FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-13099
TRISTAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3129318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12500 SAN PEDRO AVENUE, SUITE 500, SAN ANTONIO, TEXAS 78216
(Address of principal executive offices)
Registrant's telephone number, including area code 210-402-2200
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sale price of the Common Stock on November 17,
1999, as reported on the NASDAQ National Market System, was $16,201,884. As of
November 17, 1999, the Registrant had outstanding 16,771,319 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
<PAGE>
PART I
This document contains certain statements that are "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements other than statements of
historical facts included in this document, including without limitation
statements that use terminology such as "anticipate", "believe", "continue",
"estimate", "expect", "intend", "may", "plan", "predict", "should", "will", and
similar expression, are forward-looking statements. These forward-looking
statements include, among other things, the Company's business strategy and
expectations concerning the Company's market position, future operations,
margins, profitability, liquidity and capital resources, expenditures for
capital projects and attempts to reduce costs. Although the Company believes
that the basis for the assumptions upon which the forward-looking statements
contained in this document are reasonable, any of the assumptions could prove to
be inaccurate and, as a result, the forward-looking statements based on those
assumptions also could be incorrect. All phases of the operations of the Company
involve risks and uncertainties, many of which are outside the control of the
Company and any one of which, or a combination of which, could materially affect
the results of the Company's operations and whether the forward-looking
statements ultimately prove to be correct. Important factors that could cause
actual results to differ materially from the Company's expectations are set
forth under the caption "Factors Affecting the Company's Business, Operating
Results and Financial Condition", and elsewhere in this document. Actual results
and trends in the future may differ materially depending on a variety of factors
including, but not limited to, the timing and extent of changes in fragrance
components, fragrance and cosmetic prices and underlying demand and availability
of fragrance components; changes in the cost or availability of means of
transporting products; execution of planned capital projects; adverse changes in
the credit ratings assigned to the Company's trade credit; the extent of the
Company's success in developing and marketing new product lines; state and
federal environmental, economic, safety and other policies and regulations, and
changes therein, and any legal or regulatory delays or other factors beyond the
Company's control; adverse rulings, judgments, or settlements in litigation or
other legal matters; actions of customers and competitors; economic conditions
affecting the areas in which the Company's products are marketed; political
developments in foreign countries; the conditions of the capital markets and
equity markets during the periods covered by the forward-looking statements; and
other factors described in greater detail in this Form 10-K and in the Company's
other filings with the Commission. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the foregoing. The Company
undertakes no obligation to publicly release the results of any revisions to any
such forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 1. BUSINESS
TRISTAR CORPORATION ("Tristar" or the "Company") is a Delaware corporation
headquartered in San Antonio, Texas. The Company is principally engaged in
developing, manufacturing, marketing and distributing value oriented designer
alternative fragrances, complimentary products to those fragrances, and cosmetic
pencils in North and South America. The Company also manufactures and markets
its own original fragrances in the form of contemporary botanical scents and
lifestyle fragrances. The Company's fragrances are sold under the Euro
Collections ("Euro"), Euro Garden Collections ("Euro Garden"), Royal Selections
("Royal"), Regal Collections ("Regal"), Club Exclusif ("Club"), Premiere
Editions ("Premiere") and American Dreams brands. The alternative designer
fragrances are designed for consumers who desire a scent similar to an original
designer fragrance but are unwilling or unable to pay the high prices of
originals. The Company also markets eye and lip liner cosmetic pencils and
distributes value oriented complimentary cosmetic products, including high
quality lipsticks that are alternatives to major brands sold in department
stores, again at significantly lower prices than original designer brands.
Cosmetics are primarily marketed under the Designer Classic Alternatives
("DCA"), Apple pencil and Royal Selections lines. The Company currently conducts
business utilizing its sales and distribution facilities in San Antonio, Texas,
its state of the art manufacturing facility, fragrance and cosmetic laboratory
in Pleasanton, Texas, its marketing headquarters in New York City, New York, and
its corporate office and design studio in San Antonio, Texas.
The Company was incorporated in New York in 1982 and made an initial public
offering of its common stock in 1984. In 1987, the Company was reincorporated in
Delaware. The Company changed its name from Ross Cosmetics Distribution Centers,
Inc. to Tristar Corporation in 1993.
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The Company's major shareholder, the Core Sheth Family ("Sheth Group"),
beneficially holds 73% of the Company's outstanding common stock. The Company
believes that through their various worldwide vertically integrated companies,
the Sheth Group is the world's largest manufacturer (based on number of units
produced) of value priced oriented fragrances. It is also a significant
manufacturer of lower priced, value oriented cosmetic products. The Sheth Group
is also a supplier of products and components to the Company's sales,
distribution and manufacturing operations and a purchaser of the Company's
products.
The Company purchases finished goods and components from Sheth Group affiliates.
During fiscal 1999 and 1998, the Company purchased approximately $2,979,000 and
$4,227,000 respectively of such products.
The Company sold products to Sheth Group affiliates in fiscal 1999 and 1998 of
approximately $5,418,000 and $6,557,000 respectively. As a percent of net sales,
these amounts represent approximately 10 % for both fiscal years 1999 and 1998.
The fragrance manufacturing capability of the Company was acquired in August
1995, as result of a merger with Eurostar Perfumes Inc., ("Eurostar"), an
affiliate of the Sheth Group and the manufacturer of substantially all of the
Company's products prior to the merger.
PRODUCTS
The Company's principal product category is fragrances with the balance
consisting of cosmetics, cosmetic pencils and toiletry products. The following
table reflects the dominance of the fragrance category's contribution to the
Company's net sales for the last three fiscal years:
PRODUCT CATEGORY FISCAL 1999 FISCAL 1998 FISCAL 1997
---------------- ----------- ----------- -----------
FRAGRANCES 89% 88% 83%
OTHER PRODUCTS 11% 12% 17%
Fragrance sales grew in fiscal 1999 as a percentage of total sales but declined
in dollars when compared to fiscal 1998. During fiscal 1999, the Company
continued the expansion of its distribution base to retail chains by focusing on
a new value priced fragrance line introduced in August 1997 called Regal, while
aggressively renewing focus on expanding distribution of the restaged Euro
fragrance line (including the new Euro Garden botanical fragrances). The Company
also expanded its distribution of the budget priced Premiere fragrance and
toiletry line and introduced (in July 1998) a new brand exclusively for the
Latin America market called Club Exclusif. Another new brand called American
Dreams was introduced in August 1999. This brand is aimed to encompass current
lifestyle trends and is targeted for international markets. The Company intends
to continue transitioning to a broader based distribution strategy. It has
implemented this strategy primarily as a result of increased opportunities in
the retail sector and in the wholesale, specialty store, and dollar store
channels in the U.S., Canada and Latin America. The Company is also building
brand equity by devoting increased resources to strengthen marketing support
programs and value added services.
FRAGRANCES
The Company's marketing strategy for designer alternative fragrances and
original fragrance scents addresses six distinct segments of the fragrance
market with six separate product lines uniquely positioned to enable the Company
to pursue customized marketing programs tailored to meet the specific needs of
the different classes of trade:
o The Euro line is marketed in traditional mass, retail, and specialty retail
chain stores both in the United States and Canada as well as Latin America.
Euro, first introduced in 1989, is the second largest fragrance brand of the
Company and until fiscal 1996 had been the Company's principal product line
in the wholesale market. The Company's Royal brand, as discussed below, is
now targeted to the wholesale market replacing Euro.
o In 1996, the Company launched a new line called Royal, designed to recapture
a significant part of the wholesale trade class. Within one year, Royal
became the largest brand in the Company and is today the overall market
leader. This line set new standards in packaging and product innovation for
the industry. In August 1997 a significant line extension, Royal Nature, was
introduced with seven new original fragrances emulating "mother nature."
Fragrances
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such as Peach, Pear, and Very Berry attract a younger teen audience market
segment for the Company. Generally these younger consumers find nature-type
fragrances more appealing than traditional designer alternative fragrances.
Royal is competitively priced and couples that with quality packaging and
merchandising support. In August 1999 the Company introduced Royal Selections
Crown II Series into the U.S. wholesale marketplace. It represents the latest
in design innovation and carries a higher price point than Royal Selections
which is sold in international markets where there is more price sensitivity.
o In fiscal 1997, the Company developed and launched a new fragrance brand
called Regal, focusing on new opportunities in retail channels of
distribution. Regal has a limited number of designer alternative fragrance
"best sellers". In 1998 a line extension called Regal Country Scents was
introduced offering botanical fragrances to the youth market. The Regal brand
is aimed at mass volume retailers including food accounts.
o The Premiere line is a budget price brand that is oriented toward dollar
stores and other budget-price retailers.
o In 1998, the Company introduced a new line of contemporary alternative
designer fragrances called Club Exclusif, positioned as a value oriented
quality brand for the Latin American market.
o In August 1999, a new original fragrance brand called American Dreams was
introduced for distribution into international markets.
The Company believes that to successfully market a fragrance product line, one
must identify a market niche and then fill that niche with a value-priced,
quality product presented in attractive bottles, cartons and displays. All of
the Company's fragrance lines feature quality glass bottles, caps and collars
designed in various unique shapes and styles. The Company's fragrances are
packaged in colorful cartons designed with the latest technology to appear
attractive to the consumer. All fragrances are developed by the Company's expert
perfumers either as alternatives to the most popular, nationally branded,
designer fragrances or for customized original scents. Alternative designer
fragrances are sold, however, at a fraction of the original designer fragrance's
retail price to satisfy the needs of the consumers in specific niche markets.
The Company's own original fragrances (non-designer alternative fragrances) are
marketed and distributed in the U.S. and Latin America. The majority of these
are botanical fragrances, a growth niche targeted to a younger demographic
consumer.
Prior to the introduction of new or improved fragrances, market evaluation and
consumer testing is conducted by the Company with selective testing also done by
independent outside laboratories. The Company believes that the success of these
products is dependent on the Company correctly identifying the needs of a
particular market niche and then, ultimately, on the consumers' acceptance of
the product. Life cycles of products vary significantly, with some being
successfully marketed for more than five years, whereas other products may fail
to gain consumer acceptance and be discontinued within a shorter period of time.
The Company believes that the success of the Company's products in the market
place is largely dependent on the amount and quality of retail advertising and
promotion original designers provide for their brands, the appeal of the scent
itself and the merchandising and trial programs that the Company develops to
accelerate consumer awareness.
Many of the Company's fragrance product lines have currently, or will have in
the future, companion products, which are discussed below in "Other Products".
OTHER PRODUCTS
The Company markets numerous complementary products within each fragrance line
such as deodorant sticks, body sprays, dusting powders, shaker talcs,
trial/travel sizes, roll-on perfumes, body glitter and gift sets. In most cases,
these companion products are marketed as designer alternatives and are value
priced below the prices of the national brands. The Company also believes that
there are many opportunities to further extend the franchise of its original
botanical fragrances and lifestyle fragrances into bath and toiletry categories.
.
The Company markets under the brand name DCA a proprietary line of lipstick
cosmetics, manufactured by related parties. Cosmetics sold under the DCA brand
are premium quality lipstick products designed as alternatives to original
designer lipsticks. The DCA products are sold primarily in mass retail chain
stores at prices significantly less than the original designer's price in
department stores.
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The Apple line of lip and eyeliner cosmetic pencils that the Company
manufactures is marketed and distributed in assorted colors and sizes.
With the exception of cosmetic eye and lip liner pencils, new, redesigned, or
replacement cosmetics or specialty toiletries are developed by the Company's
suppliers at the request of the Company. The Company believes that similar to
fragrances, selecting the right cosmetic or toiletry products for a particular
market segment and their acceptance by the consumer play a large role in the
success or failure of any particular product.
CUSTOMERS
The Company distributes its products to more than 1,200 customers, including
wholesalers, distributors, drug and grocery chains, mass merchandisers and
specialty chain stores located primarily in North and South America. These
customers provide approximately 39,000 outlets for the Company's products. The
Company markets its products through Company sales personnel located in various
markets and through a network of independent sales representatives.
It is an industry practice in the United States for businesses that market
fragrances, cosmetics, and toiletry products to provide the right to return
merchandise. The Company's products are subject to such return rights. It is the
Company's practice to establish reserves and provide allowances for product
returns at the time of sale. The Company believes that such reserves and
allowances are adequate based on past experience; however, no assurance can be
made that reserves and allowances will continue to be adequate. Consequently, if
product returns are in excess of the reserves and allowances made by the
Company, sales will be reduced when such fact becomes known.
The Company has invested heavily in developing the mature U.S. retail markets as
well as the emerging mass markets in Latin America and other international
markets. The Company believes that the customer base in these markets fits the
Company's target customer profile and presents an opportunity for future growth.
The Company has focused the expansion of its customer base in the U.S. by
creating and repositioning products to better meet the needs of its existing
channels of distribution and in gaining entrance into certain new channels. The
Company has strengthened its position in the U.S. markets by the recent
(November 1999) acquisition of Fragrance Impressions Ltd. which markets
fragrances as well as bath and home fragrance products through its complementary
distribution network.
