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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended NOVEMBER 30, 1996
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-OR-
[ ] 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 0-13099
TRISTAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 13-3129318
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78216
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(Address of principal executive offices)
(Zip Code)
(210) 402-2200
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(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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
On January 10, 1997, there were outstanding 16,710,176 shares of
Common Stock, $.01 par value, of the registrant.
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TRISTAR CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--November 30, 1996 and August 31, 1996 3
Consolidated statements of operations--thirteen week periods ended
November 30, 1996 and December 2, 1995, respectively 5
Consolidated statements of cash flows--thirteen week periods ended
November 30, 1996 and December 2, 1995, respectively 6
Notes to consolidated financial statements--November 30, 1996 7
Independent Accountants' Review Report 10
Item 2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30,
1996 August 31,
ASSETS (unaudited) 1996 *
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<S> <C> <C>
Current assets:
Cash $ 302,000 $ 233,000
Accounts receivable, less allowance for doubtful accounts
of $865,000 and $850,000, respectively 14,588,000 9,522,000
Accounts receivable - related parties - net 1,269,000 1,518,000
Inventories 12,309,000 12,691,000
Prepaid expenses 359,000 258,000
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Total current assets 28,827,000 24,222,000
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Property, plant and equipment, less accumulated depreciation
of $5,832,000 and $5,391,000 8,284,000 8,532,000
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Other assets:
Warrant valuation, less accumulated amortization
of $1,457,000 and $1,436,000, respectively 633,000 653,000
Other assets 368,000 360,000
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Total other assets 1,001,000 1,013,000
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Total assets $ 38,112,000 $ 33,767,000
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</TABLE>
* Prepared from audited financial statements for the year ended August 31,
1996.
See notes to unaudited consolidated financial statements.
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TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
November 30, Equity
1996 (Note 7) August 31,
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) (unaudited) 1996 *
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<S> <C>
Current liabilities:
Short-term borrowings $ 11,785,000 $ $ 9,319,000
Accounts payable--trade 6,158,000 5,233,000
Accounts payable--related parties - net 2,784,000 2,900,000
Accrued bonuses 225,000 202,000
Accrued interest expense-subordinated debt 1,279,000 1,174,000
Other accrued expenses 1,098,000 847,000
Income taxes payable 29,000 85,000
Current portion of capital lease obligations 34,000 38,000
Current portion of long-term obligations 3,002,000 3,134,000
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Total current liabilities 26,394,000 22,932,000
Long-term debt, less current portion 0 3,000
Obligations under capital leases, less current portion 29,000 59,000
Subordinated long term debt - related parties, less current portion 12,666,000 8,000,000 12,666,000
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Total liabilities 39,089,000 8,000,000 35,660,000
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Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $.05 par value; authorized 1,000,000 shares;
666,529 shares issued and outstanding proforma -- 4,666,000 --
Common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 16,710,176 shares and
16,650,176 shares, respectively 167,000 167,000 167,000
Additional paid-in-capital 10,484,000 10,484,000 10,354,000
Accumulated deficit (11,628,000) (11,628,000) (12,414,000)
---------------- --------------- ----------------
Total shareholders' equity (deficit) (977,000) $ 3,689,000 (1,893,000)
---------------- =============== ================
Total liabilities and shareholders' equity $ 38,112,000 $ 33,767,000
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</TABLE>
* Prepared from audited financial statements for the year ended August 31,
1996.
See notes to unaudited consolidated financial statements.
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TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
November 30, December 2,
1996 1995
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<S> <C>
Net sales $ 17,489,000 $ 17,403,000
Cost of sales 12,262,000 12,825,000
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Gross profit 5,227,000 4,578,000
Selling, general and administrative expenses 3,768,000 3,399,000
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Income from operations 1,459,000 1,179,000
Other income (expense):
Interest expense (604,000) (536,000)
Other expense (39,000) (319,000)
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Income before provision for income taxes 816,000 324,000
Provision for income taxes 30,000 120,000
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Net income $ 786,000 $ 204,000
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Net income per common share $ 0.04 $ 0.01
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Weighted average shares outstanding 17,497,919 17,310,295
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</TABLE>
See notes to unaudited consolidated financial statements.
