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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 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 0-23204
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BOSS HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 58-1972066
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
221 WEST FIRST STREET, KEWANEE, ILLINOIS 61443
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (309) 852-2131
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF CLASS COMMON STOCK $0.25 PAR VALUE
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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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates as of
March 1, 2001 was approximately $2.3 million.
There were 1,934,904 shares of the Registrant's common stock outstanding as
of March 19, 2001.
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INCORPORATION BY REFERENCE
Specified portions of the registrant's definitive proxy statement for its
2001 Annual Meeting of Stockholders are incorporated by reference in Part III
hereof.
FORWARD LOOKING STATEMENTS OR INFORMATION
Certain statements, other than statements of historical fact, included in
this Annual Report, including, without limitation, the statements under "Current
Developments", "Business" and "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: availability and pricing of goods purchased
from international suppliers, unusual weather patterns which could affect
domestic demand for the registrant's products, pricing policies of competitors,
the ability to attract and retain employees in key positions and uncertainties
and changes in general economic conditions. All subsequent forward-looking
statements attributable to the registrant or persons acting on its behalf are
expressly qualified in their entirety.
PART I
ITEM 1. BUSINESS
As used in this report, the terms "Boss" and "Company" refer to Boss
Holdings, Inc. (the Registrant), a Delaware corporation, and its operating
subsidiaries. In October 1994, under prior management, the Company completed an
initial public offering under the name Vista 2000, Inc. On December 7, 1998, the
Company changed its name from Vista 2000, Inc. to Boss Holdings, Inc. reflecting
the tradename of its primary operating subsidiary, Boss Manufacturing Company, a
Delaware corporation ("BMC").
During 1996 and 1997, the Company undertook a restructuring which included
the sale of a substantial portion of the Company's operating assets. As a result
of this restructuring, Boss now operates primarily in the work gloves and
protective wear business segment. In addition, the Company conducts operations
in the pet supply business segment.
WORK GLOVES AND PROTECTIVE WEAR
Through BMC, the Company imports, markets and distributes gloves, boots and
rainwear products serving two primary markets--consumer and industrial. The
consumer market represents approximately 60% of sales and consists of retailers
ranging from mass merchandisers to convenience stores as well as grocery and
hardware stores. The industrial market, which accounts for the balance of sales
in this segment, includes various commercial users of gloves and protective
wear. These customers include companies in the agricultural, automotive, energy,
lumber and construction industries.
BMC markets its products directly through its own sales force to major
retail stores and certain industrial consumers as well as through distributors
and manufacturer representatives. BMC products are sold predominantly to
customers in the United States, with certain products also marketed in Canada.
The work glove and protective wear market is intensely competitive with a
high degree of price competition. BMC competes on the basis of service, quality
and selection. Having participated in this segment for over 100 years, BMC and
the Boss tradename are well known in the industry. The market for work gloves
and protective wear is highly fragmented and served by a large number of
domestic and foreign competitors ranging in size from small sole proprietorships
to several companies substantially larger than BMC.
2
Sales in the work glove and protective wear segment have historically
exhibited seasonal fluctuations. Cold weather months generally provide increased
sales while warm weather historically results in slower sales activity. Because
of this seasonality, sales tend to be higher in the Company's first and fourth
quarters and lower during the second and third quarters.
BMC sells to a broad customer base approximating two thousand active
accounts. Accordingly, BMC has relatively little dependence on any one customer.
At the end of 2000, BMC had an open order backlog of approximately $1,600,000,
essentially unchanged from the previous year.
In recent years, the Company has increased its emphasis on importing
finished goods and ceased domestic manufacturing operations during 2000.
Finished goods in this segment are generally widely available from a number of
suppliers in various countries. However, the Company has occasionally
experienced limitations in the supply of certain imported products. Availability
of imported goods is further subject to interruptions in shipping as well as
quota constraints on products imported from certain countries. The Company does
not anticipate shortages of purchased goods for resale in 2001.
The Boss logo is an important trademark of the Company which it vigorously
defends in the market. In addition, BMC has various registered names and
trademarks for specific products which the Company believes add substantial
value in the sales and marketing efforts associated with this segment.
Additional financial information on the work gloves and protective wear segment
is included in the "Notes to Consolidated Financial Statements" and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
PET SUPPLIES
The Warren Pet ("Warren") division of the Company's Boss Manufacturing
Holdings, Inc. subsidiary imports, markets and distributes a line of pet
supplies to various retail outlets. Products in this line include dog and cat
toys, collars and leads, chains and rawhide products. Warren markets its product
line primarily to agricultural and hardware retailers utilizing a network of
regional distributors. Essentially all sales are within the United States.
The pet supplies industry is extremely competitive. A small group of
companies including Hartz Mountain Corporation and Sergeant's Pet Products
division of ConAgra dominate the industry. Warren competes primarily in selected
market niches by focusing on customer service and favorable pricing.
Warren generally has multiple sources of supply for substantially all of its
product requirements. The finished goods purchased by Warren have generally been
readily available in sufficient quantities. However, Warren is subject to the
same potential for product interruptions noted in the work gloves and protective
wear segment. Because of the nature and size of Warren's operations, the open
order backlog was not material at the end of 2000 or 1999.
Additional financial information on the pet supplies segment is included in
the "Notes to Consolidated Financial Statements" and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local regulations
concerning the environment. Efforts to maintain compliance with such regulations
have not required expenditures material to the Company's overall operating
performance or financial condition.
3
EMPLOYEES
As of December 30, 2000, Boss employed approximately 130 full-time
associates, down from 290 at the end of 1999. Of these, about 20 hourly
associates located at the BMC distribution facility in Springfield, Illinois
were represented by the UNITE labor organization under a collective bargaining
agreement. At year-end, about 120 associates were located in the United States
with 10 located in Canada.
The Company's employment declined in 2000 due primarily to the closing of
manufacturing facilities in Greenville, Alabama and Juarez, Mexico during the
year. The impact of these plant closings is further discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
The Company believes its employee relations are excellent as evidenced by
relatively low turnover rates at most facilities. However, attracting and
retaining employees has become more difficult because of continuing
low-unemployment economic conditions in the U.S. The Company's past success in
this area cannot assure attainment of future employment objectives.
ITEM 2. PROPERTIES
The following table shows the location, general character, square footage,
annual rent and lease expiration date of the principal operating facilities
owned or leased by the Company as of December 30, 2000. The principal executive
offices are located in Kewanee, Illinois.
SQUARE ANNUAL
LOCATION CITY GENERAL CHARACTER FEET RENT LEASE EXPIRATION
- --------------------------- ----------- --------------------------- -------- -------- ----------------
Br. Columbia, Canada Vancouver Distribution 6,000 9,500 Month-to-month
Illinois Kewanee Administrative Office 10,200 0 Owned
Illinois Kewanee Manufacturing, 147,000 0 Owned
Distribution & Admin
Illinois Springfield Distribution 80,000 0 Owned
Mexico Juarez Manufacturing 35,400 0 Owned
Ontario, Canada Concord Manufacturing, 18,400 65,000 6/30/2003
Distribution & Admin
The above properties are predominantly used in the work glove and protective
wear segment. The Company believes the above listed facilities provide adequate
distribution capacity to provide for anticipated demand. Utilization of the
various facilities fluctuates significantly during the year based on order and
inventory levels. The Company considers its properties to be generally
well-maintained and in suitable condition to carry on the Company's business.
ITEM 3. 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.
In July, 1996, the Company sued its former president, Richard Smyth, in a
matter styled BOSS HOLDINGS, INC. (FORMERLY VISTA 2000, INC.) V. RICHARD SMYTH,
filed in the Superior Court of Cobb County, Georgia. The Company alleged breach
of contract, conversion of company funds, unjust enrichment, breach of fiduciary
duty and fraud by Mr. Smyth, claiming damages and seeking recovery of funds
alleged to be converted by Mr. Smyth. In August, 1999, the Company successfully
concluded its action against Mr. Smyth pursuant to a consent judgment and
settlement agreement between the parties. Under the
4
settlement agreement, the Company received a consent judgment against Mr. Smyth
in the principal sum of $997,800 and Mr. Smyth agreed to dismiss with prejudice
his pending counterclaim against the Company. The Company agreed not to pursue
collection of the judgment in exchange for a $50,000 initial cash payment
received from Mr. Smyth at the time of settlement and timely receipt of future
monthly and lump sum settlement payments from Mr. Smyth totaling $435,000. The
payment obligations of Mr. Smyth under the settlement agreement are secured by a
junior mortgage on his home residence.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted no matters for security holder voting during the
fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock (symbol: BSHI) is currently listed on the
Over-the-Counter (OTC) Bulletin Board. Prior to December 8, 1998, the Company's
common stock symbol was VIST. The Company's common stock traded on NASDAQ under
the VIST symbol until May 31, 1996, when the Company's stock was delisted. From
June 1996 until June 1999, there was no established public trading market for
the Company's stock.
