SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1995 Commission File No. 1-8653
CIRCLE FINE ART CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2855867
------------------------------------ -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
303 E. Wacker Drive
Suite 830
Chicago, Illinois 60601
----------------------------------------- -----------------------------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: 312-616-1300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 1995 there were approximately 9,165,870 shares of Common Stock,
$.01 par value per share outstanding. The exact number cannot be accurately
determined because of the effect of a one-for-three stock split effected on
December 13, 1994 which rounded up all one-for-three fractional shares.
<PAGE>
<TABLE>
QUARTERLY REPORT ON FORM 10Q
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended June 30 Ended June 30
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $5,384,000 $3,678,000 $15,071,000 $13,512,000
Cost of Sales 2,516,000 2,135,000 7,060,000 6,739,000
------------ ------------ ------------ ------------
Gross Profit 2,868,000 1,543,000 8,011,000 6,773,000
Selling Expenses 3,130,000 2,796,000 8,816,000 8,319,000
General and Administrative
Expenses 676,000 641,000 1,723,000 1,908,000
------------ ------------ ------------ ------------
Loss from Operations (938,000) (1,894,000) (2,528,000) (3,454,000)
Interest Expense 460,000 785,000 1,669,000 2,126,000
Gain (Loss) on Investment
in Affiliates 8,000 (33,000) 294,000 (67,000)
------------ ------------ ------------ ------------
Net Loss Before Income
Taxes, Discontinued
Operations and Extra-
ordinary Gain (1,390,000) (2,712,000) (3,903,000) (5,647,000)
Income Taxes - - - -
------------ ------------ ------------ ------------
Net Loss Before
Discontinued Operations
and Extraordinary Gain (1,390,000) (2,712,000) (3,903,000) (5,647,000)
Gain on Sale of
Discontinued Operations - - 348,000 -
Loss from Operations of
Discontinued Operations - (81,000) (90,000) (152,000)
Extraordinary Gain, net
of applicable income
taxes of $0 - - 4,441,000 -
------------ ------------ ------------ ------------
Net Income/(Loss) $(1,390,000)$(2,793,000) $796,000 $(5,799,000)
============ ============ ============ ============
Net Loss Per Common and
Common Equivalent Share
Before Discontinued
Operations and Extra-
ordinary Gain $(.15) $(2.40) $(.57) $(5.00)
Net Gain Per Common and
Common Equivalent Share
on Sale of Discontinued
Operations - - .05 -
Net Loss Per Common and
Common Equivalent Share
from Operations of
Discontinued
Operations - (.07) (.01) (.13)
Net Income Per Common and
Common Equivalent Share
for Extraordinary Gain - - .65 -
Net Income (Loss) Per
Common and Common
Equivalent Share $(.15) $(2.47) $.12 $(5.13)
============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding 9,290,577 1,130,092 6,878,844 1,130,092
============ ============ ============ ============
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1995 September 30, 1994
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $220,000 $151,000
Receivables, Net of Allowance
for Doubtful Accounts of $23,000
at June 30, 1995 and $175,000 at
September 30, 1994 138,000 668,000
Barter Receivables, Net of
Allowance for Doubtful Accounts of
$25,000 at June 30, 1995 and
$343,000 at September 30, 1994 22,000 736,000
Inventories 12,000,000 12,077,000
Other Current Assets 454,000 743,000
------------------ ------------------
Total Current Assets 12,834,000 14,375,000
Investment in Art 4,101,000 4,101,000
Property, Plant and Equipment, Net 4,993,000 5,432,000
Other Assets 835,000 321,000
------------------ ------------------
$22,763,000 $24,229,000
================== ==================
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Current Maturities of Long-Term Debt - -
Accounts Payable 4,716,000 4,535,000
Barter Payable 175,000 1,057,000
Accrued Expenses:
Interest 209,000 3,890,000
Compensation 473,000 714,000