Sales to customers in the United States were $35,282,000, $37,993,000,and
$41,905,000 for fiscal years 1999, 1998 and 1997, respectively. For those same
fiscal years, $20,712,000 (37% of net sales), $29,690,000 (44% of net sales),
and $27,054,000 (39% of net sales) respectively, were exported directly to
foreign customers or sold through the Company's subsidiaries in Mexico and
Brazil (prior to the disposition of the Company's Mexican and Brazilian
subsidiaries discussed more fully in Notes 6 and 7 of the Notes to Consolidated
Financial Statements). Certain of the sales to U.S. customers are ultimately
resold outside of the U.S. The amount of these indirect export sales cannot be
determined as the Company does not have access to its customers' sales
information. As a significant portion of the Company's products are sold
directly or indirectly into the Latin American market, there are certain factors
such as local political and economic conditions that could have an adverse
effect on these sales. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations (Factors Affecting the Company's Business,
Operating Results and Financial Condition) for a specific discussion of those
risks.
The North and South American markets will continue to be the primary focus of
the Company's marketing strategy as other Sheth Group affiliates distribute
similar products throughout the rest of the world.
In fiscal 1999 and 1998, one customer accounted for approximately 13% and 10%
respectively, of the Company's net sales, while in 1997 no single customer
accounted for more than ten percent. The Company is not dependent upon a single
or a few customers. However, the loss of a single or a few customers may have a
material adverse effect on the Company's business.
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SUPPLIERS
At present, the Company purchases glass containers for its fragrances from
European glass manufacturers. If these products were unavailable from any of
these suppliers, the Company believes that it could purchase such products from
other suppliers without any significant delays.
In addition, the Company purchases specially blended fragrance compounds
principally from a Sheth Group affiliate in France. In the event such supplier
was unable to provide such compounds, the Company could suffer minor
manufacturing delays until such supplier could be replaced.
The Company's ability to satisfy sales orders for its fragrance products is
directly dependent on its ability to manufacture these products. If the Company
were physically unable to manufacture its products, and inventory and demand
levels were normal, the effect on the Company would in general be minimal as
Sheth Group affiliates and others have similar manufacturing facilities
available to support the Company. However, in instances where demand for
fragrances was strong and the Company had inadequate inventory levels, the
Company would be adversely impacted. The inability to manufacture cosmetic
pencils at its Texas facility until a secondary source is located could have an
adverse effect on the Company.
The Company is dependent on the supply of certain lipstick cosmetics, other than
cosmetic pencils, from Sheth Group affiliates. If any of these companies were to
cease or be unable to supply these cosmetic products, the lack of such products
would not have a material adverse effect on the Company while secondary
suppliers were being located.
PATENTS AND TRADEMARKS
The Company and a Sheth Group affiliate own or have applied for substantially
all of the product name trademarks for products sold by the Company. The Company
is dependent on the continued use of these trademarks; however, the cessation of
the Company's right to use such trademarks of the Sheth Group affiliate would
not have a materially adverse effect on the Company's business.
BACKLOG OF ORDERS
The Company had no substantial backlog of orders at the end of each of fiscal
years 1999, 1998 and 1997.
RAW MATERIALS
The Company's raw material inventories support the fragrance and cosmetic pencil
manufacturing operations. The principal components of that inventory are
currently purchased from limited or single sources of supply. Management
believes the cessation of supply for the fragrance components from any of the
primary suppliers could be replaced by a Sheth Group affiliate or a secondary
source with minimal difficulties.
ENVIRONMENTAL LAWS
In the opinion of management, compliance by the Company with federal, state and
local laws relating to the protection of the environment has had no material
effect upon the Company's capital expenditures, earnings or competitive
condition.
COMPETITION IN THE FRAGRANCE AND COSMETICS INDUSTRY
The fragrance and cosmetics industry is characterized by intense competition,
particularly in the U.S. The Company believes it competes primarily on the basis
of pricing and payment terms. Product quality, presentation, merchandising and
advertising programs and customer service (incorporating inventory availability
and prompt delivery) are also important additional competitive features in the
overall industry.
Principal competitors in designer alternative fragrances include Inter Parfums,
Inc., YAZ Enterprises Inc., Paris Designs, Inc., and Parfums de Coeur, and in
budget cosmetics, Artmatic USA Cosmetics, Wet-N-Wild, and Jordana Cosmetics
Corporation.
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While the Company is a significant participant in the value oriented designer
alternative fragrance market and has had historically many of the resources of
the Sheth Group available to it, the Company is a relatively small participant
in the total fragrance and cosmetics industry. Many other companies in the
industry, including virtually all large mass-advertised brand manufacturers such
as Proctor and Gamble, Unilever, Revlon, L'Oreal, Benckiser, and French
Fragrances are well established and have been in existence for a significantly
longer period of time. Such companies have greater leverage and resources than
the Company including financial, marketing, research, manufacturing and
personnel. Historically, however, these large manufacturers have not sought to
compete in the same value-oriented markets in which the Company participates.
INVENTORY
The Company maintains finished goods inventory at its San Antonio, Texas
facility to meet the demands of its customers. Raw material and work-in-process
inventories related to manufacturing of fragrances and cosmetic pencils are
located at the Pleasanton, Texas manufacturing facility.
SEASONALITY
The Company's business has historically been subject to seasonal factors
relating to calendar year-end holidays. However, the Company believes that with
its range of products, distribution channels, and promotional activity, it has
over time been able to reduce some of the differences between quarters. (See
Note 21 of the Notes to Consolidated Financial Statements)
EMPLOYEES
As of November 1999, the Company employed approximately 358 full-time employees
and during peak production periods utilizes temporary or seasonal employees to
augment its workforce. During the two most recent peak production periods the
Company has utilized up to 180 seasonal employees. None of the Company's
employees are covered by a collective bargaining agreement and management
believes that its relationship with employees is satisfactory.
ITEM 2. PROPERTIES
The Company owns a manufacturing plant that consists of a 132,000 square-foot
facility on a 14-acre site in Pleasanton, Texas. That facility has approximately
12,000 square feet of office space.
The Company rents approximately 30,000 square feet of storage space in
Pleasanton, Texas on a month to month basis at the rate of $4,200 per month or
$50,400 annually.
The Company is currently leasing approximately 72,000 square feet of storage,
shipping and office space for its San Antonio distribution center. The lease has
an annual cost of $269,000, subject to adjustments, and expires in February
2001.
The San Antonio corporate office and design studio occupies approximately 14,000
square feet of office space. The lease has a current annual cost of $261,400
subject to adjustments and expires in January 2000.
The Company is currently leasing approximately 2,400 square feet of office space
for its marketing headquarters in New York City. The lease has an annual cost of
$68,400 subject to adjustments and expires March 2004.
According to the credit agreement with its principal lender, all of the
Company's present and future assets have been collateralized. See Management
Discussion and Analysis section for further discussion.
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ITEM 3. LEGAL PROCEEDINGS
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 alleged causes of action by two plaintiffs for libel and
sought indemnification of legal costs allegedly incurred by those plaintiffs in
suits and proceedings arising from the facts which were the subject of the
investigation conducted by the Special Committee of the Board of Directors in
1992. The complaint also alleged, on behalf of all four plaintiffs, that the
Company's disclosures relating to the Sheth Group's holding of Company stock 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. In October 1998, the Court dismissed the claim against the one
director. On November 3, 1999, the Court dismissed the remaining claims for
failure to prosecute.
OTHER
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. The Company anticipates that it may incur expenses related
to ongoing litigation involving the non-settling defendants from previously
settled stockholder class action litigation against the Company and from a
related lawsuit against the Company's former auditors ( See Note 19 of the Notes
to the Consolidated Financial Statements). Any expenses incurred are not
expected to be material to the Company's financial results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(A) MARKET INFORMATION
The Company has a single class of common equity securities outstanding, its
Common Stock, $.01 par value ("Common Stock"). The Common Stock is traded
over-the-counter on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") Small Cap National Market under the symbol "TSAR". The
following table presents for the periods indicated the quarterly high and low
bid quotations in the over-the-counter market, as quoted by NASDAQ. These
quotations reflect the inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
FISCAL 1999 FISCAL 1998
--------------- ----------------
HIGH LOW HIGH LOW
------- ------ ------- -------
FIRST QUARTER $9 1/2 $4 5/8 $10 7/8 $10 3/8
SECOND QUARTER $11 1/8 $5 3/4 $10 7/8 $10
THIRD QUARTER $11 5/8 $4 2/3 $10 3/4 $10 1/4
FOURTH QUARTER $7 1/4 $5 5/8 $10 3/4 $9
On November 17, 1999, the closing bid price for the Company's Common Stock, as
reported by NASDAQ, was $5 5/8.
(B) HOLDERS
As of November 17, 1999, the number of record holders of the Company's Common
Stock was approximately 128.
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(C) DIVIDENDS
The Company has paid no cash dividends on the Common Stock since its inception.
The payment by the Company of cash dividends, if any, in the future rests within
the discretion of the Board and will depend, among other things, upon the
Company's earnings, its capital requirements and its financial condition, as
well as other relevant factors. In addition, the Company's ability to pay cash
dividends is subject to restrictions imposed by the Company's principal lender
(See Note 5 of the Notes to Consolidated Financial Statements) and of Series C
Senior Convertible Preferred Stock investor (See Note 13 of the Notes to
Consolidated Financial Statements). The Company has no plans to pay any cash
dividends on the Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data for the Company and its
subsidiaries for each of the last five fiscal years:
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------------------
AUGUST 28, AUGUST 29, AUGUST 30, AUGUST 31, AUGUST 31,
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES ................................................. $ 55,994,000 $ 67,683,000 $ 68,959,000 $ 51,720,000 $ 44,728,000
NET INCOME (LOSS) ........................................ $ 422,000 $ (1,491,000) $ 1,083,000 $(12,053,000) $ (932,000)
NET LOSS APPLICABLE TO
COMMON STOCK ............................................. $ (1,056,000) $ (1,944,000) $ (454,000) $(12,053,000) $ (932,000)
NET LOSS PER COMMON SHARE:
BASIC .................................................... $ (.06) $ (.12) $ (.03) $ (.72) $ (.06)
DILUTED .................................................. $ (.06) $ (.12) $ (.03) $ (.72) $ (.06)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC .................................................... 16,764,506 16,748,798 16,709,690 16,641,218 16,625,315
DILUTED .................................................. -- -- -- -- --
TOTAL ASSETS ............................................. $ 36,129,000 $ 38,708,000 $ 41,084,000 $ 33,767,000 $ 36,828,000
REVOLVING CREDIT AGREEMENT BORROWINGS .................... $ 8,926,000 $ 7,612,000 $ 10,205,000 $ 9,319,000 $ 5,383,000
SHORT TERM & LONG TERM BORROWINGS INCLUDING CAPITAL LEASES $ 4,173,000 $ 3,877,000 $ 2,581,000 $ 3,234,000 $ 3,719,000
SUBORDINATED LONG TERM DEBT .............................. $-0- $ 1,700,000 $ 4,500,000 $ 12,666,000 $ 12,666,000
CASH DIVIDENDS DECLARED PER COMMON SHARE ................. $-0- $-0- $-0- $-0- $-0-
------------ ------------ ------------ ------------ ------------
</TABLE>
The Company has significant related party transactions. See Note 9 of the
Notes to Consolidated Financial Statements.
The Company had subordinated debt totaling $1,700,000 as of August 29, 1998
representing the remaining portion of a loan made by the Sheth Group through
their affiliate Nevell Investments, S.A. ("Nevell"). Such indebtedness was
extinguished in connection with the sale of the Company's wholly owned Mexican
subsidiary. See Note 7 of the Notes to Consolidated Financial Statements.
The Company had subordinated debt totaling $4,500,000 as of August 30, 1997
representing the remaining portion of a loan made by the Sheth Group through
their affiliate Nevell. Such indebtedness was reduced by $2,800,000 in
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connection with the sale of the Company's wholly owned Brazilian subsidiary. See
Note 6 of the Notes to Consolidated Financial Statements.
During the first and second quarters of fiscal 1997 affiliates of the Company's
primary shareholder, the Sheth Group, converted $8,166,000 of their subordinated
debt into shares of Series A and Series B Preferred Stock.
During the fourth quarter of fiscal 1996 the Company recorded deferred income
tax expense of $3,881,000 resulting from the establishment of a valuation
allowance for deferred tax assets.
The Company recorded other income of $2,065,000 in connection with receipt of
insurance proceeds in fiscal 1995.
The Company recorded amortization expense of $986,000 in fiscal 1995 associated
with the value assigned to the granting of new common stock purchase warrants
related to the settlement of the prior stockholder class action litigation and
to the extension of the exercise date on existing warrants.
The Company recorded merger related expenses of $686,000 in fiscal 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FISCAL YEAR ENDED AUGUST 28, 1999 COMPARED TO FISCAL
YEAR ENDED AUGUST 29, 1998
NET SALES
Tristar markets and distributes products to wholesalers, distributors, chain
stores, specialty stores, mass merchandisers and independent retail stores in
various markets throughout North and South America. Net sales for the fiscal
year ended August 28, 1999 were $55,994,000, a decrease of 17.3% compared to net
sales of $67,683,000 in fiscal year ended August 29, 1998. The decrease is
primarily attributable to volume decreases in the Latin America and U.S.
wholesale markets in the Royal Selections line and reduced DCA sales to the U.S.
retail channel. As well, approximately 4% of the sales decline was attributable
to the disposal of the Company's wholly-owned subsidiaries in Mexico (as of
November 1998) and Brazil (as of May 1998) coupled with a strategic decision to
reduce the Company's sales to related parties. This decline was somewhat offset
by volume increases in the combined U.S. chain, specialty chain and mass
merchandising channel in the Euro and Regal fragrance lines.