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TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
November 30, December 2,
1996 1995
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<S> <C> <C>
Cash flows from (used in) operating activities
Net income $ 786,000 $ 204,000
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 441,000 642,000
Provision for losses on accounts receivable 282,000 171,000
Provision for inventory allowances 136,000 192,000
Deferred income tax expense 0 120,000
Issuance of stock in connection with 401K plan 10,000 30,000
Amortization of warrant valuations 20,000 21,000
Change in operating assets and liabilities:
Accounts receivable (4,863,000) (5,101,000)
Inventories 10,000 135,000
Prepaid expense (101,000) (139,000)
Income taxes payable (56,000) (118,000)
Accounts payable 809,000 451,000
Accrued expenses 379,000 401,000
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Net cash used in operating activities (2,147,000) (2,991,000)
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Cash flows (used in) from investing activities:
Capital expenditures (193,000) (211,000)
(Increase) decrease in other assets (8,000) 11,000
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Net cash used in investing activities (201,000) (200,000)
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Cash flows from (used in) financing activities:
Net increase in short term borrowings 2,466,000 3,488,000
Principal payments under debt obligations (169,000) (164,000)
Proceeds from exercise of stock options 120,000 --
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Net cash provided by (used in) financing activities 2,417,000 3,324,000
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Net (decrease) increase in cash 69,000 133,000
Cash at beginning of period 233,000 806,000
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Cash at end of period $ 302,000 $ 939,000
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</TABLE>
See notes to unaudited consolidated financial statements.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOVEMBER 30, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the thirteen week period ended November 30, 1996, are not
necessarily indicative of the results that may be expected for the year ending
August 30, 1997.
NOTE 2: NET INCOME PER SHARE
Net income per share amounts were computed based upon the weighted average
number of common shares outstanding and common equivalents of dilutive stock
options and warrants.
NOTE 3: INVENTORIES
Inventory is stated at the lower of cost or market.
<TABLE>
<CAPTION>
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November 30, August 31,
1996 1996
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<S> <C> <C>
Raw materials $ 7,047,000 $ 6,598,000
Work-in-process 285,000 469,000
Finished goods 6,964,000 7,710,000
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14,296,000 14,777,000
Inventory allowances (1,987,000) (2,086,000)
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$ 12,309,000 $ 12,691,000
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</TABLE>
NOTE 4: SHORT-TERM BORROWING
The Company's line of credit provides for maximum borrowings of $15,500,000 at
prime rate (8.25%) plus two percentage points per annum, with additional fees
approximating a percentage point per annum. Borrowing capability is based on
eligible domestic and foreign accounts receivable, and on eligible finished
goods and manufacturing inventories, within limits established under the
agreement.
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The line of credit expires July 1997, subject to certain conditions which
include the Company continuing to meet projected results of operations for the
year ending August 31, 1997. While there can be no assurances, management
believes that the Company will continue to meet projected results of
operations. In the event that renewal or further extension does not occur, the
Company has initiated an effort to locate an alternative lender to replace the
existing lender. This facility is secured by substantially all of the assets
of the Company. The agreement contains material adverse change provisions, as
well as certain restrictions and conditions among which are limitations on cash
dividends, capital expenditures, maximum levels of accounts receivable from
related parties, and repayments of a prior financing arrangement with a related
party.
Remaining availability under the line as of November 30, 1996, was $224,000,
based on the borrowing formulas.
NOTE 5: LITIGATION AND CONTINGENCIES
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company,
and two of its directors by Ross Freitas, Carolyn Kenner, Rose Freitas and
Melissa Freitas. The complaint alleges causes of action by two plaintiffs for
libel and seeks indemnification in connection with the work of the Special
Committee of the Board of Directors that investigated, among other things, a
prior failure to disclose the Core Sheth Families' holdings of Company stock.
The complaint also alleges, on behalf of all four plaintiffs, that the
Company's disclosures relating to these and other matters were fraudulent or
negligently misrepresented. In April 1995, the court dismissed the complaint
without prejudice, in part due to the plaintiffs' failure to state a claim for
relief. In May 1995 the plaintiffs refiled the complaint, asserting many of
the same claims, and in June 1996, amended their complaint yet again, naming
only the Company and one of its directors as defendants. The Company intends
to dispute these allegations vigorously and believes that ultimate disposition
of the case will not have a material adverse effect on its business, financial
condition or results of operations.
PROCEEDS OF AN EXECUTIVE LIABILITY AND INDEMNIFICATION POLICY
In November 1994 and June 1995, the United States District Court for the
District of South Carolina approved the disbursement of $1.25 and $0.75
million, respectively, to the Company from the proceeds of an executive
liability and indemnification policy owned by the Company. The latter court
approved distribution has been appealed by two other claimants under the
policy.
