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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 26, 1998
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
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:
COMMON STOCK $.25 PAR VALUE
SERIES A WARRANTS
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 12, 1999 was approximately $2.2 million.
There were 1,917,071 shares of the Registrant's common stock outstanding as
of March 12, 1999. The Company's Series A Warrants expired during 1998 and were
not renewed or extended.
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INCORPORATION BY REFERENCE
Specified portions of the registrant's definitive proxy statement for its
1999 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: uncertainties and changes in general economic
conditions, unusual weather patterns which could affect domestic demand for the
registrant's products, performance and price issues with international
suppliers, the unanticipated impact of Year 2000 issues, pricing policies of
competitors and the ability to attract and retain employees in key positions.
All subsequent forward-looking statements attributable to the registrant or
persons acting on its behalf are expressly qualified in their entirety.
PART I
ITEM 1. BUSINESS
As used in this report, the terms "Boss" and "Company" refer to Boss
Holdings, Inc. (the Registrant) and its operating subsidiaries. Boss Holdings,
Inc., a Delaware corporation, is the successor by merger to Firearm Safety
Products, Inc., a Georgia corporation, organized in December, 1991, which
engaged in the development and sale of consumer products. 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 1994 and 1995, Vista 2000 grew quickly as a result of a series of
equity offerings and business acquisitions engineered by former management. In
March, 1996, the Audit Committee of the Board of Directors, consisting of the
Company's two outside (i.e. non-employee) directors who are no longer associated
with the Company, initiated an investigation of the integrity of the Company's
then existing financial reporting procedures and management. The investigation
resulted in the Company restating its prior results of operation to disclose
substantially greater losses than previously reported. As a result of this
investigation, Richard P. Smyth, then Chairman of the Board of Directors and
Chief Executive Officer, resigned his positions with the Company on April 16,
1996. The Company subsequently filed a lawsuit against Mr. Smyth which alleged,
among other things, fraud, misappropriation of funds and breach of fiduciary
duty. This litigation is still pending.
Beginning in mid-April 1996, 17 class action lawsuits were filed against the
Company and certain other entities and individuals relating to activities of the
Company while under control of prior management and the prior Board of
Directors. All of the lawsuits eventually were consolidated and on March 14,
1997, the litigation was settled by a final judgment and order of dismissal
entered in the U.S. District Court for the Northern District of Georgia.
The Company's securities were delisted by NASDAQ effective May 31, 1996 and
have not been relisted. On June 7, 1996, the Company entered into an agreement
with a shareholder, Ginarra Holdings, Inc. ("Ginarra") to add six additional
outside directors to the Board of Directors which, at that time,
2
consisted of three members. Pursuant to the terms of that agreement, six Ginarra
nominees were appointed as directors of the Company. Since that time new
management has taken action to stabilize the Company's operations, obtain
appropriate audited financial statements, and comply with applicable public
reporting requirements.
During 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 manufactures, imports and markets 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 to industrial consumers as well as through distributors and
manufacturer representatives. BMC products are sold primarily 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 variety. 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.
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 1998, BMC had an open order backlog of approximately $900,000,
down from about $1,100,000 at the end of 1997.
Materials used in the work glove and protective wear segment have generally
been widely available through a number of sources. The Company does not
anticipate shortages of either raw materials or purchased goods for resale.
However, the Company has, during its history, experienced limitations in the
supply of certain imported glove styles. Availability is further subject to
interruptions in shipping and quota constraints.
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. The
Company is currently involved in certain trademark litigation as further
described under "Item 3--Legal Proceedings". 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".
3
PET SUPPLIES
The Warren Pet ("Warren") division of the Company's Boss Manufacturing
Holdings, Inc. subsidiary manufactures, imports and markets 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 substantially larger than Warren dominate the industry. Warren
competes primarily in selected market niches by focusing on customer service and
favorable pricing. In 1998, Warren's three largest customers accounted for
approximately 60% of sales. To broaden the account base and reduce its customer
concentration, Warren has expanded its network of regional distributors.
Warren generally has multiple sources of supply for substantially all of its
material requirements. The raw materials and various purchased components
required for its products have generally been readily available in sufficient
quantities. Because of the nature and size of Warren's operations, the open
order backlog was not material at the end of 1998 or 1997.
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 over-all operating
performance or financial condition. However, the Company can provide no
assurance that expenditures in this area will not become more significant in the
future.
EMPLOYEES
As of December 26, 1998, Boss employed approximately 390 full-time
associates. Of these, about 25 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 320
associates were located in the United States with 70 located in Mexico and
Canada.
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 current
low-unemployment economic conditions in the U.S. Additionally, the availability
of skilled sewing machine operators and new applicants has declined. The
Company's past success in this area cannot assure attainment of future
employment objectives.
4
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 26, 1998. The principal executive
offices are located in Kewanee, Illinois.
CHARACTER SQUARE ANNUAL LEASE
LOCATION CITY GENERAL FEET RENT EXPIRATION
- ----------------------------------- -------------- ------------------------- --------- --------- ------------
Alabama............................ Greenville Manufacturing 86,000 0 Owned
Alabama............................ Monroeville Manufacturing 5,000 $ 3,600 Month-to-
month
Br. Columbia, Canada............... Vancouver Distribution 6,000 14,400 Month-to-
month
Florida............................ Hollywood Manufacturing and 15,000 90,000 3/31/99
Distribution
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 62,560 Month-to-
Distribution & Admin month
Texas.............................. El Paso Warehouse 1,770 11,664 Month-to-
month
Washington......................... Kent Warehouse 25,000 $ 90,000 Month-to-
month
The above properties are predominantly used in the work glove and protective
wear segment. As of December 26, 1998, Warren's manufacturing and distribution
center was located in Hollywood, Florida. The Company currently is moving this
operation to its owned facilities in Kewanee to streamline and consolidate
operations. Warren plans to terminate the Hollywood, Florida facility lease upon
its expiration at the end of March, 1999. In addition, the Company plans to
close its warehouse facility in Kent, Washington during the first half of 1999
and consolidate such operations with its owned facilities in Kewanee, Illinois.
The Company believes the above listed facilities provide adequate productive
and 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 involved in various lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out of
commercial disputes. Management believes the ultimate disposition of these
matters should not materially impair the Company's consolidated financial
position or liquidity.
In April 1996, the Company was notified by the SEC that it had commenced an
informal investigation of the Company related to the activities of its former
management. The status of the investigation was changed to a formal private
investigation in January, 1997. The Company has responded to the SEC's request
for information and will continue to cooperate with the SEC in this matter.
Independently, the Company through its Audit Committee conducted an internal
investigation of the facts and circumstances surrounding the investigation.
5
The Company has been named in an adversary proceeding styled ALABASTER
INDUSTRIES, INC. V. BOSS HOLDINGS, INC. AND W.R. HILL CO., INC.filed in the
United States Bankruptcy Court for the Northern District of Alabama, Southern
Division. The adversary proceeding was commenced in December, 1998, in
connection with the Chapter 11 bankruptcy reorganization case of Alabaster
Industries, Inc. The suit alleges a fraudulent conveyance by the Company in the
1997 sale of its stock in Alabaster Industries, Inc. This action seeks recovery
of the $500,000 down payment received by the Company and further seeks to set
aside the $1.5 million note and mortgage held by the Company. The Company has
vigorously defended itself in this proceeding and believes it has valid defenses
in this action. The bankruptcy proceedings of Alabaster Industries were recently
converted to a Chapter 7 liquidation under the U.S. Bankruptcy Code and the
Company is actively pursuing enforcement of the note and mortgage.
The Company is a plaintiff in an action entitled BOSS MANUFACTURING COMPANY
V. HUGO BOSS AG, ET AL., filed in November, 1997 and currently pending in the
U.S. District Court for the Southern District of New York alleging trademark
infringement, trademark dilution and breach of contract. The Company seeks
damages against Hugo Boss in connection with the sale and distribution in the
U.S. of gloves, boots and other products bearing the "Boss" trademark. The
Company has obtained injunctive relief which prevents Hugo Boss AG from selling
gloves and boots in the United States during the pendency of the action and
requires Hugo Boss to recall certain boots and gloves from the U.S. market. The
parties currently have stayed proceedings in this litigation in order to pursue
a possible settlement. The Company intends to continue defending its valuable
trademark and tradename rights by all appropriate proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1998 Annual meeting on October 8, 1998. Details as to
the matters submitted to a vote of security holders at this meeting were
reported in the Company's Quarterly Report on Form 10-Q for the period ended
September 26, 1998 filed with the Securities and Exchange Commission on November
10, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock (symbol: BSHI) is not currently listed on any
stock exchange. 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. Since that time, there has
been no established public trading market for the Company's stock.
Although there is no established public trading market for the Company's
stock, the Company is aware that there may be limited or sporadic quotations
available concerning transactions in the Company's stock. These quotations
primarily are provided by Internet services, such as Instinet, which include
reports on thinly traded over-the-counter securities. As of March 12, 1999,
Instinet reported a closing price of $1.75 for the Company's common stock.
Stockholders of record at February 28, 1999 numbered approximately 2,600.
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. The board of directors may review and modify the Company's dividend
policy in the future.
ITEM 6. SELECTED FINANCIAL DATA
The following table depicts selected consolidated financial data for the
five year period ended December 26, 1998 as derived from the consolidated
financial statements of the Company. This table should be read in conjunction
with Management's Discussion and Analysis of Results of Operations and Financial
Condition and the Company's audited Consolidated Financial Statements and Notes
thereto appearing elsewhere herein.
