Edgar Filing: BOLLINGER INDUSTRIES INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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 March 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
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Commission file number 0-22716

BOLLINGER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 75-2502577
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)

602 FOUNTAIN PARKWAY
GRAND PRAIRIE, TEXAS 75050
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (972) 343-1000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value

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
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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. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant on May 29, 2001 was $1,551,246.

The number of shares of common stock of the registrant outstanding on May 29,
2001 was 4,368,615.

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TABLE OF CONTENTS

ITEM PAGE
---- ----

PART I
1. Business......................................................................................... 1
2. Properties....................................................................................... 4
3. Legal Proceedings................................................................................ 4
4. Submission of Matters to a Vote of Security Holders.............................................. 6

PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ........................... 7
6. Selected Financial Data.......................................................................... 7
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................... 9

7A. Quantitative and Qualitative Disclosures About Market Risk....................................... 15

8. Financial Statements and Supplemental Data....................................................... 15
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................................... 15

PART III
10. Directors and Executive Officers of the Registrant............................................... 16
11. Executive Compensation........................................................................... 18
12. Security Ownership of Certain Beneficial Owners and Management................................... 20
13. Certain Relationships and Related Transactions................................................... 21

PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................. 22

PART I

ITEM 1. BUSINESS.

Bollinger Industries, Inc. (the "Company"), a corporation incorporated
under the laws of the state of Delaware in 1993, is a leading U.S. based
supplier of consumer fitness products. Fitness products, when used in
conjunction with an exercise program, are an important part of the health and
well being of many American consumers. "For many Americans, home exercise
equipment is now seen as an amenity, a possession that contributes to the
quality of life" according to the Sporting Goods Manufacturers Association in a
recent publication. American adults are primarily interested in home exercise to
improve their health, with 33% of U.S. households reporting ownership and use of
home exercise equipment according to Greg Hartley of the Fitness Products
Council. Almost fifty million American adults own or use home exercise equipment
at least once a week according to a study by American Sports Data Inc. Americans
spent $5.5 billion for home equipment in 1999. The home exercise category, in
which the Company operates, is focused on those issues that prompt most
Americans to purchase equipment and accessories for home use; privacy,
convenience and safety.

COMPANY AND INDUSTRY OVERVIEW

In recent data released by the Sporting Goods Manufacturers
Association, sales of fitness equipment is estimated at $3.7 billion in 2000,
pushed by sales of innovative home products. Additionally, exercise equipment is
now the largest selling category of sporting goods equipment, ahead of golf
($2.8 billion at wholesale), outdoor ($1.8 billion) and water sports ($0.5
billion). The total market for the specific categories in which the Company
offers products at wholesale was in excess of $800 million for 1999 (the last
year for which data is available).

PRODUCTS AND MARKETS

The Company imports and sells a complete line of over 800 fitness
accessory products and pieces of fitness equipment, including free weights such
as barbells, dumbbells, weight lifting bars, and weight sets, stationary
bicycles and kinetic exercise stands, abdominal trainers, weightlifting belts
and gloves, exercise mats, reducing belts, suits and shorts, ankle and wrist
weights, aerobic steps, therapeutic magnets, hand exercisers, supports and
support belts, and jump ropes. The majority of the Company's products retail for
less than $20.00.

In addition to the Bollinger(R) design trademark, the Company's fitness
accessories are sold under various trademarks to promote consumer identification
and coordinate affiliated products. Weightlifting products include StarLock(R)
weightlifting systems, Smartlock(C) dumbbell systems and BrightBells(R)
dumbbells. Solar(R) trimming products, Softone(C) wrist weights, and
Exergrip(TM) strengthening putty are examples of other fitness accessory
products available through the Company. In addition, the Company markets a
complete line of accessory and boxing products under the Multi-Grip(R) trademark
and a full assortment of aerobic step products under the original The Step(TM)
mark.

The Company markets its fitness accessories primarily to mass
retailers, which include discount chains, department stores, sporting goods
retailers and sports superstores, warehouse clubs and direct response
television. In fiscal 2001, 2000 and 1999, the Company served approximately 600
accounts, although the Company's ten largest fitness accessory customers
accounted for approximately 85%, 86% and 87% of the Company's total net sales in
those years, respectively. In fiscal 2001 KMart accounted for 33% of gross
sales, Wal-Mart accounted for 19% of gross sales and The Sports Authority
accounted for 17% of gross sales. Examples of discount chain customers include
Wal-Mart and KMart. The mass retailer category also encompasses catalog
customers like J.C. Penney. Sporting goods retailers and sports superstore
customers include The Sports Authority, Oshman's Sporting Goods, H. Modell &
Company, and Academy Sports. QVC

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and The Home Shopping Network are shop-at-home cable television networks that
provide a direct response television outlet for the Company. Wal-Mart, KMart and
Oshman's have each been customers of the Company for approximately 20 years. The
loss of one or more of the major customers could have a material adverse impact
on the Company.

Quality is an important element of the Company's merchandising
strategy. To convey the image of quality to the consumer, the Company uses a
merchandising approach that emphasizes quality through easily recognizable
packaging and graphics. The Company, known for its bright, innovative,
consistent packaging approach, monitors changing consumer color and style
preferences regularly. "Innovation is the hallmark of the fitness movement"
according to John Riddle, President of the Sporting Goods Manufacturers
Association and the Company's often imitated package style plays an important
part in the overall perception of innovation.

The Company employs a "program" approach in marketing and selling its
products to retailers. The products are presented to retailers as part of an
integrated line rather than as single items. The Company offers program
management services to help retail customers maximize results from the
presentation, merchandising, and sale of its products. These services include
helping to plan product mix and merchandising the product, and providing
responsive inventory management. The Company provides graphic representations of
planograms customized to the retailer's store layout and consumer demographics.
The depth and diversity of the Company's product line makes such presentations
possible, and enhances the Company's ability to present complete category
merchandising programs to retailers.

PRODUCT SOURCING

The Company sources its products globally, with the lowest cost,
highest quality providers from around the world. The Company currently imports
from China, Taiwan, Pakistan, Thailand, Malaysia and Mexico. The Company's
imported products are packaged in custom packaging designed and monitored by the
Company.

During fiscal 2001 approximately 5% of the Company's net sales were
derived from products manufactured domestically, although not in Company-owned
facilities, as compared to approximately 9% and 13% in fiscal 2000 and 1999,
respectively.

SALES

The Company uses in-house sales personnel and independent sales
representatives to market its products. In-house personnel are responsible for
overseeing the independent representatives and for direct sales to major
customers. The independent sales representatives work on a commission-only
basis, and specialize in the sale of sporting goods products to mass retailers.
The independent sales representatives market a variety of sporting goods and
therefore generally have strong relationships with trade customers. The in-house
sales personnel and the independent sales representatives coordinate with the
Company's marketing department to produce a unified marketing and sales effort.
The Company's executive officers directly manage the accounts of the largest
customers and focus on the development of new customers.

The majority of the Company's sales efforts are concentrated in the
United States and Canada with international sales coordinated by in-house
personnel and a distributor. International sales for fiscal 2001 were nominal.

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PRODUCT DEVELOPMENT

The Company focuses on creating, obtaining and developing new and
innovative products and product ideas. The Company also regularly evaluates its
existing products to determine how they may be repositioned to enhance the
Company's competitive position in the marketplace. Additionally, the Company
frequently reviews new product ideas submitted to it, and enters into license or
distribution agreements for those items that are proprietary in nature or
represent significant placement opportunities in retail stores. New products and
product ideas are derived from individual inventors, small companies that do not
have sufficient capability or the relationships with mass retailers needed to
market a new product, or consumers who submit new ideas based on personal
experience. When the Company has identified a product that it decides to
distribute and market, it determines appropriate sourcing for the product to
ensure both high quality and low manufacturing costs.

COMPETITION

The Company participates in a highly competitive industry, competing
with a number of established manufacturers, importers and distributors of
fitness products. Many competitors have significantly greater financial and
other resources than those available to the Company. The Company believes that
the principal competitive factors affecting its business include price, customer
service, manufacturing and distribution capabilities, marketing and
merchandising expertise, quality, brand name recognition and the ability to
create and develop a broad variety of innovative products and concepts.

The Company believes its principal competitors are large fitness
equipment manufacturers, which also sell fitness accessory products, smaller
importers, which offer a more limited assortment of products than the Company,
and some of the Company's mass merchandiser customers that have overseas buying
offices and direct importing capabilities. There are relatively few barriers to
entry into the fitness accessory products market.

One of the largest fitness and exercise equipment manufacturers in the
United States is Icon Health & Fitness, Inc. ("Icon"), which markets products
under the brand names of Weslo, Healthrider, Weider, Nordic Trac and ProForm.
Icon offers, among many other items, a line of packaged fitness accessory
products similar to the Company's fitness accessory products. Although the
Company believes that the majority of Icon's sales come from treadmills,
exercise machines, and weight benches, Icon competes directly with the Company
for sales of a large number of hand-held fitness accessory products.

PATENTS AND TRADEMARKS

The Company has rights to a number of patented inventions, trademarks
and trade names used in connection with the sale and marketing of its products.
The Company does not believe it infringes on any patent, trademark or trade name
rights.

The Company currently owns and protects the rights to a number of U.S.
patents and additionally has a number of exclusive and nonexclusive licenses
under other U.S. patents. It does not hold any foreign patents. The Company does
not view any single patent as critical to its business and most of its patents
or trademarks extend (with renewal options) over the next five to twenty years.
The Company's ability to offer a large number of patented or unique products
enhances its overall product offering.

The Company owns a number of trademarks and has licensed the use of
additional trademarks in the U.S. The Company intends to protect such trademarks
to the fullest extent practical. The Company has registered its trademarks in a
number of foreign countries.

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EMPLOYEES

As of March 31, 2001 the Company employed 101 persons on a full-time
basis (including 38 leased), of which 61 employees were engaged in receiving,
purchasing, warehousing, and shipping activities, and 40 employees were engaged
in sales, customer service, accounting, information technology, and other
administrative functions. In addition, the Company, from time to time, uses
part-time workers and/or contract labor. None of the Company's employees are
represented by a union, and the Company believes relations with its employees
are good.

REGULATIONS

The Company and its products are subject to numerous federal, state,
and local laws, rules and regulations ("Regulations"). Among the more
significant of such Regulations are consumer product safety laws under which a
company's products can be barred from sale or subject to recall if found to be
hazardous; occupational safety and health laws; and environmental laws.

The Company is not a party to any threatened or pending material
regulatory action, other than as discussed below in "Item 3. Legal Proceedings."

ITEM 2. PROPERTIES.

The Company leases approximately 300,000 square feet of space in Grand
Prairie, Texas, which is currently used as the corporate offices and houses the
Company's accounting and sales staff, as well as the main warehouse and shipping
facility. The lease on this facility expires on May 1, 2004 and contains a
renewal option to extend the lease for an additional three years. Previously,
the Company sublet 45,000 square feet in its main facility. This sublease was
terminated on May 31, 2001. The Company does not intend to seek a replacement
sublessor. The Company believes the current facility in Grand Prairie, Texas is
adequate for its needs.

ITEM 3. LEGAL PROCEEDINGS.

Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust
Retirement Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D.
Bollinger, Bobby D. Bollinger, Michael J. Beck, John L. Maguire, and Grant
Thornton, L.L.P.; in the 191st Judicial District Court (originally filed in the
68th Judicial District Court) of Dallas County, Texas (the "Suntrust Lawsuit"):

The Company, Glenn D. Bollinger (Chairman and CEO), Bobby D. Bollinger
(President), Michael J. Beck (former CAO), John L. Maguire (Director), and Grant
Thornton, L.L.P. (former independent accountants) are defendants in a securities
fraud lawsuit filed on March 22, 1996 by shareholder Suntrust Bank Atlanta, as
Trustee for Suntrust Retirement Sunbelt Equity Fund, on behalf of themselves and
all persons similarly situated. This lawsuit was filed as a class action on
behalf of those who purchased securities through a public offering of the
Company's stock, alleging that the price of the stock was artificially inflated
and maintained in violation of the anti-fraud provisions of the securities law
as well as common law. Further, Grant Thornton filed a cross claim against the
underwriters, and against the Company, Glenn D. Bollinger and Bobby D.
Bollinger, generally seeking contribution.