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
these proceedings will not have a material adverse effect on the Company's
financial condition.
NOTE 6: RELATED PARTY TRANSACTIONS:
Certain suppliers of fragrance product components and the primary suppliers of
cosmetic products are affiliates of the Core Sheth families who beneficially
own 78% of the Company's outstanding common stock. Related party accounts
payable result from the purchase of products from those vendors. Related party
accounts receivable result from the sale of products to those affiliates. The
payables and receivables balances are offset for presentation purposes and the
net balance of accounts receivable or accounts payable is presented on the
balance sheet. Related party payables also include payables due members of the
Company's Board of Directors which result, in the normal course of business,
from expenses associated
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with Board and related committee meetings. The following summarizes the
presentations at November 30, 1996 and August 31, 1996.
<TABLE>
<CAPTION>
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November 30, August 31,
1996 1996
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<S> <C> <C>
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties $ 1,803,000 1,679,000
Offset amount (534,000) (161,000)
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Net related parties receivables $ 1,269,000 1,518,000
=====================================
ACCOUNTS PAYABLE:
Total accounts payable-related parties $ 3,318,000 3,061,,000
Offset amount (534,000) (161,000)
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Net related parties payables $ 2,784,000 2,900,000
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</TABLE>
The Company purchases finished goods and fragrance product components from Core
Sheth Families affiliates. During the thirteen week period ended November 30,
1996, and for the respective period in fiscal 1996, the Company purchased
approximately $1,618,000 and $1,450,000, respectively.
During the thirteen week period ended November 30, 1996, and for the respective
period in fiscal 1996, the Company sold products to Core Sheth Families
affiliates in the amounts of approximately $1,137,000 and $441,000,
respectively.
NOTE 7: SHAREHOLDERS' EQUITY (DEFICIT)
To strengthen the financial position of the Company, effective December 11,
1996, Transvit Manufacturing Corporation, a related party and principal
stockholder, agreed to convert a $4,666,000 subordinated note payable
outstanding at August 31, 1996, into 666,529 shares of the Company's preferred
stock. The conversion is reflected in the accompanying balance sheet on a pro
forma basis. The preferred stock has cumulative preferred dividends of $0.315
per share and a preferred distribution of $7.00 per share plus accrued and
unpaid dividends. The stock is convertible, at the option of Transvit, into
the Company's common stock, at a conversion price of $7.00 per share. The
Company can redeem the shares at the same price per share.
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Independent Accountants' Review Report
The Board of Directors and Shareholders
Tristar Corporation:
We have reviewed the condensed consolidated balance sheet of Tristar
Corporation and subsidiaries as of November 30, 1996, and the related condensed
consolidated statements of operations and cash flows for the thirteen week
periods ended November 30, 1996 and December 2, 1995. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Tristar Corporation and
subsidiaries as of August 31, 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated December 11, 1996, which referred to
other auditors, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of August 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG Peat Marwick LLP
San Antonio, Texas
January 11, 1997
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEK PERIODS ENDED NOVEMBER 30, 1996,
AND DECEMBER 2, 1995.
For the thirteen week period ended November 30, 1996, the Company recorded a
net income of $786,000 or $0.04 per share, compared to a net income of $
204,000 or $0.01 per share for the thirteen week period ended December 2, 1995.
NET SALES
Net sales of $17,489,000 for the thirteen weeks ended November 30, 1996, were
essentially the same as the net sales of $17,403,000 for the thirteen weeks
ended December 2, 1995.
NET SALES - CHANNELS OF DISTRIBUTION
The Company markets and distributes products to wholesalers, distributors,
chain stores, mass merchandisers, and independent retail channels in various
markets throughout North and South America.
For the thirteen weeks ended November 30, 1996, the Company experienced a small
growth in the U.S. wholesale market while experiencing a slight decline in the
combined chain, specialty chain and mass merchandising channels in comparison
to fiscal 1996. This decline appeared to reflect the shorter Christmas
purchasing period in 1996 for consumers. The small growth in the wholesale
channel is not indicative of the very successful introduction of the new Royal
Selections fragrance line. The very competitive, both in price and
presentation, Royal Selections line, designed for the wholesale market, has
received significant acceptance in that market to the extent that the Company
was unable to completely satisfy the demand for that product in the first
quarter as capacity increases. It is anticipated that demand and availability
will equalize in the second quarter. The Company continues to devote resources
to all channels of distribution in the U.S. with programs including, but not
limited to, promotions and limited advertising.