Overall, the Company's direct exports decreased to $20,712,000 (37% of net
sales) in fiscal 1999 compared to $29,690,000 (44% of net sales) in fiscal 1998.
The decrease in direct exports is primarily due to volume decreases in Latin
America as well as sales to related parties. While the Company continues to
aggressively pursue the strategically important Latin America channel, the
Company believes that the Mexican and Brazilian markets will grow at a slower
than desired rate and as a result, the Company sold its Brazilian subsidiary to
an affiliate of the Sheth Group in May 1998 (described more fully in Note 6 of
the Notes to the Consolidated Financial Statements). The Company sold its
Mexican subsidiary to an affiliate of the Sheth Group in November 1998
(described more fully in Note 7 of the Notes to Consolidated Financial
Statements).
Included in export sales were sales of $ 5,418,000 in fiscal 1999 and $6,557,000
in fiscal 1998 to Sheth Group affiliates. See "Business (Suppliers)" and Note 9
of the Notes to Consolidated Financial Statements.
Of the net sales in fiscal 1999, approximately 1.5 % or $835,000, resulted from
the sale of products purchased from related parties as finished goods. For
fiscal 1998, comparable numbers were approximately 4%, or $2,833,000. In
addition, fragrance and other products manufactured and sold by the Company
included certain components that were purchased from related parties. The cost
of those components approximated 7% of cost of sales in fiscal 1999 and 6% of
cost of sales in fiscal 1998. See Note 9 of the Notes to Consolidated Financial
Statements for additional information.
GROSS PROFIT
The Company's gross profit for fiscal year 1999 and fiscal year 1998 was
$16,831,000 or 30.1% of net sales and $17,251,000 or 25.5% of net sales
respectively. Although achieving significant improvement in gross margin,
overall
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gross profit dollars declined relating primarily to the overall sales decrease
offset by significant improvements in cost of sales as a result of increased
operational efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for fiscal year 1999 were
$14,959,000, a decrease of 8.9% from $16,424,000 for fiscal year 1998. The SG&A
decrease was primarily due to the sale of the Company's wholly owned
subsidiaries in Mexico and Brazil (described previously). As a percentage of
sales, SG&A were 26.7% and 24.3% for fiscal years 1999 and 1998 respectively.
The increase in SG&A as percentage of sales in fiscal 1999 is primarily due to
lower sales levels.
NON-OPERATING INCOME OR EXPENSE
Interest expense for fiscal year 1999 was $1,246,000, a decrease of 30.2% from
$1,786,000 for fiscal year 1998 as a result of lower revolving credit borrowings
in the current fiscal year. Other expense for fiscal year 1999 was $128,000,
versus other expense of $240,000 for fiscal year 1998, which was primarily due
to a decrease in foreign exchange losses.
NET INCOME OR LOSS
The Company recorded net income of $422,000 for fiscal 1999. After giving effect
to preferred stock dividends and beneficial conversion feature of a preferred
stock issue, the Company recorded a fiscal 1999 net loss applicable to common
stock of $ 1,056,000 or $.06 per share. In fiscal 1998, the Company recorded a
net loss of $1,491,000. After giving effect to preferred stock dividends, the
Company recorded a net loss of $1,944,000 or $.12 per share applicable to common
stock.
RESULTS OF OPERATIONS -- FISCAL YEAR ENDED AUGUST 29, 1998 COMPARED TO FISCAL
YEAR ENDED AUGUST 30, 1997
NET SALES
Net sales for the fiscal year ended August 29, 1998 were $67,683,000, a decrease
of 2% compared to net sales of $68,959,000 in the fiscal year ended August 30,
1997. The decrease was primarily attributable to a reduced level of sales of
Euro caused by the delayed relaunch of the restaged brand (until April 1998) and
reduced DCA sales to the U.S. retail channel. Offsetting these reductions
somewhat were significant sales growth of Royal Selections coupled with volume
increases in the Premiere fragrance and Apple pencil lines in the U.S. wholesale
and Latin America channels and Regal in the U.S. retail channel. While not
quantifiable, the Company also experienced lost sales opportunity during the
first half of fiscal 1998 due to its inability to increase fragrance production
capacity in order to meet market demand during that period, brought about by the
surge in demand for Royal.
Overall, the Company's direct exports increased to $29,690,000 (44% of net
sales) in fiscal 1998 compared to $27,054,000 (39% of net sales) in fiscal 1997.
The increase in direct exports was largely due to the success of the Royal
fragrance line, the continued sales expansion of Apple pencils in this channel
and sales to affiliate companies. While the Company continued to aggressively
pursue the strategically important Latin America channel, the Company believed
that the Brazilian market would continue to grow at a slower than desired rate
and as a result, the Company sold its Brazilian subsidiary to an affiliate of
the Sheth Group in May 1998 (described more fully in Note 6 of the Notes to the
Consolidated Financial Statements). The Company's strategy to formalize the
distribution of the Euro line in Mexico, by servicing retail outlets through the
Company's warehouse in Mexico City resulted in lower sales than anticipated in
this important market, due to the delayed relaunch of the Euro line in April,
1998.
Included in export sales were sales of $6,557,000 in fiscal 1998 and $3,866,000
in fiscal 1997 to Sheth Group affiliates. See "Business (Suppliers)" and Note 9
of the Notes to Consolidated Financial Statements.
The overall volume decline was largely attributable to a decrease in fragrance
sales. Increased sales volume for Royal, Regal and Premiere were entirely offset
by a decline in Euro relating to the delayed relaunch of the restaged line. The
Company experienced sales growth outside the fragrance lines relating
principally to increased cosmetic pencil sales.
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Of the net sales in fiscal 1998, approximately 4%, or $2,833,000, resulted from
the sale of products purchased from related parties as finished goods. For
fiscal 1997, comparable numbers were approximately 6%, or $4,427,000. In
addition, fragrance and other products manufactured and sold by the Company
included certain components that were purchased from related parties. The cost
of those components approximated 6% of cost of sales in fiscal 1998 and 7% of
cost of sales in fiscal 1997. See Note 9 of the Notes to Consolidated Financial
Statements for additional information.
GROSS PROFIT
Gross profit decreased from $20,518,000 (30% of net sales) in fiscal 1997 to
$17,251,000 (25% of net sales) in fiscal 1998. The decline related primarily to
an inventory reduction program that the Company implemented which was designed
to sell slower rotating finished goods at reduced margins as well as excess raw
materials at prices slightly above cost.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general and administrative expenses ("SG&A") decreased by 4% from
$17,093,000 (25% of net sales) in fiscal 1997 to $16,424,000 (24% of net sales)
in fiscal 1998. The decline was mainly attributable to overall lower marketing
costs and cost reductions related to the disposition of the Brazilian subsidiary
in May 1998, partially offset by higher bank fees in fiscal 1998 and increased
compensation expense relating to extending the term of certain stock options to
a former employee.
NON-OPERATING INCOME OR EXPENSE
Interest expense decreased by 8% in fiscal 1998 from $1,940,000 in fiscal 1997
to $1,786,000 in fiscal 1998. This reduction related primarily to the conversion
of certain subordinated debt into preferred stock and to a lesser degree, by
lower interest costs relating to revolving credit line borrowings.
Fiscal 1998 other expenses included $60,000 of costs related to the amortization
of a warrant valuation asset arising from issuance of warrants to an investment
banker and previously recorded warrant valuation assets relating to the
subordinated debt and $230,000 of litigation expenses arising from events
related to the shareholder litigation. These respective expenses in fiscal 1997
were $63,000 and $72,000.
NET INCOME OR LOSS
The Company recorded a net loss of $1,491,000 for fiscal 1998. After giving
effect to preferred stock dividends, the Company recorded a fiscal 1998 net loss
applicable to common stock of $1,944,000 or $.12 per share. In fiscal 1997, the
Company recorded a net income of $1,083,000. After giving effect to preferred
stock dividends, beneficial conversion feature of a preferred stock issue and
related warrant valuation adjustment, the Company recorded a net loss of
$454,000 or $.03 per share.
The Company recorded income tax expense of $62,000 in fiscal 1998, which
compared to an expense of $78,000 in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Operating activities in fiscal 1999 used $3,310,000 in cash. The cash used was
primarily the result of earnings adjusted for non-cash items, a decrease in
accounts payable, an increase in accounts receivable, and a reduction in
inventory during fiscal 1999.
Accounts receivable grew as a result of slower collections. Inventory decreased
as a result of lower sales and to a lesser degree due to the sale of slower
rotating finished goods to related parties. Accounts payable decreased primarily
due to payments to related parties.
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INVESTING ACTIVITIES
Capital expenditures during fiscal 1999 amounted to $1,892,000, relating mainly
to production related machinery and equipment, and facilities related items and
computer equipment. Capital expenditures in fiscal 1998 and 1997 were $1,599,000
and $1,274,000, respectively.
FINANCING ACTIVITIES
Net cash provided by financing activities during fiscal 1999 was primarily due
to proceeds from the issuance of Series C Senior Convertible Preferred Stock
(Discussed more fully in Note 13 of the Notes to Consolidated Financial
Statements).
On December 19, 1997, the Company entered into a $22,000,000 credit agreement
with its principal lender (the "Credit Agreement"). The Credit Agreement
includes a revolving credit facility (the "Revolving Credit") which provides for
$15,100,000 of maximum borrowings bearing interest, at the Company's election,
at the Alternate Base Rate (the higher of the prime rate or the Federal Funds
Rate plus .50%) plus 1.50% or the London Interbank Offered Rate (LIBOR) plus
3.50%. At August 28, 1999, the Revolving Credit bore interest at rates of 9.56%
and 8.78%, respectively, in accordance with the above noted interest
computations. Borrowings under the Revolving Credit are limited by a formula
based on Eligible Accounts Receivable and Inventory, as defined. Remaining
availability based on the borrowing formulas as of August 28, 1999 approximated
$1,392,000. Additionally, borrowings based on LIBOR can not exceed 60% of the
total outstanding borrowings under the Revolving Credit. Commitment fees equal
to .50% per annum on the unused portion of the Revolving Credit are payable
monthly. All outstanding amounts under the Revolving Credit Agreement are due in
December 2001.
The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan")
and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term
Loan bears interest, payable monthly, at the Alternate Base Rate (8.25% at
August 28, 1999) plus 2.00%. Principal payments on the Term Loan consist of
equal monthly principal payments in the amount of $56,667 for 35 months
beginning in January 1998 with a $1,416,655 balloon payment due in December
2001. Additionally, 50% of annual excess cash flow, as defined, must be applied
to the Term Loan installments in the inverse order of maturity.
Borrowings under the Cap Ex Facility are limited to 80% of the cost of new
machinery and equipment, limited to annual utilization of $1,500,000. These
borrowings also bear interest, payable monthly, at the Alternate Base Rate
(8.25% at August 28, 1999) plus 2.00%. Principal payments on the Cap Ex Facility
commence one month after the take down in an amount based on a three-year
amortization. However, a balloon payment in an amount equal to all outstanding
borrowings under the Cap Ex Facility is also due in December 2001. As of August
28, 1999 the Company had outstanding borrowings under the Cap Ex Facility
totaling $1,713,000 in capital expenditures. Principal payments are due at the
rate of $50,250 per month.
Borrowings under the Credit Agreement are collateralized by all of the Company's
present and future assets. Additional collateral in the form of a $1,500,000
standby letter of credit has been provided by the Sheth Group for the benefit of
the Company's principal lender. The Credit Agreement contains restrictive
financial covenants including Minimum Tangible Net Worth, Minimum EBITDA,
Maximum Loss, Minimum Fixed Charge Coverage, Maximum Leverage and Maximum
Capital Expenditures. Additional covenants limit borrowings, asset sales and
dividends. On October 4, 1998, the Company negotiated an amendment of all
restrictive financial covenants. The company was in violation of certain
covenants as of February 27, 1999, May 29, 1999 and August 28,1999, and was
granted waivers to such covenants by the lender.
The Credit Agreement, together with cash generated by operations, should provide
sufficient cash to meet the cash requirements of the Company for the foreseeable
future.
As of August 31, 1996, the Company was indebted in the amount of $4.7 million to
a Sheth Group affiliate under a loan agreement entered into in August 1993. The
note, which was subordinated to the principal 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
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Company's Series A convertible preferred stock, $.05 par value ("Series A
Preferred Stock"), (See Note 13 of the Notes to Consolidated Financial
Statements). The Company remains indebted to the affiliate for delinquent
interest payments of $567,000 on the converted debt. At August 28, 1999,
cumulative dividends in arrears on the Series A Preferred Stock approximates
$443,000.
In a transaction effective February 21, 1997, Nevell Investments S.A.