Civil Action No. 3:96C-V-0823-L; STI Classic Fund and STI Classic
Sunbelt v. Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger,
and Michael J. Beck; in the United States District Court for the Northern
District of Texas, Dallas Division (the "STI Lawsuit"):

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Division, by shareholders STI Classic Fund and STI Classic Sunbelt, on behalf of
themselves and all persons similarly situated. Like the Suntrust lawsuit, this
lawsuit was also filed as a class action on behalf of a class of persons who
purchased securities issued by the Company at prices which allegedly were
artificially inflated and maintained in violation of the anti-fraud provisions
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 10b-5 thereunder. A class certification
has been granted by the court.

In April 2001, the Company and the class representatives entered into a
"Stipulation of Settlement" which calls for the one time payment of $400,000 and
the issuance of 200,000 shares of Bollinger Common Stock in full settlement of
both the Suntrust Lawsuit and the STI Lawsuit. The 200,000 shares of stock are
subject to a Put and Call Agreement which permits (1) the Company to call the
stock for $2.00 per share, and (2) the plaintiffs to require the Company to
purchase the stock for $1.00 per share. These put and call options run for one
year after the effective date of the final settlement and approval of the
litigation. Full and final settlement of both actions require class acceptance
and judicial approval, and the hearings for final approval have been set for
August 24, 2001. The Company has paid the $400,000 into escrow pending the final
approval.

Civil Action No. 00-1842-J Curtis Logan v. Bollinger Industries, Inc.;
in the 191st Judicial District Court, Dallas County Texas ("the Logan Lawsuit"):

Logan's cross-claim for indemnity against the Company was severed after
the Court granted summary judgment as to liability on Logan's indemnity claims,
plus his attorneys' fees and expenses, and this case is the result. Settlement
negotiations have produced a Rule 11 Agreement which was executed during the
quarter ending June 30, 2000 for $150,000. The Company paid $30,000 during June
2000 and the remaining $120,000 was paid in October 2000.

Cause No. EDCV00-312-RT; Precise Exercise Equipment, Inc. and Fitness
Innovations and Technologies, Inc. v. Kmart Corporation and Bollinger
Industries, Inc.; in the United States District Court for the Central District
of California, Eastern Division, filed on January 24, 2000. The Plaintiffs
asserted claims of patent infringement relating to a patent on a sit-up
exerciser. Defendants Bollinger and Kmart filed counterclaims alleging
invalidity and unenforceability of the patent.

Cause No. 400-CV-0135A; Bollinger Industries, Inc. v. Precise Exercise
Equipment, Inc. and Fitness Innovations and Technologies, Inc.; in the United
States District Court for the Northern District of Texas, Fort Worth Division,
filed on February 29, 2000. The Company sought a declaratory judgment that
Precise's patent being asserted in the California litigation was invalid or
unenforceable and did not infringe. This case involved the same subject matter
as the California litigation.

In November 2000 the Company, Precise Exercise Equipment, Inc.
("Precise") and Fitness Innovations and Technologies, Inc. entered into a Patent
Settlement Agreement which allowed the Company to sell its remaining inventory
of the sit-up exerciser through March 1, 2001 in the normal course of business
and required the Company to assist in the transition of the Company's customer
base for the sit-up exerciser to Precise. Concurrently, the Company entered into
a Sublicense Agreement with Precise, which grants Precise rights for a period of
three years to an unrelated Bollinger held patented product. This agreement
settles both the California and Texas actions.

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and regulations promulgated thereunder in the future, and agreed to the payment
of a monetary penalty in the amount of $40,000. Ronald Bollinger consented to
the entry of an order of permanent injunction enjoining him from violations of
the antifraud, record keeping, periodic reporting and internal accounting
controls provisions of the Exchange Act and regulations promulgated thereunder,
and agreed not to act as a director or officer of a registered or reporting
entity in the future.

From time to time, the Company is a party to various legal proceedings
arising in the ordinary course of business. The Company is not currently a party
to any other material litigation and is not aware of any litigation threatened
against the Company, arising in the ordinary course of business, that could have
a material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of the stockholders of the Company
during the fourth quarter of fiscal 2001.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock is currently traded in the over-the-counter
market as reported by the NASDAQ Stock Market, Inc.'s OTC Bulletin Board under
the symbol "BOLL" The following table sets forth, on a per share basis for the
periods indicated, the high and low closing sale prices for the Common Stock.

PRICE RANGE
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FISCAL 2001 FISCAL 2000
---------------------------- -----------------------------
HIGH LOW HIGH LOW
-------------- ---------- ------------ ----------

First Quarter .............. $0.47 $0.38 $0.75 $0.34
Second Quarter ............. 0.47 0.35 0.72 0.28
Third Quarter .............. 0.35 0.25 0.53 0.25
Fourth Quarter ............. 0.34 0.26 0.56 0.25

As of May 29, 2001 there were approximately 63 holders of record of the
Common Stock.

The Company has not paid cash dividends on its Common Stock since its
inception. The Company's board of directors does not anticipate payment of any
cash dividends by the Company in the foreseeable future and such payments are
restricted by agreements with its primary lender.

ITEM 6. SELECTED FINANCIAL DATA.

The selected historical financial data presented below is derived from
the consolidated financial statements of the Company. The consolidated financial
is derived from the historical consolidated financial statements of the Company,
which have been audited by King Griffin & Adamson P.C. for the past five fiscal
years. The selected financial data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's consolidated financial statements and related
notes included elsewhere in this Report.

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FISCAL YEAR ENDED MARCH 31,
--------------------------------------------------------------
2001 2000 1999 1998(2) 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF OPERATIONS
Net sales ............................................. $ 43,124 $ 38,387 $ 33,824 $ 58,794 $ 82,599
Cost of goods sold .................................... 29,107 25,767 24,476 47,803 69,723
-------- -------- -------- -------- --------

Gross profit ..................................... 14,017 12,620 9,348 10,991 12,876

Selling expenses ...................................... 4,937 3,497 3,532 4,890 6,879
Distribution, general and administrative expenses ..... 8,820 8,384 9,428 9,963 11,506
-------- -------- -------- -------- --------

13,757 11,881 12,960 14,853 18,385
-------- -------- -------- -------- --------

Operating profit (loss) ........................... 260 739 (3,612) (3,862) (5,509)

Other expense (income)
Interest expense .................................. 1,504 1,201 774 1,749 2,552
Gain on sale of assets ............................ (2) (17) (9) (11,248) --
Contingency for legal settlement .................. (2,250) -- 3,000 -- --
Other ............................................. -- 126 121 (55) (50)
-------- -------- -------- -------- --------
(748) 1,310 3,886 (9,554) 2,502
-------- -------- -------- -------- --------

Earnings (loss) from continuing operations
before income tax expense (benefit) ....... 1,008 (571) (7,498) 5,692 (8,011)

Income tax expense (benefit) .......................... -- -- -- 226 (92)
-------- -------- -------- -------- --------

Earnings (loss) from continuing operations(1) ..... 1,008 (571) (7,498) 5,466 (7,919)

Discontinued operations
Gain (loss) on disposal, net of income tax
benefit including a $1,199,118 provision
for operating losses during phase out
period in 1996 ................................. -- -- -- -- 478
-------- -------- -------- -------- --------

Earnings (loss) from discontinued operations ........ -- -- -- -- 478
-------- -------- -------- -------- --------

Net earnings (loss) .................................. $ 1,008 $ (571) $ (7,498) $ 5,466 $ (7,441)
======== ======== ======== ======== ========

Per share data (basic):
Earnings (loss) from continuing operations ......... $ 0.23 $ (0.13) $ (1.79) $ 1.37 $ (1.98)
======== ======== ======== ======== ========

Net earnings (loss) ................................ $ 0.23 $ (0.13) $ (1.79) $ 1.37 $ (1.86)
======== ======== ======== ======== ========

Weighted average common and common equivalent
shares outstanding ................................. 4,373 4,400 4,179 4,000 4,000
======== ======== ======== ======== ========

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MARCH 31,
----------------------------------------------------------
2001 2000 1999 1998(2) 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)

BALANCE SHEET DATA
Working capital .......................... $ 424 $ 8,065 $ 7,463 $ 8,839 $ 15,994
Total assets ............................. 22,285 24,198 20,362 17,001 38,389
Total long term debt and capital leases... 2,361 9,615 7,437 815 15,642
Total debt and capital leases ............ 12,428 11,029 9,054 1,170 18,483
Stockholders' equity ..................... 3,615 2,619 3,190 10,487 5,021

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(1) The Company sold substantially all of the assets of the Healthcare
Division during September 1996. Earnings from continuing operations
does not reflect the results of operations for the Healthcare Division.

(2) On November 21, 1997 the Company disposed of its Trampoline Products
line.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto appearing elsewhere
in this Report.

GENERAL

The Company currently designs, imports, and distributes a variety of
fitness equipment accessories and fitness equipment products designed primarily
for home use.

PROFITABILITY

The Company took an important step forward in the fiscal year ended
March 21, 2000 ("fiscal 2000") by achieving operating profitability and
continued to achieve operating income, as well as net income, in the fiscal year
ended March 31, 2001 ("fiscal 2001").

The Company generated operating income of $260,000 in fiscal 2001
compared to operating income of $739,000 in fiscal 2000 and an operating loss of
$3,612,000 in the fiscal year ended March 31, 1999 ("fiscal 1999"). Net income
in fiscal 2001 was $1,008,000, including the reversal of $2,250,000 in a legal
contingency accrual as compared to net losses of $571,000 in fiscal 2000 and
$7,498,000 in fiscal 1999, the year in which the $3,000,000 legal contingency
accrual was established.

Subsequent to March 31, 2001, the Company and the class representatives
in the Suntrust Lawsuit and the STI Lawsuit entered into a "Stipulation of
Settlement" in full settlement of the lawsuits. (See "Item 3. Legal
Proceedings.") The Company had reserves in excess of the settlement recorded as
a contingent liability which have now been reversed in the 2001 financial
statements. Resolving this ongoing litigation has been an important goal without
which the future of the Company was uncertain.

On April 2, 2001, the Company entered into an agreement with an
asset-based lending arm of a Texas bank to replace the previous lender. This
replacement was vital in reaching a settlement in the shareholder lawsuits as
the previous lender was unwilling to permit the funding of a settlement.

NET SALES: The Company obtained placement of a substantial program with
a major mass merchandiser in July 1999 and sales to this customer were
approximately $14,800,000 in fiscal 2001, substantially contributing to the
Company's overall profitability.

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COST OF SALES AND GROSS MARGIN: Gross margin as a percentage was
relatively stable from fiscal 2000 to fiscal 2001. The Company believes that
continuing to source its products from the lowest cost and highest quality
providers, as well as continuing to aggressively manage customer returns, will
enable it to maintain gross margins in fiscal 2002, and further believes the
addition of new product offerings should improve sales volume.

SELLING EXPENSES: In November 2000, the Company settled a patent
infringement lawsuit pertaining to its popular "AbRock'it" and "E-Z Ab" products
with Precise Exercise Equipment, Inc. (See "Item 3. Legal Proceedings.") As part
of the settlement the Company was required to pay royalties on the continued
sale of these items and to stop selling these products by March 1, 2001. The
cost of these royalties are reflected in Selling Expenses.

In September 2000, the Company began investing in an extension of its
product line with the introduction of weight benches, home gyms, stationary
cycles and related product under the name "Rock Fitness." The cost of product
development and sales salaries is reflected in this category.

ACQUISITIONS

In October 1998, the Company entered into two unrelated acquisitions.
The first was to acquire the assets and operations of Self Image Sports and
Fitness Co., Inc., doing business as Multi-Grip, for $1,400,000 paid in cash at
closing, a deferred cash payment of $100,000 and the assumption of approximately
$60,000 in trade payables. The second was to acquire the license rights for the
original "The Step" product from The Step Company for $2,175,000 cash at
closing, a $1,400,000 convertible subordinated note, and 300,000 shares of the
Company's restricted Common Stock valued at $150,000.

