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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period
from ______________ to _____________
Commission file number 0-22716
BOLLINGER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2502577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
602 FOUNTAIN PARKWAY, GRAND PRAIRIE, TEXAS 75050
(Address of principal executive offices)
(Zip Code)
(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 6, 2001, 4,400,210 shares of the registrant's common
stock, $0.01 par value per share, were outstanding.
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BOLLINGER INDUSTRIES, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
December 31, 2000 (unaudited) and March 31, 2000 3
Consolidated Statements of Operations -
Three and Nine Months Ended December 31, 2000 and 1999
(unaudited) 5
Consolidated Statements of Cash Flows -
Nine Months Ended December 31, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
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
2
3
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, MARCH 31,
2000 2000
----------- -----------
(unaudited)
CURRENT ASSETS
Cash $ 32,369 $ 959,242
Accounts receivable - trade, net allowance for doubtful
accounts of $470,465 and $543,387 and allowance for
returns and allowances of $688,732 and $1,748,847 and
allowance for advertising of $893,555 and $327,510 7,477,422 6,277,077
Prepaid expenses 352,668 129,613
Inventories, net 11,825,419 9,581,676
Other current assets 3,288 47,788
----------- -----------
Total current assets 19,691,166 16,995,396
PROPERTY AND EQUIPMENT - NET 1,429,776 1,815,695
OTHER ASSETS
Goodwill, net of accumulated amortization of $799,425 and
$532,950 2,753,575 3,020,050
License rights, net of accumulated amortization of $160,875 and
$107,250 554,125 607,750
Deferred marketing costs, net of accumulated amortization of
$1,069,000 and $534,500 1,068,405 1,602,905
Deferred financing fees, net of accumulated amortization of
$760,954 (fully amortized) and $711,398 -- 49,556
Notes receivable and other 102,444 106,254
----------- -----------
Total other assets 4,478,549 5,386,515
----------- -----------
TOTAL ASSETS $25,599,491 $24,197,606
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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4
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY DECEMBER 31, MARCH 31,
2000 2000
------------ ------------
(unaudited)
CURRENT LIABILITIES
Current portion of long-term debt (Note D) $ 7,882,399 $ 1,336,426
Current portion of capital lease obligations 227,957 76,938
Accounts payable-trade 10,293,287 6,427,069
Taxes payable 51,304 53,104
Accrued liabilities 706,482 644,673
Accrued product liability 274,791 391,879
------------ ------------
Total current liabilities 19,436,220 8,930,089
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 748,411 8,701,886
Capital lease obligations, less current portion 698,570 913,328
Contingency for legal settlement 2,850,000 3,000,000
Other long-term liabilities 33,335 33,335
------------ ------------
Total long-term liabilities 4,330,316 12,648,549
------------ ------------
Total liabilities 23,766,536 21,578,638
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note F)
STOCKHOLDERS' EQUITY
Preferred stock -- $0.01 par value;
1,000,000 shares authorized; none issued -- --
Common stock -- $0.01 par value; 20,000,000 shares
authorized; 4,400,210 shares issued 44,002 44,002
Capital in excess of par 15,519,058 15,519,058
Accumulated deficit (13,718,158) (12,944,092)
Treasury stock, at cost (11,947) --
------------ ------------
Total stockholders' equity 1,832,955 2,618,968
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,599,491 $ 24,197,606
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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5
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $ 12,757,244 $ 10,895,874 $ 31,464,540 $ 27,594,335
Cost of goods sold 8,610,782 7,572,965 21,268,298 18,312,057
------------ ------------ ------------ ------------
Gross profit 4,146,462 3,322,909 10,196,242 9,282,278
Selling expenses 1,305,143 792,228 3,383,658 2,565,006
Distribution, general and
administrative expenses 2,247,216 2,039,989 6,477,838 6,275,676
------------ ------------ ------------ ------------
3,552,359 2,832,217 9,861,496 8,840,682
------------ ------------ ------------ ------------
Operating profit 594,103 490,692 334,746 441,596
Other expense (income)
Interest expense 395,095 308,599 1,110,783 827,774
Gain on sale of assets (2,000) (98) (2,000) (5,850)
Other 1 130,652 29 127,144