("Nevell"), the holder of a subordinated long-term promissory note in the
principal amount of $4,000,000, converted $3,500,000 of that note into 120,690
shares of the Company's Series B convertible nonvoting preferred stock, $.05 par
value ("Series B Preferred Stock"). The Series B Preferred Stock has cumulative
preferred dividends of $2.03 per share and a preferred liquidation distribution
of $29.00 per share plus accrued and unpaid dividends. Each share of the Series
B Preferred Stock is convertible at the option of Nevell, into four shares of
the Company's Common Stock. The Company can redeem the shares of Series B
Preferred Stock at any time for cash of $29.00 per share ($7.25 per common
share), plus all accrued and unpaid dividends. See Note 13 of the Notes to
Consolidated Financial Statements. At August 28, 1999, cumulative dividends in
arrears on the Series B Preferred Stock approximates $611,000.
On February 21, 1997 the closing bid price of the Company's Common Stock as
reported by the NASDAQ was $9 11/32. At that date, the Series B preferred stock
carried a beneficial conversion feature of $2 3/32, the difference between the
conversion price and the closing bid price per share of Common Stock. The value
of the beneficial conversion feature has been reflected in the financial
statements of the Company in a manner similar to that for a dividend to the
preferred shareholder. Accordingly, the Company has recorded a charge to
retained earnings and an increase in the value of the Series B Preferred Stock
in the amount of $1,011,000. Additionally, as a result of the conversion, the
Company wrote off $270,000 of warrant valuation costs attributable to the
converted debt. This charge has also been recorded to retained earnings in a
manner consistent with that for the beneficial conversion feature described
above.
Effective May 30, 1998, the Company sold all of the capital stock and
distribution rights of its Brazilian subsidiary to Transvit Distribution Corp.
("TDC"), a wholly owned affiliate of the Sheth Group, for $2,800,000. The
agreement provides for a non-compete restriction and a supply arrangement
whereby the Company agreed to continue selling product to the Brazilian unit
through May 31, 2001. The Company also received an option to repurchase the
stock and distribution rights from TDC at anytime prior to May 31, 2003. The
Company currently has no plans to repurchase the stock and distribution rights
under this option.
The Company received payment from TDC in the form of a $2,800,000 reduction of
the subordinated debt to Nevell, another affiliated company within the Sheth
Group (described more fully in Note 6 of the Notes to the Consolidated Financial
Statements). The subordinated debt reduction, net of the related write-down of
warrant valuation costs attributable to such debt, exceeded the carrying value
of the Company's Brazilian investment by $1,506,000 and was recorded as an
increase in additional paid-in-capital.
On March 15, 1999, pursuant to a stock purchase agreement entered into by and
among the Company, Transvit Holding Corporation ("THC"), a wholly owned
affiliate of the Sheth Group, the majority stockholder of the Company, and
Nevell, the Company sold to THC for $2,686,000 all of the issued and outstanding
capital stock ("Trimex Stock") and certain distribution rights of its wholly
owned subsidiary, Tristar de Mexico, S.A. de C.V. ("Trimex"), a distributor of
fragrance and cosmetic products into the formal retail market in Mexico. The
transaction was effective as of November 29, 1998.
The transaction provides for a non-compete restriction and a supply agreement
whereby the Company agreed to continue selling certain products to Trimex. The
Company also received an option to repurchase the Trimex Stock and distribution
rights from THC at a fair value at anytime prior to March 15, 2004. The Company
currently has no plans to exercise such option but may do so in the future.
The Company received payment for Trimex Stock in the form of a reduction of debt
due Nevell, and redemption of shares of the Company's Series A Preferred Stock,
issued to Nevell, at a redemption price of $7.62 per share. Of the total
purchase price for Trimex Stock of $2,686,000, an amount equal to $1,700,000 was
applied to a reduction of debt due Nevell with the remaining $986,000 attributed
to redeemed shares of the Series A Preferred Stock at a total redemption of
approximately $906,000 plus $80,000 of dividends in arrears. Warrant valuation
costs of $99,000 associated with the
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subordinated debt reduction were written-off in connection with the sale. The
excess of the carrying value of the Company's investment in Trimex over the
proceeds received was recorded as an increase in accumulated deficit. See Note 7
of the Notes to Consolidated Financial Statements.
Effective September 3, 1998, the Company completed a private placement whereby
it sold 78,333 shares of Series C Senior Convertible Preferred Stock ("Series C
Preferred Stock") to a private investor for $60 per share. Each share of Series
C Preferred Stock is convertible into common shares at a conversion price of
$5.44 per share. In addition, the Company issued a warrant to purchase 125,000
shares of Common Stock at an exercise price of between $4.00 to $6.28 per share.
The Company received proceeds of approximately $4,700,000 from such private
placement.
The holder of the Series C Preferred Stock is entitled to receive a cumulative
cash dividend of $4.80 per share per annum. The dividend is payable quarterly in
arrears ($1.20 per quarter). See Note 13 of the Notes to the Consolidated
Financial Statements for further discussion.
The Company does not have any plans to pay any cash dividends on the Common
Stock, the Series A Preferred Stock or the Series B Preferred Stock in the
foreseeable future. Further, payments of such dividends are subject to
restrictions imposed by the Company's principal lender in connection with the
existing revolving line of credit.
SUBSEQUENT EVENTS
On October 14, 1999, the Company completed another private placement whereby it
sold an additional 21,667 shares of Series C Preferred Stock to the private
investor mentioned previously for $60 per share. In connection with such sale,
the Company issued warrants to purchase an aggregate of 60,000 shares of Common
Stock at an exercise price of $4.75 per share. The Company received
approximately $1,300,000 from such private placement.
Effective November 1999 the Company, through a newly formed wholly-owned
subsidiary Tristar USA, Inc. ("Tristar USA"), purchased all of the issued and
outstanding common stock of Fragrance Impressions Limited ("FIL") for $500,000
in cash, $2,900,000 in interest bearing promissory notes ("Notes") due in equal
annual installments on November 15, 2000 through 2004 and options to purchase up
to 100,000 shares of the Company's common stock. The Notes are subject to post
closing adjustment to the outstanding principal balance, based upon sales
achievement during the next two calendar years. Cash used to finance this
transaction was derived from the sales of 21,667 shares of Series C Preferred
Stock in October 1999, discussed above.
INFLATION
During fiscal year ended 1999, and consistent with the Company's 1998 and 1997
fiscal years, inflation did not have a material adverse impact either on the
Company's net sales or income from continuing operations. The Company does not
expect inflation to have a material adverse impact in fiscal year 2000.
FACTORS AFFECTING THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL
CONDITION
The results for fiscal 2000 could be adversely affected by each or all of the
following factors:
1. LATIN AMERICA ECONOMIES. The market for the Company's products continues to
be negatively impacted as a result of devaluation and economic and political
instability. These factors sharply reduced the purchasing power of the Latin
America consumer, and therefore, the demand for the Company's products was
adversely affected. Any future significant deterioration of these economies
would adversely affect the Company's sales in Latin America and also the
collectability of accounts receivable.
2. MEXICAN MARKET. Growth in sales, or even the maintenance of existing sales
levels, in Mexico, depends to a large extent on the economic health and
political stability of that country. Any deterioration in the economic or
political stability could adversely affect sales. Although the Company has no
such knowledge, some of its customers based in the United States may 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
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customs duties. Enhanced enforcement efforts by Mexican authorities,
should they arise, may have an adverse effect on the Company's sales to such
customers.
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 including an affiliate of the Sheth Group. 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 Sheth Group
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 to pursue sales expansion
in the U.S., Canada, and Latin America markets. In the process, the Company
incurs certain 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 or that it will recover its initial
expenses and start up costs. In addition, certain countries from time to time
impose strict import restrictions, high levels of taxes on imports, and
restrictions on currency transactions, all of which could affect the success
of sales and marketing activities and also affect the profitability of such
activities.
At this time, it is not known whether, or to what degree, the above factors will
have a material adverse impact on future results.
YEAR 2000 COMPLIANCE
As a result of certain computer programs being written using two digits rather
than four digits to define the applicable year, any of the Company's computer
programs that have a date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions and engage in normal
business activities.
As part of the Company's Year 2000 readiness program ("Y2K Plan"), management
has evaluated its Programs and Systems. The Company's Y2K Plan's focus is on
assessing and assuring compliance in the following areas: hardware, operating
systems, legacy applications and data, external linkages and non-information
systems areas.
Tristar's operating systems are centered around Hewlett Packard Unix, Microsoft
NT and Windows 95. The Company operates these systems under licenses and
maintenance agreements which provide for software upgrades to remedy the Year
2000 compliance issues. The principal legacy applications consist of
Manufacturing Total Management System ("MTMS") which is licensed from Bridge
Logix who has provided Y2K compliant software. This software has undergone six
weeks of rigorous tests in a stand alone environment and began operational use
on November 12, 1999.
Hardware compliance testing has been completed. Certain computer and equipment
with non-compliant code and real-time clocks have been identified and have
either been replaced or will be upgraded. Certain non-critical hardware will be
manually reset on January 1, 2000. Two key phone switches, voice mail systems,
time clocks, and networking equipment have been upgraded and/or certified Y2K
compliant. Manufacturing facilities have been closely examined and no Y2K
remediation has been necessary.
The Company conducts electronic data interchange (EDI) with its trading partners
using Y2K compliant standards. Y2K readiness certifications have been received
from these trading partners in addition to certifications from key vendors,
customers, service suppliers, phone, electric, and water utilities.
The Company has allocated human resources as appropriate within its Information
Systems group to coordinate the activities to obtain compliance. To date $77,000
has been spent on Y2K remediation, primarily for software and professional
services. Another $24,000 is expected to be required by year's end to replace
obsolete laptops and workstations.
While the Company has completed testing and expects to be fully Y2K ready by the
end of November 1999, contingency plans are in development to address potential
external supply chain disruptions as well as internal Y2K related failures
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which may have been overlooked. These contingencies include, but are not
limited to, stockpiling raw materials, identifying alternative sources of
goods and services, alternate manufacturing processes, production of manual
inventory and work order reports, and work stoppages. In the event
contingency plans must be deployed, there could be a material adverse effect
on the Company's business, financial condition, results of operations and
liquidity of a magnitude which the Company presently is unable to predict.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness Disclosure" as
defined in the Year 2000 Information and Readiness Disclosure Act (the "Act"),
which was signed into law on October 19, 1998. The Act provides added protection
from liability for certain public and private statements concerning a Company's
Year 2000 readiness.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of loss that may occur due to adverse changes in
financial market prices, including interest rate risk and foreign currency
exchange risk, and the effect they may have on the financial position, results
of operation or cash flow of the Company.
The Company's short term and long term debt at August 28, 1999 bears interest at
variable rates (See Note 5 of the Notes to the Consolidated Financial
Statements). A one-percentage point increase in the effective interest rate
would result in an approximate $130,000 and $114,000 for 1999 and 1998,
respectively, reduction in annual pretax earnings. This estimate assumes no
change in the volume or composition of the short term and long term debt as of
August 28, 1999.
As discussed in Note 20 of the Notes to the Consolidated Financial Statements,
the Company's direct exports comprise approximately 37% of net sales for the
fiscal year ended August 28, 1999. In addition, certain U.S. based customers
ultimately distribute the Company's products into foreign countries. As a
result, the Company has exposure to risk associated with the decrease in value
of foreign currencies. Although the risk cannot be quantified, any significant
decrease in value of the currency of foreign countries where the Company's
products are distributed could have a material adverse effect on the Company's
sales and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement schedules listed
in Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item will be contained in the Company's Proxy
Statement for its 2000 Annual Meeting, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the Company's Proxy
Statement for its 2000 Annual Meeting, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item will be contained in the Company's Proxy
Statement for its 2000 Annual Meeting, which is incorporated herein by
reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's Proxy
Statement for its 2000 Annual Meeting, which is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS: Consolidated Financial Statements as detailed
in the Index to Financial Statements and Schedules for the years
ended August 28, 1999, August 29, 1998, and August 30, 1997 required
in response to Item 8 of Part II of this report are annexed to this
report as a separate section.
2. FINANCIAL STATEMENT SCHEDULES: Any financial statement schedules for
the years ended August 28, 1999, August 29, 1998, and August 30,
1997, required in Item 8 of Part II of this report are annexed to
this report as a separate section.
(b) REPORTS ON FORM 8-K:
1. None.
(c) EXHIBITS
EXHIBIT INDEX
2.1 Stock purchase agreement between the Company and Transvit Holding
Corporation dated November 29, 1998. Incorporated herein by
reference to Exhibit 2.1 to the Company's current report on Form 8-K
dated March 25, 1999.
3.1 Certificate of Incorporation of the Registrant, as amended.
Incorporated herein by reference to Exhibit 3.1 of the Company's
Annual Report on Form 10-K for the fiscal year ended August 29,
1998.
3.2 By-Laws of the Registrant (Amended as of August 14, 1992).
Incorporated by reference to Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the year ended August 31, 1992.
4 Form of Registrant Common Stock certificates. Incorporated by
reference to Exhibit 4.2 of the Company's Quarterly Report on Form
10-Q for the quarterly period ended February 28, 1993.
10.1 1991 Amended and Restated Stock Option Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 of the Company's Annual
Report on Form 10-K for the year ended August 31, 1992.
10.9 Lease Agreement Re: Corporate Headquarters in San Antonio dated
January 13, 1993, between Northwestern Mutual Life Insurance Co. and
Registrant. Incorporated by reference to Exhibit 10.17 of the
Company's Annual Report on Form 10-K for the year ended August 31,
1993.