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RESULTS OF OPERATIONS

The following table presents, for the periods indicated, certain items
derived from the Company's consolidated statements of operations expressed as a
percentage of net sales. The trends in sales or earnings illustrated in the
following table may not be indicative of future results.

PERCENTAGE INCREASE
PERCENTAGE OF NET SALES (DECREASE)
-------------------------------- ------------------------
FISCAL FISCAL
FISCAL YEAR ENDED MARCH 31, 2001 2000
OVER FISCAL
STATEMENT OF OPERATIONS 2001 2000 1999 2000 1999
-------- -------- -------- -------- --------

Net sales ................................... 100.0 100.0 100.0 12 13
Cost of goods sold .......................... 67.5 67.1 72.4 13 5
-------- -------- --------
Gross profit ........................... 32.5 32.9 27.6 11 35

Selling expenses ............................ 11.4 9.1 10.4 41 (1)
Distribution, general and
administrative expenses ................. 20.5 21.9 27.9 5 (11)
-------- -------- --------
31.9 31.0 38.3 16 (8)
-------- -------- --------
Operating profit (loss) ................ 0.6 1.9 (10.7) (65) 120

Interest expense ............................ 3.5 3.1 2.3 25 55
Gain on sale of assets ...................... 0.0 0.0 0.0 88 94
Contingency for legal settlement ............ (5.2) 0.0 8.9 -- --
Other expense (income)-net .................. 0.0 0.3 0.3 -- 4
-------- -------- --------
(1.7) 3.4 11.5 157 66
Earnings (loss) from operations
before income tax expense benefit) ... 2.3 (1.5) (22.2) 277 92

Income tax expense (benefit) ................ 0.0 0.0 0.0 -- --
-------- -------- --------

Earnings (loss) from
operations ........................... 2.3 (1.5) (22.2) 277 92
======== ======== ========

FISCAL YEAR ENDED MARCH 31, 2001 COMPARED TO FISCAL YEAR ENDED MARCH 31, 2000

The Company sells fitness accessory products under a variety of brand
names, in addition to the Bollinger(R) design trademark.

Net sales in fiscal 2001 increased by approximately $4,738,000 from
fiscal 2000, an increase of 12.3%. Sales to discount chain customers are
primarily responsible for the increase in sales.

Returns and deductions from customers ranged from a low of
approximately 3% of sales in the third quarter to a high of approximately 8% in
the first quarter, with an average of 5% for the year. This is in line with
fiscal 2000 and represents an improvement over prior years.

Gross profit in fiscal 2001 improved by approximately $1.4 million over
fiscal 2000, but decreased as a percentage of net sales from 32.9% in fiscal
2000 to 32.5% in fiscal 2001, a decrease of 0.4%. This minor percentage erosion
was due to higher freight cost partially offset by cost improvements.

Selling expenses for fiscal 2001 increased by approximately $1,439,000
compared to fiscal 2000 and increased as a percentage of net sales from 9.1% in
fiscal 2000 to 11.4% in fiscal 2001. The dollar increase in selling expense is
attributable to increased sales salaries for development of a new product line
to be introduced in fall 2001 and royalty expenses associated with the sale of
"AbRock'its" and "E-Z Abs" as

11
14

required in a settlement reached in a patent infringement suit. See "Item 3.
Legal Proceedings." Additionally, advertising expenses increased in direct
relation to higher sales volume.

Distribution, general and administrative expenses for fitness accessory
products increased by approximately $437,000 in fiscal 2001 compared to fiscal
2000 and decreased as a percentage of net sales from 21.8% in fiscal 2000 to
20.5% in fiscal 2001. The increase in distribution, general and administrative
expenses resulted from storage charges paid to hold goods while original
documents were obtained to clear the product through overseas suppliers and
customs.

Operating profits decreased $479,000 or 1.3% from fiscal 2000 to fiscal
2001, attributable to advertising, sales salaries, royalties and storage
charges.

Interest expense on operations in fiscal 2001 increased approximately
$303,000 from fiscal 2000 primarily due to an increase in the borrowed balance,
fees and a slight increase in the interest rate assessed by a financial
institution. Interest rates experienced by the Company increased from 10.02% in
fiscal 2000 to 11.26% in fiscal 2001.

FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999

Net sales in fiscal 2000 increased by approximately $4,563,000 from
fiscal 1999, an increase of 13.5%. The placement of a complete Bollinger product
line in a major mass merchandiser account contributed to the increase in sales.

Returns and deductions from customers ranged from a low of
approximately 4% of sales in the first quarter to a high of approximately 8% in
the fourth quarter, with an average of 6% for the year. This is in line with
fiscal 1999 and represents an improvement over years prior to fiscal 1999.

Gross profit in fiscal 2000 improved by approximately $3.3 million over
fiscal 2000, and increased as a percentage of net sales from 27.6% in fiscal
1999 to 32.9% in fiscal 2000, an increase of 5.3%. The improvement in gross
margin was due to aggressive purchasing from suppliers, improved control of
customer returns and deductions, and effective inventory monitoring controls.

Selling expenses in fiscal 2000 decreased by approximately $35,000
compared to fiscal 1999 and decreased as a percentage of net sales from 10.4% in
fiscal 1999 to 9.1% in fiscal 2000. The dollar decrease in selling expenses is
the net effect of higher royalties and commissions on higher sales and the
reduction of sales salaries for a portion of the year.

Distribution, general and administrative expenses decreased by
approximately $1,044,000 in fiscal 2000 compared to fiscal 1999 and decreased as
a percentage of net sales from 27.9% in fiscal 1999 to 21.8% in fiscal 2000. The
decrease in distribution, general and administrative expenses resulted from the
reduction of legal fees paid to defend the shareholder lawsuits. In addition,
distribution, general and administrative expenses were lower than the previous
fiscal year due to reductions in salaries and other controllable expenses offset
by the amortization of goodwill and other intangibles.

Operating profit in fiscal 2000, as compared to fiscal 1999, improved
by approximately $4,351,000. As a percentage of net sales, operating profit
increased from a loss of 10.7% in fiscal 1999 to a gain of 1.9% in fiscal 2000.

Interest expense on operations in fiscal 2000 increased approximately
$428,000 from fiscal 1999 primarily due to an increase in the borrowed balance
and a slight increase in the interest rate assessed by a financial institution.
Interest rates experienced by the Company increased from 9.25% in fiscal 1999 to
10.02% in fiscal 2000.

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15

SEASONALITY; QUARTERLY RESULTS

In the past, the Company's net sales and earnings have been higher in
the last six months of the fiscal year compared to the first six months of the
fiscal year. Net earnings for the Company will generally rise and fall with
sales volume, although not directly in proportion to the change in net sales due
to certain of the Company's expenses being relatively fixed while others are
variable. The Company's quarterly operating results may also vary depending on
such other factors as the timing of significant customer orders, the mix of
products sold, and the efficiency of operations.

The following table sets forth selected quarterly unaudited information
for fiscal 2001, 2000 and 1999. In the opinion of the Company, such information
reflects all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the information set forth below. The operating
results for any quarter are not necessarily indicative of the results for any
future period. Dollars are in thousands, except per share data.

THREE MONTHS ENDED
FISCAL 1999 FISCAL 2000
------------------------------------------- -----------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- ---------- -------- -------- -------- ---------- -------- --------

Net sales ............ $ 7,403 $ 7,092 $ 10,844 $ 8,485 $ 7,166 $ 9,533 $ 10,896 $ 10,792
Operating
profit (loss) .... (1,088) (1,010) (287) (1,227) (392) 343 491 297
Earnings (loss)
from
operations ........ (1,170) (1,193) (581) (4,554)(1) (639) 80 51 (63)

Earnings (loss) per
share from
operations ........ (0.29) (0.30) (0.13) (1.07) (0.15) 0.02 0.01 (.01)

THREE MONTHS ENDED
FISCAL 2001
------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
2000 2000 2000 2001
-------- ---------- -------- --------

Net sales ............ $ 8,989 $ 9,718 $ 12,757 $ 11,660
Operating
profit (loss) .... (452) 193 594 (75)
Earnings (loss)
from
operations ........ (816) (159) 201 1,782(2)

Earnings (loss) per
share from
operations ........ (0.19) (0.04) 0.05 0.41

(1) Includes contingent liability accrual of $3,000,000 in anticipated
settlement of shareholder lawsuits.

(2) Includes reduction of contingent liability accrual of $2,250,000, pending
court approval, in settlement of shareholder lawsuits subsequent to March
31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of financing in the past several years
have been short-term borrowings from an asset-based lender. The Company's cash
used in operations was approximately $1,500,000 for fiscal 2001 compared to
approximately $500,000 for fiscal 2000.

In August 1996 the Company secured a revolving credit facility with a
financial institution which, after revision in 1998, provided a maximum line of
credit of $15,000,000, subject to certain borrowing base requirements and
covenants. At March 31, 2001 the outstanding balance under the credit line was
$7,535,000, which is collateralized by substantially all of the Company's assets
including accounts receivable and inventory. The interest rate was 11.26%
through March 31, 2001. In April 2001, the Company replaced the revolving credit
facility (as discussed below).

In March 2001 the Company converted a portion of accounts payable
balances with certain major vendors to notes with maturities ranging from one to
three years. These notes total $2,750,000, provide for 9% interest, and require
monthly and periodic principal payments, with approximately $1,707,000 in
principal repayments being required in the first twelve months of the notes.
Additionally, in March 2001, the Company received $200,000 cash from two
officers, in exchange for promissory notes to be repaid October 1, 2001.

13
16

On April 2, 2001 the Company entered into a Loan Agreement with a
banking association replacing the former lender and providing a maximum line of
credit of $12,000,000, subject to certain terms and conditions. This line of
credit is payable on demand and is collateralized by substantially all of the
company's assets including accounts receivable and inventory. The revolving
credit note shall bear interest at prime plus 2% but at no time lower than 9%.

Capital expenditures requiring cash during fiscal 2001 were
approximately $213,000, primarily for computer software and personal computers.
The Company has budgeted approximately $150,000 for capital expenditures for
fiscal 2002.

INFLATION AND FOREIGN CURRENCY FLUCTUATIONS

To date, inflation and foreign currency fluctuations have not had a
material impact on the Company's operations. There can be no assurance, however,
that future inflation or foreign currency fluctuations will not have a material
adverse effect on the Company, or that the Company will be able to pass on
resulting cost increases without experiencing a reduction in demand for its
products. A substantial portion of the Company's existing indebtedness bears,
and future indebtedness may bear, interest that fluctuates with the prime rate.

FACTORS THAT COULD AFFECT FUTURE PERFORMANCE

Certain statements contained in this Report, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute "forward-looking
statements." Such forward-looking statements involve numerous assumptions about
known and unknown risks, uncertainties and other factors which may ultimately
prove to be inaccurate. Certain of these factors are discussed in more detail
elsewhere in this Report, including without limitation under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 1. Business," and include the Company's ability to
continue to improve gross margin, to maintain good relationships with its
customers and suppliers and to generate sufficient cash to fund operations.
Actual results may differ materially from any future results expressed or
implied by such forward-looking statements. The Company disclaims any obligation
to update any forward-looking statements or publicly revise any of the
forward-looking statements contained herein to reflect future events or
developments.

PRODUCTS AND MARKETS

The Company believes there will continue to be an adequate market for
its products and product lines, but a substantial change in consumer preference
away from a particular product could seriously affect the Company's ability to
produce sales at the current level.

The Company's customer base is highly concentrated with a few key mass
merchandisers. Insolvency, a slow down in payments, or a change in buying habits
of any of these customers could have a material adverse effect on the Company.

LEGAL PROCEEDINGS

The Company and certain officers and directors are defendants in two
separate lawsuits purporting to be class actions and alleging certain
misrepresentations and fraudulent actions by the defendants in the 1993-1995
time frame. In April 2001 the Company and some of the other parties have entered
into a "Stipulation of Settlement" which is currently pending court and class
approval.