6
CONSOLIDATED BALANCE SHEET DATA
AS OF
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12/26/98 12/27/97 12/28/96 12/30/95 12/31/94 9/30/94
--------- --------- --------- --------- ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE)
Working capital (deficit)................................. $ 18,363 $ 17,438 $ 30,587 $ 30,393 $ (212) $ (3,235)
Total assets.............................................. 28,970 28,562 61,771 65,311 1,597 1,430
Long-term debt, including current......................... 5,335 4,020 24,302 23,636 695 1,036
Stockholders' equity...................................... 19,835 19,123 24,161 21,125 (9) (3,178)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
YEAR YEAR YEAR YEAR 3 MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/26/98 12/27/97 12/28/96 12/30/95 12/31/94 9/30/94
--------- --------- ---------- ---------- ----------- ---------
Net sales.............................................. $ 37,543 $ 78,400 $ 110,955 $ 32,422 $ 1 $ 137
Cost of sales.......................................... 26,762 54,703 79,290 28,244 26 314
Gross profit......................................... 10,781 23,697 31,665 4,178 (25) (177)
--------- --------- ---------- ---------- ----------- ---------
Operating expenses..................................... 10,739 24,396 37,508 17,318 858 1,721
Gain (Loss) from asset sales/writedowns................ 893 (3,792) (10,787) -- -- --
Loss from disposed business............................ -- -- -- (1,147) -- --
--------- --------- ---------- ---------- ----------- ---------
Operating earnings (loss)............................ 935 (4,491) (16,630) (14,287) (883) (1,898)
Interest expense....................................... (381) (1,799) (2,174) (649) (143) (266)
Other income (expense)................................. 18 11 (351) 273 4 45
--------- --------- ---------- ---------- ----------- ---------
Net earnings (loss) before income taxes................ 572 (6,279) (19,155) (14,663) (1,022) (2,119)
Income tax benefit (expense)........................... 68 (256) (246) -- -- --
Net earnings (loss).................................... $ 640 $ (6,535) $ (19,401) $ (14,663) $ (1,022) $ (2,119)
--------- --------- ---------- ---------- ----------- ---------
--------- --------- ---------- ---------- ----------- ---------
Basic earnings (loss) per share........................ $ 0.34 $ (5.13) $ (30.08) $ (58.24) $ (9.08) $ (24.86)
--------- --------- ---------- ---------- ----------- ---------
--------- --------- ---------- ---------- ----------- ---------
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SALES
SALES BY SEGMENT $(000) 1998 1997 1996
- ---------------------------------------------------------------- --------- --------- ---------
Work Gloves & Protective Wear................................... 31,600 36,009 36,578
Pet Supplies.................................................... 3,955 4,155 4,296
Keys, Letters, Numbers & Signs.................................. 0 33,367 55,711
Corporate & Other............................................... 1,988 4,869 14,370
--------- --------- ---------
Total Sales..................................................... 37,543 78,400 110,955
--------- --------- ---------
--------- --------- ---------
1998 COMPARED TO 1997
Consolidated 1998 sales declined $40,857,000, or 52.1%, from 1997 due
primarily to the Company's sale of assets associated with the Keys, Letters,
Numbers and Signs business segment (the "Keys and Letters Sale") in August 1997.
The Company's 1997 results of operations included $33,367,000 of sales in this
segment through the date of the Keys and Letters Sale. The Company's sale of its
interest in Alabaster Industries, Inc. (the "Alabaster Sale") during the second
quarter of 1997 also contributed to the difference in sales revenue in
comparison to the prior year. The Company's 1997 results of operations included
approximately $2,835,000 of sales from operations disposed of in the Alabaster
Sale. Alabaster sales are included in the Company's Corporate and Other segment
in the above table.
In addition to the Company's loss of sales due to the above restructuring
activities, 1998 sales in the Work Gloves and Protective Wear segment declined
$4,409,000, or 12.2%, from the prior year. Sales were down in both the Consumer
and Industrial markets in this segment on reduced volume and lower selling
prices.
Volume declined due to a number of factors including unusually warm winter
weather in the mid-western United States and historically low oil prices which
have depressed sales to the oil exploration and development industry. The
Company's selling prices declined throughout 1998 because of lower pricing on
imported goods. The chaotic Asian economy appears to have created a temporary
over-supply condition further exacerbated by reduced domestic demand. This
imbalance resulted in strong price competition during 1998 which forced selling
prices down.
The Work Gloves and Protective Wear segment accounted for most of the
Company's sales after the business restructuring efforts of 1996 and 1997. This
segment represented 84% of sales in 1998, up from 46% in 1997 and 33% in 1996.
Management anticipates that 1999 market conditions will continue to be extremely
competitive in this segment.
1997 COMPARED TO 1996
On a consolidated basis, 1997 sales decreased $32,555,000, or 29.3%, from
1996. Essentially all of this sales reduction was attributable to the Company's
restructuring activities in 1996 and 1997. The Keys and Letters Sale resulted in
a 1997 sales decline of $22,344,000 compared to 1996 while the Alabaster Sale
caused a $6,065,000 sales reduction.
In addition, the Company's 1996 sale of assets associated with the Family
Safety Products, Inc. operations (the "FSPI Sale") resulted in a 1997 sales
reduction of approximately $2,900,000 in comparison to 1996. Sales in the
Company's other business segments were little changed from 1996.
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GROSS MARGIN
GROSS MARGIN BY SEGMENT $(000) 1998 1997 1996
- ----------------------------------------------------------------- --------- --------- ---------
Work Gloves & Protective Wear.................................... 8,691 9,782 10,343
Pet Supplies..................................................... 1,284 1,000 1,184
Keys, Letters, Numbers & Signs................................... 0 11,768 19,137
Corporate & Other................................................ 806 1,147 1,001
--------- --------- ---------
Total Gross Margin............................................... 10,781 23,697 31,665
--------- --------- ---------
--------- --------- ---------
1998 COMPARED TO 1997
In total, the Company generated $12,916,000 less gross margin in 1998 than
in 1997. This reduction was primarily attributable to the lower sales in 1998 as
previously discussed. On a percentage of sales basis, the 1998 gross margin
declined 1.5%, from 30.2% in 1997 to 28.7% in 1998.
The gross margin percentage declined in 1998 due principally to the change
in product mix subsequent to the Keys and Letters Sale. Margins in the Keys,
Letters, Numbers and Signs segment were 35.3% in 1997 while margins in the Work
Gloves and Protective Wear segment averaged 27.2% in 1997 and 27.5% in 1998. As
discussed above, the sales mix shifted to a significantly higher composition of
Work Gloves and Protective Wear in 1998.
The Company has maintained a relatively constant gross margin in the Work
Gloves and Protective Wear segment during the years presented and expects to
continue this trend. Management efforts will be directed toward improving
margins in the Company's secondary business segments through consolidation of
facilities and reduction of overhead expenses.
1997 COMPARED TO 1996
The Company's 1997 gross margin of $23,697,000 represented a decline of
$7,968,000 from 1996. This reduction resulted from the Company's Keys and Letter
Sale and Alabaster Sale in 1997. While down in total, the gross margin increased
to 30.2% of sales in 1997, up from 28.5% in 1996. The bulk of this increase was
attributable to the Alabaster Sale in the second quarter of 1997. This business
operated at a gross margin below 10% of sales in 1996 and 1997.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
S,G & A EXPENSE BY SEGMENT $(000) 1998 1997 1996
- ----------------------------------------------------------------- --------- --------- ---------
Work Gloves & Protective Wear.................................... 7,731 7,984 7,644
Pet Supplies..................................................... 1,120 1,184 1,387
Keys, Letters, Numbers & Signs................................... 0 11,372 16,051
Corporate & Other................................................ 1,888 3,856 12,426
--------- --------- ---------
Total S, G & A Expenses.......................................... 10,739 24,396 37,508
--------- --------- ---------
--------- --------- ---------
1998 COMPARED TO 1997
Selling, General and Administrative ("S, G & A") expenses dropped
$13,657,000 in 1998 compared to 1997. On a percentage of sales basis, S, G & A
expenses declined from 31.1% in 1997 to 28.6% in 1998. As in the case of sales
and gross margin reductions, the primary factor in the S, G & A expense decline
was the Keys and Letters Sale. The Alabaster Sale also reduced S, G & A expense
by $862,000 in 1998 compared to the previous year.
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S, G & A expenses were down an additional $1,106,000 at the Company's
Corporate and Other
segment in 1998 due in large part to reductions in staff, legal and auditing
expenses. The Company closed its corporate office in Atlanta, Georgia during the
second quarter of 1998. In the Work Gloves and Protective Wear segment, 1998 S,
G & A expenses declined 3.2% from 1997 because of certain expenses incurred
during 1997 in connection with the Company's consolidation of facilities.
1997 COMPARED TO 1996
In 1997, S, G & A expenses dropped $13,112,000 from the prior year and
decreased from 33.8% of sales in 1996 to 31.1% in 1997. The FSPI Sale, Keys and
Letters Sale and Alabaster Sale contributed substantially to this reduction. In
addition, the Company reduced the staffing and overhead costs associated with
its corporate facilities in Atlanta during 1997. S, G & A expenses increased in
the Work Gloves and Protective Wear segment in 1997 due to expenses incurred in
connection with the Company's consolidation of facilities and higher selling
expenses.
OPERATING INCOME BEFORE ASSET SALES AND WRITEDOWNS
OPERATING INCOME (LOSS) BEFORE
ASSET SALES BY SEGMENT $(000) 1998 1997 1996
- ----------------------------------------------------------------- --------- --------- ---------
Work Gloves & Protective Wear.................................... 960 1,798 2,699
Pet Supplies..................................................... 164 (184) (203)
Keys, Letters, Numbers & Signs................................... 0 396 3,086
Corporate & Other................................................ (1,082) (2,709) (11,425)
--------- --------- ---------
Total Operating Income (Loss).................................... 42 (699) (5,843)
--------- --------- ---------
--------- --------- ---------
1998 COMPARED TO 1997
The Company generated operating earnings of $42,000 in 1998, an improvement
of $741,000 over 1997. Although low, the 1998 earnings represent a significant
improvement in comparison to prior years due to the Company's restructuring and
consolidation activities.
Operating income in the Company's Work Gloves and Protective Wear segment
declined $838,000 from 1997 due to the reduced sales and resulting lower gross
margin in this segment previously discussed. The Company's operating loss in the
Corporate and Other segment declined substantially from 1997 due to the sale of
unprofitable operations and reduced corporate expenses.