------------ ------------ ------------ ------------
393,096 439,153 1,108,812 949,068
------------ ------------ ------------ ------------
Earnings (loss) before
income tax expense (benefit) 201,007 51,539 (774,066) (507,472)
Income tax expense (benefit) -- -- -- --
------------ ------------ ------------ ------------
Net earnings (loss) $ 201,007 $ 51,539 $ (774,066) $ (507,472)
============ ============ ============ ============
Per share data (basic and diluted):
Basic earnings (loss) per share $ 0.05 $ 0.01 $ (0.18) $ (0.12)
============ ============ ============ ============
Diluted earnings (loss) per share $ 0.05 $ 0.01 $ (0.18) $ (0.12)
============ ============ ============ ============
Shares used in the calculation
of per share amounts:
Basic common shares 4,400,210 4,400,210 4,400,210 4,400,210
Dilutive impact of stock options -- -- -- --
------------ ------------ ------------ ------------
Diluted common shares 4,400,210 4,400,210 4,400,210 4,400,210
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
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6
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
----------- -----------
Cash flows from operating activities
Net loss $ (774,066) $ (507,472)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Gain on sale of assets (2,000) (5,850)
Contingency for legal settlement (150,000) --
Depreciation and amortization 1,445,082 893,644
Provision for returns and allowances 1,346,026 1,468,982
Provision for doubtful accounts (10,535) 245,000
Provision for advertising 889,097 655,000
Provision for obsolete inventory 352,584 --
Changes in operating assets and liabilities
Accounts receivable-trade (3,424,933) (3,799,090)
Other 44,500 (126,252)
Inventories (2,596,327) (2,886,584)
Prepaid and other expenses (223,055) (94,814)
Notes receivable and other assets 1,716 3,332
Accounts payable-trade 3,866,218 2,585,577
Taxes payable (1,800) (8,175)
Accrued liabilities 61,809 (116,888)
Accrued product liability (117,088) (98,266)
Other long-term liabilities -- 33,335
----------- -----------
Net cash provided by (used in) operating activities 707,228 (1,758,521)
Cash flows from investing activities
Purchases of property and equipment (152,913) (31,911)
Proceeds from sale of assets 2,000 8,575
----------- -----------
Net cash used in investing activities (150,913) (23,336)
Cash flows from financing activities
Net proceeds from (payments on) debt (1,407,502) 1,877,796
Payments on capital lease obligations (63,739) (176,482)
Purchase of treasury stock (11,947) --
----------- -----------
Net cash provided by (used in) financing activities (1,483,188) 1,701,314
Net decrease in cash (926,873) (80,543)
Cash at beginning of period 959,242 125,719
----------- -----------
Cash at end of period $ 32,369 $ 45,176
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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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, 2000
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
When necessary, 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.
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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:
NINE MONTHS ENDED
DECEMBER 31,
-------------------------
2000 1999
---------- ----------
Interest paid $1,036,555 $ 676,998
Non-cash financing and investing transactions:
Purchase of assets financed by debt -- $ 415,000
In December 1999 the Company entered into a capital lease for $415,000 for
computer equipment.
NOTE C - INVENTORIES
December 31, March 31,
2000 2000
------------ ------------
Finished goods $ 12,310,374 $ 9,922,317
Raw materials 261,129 360,934
Reserve for obsolescence (746,084) (701,575)
------------ ------------
$ 11,825,419 $ 9,581,676
============ ============
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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. 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, 2000 there was a $7,464,287 outstanding balance and availability
under the line was $9,869. As of December 31, 2000 the Company was in default on
certain financial covenants specifically the current ratio and tangible net
worth covenants; therefore, this debt is classified as a current liability in
the accompanying financial statements. 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 covenant defaults. If the
loan is accelerated, the Company will seek alternative financing, but there is
no guarantee the Company would be successful in obtaining this financing. This
action could have a materially adverse effect on the Company.