The Company's common stock is not listed on any national stock exchange or
on NASDAQ. The OTC Bulletin Board is a regulated quotation service that displays
real-time quotes, last-sale prices and volume information for non-listed
(over-the-counter) equity securities. The OTC Bulletin Board is a reporting
system for participating market makers, not an issuer listing service, and
should not be confused with the NASDAQ Stock Market. Participating market makers
in the bulletin board system enter quotes and trade reports on a closed computer
network and the information is made publicly available through numerous websites
and other locations. The OTC Bulletin Board is distinct from the "pink sheets"
published by the National Quotation Bureau which also report on transactions in
non-listed equity securities.
Stockholders of record at February 28, 2001 numbered approximately 2,400.
The Company has not paid cash dividends on its Common Stock in the past and
currently plans to retain earnings, if any, for business development and
expansion.
QUARTERLY STOCK PRICES
FIRST * SECOND ** THIRD FOURTH
-------- --------- -------- --------
2000--High bid.............................................. $4.50 $3.63 $2.31 $2.13
2000--Low bid............................................... $3.50 $2.25 $2.13 $1.69
1999--High bid.............................................. N/A $2.50 $3.50 $5.00
1999--Low bid............................................... N/A $1.75 $2.50 $3.50
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* Prior to the second quarter of 1999, there was no established public trading
market in the United States for the Company's stock.
** For the second quarter of 1999, the prices reflect high and low daily
closing prices because bid information was not available for the entire
quarter.
5
ITEM 6. SELECTED FINANCIAL DATA
The following table depicts selected consolidated financial data for the
five year period ended December 30, 2000 as derived from the consolidated
financial statements of the Company. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's audited consolidated financial statements and
notes thereto appearing elsewhere herein.
AS OF
----------------------------------------------------
12/30/00 12/25/99 12/26/98 12/27/97 12/28/96
CONSOLIDATED BALANCE SHEET DATA -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
Working capital............................... $18,434 $14,332 $18,363 $17,438 $ 30,587
Total assets.................................. 25,462 26,292 28,970 28,562 61,771
Long-term debt, including current portion..... 4,608 2,870 5,335 4,020 24,302
Stockholders' equity.......................... 17,715 17,690 19,835 19,123 24,161
YEAR ENDED
----------------------------------------------------
12/30/00 12/25/99 12/26/98 12/27/97 12/28/96
CONSOLIDATED STATEMENT OF OPERATIONS DATA -------- -------- -------- -------- --------
Net sales..................................... $36,429 $36,024 $37,543 $78,400 $110,955
Cost of sales................................. 24,471 25,767 26,762 54,703 79,290
Gross profit................................ 11,958 10,257 10,781 23,697 31,665
------- ------- ------- ------- --------
Operating expenses............................ 11,914 12,047 10,739 24,396 37,508
Gain (Loss) from asset sales/writedowns....... -- (1,100) 893 (3,792) (10,787)
------- ------- ------- ------- --------
Operating earnings (loss)................... 44 (2,890) 935 (4,491) (16,630)
Interest income............................... 166 103 151 115 --
Interest expense.............................. (351) (515) (532) (1,914) (2,174)
Other income (expense)........................ 217 1,164 18 11 (351)
------- ------- ------- ------- --------
Net earnings (loss) before income taxes....... 76 (2,138) 572 (6,279) (19,155)
Income tax benefit (expense).................. (42) (18) 68 (256) (246)
------- ------- ------- ------- --------
Net earnings (loss)........................... $ 34 $(2,156) $ 640 $(6,535) $(19,401)
======= ======= ======= ======= ========
Basic earnings (loss) per share............... $ .02 $ (1.11) $ 0.34 $ (5.13) $ (30.08)
======= ======= ======= ======= ========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SALES
SALES BY SEGMENT $(000) 2000 1999 1998
- ----------------------- -------- -------- --------
Work Gloves & Protective Wear............................... 32,440 30,722 31,600
Pet Supplies................................................ 2,634 3,716 3,955
Corporate & Other........................................... 1,355 1,586 1,988
------ ------ ------
Total Sales................................................. 36,429 36,024 37,543
====== ====== ======
2000 COMPARED TO 1999
Consolidated sales for 2000 increased $405,000, or 1.1%, from 1999 to a
total of $36,429,000. This increase was attributable to improved sales in the
Company's Work Glove and Protective Wear segment partially offset by lower sales
in the Pet Supplies and Corporate and Other segments.
6
Sales in the Company's Work Glove and Protective Wear segment increased
$1,718,000, or 5.6%, in 2000 compared to the prior year. The Company's
restructuring of its sales force and more aggressive sales efforts during the
year were successful in broadening the Company's customer base in both the
consumer and industrial markets. In addition, glove sales benefited from colder
weather during the fourth quarter of 2000 in comparison to 1999. While the
increase in customers and colder weather increased volume during 2000, pricing
continued to fall through the year because of excess foreign productive
capacity. Revenues increased 7.6% in the consumer market on unit volume growth
of approximately 14%, while industrial market sales increased 2.2% on unit
volume growth of roughly 17%.
In the Pet Supplies segment, sales totaled $2,634,000 for 2000, a decline of
$1,082,000, or 29.1%. During the year, Warren lost its two largest customers
which accounted for 50% of 1999 sales. The loss of these two accounts
significantly reduced 2000 sales and is expected to have a continuing negative
impact on 2001 sales in the Pet Supplies segment. Management completed the
installation of a new sales team with industry experience during the third
quarter of 2000 to aggressively pursue new business. The new Warren sales team
has added new customers which are expected to replace roughly one third of the
sales decline noted above. However, the Company does not anticipate the benefit
of this expanded sales effort to occur until the second half of 2001.
Sales in the Company's Corporate and Other segment consist primarily of the
Company's Boss Balloon revenues. In this segment, 2000 sales declined by
$231,000, or 14.6%. The Company changed its balloon distribution focus during
the year to facilitate future growth. However, this change resulted in a
disruption of business to certain accounts during the second half of the year.
The Company also changed its sales management in this segment during the fourth
quarter of 2000 in an effort to provide a more experienced sales team. As in the
Pet Supplies segment, the benefit of this change in sales management is unlikely
to occur prior to the second half of 2001.
1999 COMPARED TO 1998
The Company's sales totaled $36,024,000 in 1999, down 4% from 1998. Sales
declined in each of the Company's segments of business. In the Work Glove and
Protective Wear segment, sales fell $878,000, or 2.8% due to weakness in the
industrial market. Certain of the industries served in this market, in
particular the oil exploration and development industry, experienced slowdowns
during the year. In addition, selling prices continued to erode during the year
in response to falling costs on imported finished goods in this segment. Sales
in the consumer market increased slightly during the year as volume increases
more than offset the impact of lower selling prices. The Work Glove and
Protective Wear segment represented 85% of the Company's total sales reflecting
the restructuring efforts from prior years.
Sales in the Company's Pet Supplies segment fell $239,000, or 6%, due in
large part to the loss of direct sales representation covering independent
hardware stores. This channel of distribution was covered in previous years by a
sales group associated with a business segment sold in 1997. In the fourth
quarter of 1999, Warren was advised that its second largest customer, which
accounted for 19% of 1999 sales in this segment, would discontinue purchasing
from the Company in the first quarter of 2000.
Sales declined in the Company's Corporate and Other segment in 2000 compared
to the prior year because of lower revenues at Boss Balloon. Boss Balloon's
reduction in revenues resulted from temporary inventory shortages when the
Company stopped production and began importing finished goods, the loss of a
significant customer and a slowdown in orders from another large customer during
the development of new product displays.
