SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 1O-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2006
Commission File Number 0-17977
BOUNDLESS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
13-3469637
(I.R.S. Employer Identification No.)
50 Engineers Lane Unit 2
Farmingdale, NY
(Address of principal executive offices)
11735
(Zip Code)
(631) 962-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2)
Yes |_| No |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
Yes |_| No |X|
As of May 12, 2006, the Registrant had approximately 6,705,613 shares of Common
Stock, $.01 par value per share outstanding.
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BOUNDLESS CORPORATION AND SUBSIDIARIES
(Debtor and Debtors-in-Possession)
INDEX
Page
No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2006 (Unaudited)
and December 31, 2005 3
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2006 and 2005 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2006 and 2005 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
Item 3. Controls and Procedures 19
Part II. Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits 20
Signatures 21
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BOUNDLESS CORPORATION AND SUBSIDIARIES
(DEBTOR AND DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2006 2005*
------------ ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 11 $ 14
Trade accounts receivable, net 656 657
Affiliate receivables 103 92
Other receivables 131 95
Inventories (Note 3) 890 870
Cash collateral and escrow accounts 155 103
Prepaid expenses and other current assets 63 43
---------- ----------
Total current assets 2,009 1,874
Property and equipment, net (Note 4) 130 130
---------- ----------
Total assets $ 2,139 $ 2,004
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities not subject to compromise
Current liabilities:
Current portion of long-term debt $ 355 $ 96
Accounts payable 71 50
Accrued salaries 71 73
Accrued legal fees 1,229 1,154
Purchase order commitments 24 50
Accrued payroll and sales tax payable 28 28
Accrued warranty 30 30
Other accrued liabilities 217 203
---------- ----------
Total current liabilities 2,025 1,684
Long-term debt, less current maturities 650 650
Deferred credits 99 90
Items subject to compromise:
Manditorily redeemable preferred stock 1,652 1,652
Liabilities subject to compromise (Note 5) 12,934 12,934
---------- ----------
Total liabilities 17,360 17,010
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 9)
Stockholders' deficit: (Note 6)
Common stock 67 67
Additional paid-in capital 35,844 35,844
Accumulated deficit (51,132) (50,917)
---------- ----------
Total stockholders' deficit (15,221) (15,006)
---------- ----------
Total liabilities and stockholders' deficit $ 2,139 $ 2,004
========== ==========
* Reclassified. See Note 2.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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BOUNDLESS CORPORATION AND SUBSIDIARIES
(DEBTOR AND DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31
--------------------
-------- --------
2006 2005
-------- --------
Revenue:
Product sales $ 1,139 $ 1,444
Services 147 171
-------- --------
Total revenue 1,286 1,615
-------- --------
Cost of revenue
Product sales 1,055 1,125
Services 55 74
-------- --------
Total cost of revenue 1,110 1,199
-------- --------
Gross margin 176 416
Other costs and expenses (income)
Selling, general and administrative 237 246
Research and development 58 56
Interest expense (excluding contractual interest of $18
and $16 not recognized in 2006 and 2005, respectively) 49 38
Loss on reimbursement of employee services (net of
reimbursement of $30) -- 5
Other income (36) (5)
-------- --------
308 340
-------- --------
Income (loss) before reorganization items (132) 76
Reorganization items (Note 7) 83 96
-------- --------
Net loss $ (215) $ (20)
======== ========
Basic and diluted loss per common share $ (0.03) $ --
======== ========
Basic and diluted weighted average shares outstanding 6,706 6,706
======== ========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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BOUNDLESS CORPORATION AND SUBSIDIARIES
(DEBTOR AND DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
March 31,
---------------------
-------- --------
2006 2005*
-------- --------
Cash flows from operating activities:
Income (loss) before reorganization items (132) 76
Adjustments to reconcile income before reorganization items
to net cash provided by (used in) operating activities:
Depreciation and amortization 3 1
Change in deferred credits 9 2
Credit for excess and obsolete inventory (33) --
Changes in assets and liabilities:
Cash on deposit with lender -- 241
Trade accounts receivable 1 115
Affiliate receivables (11) (11)
Other receivables (36) (18)
Inventories 13 (70)
Cash collateral and escrow accounts (52) (99)
Prepaid expense and other current assets (20) 5
Accounts payable and accrued expenses 7 (73)
-------- --------
Net cash provided by (used in) operating activities excluding
reorganization items (251) 169
-------- --------
Cash flows from reorganization activities:
Reorganization items, net (83) (96)
Increase in liabilities, net 75 75
-------- --------
Net cash used in reorganization activities (8) (21)
-------- --------
Cash flows from investing activities:
Capital expenditures (3) --
-------- --------
Cash flows from financing activities:
Net borrowings under new DIP/AR financing 259 411
Repayments of prior DIP debt -- (653)
-------- --------
Net cash provided by (used in ) financing activities 259 (242)
-------- --------
Net decrease in cash and cash equivalents (3) (94)
Cash and cash equivalents at beginning of period 14 124
-------- --------
Cash and cash equivalents at end of period $ 11 $ 30
======== ========
Cash paid for:
Interest $ 35 $ 29
* Reclassified. See Note 2.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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BOUNDLESS CORPORATION AND SUBSIDIARIES
(DEBTOR AND DEBTORS-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
1. Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code
The Company voluntarily petitioned for relief under Chapter 11 of the United
States Bankruptcy Code on March 12, 2003, (the "Petition Date") in the United
States Bankruptcy Court (the "Bankruptcy Court") for the Eastern District of New
York, Central Islip
The Debtor continues to operate its business as "debtor-in-possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and
applicable court orders. In general, as debtors-in-possession, the Debtor is
authorized under Chapter 11 to continue to operate as an ongoing business, but
may not engage in transactions outside the ordinary course of business without
the prior approval of the Bankruptcy Court.