18
<PAGE>
10.16 Agreement dated August 31, 1993 between the Core Sheth Families,
Viren Sheth, Starion International, Ltd. and the Registrant.
Incorporated by reference to Exhibit 10.31 of the Company's Annual
Report on Form 10-K for the year ended August 31, 1993.
10.17 Financing Agreement dated August 31, 1993 between the Core Sheth
Families and the Registrant. Incorporated by reference to Exhibit
10.32 of the Company's Annual Report on Form 10-K for the year ended
August 31, 1993.
10.18 Lease Agreement Re: Bulk Warehouse Facility in San Antonio dated
December 8, 1993, between Northwestern Mutual Life Insurance Co. and
Registrant. Incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for period ended November
30, 1993.
10.23 Amendment to Common Stock Purchase Warrant dated August 31, 1995,
between the Company and Starion International, Ltd. Incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 8-K dated
August 31, 1995.
10.29 Non-Qualified Stock Option Grant to Viren S. Sheth dated April 19,
1996. Incorporated by reference to Exhibit 10.29 of the Company's
Annual Report on Form 10-K for the year ended August 31, 1996.
10.30 Letter Agreement with Transvit Manufacturing Corporation Converting
Line of Credit Promissory Note to 666,529 shares of Series A
Convertible Preferred Stock dated December 11, 1996. Incorporated by
reference to Exhibit 10.30 of the Company's Annual Report on Form
10-K for the year ended August 31, 1996.
10.33 Incentive Stock Option between the Company and Peter C. Liman dated
January 27, 1997. Incorporated by reference to Exhibit 10.32 of the
Company's Quarterly Report on Form 10-Q for the period ended March
1, 1997.
10.35 Letter Agreement with Nevell Investments S.A. converting
Subordinated Debt Promissory Note to 120,690 shares of Series B
Convertible Preferred Stock dated February 21, 1997. Incorporated by
reference to Exhibit 10.34 of the Company's Quarterly Report on Form
10-Q for the period ended March 1, 1997.
10.38 Employment Agreement between the Company and Richard Howard dated
November 26, 1997, incorporated by reference to Exhibit 10.38 of the
Company's Annual Report on Form 10-K for the year ended August 30,
1997.
10.39 Revolving Credit Term Loan and Security Agreement dated
December 19, 1997, between the Company and BNY Financial
Corporation, incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the period ended
November 29, 1997.
10.40 Stock purchase agreement between the Company and Transvit
Distribution Corporation dated May 30, 1998. Incorporated herein the
reference to Exhibit 10.40 of the Company's annual report on Form
10-K for the fiscal year ended August 29, 1998.
10.41 Letter agreement between the Company and Nevell Investments, S.A.
("Nevell") dated March 1, 1998. Incorporated herein the reference to
Exhibit 10.41 of the Company's annual report on Form 10-K for the
fiscal year ended August 29, 1998.
19
<PAGE>
10.42 Investment agreement between the Company and Pioneer Ventures
Associates Limited Partnership, dated September 3, 1998.
Incorporated herein the reference to Exhibit 10.42 of the Company's
annual report on Form 10-K for the fiscal year ended August 29,
1998.
10.43 Warrant to purchase shares of common stock of the Company granted to
Pioneer Ventures Associates Limited Partnership, dated September 3,
1998. Incorporated herein the reference to Exhibit 10.43 of the
Company's annual report on Form 10-K for the
fiscal year ended August 29, 1998.
10.44 Trademark agreement between the Company and S&J Perfume Company,
dated September 3, 1998. Incorporated herein the reference to
Exhibit 10.44 of the Company's annual report on Form 10-K for the
fiscal year ended August 29, 1998.
10.45 Voting and shareholders agreement dated September 3, 1998.
Incorporated herein the reference to Exhibit 10.45 of the Company's
annual report on Form 10-K for the fiscal year ended August 29,
1998.
10.46 Employment agreement between the Company and Richard Howard dated
September 1, 1998. Incorporated herein by reference to Exhibit 10.1
of the Company's quarterly report on Form 10-Q for the quarter ended
November 28, 1998.
10.47 Employment agreement between the Company and Robert M. Viola dated
September 1, 1998. Incorporated herein by reference to Exhibit 10.2
of the Company's quarterly report on Form 10-Q for the quarter ended
November 28, 1998.
*10.48 Warrant to purchase shares of Common Stock of the Company granted to
Pioneer Ventures Associates Limited Partnership, dated October 14,
1999.
16 Letter from KPMG Peat Marwick LLP to the Securities and Exchange
Commission pursuant to Item 304(a)(3) of Regulation S-K.
Incorporated by reference to Exhibit 16 of the Current Report on
Form 8-K dated July 22, 1997.
18 Preferability letter from KPMG Peat Marwick LLP regarding change in
accounting principles dated November 6, 1995. Incorporated by
reference to Exhibit 18 of the Annual Report on Form 10-K for the
year ended August 31, 1995.
*24.1 Consent by PricewaterhouseCoopers LLP.
*27 Financial Data Schedule.
---------------------------
* Filed herewith.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: November 24, 1999 TRISTAR CORPORATION
By: /S/ RICHARD R. HOWARD
RICHARD R. HOWARD
President and Chief Executive Officer
(Principal Executive Officer)
By: /S/ROBERT M. VIOLA
ROBERT M. VIOLA
Senior Executive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: November 24, 1999 /S/RICHARD P. RIFENBURGH
RICHARD P. RIFENBURGH, Director
Date: November 24, 1999 /S/B. J. HARID
B. J. HARID, Director
Date: November 24, 1999 /S/RICHARD R. HOWARD
RICHARD R. HOWARD, Director
Date: November 24, 1999 /S/ROBERT A. LERMAN
ROBERT A. LERMAN, Director
Date: November 24, 1999 /S/JAY J. SHETH
JAY J. SHETH, Director
Date: November 24, 1999 /S/VIREN S. SHETH
VIREN S. SHETH, Director
Date: November 24, 1999 /S/ROBERT R. SPARACINO
ROBERT R. SPARACINO, Director
Date: November 24, 1999 /S/AARON ZUTLER
AARON ZUTLER, Director
21
<PAGE>
TRISTAR CORPORATION
SAN ANTONIO, TEXAS
ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 28, 1999
ITEM 14(A)(1) AND (2), (C), AND (D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
ITEM 14(a)(1) AND (2)
The following consolidated financial statements of TRISTAR CORPORATION and
subsidiaries are included in Item 8:
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants F1
Balance sheets as of August 28, 1999 and August 29, 1998 F2 and F3
Statements of operations and comprehensive income for each
of the three years in the period ended August 28, 1999 F4
Statements of shareholders' equity for each of the three
years in the period ended August 28, 1999 F5
Statements of cash flows for each of the three years in
the period ended August 28, 1999 F6 and F7
Notes to consolidated financial statements F8 to F22
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE:
The following consolidated financial statement schedule of TRISTAR CORPORATION
and subsidiaries is included in Item 14(d):
Schedule II - Valuation and qualifying accounts F23
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
November 24, 1999
To the Board of Directors and Shareholders of Tristar Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, shareholders'
equity and cash flows present fairly, in all material respects, the consolidated
financial position of Tristar Corporation and Subsidiaries at August 28, 1999
and August 29, 1998, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended August 28, 1999, in
conformity with generally accepted accounting principles. In addition, in our
opinion the financial statement schedule listed in the index appearing under
item 14(a)(1) and (2), presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material mistatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
F-1
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS August 28, August 29,
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash .................................................... $ 90,000 $ 66,000
Accounts receivable, less allowance for doubtful accounts
of $651,000 and $895,000, respectively .............. 13,519,000 14,206,000
Accounts receivable - related parties - net ............. 4,118,000 3,607,000
Inventories ............................................. 9,531,000 11,375,000
Other current assets .................................... 72,000 327,000
----------- -----------
Total current assets ............................. 27,330,000 29,581,000
Property, plant and equipment, less accumulated depreciation
of $10,434,000 and $8,805,000, respectively.............. 8,364,000 8,199,000
----------- -----------
Other assets:
Warrant valuation, less accumulated amortization
of $1,805,000 in 1998 ............................... -- 103,000
Other assets ............................................ 435,000 825,000
----------- -----------
Total other assets ............................... 435,000 928,000
----------- -----------
Total assets ............................. $36,129,000 $38,708,000
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 29,
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1998
------------ ------------
<S> <C> <C>
Current liabilities:
Book overdraft ............................................................. $ -- $ 334,000
Revolving credit agreement borrowings ...................................... 8,926,000 7,612,000
Accounts payable - trade ................................................... 7,055,000 9,289,000
Accounts payable - related parties - net ................................... 3,516,000 5,185,000
Accrued interest expense - subordinated debt ............................... 1,731,000 1,731,000
Other accrued expenses ..................................................... 1,997,000 1,631,000
Current portion of capital lease obligations ............................... 132,000 144,000
Current portion of long-term debt .......................................... 1,283,000 822,000
------------ ------------
Total current liabilities ............................................... 24,640,000 26,748,000
Long-term debt, less current portion ............................................ 2,738,000 2,781,000
Obligations under capital leases, less current portion .......................... 20,000 130,000
Subordinated long-term debt - related parties ................................... -- 1,700,000
------------ ------------
Total Liabilities ....................................................... 27,398,000 31,359,000
============ ============
Commitments and contingencies (Note 18)
Shareholders' equity:
Preferred stock, $.05 par value; authorized 1,000,000 shares:
Series A, 537,142 and 666,529 shares, respectively issued and outstanding 3,760,000 4,666,000
Series B, 120,690 shares issued and outstanding ......................... 4,511,000 4,511,000
Series C, 78,333 shares issued and outstanding ......................... 4,699,000 --
Common stock, $.01 par value; authorized 30,000,000 shares; issued and
outstanding 16,768,859 shares in 1999 and 16,761,493 shares in 1998 ..... 168,000 168,000
Additional paid-in capital ................................................. 12,841,000 12,483,000
Related party receivables .................................................. (2,365,000) --
Foreign currency translation adjustment .................................... -- (376,000)
Accumulated deficit ........................................................ (14,883,000) (14,103,000)
------------ ------------
Total shareholders' equity ............................................. 8,731,000 7,349,000
------------ ------------
Total liabilities and shareholders' equity .......................... $ 36,129,000 $ 38,708,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED
------------ ------------ ------------
AUGUST 28, AUGUST 29, AUGUST 30,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ............................................... $ 55,994,000 $ 67,683,000 $ 68,959,000
Cost of sales ........................................... 39,163,000 50,432,000 48,441,000
------------ ------------ ------------
Gross profit ............................................ 16,831,000 17,251,000 20,518,000
Selling, general and administrative expenses ............ 14,959,000 16,424,000 17,093,000
------------ ------------ ------------
Income from operations .................................. 1,872,000 827,000 3,425,000
Other income (expense):
Interest expense .............................. (1,246,000) (1,786,000) (1,940,000)
Other income (expense) ........................ (128,000) (240,000) (252,000)
Litigation expenses ........................... (69,000) (230,000) (72,000)
------------ ------------ ------------
Income (loss) before income taxes ....................... 429,000 (1,429,000) 1,161,000
Income tax expense ...................................... 7,000 62,000 78,000
------------ ------------ ------------
Net income (loss) ....................................... 422,000 (1,491,000) 1,083,000
Less:
Cumulative preferred stock dividends .......... (797,000) (453,000) (256,000)
Beneficial conversion feature ................. (681,000) -- (1,011,000)
Warrant valuation adjustment .................. -- -- (270,000)
------------ ------------ ------------
Net loss applicable to common stock ..................... $ (1,056,000) $ (1,944,000) $ (454,000)
============ ============ ============
Loss per Common Share:
Basic ................................................... $ (0.06) $ (0.12) $ (0.03)
============ ============ ============
Diluted ................................................. $ (0.06) $ (0.12) $ (0.03)
============ ============ ============
Net income (loss) ....................................... $ 422,000 $ (1,491,000) $ 1,083,000
Less: Foreign currency translation adjustment, net of tax 376,000 (376,000) --
------------ ------------ ------------
Comprehensive income (loss).............................. $ 798,000 $ (1,867,000) $ 1,083,000
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 28, 1999, AUGUST 29, 1998 AND AUGUST 30, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------------------------------------
COMMON STOCK SERIES A SERIES B
---------------------------- --------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1996 ........... 16,650,176 $ 167,000
Net income .........................
Exercise of stock options .......... 73,500 1,000
Contribution to 401(k) Plan ........ 5,398
Issuance Series A Pref. Stock ...... 666,529 $ 4,666,000
Issuance Series B Pref. Stock ...... 120,690 $ 4,511,000
Beneficial conversion feature ......
Warrant valuation adjustment .......
------------ ------------ ------------ ------------ ------------ ------------
Balance, August 30, 1997 ........... 16,729,094 168,000 666,529 4,666,000 120,690 4,511,000
Net loss ...........................
Exercise of stock options .......... 27,495
Contribution to 401(k) Plan ........ 4,924
Sale of Brazilian subsidiary ......
Issuance of Warrants ...............
Foreign currency translation .......
------------ ------------ ------------ ------------ ------------ ------------
Balance, August 29, 1998 ........... 16,761,493 168,000 666,529 4,666,000 120,690 4,511,000
Net income .........................
Preferred Stock Dividends ..........