Taxes, other then payroll 247,000 387,000
Other 682,000 1,192,000
Customer Deposits and Credits 571,000 488,000
Notes Payable - 1,100,000
Debt in Default 17,302,000 24,137,000
------------------ ------------------
Total Current Liabilities 24,375,000 37,500,000
------------------ ------------------
Long-Term Debt - -
------------------ ------------------
Shareholders' Equity (Deficit):
Preferred Stock, $.01 par value;
authorized 100,000 shares; 4,000
shares issued and outstanding. - -
Common Stock, $.01 par value;
authorized 15,000,000 shares;
9,165,870 shares issued and
outstanding at June 30, 1995:
$.10 par value; authorized
5,000,000 shares; 1,133,425 shares
issued and outstanding at
September 30, 1994. 91,000 340,000
Additional Paid-In Capital 14,934,000 3,822,000
Accumulated Deficit (16,527,000) (17,323,000)
------------------ ------------------
(1,502,000) (13,161,000)
Less 6,667 shares of Treasury
Stock at Cost (110,000) (110,000)
------------------ ------------------
Total Shareholders' Equity (Deficit) (1,612,000) (13,271,000)
------------------ ------------------
$22,763,000 $24,229,000
================== ==================
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995 AND 1994
1995 1994
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Gain (loss) $796,000 $(5,799,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 708,000 858,000
Increase in Term Notes due
to non-cash interest 65,000 -
Gain on Sale of Discontinued
Operations (348,000) -
(Gain)/Loss on investment
in affiliates (87,000) 66,000
Loss on write off of leasehold
improvements on closed galleries 27,000 80,000
Extraordinary gain (4,441,000) -
Other (436,000) 15,000
Change in operating assets
and liabilities:
Receivables 1,719,000 444,000
Inventories 77,000 681,000
Other current assets 95,000 26,000
Accounts payable, accrued
compensation and accrued expenses (800,000) 3,053,000
Prepaid expenses & artist advances 194,000 0
Customer deposits and credits 84,000 205,000
------------------ ------------------
Total adjustments (3,143,000) 5,428,000
------------------ ------------------
Net cash (used) in operating
activities (2,347,000) (371,000)
------------------ ------------------
INVESTING ACTIVITIES:
Capital expenditures (408,000) (119,000)
------------------ ------------------
Net cash used in investing activities (408,000) (119,000)
------------------ ------------------
FINANCING ACTIVITIES:
Repayment of long term debt (509,000) (26,000)
Proceeds from issuance of new loans 2,500,000 500,000
Net proceeds from issuance of
new stock 1,933,000 -
Payment of bridge loans (1,100,000) -
------------------ ------------------
Net cash provided by
financing activities 2,824,000 474,000
------------------ ------------------
Net increase (decrease) in cash 69,000 (16,000)
Cash at beginning of period 151,000 551,000
------------------ ------------------
Cash at end of period $220,000 $535,000
================== ==================
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $700,000 $36,000
Income Taxes - -
Supplemental disclosures of non-cash
investing and financing activities:
Conversion of debt to equity $4,930,000 -
Issuance of preferred stock upon
conversion of long-term debt $4,000,000 -
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 1995
1.Summary of significant accounting policies:
Basis of Presentation:
The accompanying consolidated financial statements include the accounts of
Circle Fine Art Corporation (the "Company) and its wholly-owned subsidiaries.
All intercompany accounts and transactions have been eliminated in the
consolidated financial statements. The Company's investment in its one 50%
owned affiliate is accounted for by the equity method. The 1994
consolidated financials have been reclassified to conform to the 1995
presentation without affecting the previously reported net loss or
shareholders' equity (deficit). Earnings per share and the number of shares
outstanding for 1994 are restated for the December 1994 one for three stock
split.