1997 COMPARED TO 1996
The Company's 1997 operating loss of $699,000 represented an improvement of
$5,144,000 from 1996. This improvement was substantially attributable to the
FSPI Sale and Alabaster Sale, partially offset by reduced operating income from
the Keys, Letters, Numbers and Signs and Work Gloves and Protective Wear
segments.
ASSET SALES AND WRITEDOWNS
During the third quarter of 1998, the Company recorded a gain of $893,000 on
the final settlement of the Keys and Letters Sale. This settlement reflected a
payment received in August 1998 covering certain post-closing adjustments to
account for changes in assets and liabilities between the date of the sale
agreement and the closing of the sale.
In 1997, the Company recorded losses of $3,792,000 on the sale of certain
businesses and assets. Approximately $2,400,000 of this loss resulted from the
Keys and Letters Sale with the balance attributable to the Alabaster Sale.
10
OTHER INCOME (EXPENSE)
Because of the debt reductions resulting from the Company's restructuring
efforts, interest expense declined to $381,000 in 1998, down $1,418,000 from
1997. 1997 interest expense totaled $1,799,000, a decline of $375,000 from 1996
due to the pay down of loans after the Keys and Letters Sale in the third
quarter.
INCOME TAX EXPENSE
In 1998, the Company recorded an income tax benefit of $68,000. This benefit
was attributable to state income tax refunds available to the Company. Because
of losses in prior years, the Company had no federal income tax expense in 1998
and has available substantial net operating loss carryforwards for federal
income tax purposes. These carryforwards have certain limitations due to changes
in control experienced in 1996 and 1997.
NET INCOME
The Company generated net income of $640,000 in 1998, compared with a net
loss of $6,535,000 during 1997. The Company's earnings resulted principally from
the gain associated with the final settlement on the Keys and Letters Sale as
well as reduced operating losses and interest expense attributable to
restructuring and consolidation efforts.
The Company's 1997 net loss of $6,535,000 was due primarily to substantial
losses on the Keys and Letters Sale and the Alabaster Sale in addition to a high
level of interest expense during the year.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company's operating activities used $1,457,000 of cash,
down $2,512,000 from the $1,055,000 cash generated by operating activities in
1997. Despite significantly improved earnings in 1998, working capital changes
consumed $1,549,000 in 1998 as opposed to providing cash of $1,733,000 in 1997.
Because of reduced sales in 1998, accounts receivable declined producing a
cash inflow of $1,245,000. However, the Company's inventory increased due to the
larger than anticipated sales decline using cash of $1,284,000. In addition,
during 1998 the Company paid certain liabilities incurred in prior years
including various legal and professional fees, insurance claims, legal
settlements, and income taxes resulting in a $1,464,000 use of cash. In 1997,
working capital provided cash due primarily to reduced inventories and
reductions of certain other assets.
Cash provided by investing activities totaled $79,000 in 1998, down from
$20,092,000 in 1997. In 1998, the Company received net proceeds of $893,000 in
settlement of the Keys and Letters sale and expended $818,000 in purchases of
property and equipment. Major property and equipment expenditures included
approximately $540,000 for the renovation of a 147,000 square foot distribution
facility acquired in Kewanee, Illinois and $145,000 on new computer systems.
Essentially all purchases of property and equipment occurred in the work gloves
and protective wear segment, though certain of the facilities and computer
systems may also be utilized by other segments.
In 1997, the Company received $24,021,000 in cash from the sale of operating
assets, primarily from the Keys and Letters sale. These proceeds were partially
offset by $3,937,000 in purchases of property and equipment. Such purchases
included $2,000,000 for the purchase of a warehouse in Springfield, Illinois
used in the work gloves and protective wear segment. The bulk of the remaining
purchases of property and equipment consisted of capitalized costs associated
with the development of new key duplicating technology for the keys, letters,
numbers and signs segment.
Financing activities provided cash of $1,436,000 in 1998 due primarily to
increased borrowings. In addition, the Company received $121,000 from the
exercise of stock options. During 1997, financing
11
activities represented a $20,143,000 use of cash as the Company used proceeds
from the sale of operating assets to reduce borrowings.
The Company ended 1998 with $2,131,000 in cash and bank borrowings of
$5,335,000. The cash position was essentially unchanged from year-end 1997,
while borrowings increased by $1,315,000 due in large part to the payment of
prior year liabilities as discussed above. At the end of 1998, the Company had
available approximately $5,900,000 under its revolving bank line of credit.
Working capital as of the end of 1998 increased to $18,363,000, up $925,000
from 1997. The Company ended 1998 with substantial liquidity and expects to have
adequate liquidity to provide for anticipated obligations during 1999. 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.
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 manufactured 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 some items, particularly in the work gloves and protective wear business
segment. The Company believes such price changes have increased price
competition in this segment.
YEAR 2000
INFORMATION SYSTEMS
During 1998, the Company determined that various internally developed
information systems key to business operations were not Year 2000 compliant. To
address this problem, management made the decision to purchase new hardware and
enterprise software in 1998. The Company utilized the resources of certain
outside consultants to evaluate systems, assist in re-engineering business
processes and develop implementation planning. Implementation of the software is
now scheduled for completion in the third quarter of 1999. This project is
currently about two months behind the initial schedule and certain staffing
changes were made in the first quarter of 1999 to provide appropriate resources
for implementation support.
Certain accounting related modules of the new software are expected to be
fully operational by the end of the first quarter. Conversion programs to
transfer data from the current legacy systems to the new system should be
completed by the end of the second quarter. During the second quarter, training,
prototyping and testing on the new software will be conducted for all remaining
modules. Final training and testing are scheduled for completion during the
third quarter.
The Company expects to continue to utilize certain of the legacy system
programs in the future. Such programs have limited reliance on date sensitive
information. Programming to correct any date sensitive coding is scheduled for
the second quarter. In addition, certain interface programs may be required to
transfer data between the new software and retained legacy systems. Development
of these programs is included in the project schedule outlined above.
In each functional area of the Company, teams have been developed with key
managers assigned specific training, testing and prototyping responsibilities. A
detailed implementation schedule has been developed which includes operational
milestones in each functional area to measure progress and determine readiness.
12
The new enterprise system currently being implemented by the Company is
expected to cost approximately $500,000 including hardware, software and
implementation training and consulting. Essentially all costs will be
capitalized and depreciated over the expected useful life. Such costs do not
include internal management time.
Beyond providing Year 2000 compliance, the new enterprise system should
enable the Company to operate more efficiently through system integration and
on-line information capabilities. Availability of up to the moment information
is expected to help the Company improve asset utilization as well as customer
support.
OTHER
The Company believes it has limited reliance on systems or equipment in
other operational areas which rely on embedded chips. Management has assigned a
team to conduct a further assessment of any such items during the second quarter
of 1999. Should this assessment note additional reliance on embedded chip
technology, appropriate corrective action will be taken to upgrade or replace
affected systems and equipment.
Various key suppliers to the Company were surveyed during the fourth quarter
of 1998 to determine supply chain readiness. The Company continues to evaluate
the results of this survey. However, the Company generally has a number of
alternative suppliers available for most items which should minimize the
Company's exposure should any supplier fail to deliver shipments due to a Year
2000 system failure.
The scope of the Year 2000 issue remains uncertain. The Company may be
subject to numerous associated risks, many beyond its control, such as failure
of communications, power, inbound and outbound shipping and financial systems.
At this time, the Company cannot quantify the potential impact of these
failures.
Assuming no major systemic failures, the most reasonably likely worst case
scenario would center around failure to complete the current system
implementation and inability to obtain certain imported products. The Company
believes appropriate loss minimization strategies such as reprogramming internal
systems and purchasing products from alternative suppliers should limit the cost
and down-time of such a scenario without materially impacting the Company's
liquidity or financial condition. The Company plans to develop appropriate
contingency plans to address issues within the Company's control.
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.
OUTLOOK FOR 1999
Over the past few years, the Company has been involved in a major
restructuring and consolidation of facilities. The sale of various assets during
this process enabled the Company to generate a small profit in 1998, the first
recorded by the Company since going public in 1994 under the Vista 2000 name.
Consolidated revenues have declined sharply from last year, as expected,
because of the operations sold in 1997. The decline has been somewhat larger
than anticipated due in part to reduced unit selling prices for work gloves. The
Company's revenues and earnings now principally reflect its concentration in the
Work Glove and Protective Wear business segment. These businesses are seasonal
and dependent upon weather patterns and other factors beyond the Company's
control.
13
Because of the Asian economic turmoil during 1998 and its effect on many of
the Company's purchased goods, continued low oil prices and depressed price
levels for grain and livestock which may adversely impact the mid-west regional
economy, management anticipates another challenging year from a sales
perspective. The Company has introduced new labeling for many products and plans
additional promotional efforts to increase sales during the year. Revenue
growth, particularly in the Work Glove and Protective Wear segment, will be a
significant priority for the future.
During 1999, the Company will continue to pursue initiatives to consolidate
facilities, improve asset utilization and to streamline its operations. These
initiatives include improvements in distribution and logistics, and continued
consolidation of corporate headquarters with the primary operating subsidiaries.
The Company anticipates additional investments to modernize order fulfillment
systems and improve system interfaces with customers in the consumer segment.
Further, the Company will evaluate importing certain products to improve margins
and profitability.
The Company intends to continue its focus on improved earnings. To do so,
management plans to evaluate a number of alternatives. Some of these
alternatives include expanded sales and marketing programs, product line
expansion, licensing opportunities, and potential acquisition and disposition
opportunities. The Company can provide no assurance as to the success of such
alternatives, if implemented, due to various risk factors including capital
constraints faced by the Company to maintain adequate liquidity and the market
reaction from competitors in the industry who are, in certain cases, larger than
the Company with greater capital resources.
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 ended December 26, 1998 the year ended December 27,
1997 and the year ended December 28, 1996.
(ii) Consolidated Balance Sheets--December 26, 1998 and December 27, 1997.