The Company is occasionally a party to various legal proceedings
arising in the ordinary course of business (See "Item 3. Legal Proceedings").
The Company is not currently a party to any other material

14
17

litigation and is not aware of any litigation threatened against the Company,
which could have a material adverse effect on the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

The Company does not believe that its exposures to interest rate risk
or foreign currency exchange risk, risks from commodity prices, equity prices
and other market changes that affect market risk sensitive instruments are
material to its results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.

The financial statements and supplementary data required to be included
in this Item 8 are set forth in Item 14 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

The Company had no changes in accountants or disagreements with it
accountants on accounting and financial disclosure to report under this Item 9.

15
18

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The directors and executive officers of the Company are as follows:

NAME AGE POSITION
---- --- --------

Glenn D. Bollinger 50 Chairman of the Board, Chief Executive Officer and Director

Bobby D. Bollinger 48 Vice Chairman of the Board, President and Director

Rose Turner 44 Executive Vice President - Finance, Chief Financial Officer,
Chief Operating Officer, Treasurer and Secretary

Dell K. Bollinger 74 Senior Vice President - Administration

David Barr 42 Executive Vice President - Product Acquisition

Floyd DePauw 51 Controller and Chief Accounting Officer

John L. Maguire 70 Director

Stephen L. Parr 47 Director

Set forth below is a description of the backgrounds of each of the
directors and executive officers of the Company.

Glenn D. Bollinger is a co-founder of the Company and has served as
Chairman of the Board, Chief Executive Officer and a Director since 1979. Mr.
Bollinger is primarily responsible for the Company's overall operations,
including inventory, purchasing and warehousing. Mr. Bollinger is Bobby
Bollinger's brother and is the son of Mrs. Dell Bollinger.

Bobby D. Bollinger is a co-founder of the Company and has served as
Vice Chairman of the Board, President and a Director since 1979. Mr. Bollinger
is primarily responsible for sales, marketing and product development. Mr.
Bollinger is Glenn Bollinger's brother and is the son of Mrs. Dell Bollinger.

Rose Turner has served as Chief Financial Officer, Treasurer and
Secretary since January 1997, as Executive Vice President - Finance since
October 1997, and as Chief Operating Officer of the Company since January 1999.
She previously served as the Company's Senior Vice President - Finance from
January 1997 to October 1997. Ms. Turner joined the Company on a contract and
then full time basis in November 1995. Ms. Turner is a certified public
accountant.

Dell K. Bollinger accepted an integral role in the Company's business
when it was founded by her sons, Glenn and Bobby Bollinger, in 1974. Mrs.
Bollinger has served as a Vice President of the Company since 1979.

David Barr has served as Executive Vice President - Product Acquisition
of the Company since August 1996, and previously served as Vice President -
Product Development from July 1994 to August 1996.

Floyd DePauw became Controller and Chief Accounting Officer in October
1996. Mr. DePauw is a certified public accountant. Before joining the Company,
Mr. DePauw previously served as the controller of Taylor Publishing Company, a
subsidiary of Insilco Corporation, a publicly owned company. He was

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19

employed by Taylor in a variety of accounting positions for approximately
sixteen years. Prior to being employed by Taylor, Mr. DePauw was employed by
Zoecon Industries, Inc., a chemical manufacturer, for approximately five years.

John L. Maguire became a Director of the Company in September 1993 and
served as interim Chief Financial Officer from August 1992 to August 1993. In
addition, the Company retains Mr. Maguire as a consultant on certain financial
matters and acquisitions. Mr. Maguire is a certified public accountant. Since
November 1, 1999 Mr. Maguire has served as Director of Administrative Services,
City of Fayetteville, Arkansas City Government. Since 1982, he has been
self-employed, concentrating on private family investments. He was previously
Chief Financial Officer of Tyson Foods, Inc. for twelve years.

Stephen L. Parr became a Director of the Company in November 1995. Mr.
Parr is currently President of Navigator Capital Management, LLC. Mr. Parr was
previously a Vice President of Goldman Sachs, where he was an international
specialist. Mr. Parr was with Goldman Sachs from 1977 to 1995. Mr. Parr serves
on the board of directors of Nextek, Inc., a Alabama electronics company,
Corphealth, Inc., a Texas behavioral healthcare company, NavTel, LLC, a
competitive local exchange carrier, Aqua Dynamics, a specialty chemical and
ozone services company, and Griffon Capital, a Detroit registered investment
advisory firm.

The Company's board of directors currently consists of four directors.
All of the current directors will serve until the next annual shareholders'
meeting or until their successors have been duly elected and qualified. Certain
of the directors and officers are defendants to lawsuits as discussed in "Item
3. Legal Proceedings."

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ITEM 11. EXECUTIVE COMPENSATION.

The following table summarizes the compensation paid to the Company's
chief executive officer and the Company's three other most highly compensated
officers for services rendered in all capacities to the Company during fiscal
2001, 2000 and 1999.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION(1)
DIRECTORS
NAME AND SALARY BONUS OPTIONS FEES
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
------------------ ---- ------- ------- ------- ---------

Glenn D. Bollinger .................... 2001 250,000 -- 25,716 10,000
Chairman of the Board and 2000 252,143 -- 25,716 10,000
Chief Executive Officer ........... 1999 275,717 -- -- 10,000

Bobby D. Bollinger .................... 2001 250,000 -- 25,716 10,000
Vice Chairman of the Board 2000 252,143 -- 25,716 10,000
and President ..................... 1999 275,717 -- -- 10,000

Rose Turner ........................... 2001 151,740 25,000(2) -- --
Executive Vice President - 2000 146,445 20,000 7,000 --
Finance, Chief Operating Officer, 1999 132,700 -- -- --
Chief Financial Officer, Treasurer
and Secretary

David Barr ............................ 2001 115,398 10,000(3) -- --
Executive Vice President - 2000 109,732 8,000(4) 20,000 --
Product Acquisition .............. 1999 97,194 -- -- --

----------

(1) Certain of the Company's executive officers receive personal benefits
in addition to salary and cash bonuses. The aggregate amount of the
personal benefits; however, do not exceed the lesser of $50,000 or 10%
of the total of the annual salary and bonus reported for the named
executive officer.

(2) Ms. Turner's bonus for fiscal 2001 was paid subsequent to March 31,
2001.

(3) Mr. Barr's bonus for fiscal 2001 was paid subsequent to March 31, 2001.

(4) Mr. Barr's bonus for fiscal 2000 was paid subsequent to March 31, 2000.

OPTIONS EXERCISES AND HOLDINGS

The following table sets forth information with respect to the named
executive officers concerning the exercise of options during fiscal 2001 and
unexercised options held as of the end of fiscal 2001.

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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END (#) YEAR-END ($)(1)
--------------------------- ---------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------

Glenn D. Bollinger(2) -- -- 51,432 -- -- --
Bobby D. Bollinger(3) -- -- 51,432 -- -- --
Rose Turner(4) -- -- 32,000 8,000 -- --
David Barr(5) -- -- 38,000 4,000 -- --

----------

(1) Based on the closing sale price of the Common Stock on March 31, 2001
of $0.26 per share as reported by the over-the-counter Bulletin Board
(minus the exercise or base price).

(2) Glenn D. Bollinger was granted options for the purchase of 25,716
shares of Common Stock in exchange for a salary reduction, at an
exercise price of $1.00 per share, in September 1999. These options
vested in March 2000 and expire five years from the date of grant.
Glenn D. Bollinger was granted options for the purchase of 25,716
shares of Common Stock in exchange for a salary reduction, at an
exercise price of $1.00 per share, in April 2000. These options vested
in March 2001 and expire five years from the date of grant.

(3) Bobby D. Bollinger was granted options for the purchase of 25,716
shares of Common Stock in exchange for a salary reduction, at an
exercise price of $1.00 per share, in September 1999. These options
vested in March 2000 and expire five years from the date of grant.
Bobby D. Bollinger was granted options for the purchase of 25,716
shares of Common Stock in exchange for a salary reduction, at an
exercise price of $1.00 per share, in April 2000. These options vested
in March 2001 and expire five years from the date of grant.

(4) Rose Turner was granted options for the purchase of 33,000 shares of
Common Stock, at an exercise price of $0.63 per share, in January 1997.
These options vest over a five-year period and expire ten years from
the date of grant. Rose Turner was granted options for the purchase of
7,000 shares of Common Stock, at an exercise price of $1.00 per share,
in April 1999. These options vest over a three-year period and expire
ten years from the date of grant.

(5) David Barr was granted options for the purchase of 10,000 shares of
Common Stock, at an exercise price of $13.00 per share, in October
1994. These options vested over a five-year period and expire ten years
from the date of grant. Mr. Barr was granted options for the purchase
of 2,000 shares of Common Stock, at an exercise price of $11.00 per
share, in December 1994. These options vested over a four-year period
and expire ten years from the date of grant. Mr. Barr was granted
options for the purchase of 10,000 shares of Common Stock, at an
exercise price of $3.00 per share, in February 1996. These options
vested over a five-year period and expire ten years from the date of
grant. Mr. Barr was granted options for the purchase of 20,000 shares
of Common Stock, at an exercise price of $1.00 per share, in April
1999. These options vest over a three-year period and expire ten years
from the date of grant.

DIRECTORS' COMPENSATION

Glenn D. Bollinger and Bobby D. Bollinger each receive a fee of $10,000
annually for their services as Directors of the Company.

John L. Maguire and Stephen Parr were granted options to purchase 8,333
shares of Common Stock at the time each became a director and were granted
options to purchase 30,000 shares of Common Stock in January 2001. Stephen Parr
receives a fee of $30,000 annually for his services as a Director of the Company
and is reimbursed for out-of-pocket expenses incurred in connection with
attendance at board of directors and committee meetings. John L. Maguire
receives $36,000 annually and acts as a consultant on certain financial matters
and acquisitions. See "Item 13. Certain Relationships and Related Transactions."

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock of the Company, as of March 31,
2001, by (i) each director, (ii) the Company's chief executive officer and three
other most highly compensated executive officers in fiscal 2001, (iii) each
person deemed to beneficially own more than five percent of the outstanding
shares of Common Stock, and (iv) all officers and directors of the Company as a
group. Except as otherwise indicated, each stockholder identified in the table
has sole voting and investment power with respect to his or her shares.

SHARES OWNED
-----------------------------
NAME NUMBER PERCENTAGE
---- ------ ----------

Glenn D. Bollinger(1)(2) 1,560,559 35.7
Bobby D. Bollinger(1)(3) 1,561,610 35.7
Rose Turner(4) 32,000 *
David Barr(5) 38,000 *
John L. Maguire(6) 138,333 3.2
Stephen L. Parr(7) 40,833 *
All directors and executive officers as a
group (8 persons)(8)(9) 2,680,192 61.4

----------

* Less than 1% of the outstanding shares of Common Stock.

(1) Business mailing address is 602 Fountain Parkway, Grand Prairie, Texas
75050.

(2) Includes (i) 425,069 shares over which Glenn Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Glenn Bollinger
Family Enterprises, Ltd., a Texas limited partnership, over which Glenn
Bollinger has shared voting and investment power with Bobby Bollinger
through each of their 49.5% ownership of the outstanding stock of the
sole general partner; (iii) 436,000 shares held by Bob Bollinger Family
Enterprises, Ltd., a Texas limited partnership, over which Glenn
Bollinger has shared voting and investment power with Bobby Bollinger
through each of their ownership of 49.5% of the outstanding stock of
the sole general partner; and (iv) 212,058 shares held by the 401(k)
Plan representing his interest in the plan as a participant. Neither
the inclusion of shares owned by Bob Bollinger Family Enterprises,
Ltd., nor the inclusion of any 401(k) Plan shares not allocated to
Glenn Bollinger's 401(k) participant account is to be construed as an
admission that he is the beneficial owner of such shares. Includes
options to purchase 51,432 shares of Common Stock that are currently
exercisable.