On May 9, 2006, a confirmation hearing was held in the Bankruptcy Court to
determine, amongst other issues, the feasibility of the Company's Plan of
Reorganization. At that hearing the Bankruptcy Court determined the Company's
Plan of Reorganization was feasible and instructed legal counsel for the Company
to prepare and submit for the Bankruptcy Court's approval an order to that
affect. The Effective Date- the date upon which the Company exits bankruptcy-
will be ten days following the Bankruptcy Court's approval of the order.
As soon as practicable after the Effective Date, the Company shall take all
steps necessary to arrange for the cancellation of each class of their existing
common stock and preferred stock. Holders of existing common and preferred stock
on the record date shall have his, her or its stock cancelled, and shall receive
nothing on account thereof from the Company.
On the Effective Date, the Company shall be authorized to issue one hundred
(100,000,000) million shares of common stock ("Boundless Common Stock") of which
four million shares shall be issued to the claimants as set forth in the Plan.
All assets of the Company, if any, not owned by Boundless Technologies, Inc.
("Technologies") shall be transferred to Technologies and any and all
liabilities of the Company, including guarantees, shall be assumed by
Technologies or canceled. On the Effective Date, Boundless Manufacturing
Services, Inc. and Boundless Acquisition Corp. shall be dissolved.
On the Effective Date, the Company shall issue, or cause to be issued for
Vision's benefit, and in its name, shares of Technologies common stock
sufficient to provide Vision with 100% of the Technologies common stock issued
and outstanding, or to be issued and outstanding, under the Plan and 2,040,000
shares of Boundless Common Stock which will provide Vision with 51% of such
shares to be issued and outstanding under the Plan. The Boundless Common Stock
shall be issued in accordance with ss. 1145 of the Bankruptcy Code. Such
issuance of the Technologies common stock and Boundless Common Stock shall be
deemed to be in full satisfaction of the Vision claim of $650 and current
accrued interest thereon of $166.
The Plan contemplates an annual payment of cash to holders of allowed unsecured
claims (the "Claims"). The Company believes that these Claims aggregate
approximately $14,586 at March 31, 2006. Subject to adjustment, described below,
holders of Claims shall receive their Pro Rata share of cash payments in an
amount equal to 2% of annual revenues up to and including $7 million, on each of
the first, second and third anniversary dates of the Effective Date; and cash
payments in an amount equal to 4% of annual revenues exceeding $7 million, on
each of the first, second and third anniversary dates of the Effective Date.
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Payments of Claims shall be escrowed on a monthly basis, and the Company must
forward monthly sales reports and confirmation of the escrow to Committee
Counsel. Each of the annual payments to be distributed to holders of the Claims
shall be: (i) not less than $150 on each of the first and second anniversary
dates; and (ii) not less than $200 on the third anniversary dates. The total
amount to be distributed to holders of the Claims shall be not less than $500
(the "Minimum Distribution").
If the Company merges with another entity or is acquired by another entity prior
to the payments of all amounts due and owing pursuant to the payment plan, the
remaining entity must assume the Company's obligations contained herein. Annual
revenues shall include only those revenues generated from sales of the Company's
product line existing prior to any merger or acquisition.
On the Effective Date, each holder of Claims shall also receive its pro rata
share of 1,960,000 shares of Boundless Common Stock, which shares shall be
issued in accordance with ss. 1145 of the Bankruptcy Code.
Subsequent to the Effective Date, the Boundless contemplates acquiring (the
"Acquisition") an interest in an operating company which desires to become a
public company. In effecting this subsequent transaction under the Plan,
Boundless will issue Boundless Common Stock to acquire its interests in the
operating company. As a result these stock issuances, the Boundless Common Stock
issued to Vision and holders of Claims will represent approximately 10% of the
outstanding common stock of Boundless after the Acquisition is consummated and
the owners of the operating company will own approximately 90% of the
outstanding common stock of Boundless after the transaction. The consummation of
this transaction will be undertaken in compliance with the Securities Laws of
the United States and all other jurisdictions, if any, which require such
compliance. In this regard, Boundless will file a Form 8-K with the Securities
and Exchange Commission with respect to this transaction.
The amount of cash payable to holders of Claims, described above, shall be
subject to reduction pro rata, in an amount equal to 75% of the average
aggregate closing prices of the Boundless Common Stock traded on the electronic
bulletin board during the twenty trading day period beginning 60 calendar days
after the shares are listed on any of the following: (i) the Nasdaq Electronic
Bulletin Board, (ii) Nasdaq'a Small Cap or National Market or (iii) any exchange
(collectively, a "Trading Market"). For this purpose, if such shares do not
trade on a particular trading day, the closing price for that day that shall be
used in determining the average closing price of such shares shall be the
closing price for the shares on the last day it did trade. No holder of a Claim
shall be required to return any cash distributions to Technologies as a result
of the adjustments provided herein notwithstanding the value of the Boundless
Common Stock. Holders of Claims will be notified promptly after any such shares
are listed on a Trading Market and of any adjustments hereunder.
Financial Statement Presentation.
The unaudited condensed consolidated interim financial statements, and
accompanying notes included herein, have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC")
and reflect all adjustments which are of a normal recurring nature and which, in
the opinion of management, are necessary for the fair statement of the results
of the three months ended March 31, 2006 and 2005. Certain information and
footnote disclosures have been condensed or omitted pursuant to such
regulations. The results for the current interim periods are not necessarily
indicative of the results for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto in the Company's latest annual report filed
with the SEC on Form 10-K for the year ended December 31, 2005. The accompanying
financial statements include the accounts of the Company and its subsidiaries on
a consolidated basis. All significant inter-company accounts and transactions
have been eliminated.
The accompanying consolidated financial statements have been prepared in
accordance with American Institute of Certified Public Accountants' Statement of
Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code," and on
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a going-concern basis, which contemplates continuity of operations, realization
of assets and satisfaction of liabilities in the ordinary course of business.