Contribution to 401(k) Plan ........ 7,366
Issuance of Series C Preferred Stock
and related warrants ........
Related Party Receivables ..........
Sale of Mexican Subsidiary ......... (129,387) (906,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, August 28, 1999 ........... 16,768,859 $ 168,000 537,142 $ 3,760,000 120,690 $ 4,511,000
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------
SERIES C FOREIGN
--------------------------- ADDITIONAL RELATED CURRENCY
PAID-IN PARTY TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLES ADJUSTMENT DEFICIT
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1996 ........... $ 10,354,000 $(12,414,000)
Net income ......................... 1,083,000
Exercise of stock options .......... 180,000
Contribution to 401(k) Plan ........ 32,000
Issuance Series A Pref. Stock ......
Issuance Series B Pref. Stock ......
Beneficial conversion feature ...... (1,011,000)
Warrant valuation adjustment ....... (270,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, August 30, 1997 ........... -- -- 10,566,000 -- -- (12,612,000)
Net loss ........................... (1,491,000)
Exercise of stock options .......... 264,000
Contribution to 401(k) Plan ........ 51,000
Sale of Brazilian subsidiary ...... 1,506,000
Issuance of Warrants ............... 96,000
Foreign currency translation ....... $ (376,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, August 29, 1998 ........... -- -- 12,483,000 -- (376,000) (14,103,000)
Net income ......................... 422,000
Preferred Stock Dividends .......... (375,000)
Contribution to 401(k) Plan ........ 51,000
Issuance of Series C Preferred Stock
and related warrants ........ 78,333 $ 4,699,000 307,000 (681,000)
Related Party Receivables .......... $ 2,365,000
Sale of Mexican Subsidiary ......... 376,000 (146,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, August 28, 1999 ........... 78,333 $ 4,699,000 $ 12,841,000 $ 2,365,000 $ -- $(14,883,000)
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------ ------------ ------------
AUGUST 28, AUGUST 29, AUGUST 30,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ 422,000 $ (1,491,000) $ 1,083,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................. 1,727,000 1,775,000 1,710,000
Provision for losses on accounts receivable ................... 886,000 998,000 729,000
Provision for market valuation of inventory ................... 170,000 720,000 1,005,000
Provision for (reduction in) LIFO reserve .................... 109,000 (685,000) (525,000)
Foreign currency translation adjustment ....................... -- (376,000) --
Loss on disposal of assets .................................... -- -- 2,000
Compensation expense related to extension of stock options .... -- 217,000 --
Issuance of stock in connection with 401K plan ................ 51,000 51,000 32,000
Amortization of deferred loan origination costs ............... 255,000 188,000 --
Amortization of warrant valuation ............................. 4,000 60,000 63,000
Change in operating assets and liabilities:
Accounts receivable ......................................... (2,278,000) 145,000 (7,137,000)
Accounts receivable, affiliates ............................. (2,876,000) (1,787,000) (302,000)
Inventories ................................................. 1,428,000 1,414,000 (1,348,000)
Other current assets ........................................ 350,000 264,000 (374,000)
Accounts payable ............................................ (2,234,000) 1,251,000 2,906,000
Accounts payable, affiliates ................................ (1,567,000) 722,000 1,563,000
Accrued expenses ............................................ 243,000 (239,000) 1,663,000
Income taxes payable ........................................ -- (11,000) (74,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities ......... (3,310,000) 3,216,000 996,000
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures ............................................ (1,892,000) (1,599,000) (1,274,000)
Decrease (increase) in other assets ............................. -- (20,000) 124,000
------------ ------------ ------------
Net cash used in investing activities ....................... (1,892,000) (1,619,000) (1,150,000)
------------ ------------ ------------
Cash flows from financing activities:
Book overdraft .................................................. (334,000) 334,000 --
Borrowings under new revolving credit facility .................. 80,993,000 53,948,000 --
Repayments under new revolving credit facility .................. (79,679,000) (46,336,000) --
Net borrowings (repayment) under former revolving credit facility -- (10,205,000) 886,000
Proceeds from long-term debt .................................... 1,414,000 4,258,000 --
Principal payments on capital leases ............................ (122,000) (132,000) (18,000)
Principal payments on long-term debt ............................ (996,000) (3,157,000) (635,000)
Deferred loan costs relating to revolving credit facility ....... -- (780,000) --
</TABLE>
F-6
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
----------- ----------- -----------
AUGUST 28, AUGUST 29, AUGUST 30,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Issuance of Preferred Stock C ....................... 4,699,000 -- --
Payment of issuance costs for Preferred Stock C ..... (374,000) -- --
Payment of dividends on Preferred Stock C ........... (375,000) -- --
Proceeds from issuance of common stock .............. -- 47,000 180,000
----------- ----------- -----------
Net cash provided by (used in) financing activities 5,226,000 (2,023,000) 413,000
=========== =========== ===========
Net increase (decrease) in cash ......................... 24,000 (426,000) 259,000
Cash at beginning of year ............................... 66,000 492,000 233,000
----------- ----------- -----------
Cash at end of year ..................................... $ 90,000 $ 66,000 $ 492,000
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest .......................................... $ 991,000 $ 1,637,000 $ 1,527,000
Income taxes paid (received) ...................... $ (38,000) $ 131,000 $ 144,000
</TABLE>
Supplemental disclosure of noncash financing and investing activities:
1999
- ----
o Sale of a Mexican subsidiary to an affiliated company for $2,686,000. The
result was a non-cash decrease of subordinated debt to Nevell Investments,
S.A. of $1,700,000 and the remaining $986,000 attributed to redeemed
shares of Series A Preferred Stock (See Note 7 of the Notes to
Consolidated Financial Statements for further discussion).
o Certain related party accounts receivable balances will not be collected
in the normal course of business. Accordingly, as of August 28, 1999,
outstanding balances totaling $2,365,000 have been reclassified to
shareholder's equity.
1998
- ----
o A non-cash increase in property and equipment and obligations under
capital leases of $327,000.
o Sale of a Brazilian subsidiary to an affiliated company for $2,800,000.
The result was a non-cash decrease of subordinated debt to Nevell
Investments, S.A. of $2,800,000 (See Note 6 of the Notes to Consolidated
Financial Statements for further discussion).
o Warrants issued to an investment banker resulted in a non-cash increase in
additional paid-in-capital and other assets of $96,000.
1997
- ----
o During fiscal year 1997, Nevell Investments, S.A. and Transvit
Manufacturing Corporation converted $4,511,000 and $4,666,000,
respectively, of subordinated debt into preferred stock (See Note 13 of
the Notes to Consolidated Financial Statements for further discussion).
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
AFFILIATION
The Company, which is primarily owned by companies under the control of the
Sheth Group (Starion International, Ltd., a British Virgin Islands Limited
Partnership ("Starion B.V.I.") and Transvit Manufacturing Corporation
("Transvit"), operates in one industry segment; the development, manufacturing,
marketing and distribution of designer alternative fragrances, complimentary
products to those fragrances and cosmetic pencils, and in the marketing and
distribution of other cosmetic and selected toiletry products. The Company
distributes its products to more than 1,200 customers, including wholesalers,
distributors, drug and grocery chains, mass merchandisers and specialty chain
stores located primarily in North and South America. In fiscal 1999 and 1998,
one customer accounted for approximately 13% and 10% respectively, of the
Company's net sales, while in 1997 no single customer accounted for more than
ten percent.
FISCAL YEAR END
The Company utilizes a 52-53 week fiscal year ending on the Saturday nearest the
last day of the month of August in each year. The 1999, 1998 and 1997 fiscal
years ended on August 28, August 29, and August 30, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tristar
Corporation and all subsidiaries (the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation. Effective May 30, 1998, the
company sold its Brazilian subsidiary. See Note 6 of the Notes to Consolidated
Financial Statements for further discussion. Effective November 29, 1998, the
Company sold its Mexican subsidiary. See Note 7 of the Notes to Consolidated
Financial Statements for further discussion.
INVENTORY
Inventories are stated at the lower of last-in-first-out (LIFO) cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is determined by
the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to operations.
The estimated useful lives are as follows:
Buildings 32 years
Leasehold improvements Term of the lease or estimated
useful life,
whichever is less
Furniture and equipment 7 to 10 years
Manufacturing equipment 7 years
Vehicles 5 years
Gains and losses from disposals of property and equipment are reflected in the
Statement of Operations in the period of disposal.
EQUIPMENT UNDER CAPITAL LEASES
Equipment under capital leases is amortized over the term of the lease or the
estimated useful life of the equipment, whichever is less.
REVENUE RECOGNITION
Revenue is recognized by the Company when goods are shipped and title passes to
the purchaser.
NET INCOME (LOSS) PER COMMON SHARE
The Company adopted SFAS No. 128, "Earnings per Share," in fiscal, 1998.
Accordingly, basic EPS is computed by
F-8
<PAGE>
dividing net income (loss) applicable to common shareholders by the
weighted-average number of common shares outstanding during each period. Diluted
EPS is computed by dividing net income (loss) applicable to common shareholders,
as adjusted for the assumed conversion of preferred stock, if applicable, by the
sum of the weighted-average number of common shares outstanding, and the number
of additional common shares that would have been outstanding if dilutive
options, warrants and convertible preferred stock had been exercised or
converted. All prior-period EPS amounts presented have been restated to conform
to the provisions of SFAS No. 128.
USE 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 during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSACTIONS
The Company purchases a significant portion of its inventory for its
manufacturing operations from foreign suppliers. Such inventory is recorded
using currency exchange rates in effect on the date of purchase. Gains and
losses on the settlement of accounts payable for such purchases are recorded
based upon the currency exchange rates in effect on the date of settlement.
Foreign currency denominated accounts payable balances outstanding at August 28,
1999 and August 29, 1998 have been translated to U.S. dollars utilizing exchange
rates in effect at the respective balance sheet dates.
Financial statements of foreign subsidiaries have been translated based on the
U.S. dollar being the functional currency of the subsidiaries. Monetary assets
and liabilities are translated utilizing the appropriate period ending exchange
rates. Non-monetary assets are translated utilizing historical exchange rates.
Results of operations, with the exception of cost of sales and depreciation, are
translated using the average exchange rates prevailing throughout the year. Cost
of sales and depreciation are translated at the historic rates of the inventory
sold and underlying property, plant and equipment, respectively. Except as
discussed below, foreign currency translation gains and losses are reflected in
the Statements of Operations.
Effective June 1, 1998, the Company classified approximately $3.8 million of
intercompany receivables from its Mexican subsidiary as a permanent investment.
Accordingly, effective June 1, 1998, all translation gains and losses related to
this intercompany balance have been recorded directly to Shareholders' Equity as
Foreign Currency Translation Adjustment. The Company believes this
classification is appropriate as there is no intent for these amounts to be
repaid, there are no repayment terms, and the amounts outstanding are
non-interest bearing. In November 1998, the Company sold it's Mexican
subsidiary. Refer to Note 7 of the Notes to Consolidated Financial Statements
for further discussion.
The net foreign currency transaction and translation gains/(losses) reflected in
the Statement of Operations for the years ended August 28,1999, August 29,1998
and August 30,1997 were approximately $157,000, ($111,000), and ($156,000)
respectively.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were approximately
$1,909,000, $1,860,000, and $4,124,000, for the year ended August 28, 1999,
August 29, 1998 and August 30, 1997, respectively.
RECLASSIFICATION OF PRIOR PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform to the current
year presentation.
2. LOSS PER COMMON SHARE
A reconciliation of the numerators and denominators of the basic and diluted
loss per share computations, as required by SFAS No. 128, is presented below:
F-9
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------
AUGUST 28, AUGUST 29, AUGUST 30,
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Basic EPS:
Net loss applicable to common stock $ (1,056,000) $ (1,944,000) $ (454,000)
Weighted-average number of common
shares outstanding................. 16,764,506 16,748,798 16,709,690
-------------- -------------- --------------
Basic EPS ......................... $ (.06) $ (.12) $ (.03)
============== ============== ==============
Diluted EPS ....................... $ (.06) $ (.12) $ (.03)
============== ============== ==============
</TABLE>
Dilutive EPS equals basic EPS for the years ended August 28, 1999, August 29,
1998 and August 30, 1997 as the assumed conversion of convertible preferred
stock and the assumed exercise of outstanding options and warrants would have an
anti-dilutive effect.
3. INVENTORIES:
AUGUST 28, AUGUST 29,
1999 1998
------------ ------------
Raw materials ................................ $ 4,183,000 $ 4,728,000
Work-in-process .............................. 630,000 1,059,000
Finished goods ............................... 5,395,000 6,342,000
------------ ------------
10,208,000 12,129,000
Reserves for market valuation ................ (305,000) (490,000)
LIFO valuation allowance ..................... (372,000) (264,000)
------------ ------------
$ 9,531,000 $ 11,375,000
============ ============
Cost of sales was increased by approximately $362,000 and $572,000 as a
result of LIFO inventory decrements in 1999 and 1998, respectively. There
was no LIFO inventory decrement in 1997.