The Company has a convertible subordinated note payable for $1,400,000 with a
five-year term pursuant to an asset purchase agreement with The Step Company. As
of December 31, 2000 there was a $916,543 outstanding balance. 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, 1999 and 2000 was 0% as the Company generated losses for financial
and income tax reporting purposes. Such losses are offset by a 100% valuation
allowance. At December 31, 2000 the Company had net operating losses available
to offset future taxable income of approximately $8.5 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, Michael J. Beck, John L. Maguire, and Grant Thornton, L.L.P.; in the
191st (originally filed in the 68th Judicial District Court) Judicial District
Court of Dallas County, Texas (the "Suntrust Lawsuit"):
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F - COMMITMENTS AND CONTINGENCIES-CONTINUED
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Michael J. Beck (former CAO), John L. Maguire (Director), and Grant
Thornton, L.L.P. (former independent accountants) are defendants in a securities
fraud lawsuit filed on March 22, 1996 by shareholder Suntrust Bank Atlanta, as
Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf of themselves and
all persons similarly situated. This lawsuit was filed as a class action on
behalf of those who purchased securities through a public offering of the
Company's stock, alleging that the price of the stock was artificially inflated
and maintained in violation of the anti-fraud provisions of the securities law
as well as common law. Further, Grant Thornton has cross-claimed against the
underwriters, and against the Company, Glenn D. Bollinger and Bobby D.
Bollinger, generally seeking contribution.
The case was transferred to the 191st Judicial District Court and trial is
currently stayed pending an appeal of the class certification filed by Grant
Thornton and the Bollinger parties. The Appellants' Briefs of Grant Thornton and
the Bollinger parties was heard on January 16, 2001 and is pending. This case
continues to be mediated through the ongoing efforts of a mediator.
Civil Action No. 3:96C-V-0823-L; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, and Michael
J. Beck; in the United States District Court for the Northern District of Texas,
Dallas Division (the "STI Lawsuit"):
The Company, Glenn D. Bollinger, Bobby D. Bollinger, and Michael J. Beck are
defendants in a lawsuit filed on March 22, 1996 in the United States District
Court for the Northern District of Texas, Dallas Division, by shareholders STI
Classic Fund and STI Classic Sunbelt, on behalf of themselves and all persons
similarly situated. Like the Suntrust lawsuit, this lawsuit was also filed as a
class action on behalf of a class of persons who purchased securities of the
Company at prices which allegedly were artificially inflated and maintained in
violation of the anti-fraud provisions under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5
thereunder. A class certification has been granted by the court. The Defendants
dispute the claims and are contesting the claims vigorously. The Plaintiffs have
filed a Motion for Partial Summary Judgment against Bollinger Industries, Inc.,
which has been briefed and is pending. The case is not set for trial, and
through the efforts of a mediator, mediation is ongoing.
Civil Action No. 00-1842-J; Curtis Logan v. Bollinger Industries, Inc.; in the
191st Judicial District Court, Dallas County, Texas ("the Logan Lawsuit"):
Logan's cross-claim for indemnity against the Company was severed after the
Court granted summary judgment as to liability on Logan's indemnity claims, plus
his attorneys' fees and expenses, and this case is the result. Settlement
negotiations have produced a Rule 11 Agreement, which was executed during the
quarter ending June 30, 2000 for $150,000. The Company paid $30,000 during June
2000 and the remaining $120,000 was paid in October 2000.
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE F - COMMITMENTS AND CONTINGENCIES-CONTINUED
At December 31, 2000 the Company has a $975,387 standby letter of credit with a
financial institution. The standby letter of credit collateralizes certain
capitalized leased equipment and related software.
Cause No. EDCV00-312-RT; Precise Exercise Equipment, Inc. and Fitness
Innovations and Technologies, Inc. v. Kmart Corporation and Bollinger
Industries, Inc.; in the United States District Court for the Central District
of California, Eastern Division filed on January 24, 2000. The Plaintiffs
asserted claims of patent infringement relating to a patent on a sit-up
exerciser. Defendants Bollinger and Kmart brought counterclaims alleging
invalidity and unenforceability of the patent.
Cause No. 400-CV-0135A; Bollinger Industries v. Precise Exercise Equipment, Inc.
and Fitness Innovations and Technologies, Inc. was filed in United States
District Court in the Northern District of Texas, Fort Worth Division on
February 29, 2000 seeking a declaratory judgment that Precise's patent being
asserted in the California litigation was invalid or unenforceable and did not
infringe. This case involved the same subject matter as the California
litigation.
The Company and Precise Exercise Equipment, Inc. ("Precise") and Fitness
Innovations and Technologies, Inc. entered into a Patent Settlement Agreement
which allows the Company to sell its remaining inventory of the sit-up exerciser
through March 1, 2001 in the normal course of business and requires the Company
to assist in the transition of the Company's customer base for the sit-up
exerciser to Precise. Concurrently, the Company entered into a Sublicense
Agreement with Precise, which grants Precise rights for a period of three years
to an unrelated Bollinger held patented product. This settlement agreement
settles both the California and Texas actions.