Sales made directly to foreign-based customers in North and South America as a
group remained relatively constant during the first quarter of fiscal 1996 when
compared to the prior year's first quarter. Economic and political conditions
continue to restrict growth in some of these markets. However, the Company
continues to devote resources to selected channels of distribution in Latin
America with similar programs to those in the U.S.
NET SALES - RELATED PARTIES
In the first quarter of fiscal 1997, sales to affiliates of the Core Sheth
Families, the Company's major stockholder, were $1,137,000 as compared to
$441,000 for the comparable period ended December 2, 1995.
NET SALES - PRODUCTS PURCHASED FROM RELATED PARTIES
Of the net sales in the first thirteen weeks of fiscal 1997, approximately 10%,
or $1,814,000, resulted from the sale of products purchased from related
parties as finished goods. For the same period in fiscal 1996, comparable
numbers were 8%, or $1,349,000. In addition, fragrance and other products
manufactured and sold by the Company included some components that were
purchased from related parties. The cost of those components approximated 5%
and 7% of cost of sales in the same periods of fiscal 1997 and 1996,
respectively.
GROSS PROFIT
The Company's gross profit for the thirteen week periods ended November 30,
1996 and December 2, 1995 were $5,227,000, or 30% of sales and $4,578,000 or
26% of sales, respectively. The improvement in gross profit in fiscal 1997 in
comparison to fiscal 1996 was primarily due to lower manufacturing variances
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and improved product margins in fiscal 1997 versus 1996. The improved product
margins reflect a change in the product mix sold in fiscal 1997. Included in
the mix were sales of the higher margin premium DCA line, which was not
introduced until the second quarter of fiscal 1996. Gross profit margins
are expected to remain at the current levels or improve slightly in the
remainder of the fiscal year as production efficiency improvements are expected
to continue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the thirteen week
periods ended November 30, 1996 and December 2, 1995, increased 11% to
$3,768,000 from $3,399,000 respectively. The increase over the comparable
prior fiscal period was due primarily to expenses associated with the
development of the chain markets in the United States.
NON OPERATING INCOME OR EXPENSE
Interest expense increased for the thirteen week period of fiscal 1997 over the
previous year's like quarter to $604,000 from $536,000, respectively, as a
result of increased borrowings under the Company's lines of credit.
However, other non operating expenses were lower in fiscal 1997 in comparison
to fiscal 1996 primarily as a result of higher foreign currency translation
losses and merger costs incurred in fiscal 1996.
POTENTIAL ADVERSE AFFECTS ON RESULTS OF OPERATIONS FOR FUTURE PERIODS
The results for the remainder of fiscal 1997 could be adversely affected by
each or all of the following factors:
1. Mexican Market. The market for the Company's products continues to be
negatively impacted as a result of the devaluation of the Mexican Nuevo
Peso in December 1994 and the subsequent economic and political
instability. These factors sharply reduced the purchasing power of the
Mexican consumer and therefore the demand for the Company's products was
adversely affected. Any future significant deterioration of the Peso's
value would be expected to further adversely affect the Company's sales in
Mexico and also the collectability of accounts receivable. The Company
believes that some of its customers based in the United States sell the
Company's products (as well as the products of other companies) to
purchasers who, in turn, may attempt to import goods into Mexico without
full payment of applicable Mexican taxes and customs duties. Enhanced
enforcement efforts by Mexican authorities may have an adverse effect on
the Company's sales to such customers.
2. Latin America Economies. Growth in sales, or even the maintenance of
existing sales levels, in certain Latin American countries depends to a
large extent on the economic health and political stability of those
countries. Any deterioration in the economic or political stability in
such countries could adversely affect sales.
3. Supply of Products. The Company's ability to manufacture and to satisfy
consumer demand for fragrances is dependent on the supply of certain
components from single sources. Any inability of these vendors to meet the
Company's requirements could have an adverse effect on the Company's
results until an alternative source could be found and/or developed. In
addition, the Company is dependent on the supply of cosmetic products,
other than cosmetic pencils, from Core Sheth Families affiliates. If such
affiliates were to cease or be unable to supply these cosmetic products,
the lack of these products would have an adverse effect on the Company
until a secondary supplier could be located.