The Company's consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Company has not made certain scheduled principal and interest payments
and, therefore, the Company's ability to continue as a going concern is
dependent upon its lenders and noteholders not enforcing their demand for
immediate payment of debt currently in default and other matters and its
ability to successfully restructure its existing debt agreements and
increase its cash flows (see note 5).
If the Company cannot successfully restructure its existing debt agreements,
it may find it necessary to undertake other actions as may be appropriate.
The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result
in the event such actions become necessary.
Allowance for Doubtful Accounts:
The Company, on a periodic basis, reviews the collectibility of its
receivables and based on these reviews provides for an allowance for
doubtful accounts. When a receivable is determined to be uncollectible it
is written off.
Inventories:
Inventories are valued at the lower of cost (specific identification method)
or market.
Investment in Art:
The Company has segregated certain works of art which are intended to be
held as a long-term investment. This art is valued at the lower of cost
(specific identification method) or market.
<PAGE>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1995
1.Summary of significant accounting policies (continued):
Property, Plant and Equipment:
Property, plant and equipment are stated at cost.
Depreciation is provided by use of the straight-line method over the
estimated useful lives of these assets. Leasehold improvements are
amortized under the straight-line method over the shorter of the estimated
useful life of the asset or the term of the lease.
Revenue Recognition:
Retail gallery sales are recognized when the entire selling price has been
received and substantial performance has been completed. Wholesale sales
are recognized at the time of shipment to the customer. Merchandise subject
to customer deposits is included in inventories, and the deposits are
reflected as a current liability.
Barter Transactions:
The Company sells some of its inventories through barter transactions with
certain of the Company's suppliers of goods and services, as well as through
barter exchange organizations. These transactions are recorded based on the
fair value of the goods or services involved. Receivables from unsettled
barter transactions at June 30, 1995 and September 30, 1994 were $22,000 and
$736,000, respectively. Payables from unsettled barter transactions at
June 30, 1995 and September 30, 1994 were $175,000 and $1,057,000
respectively.
2.Nature of Activities:
The Company sells fine art, jewelry and related products at retail through
art galleries. The Company operates one of the largest groups of fine art
galleries specializing in high priced limited edition fine art in the United
States. The Company also sells fine art to other retail art galleries on a
wholesale basis.
3.Inventories:
<TABLE>
<CAPTION>
Inventories at June 30, 1995 and September 30, 1994 consist of the following:
06/30/95 09/30/94
-------------- --------------
<S> <C> <C>
Merchandise for sale $11,513,000 $11,638,000
Raw materials and work in process 487,000 439,000
-------------- --------------
$12,000,000 $12,077,000
============== ==============
</TABLE>
<PAGE>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1995
4.Property, plant and equipment:
<TABLE>
<CAPTION>
Property, plant and equipment at June 30, 1995 and September 30, 1994
consist of the following:
06/30/95 09/30/94
-------------- --------------
<S> <C> <C>
Land $1,697,000 $1,697,000
Building and improvements 2,199,000 2,199,000
Furniture, fixtures and equipment 3,999,000 4,059,000
Leasehold improvements 2,440,000 2,265,000
-------------- --------------
10,335,000 10,220,000
Less accumulated depreciation
and amortization 5,342,000 4,788,000
-------------- --------------
$4,993,000 $5,432,000
============== ==============
</TABLE>
5.Debt in Default:
Commencing in June 1995, the Company failed to make its scheduled month-end
$100,000 payment related to its amended and restated credit agreement with
Standard Chartered Bank. As a result of this non-payment and the violation
of certain financial covenants, the Company is subject to a declaration of
default by Standard Chartered Bank related to its credit agreement with the
Bank, the imposition of a $2,560,000 penalty fee, and the imposition of the
default rate of interest (prime + 6%). As of August 13, 1995, none of the
above have been imposed by Standard Chartered Bank.
The Company is holding discussions on a weekly basis with the Bank regarding
these matters, and, at the Bank's request, will be submitting a detailed
"turn-around and restructuring plan" for the Bank's consideration by
August 31, 1995.