(3) Includes (i) 425,069 shares over which Bobby Bollinger has sole voting
and investment control; (ii) 436,000 shares held by Bob Bollinger
Family Enterprises, Ltd., a Texas limited partnership, over which Bobby
Bollinger has shared voting and investment power with Glenn Bollinger
through each of their 49.5% ownership of the outstanding stock of the
sole general partner; (iii) 436,000 shares held by Glenn Bollinger
Family Enterprises, Ltd., a Texas limited partnership, over which Bobby
Bollinger has shared voting and investment power with Glenn Bollinger
through each of their 49.5% ownership of the outstanding stock of the
sole general partner; and (iv) 213,109 shares held by the 401(k) Plan
representing his interest in the plan as a participant. Neither the
inclusion of shares owned by Glenn Bollinger Family Enterprises, Ltd.,
nor the inclusion of any 401(k) Plan shares not allocated to Bobby
Bollinger's 401(k) participant account is to be construed as an
admission that he is the beneficial owner of such shares. Includes
options to purchase 51,432 shares of Common Stock that are currently
exercisable.

(4) Includes options to purchase 32,000 shares of Common Stock that are
currently exercisable.

(5) Includes options to purchase 38,000 shares of Common Stock that are
currently exercisable.

(6) Includes options to purchase 88,333 shares of Common Stock that are
currently exercisable. Does not include 26,000 shares of Common Stock
held in trust for which Mr. Maguire is the trustee and is a contingent
beneficiary. Mr. Maguire disclaims beneficial ownership of these
shares.

(7) Includes options to purchase 38,333 shares of Common Stock that are
currently exercisable.

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23

(8) Includes options to purchase 407,856 shares of Common Stock that are
currently exercisable.

(9) Shares which are included beneficially under both Glenn and Bobby
Bollinger are only included once in the group total.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent (10%) of the
Common Stock to file with the Securities and Exchange Commission ("SEC") initial
reports of ownership and reports of changes in ownership of securities of the
Company. Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) reports they file with the SEC. Based solely on
the Company's review of the copies of such forms received during the year, the
Company believes that during the year ended March 31, 2001, all the Company's
directors, executive officers and holders of more than ten percent (10%) of the
Common Stock complied with all Section 16(a) filing requirements.

To the best knowledge of management of the Company, during fiscal year
2001 no director, officer or ten percent (10%) beneficial owner of securities of
the Company failed to file with the SEC any required reports on Form 3, 4 or 5
regarding transactions in securities of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During 1998 Franklin Santagate became a marketing advisor on contract
to the Company. In March 1999 Mr. Santagate accepted the position of Vice
President of Marketing, again on a contract basis. Mr. Santagate, formerly known
as Mr. Franklin Ross, was a vice president of marketing for the Company until
the time of the initial public offering in November 1993. During fiscal year
2001 the Company paid Mr. Santagate $157,465 for 2001. Mr. Santagate continues
to provide marketing services on a contract basis.

In March 2001 the Company received $100,000 cash each from Dell
Bollinger and David Barr in exchange for promissory notes that mature on October
1, 2001, bearing interest at $5,000 per month beginning May 1, 2001.

The Company entered into a sublease with Glenn Bollinger and Bobby
Bollinger for office space in October 2000. This sublease provides for monthly
rentals of $3,938 and will terminate June 30, 2001, subject to renewal options.
The sublease provides for the Company to pay or reimburse approximately $24,000
for tenant finish-out, plus an additional $22,000 for remodeling and furnishing
the space.

All other transactions, if any, between the Company and any of its
directors, officers, principal stockholders, employees and other affiliates are
subject to the approval of a majority of the independent directors of the
Company who are disinterested in the transactions. All such transactions and
loans must be on terms no less favorable to the Company than those generally
available from unaffiliated third parties.

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24

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

PAGE

1. FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants F- 1

Consolidated Balance Sheets as of March 31, 2001 and 2000 F- 2

Consolidated Statements of Operations for each of the years in the three year period ended March 31, 2001 F- 4

Consolidated Statements of Stockholders' Equity for each of the years in the three year period ended F- 5
March 31, 2001

Consolidated Statements of Cash Flows for each of the years in the three year period ended March 31, 2001 F- 6

Notes to Consolidated Financial Statements F- 7

2. FINANCIAL STATEMENT SCHEDULES

Report of Independent Certified Public Accountants on Schedule II F-20

Schedule II - Valuation and Qualifying Accounts for the years ended March 31, 2001, 2000 and 1999 F-21

All other schedules are omitted because they are inapplicable or the information
is otherwise shown in the financial statements or notes thereto.

3. EXHIBITS

3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Form S-1 Registration
Statement No. 33-69708).

3.2 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Form S-1 Registration Statement No. 33-69708).

4.1 Form of certificate representing shares of the Company's Common Stock
(incorporated by reference to Exhibit 4.1 to the Company's Form S-1
Registration Statement No. 33-69708).

10.1 Bollinger Industries, Inc. 1993 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to the Company's Form S-1 Registration
Statement No. 33-69708).

10.47 Loan and Security Agreement dated August 16, 1996 between Bollinger
Industries, Inc., Bollinger Industries, L.P. and NBF, Inc. and
Foothill Capital Corporation and related schedules (incorporated by
reference to Exhibit 10.47 to the Company's Form 10-Q for the quarter
ended September 29, 1996).

22
25

10.48 Collateral Assignment of Patents and Trademarks dated August 16, 1996
between Bollinger Industries, L.P. and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.48 to the Company's Form
10-Q for the quarter ended September 29, 1996).

10.49 Subordination Agreement dated August 16, 1996 between Glenn D.
Bollinger, Bobby D. Bollinger, Dell Bollinger and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.49 to the
Company's Form 10-Q for the quarter ended September 29, 1996).

10.50 Deed of Trust dated August 16, 1996 executed by Bollinger Industries,
L.P. (incorporated by reference to Exhibit 10.50 to the Company's
Form 10-Q for the quarter ended September 29, 1996).

10.51 First Amendment to Loan and Security Agreement dated August 16, 1996,
between Bollinger Industries, Inc., Bollinger Industries, L.P. and
NBF, Inc. and Foothill Capital Corporation (incorporated by reference
to Exhibit 10.55 to the Company's Form 10-K for the year ended March
31, 1997).

10.52 Second Amendment to Loan and Security Agreement dated August 16,
1996, between Bollinger Industries, Inc., Bollinger Industries, L.P.
and NBF, Inc. and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.56 to the Company's Form 10-K for the year
ended March 31, 1997).

10.53 Lease Agreement dated December 1, 1996 between Southwest Properties
Group, Inc. and Bollinger Industries, L.P. (incorporated by reference
to Exhibit 10.57 to the Company's Form 10-K for the year ended March
31, 1997).

10.54 Third Amendment to Loan and Security Agreement dated June 11, 1997,
between Bollinger Industries, L.P. and NBF and Foothill Capital
Corporation (incorporated by reference to Exhibit 10.58 to the
Company's Form 10-Q for the quarter ended June 30, 1997).

10.55 Asset Purchase Agreement dated November 13, 1997, between Bollinger
Industries, Inc., NBF, Inc., and Hedstrom Corporation (incorporated
by reference to Exhibit 10.61 to the Company's Form 8-K dated
November 26, 1997).

10.56 Amendment to Loan and Security Agreement dated May 14, 1998, between
Bollinger Industries, Inc., Bollinger Industries, L.P. and NBF, Inc.
and Foothill Capital Corporation (incorporated by reference to
Exhibit 10.64 to the Company's Form 10-Q for the quarter ended June
30, 1998).

10.57 Bollinger Industries, Inc. 1998 Stock Option Plan (incorporated by
reference to Annex 1 to the Company's Definitive Proxy Statement
dated August 25, 1998).

10.58 Asset Purchase Agreement dated October 8, 1998 between Self Image
Sports and Fitness Co., Inc., and Bollinger Industries, L.P.
(incorporated by reference to Exhibit 10.67 to the Company's Form
10-Q dated September 30, 1998).

10.59 Asset Purchase Agreement dated October 15, 1998 between Bollinger
Industries, L.P. Bollinger Industries, Inc., and The Step Company
(incorporated by reference to Exhibit 10.65 to the Company's Form 8-K
dated October 22, 1998).

10.60 Convertible Subordinated Note Agreement dated October 15, 1998
between Bollinger Industries, L.P., Bollinger Industries, Inc., and
The Step Company (incorporated by reference to Exhibit 10.68 to the
Company's Form 10-Q dated December 31, 1998).

23
26

10.61 Sublease and Modification and Ratification of Sublease Agreements
commencing June 1, 1999 between Bollinger Industries, L.P., as
sublessor, and Directory Distributing Associates, Inc., as sublessee
(incorporated by reference to Exhibit 10.69 to the Company's Form
10-Q dated June 30, 1999).

10.62 Modification and Ratification of Lease Agreement dated June 1, 1999
between Fountain Parkway, Ltd., as lessor, and Bollinger Industries,
L.P., as lessee (incorporated by reference to Exhibit 10.70 to the
Company's Form 10-Q dated June 30, 1999).

10.63 Amendment No. 1 to Amended and Restated Loan and Security Agreement
dated June 29, 1999 between Bollinger Industries, Inc., Bollinger
Industries, L.P. and NBF, Inc., and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.71 to the Company's Form
10-Q dated June 30, 1999).

10.64 Amendment No. 2 to Amended and Restated Loan and Security Agreement
dated June 6, 2000 between Bollinger Industries, Inc., Bollinger
Industries, L.P. and NBF, Inc., and Foothill Capital Corporation
(incorporated by reference to Exhibit 10.72 to the Company's Form
10-Q dated June 30, 2000).

10.65 Forebearance Agreement entered into effective as of September 13,
2000 by and among Bollinger Industries, Inc., Bollinger Industries,
L.P. and NBF, Inc., and Foothill Capital Corporation (incorporated by
reference to Exhibit 10.73 to the Company's Form 10-Q dated September
30, 2000).

10.66 Bollinger Industries, Inc. 2000 Nonqualified Stock Option Plan (filed
herewith).

10.67 Bollinger Industries, Inc. 2000 Stock Option Plan (incorporated by
reference to Exhibit B to the Company's Definitive Proxy Statement
dated August 25, 2000).

10.68 Loan Agreement dated April 2, 2001 by and between the Company,
Bollinger Operating Corp., Bollinger Holding Corp., NBF, Inc., C. G.
Products, Inc. and Bollinger Industries, L.P., as borrower, and The
Frost National Bank, dba Frost Capital Group, as lender (filed
herewith).

10.69 Unsecured Note dated April 2, 2001 between the Company, as maker, and
David Barr, as payee, in the original principal amount of $100,000,
and related Subordination Agreement dated April 2, 2001 (filed
herewith).

10.70 Unsecured Note dated April 2, 2001 between the Company, as maker, and
Dell Bollinger, as payee, in the original principal amount of
$100,000, and related Subordination Agreement dated April 2, 2001
(filed herewith).

10.71 Stipulation of Settlement dated April 2001 regarding the Suntrust and
STI Lawsuits (filed herewith).

10.72 Put and Call Agreement dated April 2001 between Goodkind Labaton
Rudoff & Sucharow, L.L.P. (in its representative capacity as agent
for the Class Members and as Lead Counsel in the Suntrust and STI
Lawsuits), and the Company, Glenn D. Bollinger and Bobby D. Bollinger
(filed herewith).

10.73 Patent settlement agreement with Precise Exercise Equipment, Inc. and
Bollinger dated November 20, 2000 (filed herewith).

11 Statement Regarding Computation of Per Share Data (filed herewith).

21 Subsidiaries (filed herewith).

24
27

(b) REPORTS ON FORM 8-K.

No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended March 31, 2001.

The exhibits listed in Part IV, item 14(a)(3) of this report, and not
incorporate by reference to a separate file, are included after
"Signatures," below.

(d) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X. (INCLUDED
UNDER PART IV, ITEM 14(a)(2))

All schedules are omitted because they are not required, inapplicable
or the information is otherwise shown in the financial statements or
notes thereto.

25
28

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, on the 27th day of
June, 2001.

BOLLINGER INDUSTRIES, INC.

By: /s/ Glenn D. Bollinger
-------------------------------------------------
Glenn D. Bollinger
Chairman of the Board and Chief Executive Officer

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 indicated as of the 27th day of June, 2001.