4. PROPERTY, PLANT AND EQUIPMENT:
August 28, August 29,
1999 1998
------------ ------------
Land ....................................... $ 33,000 $ 33,000
Building and Leasehold improvements ........ 4,903,000 3,998,000
Machinery and equipment .................... 10,359,000 9,602,000
Computer equipment ......................... 2,667,000 2,676,000
Furniture and equipment .................... 836,000 695,000
------------ ------------
18,798,000 17,004,000
Less accumulated depreciation .............. (10,434,000) (8,805,000)
------------ ------------
$ 8,364,000 $ 8,199,000
============ ============
During the fiscal years ended August 28, 1999, August 29, 1998 and August 30,
1997, the Company recorded depreciation expense of $1,727,000, $1,775,000 and
$1,710,000.
F-10
<PAGE>
5. REVOLVING CREDIT AGREEMENT BORROWINGS AND LONG-TERM DEBT:
August 28, August 29,
1999 1998
----------- -----------
Revolving credit agreement borrowings ........ $ 8,926,000 $ 7,612,000
----------- -----------
Term loan .................................... $ 2,286,000 $ 2,960,000
Capital expenditure loan ..................... 1,713,000 643,000
Other note payable ........................... 22,000 --
----------- -----------
4,021,000 3,603,000
Less current portion ......................... (1,283,000) (822,000)
----------- -----------
Long-term debt, less current portion ......... $ 2,738,000 $ 2,781,000
----------- -----------
On December 19, 1997, the Company entered into a $22,000,000 credit agreement
with its principal lender (the "Credit Agreement"). The Credit Agreement
includes a revolving credit facility (the "Revolving Credit") which provides for
$15,100,000 of maximum borrowings bearing interest, at the Company's election,
at the Alternate Base Rate (the higher of the prime rate or the Federal Funds
Rate plus .50%) plus 1.50% or the London Interbank Offered Rate (LIBOR) plus
3.50% (although, borrowings based on LIBOR cannot exceed 60% of the total
oustanding borrowings under the Revolving Credit). At August 28, 1999, the
Revolving Credit bore interest at rates of 9.56% and 8.78%, respectively, in
accordance with the above noted interest computations. Borrowings under the
Revolving Credit are limited by a formula based on Eligible Accounts Receivable
and Inventory, as defined in the agreement. Remaining availability under the
line as of August 28, 1999 approximated $1,392,000 based on the borrowing
formula. Commitment fees equal to .50% per annum on the unused portion of the
Revolving Credit are payable monthly. The credit agreement contains certain
provisions giving the lender the right to accelerate payment of all outstanding
amounts in the event of a "material adverse clause", as defined. Accordingly,
all Revolving Credit amounts are classified as current in the accompanying
consolidated balance sheets. All outstanding amounts under the Revolving Credit
Agreement are due in December 2001.
The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan")
and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term
Loan bears interest, payable monthly, at the Alternate Base Rate (8.25% at
August 28, 1999) plus 2.00%. Principal payments on the Term Loan consist of
equal monthly principal payments in the amount of $56,667 for 35 months
beginning in January, 1998 with a $1,416,655 balloon payment due in December
2001. Additionally, 50% of annual excess cash flow, as defined, must be applied
to the Term Loan installments in the inverse order of maturity.
Borrowings under the Cap Ex Facility are limited to 80% of the cost of new
machinery and equipment, limited to annual utilization of $1,500,000. These
borrowings also bear interest, payable monthly, at the Alternate Base Rate
(8.25% at August 28, 1999) plus 2.00%. Principal payments on the Cap Ex Facility
commence one month after the related borrowing in an amount based on a three
year amortization. However, a balloon payment in an amount equal to all
outstanding borrowings under the Cap Ex Facility is also due in December 2001.
As of August 28, 1999 the Company had outstanding borrowings under the Cap Ex
Facility totalling $1,713,000 in capital expenditures. Principal payments are
due at the rate of $50,250 per month.
F-11
<PAGE>
Aggregate maturities of amounts outstanding under the Term Loan and Cap Ex
Facility are as follows as of August 28, 1999:
FISCAL YEAR AMOUNT
----------- ----------
2000 $1,283,000
2001 1,305,000
2002 1,433,000
----------
$4,021,000
==========
Borrowings under the Credit Agreement are collateralized by all of the Company's
present and future assets. The Credit Agreement contains restrictive financial
covenants including Minimum Tangible Net Worth, Minimum EBITDA, Maximum Loss,
Minimum Fixed Charge Coverage, Maximum Leverage and Maximum Capital
Expenditures. Additional covenants limit borrowings, asset sales and dividends.
The Company was in violation of certain financial covenants as of February 27,
1999, May 29, 1999 and August 28, 1999 and was granted waivers to such covenants
by the lender.
6. SALE OF WHOLLY OWNED BRAZILIAN SUBSIDIARY
Effective May 30, 1998, the Company sold all of the capital stock and
distribution rights of its Brazilian subsidiary to Transvit Distribution Corp.
("TDC"), a wholly owned affiliate of the Sheth Group, for $2,800,000. The
agreement provides for a non-compete restriction and a supply arrangement
whereby the Company agreed to continue selling product to the Brazilian unit
through May 31, 2001. The company also received an option to repurchase the
stock and distribution rights from TDC at anytime prior to May 31, 2003. The
Company currently has no plans to repurchase the stock and distribution rights
under this option.
The Company received payment in the form of a reduction of the subordinated debt
to Nevell Investments, S.A., ("Nevell") another affiliated company within the
Sheth Group. The subordinated debt reduction, net of the related write-down of
warrant valuation costs attributable to such debt, exceeded the carrying value
of the Company's Brazilian investment by $1,506,000 and was recorded as an
increase in additional paid-in-capital.
7. SALE OF WHOLLY OWNED MEXICAN SUBSIDIARY
On March 15, 1999, pursuant to a stock purchase agreement entered into by and
among the Company, Transvit Holding Corporation ("THC"), a wholly owned
affiliate of the Sheth Group, the majority stockholder of the Company, and
Nevell Investments, S.A. ("Nevell"), another affiliate of the Sheth Group, the
Company sold to THC for $2,686,000 all of the issued and outstanding capital
stock ("Trimex Stock") and certain distribution rights of its wholly owned
subsidiary, Tristar de Mexico, S.A. de C.V. ("Trimex") , a distributor of
fragrance and cosmetic products into the formal retail market in the United
Mexican States. The transaction was effective as of November 29, 1998.
The transaction provides for a non-compete restriction and a supply agreement
whereby the Company agreed to continue selling certain products to Trimex. The
Company also received an option to repurchase the Trimex Stock and distribution
rights from THC at a fair value at anytime prior to March 15, 2004. The Company
currently has no plans to exercise such option but may do so in the future.
The Company received payment in the form of a reduction of debt due Nevell, and
redemption of 129,387 shares of the Company's Series A Convertible Preferred
Stock, $.05 par value ("Series A Preferred"), issued to Nevell, at a redemption
price of $7.62 per share. Of the total purchase price of $2,686,000, an amount
equal to $1,700,000 was applied to a reduction of debt due Nevell (See Note 8 of
the Notes to Consolidated Financial Statements) with the remaining $986,000
attributed to redeemed shares of the Series A Preferred at a total redemption of
approximately $906,000 plus $80,000 of dividends in arrears.
F-12
<PAGE>
Warrant valuation costs of $99,000 associated with the subordinated debt
reduction were written-off in connection with the sale. The excess of the
carrying value of the Company's investment in Trimex over the proceeds received
was recorded as an increase in accumulated deficit.
8. SUBORDINATED LONG-TERM DEBT:
Subordinated long-term debt totaling $1,700,000 as of August 28, 1998 represents
a portion of a loan made by the Sheth Group through their affiliate Nevell. Such
indebtedness was extinguished in connection with the sale of the Company's
wholly owned Mexican subsidiary. See Note 7 of the Notes to Consolidated
Financial Statements for further discussion.
9. RELATED PARTY TRANSACTIONS:
As of August 28, 1999 a majority of the Company's outstanding stock (73%) is
owned by companies under control of the Sheth Group. Effective April 22, 1998,
the Sheth Group sold 700,000 shares of the Company's stock to a business
associate.
The purchase price was substantially lower than the price reported by NASDAQ,
reflecting a discount from the market price due to the magnitude of the
transaction and the relatively low trading volume of the Company's stock. This
transaction reduced the Sheth Group holdings to 73% of the Company's outstanding
stock.
The Company purchases finished goods and components from Sheth Group affiliates.
During fiscal 1999, 1998 and 1997 the Company purchased approximately
$2,979,000, $4,227,000, and $6,503,000, respectively, of such products.
The Company sold products to Sheth Group affiliates during fiscal 1999, 1998 and
1997 of approximately $5,418,000, $6,557,000, and $3,866,000, respectively.
Gross margins on these sales during fiscal 1999, 1998, and 1997 were 36%,
16%,and 27%, respectively. The fiscal 1999 net sales include approximately $
1,000,000 in slow moving finished goods and raw materials inventory which was
sold at a gross margin of approximately 16%. Fiscal 1998 net sales include
approximately $1,535,000 in slow moving finished goods and raw materials
inventory which was sold at a gross margin of approximately 6%.
In fiscal 1999, 1998 and 1997, the Company incurred fees to directors of
approximately $206,000, $279,000, and $260,000, respectively, of which
approximately $72,000 and $27,000 were unpaid at August 28, 1999 and August 29,
1998, respectively.
At August 28, 1999 warrants to purchase 400,000 and 2,000,000 of the Company's
common stock at an exercise price of $2.75 and $5.34 per share, respectively,
were owned by the Sheth Group. The warrants are exercisable through 2003. An
extension of the expiration date of the 400,000 warrants to 2003 and the grant
of the 2,000,000 warrants were made in connection with the settlement of the
stockholder class action litigation in 1993. See Note 19 of the Notes to
Consolidated Financial Statements for further discussion.
10. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - RELATED PARTIES:
Related parties are the primary suppliers of the Company's cosmetics and are
also suppliers of certain components. Related party accounts payable result from
the purchase of those items. Related party accounts receivable result from the
sale of the Company's products to related parties. The following summarizes the
presentations at August 28, 1999 and August 29, 1998. See Note 9 of the Notes to
Consolidated Financial Statements for further discussion.
F-13
<PAGE>
<PAGE>
AUGUST 28, AUGUST 29,
1999 1998
----------- -----------
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties .. $ 4,568,000 $ 4,153,000
Offset amount .............................. (450,000) (546,000)
----------- -----------
Net related parties receivables ............ $ 4,118,000 $ 3,607,000
=========== ===========
ACCOUNTS PAYABLE:
Total accounts payable-related parties ..... $ 3,966,000 $ 5,731,000
Offset amount .............................. (450,000) (546,000)
----------- -----------
Net related parties payables ............... $ 3,516,000 $ 5,185,000
=========== ===========
Certain related party accounts receivable balances will not be collected in the
normal course of business. Accordingly, outstanding balances totaling $2,365,000
have been reclassified to shareholder's equity at August 28, 1999. These
receivables will be settled in fiscal 2000 through a redemption of preferred
stock controlled by the related parties.
11. LEASES:
The future minimum lease payments required under capital leases (together with
the present value of minimum lease payments) and future minimum lease payments
required under operating leases that have an initial or remaining lease term in
excess of one year as of August 28, 1999 are as follows:
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
----------- ---------- ----------
2000 ........................................... $ 544,000 $ 139,000
2001 ........................................... 348,000 9,000
2002 ........................................... 189,000 9,000
2003 ........................................... 192,000 4,000
2004 ........................................... 164,000 --
---------- ----------
Total minimum lease payments .................... $1,437,000 161,000
==========
Less imputed interest ........................... (9,000)
----------
Present value of minimum lease payments ......... 152,000
Less current portion ............................ (132,000)
----------
Long term portion ............................... $ 20,000
==========
Certain of the above leases include escalation charges based on increases in
real estate taxes, utilities and common maintenance charges.
Rental expense for fiscal 1999, 1998 and 1997 amounted to approximately
$788,000, $745,000, and $614,000, respectively.
F-14
<PAGE>
12. INCOME TAXES:
The components of income (loss) before income taxes are as follows:
YEARS ENDED
-------------------------------------------------
AUGUST 28, AUGUST 29, AUGUST 30,
1999 1998 1997
----------- ----------- -----------
Domestic .............. $ 300,000 $ (495,000) $ 3,055,000
Foreign ............... 129,000 (934,000) (1,894,000)
----------- ----------- -----------
$ 429,000 $(1,429,000) $ 1,161,000
=========== =========== ===========
Under the Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), the asset and
liability method is used in accounting for income taxes. Deferred tax balances
are determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted marginal tax rates and
laws that will be in effect when the differences are expected to reverse.