4. New and Developing Markets. The Company continues in its attempts to
develop and expand sales in Latin America. In the process, the Company
incurs significant expenses in order to establish a marketing presence and
an economically viable amount of sales. There is no assurance that the
Company will be successful in those endeavors nor that it will recover its
initial expenses and start up costs. In addition, certain countries from
time to time impose strict import restrictions and high levels
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of taxes on imports, all of which could affect the success of sales and
marketing activities and also affect the profitability of such activities.
5. Limitations on Working Capital. The Company experienced a limitation of
working capital availability in the latter part of fiscal 1996 primarily as
a result of (1) investments in foreign markets with benefits of those
investments not projected to accrue to the Company in the immediate future,
(2) investments in the development and introduction of the new Designer
Classic Alternatives (DCA) product line, (3) the cost of entry into the
marketing channel where the new DCA product line is currently being sold,
and (4) losses incurred on operations unrelated to the new DCA product
line. The restricted availability resulted in the maximization of
borrowings under the Company's credit facility and in delaying payments to
certain vendors (primarily affiliates of the Core Sheth families) beyond
customary terms. While management does not anticipate such an event, a
severe recurrence in the future could restrict the Company's ability to
purchase components. The inability to purchase certain components could
reduce the Company's ability to manufacture product with a resultant
negative impact on sales and results of operations.
At this time, it is not known whether, or to what degree, the above factors
will have a material adverse impact on future results.
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LIQUIDITY AND CAPITAL RESOURCES
The Company currently is obtaining its working capital from three primary
sources: a revolving line of credit, cash generated by operations, and from
delaying payments to vendors (primarily related parties) beyond customary
terms.
Operating Activities
Operations in the thirteen week period ended November 30, 1996, utilized
$2,147,000 in cash primarily due to increased trade accounts receivable
($4,863,000). Offsetting the usage was a net income of $1,675,000 adjusted for
non cash items, and an increase in accounts payable ($809,000) and accrued
expenses ($379,000).
Accounts receivable grew primarily as a result of a seasonal growth in sales
and due to varying extended seasonal financing terms given to customers.
Such accounts receivable increase is comparable to the same period in the prior
fiscal year. Accounts payable increased as the company increased its purchases
for the seasonal growth in sales.
Investing Activities
Capital expenditures during the thirteen week period were $193,000, consisting
primarily of investments in production related machinery and equipment,
facilities related items, and computer equipment. Capital expenditures for the
remainder of the fiscal year are expected to be primarily for manufacturing
equipment, and computer equipment and software with lesser amounts being
invested in equipment for distribution activities.
Financing Activities
During the thirteen week period ended November 30, 1996, short term borrowings
increased $2,466,000 to $11,785,000 under its revolving line of credit.
Remaining availability under the line as of November 30, 1996, was $224,000
based on the borrowing formulas.
The Company had at November 30, 1996, a revolving credit agreement, amended as
of October 1, 1996, which provided for $15,500,000 of maximum borrowings at the
prime rate (8.25% at November 30, 1996) plus two percentage points per annum,
with additional fees approximating one percentage point per annum. Borrowings
under this credit agreement are limited to 75% of eligible domestic accounts
receivable, 60% of eligible foreign accounts receivable, 100% of eligible
related party receivables secured by letters of credit, 50% of eligible
finished goods inventories, and 40% of eligible manufacturing inventories.
Eligibility is as defined in the credit agreement. In December 1996, the lender
agreed to extend the expiration date from March 1997 to July 1997 subject to
certain conditions which included a requirement that the Company meet its
budgeted operating results.
The term loan entered into in July 1995 with the same lender as the short term
revolving credit line, provided for borrowings of $3.9 million of which
$3,002,000 were outstanding as of November 30, 1996. This loan is subject to
the same interest rate, fees, and debt restrictions as listed above for the
revolving credit lines. The loan calls for monthly installments assuming a
maturity date in 2002, however, for financial statement presentation purposes,
the entire loan is considered as current reflecting the July 1997 expiration
date of the credit facility with the lender.
The credit lines are secured by substantially all of the assets of the Company.
The agreements contain material adverse change provisions, as well as certain
restrictions and conditions among which are limitations on cash dividends,
capital expenditures and repayments of a prior financing arrangement with a
related party (See Note 4 of the Notes to the Consolidated Financial
Statements).