/s/ Glenn D. Bollinger Chairman of the Board, and Chief Executive Officer
------------------------------ (principal executive officer)
Glenn D. Bollinger

/s/ Bobby D. Bollinger Vice Chairman of the Board and President
------------------------------
Bobby D. Bollinger

/s/ Rose Turner Executive Vice President - Finance, Chief Financial Officer, Chief
------------------------------ Operating Officer, Treasurer, and Secretary (principal financial officer)
Rose Turner

/s/ Floyd DePauw Controller and Chief Accounting Officer (principal accounting officer)
------------------------------
Floyd DePauw

/s/ John L. Maguire Director
------------------------------
John L. Maguire

/s/ Stephen L. Parr Director
------------------------------
Stephen L. Parr

26
29

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

We have audited the accompanying consolidated balance sheets of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended March 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bollinger
Industries, Inc. and Subsidiaries as of March 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three year
period ended March 31, 2001, in conformity with generally accepted accounting
principles.

KING GRIFFIN & ADAMSON P.C.

Dallas, Texas
June 19, 2001

F-1
30

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31,

ASSETS 2001 2000
------------ ------------

CURRENT ASSETS
Cash $ 618,788 $ 959,242
Accounts receivable-trade, net of allowance for doubtful
accounts of $465,321 and $543,387, allowance for returns
and allowances of $614,477 and $1,748,847, and allowance
for advertising of $480,476 and $327,510 7,655,118 6,277,077
Prepaid expenses 240,266 129,613
Inventories, net 8,172,040 9,581,676
Other current assets 11,956 47,788
------------ ------------

Total current assets 16,698,168 16,995,396

PROPERTY AND EQUIPMENT - NET 1,295,552 1,815,695

OTHER ASSETS
Goodwill, net of accumulated amortization of $888,250 and
$532,950 2,664,750 3,020,050
License rights, net of accumulated amortization of $178,750
and $107,250 536,250 607,750
Notes receivable and other 199,589 106,254
Deferred marketing costs, net of accumulated amortization of
$1,247,167 and $534,500 890,238 1,602,905
Deferred financing fees, net of accumulated amortization of
$760,954 and $711,398 -- 49,556
------------ ------------

Total other assets 4,290,827 5,386,515
------------ ------------

TOTAL ASSETS $ 22,284,547 $ 24,197,606
============ ============

The accompanying notes are an integral part of these consolidated
financial statements.

F-2
31

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - CONTINUED

MARCH 31,

LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------------ ------------

CURRENT LIABILITIES
Current portion of long-term debt $ 9,595,304 $ 1,336,426
Current portion of capital lease obligations 271,852 76,938
Notes payable to officers 200,000 --
Accounts payable-trade 4,612,673 6,427,069
Taxes payable 51,304 53,104
Accrued liabilities 723,309 644,673
Accrued product liability 219,777 391,879
Contingency for legal settlement 600,000 --
------------ ------------

Total current liabilities 16,274,219 8,930,089

LONG-TERM LIABILITIES
Long-term debt, less current portion 1,719,395 8,701,886
Capital lease obligations, less current portion 641,476 913,328
Contingency for legal settlement -- 3,000,000
Other long-term liabilities 34,085 33,335
------------ ------------

Total long-term liabilities 2,394,956 12,648,549
------------ ------------

Total liabilities 18,669,175 21,578,638
------------ ------------

COMMITMENTS AND CONTINGENCIES (Notes H and M)

STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value;
1,000,000 shares authorized; none issued -- --
Common stock - $0.01 par value; 20,000,000 shares authorized;
4,400,210 shares issued and 4,368,615 and
4,400,210 shares outstanding 44,002 44,002
Capital in excess of par 15,519,058 15,519,058
Accumulated deficit (11,935,741) (12,944,092)
Treasury stock, (31,595 shares), at cost (11,947) --
------------ ------------

Total stockholders' equity 3,615,372 2,618,968
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,284,547 $ 24,197,606
============ ============

The accompanying notes are an integral part of these consolidated
financial statements.

F-3
32

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED MARCH 31,

2001 2000 1999
------------ ------------ ------------

Net sales $ 43,124,190 $ 38,386,650 $ 33,823,947
Cost of goods sold 29,106,571 25,766,203 24,476,190
------------ ------------ ------------

Gross profit 14,017,619 12,620,447 9,347,757

Selling expenses 4,936,702 3,497,300 3,531,858
Distribution, general and administrative expenses 8,820,644 8,383,972 9,427,538
------------ ------------ ------------
13,757,346 11,881,272 12,959,396
------------ ------------ ------------

Operating profit (loss) 260,273 739,175 (3,611,639)

Other expense (income)
Interest expense 1,503,893 1,201,130 773,579
Gain on sale of assets (2,000) (16,628) (8,582)
Contingency for legal settlement (2,250,000) -- 3,000,000
Other 29 125,406 121,021
------------ ------------ ------------
(748,078) 1,309,908 3,886,018
------------ ------------ ------------
Earnings (loss) before income tax expense 1,008,351 (570,733) (7,497,657)

Income tax expense -- -- --
------------ ------------ ------------

Net earnings (loss) $ 1,008,351 $ (570,733) $ (7,497,657)
============ ============ ============

Per share data (basic and diluted):

Basic earnings (loss) per share $ 0.23 $ (0.13) $ (1.79)
============ ============ ============

Diluted earnings (loss) per share $ 0.23 $ (0.13) $ (1.79)
============ ============ ============

Shares used in the calculation of per share amounts:

Weighted average basic common shares 4,373,116 4,400,210 4,178,840
Dilutive impact of stock options -- -- --
------------ ------------ ------------

Weighted average diluted common shares 4,373,116 4,400,210 4,178,840
============ ============ ============

The accompanying notes are an integral part of these consolidated
financial statements.

F-4
33

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

COMMON STOCK
---------------------------
CAPITAL IN TREASURY
EXCESS OF ACCUMULATED STOCK AT
SHARES AMOUNT PAR DEFICIT COST TOTAL
------------ ------------ ------------ ------------ ------------ ------------

Balance April 1, 1998 4,000,210 $ 40,002 $ 15,323,058 $ (4,875,702) $ -- $ 10,487,358

Shares issued in Acquisition
Agreement 300,000 3,000 147,000 -- -- 150,000

Shares issued for Non-Compete
Agreement 100,000 1,000 49,000 -- -- 50,000

Net Loss -- -- -- (7,497,657) -- (7,497,657)
------------ ------------ ------------ ------------ ------------ ------------

Balance at March 31, 1999 4,400,210 44,002 15,519,058 (12,373,359) -- 3,189,701

Net Loss -- -- -- (570,733) -- (570,733)
------------ ------------ ------------ ------------ ------------ ------------

Balance at March 31, 2000 4,400,210 44,002 15,519,058 (12,944,092) -- 2,618,968

Purchase of Treasury Stock -- -- -- -- (11,947) (11,947)

Net Income -- -- -- 1,008,351 -- 1,008,351
------------ ------------ ------------ ------------ ------------ ------------

Balance at March 31, 2001 4,400,210 $ 44,002 $ 15,519,058 $(11,935,741) $ (11,947) $ 3,615,372
============ ============ ============ ============ ============ ============

The accompanying notes are an integral part of these consolidated
financial statements.

F-5
34

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MARCH 31,
2001 2000 1999
------------ ------------ ------------

Cash flows from operating activities
Net earnings (loss) $ 1,008,351 $ (570,733) $ (7,497,657)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities
Gain on sale of assets (2,000) (16,628) (8,582)
Contingency for legal settlement (2,250,000) -- 3,000,000
Depreciation and amortization 1,924,644 1,177,063 1,149,249
Provision for returns and allowance 2,070,478 2,012,981 2,971,638
Provision for doubtful accounts 15,095 255,000 240,000
Provision for advertising 1,569,227 807,000 746,389
Provision for obsolete inventory 514,461 -- 729,762
Changes in operating assets and liabilities
Accounts receivable-trade (5,032,841) (2,237,743) (4,231,651)
Other current assets 35,832 (38,167) 414,714
Inventories 895,175 (2,721,990) (1,251,435)
Prepaid expense (110,653) (1,644,273) 705,266
Other assets (96,127) 4,485 (26,896)
Accounts payable-trade (1,814,396) 2,682,555 1,048,949
Taxes payable (1,800) (8,175) (163,421)
Accrued liabilities 78,636 (203,695) (1,257,010)
Accrued product liability (172,102) (72,189) (4,651)
Contingency for legal settlement (150,000) -- --
Other long-term liabilities 750 33,335 --
------------ ------------ ------------

Net cash used in operating activities (1,517,270) (541,174) (3,435,336)

Cash flows from investing activities
Purchases of property and equipment (212,686) (204,686) (639,927)
Acquisition of license rights and assets -- -- (3,575,000)
Payments made on notes receivable -- -- 121,523
Proceeds from sale of assets 2,000 19,651 21,554
Escrow receivable -- -- 1,012,296
------------ ------------ ------------

Net cash used in investing activities (210,686) (185,035) (3,059,554)

Cash flows from financing activities
Net proceeds from debt 1,276,387 1,754,621 6,704,505
Payments on capital lease obligations (76,938) (194,889) (220,265)
Proceeds from notes payable to officers 200,000 -- --
Purchase of treasury stock (11,947) -- --
------------ ------------ ------------

Net cash provided by financing activities 1,387,502 1,559,732 6,484,240
------------ ------------ ------------

Net increase (decrease) in cash (340,454) 833,523 (10,650)

Cash at beginning of year 959,242 125,719 136,369
------------ ------------ ------------

Cash at end of year $ 618,788 $ 959,242 $ 125,719
============ ============ ============

The accompanying notes are an integral part of these consolidated
financial statements.

F-6
35

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

BUSINESS ACTIVITY

The Company is a distributor of consumer fitness equipment and accessories
primarily with customers throughout the United States.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Bollinger
Industries, Inc. ("Bollinger"), its wholly-owned subsidiaries, and Bollinger
Industries, L.P., a partnership wholly-owned by Bollinger's subsidiaries
(collectively the "Company"). All significant intercompany accounts and
transactions have been eliminated.

INVENTORIES

Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market (determined product by product based on management's knowledge
of current market conditions and existing stock levels).

The provision for obsolete and slow-moving inventory is adjusted based on
current inventory levels, historical and expected future sales levels.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using straight-line and
accelerated methods for financial reporting purposes over the following useful
lives:

Leasehold improvements 5 - 7 years
Equipment 2 - 7 years
Motor vehicle 10 years
Furniture and fixtures 3 - 5 years
Amortization for capital leases (primarily
computer equipment and software) is provided for
over the lease terms which is shorter than the life 4 years

Maintenance and repairs are expensed as incurred. Major renewals and
improvements are capitalized.

CAPITALIZED SOFTWARE COSTS

The Company, under the provisions of Statement of Positions 98-1, "Accounting
for Costs of Computer Software Developed or Obtained for Internal Use,"
capitalizes certain software development costs. The development costs are
charged to expense as incurred until the application development stage for the
product has been established, at which time the costs are capitalized until
design of chosen

F-7
36

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued

path, coding, installation of hardware and testing are completed. The Company
begins amortization of the capitalized software as it is placed in use. The
Company capitalized $40,000 and $110,000 for software costs during fiscal 2001
and 2000, respectively.

ADVERTISING COSTS

Advertising and promotional costs are expensed as incurred. Advertising expense
amounted to $1,585,000 $825,000 and $778,000 in fiscal 2001, 2000 and 1999,
respectively.

FAIR VALUE

The Company believes that the carrying amounts of its current assets and current
liabilities approximate the fair value of such items due to their short-term
nature. The carrying amount of long-term debt approximates its fair value
because interest rates approximate market.

INCOME TAXES

Deferred income taxes are determined using the asset and liability method, under
which deferred tax assets and liabilities are calculated based on differences
between financial accounting and tax basis of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the payable or
refund for the period plus or minus the change during the period in deferred tax
assets and liabilities.

EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per share of Common Stock is based upon the weighted
average number of common shares actually outstanding during each year.
Outstanding stock options are either antidilutive or have no dilutive effect on
earnings per share for the years ended March 31, 2001, 2000 and 1999.