The Company has not made its scheduled interest payment for June, July or
August 1995 related to its real estate lease payable and the related
Industrial Revenue Bond. In addition, the Company did not make its scheduled
quarterly $40,000 principal reduction payment due July 1, 1995. As a result
of these non payments and the violation of certain other covenants, the
Company is subject to a declaration of default by this lender, although no
such default has been declared as of August 11, 1995. The Company has had
various discussions with this lender regarding these matters.
<PAGE>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1995
5.Debt in Default (continued):
The Company did not make its scheduled quarterly $20,000 interest payment due
June 30, 1995 related to the Company's $1,000,000 subordinate promissory note
with Chrysler Capital Corporation. As a result of this non payment, the
violation of certain financial covenants and the cross default provisions
contained in the related Securities Purchase Agreement, the Company is
subject to a declaration of default and the imposition of the default
interest rate (prime + 6%) by its subordinated lender. As of August 11,
1995, no such default has been declared. The Company has had various
discussions with this lender regarding these matters.
The Company failed to make its scheduled interest payment related to its
term notes payable on June 30, 1995 and on July 31, 1995.
In addition, the Company is in arrears on its monthly payments related to
both of its real estate mortgage notes.
The above mentioned non payments and violations of debt covenants have
caused debt aggregating $17,302,000 to be presented as debt in default in
the accompanying Consolidated Balance Sheet as of June 30, 1995.
<TABLE>
<CAPTION>
Debt in Default at June 30, 1995 and September 30, 1994 consists of the
following:
Debt in Debt in
Default Default
06/30/95 09/30/94
-------------- --------------
<S> <C> <C>
Standard Chartered Debt:
------------------------
Term Loan A payable to bank, due in
monthly principal and interest
installments of $100,000 with final
payment due December, 1999. Loan bears
interest at prime rate (which was 9%
at June 30, 1995). Interest in excess
of 8% is deferred and added to the
outstanding balance of Term Loan B. $9,819,000 -
Term Loan B payable to bank including
deferred interest on Term Loan A due
December, 1999. Loan bears interest
at prime rate, which was 9% at
June 30, 1995. 1,918,000 -
Term note payable to bank. - 11,865,000
</TABLE>
<PAGE>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1995
5.Long-Term Debt and Debt in Default: (continued)
<TABLE>
<CAPTION>
Debt in Debt in
Default Default
06/30/95 09/30/94
-------------- --------------
<S> <C> <C>
Term notes payable with a term of nine
years and interest paid monthly at 8%.
Notes bear interest at prime rate
(which was 9% at June 30, 1995) with
any interest in excess of 8% (deferred
interest) paid concurrently with final
payment due December, 2003. 2,500,000 -
Deferred interest on Term Notes. 12,000 -
Chrysler Debt:
---------------
Term Note due in quarterly principal
payments of $125,000 commencing
immediately following the retirement
of the SCB Loans. Note bears interest
at prime rate (which was 9% at
June 30, 1995) and paid quarterly at
8% with any excess interest deferred
and paid concurrently with final
principal payment. 1,000,000 -
1987 secured subordinated notes. - 3,757,000
1989 secured subordinated notes. - 2,500,000
Additional secured 1987 and 1989
subordinated notes. - 1,173,000
1992 secured subordinated note due
September 2001 - 2,500,000
Real estate lease and related Industrial
Revenue Bonds, due in quarterly
installments of $40,000 through 2004,
interest at prime plus 1% (10% at
June 30, 1995 and 8.75% at
September 30, 1994 1,460,000 1,720,000
Real estate mortgage note, due in
monthly installments through November
2009, at a variable interest rate
(8.97% at June 30, 1995 and 6.63% at
September 30, 1994) 217,000 221,000
Real estate mortgage note, due in
monthly installments through February
2002. Interest at 9.25% 376,000 401,000
-------------- --------------
$17,302,000 $24,137,000
============== ==============
</TABLE>
<PAGE>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1995
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Results of Operation:
Consolidated net sales were $5.4 million for the quarter ended June 30, 1995
compared to $3.7 million for the comparable quarter a year ago. For the
first nine months of fiscal 1995 consolidated net sales increased 11.5% over
1994 sales. The increase in sales for the quarter ending June 30, 1995 was
primarily related to sales resulting from two Peter Max exhibitions the
Company held during the quarter. These two exhibitions attributed $564,000
or 13% of the Company's retail sales for the three months ending
June 30, 1995. Sales of limited editions graphics and animation both
increased by approximately 55% for the quarter ended June 30, however, a 30%
decline in photography sales offset these increases. The increase in sales
for the nine month period ending June 30, 1995 is directly related to the
sales activity discussed above for the quarter ending period June 30, 1995.