7
GROSS MARGIN
2000 1999 1998
------------------- ------------------- -------------------
GROSS MARGIN BY SEGMENT $(000) $ % $ % $ %
- ------------------------------ -------- -------- -------- -------- -------- --------
Work Gloves/Protective Wear..................... 10,075 31.1% 8,251 26.9% 8,691 27.5%
Pet Supplies.................................... 1,099 41.7% 1,332 35.8% 1,284 32.5%
Corporate & Other............................... 784 57.9% 674 42.5% 806 40.5%
------ ---- ------ ---- ------ ----
Total Gross Margin.............................. 11,958 32.8% 10,257 28.5% 10,781 28.7%
====== ==== ====== ==== ====== ====
2000 COMPARED TO 1999
On a consolidated basis, the Company's gross margin in 2000 totaled
$11,958,000, an increase of $1,701,000 from 1999. As a percentage of sales,
consolidated gross margin increased to 32.8%, up 4.3% from the prior year on
improved margins in each segment. In the Work Gloves and Protective Wear
segment, gross margin percentage increased from 26.9% in 1999 to 31.1% in 2000
due to higher margins on imported goods previously manufactured by the Company
at its Greenville, Alabama facility, lower cost on imported finished goods
purchased during the year and reduced operating losses from manufacturing
facilities closed in 2000. The favorable impact of these factors was partially
offset by inventory write-downs which resulted from declining purchase cost on
finished goods during the year. Because of higher sales and improved gross
margin percentage, gross margin increased by $1,824,000 in the Work Gloves and
Protective Wear segment in 2000 compared to the previous year.
In the Pet Supplies segment, gross margin declined to $1,099,000 during
2000, a reduction of $233,000 from the previous year due to lower sales in this
segment. On a percentage basis, gross margin improved 5.9% during 2000, totaling
41.7% for the year, due to the importation of certain goods previously
manufactured by the Company or purchased from domestic suppliers. In the
Corporate and Other segment, gross margin improved by $110,000 for 2000 compared
to 1999 totaling $784,000 for the year despite lower sales. Gross margin
percentage improved from 42.5% in 1999 to 57.9% in 2000 as the Company realized
improved margins on imported balloons for the full year.
1999 COMPARED TO 1998
The Company's total gross margin declined by $524,000 in 1999 compared to
the previous year because of lower sales during the year. As a percentage of
sales, the 1999 gross margin was 28.5%, essentially unchanged from 1998.
In the Work Gloves and Protective Wear segment, gross margin declined as a
percentage of sales from 27.5% in 1998 to 26.8% in 1999. This decline was
attributable in large part to an increased loss from domestic manufacturing
operations during the year. In response to reduced customer demand for
domestically produced goods, the Company closed one manufacturing facility in
1999 and reduced production volume at its remaining plant. This substantial
decline in production volume coupled with continued fixed manufacturing costs
and competitive pricing pressure, which kept selling prices down, resulted in a
significant loss from manufacturing operations in 1999.
Gross margins in the Company's other segments improved in 1999. In the Pet
Supplies segment, gross margin improved to 35.8% of sales in 1999, up from 32.5%
the previous year. This improvement was primarily due to lower operating costs
attributable to relocating the Warren Pet operations to Kewanee, Illinois from
southern Florida during 1999. Margins in the Corporate and Other segment
increased from 40.5% of sales in 1998 to 42.5% in 1999 because of the transition
to importing balloons during 1999.
8
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
2000 1999 1998
------------------- ------------------- -------------------
S, G & A EXPENSE BY SEGMENT $(000) $ % $ % $ %
- ---------------------------------- -------- -------- -------- -------- -------- --------
Work Gloves/Protective Wear..................... 9,667 29.8% 9,368 30.5% 7,731 24.5%
Pet Supplies.................................... 975 37.0% 913 24.6% 1,120 28.3%
Corporate & Other............................... 1,272 -- 1,766 -- 1,888 --
------ ---- ------ ---- ------ ----
Total S, G & A Expense.......................... 11,914 32.7% 12,047 33.4% 10,739 28.6%
====== ==== ====== ==== ====== ====
2000 COMPARED TO 1999
Selling, General & Administrative ("S, G & A") expenses totaled $11,914,000
in 2000, down $133,000 from 1999. This reduction coupled with the Company's
increased sales resulted in a 0.7% reduction in S, G & A expenses as a
percentage of sales. The decline in S, G & A expense resulted from reduced
expenditures in the Corporate and Other segment attributable to lower franchise
taxes, lower professional fees and reduced expenditures for annual meeting and
other shareholder related expenses.
In the Work Glove and Protective wear segment, S, G & A expenses increased
by $299,000 during 2000, though such expenses declined slightly as a percentage
of sales. Certain sales and volume related expenses such as outbound freight,
warehousing expense and commissions increased in comparison to the prior year.
In addition, warehousing expenses in the Company's Canadian operations increased
due to the termination of certain manufacturing operations which previously
absorbed such costs. These increases were partially offset by reduced selling
and administrative payroll expenses as well as lower system consulting expenses
in 2000. S, G & A expenses increased $62,000 in the Pet Supplies segment during
2000 due primarily to increased warehousing and handling expenses.
1999 COMPARED TO 1998
S, G & A expenses totaled $12,047,000 in 1999, up $1,308,000 from 1998. This
increase was attributable to higher S, G & A expenses in the Work Gloves and
Protective Wear segment. Several factors contributed to the increased level of
S, G & A expenses in this segment. Consulting fees, primarily associated with
Year 2000 readiness, increased substantially during the year. The Company
exceeded planned expenditures in this area and expensed certain consulting fees
incurred subsequent to the system implementation. A portion of the increased
consulting fees resulted from consulting services provided under severance
agreements.
The Company incurred increased sales and marketing expenses in the Work
Gloves and Protective Wear segment during 1999. The bulk of this increase
resulted from staff restructuring which caused above normal staffing levels for
a portion of the year. The restructuring process was completed before year-end.
Additional S, G & A expense increases in the Work Gloves and Protective Wear
segment occurred in warehousing, administrative payroll, depreciation and
product displays. Warehousing costs increased because of the full year of
operating in the new Kewanee facility and certain start-up costs incurred to
initiate operations. Administrative payroll increases were attributable to
increased staffing costs in support of the new system implementation and the
effect of a favorable benefit adjustment in 1998 not repeated in 1999.
Depreciation increased primarily as a result of Year 2000 capital expenditures
while product display expenses increased due to accelerated expense recognition
on certain items.
S, G & A expenses in the Pet Supplies and Corporate and Other segments
declined in 1999 compared to 1998. In the Pet Supplies segment, S, G & A
expenses totaled $913,000 in 1999, down $207,000 from 1998 reflecting the lower
costs incurred after the relocation from Florida to Kewanee, Illinois of this
9
segment's primary operating facility. Corporate and Other S, G & A expenses were
down $122,000 due in large part to reduced staffing expense at the corporate
headquarters.
OPERATING INCOME BEFORE ASSET SALES AND WRITEDOWNS
OPERATING INCOME (LOSS) BEFORE
ASSET SALES BY SEGMENT $(000) 2000 1999 1998
- ------------------------------ -------- -------- --------
Work Gloves & Protective Wear............................... 410 (1,117) 960
Pet Supplies................................................ 123 419 164
Corporate & Other........................................... (489) (1,092) (1,082)
---- ------ ------
Total Operating Income (Loss)............................... 44 (1,790) 42
==== ====== ======
2000 COMPARED TO 1999
The Company returned to profitability from an operating income standpoint in
2000 earning $44,000 for the year, up substantially from the loss of $1,790,000
in 1999. Operating income in the Company's primary line of business, Work Gloves
and Protective Wear, rebounded to earn $410,000 in 2000, up from a loss of
$(1,117,000) in 1999 on improved sales and margins. In addition, the Company
realized a substantial improvement in the Corporate and Other segment due to
reduced corporate S, G & A expenses and improved margins in the Company's
balloon operations. Pet Supplies operating income declined because of lower
sales due to the loss of customers during the year.