SOP 90-7 requires that the financial statements for periods subsequent to the
Chapter 11 filing petition distinguish transactions and events that are directly
associated with the reorganization from the operations of the business.
Accordingly, revenues, expenses (including professional fees), realized gains
and losses, and provisions for losses directly associated with the
reorganization and restructuring of the business are reported separately in the
financial statements. The Consolidated Balance Sheet distinguishes pre-petition
liabilities and other items subject to compromise from both those pre-petition
liabilities that are not subject to compromise and from post-petition
liabilities. Liabilities and other items subject to compromise are reported at
the amounts expected to be allowed, even if they may be settled for lesser
amounts.
In addition, as a result of the Chapter 11 filing, the realization of assets and
satisfaction of liabilities, without substantial adjustments or changes in
ownership, are subject to uncertainty. Given this uncertainty, there is
substantial doubt about the Company's ability to continue as a going concern.
While operating as debtors-in-possession under the protection of Chapter 11 of
the Bankruptcy Code and subject to approval of the Bankruptcy Court or otherwise
as permitted in the ordinary course of business, the Debtors, or some of them,
may sell or otherwise dispose of assets and liquidate or settle liabilities for
some amounts other than those reflected in the consolidated financial
statements. Further, a plan of reorganization could materially change the
amounts and classifications in the historical consolidated financial statements.
The primary issues management will focus on immediately following
confirmation of the Company's Plan of Reorganization include:
o Working with its secured lender on a restructuring of the terms of
the DIP debt which it holds, thereby reducing the Company's cost of
borrowing.
o Initiating negotiations with suppliers to secure trade financing of
working capital of approximately $1-2 million under terms and
conditions to be agreed upon. There can be no assurance that such
financing will materialize.
o The continual negotiation of material contracts for the sale of its
manufacturing services to customers which management believes will
provide additional liquidity for operations. There can be no
assurances that these contracts will materialize.
o The ability of the Company to generate cash from operations and to
maintain adequate cash on hand; and
o The ability of the Company to achieve profitability.
The Company believes that positive operating cash flows and profitability
will not come from the general purpose text terminal marketplace. The Company
has been and will continue to focus on the current business from the current
customers in order to provide a reliable cash flow with which to execute growth
plans. The paths to growth that the Company has developed include:
1. Repositioning the Company's business from a text terminal company to a
Point-of-Service/Point-of-Sale ("POS") technology company, and build upon the
Company's historical success in POS to establish a strong link between the
Company's and POS' applications. A key activity in support of the POS initiative
includes leveraging the Company's existing technology platforms
2. Gaining access to a more modern and growing market through new product
offerings including Web terminals and terminals utilizing the Linux operating
system which provide high security, high levels of productivity and high
reliability.
3. Enter the Radio Frequency Identification ("RFID") market place with a
high value-to-cost offering. Position the company as a RFID provider to POS
integrators and OEMs. RFID Controllers - read/write RFID modules for both 13.56
mhz and 900 mhz- will be embedded into the Company's technology platforms.
4. Applying its robust Build-to-Order ("BTO") processes to growth products
and markets.
As we emerge from Chapter 11, there is no assurance that our operations
will be profitable and cash flow positive; in the alternative, the scope of
operations could be severely curtailed or discontinued entirely. The
accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
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2. Summary of Certain Accounting Policies
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 2005 included in the Company's Annual Report on Form 10-K. The accounting
policies used in preparing these consolidated financial statements are the same
as those described in the December 31, 2005 consolidated financial statements.
Certain prior year amounts, specifically the presentation of prepaid expense and
other current assets, have been reclassified to conform to the current year's
presentation. These reclassifications had no effect on the Company's income or
loss before reorganization items, net loss, or related per share amounts for any
period presented. In addition, $200 of debt due Vision Technologies, Inc.,
previously classified as current portion of long-term debt at December 31, 2005,
has been reclassified as long-term debt due to the application of Statement of
Financial Accounting Standard-6 "Classification of Short-term Obligations
Expected to be Refinanced."
Cash and Cash Equivalents
All highly liquid investments with maturities at purchase of three months or
less are considered cash equivalents. Cash and cash equivalents excludes amounts
held by the Company's DIP lender as collateral against debt outstanding under
the Company's DIP financing agreement as well as cash held in escrow for the
benefit of the professionals assisting the Company in its bankruptcy case. These
cash amounts, which totaled $155 and $103 at March 31, 2006 and December 31,
2005, respectively, are included in cash collateral and escrow accounts on the
Company's consolidated balance sheets.
Minority Interest
In the absence of a commitment by minority shareholders to fund losses in excess
of their equity, such losses have been attributed to the Company.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the customer
or passage of title and assumption of risk. The Company monitors product returns
generally, which are for stock rotation with the coinciding replacement order,
and records provisions for estimated future returns and potential warranty
liability at the time revenue is recorded. Service revenue is recognized when
service is performed and billable. Revenue from maintenance and extended
warranty agreements is deferred and recognized ratably over the term of the
agreement.
Supplier Concentration
The Company purchases subassemblies and components for its products from more
than 40 domestic and Far East suppliers. For the quarter ended March 31, 2006,
purchases from Radiance Electronics and Video Display Corporation accounted for
approximately 53% and 9%, respectively, of total purchases of material. During
the first quarter of 2005 purchases from Radiance Electronics, Ansen
Corporation, and Video Display Corporation accounted for approximately 38%, 19%,
and 11%, respectively, of the Company's total purchases of material.