(iii) Notes to the Consolidated Financial Statements; and Unqualified Opinion
of Independent Accountants dated February 19, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURES.
Not applicable.
14
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 1999 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.
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 STATEMENT SCHEDULES 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-31 to this report:
Consolidated Statements of Operations, Cash Flows and Shareholders'
Equity for the years ended December 26, 1998, December 27, 1997 and
December 28, 1996;
Consolidated Balance Sheets--December 26, 1998 and December 27, 1997;
Notes to the Consolidated Financial Statements; and
Report of Independent Accountants dated February 19, 1998.
(2) Financial Statement Schedules
The following financial statement schedules of Boss Holdings, Inc.
for the years ended December 26, 1998, December 27, 1997 and December
28, 1996 are included pursuant to Item 8:
Report of Independent Certified Public Accountants on Schedules...S-1
Schedule II: Valuation and Qualifying Accounts....................S-2
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Financial Statements or notes
thereto.
(b) Reports on Form 8-K:
None filed during the 4(th) Quarter.
(c) Exhibits:
The exhibits filed with or incorporated into this report are listed
in the Index to Exhibits which follows.
15
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOSS HOLDINGS, INC. AND SUBSIDIARIES
DECEMBER 26, 1998 AND DECEMBER 27, 1997
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS
BOSS HOLDINGS, INC.
We have audited the accompanying consolidated balance sheets of Boss
Holdings, Inc. (formerly Vista 2000, Inc.) and Subsidiaries as of December 26,
1998 and December 27, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 26, 1998. 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 generally accepted auditing
standards. 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 26, 1998 and December 27, 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 26, 1998 in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Atlanta, Georgia
February 18, 1999
F-2
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
CURRENT ASSETS
Cash and cash equivalents.......................................................... $ 2,131 $ 2,122
Accounts receivable, net of allowance for doubtful accounts and returns of $455 and
$507, respectively............................................................... 6,484 7,729
Inventories........................................................................ 13,777 12,493
Prepaid expenses................................................................... 311 374
Other current assets............................................................... 300 276
------------ ------------
Total current assets............................................................. 23,003 22,994
PROPERTY AND EQUIPMENT, NET.......................................................... 4,743 4,270
OTHER ASSETS
Note receivable, net of allowance of $450.......................................... 1,038 1,042
Other.............................................................................. 186 256
------------ ------------
1,224 1,298
------------ ------------
$ 28,970 $ 28,562
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
CURRENT LIABILITIES
Current portion of long-term debt.................................................. $ 840 $ 137
Accounts payable................................................................... 1,278 1,390
Accrued payroll and related expenses............................................... 629 548
Accrued liabilities................................................................ 1,893 3,481
------------ ------------
Total current liabilities........................................................ 4,640 5,556
LONG-TERM DEBT....................................................................... 4,495 3,883
STOCKHOLDERS' EQUITY
Common stock, $.25 par value, 50,000,000 shares authorized, 1,942,489 and 1,793,811
shares issued and outstanding, in 1998 and 1997, respectively.................... 486 448
Additional paid-in capital......................................................... 67,453 67,370
Accumulated deficit................................................................ (46,235) (46,875)
Cumulative translation adjustment.................................................. (119) (70)
------------ ------------
21,585 20,873
Less: 13,654 treasury shares--at cost.............................................. (1,750) (1,750)
------------ ------------
Total stockholders' equity....................................................... 19,835 19,123
------------ ------------
$ 28,970 $ 28,562
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements.
F-3
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1998 1997 1996
------------ ------------ ------------
Net sales............................................................. $ 37,543 $ 78,400 $ 110,955
Cost of sales......................................................... 26,762 54,703 79,290
------------ ------------ ------------
Gross profit.......................................................... 10,781 23,697 31,665
Operating expenses.................................................... 10,739 24,396 37,508
------------ ------------ ------------
42 (699) (5,843)
Gain (loss) on sale of business and operating assets.................. 893 (3,792) (8,311)
Writedown of operating assets......................................... -- -- (2,476)
------------ ------------ ------------
Earnings (loss) from operations....................................... 935 (4,491) (16,630)
Other income and (expense)
Interest expense.................................................... (381) (1,799) (2,174)
Other............................................................... 18 11 (351)
------------ ------------ ------------
Net earnings (loss) before income taxes......................... 572 (6,279) (19,155)
Income tax benefit (expense).......................................... 68 (256) (246)
------------ ------------ ------------
Net earnings (loss)............................................. $ 640 $ (6,535) $ (19,401)
------------ ------------ ------------
------------ ------------ ------------
Net earnings (loss) per common share
Basic............................................................... $ 0.34 $ (5.13) $ (30.08)
Diluted............................................................. $ 0.33 $ (5.13) $ (30.08)
The accompanying notes are an integral part of these statements.
F-4
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
PREFERRED STOCK
-----------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------------ ------------------------ ------------------------ -----------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 30, 1995......... 1 $ 1,439 1 $ 1,230 -- $ 1,372 2
Issuance of preferred stock, net of
issuance costs of $600............. -- -- -- -- -- -- 20
Issuance of common stock............. -- -- -- -- -- -- --
Preferred stock conversions.......... (1) (1,317) (1) (1,230) -- (274) (19)
Treasury stock acquired for cash..... -- -- -- -- -- -- --
Exercise of stock options............ -- -- -- -- -- -- --
Exercise of warrants................. -- -- -- -- -- -- --
Compensatory stock options and
treasury shares acquired via stock
rescissions........................ -- -- -- -- -- -- --
Foreign currency translation
adjustment......................... -- -- -- -- -- -- --
Net loss............................. -- -- -- -- -- -- --
- -- -- --
----------- ----------- -----------
Balance at December 28, 1996......... -- 122 -- -- -- 1,098 3
Purchase and retirement of preferred
stock.............................. -- -- -- -- -- -- --
Preferred stock conversions.......... -- (122) -- -- -- (1,098) (3)
ACCUMULATED TREASURY
COMMON STOCK ADDITIONAL OTHER STOCK
------------------------ PAID-IN ACCUMULATED COMPREHENSIVE -----------
DOLLARS SHARES DOLLARS CAPITAL DEFICIT EARNINGS SHARES
--------- ----------- ----------- ----------- ------------ --------------- -----------
Balance at December 30, 1995......... $ 1,940 465 $ 116 $ 36,201 $ (20,939) $ (19) (3)
Issuance of preferred stock, net of
issuance costs of $600............. 19,400 -- -- -- -- -- --
Issuance of common stock............. -- 12 3 1,797 -- -- --
Preferred stock conversions.......... (18,575) 220 55 21,341 -- -- --
Treasury stock acquired for cash..... -- -- -- -- -- -- (2)
Exercise of stock options............ -- 25 7 988 -- -- --
Exercise of warrants................. -- 1 -- 40 -- -- --
Compensatory stock options and
treasury shares acquired via stock
rescissions........................ -- -- -- 1,741 -- -- (9)
Foreign currency translation
adjustment......................... -- -- -- -- (4) -- --
Net loss............................. -- -- -- (19,401) -- -- --
--
--------- --- ----- ----------- ------------ -----
Balance at December 28, 1996......... 2,765 723 181 62,108 (40,340) (23) (14)
Purchase and retirement of preferred
stock.............................. (340) -- -- 246 -- -- --
Preferred stock conversions.......... (2,425) 124 31 3,614 -- -- --
TOTAL
STOCKHOLDERS'
DOLLARS EQUITY
--------- -------------
Balance at December 30, 1995......... $ (215) $ 21,125
Issuance of preferred stock, net of
issuance costs of $600............. -- 19,400
Issuance of common stock............. -- 1,800
Preferred stock conversions.......... -- --
Treasury stock acquired for cash..... (602) (602)
Exercise of stock options............ -- 995
Exercise of warrants................. -- 40
Compensatory stock options and
treasury shares acquired via stock
rescissions........................ (933) 808
Foreign currency translation
adjustment......................... (4) --
Net loss............................. (19,401) --
--------- -------------
Balance at December 28, 1996......... (1,750) 24,161
Purchase and retirement of preferred
stock.............................. -- (94)
Preferred stock conversions.......... -- --
F-5
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997 AND DECEMBER 28, 1996
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
PREFERRED STOCK
-----------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------------ ------------------------ ------------------------ -----------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS SHARES
----------- ----------- ----------- ----------- ----------- ----------- -----------
Common stock issued for settlement of
class action lawsuit............... -- -- -- -- -- -- --
Common stock issued in settlement
with preferred shareholders........ -- -- -- -- -- -- --
Common stock issued for untendered
BMHI shares........................ -- -- -- -- -- -- --
Exercise of stock options............ -- -- -- -- -- -- --
Compensatory stock options........... -- -- -- -- -- -- --
Foreign currency translation
adjustment......................... -- -- -- -- -- -- --
Net loss............................. -- -- -- -- -- -- --
- -- -- --
----------- ----------- -----------
Balance at December 27, 1997......... -- -- -- -- -- -- --
Balance at December 27, 1997 carried
forward............................ -- -- -- -- -- -- --
Exercise of stock options............ -- -- -- -- -- -- --
Foreign currency translation
adjustment......................... -- -- -- -- -- -- --
Net earnings......................... -- -- -- -- -- -- --
- -- -- --
----------- ----------- -----------
Balance, December 26, 1998........... -- $ -- -- $ -- -- $ -- --
- -- -- --
- -- -- --
----------- ----------- -----------
----------- ----------- -----------
ACCUMULATED TREASURY
COMMON STOCK ADDITIONAL OTHER STOCK
------------------------ PAID-IN ACCUMULATED COMPREHENSIVE -----------
DOLLARS SHARES DOLLARS CAPITAL DEFICIT EARNINGS SHARES
--------- ----------- ----------- ----------- ------------ --------------- -----------
Common stock issued for settlement of
class action lawsuit............... -- 586 146 769 -- -- --
Common stock issued in settlement
with preferred shareholders........ -- 232 58 304 -- -- --
Common stock issued for untendered
BMHI shares........................ -- -- -- 159 -- -- --
Exercise of stock options............ -- 129 32 65 -- -- --
Compensatory stock options........... -- -- -- 105 -- -- --
Foreign currency translation
adjustment......................... -- -- -- -- (47) -- --
Net loss............................. -- -- -- (6,535) -- -- --
--
--------- --- ----- ----------- ------------ -----
Balance at December 27, 1997......... -- 1,794 448 67,370 (46,875) (70) (14)
Balance at December 27, 1997 carried
forward............................ -- 1,794 $ 448 67,370 (46,875) (70) (14)
Exercise of stock options............ -- 148 38 83 -- -- --
Foreign currency translation
adjustment......................... -- -- -- -- (49) -- --
Net earnings......................... -- -- -- -- 640 -- --
--
--------- --- ----- ----------- ------------ -----
Balance, December 26, 1998........... $ -- 1,942 $ 486 $ 67,453 $ (46,235) $ (119) (14)
--
--
--------- --- ----- ----------- ------------ -----
--------- --- ----- ----------- ------------ -----
TOTAL
STOCKHOLDERS'
DOLLARS EQUITY
--------- -------------
Common stock issued for settlement of
class action lawsuit............... -- 915
Common stock issued in settlement
with preferred shareholders........ -- 362
Common stock issued for untendered
BMHI shares........................ -- 159
Exercise of stock options............ -- 97
Compensatory stock options........... -- 105
Foreign currency translation
adjustment......................... (47) --
Net loss............................. (6,535) --
--------- -------------
Balance at December 27, 1997......... (1,750) 19,123
Balance at December 27, 1997 carried
forward............................ (1,750) 19,123
Exercise of stock options............ -- 121
Foreign currency translation
adjustment......................... (49) --
Net earnings......................... -- 640
--------- -------------
Balance, December 26, 1998........... $ (1,750) $ 19,835
--------- -------------
--------- -------------
The accompanying notes are an integral part of this Statement.