1999 COMPARED TO 1998
For 1999, the Company's operating loss totaled $1,790,000 before including
the provision for planned asset disposition costs. This loss was larger than
expected due to unfavorable results in the Work Glove and Protective Wear
segment, the Company's primary line of business. Decreased sales and increased
S, G & A expenses were the primary factors in the loss for 1999. During the
year, management restructured the Company's sales force, enhanced product
offerings and developed a more aggressive pricing structure to promote sales
growth.
In the Pet Supplies segment, the Company experienced improved results for
1999. This segment benefited from reduced operating costs after the relocation
of operations during 1999. Corporate and Other results were essentially
unchanged from the prior year.
ASSET SALES AND WRITEDOWNS
In response to declining demand for domestically produced gloves, the
Company closed and disposed of its Greenville, Alabama production facility
during the third quarter of 2000 following a disposition plan established by
management in the fourth quarter of 1999. The Company recorded a charge of
$1,100,000 in the fourth quarter of 1999 to provide for estimated losses and
disposition costs in closing the Greenville operation. Because the Greenville
facility was closed approximately two months later than originally planned,
certain Greenville operating costs were charged to expense during 2000.
In addition to closing the Greenville plant, the Company also ceased
manufacturing at its Juarez, Mexico plant during the third quarter of 2000 and
expects to sell its facilities in Juarez during the first quarter of 2001.
Management anticipates the proceeds from this sale to exceed the Company's book
value of these assets.
During 1998, the Company recorded a gain of $893,000 on the final settlement
of certain assets sold in 1997. This settlement related to certain post closing
adjustments provided in the sale agreement.
10
OTHER INCOME (EXPENSE)
The Company's interest income totaled $166,000 in 2000, up $63,000 from
1999. Interest income increased due to the Company's improved cash position
through most of 2000 in comparison to the previous year which resulted from
legal settlements received during the second half of 1999 and reduced inventory
during the first half of 2000 compared to 1999.
Interest expense in 2000 declined $164,000 from the prior year due to the
Company's improved cash position as discussed above and lower interest rates on
the new line of credit completed in June of 2000.
During 1999, the Company recorded a net gain of $1,165,000 from a legal
settlement with Hugo Boss A.G. Gross proceeds from this settlement were
$2,000,000, with this total offset by various legal and other estimated
compliance costs associated with the settlement. During 2000, the Company
recorded an additional gain of $150,000 because actual compliance costs were
lower than originally estimated.
INCOME TAX EXPENSE
During 2000, the Company recorded an income tax expense of $42,000
reflecting state income taxes on certain of the Company's subsidiaries. Because
of losses in prior years, the Company had no federal income tax expense in 2000
and has available substantial net operating loss carryforwards for federal
income tax purposes. These carryforwards have certain limitations due to a
change in control experienced in 1996.
LIQUIDITY AND CAPITAL RESOURCES
2000 COMPARED TO 1999
During 2000, operating activities used cash of $4,353,000, compared to
providing cash of $4,158,000 in 1999. The most significant factor impacting this
change in operating cash flows was inventory levels. The Company increased
inventory by $1,544,000 in 2000 as compared to reducing inventory by $4,077,000
in the prior year. The reduction in inventory at the end of 1999 resulted in
reduced shipping performance during the first quarter of 2000 causing management
to increase inventory levels. In addition, the Company increased inventory
quantities of certain goods in preparation for the closedown of its
manufacturing facility in Alabama and expects to continue maintaining higher
levels of inventory on imported goods previously manufactured because of the
lead times involved in importing finished goods.
Reductions in accrued liabilities during 2000 consumed $2,169,000 of cash
flow. The Company completely liquidated its $1,100,000 Greenville, Alabama
disposition reserve during the year. Additional reductions in accrued
liabilities were attributable to Hugo Boss settlement compliance costs, closing
costs associated with the Juarez, Mexico facility and health claim costs on a
terminated policy. Operating cash flows were also negatively impacted in 2000 by
a $1,295,000 increase in accounts receivable attributable to significantly
higher December 2000 sales in comparison to 1999.
Investing activities provided cash of $698,000 in 2000, up $283,000 from the
prior year. The Company received $770,000 in cash proceeds from the disposition
of Greenville, Alabama facilities closed during the year. After completing the
installation of year 2000 compliant computer systems in 1999, the Company
significantly reduced capital expenditures in 2000. Capital expenditures during
the year totaled $72,000, down from $623,000 in the previous year. Capital
expenditures were generally geared toward upgrading and maintaining the
distribution center in Kewanee and obtaining needed material handling equipment.
In the financing activities area, the Company paid down long-term
obligations by $222,000. These payments were primarily on the Springfield,
Illinois distribution center mortgage and the new computer system lease. Because
of the cash used by operating activities and cash used to pay down long-term
obligations, the Company increased borrowings on its revolving line of credit by
$1,947,000 during 2000.
11
The Company ended 2000 with $2,058,000 in cash. Borrowings on the Company's
$10,000,000 revolving credit facility totaled $2,780,000. The Company's
availability under this facility, due to certain collateral limitations, totaled
$4,662,000 as of December 30, 2000. After closing the Greenville, Alabama
facility, reducing various accrued liabilities and increasing inventory to
better serve customers, the Company ended the year with ample liquidity and
expects to have adequate liquidity to provide for anticipated obligations during
2001. On a longer term basis, the Company expects to generate sufficient cash
from operations to meet the needs of its existing business operations. However,
certain potential growth and expansion plans, if implemented, could require the
Company to consider additional funding sources such as increased bank lines of
credit, the issuance of additional capital stock, or the issuance of public or
private debt. There can be no assurance that any of these funding sources will
be available to the Company when and if required.
1999 COMPARED TO 1998
Operating activities generated cash of $4,158,000 in 1999, up $5,615,000
from 1998. This increase was primarily attributable to cash generated from
working capital as the Company reduced inventory levels and cash received in
connection with the Hugo Boss settlement.
Investing activities provided cash of $415,000 in 1999 as compared to
$79,000 in 1998. The settlement of certain litigation relating to the Company's
1997 sale of its Alabaster Industries, Inc. subsidiary resulted in sufficient
proceeds to retire the $1,038,000 note and mortgage receivable. This cash
benefit was partially offset by purchases of property and equipment, primarily
in connection with the Company's new, year 2000 compliant computer systems. In
1998, the Company received a payment in final settlement of the sale of certain
assets during 1997. This payment slightly exceeded purchases of property and
equipment during the year.
The excess of cash generated by operating activities over cash used by
investing activities for 1999 enabled the Company to pay down its credit
facilities. This resulted in a use of cash by financing activities of
$2,736,000.
INFLATION
The Company does not believe that the moderate rates of inflation
experienced in the United States over the last three years have had a material
effect on its net sales or profitability. The Company obtains finished goods
from some foreign countries which have experienced deflationary conditions
during the last three years, thereby decreasing the Company's cost of goods sold
for many items, particularly in the Work Gloves and Protective Wear segment. The
Company believes such price changes have increased price competition in this
segment.
MARKET RISK
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.
OVERVIEW AND OUTLOOK FOR 2001
Operating results in 2000 were significantly improved from 1999 with the
Company returning to profitability during the year. The Company benefited from
several of the management initiatives completed in 1999 and 2000. These
initiatives included the elimination of domestic manufacturing, sales force
reorganization and management restructuring.
12
As planned, the Company completed the closing and disposition of its
Greenville, Alabama manufacturing facilities during the year. In addition, the
Company closed its Juarez, Mexico manufacturing facility and expects to complete
the sale of this facility in the first quarter of 2001. By completing the
transition to importing, marketing and distribution, the Company improved its
gross margin in 2000. However, the impact of this transition should have a
greater impact on 2001 margins, because the Company incurred approximately
$400,000 in expenses during 2000 associated with operations closed during the
year. In addition, the Company did not realize until the second half of 2000 the
improved gross margins resulting from certain imported goods which were
previously manufactured at the Greenville plant.
Due in part to the sales force reorganization initiated in 1999 and
completed during 2000, the Company experienced a sales increase of 5.5% in the
Company's primary business segment while reducing various selling expenses
including payroll and travel during the year. In view of continued declining
selling prices throughout the year, this increase in sales was a significant
accomplishment. To achieve this growth in revenue of 5.5%, the Company increased
unit sales approximately 15% in the Work Glove and Protective Wear segment.