Net Income (Loss) Per Common Share
SFAS No. 128, "Earnings Per Share," requires a reconciliation of the numerator
and denominator of the basic net income (loss) per share computation to the
numerator and denominator of the diluted net income (loss) per share
computation.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses
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during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In March 2005, the Financial Accounting Standards Board (the "FASB") issued FASB
Interpretation (FIN) No. 47, "Accounting for Conditional Asset Retirement
Obligations, an interpretation of FASB Statement No. 143". FIN No. 47 clarifies
that conditional asset retirement obligations meet the definition of liabilities
and should be recognized when incurred if their fair values can be reasonably
estimated. The Interpretation is effective no later than December 31, 2005. The
cumulative effect of initially applying the Interpretation will be recognized as
a change in accounting principle. The Company does not believe that FIN No. 47
will have a material effect on its consolidated financial statements.
In June 2005, the FASB issued FASB Staff Position (FSP) No. FAS 143-1,
"Accounting for Electronic Equipment Waste Obligations," that provides guidance
on how commercial users and producers of electronic equipment should recognize
and measure asset retirement obligations associated with the European Directive
2002/96/EC on Waste Electrical and Electronic Equipment (the "Directive"). In
the second quarter of 2005, the company adopted FSP FAS 143-1 in those European
Union (EU) member countries that transposed the Directive into country-specific
laws. In the third quarter of 2005, the company adopted FSP FAS 143-1 in several
additional EU-member countries that enacted country-specific laws in the current
reporting period. The adoption of the FSP in the second and third quarter of
2005 did not have a material effect on the company's consolidated financial
statements. As of the end of the current quarter, the majority of the EU-member
countries have transposed the Directive into country-specific laws. The effect
of applying FSP FAS 143-1 in the remaining countries in future periods is not
expected to have a material effect on the Company's consolidated financial
statements.
In the third quarter of 2005, the company adopted SFAS No. 153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29." SFAS No. 153 requires
that exchanges of productive assets be accounted for at fair value unless fair
value cannot be reasonably determined or the transaction lacks commercial
substance. The adoption of SFAS No. 153 did not have a material effect on the
Company's consolidated financial statements.
In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS
No. 154 will become effective for accounting changes and corrections of errors
made in fiscal year 2006. The adoption of this statement is not expected to
effect the company's consolidated financial statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets--an amendment of FASB Statement No. 140," that provides
guidance on accounting for separately recognized servicing assets and servicing
liabilities. In accordance with the provisions of SFAS No. 156, separately
recognized servicing assets and servicing liabilities must be initially measured
at fair value, if practicable. Subsequent to initial recognition, the Company
may use either the amortization method or the fair value measurement method to
account for servicing assets and servicing liabilities within the scope of this
Statement. The Company will adopt SFAS No. 156 in fiscal year 2007. The adoption
of this Statement is not expected to have a material effect on the Company's
Consolidated Financial Statements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments--an amendment of FASB Statements No. 133 and 140," to
permit fair value remeasurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation in
accordance with the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company will adopt SFAS No. 155 in
fiscal year 2007. The adoption of this Statement is not expected to have a
material effect on the Company's Consolidated Financial Statements.
In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46(R)-6,
"Determining the Variability to Be Considered in Applying FASB Interpretation
No. 46(R)", that will become effective beginning third quarter of 2006. FSP FIN
No. 46(R)-6 clarifies that the variability to be considered in applying
Interpretation 46(R) shall be based on an analysis of the design of the variable
interest entity. The adoption of this FSP is not expected to have a material
effect on the Company's Consolidated Financial Statements.
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3. Inventories
Inventories are stated at the lower of cost or market with costs determined on a
first-in first-out basis. On a quarterly basis the Company reviews quantities on
hand and on order and records a provision for excess and obsolete inventory
based on forecasted demand. Should this analysis indicate that the demand for
product has increased from previous estimates, a decrease in the reserves would
be effected through a credit to the statement of operations.
March 31, December 31,
---------- ------------
2006 2005
---------- ------------
Raw materials and purchased components $ 956 $ 1,004
Finished goods 156 169
Manufacturing inventory reserves (535) (618)
Service parts 313 315
-------- --------
$ 890 $ 870
======== ========
4. Property and equipment
Property and equipment consists of the following:
March 31, December 31,
---------- ------------
2006 2005
---------- ------------
Buildings and improvements $ 17 $ 17
Machinery and equipment 6,534 6,531
-------- --------
6,551 6,548
Less accumulated depreciation and amortization 6,421 6,418
-------- --------
$ 130 $ 130
======== ========
Appropriate assets are not depreciated below their respective salvage value.
Depreciation expense for the quarters ending March 31, 2006 and 2005, was $3 and
$1. The Company recorded repairs and maintenance expenses of $0 and $1 for the
quarters ended March 31, 2006 and 2005.
5. Liabilities and Other Items Subject to Compromise
Liabilities and other items subject to compromise refers to liabilities incurred
and the issuance of preferred stock prior to the commencement of the Chapter 11
Cases. These amounts represent the Company's estimate of known or potential
pre-petition claims to be resolved in connection with the Chapter 11 Cases.
Payment terms for these amounts have been established in connection with the
confirmation of the Chapter 11 reorganization plan.
At March 31, 2006 and December 31, 2005, the Company had liabilities and other
items subject to compromise of approximately $14,586 which consisted of the
following:
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March 31, December 31,
---------- ------------
2006 2005
---------- ------------
Liabilities:
Accounts payable $ 10,912 $ 10,912
Convertible notes payable, principally related to
prior separation agreements 965 965
Accrued salaries 397 397
Accrued warranty 222 222
Capital lease obligations 438 438
---------- ----------
12,934 12,934
Other:
Manditorily redeemable preferred stock 1,652 1,652
---------- ----------
$ 14,586 $ 14,586
========== ==========
Pursuant to the confirmed plan, the mandatorily redeemable preferred stock is
cancelled.