F-6
BOSS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 28, DECEMBER 27, DECEMBER 28,
1998 1997 1998
------------- ------------- -------------
Cash flows from operating activities:
Net earnings (loss)................................................. $ 640 $ (6,535) $ (19,401)
Adjustments to reconcile net earnings (loss) to net cash used by
operations:
(Gain) loss on sale of operating assets........................... (893) 3,792 8,311
Writedown of operating assets..................................... -- -- 2,476
Write off of affiliate trade receivables.......................... -- (429) --
Depreciation...................................................... 343 1,910 2,108
Loss on disposal of property and equipment........................ 2 118 400
Stock based compensation expense.................................. -- 466 808
(Increase) decrease in operating assets, net of businesses
acquired and disposed:
Accounts receivable............................................. 1,245 (229) (1,113)
Inventories..................................................... (1,284) 1,218 (3,627)
Prepaid expenses and other current assets....................... 39 572 (385)
Other assets.................................................... 70 1,208 (1,143)
Decrease in operating liabilities, net of businesses acquired:
Accounts payable................................................ (155) (189) (4,222)
Accrued liabilities............................................. (1,464) (847) (585)
------------- ------------- -------------
Net cash (used) provided by operating activities.............. (1,457) 1,055 (16,373)
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sale of operating assets.............................. 893 24,021 2,806
Proceeds from sale of property and equipment........................ -- -- 54
Purchases of property and equipment................................. (818) (3,937) (5,931)
Proceeds from payments on note receivable........................... 4 8 --
------------- ------------- -------------
Net cash provided (used) by investing activities.................... 79 20,092 (3,071)
------------- ------------- -------------
Cash flows from financing activities:
Net (payment) proceeds from short-term borrowings................... -- (908) 908
Net borrowings (repayments) on long-term revolving line of credit... 973 1,330 (2,200)
Proceeds from long-term debt........................................ 512 1,985 --
Repayment of long-term debt......................................... (170) (22,147) (599)
Other long-term liabilities......................................... -- (406) --
Proceeds from issuance of common stock, net of issue costs.......... -- -- 1,800
Proceeds from issuance of preferred stock, net of issue costs....... -- -- 19,400
Proceeds from exercise of stock options and warrants................ 121 97 1,035
Purchase of treasury stock and warrants............................. -- (94) (602)
------------- ------------- -------------
Net cash provided (used) by financing activities.................. 1,436 (20,143) 19,742
------------- ------------- -------------
Effect of exchange rate changes on cash............................... (49) (47) (4)
------------- ------------- -------------
Net increase in cash during period.................................... 9 957 294
Cash and cash equivalents at the beginning of the period.............. 2,122 1,165 871
------------- ------------- -------------
Cash and cash equivalents at the end of the period.................... $ 2,131 $ 2,122 $ 1,165
------------- ------------- -------------
------------- ------------- -------------
Supplemental disclosure:
Interest paid....................................................... $ 377 $ 1,769 $ 2,750
Income taxes paid................................................... 209 313 287
Noncash investing and financing activities:
Acquisition of treasury stock via stock rescissions................. $ -- $ -- $ 933
Assets purchased under long-term obligations........................ $ -- $ -- $ 3,227
Assets sold for assumption of related obligation.................... $ -- $ -- $ 169
F-7
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Boss Holdings, Inc. (formerly Vista 2000, Inc.) and its subsidiaries, (the
"Company"), are engaged primarily in the manufacture, 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. On December 7, 1998, the
Company changed its name from Vista 2000, Inc. to Boss Holdings, Inc. reflecting
the trade name of its primary operating subsidiary, Boss Manufacturing Company.
PUBLIC OFFERINGS
On October 24, 1994, the Company completed an initial public offering under
the name Vista 2000, Inc. The offering resulted in the sale of 1,000,000 units
at $5.50 per unit before underwriting discounts and other offering expenses.
Each unit consisted of one share of Company common stock and Series A Warrants
to purchase two Company common shares. Each warrant entitled the holder to
purchase, for a period of 48 months ending October 26, 1998, one share of common
stock at an exercise price of $7.00 per share during the first 24 months and
$10.00 per share thereafter, subject to adjustment in certain circumstances. In
December 1994, an additional 150,000 of the units, representing the
underwriters' over-allotment option with respect to the offering, were sold. On
December 7, 1998, the Company changed its name from Vista 2000, Inc. to Boss
Holdings, Inc., reflecting the trade name of its primary operating subsidiary,
Boss Manufacturing Company.
During 1995 the Company completed four preferred stock offerings and one
common stock offering pursuant to the exemption from registration under
Regulation S of the Securities Act of 1933. $24,296 and $6,787, net of issuance
costs, were raised through the preferred stock offerings and the common stock
offerings, respectively.
During 1996, the Company completed one preferred stock offering and one
common stock offering pursuant to the exemption from registration under
Regulation S of the Securities Act of 1993. $19,400 and $1,800, net of issuance
costs, were raised through the preferred stock offering and common stock
offering, respectively.
REVERSE STOCK SPLIT
At the Company's annual meeting of shareholders on October 8, 1998, the
shareholders approved a 25-for-1 reverse stock split. The reverse stock split
became effective on December 7, 1998, at the same time as the Company's change
of corporate name to Boss Holdings, Inc. All Common stock amounts for the
periods presented have been restated to reflect the reverse split.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Boss Holdings, Inc. ("BHI"), and its wholly owned subsidiaries, Boss
Manufacturing Holdings, Inc. (formerly American Consumer Products, Inc.) and
subsidiaries ("BMHI"), Alabaster Industries, Inc. ("Alabaster"), Family Safety
Products, Inc. ("FSPI"), and Intelock Technologies ("Intelock") (collectively
"the Company"). All
F-8
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
During 1997 and 1996, BHI disposed of substantially all of the operating
assets of all subsidiaries with the exception of Boss Manufacturing Company, a
subsidiary of BMHI and the Warren Pet Products division of BMHI.
FISCAL YEAR
The Company maintains a 52/53-week year ending on the last Saturday in the
calendar year. Fiscal years 1998, 1997 and 1996 each contained 52 weeks.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue and provides for the estimated cost of
returns and allowances in the period the products are shipped.
Approximately 21% of the Company's revenue was from two customers in 1996,
accounting for approximately 11% and 10%, respectively, of total revenue. No
single customer accounted for 10% or more of the Company's revenue in 1998 or
1997.
INVENTORIES
Inventories are stated at the lower of average cost or market. Cost for
approximately 77% and 80% of inventories at December 26, 1998 and December 27,
1997, respectively, have 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 $180 higher in 1998 and
substantially the same for all other years presented.
ADVERTISING COSTS
The Company 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 advertising materials are
produced and distributed to customers. Advertising expense for 1998, 1997 and
1996 was $847, $651 and $1,950, 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
F-9
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
RECLASSIFICATION OF ACCOUNT BALANCES
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentations.
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 $343, $1,910 and $2,108 for 1998, 1997 and 1996,
respectively.
WARRANTY COSTS AND RETURNS
The Company provides for estimated warranty costs and returns at the time of
sale. Accrued costs applicable to warranty obligations and returns are
classified as accrued liabilities and are not material.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred and
totaled $0, $396 and $590 for 1998, 1997 and 1996, respectively.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's Canadian subsidiary are translated
into U.S. dollars at fiscal year end exchange rates. Income and expense accounts
are translated into U.S. dollars at average rates of exchange prevailing during
the year. Adjustments resulting from translating the Canadian accounts are
reflected as a component of accumulated other comprehensive earnings in
stockholders' equity. Translation adjustments of the Mexican subsidiary, for
which the functional currency is U.S. dollars, and transaction gains and losses
are included in the results of operations for the year.
Net exchange losses included in the results of operations were not
significant in any of the reported periods.