GOODWILL AND OTHER INTANGIBLES

Goodwill and intangibles resulting from license rights are amortized utilizing
the straight-line method over a period of 10 years. The Company periodically
evaluates the carrying value and the periods of amortization of goodwill and
other intangibles based on the current and expected future undiscounted cash
flows from operations of the business giving rise to the intangible to determine
whether revisions to the carrying value or useful lives is warranted.

DEFERRED MARKETING COSTS

In certain limited circumstances, the Company enters into agreements with
customers to provide ongoing marketing support in exchange for advantageous and
continuous placement of products for a specific period of time. The cost of
these arrangements is capitalized and amortized against sales in a straight-line
method over the term of the product placement. The cost of this continuous
placement is typically paid for in part by selling inventory at reduced or no
cost.

F-8
37

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - Continued

REVENUE RECOGNITION AND PROVISIONS FOR CHARGEBACKS

The Company recognizes sales revenue at the time the products are shipped to its
customers. Provision is made currently for estimated product returns and
deductions which may occur. These returns are generally for products that are
salable with minor reworking of packaging or replacement of missing components.
The term "chargebacks" refers to the action taken by the customer to withhold
from payments or to apply for credit amounts for items such as volume discounts
or rebates under marketing programs or pricing discrepancies, penalties, vendor
compliance issues, shipping shortages and any other similar item under vendor
compliance guidelines established by the customer. The provision for returns is
estimated based on current trends and historical experience of returns. The
provision for chargebacks is estimated based on the marketing programs designed
for the customer, and recent historical experience based on volume.

USE OF ESTIMATES AND ASSUMPTIONS

Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were used.

RECLASSIFICATIONS

When necessary, certain prior year amounts have been reclassified to conform
with the current year presentation.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB
Opinion No. 25, compensation expense for employees is based on the excess, if
any, on the date of grant, between the fair-value of the Company's stock over
the exercise price.

F-9
38

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - ACQUISITIONS AND DISPOSAL

ACQUISITIONS

In October 1998, the Company entered into two unrelated acquisitions. The first
was the acquisition of the assets and operations of Self Image Sports and
Fitness Co., Inc., doing business as Multi-Grip, for $1,400,000 paid in cash at
closing, a deferred cash payment of $100,000 and the assumption of approximately
$60,000 in trade payables. As a part of this transaction, Multi-Grip's principal
shareholder entered into a non competition agreement with the Company in
exchange for 100,000 shares of the Company's restricted common stock valued at
$50,000. The second was the acquisition of the license rights for the original
"The Step" product from The Step Company for $2,175,000 paid in cash at closing,
a $1,400,000 convertible subordinated note, and 300,000 shares of the Company's
restricted Common Stock valued at $150,000.

DISPOSAL OF THE TRAMPOLINE PRODUCTS LINE

On November 21, 1997 the Company disposed of its Trampoline Products line.
Included in the consideration was $1,012,296 held back by the purchaser as an
escrow amount. The escrow was paid to the Company during fiscal 1999.

NOTE C - CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental disclosures are as follows:

YEARS ENDED MARCH 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------

Interest paid $1,442,962 $ 999,468 $ 544,741
Non-cash financing and investing
transactions:
Purchase of assets-financed by notes
from buyer $ -- $ -- $1,400,000
Purchases of assets and agreements
financed by stock $ -- $ -- $ 200,000
Purchase of assets financed by capital
leases $ -- $ 415,000 $ 111,107
Escrow received $ -- $ -- $1,012,296
Reduction of accounts payable exchanged
for notes payable $2,750,000 $ -- $ --

F-10
39

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE D - CREDIT RISK

The Company's assets subject to potential credit risk consist primarily of trade
accounts receivable and cash. The Company sells its products primarily to
retailers, including national chains, geographically dispersed throughout the
United States on an unsecured basis. Risks associated with extension of credit
to customers are affected by the economic condition of the retail industry. The
Company performs ongoing credit evaluations of its customers' financial
condition to reduce credit risk and beginning March 2001 purchased credit
insurance on its accounts receivable. The Company has provided an allowance for
doubtful accounts which reflects its estimate of uncollectible accounts.

Cash is at risk to the extent that it exceeds Federal Deposit Insurance
Corporation ("FDIC") insured amounts. To minimize risk, the Company places its
cash with quality institutions and monitors the financial status of these
institutions.

NOTE E - INVENTORIES

MARCH 31,
----------------------------
2001 2000
------------ ------------

Raw materials $ 177,408 $ 360,934
Work in progress 3,714 --
Finished goods 8,773,678 9,922,317
Reserve for obsolescence (782,760) (701,575)
------------ ------------
$ 8,172,040 $ 9,581,676
============ ============

NOTE F - PROPERTY AND EQUIPMENT

MARCH 31,
-----------------------
2001 2000
---------- ----------

Leasehold improvements $ 326,641 $ 302,641
Equipment and software costs 2,844,685 2,656,000
Motor vehicles 122,607 122,607
Furniture and fixtures 941,853 941,853
---------- ----------
4,235,786 4,023,101
Less accumulated depreciation and amortization 2,940,234 2,207,406
---------- ----------
$1,295,552 $1,815,695
========== ==========

Depreciation and amortization expenses related to property and equipment for the
years ended March 31, 2001 and 2000 was approximately $733,000 and $600,000,
respectively. Included in equipment and software costs at March 31, 2001 and
2000 is $1,405,000 of software and equipment under capital lease. The related
amortization expense charged to operations for the years ended March 31, 2001,
2000 and 1999 was $351,000, $248,000 and $186,000, respectively.

F-11
40

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE G - LONG TERM DEBT

MARCH 31,
---------------------------
2001 2000
------------ ------------

Convertible subordinated note payable for $1,400,000 with The Step Company,
bearing interest adjusted quarterly (10.5% at March 31, 2001). Principal and
interest payable in the amount of $88,000 quarterly beginning January 4, 1999
through October 1, 2003; uncollateralized. Convertible to Bollinger Common Stock
at $4.00 per share for outstanding balance. $ 852,379 $ 1,103,278

Loan with a financial institution providing a maximum line of credit of
$15,000,000, bearing interest at the reference rate plus 2% (10% at March 31,
2001). Interest payable monthly; collateralized by receivables and inventory.(1) 7,534,895 8,753,478

Note payable for $1,250,000 with a vendor, bearing interest at 9%
Principal and interest payable in the amount of $45,000 per month
beginning April 15, 2001 through June 15, 2003, with a final payment of
$35,000 due July 15, 2003; uncollateralized. 1,250,000

Note payable for $1,000,000 with a vendor, bearing interest at 9%. Principal and
interest payable in the amount of $50,000 per month beginning April 15, 2001
through February 15, 2002, with a final payment of $450,000 due March 15, 2002;
uncollateralized. 1,000,000

Note payable for $300,000 with a vendor, bearing interest at 9%. Principal and
interest payable in the amount of $8,333 per month beginning April 15, 2001
through March 15, 2004; uncollateralized. 300,000

Note payable for $200,000 with a vendor, bearing interest at 9%. Principal and
interest payable in the amount of $5,555 per month beginning April 15,2001
through March 15, 2004; uncollateralized. 200,000

Notes to certain officers of the Company bearing interest at $10,000 per month
due by the first of each month beginning May 1, 2001 and the $200,000 principal
is due October 1, 2001; uncollateralized. 200,000

Other 177,425 181,556
------------ ------------

11,514,699 10,038,312

Less current portion 9,795,304 1,336,426

------------ ------------
$ 1,719,395 $ 8,701,886
============ ============

F-12
41

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE G - LONG TERM DEBT - Continued

Future maturities of long-term debt at March 31, 2001 are as follows:

Year Ending March 31, 2002 $ 9,795,304

2003 1,015,507

2004 616,668

2005 5,927

2006 6,468

Thereafter 74,825
-----------
$11,514,699
===========

(1) The loan agreement with the financial institution provides borrowings under
the line of credit which are subject to limitations based on the borrowing base,
as defined in the agreement, with a maximum facility of $15 million. The terms
of the agreement require the Company to maintain specific current ratio levels,
levels of debt to net worth, levels of tangible net worth and other financial
covenants. At March 31, 2001, the Company had $0 available in additional
borrowing capacity under the loan agreement. Subsequent to March 31, 2001, the
Company entered into a loan agreement with a financial institution which
replaced the previous facility. The new facility provides borrowings under the
line, subject to limitations, of $12,000,000.

NOTE H - CONTINGENCIES FOR LEGAL SETTLEMENT

In fiscal 1999 the Company recorded a contingent liability accrual of $3,000,000
in anticipation of a settlement in connection with the shareholder lawsuits.
During the year ended March 31, 2001 the Company paid $150,000 in a Rule 11
Agreement to settle Curtis Logan's cross claim for indemnity against the
Company. Subsequent to March 31, 2001, a "Stipulation of Settlement" totaling
$600,000 was reached with the class representatives and accordingly the Company
reduced the contingency accrual for legal settlement by $2,250,000 at March 31,
2001. This "Stipulation of Settlement" is currently pending court and class
approval. See Notes M and N.

NOTE I - 401(k) PLAN

The Company has a 401(k) employee deferred compensation plan under the terms of
which employees who have been employed for one year or more are entitled to
contribute up to the lesser of $10,500 or 15% of their annual compensation. The
Company contributed $52,000 in October 1999 in relation to a closing agreement
entered into with the Internal Revenue Service. Additionally the Company
contributed approximately $114,000 in relation to a closing agreement entered
into with the U.S. Department of Labor. The Company also contributed
approximately $16,000 per year for plan expenses in each of the three years
ended March 31, 2001.

F-13
42

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE J - STOCK OPTIONS

1993 PLAN

The 1993 Stock Option Plan provides for the grant of options covering a total of
500,000 shares of Common Stock of the Company to be issued to key employees and
directors of the Company other than the Chief Executive Officer and the
President. Under the Plan, incentive stock options and non-qualified stock
options may be granted at prices no less than 100% and 50%, respectively, of the
fair value of the Company's Common Stock on the date of grant. The options have
a term of ten years and will generally vest in annual installments. At March 31,
2001, a total of 321,334 options were available for grant under this plan.

1998 PLAN

The 1998 Stock Option Plan provides for the grant of options covering a total of
500,000 shares of Common Stock of the Company to be issued to officers and
employees of the Company who are responsible for or contribute to the
management, growth and profitability of the business. No grant will be made
under this Plan to a director who is not an officer or a salaried employee of
the Company.

The exercise price per share shall be determined by the Board and set forth in
the stock option agreement, and in the case of an incentive stock option, the
exercise price shall not be less than 100% of the fair market value of the
Common Stock subject to the stock option on the date of grant (or 110% in the
case of a stock option granted to a participant who is a ten percent shareholder
on the date of grant).

Stock options granted under the 1998 Plan may be one of two types: incentive
stock options and nonqualified stock options. The Board has the authority to
grant to any participant incentive stock options, nonqualified stock options or
any combination thereof. At March 31, 2001, a total of 92,005 options were
available for grant under this plan.

2000 PLAN

The 2000 Stock Option Plan provides for the grant of options covering a total of
500,000 shares of Common Stock of the Company to be issued to officers and
employees of the Company who are responsible for or contribute to the
management, growth and profitability of the business. No grant will be made
under this Plan to a director who is not an officer or a salaried employee of
the Company.

Stock options granted under the 2000 Plan may be one of two types: incentive
stock options and nonqualified stock options. The Board has the authority to
grant to any participant incentive stock options, nonqualified stock options or
any combination thereof. At March 31, 2001, a total of 356,005 options were
available for grant under this plan.

F-14
43

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE J - STOCK OPTIONS - CONTINUED

2000 NONQUALIFIED STOCK OPTION PLAN

The 2000 Nonqualified Stock Option Plan provides for the grant of options
covering a total of 200,000 shares of Common Stock of the Company to be issued
to members of the Board of Directors who are not officers or other employees of
the Company or any corporation or other entity which is then a subsidiary of the
Company, and to consultants or advisors to the Company.