6. Stockholders' Deficit
At March 31, 2006 and December 31, 2005 stockholders' deficit consisted of the
following:
March 31, December 31,
-------------------------
2006 2005
---------- ------------
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued $ -- $ --
Common stock, $0.01 par value, 25,000,000 shares
authorized,6,705,613 shares issued and outstanding 67 67
Additional paid-in capital 35,844 35,844
Accumulated deficit (51,132) (50,917)
Accumulated other comprehensive loss -- --
---------- ----------
Total stockholders' deficit $ (15,221) $ (15,006)
========== ==========
Pursuant to the confirmed plan, all existing shares of capital are cancelled.
(See Note 1.)
7. Reorganization Expenses
Reorganization expenses were as follows:
Three months ended
March 31,
------------------------
2006 2005
---------- ----------
Professional fees $ 75 $ 75
United States District Court fees 8 6
Facility relocation expenses -- 10
Other expenses -- 5
---------- ----------
$ 83 $ 96
========== ==========
8. Major Customers
The Company markets its terminal products through OEMs and reseller distribution
channels. Customers can buy the Company's products from an international network
of value-added resellers (VARs) and regional distributors. Through its sales
force, the Company sells directly to large VARs and regional distributors and
also sells to major national and international distributors. 1st Solutions,
Ingram Micro and Ultimate Technology Corporation contributed 15%, 11% and 9%,
respectively, of total revenue for the quarter
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ended March 31, 2006. The Company had one customer representing 24% of revenues
during the first quarter ended March 31, 2005; and five other customers
representing individually between 5% and 7% of revenues for the same period.
9. Litigation and Contingencies
The Company is subject to lawsuits and claims that arose in the normal course of
business. Management is of the opinion that all such matters are without merit,
or are of such kind, or involve such amounts, as would not have a significant
effect on the financial position, results of operations or cash flows of the
Company if disposed unfavorably. See Part II- Other Information, Item 1. Legal
Matters.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The numbers and percentages contained in this Item 2 are approximate. Dollar
amounts are stated in thousands.
Revenue - Revenue for the quarter ended March 31, 2006 was $1,286 as compared to
$1,615 for the quarter ended March 31, 2005.
Sales of the Company's General Display Terminals were $1,136 for the quarter
ended March 31, 2006 compared to $1,444 for the quarter ended March 31, 2005.
Text revenue includes sales of the Company's general-purpose display terminals.
The Company's product family falls into two general classes: ANSI or ASCII
display terminals. The general purpose segment of the Text market, whether ANSI
or ASCII, is primarily characterized as a "replacement sale" market. Text
terminal customer purchasing criteria are based on quality, customization,
compatibility with other terminals, price and, as a result of the markets
replacement characterization, lead-times. Historically, the Company has been a
leader in these categories.
The Company anticipates sales of its General Display Terminals will continue to
decline as customers transition to newer technologies with graphical
capabilities.
Net revenue from EMS activities, primarily logistics services sold to Unique
Co-operative Solutions, Inc. ("UCSI"), were $50 for the quarter ended March 31,
2006, as compared to $4 in the comparable quarter of 2005. UCSI is wholly owned
by Mr. Oscar Smith, who also is the majority shareholder of Vision Technologies,
Inc. ("Vision"). The Company's Plan of Reorganization provides that Vision will
own 100% of the Company, and will receive this ownership in settlement of the
$650 note payable due to him plus accrued interest of $166. Pre-confirmation,
Mr. Smith currently owns approximately 15% of the outstanding common stock of
the Company.
Net revenue from the Company's repairs and spare parts business for the quarter
ended March 31, 2006 was $97 as compared to $166 for the quarter ended March 31,
2005. This revenue includes the sale of spare parts, repair of product outside
of the warranty period, and the sale of multi-year warranty contracts.
Historically, customer service revenue has been driven from the sales of the
Company's text terminal products.
The Company's engineering efforts have focused on cost reduction and reliability
improvements. These efforts have decreased the average failure rate of the
Company's text terminals and extended the average useful life of the text
terminal. These improvements
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have reduced the Company's ability to generate revenue from spare parts sales
and repair activities. In addition, a substantial market has evolved around the
sale of used equipment, as customers trade in text terminals when they switch to
alternative technologies, thereby reducing the Company's opportunity to sell new
equipment.
During the first quarter of 2006, 1st Solutions and Ingram Micro contributed 15%
and 11%, respectively, of total revenue. During the first quarter of 2005,
Ingram Micro contributed 24% of total revenues.
Gross Margin - The Company recorded gross margin for the three months ended
March 31, 2006 of $176 (13.7% of revenue) compared to gross margin of $416
(25.7% of revenue) for the first quarter of 2005. The decrease in total gross
margin as a percentage of revenue is attributable to the reduction in the
Company's revenue without a corresponding reduction in the Company's
manufacturing overhead expenses, which expenses include fixed costs such as rent
for the manufacturing facility. Manufacturing overhead expenses in the first
quarter of 2006 were $258, or 20% of revenue, as compared to $259, or 16% of
revenue, for the first quarter of 2005.
Increasing energy prices have adversely affected the Company's reported gross
margin for the first quarter of 2006 compared to the first quarter of 2005.
Certain petroleum-based components utilized in the manufacturing of the
Company's products have increased in cost to the Company. Additionally, rising
fuel prices have resulted in increases to the cost of in-bound freight expense.
The Company estimates that these cost increases have resulted in a 4 point
reduction in reported gross margin as a percent of revenue in 2006 versus 2005.
Total Operating Expenses - For the quarter ended March 31, 2006, operating
expenses, excluding interest expense and reorganization expenses associated with
the Company's bankruptcy filing, decreased 3% to $295 (23% of revenue), compared
to expenses for the first quarter of 2005 of $302 (19% of revenue).