During the second half of 1999, the Company streamlined certain executive
responsibilities and began utilizing the services of a previous President of
Boss Manufacturing Company on a consulting basis. This new management structure
helped to reduce corporate overhead expense in 2000 while supporting aggressive
new sales and purchasing efforts during the year which were instrumental in
growing revenues while improving margins.
Management intends to continue its focus on improved sales and earnings
during 2001, building on the positive trend established in 2000. With the
Company's emphasis on importing, marketing and distribution, margins should
continue to be favorable in 2001 compared to previous years. During 2001,
management plans to evaluate its distribution operations to seek efficiencies
and improved performance. In addition, management expects to review each of the
Company's operations in an effort to improve returns from under-performing
facilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following consolidated financial statements of the Company and its
Accountants' Opinion are set forth in Part IV, Item 14, of this Report:
(i) Consolidated Statements of Operations, Cash Flows and Shareholders'
Equity for the year's ended December 30, 2000, December 25, 1999 and
December 26, 1998.
(ii) Consolidated Balance Sheets--as of December 30, 2000 and December 25,
1999.
(iii) Notes to the Consolidated Financial Statements; and Unqualified Opinion
of Independent Accountants dated February 15, 2001.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the Company's Definitive Proxy Statement
prepared in connection with its 2001 Annual Meeting of Stockholders (the "Proxy
Statement") under the captions "Election of Directors", "Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein
by reference. The Proxy Statement is to be filed no later than 120 days after
the end of the fiscal year covered by this Annual Report on Form 10-K.
13
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
The following consolidated financial statements of Boss Holdings, Inc. and
Report of Independent Accountants are attached as pages F-1 through F-24 to
this report:
Consolidated Balance Sheets--as of December 30, 2000 and December 25,
1999;
Consolidated Statements of Operations, Cash Flows and Shareholders'
Equity for the years ended December 30, 2000, December 25, 1999 and
December 26, 1998;
Notes to the Consolidated Financial Statements; and
Report of Independent Accountants dated February 15, 2001.
(b) Reports on Form 8-K:
None filed during the 4th Quarter of 2000.
(c) Exhibits:
The exhibits filed with or incorporated into this report are listed in the
Index to Exhibits which follows.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BOSS HOLDINGS, INC.
(Registrant)
By: /s/ J. BRUCE LANCASTER
-----------------------------------------
J. Bruce Lancaster
CHIEF FINANCIAL OFFICER, DIRECTOR
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
By: /s/ G. LOUIS GRAZIADIO, III
-------------------------------------- Chairman of the Board and March 30, 2001
G. Louise Graziadio, III Chief Executive Officer
By: /s/ PERRY A. LERNER
-------------------------------------- Director March 30, 2001
Perry A. Lerner
By: /s/ LEE E. MIKLES
-------------------------------------- Director March 30, 2001
Lee E. Mikles
By: /s/ PAUL A. NOVELLY
-------------------------------------- Director March 30, 2001
Paul A. Novelly
By: /s/ RICHARD D. SQUIRES
-------------------------------------- Director March 30, 2001
Richard D. Squires
15
INDEX TO EXHIBITS
(3)(I) ARTICLES OF INCORPORATION
3.1 Certificate of Incorporation (see note A below)
3.1.1 Amendment to Certificate of Incorporation, dated
December 7, 1998 (see note B below)
3.1.2 Amendment to Certificate of Incorporation, dated June 30,
2000 (see note C below)
(3)(II) BY-LAWS
3.2 By-Laws (see note A below)
(10) MATERIAL CONTRACTS
10.1 1998 Incentive Stock Option Plan, as amended (see note D
below)
10.2 1998 Non-Employee Director Stock Option Plan, as amended
(see note D below)
10.3 Loan and Security Agreement among Boss Holdings, Inc., Boss
Manufacturing Company and American National Bank and Trust
Company of Chicago, dated June 16, 2000 (see note C below)
21.1 SUBSIDIARIES OF THE REGISTRANT
- ------------------------
A Incorporated herein by reference from the Company's Registration Statement on
Form SB-2 (Registration No. 33-73118-A).
B Incorporated herein by reference from the Company's report on Form 10-K for
the year ended December 26, 1998.
C Incorporated herein by reference from the Company's report on Form 10-Q for
the quarter ended July 1, 2000.
D Incorporated herein by reference from the Company's registration statement on
Form S-8 dated February 1, 2001.
16
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOSS HOLDINGS, INC. AND SUBSIDIARIES
DECEMBER 30, 2000 AND DECEMBER 25, 1999
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Boss Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Boss
Holdings, Inc. and Subsidiaries as of December 30, 2000 and December 25, 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 30, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Boss
Holdings, Inc. and Subsidiaries as of December 30, 2000 and December 25, 1999,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 30, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
February 15, 2001
F-1
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 30, DECEMBER 25,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 2,058 $ 3,997
Accounts receivable, net of allowance for doubtful
accounts and returns of $497 and $464, respectively..... 8,068 6,773
Inventories............................................... 11,244 9,700
Prepaid expenses.......................................... 415 493
Other..................................................... -- 155
------- -------
Total current assets.................................... 21,785 21,118
PROPERTY AND EQUIPMENT, NET................................. 3,626 5,145
OTHER ASSETS................................................ 51 29
------- -------
$25,462 $26,292
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 147 $ 968
Current portion of capital lease obligation............... 65 86
Accounts payable.......................................... 1,115 1,161
Accrued payroll and related expenses...................... 594 736
Accrued liabilities....................................... 1,430 3,835
------- -------
Total current liabilities............................... 3,351 6,786
LONG-TERM OBLIGATIONS
Long-term debt............................................ 4,388 1,754
Capital lease obligations................................. 8 62
------- -------
Total long-term obligations............................. 4,396 1,816
STOCKHOLDERS' EQUITY
Common stock, $.25 par value; 10,000,000 shares and
50,000,000 shares authorized in 2000 and 1999,
respectively; 1,934,904 shares issued and outstanding... 484 484
Additional paid-in capital................................ 67,437 67,437
Accumulated deficit....................................... (48,357) (48,391)
Accumulated other comprehensive deficit................... (99) (90)
------- -------
19,465 19,440
Less: 13,654 treasury shares--at cost................... (1,750) (1,750)
------- -------
Total stockholders' equity............................ 17,715 17,690
------- -------
$25,462 $26,292
======= =======
The accompanying notes are an integral part of these statements.
F-2
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
------------ ------------ ------------
Net sales............................................... $36,429 $36,024 $37,543
Cost of sales........................................... 24,471 25,767 26,762
------- ------- -------
Gross profit............................................ 11,958 10,257 10,781
Operating expenses...................................... 11,914 12,047 10,739
------- ------- -------
44 (1,790) 42
Gain (loss) on sale of business and operating assets.... -- -- 893
Write-down of operating assets.......................... -- (1,100) --
------- ------- -------
Earnings (loss) from operations......................... 44 (2,890) 935
Other income and (expense)
Interest income....................................... 166 103 151
Interest expense...................................... (351) (515) (532)
Gain on lawsuit settlement net of settlement
expenses............................................ 150 1,135 --
Other................................................. 67 29 18
------- ------- -------
Net earnings (loss) before income taxes............. 76 (2,138) 572
Income tax (expense) benefit............................ (42) (18) 68
------- ------- -------
Net earnings (loss)................................. $ 34 $(2,156) $ 640
======= ======= =======
Net earnings (loss) per common share
Basic................................................. $ 0.02 $ (1.11) $ 0.34
Diluted............................................... $ 0.02 $ (1.11) $ 0.33
The accompanying notes are an integral part of these statements.
