 3,418,000
<SECURITIES> 0
<RECEIVABLES> 7,178,000
<ALLOWANCES> 0
<INVENTORY> 9,832,000
<CURRENT-ASSETS> 20,782,000
<PP&E> 5,057,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,868,000
<CURRENT-LIABILITIES> 6,162,000
<BONDS> 0
<COMMON> 484,000
0
0
<OTHER-SE> 17,466,000
<TOTAL-LIABILITY-AND-EQUITY> 25,868,000
<SALES> 10,656,000
<TOTAL-REVENUES> 10,656,000
<CGS> 7,113,000
<TOTAL-COSTS> 3,258,000
<OTHER-EXPENSES> (16,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,000
<INCOME-PRETAX> 268,000
<INCOME-TAX> 14,000
<INCOME-CONTINUING> 254,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254,000
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