Loss on reimbursement of employee services - Beginning in the first quarter of
2004 the Company agreed to provide UCSI resources, primarily Company employees,
to allow UCSI to pursue programs critical to their continued development of the
thin client market. UCSI is wholly-owned by Mr. Oscar Smith. Mr. Smith is also
the majority owner of Vision Technologies, Inc., the entity which will own 100%
of the Company upon confirmation of the Company's plan of reorganization. A
monthly charge to UCSI was agreed to based upon the Company's estimate of the
percentage of time its employees would be devoted to UCSI projects. For the
quarter ending March 31, 2005, the Company charged UCSI $30 and incurred
expenses of $35, resulting in a loss on reimbursement of $5. The agreement to
provide services to UCSI terminated in the second quarter of 2005.
Other income - Other income for the quarter ended March 31, 2006 was $36
compared to income of $5 for the period ended March 31, 2005. Other income
recorded in 2006 includes $33 relating to a reduction in reserves for excess and
obsolete inventory. The Company follows policies to establish reserves against
its trade receivables and inventory, and periodically reviews the adequacy of
these reserves. The Company utilizes ratios based on its historical experience,
as well as management's judgment, in its assessment.
Interest Expense - Interest expense for the quarter ended March 31, 2006 was $49
compared to $38 for the comparable period in 2005. In January 2005, the Company
replaced its then existing DIP financing with DIP financing provided by
Entrepreneur Growth Capital, LLC ("EGC"). At March 31, 2006 and 2005, the
balance due EGC was $355 and $411, respectively, and carried an interest rate of
the prime rate plus 6%. In addition, in June 2003 the Bankruptcy Court
authorized the Company to secure $650 of junior secured DIP financing from
Vision. The Vision DIP financing carries interest at 8% per annum. Interest
expense incurred on the Vision debt was $14 and $15, respectively, for the
quarters ended March 31, 2005 and 2006.
Reorganization Expenses - During the first quarter of 2006 the Company recorded
reorganization expenses of $83, primarily for legal fees incurred in the
bankruptcy. For
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the quarter ended March 31, 2005, reorganization expenses were $96, which amount
included approximately $75 for legal fees and $10 related to expenses associated
with the Company's relocating its manufacturing operations to Farmingdale, New
York.
Income Tax Expense/Credit - For the first quarter of 2006 and 2005 the Company
did not record income tax expense or credit against the recorded results. The
Company recorded no income tax benefit for the quarter ended March 31, 2006,
based on the Company's estimate of its annual effective income tax rate to be
zero. For annual reporting purposes, the Company has provided a 100% valuation
allowance for its net deferred tax assets.
Net Income (Loss) - For the quarter ended March 31, 2006, the Company recorded a
net loss of $215, compared to a net loss of $20 for the quarter ended March 31,
2005.
LIQUIDITY AND CAPITAL RESOURCES
The matters described in "Liquidity and Capital Resources," to the extent that
they relate to future events or expectations, may be significantly affected by
the terms of the Plan of Reorganization (the "Plan").
As soon as practicable after the Effective Date, the Company shall take all
steps necessary to arrange for the cancellation of each class of their existing
common stock and preferred stock. Holders of existing common and preferred stock
on the record date shall have his, her or its stock cancelled, and shall receive
nothing on account thereof from the Company.
On the Effective Date, the Company shall be authorized to issue one hundred
(100,000,000) million shares of common stock ("Boundless Common Stock") of which
four million shares shall be issued to the claimants as set forth in the Plan.
All assets of the Company, if any, not owned by Technologies shall be
transferred to Technologies and any and all liabilities of the Company,
including guarantees, shall be assumed by Technologies or canceled. On the
Effective Date, Boundless Manufacturing Services, Inc. and Boundless Acquisition
Corp. shall be dissolved.
On the Effective Date, the Company shall issue, or cause to be issued for
Vision's benefit, and in its name, shares of Technologies common stock
sufficient to provide Vision with 100% of the Technologies common stock issued
and outstanding, or to be issued and outstanding, under the Plan and 2,040,000
shares of Boundless Common Stock which will provide Vision with 51% of such
shares to be issued and outstanding under the Plan. The Boundless Common Stock
shall be issued in accordance with ss. 1145 of the Bankruptcy Code. Such
issuance of the Technologies common stock and Boundless Common Stock shall be
deemed to be in full satisfaction of the Vision claim of $650 and current
accrued interest thereon of $166.
The Plan contemplates an annual payment of cash to holders of allowed unsecured
claims (the "Claims"). The Company believes that these Claims aggregate
approximately $14,586 at March 31, 2006. Subject to adjustment, described below,
holders of Claims shall receive their Pro Rata share of cash payments in an
amount equal to 2% of annual revenues up to and including $7 million, on each of
the first, second and third anniversary dates of the Effective Date; and cash
payments in an amount equal to 4% of annual revenues exceeding $7 million, on
each of the first, second and third anniversary dates of the Effective Date.
Payments of Claims shall be escrowed on a monthly basis, and the Company must
forward monthly sales reports and confirmation of the escrow to Committee
Counsel. Each of the annual payments to be distributed to holders of the Claims
shall be: (i) not less than $150 on each of the first and second anniversary
dates; and (ii) not less than $200 on the third anniversary dates. The total
amount to be distributed to holders of the Claims shall be not less than $500
(the "Minimum Distribution").
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If the Company merges with another entity or is acquired by another entity prior
to the payments of all amounts due and owing pursuant to the payment plan, the
remaining entity must assume the Company's obligations contained herein. Annual
revenues shall include only those revenues generated from sales of the Company's
product line existing prior to any merger or acquisition.
On the Effective Date, each holder of Claims shall also receive its pro rata
share of 1,960,000 shares of Boundless Common Stock, which shares shall be
issued in accordance with ss. 1145 of the Bankruptcy Code.