The consolidated gross profit margin increased 11.3 and 3.0 percentage
points during the three and nine month periods ending June 30, 1995
respectively. These increases can be attributed to inventory reserves being
established during the quarter ending June 30, 1994. Exclusive of the June
1994 inventory reserve adjustment, gross profit margins have remained
relatively consistent in fiscal 1995 when compared to the same periods of
1994.
Consolidated selling expenses increased $334,000 and $497,000 for the three
and nine months ending June 30, 1995. These increases are attributable to
additional promotional and advertising expenses and higher levels of retail
salaries and commissions.
Consolidated administrative expenses increased 5.5% for the three month
period ending June 30, 1995. During the nine month period ending
June 30, 1995, administrative expenses decreased 9.7%. The increase for the
three month ending period is attributed primarily to the Winbrook management
fees of $30,000 per month as well as increased legal expenses. Exclusive of
the Winbrook management fees, administrative expenses have decreased 8.0%
and 19.7% for the three and nine month periods ending June 30, 1995.
Consolidated interest expense for the three and nine month periods ending
June 30, 1995 has decreased 41.4% and 21.5%, respectively, when compared to
the same periods of 1994. These decreases are due to the restructuring of
the Company's debt as of December 13, 1994. For the nine month period ending
June 30, 1994, the Company was accruing interest at the default rate of
interest on its term note and promissory notes. No default rate of interest
has been reflected in interest expense for the nine months ending
June 30, 1995.
<PAGE>
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation (continued)
During 1995, the Company recognized a $219,000 gain from the dissolution of
a joint venture with Bulova Corporation. The Company also recognized
approximately $70,000 of income relating to the dissolution of two 50% owned
subsidiaries as well as earnings from continuing operations of the Company's
50% owned subsidiary in Kansas City, Missouri.
During fiscal 1995, the Company sold the barter exchange which the Company
began in fiscal 1992. This transaction resulted in a gain of $348,000 which
is recorded on the Company's Statement of Operations as Gain on Sale of
Discontinued Operations.
The Company recognized an extraordinary gain of $4,441,000 due to
forgiveness of accrued interest from the restructuring in December 1994.
Liquidity and Capital Resources:
Commencing in June 1995, the Company failed to make its scheduled month-end
$100,000 payment under its Amended and Restated Credit Agreement with
Standard Chartered Bank. As a result of this non-payment and the violation
of certain financial covenants, the Company is subject to a declaration of
default by Standard Chartered Bank related to its credit agreement with the
Bank, the imposition of a $2,560,000 penalty fee, and the imposition of the
default rate of interest (prime + 6%). As of August 11, 1995, none of the
above have been imposed by Standard Chartered Bank.
The Company is holding discussions on a weekly basis with the Bank regarding
these matters, and, at the Bank's request, will be submitting a detailed
"turn-around and restructuring plan" for the Bank's consideration by
August 31, 1995.