F-3
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 30, 2000, DECEMBER 25, 1999 AND DECEMBER 26, 1998
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TREASURY STOCK TOTAL
------------------- PAID-IN ACCUMULATED COMPREHENSIVE ------------------- STOCKHOLDERS'
SHARES DOLLARS CAPITAL DEFICIT EARNINGS SHARES DOLLARS EQUITY
-------- -------- ---------- ----------- ------------- -------- -------- -------------
Balance at December 27,
1997.................. 1,794 $448 $67,370 $(46,875) $ (70) (14) $(1,750) $19,123
COMPREHENSIVE EARNINGS:
Net earnings.......... -- -- -- 640 -- -- -- 640
Foreign currency
translation
adjustment.......... -- -- -- -- (49) -- -- (49)
-------
COMPREHENSIVE EARNINGS.. 591
Exercise of stock
options............... 148 38 83 -- -- -- -- 121
----- ---- ------- -------- ----- --- ------- -------
Balance, December 26,
1998.................. 1,942 486 67,453 (46,235) (119) -- (1,750) 19,835
COMPREHENSIVE EARNINGS:
Net loss.............. -- -- -- (2,156) -- -- -- (2,156)
Foreign currency
translation
adjustment.......... -- -- -- -- 29 -- -- 29
-------
COMPREHENSIVE EARNINGS.. (2,127)
Exercise of stock
options............... 32 8 16 -- -- -- -- 24
Purchase and retirement
of common stock....... (25) (6) (36) -- -- -- -- (42)
Common stock cancelled.. (14) (4) 4 -- -- -- -- --
----- ---- ------- -------- ----- --- ------- -------
Balance, December 25,
1999.................. 1,935 484 67,437 (48,391) (90) (14) (1,750) 17,690
COMPREHENSIVE EARNINGS:
Net earnings.......... -- -- -- 34 -- -- -- 34
Foreign currency
translation
adjustment.......... -- -- -- -- (9) -- -- (9)
-------
COMPREHENSIVE EARNINGS.. 25
----- ---- ------- -------- ----- --- ------- -------
Balance, December 30,
2000.................. 1,935 $484 $67,437 $(48,357) $ (99) (14) $(1,750) $17,715
===== ==== ======= ======== ===== === ======= =======
The accompanying notes are an integral part of this statement.
F-4
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net earnings (loss)................................... $ 34 $(2,156) $ 640
Adjustments to reconcile net earnings (loss) to net
cash (used) provided by operations:
Gain on sale of operating assets.................... -- -- (893)
Write-down of operating assets...................... -- 1,100 --
Depreciation 456 474 343
(Increase) decrease in operating assets:
Accounts receivable............................... (1,295) (289) 1,245
Inventories....................................... (1,544) 4,077 (1,284)
Prepaid expenses and other current assets......... 233 53 39
Other assets...................................... (22) 67 70
Increase (decrease) in operating liabilities:
Accounts payable.................................. (46) (117) (155)
Accrued liabilities............................... (2,169) 949 (1,462)
------- ------- -------
Net cash (used) provided by operating
activities.................................... (4,353) 4,158 (1,457)
------- ------- -------
Cash flows from investing activities:
Proceeds from disposition of operating assets......... 770 -- 893
Purchases of property and equipment................... (72) (623) (818)
Proceeds from payments on note receivable............. -- 1,038 4
------- ------- -------
Net cash provided by investing activities....... 698 415 79
------- ------- -------
The accompanying notes are an integral part of these statements.
F-5
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) on revolving line of
credit.............................................. 1,947 (3,261) 973
Proceeds from long-term debt.......................... -- 1,500 512
Repayment of long-term debt and capital lease
obligation.......................................... (222) (957) (170)
Proceeds from exercise of stock options and
warrants............................................ -- 24 121
Retirement of common stock--limited tender............ -- (42) --
------ ------ ------
Net cash provided (used) by financing activities.... 1,725 (2,736) 1,436
------ ------ ------
Effect of exchange rate changes on cash................. (9) 29 (49)
------ ------ ------
Net (decrease) increase in cash during period........... (1,939) 1,866 9
Cash and cash equivalents at the beginning of the
period................................................ 3,997 2,131 2,122
------ ------ ------
Cash and cash equivalents at the end of the period...... $2,058 $3,997 $2,131
====== ====== ======
Supplemental disclosure:
Interest paid......................................... $ 334 $ 508 $ 528
Income taxes (refunded) paid, net..................... 64 (15) 209
Noncash investing and financing activities:
Assets purchased under capital lease obligation....... $ 13 $ 253 $ --
The accompanying notes are an integral part of these statements.
F-6
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Boss Holdings, Inc. and its subsidiaries, (the "Company"), are engaged
primarily in the import, distribution and sale of consumer products including
gloves, boots, rainwear, pet products and balloons. The Company's customers
include mass merchandisers, various other retailers and commercial users located
throughout North America.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Boss Holdings, Inc. ("BHI"), and its wholly owned subsidiary, Boss Manufacturing
Holdings, Inc. and subsidiaries ("BMHI") (collectively, the "Company"). All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
FISCAL YEAR
The Company maintains a 52/53-week year ending on the last Saturday in the
calendar year. Fiscal year 2000 contained 53 weeks, while 1999 and 1998 each
contained 52 weeks.
CASH AND CASH EQUIVALENTS
Cash and equivalents consist of cash on hand, time deposits, and liquid debt
instruments such as commercial paper with maturities of three months or less
from the date of purchase.
REVENUE RECOGNITION
The Company recognizes revenue and provides for the estimated cost of
returns and allowances in the period the products are shipped.
No single customer accounted for 10% or more of revenue in 2000, 1999 or
1998.
INVENTORIES
Inventories are stated at the lower of average cost or market. Cost for
approximately 81% and 72% of inventories at December 30, 2000 and December 25,
1999, respectively, has been determined using the last-in, first-out (LIFO)
method. Cost for the remainder of the inventories has been determined primarily
using the first-in, first-out (FIFO) method.
Had the Company used the first-in, first-out (FIFO) method of accounting for
all inventories, gross profit would have been substantially the same for all
years presented, except for 1998 when the gross profit would have been $180
higher.
ADVERTISING COSTS
The Company generally expenses the cost of advertising the first time
advertising takes place. Costs of trade shows and developing advertising
materials are expensed at the time of the trade shows or as the
F-7
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
advertising materials are produced and distributed to customers. Advertising
expense for 2000, 1999 and 1998 was $924, $807 and $847, respectively.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates applied to taxable income. The effect on deferred income
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance is provided
for deferred income tax assets when it is more likely than not that the asset
will not be realized.
PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at historical cost. The Company provides
for depreciation and amortization using the straight-line method over the
following estimated useful lives:
Machinery and equipment..................................... 3 to
10 years
Office Furniture and equipment.............................. 3 to 8 years
Buildings................................................... 35 years
Depreciation expense was $456, $474 and $343 for 2000, 1999 and 1998,
respectively.
WARRANTY COSTS AND RETURNS
The Company provides for estimated warranty costs and returns at the time of
sale. Accrued costs of warranty obligations and returns are classified as
accrued liabilities and are immaterial.
FOREIGN CURRENCY TRANSLATION
Financial statements of the Company's Canadian subsidiary are translated
into U.S. dollars using fiscal year-end exchange rates for assets and
liabilities, and average exchange rates during the year for the results of
operations. Translation adjustments of the Canadian accounts are reported as a
separate component of other comprehensive earnings within stockholders' equity.
Translation adjustments of the Mexican subsidiary, for which the functional
currency is U.S. dollars, are included in the results of operations for the
year.
Exchange rate adjustments related to foreign currency transactions are
recognized in income as incurred and were not significant in any of the reported
periods.
SYSTEMS DEVELOPMENT COSTS
In 1999, the Company adopted AICPA Statement of Position ("SOP") 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SYSTEMS DEVELOPED OR OBTAINED FOR INTERNAL
USE. Pursuant to SOP 98-1, the Company
F-8
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
capitalizes certain systems development costs that meet established criteria and
amortizes these amounts over a three-year period.
The Company capitalized systems development costs of $0, $427, and $0 for
2000, 1999, and 1998, respectively.
EARNINGS LOSS PER SHARE
Basic net earnings (loss) per common share is based upon the weighted
average number of common shares outstanding during the period. Diluted net
earnings (loss) 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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, cash equivalents and
long-term debt. The carrying value of cash and cash equivalents approximates
fair value due to the relatively short period to maturity of the instruments.
The carrying value of the Company's long-term obligations approximates fair
value based upon borrowing rates currently available to the Company for
borrowings with comparable maturities.