At March 31, 2006, the Company had accrued approximately $1,229 for legal
assistance throughout the bankruptcy period. As of March 31, 2006, outstanding
professional fees, inclusive of legal fees, are estimated to approximate $1,430
as of the Effective Date. Upon application for payment pursuant to ss.ss. 330,
331 and 503(a) of the Bankruptcy Code and approval by the Bankruptcy Court, any
and all professional fees not paid on or before the Effective Date shall be paid
by the Company on such terms as the parties shall agree. Interest shall accrue
on any unpaid professional fees from the Effective Date at a rate of eight (8%)
percent per annum.
Since it is anticipated that professional fees shall not be paid in full on the
Effective Date, the Professionals (other than auditors) shall be granted a
security interest upon all of the Company's assets, junior to the security
interest thereon of EGC, but pari passu with the Vision security interest, if
any. When the Professionals shall have been paid in full, the security interest
in their favor shall be cancelled and be of no further force and effect.
Subsequent to the Effective Date, the Boundless contemplates acquiring (the
"Acquisition") an interest in an operating company which desires to become a
public company. In effecting this subsequent transaction under the Plan,
Boundless will issue Boundless Common Stock to acquire its interests in the
operating company. As a result these stock issuances, the Boundless Common Stock
issued to Vision and holders of Claims will represent approximately 10% of the
outstanding common stock of Boundless after the Acquisition is consummated and
the owners of the operating company will own approximately 90% of the
outstanding common stock of Boundless after the transaction. The consummation of
this transaction will be undertaken in compliance with the Securities Laws of
the United States and all other jurisdictions, if any, which require such
compliance. In this regard, Boundless will file a Form 8-K with the Securities
and Exchange Commission with respect to this transaction.
The amount of cash payable to holders of Claims, described above, shall be
subject to reduction pro rata, in an amount equal to 75% of the average
aggregate closing prices of the Boundless Common Stock traded on the electronic
bulletin board during the twenty trading day period beginning 60 calendar days
after the shares are listed on any of the following: (i) the Nasdaq Electronic
Bulletin Board, (ii) Nasdaq'a Small Cap or National Market or (iii) any exchange
(collectively, a "Trading Market"). For this purpose, if such shares do not
trade on a particular trading day, the closing price for that day that shall be
used in determining the average closing price of such shares shall be the
closing price for the shares on the last day it did trade. No holder of a Claim
shall be required to return any cash distributions to Technologies as a result
of the adjustments provided herein notwithstanding the value of the Boundless
Common Stock. Holders of Claims will be notified promptly after any such shares
are listed on a Trading Market and of any adjustments hereunder.
The Company is highly leveraged. As of December 31, 2005, the Company had a
tangible net worth deficit of $15,006 and total liabilities of $17,010. As of
March 31, 2006, the Company had a tangible net worth deficit of $15,221 and
total liabilities of $17,360. The Company had a working capital deficit,
inclusive of liabilities and other items subject to compromise, of approximately
$14,602 as of March 31, 2006, compared to working capital deficit of $14,396 as
of December 31, 2005. Historically, the Company has relied on cash flow from
operations, bank borrowings and sales of its common stock to finance its working
capital, capital expenditures and acquisitions.
As of January 31, 2005, we entered into an agreement with our secured lender
Valtec Capital, LLC, as assignee of Valtec Capital Corporation, a Nevada
corporation (the "Prior
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Lender") to terminate our debtor-in-possession ("DIP") financing and to release
their liens on our personal property. In return for termination of the prior DIP
financing we also agreed to pay the Prior Lenders a total of $100 for legal fees
they incurred during our bankruptcy period. This amount is payable to the Prior
Lenders on the date that our Plan of Reorganization becomes effective.
At the same time, we entered into another secured DIP financing agreement (the
"EGC Agreement") with Entrepreneur Growth Capital, LLC ("EGC") pursuant to which
EGC was granted a lien on all of our personal property. The original term of the
EGC Agreement was one year; however, on January 31, 2006, the EGC Agreement was
extended for an additional six months.
In general, the EGC Agreement permits us to borrow up to 80% of our eligible
accounts receivable. Under the EGC Agreement, the annual interest rate is 6%
above the prime rate announced by Citibank, N.A. and we are required to pay a
monthly service fee equal to three quarters of one percent (0.75%) of the face
value of invoices assigned to EGC for the preceding month. The EGC Agreement
requires us to pay minimum monthly interest of $5 even though our actual
borrowings may result in a lesser interest charge. We are responsible for
certain fees and fees for early termination of the facility. The maximum
availability under the EGC Agreement is $1,000 and the term is six months. After
emergence from Chapter 11 the Company will seek to renegotiate the terms of this
financing.
The Company's liquidity is affected by many factors, some of which are based on
the normal ongoing operations of our businesses and some of which arise from
uncertainties related to global economies. In the event there is a decline in
the Company's sales and earnings and/or a decrease in availability under the
credit line, the Company's cash flow would be further adversely affected.
Accordingly, the Company may not have the necessary cash to fund all of its
obligations.
The Company's total cash and cash equivalents decreased approximately $3 to $11
at March 31, 2006 from $14 at the end of fiscal 2005. The loss before
reorganization items of $132, net of non-cash effects of $21, absorbed $153 of
the $251 in cash used in operating activities during the first quarter of 2006.
Changes in current assets and liabilities also contributed to the decrease in
cash from operating activities by $98 as follows: increases in affiliate and
other receivables of $47, increases in cash collateral and escrow accounts of
$52, principally for legal fees, and increases in prepaid expenses and other
current assets, principally for audit fees, of $20. These decreases in cash used
in operations were offset by an increase in accounts payable and accrued
expenses of $7 and a decrease in inventories of $13.
Net cash used in reorganization activities for the first quarter of 2006 was $8,
composed of $75 related to legal expenses and $8 in expenses associated with the
U.S. Trustee administering the bankruptcy case. These expenses were offset by
increases in accrued liabilities, principally for legal expenses of $75.