F-10
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), EARNINGS PER SHARE, in the fourth quarter of 1997. Basic net
earnings per common share is based upon the weighted average number of common
shares outstanding during the period. Diluted net earnings per common share is
based upon the weighted average number of common shares outstanding plus
dilutive potential common shares, including options and warrants outstanding
during the period. All comparative earnings per share data for prior periods
presented has been restated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. The new statement requires all derivatives to be
recorded on the balance sheet at fair value and established new accounting rules
for hedging instruments. The statement is effective for years beginning after
June 15, 1999.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 provides
guidance on accounting for the various types of costs incurred for computer
software developed or obtained for internal use. Also, in June 1998, the AICPA
issued SOP 98-5, REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5
requires costs of start-up activities and organizational costs, as defined, to
be expensed as incurred.
Management does not expect the adoption of these new standards to have a
material impact on the Company's consolidated financial statements.
F-11
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(2) INVENTORIES
Inventories consist of the following:
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
Raw Materials.................................................... $ 2,056 $ 1,752
Work in Progress................................................. 433 330
Finished Goods................................................... 11,288 10,411
------------ ------------
$ 13,777 $ 12,493
------------ ------------
------------ ------------
(3) PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
DECEMBER 26, DECEMBER 27,
1998 1997
------------- -------------
Machinery and equipment.......................................... $ 1,073 $ 987
Buildings and improvements....................................... 3,827 3,317
Office furniture and equipment................................... 261 216
Construction in progress......................................... 143 --
------ ------
Total property and equipment................................... 5,304 4,520
Less accumulated depreciation.................................... 900 588
------ ------
4,404 3,932
Land............................................................. 339 338
------ ------
$ 4,743 $ 4,270
------ ------
------ ------
F-12
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(4) LONG-TERM LIABILITIES
Long-term debt consists of the following:
DECEMBER 26, DECEMBER 27,
1998 1997
------------- -------------
BMHI revolving line of credit.................................... $ 4,083 $ 3,110
Boss Manufacturing Company mortgage note payable to a lender.
Requires monthly payments of $10, including interest at 11%,
through May 1999. All outstanding principal is due in June
1999. Collateralized by all real and personal property of Boss
Manufacturing Real Estate Company.............................. 773 810
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..................................................... 479 --
Other............................................................ -- 100
------ ------
Total long-term debt........................................... 5,335 4,020
Less current maturities.......................................... 840 137
------ ------
Long-term debt................................................. $ 4,495 $ 3,883
------ ------
------ ------
Scheduled principal payments of long-term debt are as follows:
Fiscal year:
1999.............................................................. $ 840
2000.............................................................. 4,153
2001.............................................................. 72
2002.............................................................. 74
2003.............................................................. 77
Thereafter........................................................ 119
---------
Total........................................................... $ 5,335
---------
---------
In May 1997, the Company entered into a loan and security agreement (the
"1997 Agreement") with a bank to refinance the existing revolving credit
facility. The 1997 Agreement, which expires in May 2000, was amended in August
1997, concurrent with the sale of certain BMHI assets (see Note 12). The 1997
Agreement, as amended, provides for a credit facility up to $10,000, based on a
formula that includes eligible accounts receivable and inventory. Interest is
payable monthly at the bank's prime rate plus .5% or, at BMHI's option, LIBOR
plus 2.50% (effective rate of 8.25% at December 26, 1998). BMHI incurs an annual
facility fee of $33 payable at the beginning of each contract year and a loan
commitment fee of 3/8% per annum on the unused portion of the credit facility.
The 1997 Agreement provides for certain restrictive covenants including, among
others, limitations as to intercompany transfers and capital expenditures and
F-13
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(4) LONG-TERM LIABILITIES (CONTINUED)
maintenance of certain minimum financial ratios. There were no events of
noncompliance at December 26, 1998.
The credit facility is secured by essentially all personal property of BMHI
and its subsidiaries, including accounts receivable and inventories, and is
guaranteed by each of the BMHI subsidiaries. As part of the maximum borrowings,
the bank has also committed $3,500 in letters of credit. At December 26, 1998,
no letters of credit were outstanding under the 1997 Agreement.
(5) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain office and operating facilities and certain
equipment under operating lease agreements that expire on various dates through
2000 and require the Company to pay all maintenance costs. Rent expense under
these leases was approximately $320, $1,021 and $1,379 for 1998, 1997 and 1996,
respectively.
Future commitments under noncancelable operating leases as of December 26,
1998 were $64 and $21 for 1999 and 2000, respectively.
CLASS ACTION LAWSUIT
In April 1996, the Company together with certain officers, directors and
third parties were named as a defendant in seventeen (17) class action lawsuits
filed by stockholders of the Company in the United States District Court for the
Northern District of Georgia. The lawsuits alleged that the Company violated the
Federal Securities Laws, particularly Sections 10-b and 20-a of the Securities
Exchange Act of 1934, as amended, and the rules and regulations, including Rules
10-b-5 thereunder as well as common law claims.
In August 1996, the court certified the plaintiffs as representatives of a
class of all persons who purchased the Company's common stock or warrants during
the period October 24, 1994 through June 8, 1996, except for the defendants and
certain officers, directors and related parties. The Company and the other
defendants reached an agreement in principle to settle the action in December
1996. Pursuant to the settlement, the Company issued a sufficient amount of
shares of its common stock to the class to convey ownership of forty percent
(40%) of the common stock of the Company to the class, based on common shares
outstanding at December 1, 1996. During 1997, the Company issued approximately
586,160 common shares in accordance with the settlement. Approximately $903 was
charged to 1996 operations related to this settlement and was included in
accrued liabilities at December 28, 1996. The Company's insurance carrier
contributed $300 to the settlement to cover certain expenses related to the
settlement. The settlement is in satisfaction of all claims of the class. The
district court approved the settlement and the judgment became final on April
14, 1997.
PREFERRED STOCKHOLDERS
During 1997, BHI settled all claims with its former preferred stockholders.
The former preferred stockholders agreed to release BHI from all claims in
exchange for the issuance of approximately 231,800
F-14
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
shares of common stock. Approximately $362 was charged to 1997 operations
related to this settlement. Additionally, all outstanding preferred shares were
exchanged for approximately 123,800 common shares.
SALE OF ACPI ASSETS
During 1997, certain assets of BMHI, consisting primarily of the Company's
keys, letters, numbers and signs business segment (the ACPI assets) were sold
(see Note 12). The sale agreement provided for certain post closing adjustments
to account for changes in assets and liabilities between the date of the
agreement and the closing of the sale. During 1998, the Company and the
purchaser reached an agreement on the post closing adjustments (see Note 12).
OTHER 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 September 1996, Mr. Smyth filed a counterclaim seeking, among other things,
indemnification in connection with the class action lawsuit described above. The
Company intends to vigorously pursue its action and contest the allegations in
the counterclaim; however, management and legal counsel are unable to determine
the possible outcome of this matter at this time.
The Company has been named a defendant in an adversary proceeding filed in
the United States Bankruptcy Court for the Northern District of Alabama in
connection with the Company's June 1997 sale of its stock in Alabaster
Industries, Inc. (see Note 12). The suit seeks to recover cash payments received
by the Company and to avoid a promissory note and mortgage held by the Company
as a result of the sale. The Company believes it has valid defenses to this suit
and is vigorously pursuing recovery on the note and mortgage. Management and
legal counsel are unable to determine the ultimate outcome of this matter at
this time, and accordingly, no provision for any liability that might result has
been made in the financial statements.
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.
SEC INVESTIGATION
During 1996, the Securities and Exchange Commission ("SEC") notified the
Company that it had commenced a formal private investigation of the Company. The
Company intends to cooperate with the SEC in this matter. The Company cannot
predict the eventual outcome of this investigation. Independently, the Company
through its Audit Committee conducted an internal investigation of the facts and
circumstances surrounding the investigation.
F-15
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(6) STOCKHOLDER'S EQUITY
WARRANTS
At December 30, 1995, warrants for the purchase of 1,456 shares of Company
common stock that were issued in conjunction with debentures sold by the Company
were issued and outstanding. These warrants expired as unexercised in January
1997. In addition, in March 1994, the Company issued 9,424 of its 1994
convertible debenture warrants to all the former debenture holders that acquired
common stock of the Company on September 30, 1993 pursuant to their right of
conversion. The 1994 convertible debenture warrants each provide for the
purchase of one share of common stock at an exercise price of $62.50 per share
and expire in March 1999.
80,000 Series A warrants were outstanding at December 27, 1997, which were
issued in connection with the Company's initial public offering. These warrants
expired as unexercised in October 1998. Additionally, the Company agreed to sell
to the Underwriters, as additional compensation, warrants to acquire units
representing up to 4,000 shares of common stock at $227.00 per share and up to
8,000 shares of common stock underlying the Series A warrants at $288.75 per
share. These warrants expire in October 1999.
During 1995, the Company issued warrants to various consultants to acquire
up to 25,821 common shares at prices per share ranging from $50.00 to $300.00.
During 1996 and 1995, warrants were exercised to acquire 800 and 10,000 common
shares, respectively.