(2) INVENTORIES
DECEMBER 30, DECEMBER 25,
2000 1999
------------ ------------
Raw Materials....................................... $ 224 $1,390
Work in Progress.................................... 64 335
Finished Goods...................................... 10,956 7,975
------- ------
$11,244 $9,700
======= ======
F-9
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(3) PROPERTY AND EQUIPMENT
DECEMBER 30, DECEMBER 25,
2000 1999
------------ ------------
Machinery and equipment..................................... $ 726 $1,088
Buildings and improvements.................................. 3,061 3,969
Office furniture and equipment.............................. 1,151 1,123
Construction in progress.................................... -- --
------ ------
Total property and equipment.......................... 4,938 6,180
Less accumulated depreciation............................... 1,415 1,374
------ ------
3,523 4,806
Land........................................................ 103 339
------ ------
$3,626 $5,145
====== ======
(4) LONG-TERM OBLIGATIONS
DECEMBER 30, DECEMBER 25,
LONG-TERM DEBT 2000 1999
- -------------- ------------ ------------
BHI revolving line of credit................................ $2,780 $ 823
Boss Manufacturing Real Estate, Inc. mortgage note payable
to a lender. Requires monthly principal payments of $6.
Interest is at LIBOR plus 2.1%, adjusted monthly. All
remaining principal is due in October 2004. Collateralized
by all real and personal property of Boss Manufacturing
Real Estate, Inc. located in Springfield, Illinois........ 1,413 1,488
Boss Manufacturing Company loan agreement with a local
governmental agency. Requires monthly payments of $7,
including interest at 3%, through June 2005.
Collateralized by all real property of Boss Manufacturing
Company's Kewanee, Illinois facilities.................... 342 411
------ ------
Total long-term debt.................................. 4,535 2,722
Less current maturities..................................... 147 968
------ ------
Long-term debt........................................ $4,388 $1,754
====== ======
Scheduled principal payments of long-term debt are as follows:
FISCAL YEAR:
- ------------
2001...................................................... $ 147
2002...................................................... 2,930
2003...................................................... 152
2004...................................................... 1,266
2005...................................................... 40
------
Total................................................. $4,535
======
F-10
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(4) LONG-TERM OBLIGATIONS (CONTINUED)
In June 2000, the Company entered into a loan and security agreement (the
"Credit Agreement") with a commercial bank. The Credit Agreement expires in
June 2002 and provides a revolving credit facility up to $10 million based on a
formula that includes eligible accounts receivable and inventory. Interest is
payable monthly at the bank's prime rate or, at the Company's option, LIBOR plus
2.1% (effective rate of 9.0% at December 30, 2000). The Company incurs an unused
line fee of 1/8% per annum on the unused portion of the credit facility.
Availability under this credit agreement was $4,662 at December 30, 2000.
The Credit Agreement includes certain restrictive covenants and requires
maintenance of certain financial ratios including current ratio, minimum
tangible net worth, debt service coverage and debt to tangible net worth. As of
December 30, 2000, the Company was in compliance with such covenants. The
Company's accounts receivable and inventory secure the credit facility.
(5) COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain office equipment under a noncancelable lease
expiring in 2001. For financial reporting purposes, minimum lease payments
relating to this lease have been capitalized. The related assets and obligation
have been recorded using the Company's incremental borrowing rate at the
inception of the lease. The equipment had a net book value of $137 at
December 30, 2000.
The Company leases certain office and operating facilities and certain
equipment under operating lease agreements that expire on various dates through
2003 and require the Company to pay all maintenance costs. Rent expense under
these leases was approximately $172, $137 and $320 for 2000, 1999 and 1998,
respectively.
The following is a schedule by year of future minimum payments under capital
and operating lease agreements, and the present value of future minimum rental
payments under capitalized lease obligations at December 30, 2000:
CAPITAL OPERATING TOTAL
------- --------- --------
Year ended December 31,
2001.............................................. $ 69 $ 95 $164
2002.............................................. 5 93 98
2003.............................................. 3 50 53
---- ---- ----
Total minimum lease payments........................ 77 $238 $315
==== ====
Amount representing interest........................ (4)
Current portion of capital lease obligation......... (65)
----
Present value of long-term capital lease
obligation........................................ $ 8
====
F-11
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
In July 1996, the Company commenced an action against Richard P. Smyth, a
former officer and director, alleging that Mr. Smyth committed fraudulent and
unlawful acts resulting in substantial harm to the Company and its shareholders.
In August 1999, the Company and Mr. Smyth reached a settlement agreement. Under
the terms of the settlement agreement, the Company received a consent judgment
against Mr. Smyth in the principal sum of $998, and the Company agreed not to
pursue collection of the judgment in exchange for a $50 initial cash payment
received from Smyth at the time of the settlement and timely receipt of future
installment payments from Smyth totaling $435. The payment obligations of Smyth
under the settlement agreement are secured by a junior mortgage on his
residence.
The Company is also a defendant or has been notified of claims in several
other actions against it. In the opinion of management, the ultimate outcome of
these actions will not have a material adverse effect on the financial position
of the Company.
(6) STOCKHOLDER'S EQUITY
STOCK OPTIONS
The Company has adopted two stock option plans providing for the issuance of
options covering up to 425,000 shares of common stock to be issued to officers,
directors, or consultants to the Company. Various vesting conditions apply to
these options, based on either tenure or certain performance criteria. Options
granted to nonemployees are recognized over the related service period based on
the estimated fair value of the options. The company recorded no charges in the
periods being presented. Stock option transactions are summarized as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 30, 2000 DECEMBER 25, 1999 DECEMBER 26, 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
Outstanding, beginning of period............. 159,590 $1.90 33,590 $1.30 183,630 $ 1.00
Granted...................................... 69,000 3.29 158,000 1.80 -- --
Exercised.................................... -- -- (32,000) 0.75 (150,000) 0.75
Cancelled.................................... -- -- -- -- (40) 98.25
------- ----- ------- ----- -------- ------
Outstanding, end of period................... 228,590 $2.32 159,590 $1.90 33,590 $ 1.30
======= ===== ======= ===== ======== ======
F-12
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(6) STOCKHOLDER'S EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
that are currently exercisable at December 30, 2000:
OPTIONS OUTSTANDING AND EXERCISABLE
- ---------------------------------------------------------
WEIGHTED
NUMBER AVERAGE
OUTSTANDING AT REMAINING WEIGHTED
EXERCISE DECEMBER 30, CONTRACTUAL AVERAGE
PRICE 2000 LIFE (YEARS) EXERCISE PRICE
- -------- -------------- ------------ --------------
$98.25 190 4.8 $98.25
0.75 1,400 6.0 0.75
1.75 125,833 8.2 1.75
4.75 2,500 8.9 4.75
3.63 14,000 9.0 3.63
------- --- ------
143,923 8.1 $ 2.10
======= === ======
The Company uses the intrinsic value method in accounting for its stock
options issued to employees. In applying this method, no compensation cost has
been recognized related to the granting of options to employees. Had
compensation cost for the Company's stock options plans been determined based on
the fair value at the grant dates for awards to employees under those plans, the
Company's net earnings (loss) and earnings (loss) per share would have resulted
in the pro forma amounts indicated below:
2000 1999 1998
-------- -------- --------
Net earnings (loss)
As reported............................................... $ 34 $(2,156) $ 640
Pro forma................................................. (27) (2,196) $ 640
Basic net earnings (loss) per common share
As reported............................................... $ 0.02 $ (1.11) $ 0.34
Pro forma................................................. (0.01) (1.13) 0.34
Diluted net earnings (loss) per common share
As reported............................................... $ 0.02 $ (1.11) $ 0.33
Pro forma................................................. (0.01) (1.13) 0.33
The fair values were estimated using the Black-Scholes options-pricing model
with the following weighted-average assumptions for 2000 and 1999, respectively;
expected volatility of 50% and 50%, expected dividend yield of 0.0% and 0.0%,
risk-free rate of return of 4.9% and 6.6%; and expected lives of 5 and 5 years.
The Company granted no options in 1998.