Net cash used in investing activities for the three months ended March 31, 2006,
consisted of $3 for the purchase of machinery and equipment.
Net cash provided by financing activities amounted to $259 during the first
quarter of 2006, which amount included repayments of the Company's DIP debt in
the amount of $1281, offset by net borrowings under the Company's DIP financing
agreement in the amount of $1,540.
Net cash provided by operating activities during the three months ended March
31, 2005 was $169, principally related to net income before reorganization
expenses of $76, and reductions in cash on deposit with lenders of $241 and
trade accounts receivable of $115. Net cash provided by operating activities
during the first quarter of 2005 was reduced by increases in other assets,
principally cash collateral, of $94, increases in inventory of $70 and increases
in affiliate and other receivables of $29. In addition, accounts payable and
accrued expenses decreased by $73.
For the first quarter of 2005, net cash used in reorganization activities was
$21. Net cash used in 2005 includes $75 for legal fees incurred during the
bankruptcy period, $10 incurred for facility relocation expenses and $6 of
expenses associated with fees paid to the U.S. Trustee administering the
bankruptcy case. These expenses were offset by increases in liabilities of $75.
For the quarter ended March 31, 2005, net cash used in financing activities was
$242,
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consisting of net payments to EGC and Valtec under the respective DIP financing
agreements.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Form 10-QSB contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations and beliefs concerning future
events, based on information available to us on the date of the filing of this
Form 10-QSB, and are subject to various risks and uncertainties. We disclaim any
intent or obligation to update or revise any of the forward-looking statements,
whether in response to new information, unforeseen events or changed
circumstances except as required to comply with the disclosure requirements of
the federal securities laws.
Forward looking statements necessarily involve known and unknown risks,
uncertainties and other factors that may cause the actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievement expressed or
implied by such forward-looking statements. Readers are cautioned to review
carefully the discussion concerning these and other risks which can materially
affect the Company's business, operations, financial condition and future
prospects.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "intend," "expect," "anticipate,"
"assume", "hope", "plan," "believe," "seek," "estimate," "predict,"
"approximate," "potential," "continue", or the negative of such terms.
Statements including these words and variations of such words, and other similar
expressions, are forward-looking statements. Although the Company believes that
the expectations reflected in the forward-looking statements are reasonable
based upon its knowledge of its business, the Company cannot absolutely predict
or guarantee its future results, levels of activity, performance, or
achievements. Moreover, neither the Company nor any other person assumes
responsibility for the accuracy and completeness of such statements.
The Company notes that a variety of factors could cause its actual results
and experience to differ materially from the anticipated results or other
expectations expressed in its forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of its business include, but are not limited to, the following: changes
in spending patterns; changes in overall economic conditions; the impact of
competition and pricing; the financial condition of the suppliers and
manufacturers from whom the Company sources its merchandise; changes in tax
laws; the Company's ability to hire, train and retain a consistent supply of
reliable and effective participants in its marketing operations; general
economic, business and social conditions in the United States; the costs of
complying with changes in applicable labor laws or requirements, including
without limitation with respect to health care; changes in the costs of interest
rates, insurance, shipping and postage, energy, fuel and other business
utilities; the risk of non-payment by, and/or insolvency or bankruptcy of,
customers and others owing indebtedness to the Company; actions that may be
taken by creditors with respect to the Company's obligations that are subject to
default proceedings; threats or acts of terrorism or war; and strikes, work
stoppages or slow downs by unions affecting businesses which have an impact on
the Company's ability to conduct its own business operations.
Forward-looking statements that the Company makes, or that are made by
others on its behalf with its knowledge and express permission, are based on
knowledge of the Company's business and the environment in which it operates,
but because of the factors listed above, actual results may differ from those in
the forward-looking statements. Consequently, these cautionary statements
qualify all of the forward looking statements made herein. The Company cannot
assure the reader that the results or developments anticipated by it will be
realized or, even if substantially realized, that those results
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or developments will result in the expected consequences for it or affect it,
its business or operations in the way the Company expects. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates, or on any subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf, which
are expressly qualified in their entirety by these cautionary statements. The
Company does not undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect events or circumstances after the
date hereof or thereof or to reflect the occurrence of unanticipated events,
other than as required to comply with the disclosure requirements of the federal
securities laws.
Item 3. Controls and Procedures
An evaluation was carried out under the supervision and with the participation
of the Company's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the Company's
disclosure controls and procedures as of March 31, 2006. Based on that
evaluation, the Company's management, including the CEO and CFO, has concluded
that the Company's disclosure controls and procedures are effective. During the
period covered by this report, there was no change in the Company's internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Matters
In re: Boundless Corporation, et. al.
As discussed above, on the Petition Date, the Company, and its wholly and
majority owned subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Chapter 11 Cases
are being jointly administered under the caption "In re Boundless Corporation,
et al., Case No. 03-81558-478." As debtors-in-possession, we are authorized
under Chapter 11 to continue to operate as an ongoing business, but may not
engage in transactions outside the ordinary course of business without the prior
approval of the Bankruptcy Court. As of the Petition Date, virtually all pending
litigation (including some of the actions described below) is stayed, and absent
further order of the Bankruptcy Court, no party, subject to certain exceptions,
may take any action, again subject to certain exceptions, to recover on
pre-petition claims against us. In addition, we may reject pre-petition
executory contracts and unexpired lease obligations, and parties affected by
these rejections may file claims with the Bankruptcy Court. At this time, it is
not possible to predict the outcome of the Chapter 11 process or its effect on
the Company's business.
Additional information regarding legal matters may be found in the Company's
Annual Report on Form 10-K for the year ended December 31, 2005.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1: Certification of Acting Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
Exhibit 31.2: Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
Exhibit 32: Certification of Acting Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 19, 2006
Boundless Corporation
By: /s/Joseph Gardner
----------------------------------------
Joseph Gardner
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
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