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 conduct of its
business. Glenn Bollinger consented to the entry of an order of permanent
injunction enjoining him from violations of the antifraud, record keeping,
periodic reporting and internal accounting controls provisions of the Exchange
Act and regulations promulgated thereunder, and agreed to the payment of a
monetary penalty in the amount of $40,000. Ronald Bollinger consented to the
entry of an order of permanent injunction enjoining him from violations of the
antifraud, record keeping, periodic reporting and internal accounting controls
provisions of the Exchange Act and regulations promulgated thereunder, and
agreed not to act as a director or officer of a registered or reporting entity
in the future.
From time to time, the Company is a party to various legal proceedings arising
in the ordinary course of business. The Company is not currently a party to any
other material litigation and is not aware of any litigation threatened against
the Company, arising in the ordinary course of business, that could have a
material adverse effect on the Company.
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12
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
NOTE G - ONGOING OPERATIONS
The Company's ability to continue as a going concern is dependent on its ability
to generate sufficient funding from operations, the resolution of the
shareholder lawsuits and continued lender forbearance related to the Company's
line of credit.
The consolidated financial statements do not include any adjustments to reflect
the possible effects on the recoverability and classification of assets or
classification of liabilities, which may result from the inability of the
Company to continue as a going concern.
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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, 2000 and March 31, 1999; the Company's Quarterly Reports on Form
10-Q for the fiscal quarters ended June 30, 1999, September 30, 1999, December
31, 1999, June 30, 2000 and September 30, 2000; and the consolidated financial
statements and related notes for the quarter ended December 31, 2000 found
elsewhere in this report.
THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS
AND NINE MONTHS ENDED DECEMBER 31, 1999
Net sales increased for the quarter ended December 31, 2000 by $1,861,000 on a
comparative basis with the prior year, an increase of 17.1%. For the nine months
net sales increased by $3,870,000 (compared to the prior year), an increase of
14%. Sales to a major mass merchandiser continue to show improvement over
previous quarter and previous year and directly affect the Company's overall
sales growth.
The Company continues to source its products from the highest quality low cost
providers available. Many of the Company's products are sourced globally and
consolidated for inspection, review and reshipping from the Grand Prairie, Texas
facility. Several of the Company's major customers have specific shipping
guidelines that require specialized handling and dedicated electronic
interfaces. The ability to provide these services enables the Company to remain
price competitive and further- more allows the Company to offer sales "programs"
to the mass merchandisers. The cost of these programs is reflected in returns
and discounts as a deduction from net sales.
Gross profits as a percent of net sales increased to 32.5% in the quarter ended
December 31, 2000 from 30.5% in the quarter ended December 31, 1999. Gross
profits as a percent of net sales decreased to 32.4% in the nine months ended
December 31, 2000 from 33.6% in the nine months ended December 31, 1999. The
quarterly improvement was primarily due to improved returns and allowances and
fewer variances in the cost of inbound freight. The percentage decrease for the
nine months ended December 31, 2000 was directly related to an increase in the
provision for slow moving inventory.
Selling expenses for the quarter ended December 31, 2000 increased by $513,000
as compared to the quarter ended December 31, 1999, and increased as a
percentage of net sales to 10.2% from 7.3%. Selling expenses for the nine months
ended December 31, 2000 increased by $819,000 as compared to the nine months
ended December 31, 1999, and increased as a percentage of net sales to 10.8%
from 9.3%. The three and nine month dollar and percentage increase in selling
expense was primarily related to the increased cost of advertising and
commission due to the higher sales volume and the increase in royalty costs
related to a settlement with a patent holder (see "Part II, item 1, Legal
Proceedings").
Distribution, general and administrative expenses for the quarter ended December
31, 2000 increased by $207,000 as compared to the quarter ended December 31,
1999, and decreased as a
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percentage of net sales to 17.6% in 2000 from 18.7% in 1999. Distribution,
general and administrative expenses for the nine months ended December 31, 2000
increased by $202,000 as compared to the same period in 1999 and decreased as a
percentage of net sales to 20.6% from 22.7%. The increase in distribution,
general and administrative expenses for both the three-month and the nine-month
periods resulted from increased electronic data interchange, freight and supply
costs related to increased sales volume, and depreciation expense partially
offset by lower bad debt and legal costs.