STOCK OPTIONS
The Company has adopted two stock option plans providing for the issuance of
options covering up to 320,000 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. For
options granted to employees at strike prices less than the fair market value of
the underlying shares on the date of the grant, the difference in value is
recognized as compensation expense over the applicable vesting periods. Options
granted to nonemployees are recognized over the related service period based on
the estimated fair value of the options. This resulted in charges to operations
amounting to $0, $104 and $808 for 1998, 1997 and 1996, respectively. Stock
option transactions are summarized as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 26, 1998 DECEMBER 27, 1997 DECEMBER 28, 1996
----------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- --------- --------- ---------
Outstanding, beginning of period....................... 183,630 $ 1.00 4,742 $ 112.75 62,038 $ 86.50
Granted................................................ -- -- 312,400 0.75 16,800 90.75
Exercised.............................................. (150,000) 0.75 (129,000) 0.75 (27,138) 53.75
Cancelled.............................................. (40) 98.25 (4,512) 113.50 (46,958) 104.50
---------- ----- ---------- --------- --------- ---------
Outstanding, end of period............................. 33,590 $ 1.30 183,630 $ 1.00 4,742 $ 112.75
---------- ----- ---------- --------- --------- ---------
---------- ----- ---------- --------- --------- ---------
F-16
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(6) STOCKHOLDER'S EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 26, 1998:
OPTIONS OUTSTANDING AND EXERCISABLE
- --------------------------------------------------------
NUMBER WEIGHTED
OUTSTANDING AVERAGE WEIGHTED
AT REMAINING AVERAGE
EXERCISE DECEMBER 26, CONTRACTUAL EXERCISE
PRICE 1998 LIFE (YEARS) PRICE
- ----------- ------------- ------------- -------------
$ 98.25 190 6.8 $ 98.25
0.75 33,400 8.0 0.75
------ --- ------
33,590 7.5 $ 1.30
------ --- ------
------ --- ------
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:
1998 1997 1996
--------- --------- ----------
Net earnings (loss)........................................ As reported $ 640 $ (6,535) $ (19,401)
Pro forma $ 640 $ (6,548) (19,414)
Basic net earnings (loss) per common share................. As reported $ 0.34 $ (.21) $ (1.20)
Pro forma 0.34 (.21) (1.20)
Diluted net earnings (loss) per common share............... As reported $ 0.33 $ (.21) $ (1.20)
Pro forma 0.33 (.21) (1.20)
For purposes of the pro forma amounts above, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes options-pricing
model with the following weighted-average assumptions used for grants in 1997
and 1996, respectively; expected volatility of 295%, and 295%, risk-free
interest rates of 5.9% and 5.9%; and expected lives of 2 years. No options were
granted in 1998.
STOCK RESCISSIONS
During 1996, certain shareholders rescinded approximately 220,000 shares of
common stock previously issued and returned the shares to the Company. The
Company holds these shares in treasury at amounts that were recorded when the
shares and related options were issued, totaling approximately $933.
F-17
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(6) STOCKHOLDER'S EQUITY (CONTINUED)
SERIES CONVERTIBLE PREFERRED STOCK:
The Company has designated 142,000 of its 500,000 authorized preferred
shares as follows:
SHARES LIQUIDATION PREFERENCE PER
AUTHORIZED SHARE
---------------- -----------------------------
Series A........................................................ 100,000 $ 100
Series B........................................................ 20,000 $ 1,000
Series C........................................................ 2,000 $ 10,000
Series D........................................................ 20,000 $ 1,000
The remaining 358,000 authorized preferred shares have not been designated
as a series. The preferred stock was recorded net of issuance costs.
The Company's preferred stock was issued in several series pursuant to
separate subscription agreements. As discussed below, none of the preferred
stock was outstanding as of December 26, 1998.
During 1997, the Company issued approximately 123,800 common shares in
exchange for all of the remaining outstanding preferred stock. Additionally,
during 1997 the Company issued approximately 231,840 common shares to certain
former preferred stockholders as settlement of any and all outstanding claims,
resulting in a charge to operations of $362.
(7) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share.
1998 1997 1996
--------- --------- ----------
Numerator for basic and diluted net earnings (loss) per common share-- earnings
(loss) attributable to common stockholders...................................... $ 640 $ (6,535) $ (19,401)
--------- --------- ----------
--------- --------- ----------
Denominator for basic net earnings (loss) per Common share--weighted average
shares outstanding.............................................................. 1,907 1,274 645
Effect of dilutive options and warrants........................................... 19 -- --
--------- --------- ----------
Denominator for diluted net earnings (loss) per common share--adjusted weighted
average shares outstanding...................................................... 1,926 1,274 645
--------- --------- ----------
--------- --------- ----------
Net earnings (loss) per common share
Basic........................................................................... $ 0.34 $ (5.13) $ (30.08)
Diluted......................................................................... $ 0.33 $ (5.13) $ (30.08)
F-18
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(7) EARNINGS PER SHARE (CONTINUED)
The Company contributes to employee retirement plans covering substantially
all of its employees. Charges to consolidated operations for these plans were as
follows:
1998 1997 1996
--------- --------- ----------
Discretionary Contribution Profit Sharing--401(k)................................. $ 92 $ 183 $ 225
Multi-Employer Pension Plan....................................................... -- 265 507
--------- --------- ----------
$ 92 $ 448 $ 732
--------- --------- ----------
--------- --------- ----------
The contributions to the union sponsored, multi-employer pension plan were
determined based upon the number of employees working per week. Participation in
the multi-employer pension plan was attributable to BMHI only, and was assumed
by the purchaser of the BMHI assets in August 1997 (see Note 12).
(9) RELATED PARTY TRANSACTIONS
During 1998, 1997 and 1996, compensation and fees paid to members of the
board of directors totaled approximately $367, $1,358 and $225, respectively.
Additionally, the Company paid a consulting firm, whose principal was a member
of the Company's board of directors, $1,035 in connection with corporate
restructuring activities during 1997.
In October 1996, BMHI, through one of its wholly-owned subsidiaries,
purchased certain land and manufacturing facilities from a partnership
controlled by certain officers of BMHI for $1,773 cash and assumption of a
$3,227 mortgage note. This facility was previously leased by BMHI from the
related party. These related parties are no longer affiliated with the Company.
During 1997, BMHI, through one of its wholly owned subsidiaries, purchased a
second manufacturing facility from a corporation controlled by certain officers
of BMHI for $1,158 cash and assumption of a $842 mortgage note. This facility
was previously leased by BMHI from the related parties. These related parties
are no longer affiliated with the Company.
At December 26, 1998 and December 27, 1997, the Company had a note
receivable outstanding from a former officer. This note is fully reserved
pending final settlement with the Company.
(10) INCOME TAXES
The Company records income taxes based on its consolidated tax return.
Current federal and state tax expense (benefit) is as follows:
DECEMBER 26, DECEMBER 27, DECEMBER 28,
1998 1997 1996
--------------- --------------- ---------------
Current income tax benefit
Federal......................................... $ -- $ -- $ --
State and local................................. (68) -- --
Deferred income tax provision..................... -- -- --
--- --- ---
Total income tax benefit.......................... $ (68) $ -- $ --
--- --- ---
--- --- ---
F-19
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(10) INCOME TAXES (CONTINUED)
The Company's temporary differences result in a net deferred income tax
asset which is reduced to zero by a related valuation allowance, summarized as
follows:
DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
Deferred income tax assets:
Operating loss carryforwards................................... $ 13,570 $ 17,999
Accounts receivable............................................ 327 383
Accruals....................................................... 250 661
Compensation related........................................... 252 44
Tax credit carryforwards....................................... 236 236
Other.......................................................... 1 1
------------ ------------
Gross deferred tax assets.................................... 14,636 19,324
Deferred tax asset valuation allowance....................... (12,474) (17,151)
------------ ------------
Net deferred tax asset....................................... 2,162 2,173
------------ ------------
Deferred income tax liabilities:
Inventories.................................................... 1,670 1,576
Fixed assets................................................... 492 597
------------ ------------
2,162 2,173
------------ ------------
Net deferred income tax asset.................................... $ -- $ --
------------ ------------
------------ ------------
Included in the tax credit carryforward is approximately $236 of alternative
minimum tax credits and general business credits available to reduce future
income taxes payable.
Income tax expense and benefit for 1998, 1997 and 1996 consists primarily of
current state taxes attributable to BMHI and its subsidiaries. Included in other
current assets is approximately $181 of refundable income taxes at December 26,
1998.
F-20
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(10) INCOME TAXES (CONTINUED)
At December 26, 1998, the Company had operating loss carryforwards for U.S.
income tax purposes of approximately $39,912 available to reduce future taxable
income, which expire as follows:
NET
OPERATING
YEAR OF EXPIRATION LOSS
- ----------------------------------------------------------------------------------- -----------
2001............................................................................... $ 1,834
2009............................................................................... 1,646
2010............................................................................... 8,120
2011............................................................................... 2,038
2012............................................................................... 16,549
2013............................................................................... 8,730
2014............................................................................... 995
-----------
$ 39,912
-----------
-----------
Included in the operating loss carryforward is $1,834 of losses which expire
in 2001 and which can only be utilized by the Boss Manufacturing Company
subsidiary of BMHI.
The Company has experienced a change in control, as defined under Section
382 of the Internal Revenue Service Code, during 1996 and 1997. As a result, the
utilization of the net operating losses that expire in 2012 and prior 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) WRITEDOWN OF OPERATING ASSETS
During 1996, Alabaster continued to incur significant operating losses.
Management's estimates of future operations did not support the carrying amount
of Alabaster's net assets. Accordingly, a charge of $1,817 was recorded in the
fourth quarter of 1996, representing management's estimate of the excess of
Alabaster's net assets over their estimated net realizable value.
In September 1996, the Company closed the operations of Intelock and wrote
down all remaining Intelock assets to their estimated net realizable value. BHI
incurred a charge of $659 as a result of this write down. The assets and
liabilities of Intelock included in the accompanying December 28, 1996
consolidated balance sheet were not significant. Intelock, which was acquired by
BHI in 1995, was a manufacturer and distributor of digital locking devices.
Alabaster and Intelock were sold during 1997 (see Note 12).
(12) ACQUISITIONS AND DISPOSITIONS
1998
During 1998, the Company reached an agreement with the purchaser of the ACPI
assets in connection with the sale of these assets in 1997. The agreement
related to the settlement of certain post closing
F-21
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(12) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
adjustments and resulted in a gain of approximately $893. There were no
significant acquisitions or dispositions during 1998.
1997
In August, 1997, BHI sold substantially all of the assets of BMHI (the ACPI
assets), with the exception of its Warren Pet Division and Boss Manufacturing
Company, a BMHI subsidiary, for approximately $23,618 in cash, net of
transaction costs of approximately $1,186, plus the assumption of approximately
$3,260 of liabilities by the purchaser. BHI recorded a loss of approximately
$1,840 on the sale of BMHI, including expenses related to the sale. Expenses
related to the sale of BMHI included $1,044 paid to a stockholder and an
affiliate of a stockholder of BHI.