The exercise price per share shall not be less than 100% of the fair market
value of the Common Stock subject to the nonqualified stock option on the date
of grant. At March 31, 2001, a total of 115,000 options were available for grant
under this plan.

Following is a summary of option activity under all Stock Option Plans:

OPTION PRICE
----------------------------
SHARES PER SHARE TOTAL
------------ -------------- -----------

Outstanding at March 31, 1998 244,999 $ 0.63 - 13.00 $ 1,874,556
Granted -- -- --
Canceled (30,333) 4.00 - 12.50 (126,707)
------------ -------------- -----------
Outstanding at March 31, 1999 214,666 0.63 - 13.00 1,747,849
Granted 357,495 1.00 357,495
Canceled (64,000) 1.00 - 11.00 (358,480)
------------ -------------- -----------
Outstanding at March 31, 2000 508,161 0.63 - 13.00 1,746,864
Granted 338,995 1.00 338,995
Canceled (31,500) 1.00 (31,500)
------------ -------------- -----------
Outstanding at March 31, 2001 815,656 $ 0.63 - 13.00 $ 2,054,359
============ ===========

All the options are compensatory. The outstanding stock options expire from
September 2003 through January 2011.

The following summarizes information about compensatory options outstanding at
March 31, 2001:

Options Outstanding Options Exercisable
------------------------------------------------------------------------ ------------------------------
Weighted Avg. Weighted
Range of Exercise Number Remaining Avg. Exercise Number Weighted Avg.
Prices Outstanding Contractual Life Price Exercisable Exercise Price
----------------- ----------- ---------------- ------------- ----------- --------------

$ 0.63- $13.00 815,656 4.53 Years $2.52 618,656 $ 3.00

The options granted during the fiscal year ended March 31, 2001 have exercise
prices in excess of fair value and accordingly, no compensation cost has been
recognized for compensatory stock options in the consolidated financial
statements. The effect of applying the pro-forma requirements of SFAS No. 123
does not significantly affect earnings (loss) and earnings (loss) per share for
the years ended March 31, 2001, 2000 and 1999.

F-15
44

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE K - INCOME TAXES

The Company's effective income tax rate differed from the federal statutory rate
as follows:

YEARS ENDED MARCH 31,
2001 2000 1999
-------- -------- --------

U.S. Federal statutory rate 34.0% 34.0% 34.0%
Permanent differences 1.5% (3.6)% (0.5)%
Change in prior tax estimates 0.0% (29.2)% 0.9%
Change in valuation allowance (35.5)% (1.2)% (32.3)%
Other, net 0.0% 0.0% (2.1)%
-------- -------- --------

0.0% 0.0% 0.0%
======== ======== ========

Following are the components of deferred tax assets and deferred tax
liabilities:

YEARS ENDED MARCH 31,
2001 2000
------------ ------------

Net current deferred tax assets
Inventories $ 465,275 $ 544,942
Allowance for doubtful accounts 158,209 184,752
Inventory reserves 34,000 7,809
Accrued expenses 91,889 108,291
Less valuation allowance (749,373) (845,794)
------------ ------------
Net current deferred taxes $ -- $ --
============ ============

Non-current deferred tax asset
Contingency for legal settlement $ 204,000 $ 1,020,000
Intangibles 142,081 72,556
Net operating loss 3,058,411 3,153,743
Less valuation allowance (3,345,443) (3,602,026)
------------ ------------
59,049 644,273
Non-current deferred tax liability
Property and equipment (59,049) (99,285)
Deferred marketing cost -- (544,988)
------------ ------------
(59,049) (644,273)
------------ ------------
Net non-current deferred taxes $ -- $ --
============ ============

At March 31, 2001 the Company had net operating losses available to offset
future taxable income of approximately $8,995,000 which begin expiring in 2011.
The valuation allowance decreased by $353,004 during the year ended March 31,
2001.

F-16
45

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE L - MAJOR CUSTOMERS

Customers accounting for 10% or more of total net sales are as follows:

YEAR ENDED MARCH 31, PERCENTAGE
-------------------- ----------

2001
Kmart 33%
Wal-Mart 19%
The Sports Authority 17%
2000
Wal-Mart 33%
Kmart 20%
The Sports Authority 17%

1999
Wal-Mart 45%
The Sports Authority 17%

NOTE M - COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases certain warehouse space, warehouse and computer equipment and
other assets. These leases are either operating or capital leases and have
future minimum lease payments, net of sublease income, as follows:

Operating Capital
---------- ----------

Year Ending March 31, 2002 $ 761,758 $ 328,950
2003 811,056 390,600
2004 834,601 292,950
2005 135,633 --
2006 68,816 --
Thereafter 412,000 --
---------- ----------
$3,023,864 $1,012,500
==========

Less amount representing interest 99,173
----------

Present value of net minimum lease payments
(including the current portion of $271,852) $ 913,327
==========

Total lease expense for the years ended March 31, 2001, 2000 and 1999 was
approximately $643,000, $581,000 and $655,000, respectively.

F-17
46

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE M - COMMITMENTS AND CONTINGENCIES - Continued

LEGAL PROCEEDINGS

Cause No. 96-02952; Suntrust Bank Atlanta, as Trustee for Suntrust Retirement
Sunbelt Equity Fund v. Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D.
Bollinger, Michael J. Beck, John L. Maguire, and Grant Thornton, L.L.P.; in the
191st Judicial District Court (originally filed in the 68th Judicial District
Court) of Dallas County, Texas (the "Suntrust Lawsuit"):

Civil Action No. 3:96C-V-0823-L; STI Classic Fund and STI Classic Sunbelt v.
Bollinger Industries, Inc., Glenn D. Bollinger, Bobby D. Bollinger, and Michael
J. Beck; in the United States District Court for the Northern District of Texas,
Dallas Division (the "STI Lawsuit"):

The Company, Glenn D. Bollinger, Bobby D. Bollinger, and Michael J. Beck are
defendants in a lawsuit filed on March 22, 1996 in the United States District
Court for the Northern District of Texas, Dallas Division, by shareholders STI
Classic Fund and STI Classic Sunbelt, on behalf of themselves and all persons
similarly situated. Like the Suntrust lawsuit, this lawsuit was also filed as a
class action on behalf of a class of persons who purchased securities issued by
the Company at prices which allegedly were artificially inflated and maintained
in violation of the anti-fraud provisions under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 10b-5
thereunder. A class certification has been granted by the court.

Civil Action No. 00-1842-J Curtis Logan v. Bollinger Industries, Inc.; in the
191st Judicial District Court, Dallas County Texas ("the Logan Lawsuit"):

F-18
47

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE M - COMMITMENTS AND CONTINGENCIES - Continued

quarter ending June 30, 2000 for $150,000. The Company paid $30,000 during June
2000 and the remaining $120,000 was paid in October 2000.

In November 2000 the Company, Precise Exercise Equipment, Inc. ("Precise") and
Fitness Innovations and Technologies, Inc. entered into a Patent Settlement
Agreement which allowed the Company to sell its remaining inventory of the
sit-up exerciser through March 1, 2001 in the normal course of business and
required the Company to assist in the transition of the Company's customer base
for the sit-up exerciser to Precise. Concurrently, the Company entered into a
Sublicense Agreement with Precise, which grants Precise rights for a period of
three years to an unrelated Bollinger held patented product. This agreement
settles both the California and Texas actions.

In connection with an investigation by the Securities and Exchange Commission,
in September 1996 the Company consented to the entry of an order of permanent
injunction which enjoins the Company from violating the antifraud, periodic
reporting, record keeping and internal accounting controls provisions of the
Exchange Act and regulations promulgated thereunder in the future in the conduct
of its business. Glenn Bollinger consented to the entry of an order of permanent
injunction enjoining him from violations of the antifraud, record keeping,
periodic reporting and internal accounting controls provisions of the Exchange
Act and regulations promulgated thereunder in the future, and agreed to the
payment of a monetary penalty in the amount of $40,000. Ronald Bollinger
consented to the entry of an order of permanent injunction enjoining him from
violations of the antifraud, record keeping, periodic reporting and internal
accounting controls provisions of the Exchange Act and regulations promulgated
thereunder, and agreed not to act as a director or officer of a registered or
reporting entity in the future.

From time to time, the Company is a party to various legal proceedings arising
in the ordinary course of business. The Company is not currently a party to any
other material litigation and is not aware of any litigation threatened against
the Company, arising in the ordinary course of business, that could have a
material adverse effect on the Company.

NOTE N - Subsequent Events

On April 2, 2001 the Company entered into an agreement with an asset-based
lending arm of a Texas bank which replaced the existing line of credit.

In April 2001 the Company and the class representatives entered into an
agreement to settle the Suntrust and STI Lawsuits. This settlement requires
class and court approval, which is pending.

In May 2001 the Company terminated the sublease agreement of 45,000 square foot
of warehouse space.

F-19
48

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II

BOARD OF DIRECTORS AND STOCKHOLDERS
BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

In connection with our audit of the consolidated financial statements of
Bollinger Industries, Inc. and Subsidiaries referred to in our report dated June
19, 2001, we have also audited Schedule II for the years ended March 31, 2001,
2000 and 1999. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.

King Griffin & Adamson P.C.

Dallas, Texas
June 19, 2001

F-20
49

Schedule II

BOLLINGER INDUSTRIES, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED MARCH 31, 2001, 2000 AND 1999

Additions
Balance at charged to Charged to
beginning costs and other Balance at end
Description of year expenses accounts Deductions of year
----------- ------------ ------------ ------------ ------------ --------------

Year ended March 31, 1999
Allowance for doubtful accounts $ 450,000 $ 240,000 $ -- $ (213,381) $ 476,619
Inventory obsolescence reserve 2,202,879 729,762 -- (1,386,424) 1,546,217
Returns and allowance reserve 910,025 2,971,638 -- (2,461,708) 1,419,955
Advertising reserve 250,000 746,389 -- (760,116) 236,273

Year ended March 31, 2000
Allowance for doubtful accounts $ 476,619 $ 255,000 $ -- $ (188,232) $ 543,387
Inventory obsolescence reserve 1,546,217 -- -- (844,642) 701,575
Returns and allowance reserve 1,419,955 2,012,981 -- (1,684,089) 1,748,847
Advertising reserve 236,273 807,000 -- (715,763) 327,510

Year ended March 31, 2001
Allowance for doubtful accounts $ 543,387 $ 15,095 $ -- $ (93,161) $ 465,321
Inventory obsolescence reserve 701,575 514,461 -- (433,276) 782,760
Returns and allowance reserve 1,748,847 2,070,478 -- (3,204,848) 614,477
Advertising reserve 327,510 1,569,227 -- (1,416,261) 480,476

Deductions represent uncollectible accounts, inventories written off, or credits
issued for returns and allowances and advertising.

F-21
50

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------- -----------

10.66 Bollinger Industries, Inc. 2000 Nonqualified Stock Option Plan

10.68 Loan Agreement dated April 2, 2001 by and between the Company,
Bollinger Operating Corp., Bollinger Holding Corp., NBF, Inc.,
C. G. Products, Inc. and Bollinger Industries, L.P., as
borrower, and The Frost National Bank, dba Frost Capital
Group, as lender

10.69 Unsecured Note dated April 2, 2001 between the Company, as
maker, and David Barr, as payee, in the original principal
amount of $100,000, and related Subordination Agreement dated
April 2, 2001

10.70 Unsecured Note dated April 2, 2001 between the Company, as
maker, and Dell Bollinger, as payee, in the original principal
amount of $100,000, and related Subordination Agreement dated
April 2, 2001

10.71 Stipulation of Settlement dated April 2001 regarding the
Suntrust and STI Lawsuits

10.72 Put and Call Agreement dated April 2001 between Goodkind
Labaton Rudoff & Sucharow, L.L.P. (in its representative
capacity as agent for the Class Members and as Lead Counsel in
the Suntrust and STI Lawsuits), and the Company, Glenn D.
Bollinger and Bobby D. Bollinger

10.73 Patent settlement agreement with Precise Exercise Equipment,
Inc. and Bollinger dated November 20, 2000

11 Statement Regarding Computation of Per Share Data

21 Subsidiaries