The Company did not make its scheduled interest payment for June, July or
August 1995 related to its real estate lease payable and the related
Industrial Revenue Bond. In addition, the Company did not make its scheduled
quarterly $40,000 principal reduction payment due July 1, 1995. As a result
of these non payments and the violation of certain financial covenants, the
Company is subject to a declaration of default by this lender, although no
such default has been declared as of August 11, 1995. The Company has had
various discussions with this lender regarding these matters.
CIRCLE FINE ART CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED JUNE 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation (continued)
The Company did not make its scheduled quarterly $20,000 interest payment
due June 30, 1995 related to the Company's $1,000,000 subordinate promissory
note with Chrysler Capital Corporation. As a result of this non payment,
the violation of certain financial covenants and the cross default
provisions contained in the related Securities Purchase Agreement, the
Company is subject to a declaration of default and the imposition of the
default interest rate (prime + 6%) by its subordinated lender. As of
August 11, 1995, no such default has been declared. The Company has had
various discussions with this lender regarding these matters.
The Company failed to make its scheduled interest payment related to its
term notes payable on June 30, 1995 and on July 31, 1995.
In addition, the Company is in arrears on its monthly payments related to
both of its real estate mortgage notes.
The above mentioned non payments and violations of debt covenants have
caused debt aggregating $17,302,000 to be presented as debt in default in
the accompanying Consolidated Balance Sheet as of June 30, 1995. The
Company is currently negotiating with its lenders regarding its debt
agreements, but to date, the Company has been given no assurances from its
lenders that a favorable outcome will occur.
The Company's financial condition and prospects depends upon its ability to
generate sufficient sales revenue to meet cash flow requirements and to
reduce and maintain operating expenses at their lowest acceptable levels.
The Company is continuing its efforts to lower operating expenses through
staff reduction, reduction of discretionary spending and is closing certain
marginal gallery locations. The Company also has and will continue to limit
major capital expenditures and reduce inventory levels in order to provide
funds for operations and debt reduction. The lack of operating cash,
however, sometimes causes the Company to incur unnecessary expenses, such as
late fees, penalties, and interest charges, with respect to normal operating
expenses.
If the Company does not successfully restructure its debt agreements and
does not obtain additional financing and if sales decline, it may need to
obtain other external sources of liquidity, which have not been identified.
If no such sources are available, the Company will be unable to meet its
existing obligations and the Company may find it necessary to undertake
other actions as may be appropriate.
<PAGE>
PART II - OTHER INFORMATION
Item 3. Default Upon Senior Securities
Refer to Part I, Item 2 for a complete discussion of this matter.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K:
On July 6, 1995, the Company filed a current report on Form 8-K reporting
the resignation and replacement of the Company's President and CEO.
The 8-K also reported the resignation of two Board Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CIRCLE FINE ART CORPORATION
---------------------------
Registrant
DATE: August 11, 1995 By: Joseph R. Atkin
-------------------------------
Joseph R. Atkin
Vice President and
Chief Financial Officer
DATE: August 11, 1995 By: Brian Bettencourt
-------------------------------
Principal Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 220,000
<SECURITIES> 0
<RECEIVABLES> 160,000
<ALLOWANCES> 48,000
<INVENTORY> 12,000,000
<CURRENT-ASSETS> 12,834,000
<PP&E> 4,993,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,763,000
<CURRENT-LIABILITIES> 24,375,000
<BONDS> 0
<COMMON> 91,000
0
0
<OTHER-SE> (1,593,000)
<TOTAL-LIABILITY-AND-EQUITY> 22,763,000
<SALES> 15,071,000
<TOTAL-REVENUES> 15,071,000
<CGS> 7,060,000
<TOTAL-COSTS> 8,816,000
<OTHER-EXPENSES> 1,723,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,669,000
<INCOME-PRETAX> (3,903,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,903,000)
<DISCONTINUED> 258,000
<EXTRAORDINARY> 4,441,000
<CHANGES> 0
<NET-INCOME> 796,000
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