In June, 1997, BHI sold all of the outstanding common stock of Alabaster for
$2,000, consisting of $500 cash and a $1,500 promissory note. The promissory
note requires monthly payments of $14, including interest at 10%, through July
1999, at which time all outstanding principal and interest is due. The
promissory note is collateralized by certain real property of Alabaster. BHI
recorded a loss on the sale of Alabaster of approximately $2,080, including
expenses related to the sale. No payments were made on the note in 1998 and the
maker is in default. The Company has recorded an allowance of $450 against the
note at December 27, 1997 and December 26, 1998.
In April, 1997, BHI sold all of its Intelock common stock for $5 cash and a
$95 promissory note. No payments were made on this note in 1998. The Company and
the maker of the note were in negotiations to restructure the note at December
26, 1998. The Company has recorded an allowance of $50 against the note at
December 27, 1997 and December 26, 1998. BHI recorded a gain of approximately
$128 on the sale of Intelock in 1997.
1996
In August 1996, the Company sold substantially all the assets of FSPI for
$1,800 cash and a $100 promissory note. The purchaser also assumed substantially
all operating liabilities of FSPI. BHI recognized a loss on the sale of FSPI
assets of $8,783. FSPI was a manufacturer and distributor of gas detection
devices and other home safety products.
In May 1996, BMHI sold the inventory, tooling and other supplies of a
product line for $1,059 in cash. The sale resulted in a gain of $472.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
The pro forma results of operations which follow assume that the acquisition
of Boss Manufacturing and the Warren Pet division of BMHI occurred on January 1,
1995, and the disposition of all other subsidiaries and divisions occurred on
December 31, 1994. Accordingly, the pro forma results of operations that follow
include the results of operations of BHI, Boss Manufacturing Company and Warren
Pet Products. In addition to combining the historical results of operations of
the companies, the pro forma calculations include adjustments for the estimated
effects on the Company's historical results of operations for depreciation,
interest and other purchase accounting adjustments related to the acquisitions.
These
F-22
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(12) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
results are not necessarily indicative of the results that would have occurred
if the transactions had occurred at the beginning of each period presented nor
are the results indicative of future results.
UNAUDITED
1998 1997 1996
--------- --------- ---------
Sales........................................................ $ 37,514 $ 42,197 $ 43,183
Net earning (loss)........................................... $ 640 $ (646) $ (4,882)
Net earnings (loss) per common share
Basic...................................................... $ 0.34 $ (0.51) $ (7.57)
Diluted.................................................... $ 0.33 $ (0.51) $ (7.57)
(13) COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, REPORTING COMPREHENSIVE INCOME, for its fiscal year ended December 26,
1998. The statement established standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. The statement requires
retroactive application for all periods presented in the financial statements.
Accumulated other comprehensive income consists of the following:
DECEMBER 26, DECEMBER 27,
1998 1997
------------- ---------------
Foreign currency translation adjustment.......................... $ (119) $ (70)
A summary of the components of other comprehensive income for the years
ended December 26, 1998, December 27, 1997 and December 28, 1996 is as follows:
1998 1997 1996
--------- --------- -----
Net change in foreign currency translation adjustment................... $ (49) $ (47) $ (4)
(14) OPERATING SEGMENTS AND RELATED INFORMATION
In 1998, the Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. This statement requires the disclosure of
certain information about the Company's operations in different industries.
The company operates primarily in the work gloves and protective wear
segment. Through its Boss Manufacturing Company subsidiary, the Company
manufactures, imports and markets gloves, boots and
F-23
BOSS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(14) OPERATING SEGMENTS AND RELATED INFORMATION (CONTINUED)
rainwear products. In addition, through its Warren Pet Products division of Boss
Manufacturing Holdings, Inc., the Company manufactures, imports and markets a
line of pet supplies including dog and cat toys, collars, leads, chains and
rawhide products.
Prior to 1998, the Company manufactured and sold keys, letters, numbers and
signs through a subsidiary, BMHI. All assets associated with this operations
were sold in 1997 (see Note 12).
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 KEYS,
AND LETTERS,
PROTECTIVE PET NUMBER CORPORATE
WEAR SUPPLIES AND SIGNS AND OTHER TOTAL
------------- ----------- ------------ ---------- ----------
1998
Revenues......................................... $ 31,600 $ 3,955 $ -- $ 1,988 $ 37,543
Segment profit (loss)............................ 960 164 -- (1,082) 42
Asset sales and writedowns....................... -- -- 893 -- 893
Operating income................................. 960 164 893 (1,082) 935
Total assets..................................... 21,666 1,393 -- 5,911 28,970
Capital expenditures............................. 770 27 -- 21 818
Depreciation..................................... 279 38 -- 26 343
1997
Revenues......................................... 36,009 4,155 33,367 4,869 78,400
Segment profit (loss)............................ 1,798 (184) 396 (2,709) (699)
Asset sales and writedowns....................... -- -- (2,354) (1,438) (3,792)
Operating income................................. 1,798 (184) (1,958) (4,147) (4,491)
Total assets..................................... 21,590 1,037 -- 5,935 28,562
Capital expenditures............................. 2,039 5 1,167 726 3,937
Depreciation..................................... 241 31 1,554 84 1,910
1996
Revenues......................................... 36,578 4,296 55,711 14,370 110,955
Segment profit (loss)............................ 2,699 (203) 3,086 (11,425) (5,843)
Asset sales and writedowns....................... -- -- -- (10,787) (10,787)
Operating income................................. 2,699 (203) 3,086 (22,212) (16,630)
Total assets..................................... 19,915 1,042 30,375 10,439 61,771
Capital expenditures............................. 54 7 3,809 2,061 5,931
Depreciation..................................... 118 19 1,268 703 2,108
F-24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors
Boss Holdings, Inc.
In connection with our audit of the consolidated financial statements of
Boss Holdings, Inc. and Subsidiaries referred to in our reported dated February
18, 1999, which is included in the annual report to security holders and
incorporated by reference in Part II of this form, we have also audited Schedule
II for the years ended December 26, 1998, December 27, 1997 and December 28,
1996. In our opinion, this schedule presents fairly, in all material respects,
the information required to be set forth therein.
Atlanta, Georgia
February 18, 1999
S-1
BOSS HOLDINGS, INC., AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------ ----------- ------------- ------------- -----------
BALANCE AT CHARGED BALANCE
BEGINNING TO OTHER AT END
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS(1) OF PERIOD
- ------------------------------------------------------------ ----------- ------------- ------------- -----------
Year ended December 26, 1998
Allowance for doubtful accounts and returns............... $ 507 $ 59 $ 111 $ 455
Deferred income tax asset valuation allowance............. 17,151 (4,677) -- 12,474
Year ended December 27, 1997
Allowance for doubtful accounts and returns............... 1,405 131 1,029 507
Deferred income tax asset valuation allowance............. 14,511 2,640 -- 17,151
Year ended December 28, 1996
Allowance for doubtful accounts and returns............... 2,230 493 1,318 1,405
Deferred income tax asset valuation allowance............. 7,516 6,995 -- 14,511
- ------------------------
(1)--bad debt write offs and reduction in estimate of allowance requirements.
S-2
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.
(Registrant) BOSS HOLDINGS, INC.
BY /S/ J. BRUCE LANCASTER
-----------------------------------------
J. Bruce Lancaster
CHIEF FINANCIAL OFFICER
Date: April 9, 1999
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
--------------------------------- -------------------------- -------------------
/s/ G. LOUIS GRAZIADIO, III
By ------------------------------ Chairman of the Board and Date: April 9, 1999
G. Louis Graziadio, III Chief Executive Officer
/s/ PERRY A. LERNER
By ------------------------------ Director Date: April 9, 1999
Perry A. Lerner,
/s/ LEE E. MIKLES
By ------------------------------ Director Date: April 9, 1999
Lee E. Mikles,
/s/ PAUL A. NOVELLY
By ------------------------------ Director Date: April 9, 1999
Paul A. Novelly,
/s/ RICHARD D. SQUIRES
By ------------------------------ Director Date: April 9, 1999
Richard D. Squires,
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENTS, LIQUIDATION OR
SUCCESSION.
Not applicable.
(3)(I) ARTICLES OF INCORPORATION
3.1(a) Certificate of Incorporation (Exhibit 3.1)
3.1.1 Amendment to Certificate of Incorporation, dated December 7, 1998 (Exhibit
3.1.1)
(II) BY-LAWS
3.2(a) By-Laws (Exhibit 3.2)
(10) MATERIAL CONTRACTS
10.3(a) 1993 Incentive Stock Option Plan (Exhibit 10.4)
10.4(b) 1993 Non-Employee Director Stock Option Plan, as amended. (Exhibit 10.2)
10.13(b) Prospectus for the Company's 1993 Incentive Stock Option Plan and 1993
Non-Employee Director Stock Option Plan. (Exhibit 10.1)
10.14(b) First Amendment to the Company's 1993 Incentive Stock Option Plan.
(Exhibit 10.1)
10.22(c) Loan and Security Agreement between American Consumer Products, Inc.,
Products Merchandisers, Inc., Boss Manufacturing Company and Fleet
Capital Corporation dated May 7, 1997. (Exhibit 10.22)
(21) SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of the Registrant are listed on Exhibit 21.1 included in this
Report.
(23) CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of the Registrant's Independent Accountants is included on Exhibit
23.1 included in this Report.
(24) POWER OF ATTORNEY
Not applicable.
(27) FINANCIAL DATA SCHEDULE (FILED ONLY BY ELECTRONIC FILERS)
27.1 Financial Data Schedule is included herein as Exhibit 27.1 of this Report.
- ------------------------
(a) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Registration Statement on Form SB-2
(Registration No. 33-73118-A). The exhibit number contained in
parenthesis refers to the exhibit number in such Registration Statement.
(b) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Current Report on Form 8-K dated June 9, 1996.
The exhibit number contained in parenthesis refers to the Exhibit number
in such Form 8-K.
(c) Exhibit previously filed as part of and is incorporated herein by
reference to the Company's Current Report on Form 10-Q for the quarter
ended June 28, 1997. The exhibit number contained in parenthesis refers
to the Exhibit number in such Form 10-Q.