F-13
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(7) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
2000 1999 1998
-------- -------- --------
Numerator for basic and diluted net earnings (loss) per
common share--earnings (loss) attributable to common
stockholders.............................................. $ 34 $(2,156) $ 640
====== ======= =====
Denominator for basic net earnings (loss) per common
share--weighted average shares outstanding................ 1,935 1,943 1,907
Effect of dilutive options and warrants..................... -- -- 19
------ ------- -----
Denominator for diluted net earnings (loss) per common
share--adjusted weighted average shares outstanding....... 1,935 1,943 1,926
====== ======= =====
Net earnings (loss) per common share
Basic..................................................... $ 0.02 $ (1.11) $0.34
Diluted................................................... $ 0.02 $ (1.11) $0.33
(8) EMPLOYEE RETIREMENT SAVINGS PLAN
The Company contributes to employee retirement plans covering substantially
all of its employees. Charges to consolidated operations for these plans were as
follows:
2000 1999 1998
-------- -------- --------
Discretionary Contribution Profit Sharing--401(k).......... $22 $90 $92
(9) RELATED PARTY TRANSACTIONS
During 2000, 1999 and 1998, compensation, fees and expense reimbursements
paid to directors or their affiliates totaled approximately $392, $518 and $367,
respectively.
F-14
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(10) INCOME TAXES
The Company records income taxes based on its consolidated tax return.
Current and deferred federal and state tax expense (benefit) is as follows:
DECEMBER 30, DECEMBER 25, DECEMBER 26,
2000 1999 1998
------------ ------------ ------------
Current income tax expense (benefit)
Federal............................................... $ -- $ -- $ --
State and local....................................... 64 18 (68)
---- ---- ----
64 18 (68)
Deferred income tax expense (benefit)
Federal............................................... $(19) -- --
State and local....................................... (3) -- --
---- ---- ----
(22) -- --
---- ---- ----
Total income tax expense (benefit)...................... $ 42 $ 18 $(68)
==== ==== ====
The temporary differences result in a net deferred income tax asset that is
reduced by a related valuation allowance, summarized as follows:
DECEMBER 30, DECEMBER 25,
2000 1999
------------ ------------
Deferred income tax assets:
Operating loss carryforwards.............................. $ 14,519 $ 13,720
Accounts receivable....................................... 228 203
Accruals.................................................. 245 810
Compensation related...................................... 143 270
Tax credit carryforwards.................................. 235 236
Other..................................................... -- --
-------- --------
Gross deferred tax assets............................... 15,370 15,239
Deferred tax asset valuation allowance.................. (13,856) (12,978)
-------- --------
Net deferred tax asset.................................... 1,514 2,261
-------- --------
Deferred income tax liabilities:
Inventories............................................... 1,259 1,713
Fixed assets.............................................. 233 548
-------- --------
1,492 2,261
-------- --------
Net deferred income tax asset............................... $ 22 $ --
======== ========
Included in the tax credit carryforward is approximately $235 of alternative
minimum tax credits and general business credits available to reduce future
income taxes payable.
F-15
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(10) INCOME TAXES (CONTINUED)
Income tax expense and benefit for 2000, 1999 and 1998 consists primarily of
current state taxes attributable to BMHI and its subsidiaries. Included in other
current assets are approximately $0 and $155 of refundable income taxes at
December 30, 2000 and December 25, 1999, respectively. The net deferred income
tax asset of $22 was included in other assets at December 30, 2000.
At December 30, 2000, the Company had operating loss carryforwards for U.S.
income tax purposes of $40,191 available to reduce future taxable income, which
expire as follows:
NET
YEAR OF OPERATING
EXPIRATION LOSS
- ---------- ---------
2002........................................................ $ 1,176
2008........................................................ 1,646
2009........................................................ 8,120
2010........................................................ 2,038
2011........................................................ 16,549
2012........................................................ 9,197
2019........................................................ 535
2021........................................................ 930
-------
$40,191
=======
Included in the operating loss carryforward is $1,176 of losses which expire
in 2002 and which is limited by taxable income produced by the Boss
Manufacturing Company subsidiary of BMHI.
The Company experienced a change in control, as defined under Section 382 of
the Internal Revenue Service Code, during 1996. As a result, the utilization of
the net operating losses that originated in or prior to 1996 is limited to a
maximum of approximately $1,600 annually. As a result of these limitations, a
significant portion of the tax loss carryforwards could expire unused.
(11) WRITE-DOWN OF OPERATING ASSETS
During the fourth quarter of 1999, management decided to dispose of the
Company's Greenville, Alabama glove manufacturing facility. This facility
incurred significant operating losses due to reduced demand for domestically
produced gloves. The Company ceased manufacturing operations in Greenville and
disposed of all assets associated with this operation during the third quarter
of 2000.
The Company recorded a charge of $1,100 in the fourth quarter of 1999
representing management's estimate of the Greenville disposition costs.
Disposition costs in excess of the estimate were charged to expense in 2000.
Greenville disposition costs included expenses of selling the facilities, losses
on fixed asset sales, employee severance costs, liquidation of unused raw
materials and operating losses incurred during 2000 prior to the facility
closing.
F-16
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(12) ACQUISITIONS AND DISPOSITIONS
1998
During 1998, the Company reached an agreement with the purchaser of certain
assets of BMHI sold by the company in 1997. The agreement related to the
settlement of certain post closing adjustments and resulted in a gain of
approximately $893.
(13) OPERATING SEGMENTS AND RELATED INFORMATION
The Company operates primarily in the work gloves and protective wear
segment. Through its Boss Manufacturing Company subsidiary, the Company imports
and markets gloves, boots and rainwear products. In addition, through its Warren
Pet Products division of BMHI, the Company imports and markets a line of pet
supplies including dog and cat toys, collars, leads, chains and rawhide
products.
The following table provides summarized information concerning the Company's
reportable segments. In this table, the Company's corporate and certain smaller
operations are grouped into a miscellaneous column entitled, "Corporate and
Other."
WORK GLOVES CORPORATE
AND PROTECTIVE PET AND
WEAR SUPPLIES OTHER TOTAL
-------------- -------- --------- --------
2000
Revenues............................................. $32,440 $2,634 $ 1,355 $36,429
Segment (loss) profit................................ 410 123 (489) 44
Earnings (loss) from operations...................... 410 123 (489) 44
Total assets......................................... 19,748 1,441 4,273 25,462
Capital expenditures................................. 72 -- -- 72
Depreciation......................................... 395 38 23 456
1999
Revenues............................................. $30,722 $3,716 $ 1,586 $36,024
Segment (loss) profit................................ (1,117) 419 (1,092) (1,790)
Asset sales and write-downs.......................... (1,100) -- -- (1,100)
(Loss) earnings from operations...................... (2,217) 419 (1,092) (2,890)
Total assets......................................... 18,735 1,306 6,251 26,292
Capital expenditures................................. 623 -- -- 623
Depreciation......................................... 406 38 30 474
1998
Revenues............................................. $31,600 $3,955 $ 1,988 $37,543
Segment profit (loss)................................ 960 164 (1,082) 42
Asset sales and write-downs.......................... -- -- 893 893
Earnings (loss) from operations...................... 960 164 (189) 935
Total assets......................................... 21,666 1,393 5,911 28,970
Capital expenditures................................. 770 27 21 818
Depreciation......................................... 279 38 26 343
F-17
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 30, 2000 AND DECEMBER 25, 1999
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(14) QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly results for fiscal
2000 and 1999:
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER FULL YEAR
----------- ----------- ----------- ----------- ---------
2000
Net sales.............................. $10,656 $6,977 $7,987 $10,809 $36,429
Gross profit........................... 3,543 2,088 2,661 3,666 11,958
Net earnings (loss).................... 254 (706) (150) 636 34
Net earnings (loss) per common share... 0.13 (0.36) (0.08) 0.33 0.02
Common shares used in per share
calculation.......................... 1,935 1,935 1,935 1,935 1,935
1999
Net sales.............................. 9,130 7,483 8,019 11,392 36,024
Gross profit........................... 2,861 2,123 2,177 3,096 10,257
Net earnings (loss).................... 20 (898) 649 (1,927) (2,156)
Net earnings (loss) per common share... 0.01 (0.46) 0.33 (0.99) (1.11)
Common shares used in per share
calculation.......................... 1,931 1,949 1,949 1,943 1,943
F-18