The Company generated an operating profit of $594,000 for the quarter ended
December 31, 2000, as compared to an operating profit of $491,000 in the same
quarter in 1999. As a percentage of net sales, the operating profit increased to
4.7% in 2000 from 4.5% in 1999. The Company generated an operating profit of
$335,000 for the nine months ended December 31, 2000 as compared to an operating
profit of $442,000 in the same period of 1999. As a percentage of net sales, the
operating profit decreased to 1.1% in 2000 from 1.6% in 1999.
Interest expense for the quarter ended December 31, 2000 was $395,000 compared
to $309,000 for the same quarter in 1999. Interest expense for the nine months
ended December 31, 2000 was $1,111,000 compared to $828,000 for the same period
in 1999. The increase in interest expense was primarily due to an increase in
the borrowed balance and a 1.6% increase in the interest rate assessed by the
Company's lender.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of outside financing in the past several years
has been short-term borrowings from an asset-based lender. Net cash provided by
operating activities for the nine months ended December 31, 2000 was $707,000
compared to cash used in operating activities for the same period in the prior
year of $1,758,000. The increase in cash provided was primarily from increases
in trade accounts payable and was primarily used to fund higher inventory
levels.
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. 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, 2000 there was a $7,464,287 outstanding balance and availability
under the line was $9,869. As of December 31, 2000 the Company was in default on
certain financial covenants, specifically the current ratio and tangible net
worth covenants; therefore, this debt is classified as a current liability in
the accompanying financial statements. 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 covenant defaults. If the
loan is accelerated, the Company will seek alternative financing, but there is
no guarantee the Company would be successful in obtaining this financing. This
action could have a materially adverse effect on the Company.
Outstanding balances under the revolving credit facility for the quarter ended
December 31, 2000 bore interest at a rate of 11.5% compared to an approximate
rate of 10.4% for the quarter ended December 31, 1999.
The Company has a convertible subordinated note payable for $1,400,000 with a
five-year term pursuant to the asset purchase agreement with The Step Company.
As of December 31, 2000 there was a $916,543 outstanding balance. The note bears
interest at the rate of prime plus one percent
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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.
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.
After resolution of the Curtis Logan Lawsuit a $2,850,000 accrual for legal
contingency remains on the balance sheet in anticipation of reaching a
settlement through continuing negotiations. The Company believes this accrual is
ample for resolution of this contingency. Whether the Company will be successful
in securing a final settlement is uncertain.
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 and include the Company's ability to continue to improve gross
margin, to maintain good relationships with its customers and suppliers and to
generate sufficient cash to fund operations. Actual results may differ
materially from any future results expressed or implied by such forward-looking
statements. The Company disclaims any obligation to update any forward-looking
statements or publicly revise any of the forward-looking statements contained
herein to reflect future events or developments.
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 STI and Suntrust Lawsuits, depend on future operating
earnings, market conditions, satisfactory availability under the revolving
credit facility and lender forbearance.
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 generated operating profits for the nine months ended December 31,
2000 but after interest and other non-operating expenses experienced net losses
for the same period. Nothing contained in these financial statements or in
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.
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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, Michael J. Beck, John L. Maguire, and Grant Thornton, L.L.P.; in the
191st (originally filed in the 68th Judicial District Court) Judicial District
Court of Dallas County, Texas (the "Suntrust Lawsuit"):
The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Michael J. Beck (former CAO), John L. Maguire (Director), and Grant
Thornton, L.L.P. (former independent accountants) are defendants in a securities
fraud lawsuit filed on March 22, 1996 by shareholder Suntrust Bank Atlanta, as
Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf of themselves and
all persons similarly situated. This lawsuit was filed as a class action on
behalf of those who purchased securities through a public offering of the
Company's stock, alleging that the price of the stock was artificially inflated
and maintained in violation of the anti-fraud provisions of the securities law
as well as common law. Further, Grant Thornton has cross-claimed against the
underwriters, and against the Company, Glenn D. Bollinger and Bobby D.
Bollinger, generally seeking contribution.
The case was transferred to the 191st Judicial District Court and trial is
currently stayed pending an appeal of the class certification filed by Grant
Thornton and the Bollinger parties. The Appellants' Briefs of Grant Thornton and
the Bollinger parties was heard on January 16, 2001 and is pending. This case
continues to be mediated through the ongoing efforts of a mediator.