Management believes that the Company's revolving line of credit and term loan
(with the same lender) will either be renewed or similar replacement lines of
credit will be put in place upon the expiration of the existing line. The
expiration date which was in March 1997 has been extended to July 1997 subject
to certain conditions which include the Company continuing to meet projected
results of operations for the
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year ending August 31, 1997. While there can be no assurances, management
believes that the Company will continue to meet projected results of
operations. The Company has initiated a search for a new lender in the event
that the existing line of credit is not renewed. The line of credit, together
with cash generated by operations and the continued ability to delay payments
as required to related party vendors should provide sufficient cash to meet the
requirements of the Company for fiscal 1997.
As of November 30, 1996, the Company was indebted in the amount of $4.7 million
to a Core Sheth Families affiliate under a loan agreement entered into in
August 1993. The note, which was subordinated to the commercial lender, bore
interest at the rate of 4.5% per annum. On December 11, 1996, the $4.7 million
of subordinated debt was converted into the Company's convertible preferred
stock (See Note 7 of the Notes to the Consolidated Financial Statements).
The settlement of the stockholder class action litigation recorded in May 1993
($9.5 million) resulted in a material change to the Company's long-term debt to
equity ratio. The Company at November 30, 1996 had outstanding subordinated
long-term debt to a Core Sheth Families affiliate of $8 million related to that
settlement. Notes under this debt bear interest at rates of 6.36% to 8.23% per
annum. Repayments of this debt will begin in the year 2001. Due to the
subordination of the debt to senior lenders and the long-term nature of the
debt, the Company does not believe that the increase in the ratio of long-term
debt to equity has an adverse effect on the Company.
As of November 30, 1996, the Company's financial statements reflect accrued
interest of $1,279,000 due on the above related party debt. A payment waiver
has been obtained from the related party for delinquent interest payments
($265,000) under the $8 million debt as non-payment would be an event of
default under that debt. Additionally, the Company is delinquent in interest
payments of $491,000 under the $4.7 million portion which does not contain an
event of default clause.
The Company also purchases certain equipment, primarily office furniture,
computer equipment and software, under long- term purchase agreements. These
are not material to the Company's cash flow.
The Company does not have any plans to pay any cash dividends on the Common
Stock in the foreseeable future. Further, payments of such dividends are
subject to restrictions imposed by the Company's commercial lender in
connection with the existing revolving lines of credit.
Page 15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Effective December 11, 1996, Transvit Manufacturing Corporation, a related
party and principal stockholder, agreed to convert a $4,666,000 subordinated
note payable outstanding at August 31, 1996, into 666,529 shares of the
Company's preferred stock. The conversion is reflected in the accompanying
balance sheet on a pro forma basis. The preferred stock has cumulative
preferred dividends of $0.315 per share and a preferred distribution of $7.00
per share plus accrued and unpaid dividends. The stock is convertible, at the
option of Transvit, into the Company's common stock, at a conversion price of
$7.00 per share. The Company can redeem the shares at the same price per
share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
23 Awareness Letter of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
b) REPORTS ON FORM 8-K
None.
Page 16
<PAGE> 17
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.
TRISTAR CORPORATION
(Registrant)
Date: January 14, 1997 /s/ Viren S. Sheth
---------------- --------------------------------------------
Viren S. Sheth
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 14, 1997 /s/ Loren M. Eltiste
---------------- --------------------------------------------
Loren M. Eltiste
Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23 Awareness Letter of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 23
Tristar Corporation
San Antonio, Texas
Ladies and Gentlemen:
RE: REGISTRATION STATEMENT NO. 33-45396
With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our report dated January 11, 1997 related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
San Antonio, Texas
January 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-END> NOV-30-1996
<CASH> 302,000
<SECURITIES> 0
<RECEIVABLES> 15,857,000
<ALLOWANCES> 865,000
<INVENTORY> 12,309,000
<CURRENT-ASSETS> 28,827,000
<PP&E> 8,284,000
<DEPRECIATION> 5,832,000
<TOTAL-ASSETS> 38,112,000
<CURRENT-LIABILITIES> 26,394,000
<BONDS> 0
0
0
<COMMON> 167,000
<OTHER-SE> (1,144,000)
<TOTAL-LIABILITY-AND-EQUITY> 38,112,000
<SALES> 17,489,000
<TOTAL-REVENUES> 17,489,000
<CGS> 12,262,000
<TOTAL-COSTS> 16,030,000
<OTHER-EXPENSES> 643,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 604,000
<INCOME-PRETAX> 816,000
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 786,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 786,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