Civil Action No. 3:96C-V-0823-L; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, and Michael
J. Beck; in the United States District Court for the Northern District of Texas,
Dallas Division (the "STI Lawsuit"):
The Company, Glenn D. Bollinger, Bobby D. Bollinger, and Michael J. Beck are
defendants in a lawsuit filed on March 22, 1996 in the United States District
Court for the Northern District of Texas, Dallas Division, by shareholders STI
Classic Fund and STI Classic Sunbelt, on behalf of themselves and all persons
similarly situated. Like the Suntrust lawsuit, this lawsuit was also filed as a
class action on behalf of a class of persons who purchased securities of the
Company at prices which allegedly were artificially inflated and maintained in
violation of the anti-fraud provisions under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5
thereunder. A class certification has been granted by the court. The Defendants
dispute the claims and are contesting the claims vigorously. The Plaintiffs have
filed a Motion for Partial Summary Judgment against Bollinger Industries, Inc.,
which has been briefed and is pending. The case is not set for trial, and
through the efforts of a mediator, mediation is ongoing.
Civil Action No. 00-1842-J; Curtis Logan v. Bollinger Industries, Inc.; in the
191st Judicial District Court, Dallas County, Texas ("the Logan Lawsuit"):
Logan's cross-claim for indemnity against the Company was severed after the
Court granted summary judgment as to liability on Logan's indemnity claims, plus
his attorneys' fees and expenses, and this case is the result. Settlement
negotiations have produced a Rule 11 Agreement,
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which was executed during the quarter ending June 30, 2000 for $150,000. The
Company paid $30,000 during June 2000 and the remaining $120,000 was paid in
October 2000.
Cause No. EDCV00-312-RT; Precise Exercise Equipment, Inc. and Fitness
Innovations and Technologies, Inc. v. Kmart Corporation and Bollinger
Industries, Inc.; in United States District Court for the Central District of
California, Eastern Division filed on January 24, 2000. The Plaintiffs asserted
claims of patent infringement relating to a patent on a sit-up exerciser.
Defendants Bollinger and Kmart brought counterclaims alleging invalidity and
unenforceability of the patent.
Cause No. 400-CV-0135A; Bollinger Industries v. Precise Exercise Equipment, Inc.
and Fitness Innovations and Technologies, Inc. was filed in United States
District Court in the Northern District of Texas, Fort Worth Division on
February 29, 2000 seeking a declaratory judgment that Precise's patent being
asserted in the California litigation was invalid or unenforceable and did not
infringe. This case involved the same subject matter as the California
litigation.
The Company and Precise Exercise Equipment, Inc. ("Precise") and Fitness
Innovations and Technologies, Inc. entered into a Patent Settlement Agreement
which allows the Company to sell its remaining inventory of the sit-up exerciser
through March 1, 2001 in the normal course of business and requires the Company
to assist in the transition of the Company's customer base for the sit-up
exerciser to Precise. Concurrently, the Company entered into a Sublicense
Agreement with Precise, which grants Precise rights for a period of three years
to an unrelated Bollinger held patented product. This settlement agreement
settles both the California and Texas actions.
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 conduct of its
business. Glenn Bollinger consented to the entry of an order of permanent
injunction enjoining him from violations of the antifraud, record keeping,
periodic reporting and internal accounting controls provisions of the Exchange
Act and regulations promulgated thereunder, and agreed to the payment of a
monetary penalty in the amount of $40,000. Ronald Bollinger consented to the
entry of an order of permanent injunction enjoining him from violations of the
antifraud, record keeping, periodic reporting and internal accounting controls
provisions of the Exchange Act and regulations promulgated thereunder, and
agreed not to act as a director or officer of a registered or reporting entity
in the future.
From time to time, the Company is a party to various legal proceedings arising
in the ordinary course of business. The Company is not currently a party to any
other material litigation and is not aware of any litigation threatened against
the Company, arising in the ordinary course of business, that could have a
material adverse effect on the Company.
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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
(b) No reports on Form 8-K were filed during the three-month period
ended December 31, 2000.
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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, 2001 /S/ Glenn D. Bollinger
----------------------
Glenn D. Bollinger
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2001 /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, 2001 /S/ Floyd DePauw
----------------------
Floyd DePauw
Controller and Chief Accounting Officer
(Principal Accounting Officer)
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BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibits Description
-------- -----------
11 Computation of Earnings Per Share
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