Income tax expense (benefit) consists of the following:
CURRENT DEFERRED TOTAL
----------- ----------- -----------
Year ended August 28, 1999
U.S. Federal ................... $ 7,000 $ -- $ 7,000
State .......................... -- -- --
----------- ----------- -----------
$ 7,000 $ -- $ 7,000
=========== =========== ===========
Year ended August 29, 1998
U.S. Federal ................... $ 62,000 $ -- $ 62,000
State .......................... -- -- --
----------- ----------- -----------
$ 62,000 $ -- $ 62,000
=========== =========== ===========
Year ended August 30, 1997
U.S. Federal ................... $ 76,000 $ -- $ 76,000
State .......................... 2,000 -- 2,000
----------- ----------- -----------
$ 78,000 $ -- $ 78,000
=========== =========== ===========
F-15
<PAGE>
Income tax expense in fiscal 1999, 1998 and 1997 differed from the amounts
computed by applying the statutory income tax rate to income (loss) before
income taxes as a result of the following:
<TABLE>
<CAPTION>
August 28, August 29, August 30,
----------- ----------- -----------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax expense (benefit) ....................................... $ 159,000 $ (522,000) $ 406,000
Increase (decrease) in income taxes resulting from:
Net operating loss carryforward utilized ................................ (46,000) -- --
Warrant expenses not deductible for income tax
purposes ............................................................ -- 22,000 22,000
Foreign subsidiary (income) loss not included for
income tax purposes ................................................. (36,000) 327,000 663,000
U.S. loss providing no current year benefit ............................. -- 558,000 655,000
State income taxes, net of federal income tax benefit ................... -- -- 2,000
Deferred tax asset valuation allowance inclusive of other items providing
no current period benefit ........................................... (518,000) (287,000) (1,888,000)
Alternative minimum tax ................................................. 7,000 -- 76,000
Prior year return to provision adjustments .............................. (518,000) 62,000 --
IRS settlement impact on net operating loss carryforward ................ 925,000 -- --
Other, net .............................................................. 34,000 (98,000) 142,000
----------- ----------- -----------
Total income tax expense ...................................................... $ 7,000 $ 62,000 $ 78,000
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at August 28, 1999 and
August 29, 1998 are presented below:
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 29,
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts
and sales returns ................................................... $ 469,000 $ 417,000
Inventories, principally due to allowance for obsolescence and difference
in certain costs capitalized for tax purposes ....................... 174,000 251,000
Packaging design costs .................................................. 270,000 435,000
Accrued expenses, principally due to accrual of related party interest
expense for financial reporting purposes ............................ 841,000 773,000
Net operating loss carryforward ......................................... 2,852,000 3,228,000
Alternative minimum tax credit carryforwards ............................ 306,000 300,000
----------- -----------
Total deferred tax assets ..................................................... 4,912,000 5,404,000
Less valuation allowance ...................................................... (4,027,000) (4,434,000)
----------- -----------
885,000 970,000
----------- -----------
Deferred tax liabilities:
LIFO reserve ............................................................ (207,000) (218,000)
Plant and equipment, principally due to differences in depreciation ..... (678,000) (725,000)
Other ................................................................... -- (27,000)
----------- -----------
Total deferred tax liabilities ................................................ (885,000) (970,000)
----------- -----------
Net deferred tax asset ........................................................ $ -- $ --
=========== ===========
</TABLE>
F-16
<PAGE>
The valuation allowance for deferred taxes decreased during fiscal 1999 and 1998
by $407,000 and $287,000 respectively. In assessing the realizability of
deferred tax assets under the guidelines of SFAS No. 109, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. While management
anticipates generating future taxable income, a valuation allowance of
$4,027,000 has been recorded at August 28, 1999 in accordance with SFAS No. 109
to reduce the net deferred tax asset to zero due to the uncertainty of realizing
the benefits of these deductible differences.
At August 28, 1999, the Company has net operating loss carryforwards for federal
income tax purposes of approximately $7,700,000 which are available to offset
future federal taxable income, if any, through 2012. The Company also has
alternative minimum tax credit carryforwards of approximately $306,000 which are
available to reduce future federal regular income taxes, if any, over an
indefinite period.
13. PREFERRED STOCK:
To strengthen the financial position of the Company, effective December 11,
1996, Transvit Manufacturing Corporation ("Transvit"), a related party and
principal stockholder, agreed to convert a $4,666,000 subordinated note payable
into 666,529 shares of the Company's Series A convertible nonvoting preferred
stock. 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. Each share of the Series A preferred stock is convertible, at the
option of Transvit, into one share of the Company's common stock. The Company
can redeem the shares of Series A preferred stock at any time for cash of $7 per
share, plus all accrued and unpaid dividends. The Company redeemed 129,387
shares of the Series A Stock in connection with the sale of its wholly-owned
Mexican subsidiary in fiscal 1999. See Note 7 of the Notes to Consolidated
Financial Statements.
The conversion price approximated the closing bid price of the Company's common
stock as reported by the NASDAQ on the date of this transaction. At August 28,
1999, cumulative dividends in arrears on the Series A preferred stock
approximated $443,000.
In a subsequent transaction effective February 21, 1997, Nevell, the holder of a
subordinated long-term promissory note in the principal amount of $4,000,000,
converted $3,500,000 of that note into 120,690 shares of the Company's Series B
convertible nonvoting preferred stock. The Series B preferred stock has
cumulative preferred dividends of $2.03 per share and a preferred distribution
of $29.00 per share plus accrued and unpaid dividends. Each share of the Series
B preferred stock is convertible, at the option of Nevell, into four shares of
the Company's common stock. The Company can redeem the shares of Series B
preferred stock at any time for cash of $29.00 per share ($7.25 per common
share), plus all accrued and unpaid dividends. At August 28, 1999, cumulative
dividends in arrears on the Series B preferred stock approximated $611,000.
On February 21, 1997, the closing bid price of the Company's common stock as
reported by the NASDAQ was $9 11/32. At that date, the Series B preferred stock
carried a beneficial conversion feature of $2 3/32, the difference between the
conversion price and the closing bid price. The value of the beneficial
conversion feature has been reflected in the financial statements of the Company
in a manner similar to that for a dividend to the preferred shareholder.
Accordingly, the Company has recorded a charge to retained earnings and an
increase in the value of the Series B preferred stock in the amount of
$1,011,000. Additionally, as a result of the conversion, the Company wrote off
$270,000 of warrant valuation costs attributable to the converted debt. This
charge has also been recorded to retained earnings in a manner consistent with
that for the beneficial conversion feature described above. Additionally, the
charge applicable to the beneficial conversion feature and the warrant valuation
adjustment have been deducted in computing net loss applicable to common stock
in the accompanying consolidated statement of operations.
Effective September 3, 1998 the Company completed a private placement whereby it
sold 78,333 shares of Series C Senior Convertible Preferred Stock ("Series C
Preferred Stock") to a private investor for $60 per share. Each share of Series
C Preferred Stock is convertible into common shares at a conversion price of
$5.44 per share.
F-17
<PAGE>
In addition, the Company issued a warrant to purchase 125,000 shares of Common
Stock at an exercise price of between $4.00 and $6.28 per share. The Company
received proceeds of approximately $4,700,000 in such private placement.
The holders of the Series C Preferred Stock are entitled to receive a cumulative
cash dividend of $4.80 per share annually. The dividend is payable quarterly
($1.20 per share). The dividends may be paid by issuance of additional shares of
Series C Preferred Stock except such shares bear a cumulative cash dividend of
$7.80 per share annually. Dividends of approximately $376,000 were paid in cash
on the Series C Preferred Stock during the fifty-two week period ended August
28, 1999. The holders of the Series C Preferred Stock are entitled to receive a
liquidation preference equal to $60.00 per share plus interest thereon from the
date of issue until redemption or conversion at a compound rate of 20% per year.
The Series C Preferred Stock has full voting rights based on the number of
common shares into which it is convertible and is voted together with the Common
Stock as one class.
On September 3, 1998, the date of the issuance of the Series C Preferred Stock,
the closing bid price of the Company's common stock as reported by the NASDAQ
was $5.44. The Series C Preferred Stock conversion ratio was based on this
closing bid price at date of issuance. The common stock warrants issued to the
holders of the Series C Preferred Stock were valued at approximately $307,000
utilizing the Black Scholes Method. Additionally, the Company incurred costs
totaling $374,000 in connection with the Series C Preferred Stock sale. The
value of the common stock warrants and the issuance costs have been accounted
for as a beneficial conversion feature to the preferred shareholders and thus
have been charged directly to accumulated deficit and have been reflected as a
reduction in net income applicable to common stock.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying value of cash, accounts receivable - net, and accounts receivable -
related parties - net, accounts payable - trade, and accounts payable - related
parties - net, approximate their respective fair value because of the short-term
maturity of those instruments.
The carrying value of amounts outstanding under the Credit Agreement
approximates fair value as the interest rates approximate those currently
offered to the Company for debt with similar maturities.
15. STOCK OPTION PLANS:
The Company has granted stock options under the Amended and Restated Option Plan
(the "1991 Plan"), 1997 Long Term Incentive Plan and other plans (collectively
the "Plans"). The Company applies APB Opinion 25 and related interpretations in
accounting for the Plans. In 1995, the FASB issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which, if fully adopted
by the Company, would change the methods the Company applies in recognizing the
cost of the Plans. Adoption of the cost recognition provisions of SFAS 123 is
optional and the Company has decided not to elect these provisions of SFAS 123.
However, pro forma disclosures as if the Company adopted the cost recognition
provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below.
Under the Plans, the Company is authorized to issue up to 1,800,000 shares of
Common Stock pursuant to "Awards" granted in various forms, including incentive
stock options (intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended), nonqualified stock options, and other similar
stock-based awards.
F-18
<PAGE>
The stock options granted in fiscal 1999, 1998 and 1997 have contractual terms
of 10 years and an exercise price equal to the fair market value of the stock at
grant date. The options vest over various vesting schedules. Most vest ratably
at the rate of 20% per year beginning on the date of grant or the first
anniversary of the date of grant. Others vest according to shorter schedules.
A summary of the status of the Company's stock options as of August 28, 1999,
August 29, 1998 and August 30, 1997 and the changes during the years then ended
are presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year . 1,462,500 $ 8.99 1,175,711 $ 8.20 786,626 $ 6.73
Granted .............................. 302,500 $ 5.78 580,000 $ 10.37 677,500 $ 8.84
Exercised ............................ 0 N/A (7,000) $ 6.88 (93,995) $ 2.86
Forfeited ............................ (10,000) $ 4.81 (252,958) $ 8.93 (194,420) $ 6.35
Expired .............................. 0 N/A (33,253) $ 7.32 0 N/A
---------- -------------- ---------- -------------- ---------- --------------
Outstanding at end of year ........... 1,755,000 $ 6.24 1,462,500 $ 8.99 1,175,711 $ 8.20
========== ============== ========== ============== ========== ==============
Exercisable at end of year ........... 1,018,000 $ 6.31 588,500 $ 8.35 304,738 $ 7.44
========== ============== ========== ============== ========== ==============
Weighted average fair value of options
Granted .......................... $ 2.70 $ 4.57 $ 3.67
---------- ---------- ----------
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in fiscal 1999, 1998 and 1997: dividend yield of 0%;
risk-free interest rates ranging from 5.18% to 5.81%; an expected life of
options of 6 years; and a volatility ranging from 39.03% to 41.88% for all
grants.
The following table summarizes information about stock options oustanding at
August 28, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- ----------------------------------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXCERCISE PRICE
----------------------- ----------- ------------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
$1.44 5,000 1.08 $1.44 5,000 $1.44
$4.81 to $7.22 1,750,000 7.87 $6.24 1,013,000 $6.35
----------------------- ----------- ------------------- ---------------- ------------ ---------------
$1.44 to $7.22 1,755,000 7.85 $6.24 1,018,000 $6.31
======================= =========== =================== ================ ============ ===============
</TABLE>
F-19
<PAGE>
SFAS 123 establishes a fair value of accounting for stock-based compensation
plans. Had the compensation cost for the Company's stock-based compensation
plans been determined consistent with SFAS 123, the Company's net income (loss),
net loss applicable to common stock and net loss per common share would
approximate the pro forma amounts below:
<TABLE>
<CAPTION>
AUGUST 28, 1999 AUGUST 29, 1998
-------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SFAS 123 Charge ................... -- $ 1,712,000 -- $ 2,005,000
APB 25 Charge ..................... -- -- -- --
Net income (loss) ................. $ 422,000 $(1,290,000) $(1,491,000) $(3,496,000)
Net loss applicable to common stock $(1,056,000) $(2,768,000) $(1,944,000) $(3,949,000)
Net loss per common share ......... $ (.06) $ (0.16) $ (0.12) $ (0.24)
</TABLE>
The effects of applying SFAS 123 as disclosed above are not indicative of future
amounts. SFAS 123 does not apply to awards granted prior to the 1995 fiscal
year.
On November 17, 1998, the Board of Directors approved a plan to reprice all
outstanding options. Accordingly, all outstanding options as of December 9, 1998
were repriced to $6.31, the common stock market price at that date.
16. WARRANTS
The Company issued warrants to an investment banker in June 1998 to purchase
50,000 shares of the Company's common stock at $10.47 per share as compensation
for various due diligence and investment banking services. The warrants have
been valued at $96,000 using the Black Scholes method and have been credited to
additional paid-in capital and recorded as prepaid consulting costs. The
warrants expire on September 1, 2003. The prepaid consulting costs have been
amortized on a straight-line basis over twelve months.
17. BENEFIT PLAN:
Substantially all of the Company's full time employees are eligible to
participate in the Company's 401(k) Plan. The Plan specifies that one-half of
the Company's matching contribution is to be paid by the issuance of common
stock based on the closing price at the end of each calendar quarter. During
fiscal 1999, 1998 and 1997, a total of 7,366, 4,924 and 5,398, respectively, of
such shares were issued to the Plan. Contributions including the issuance of
Common Stock to the Plan were $106,000 in 1999, $106,000 in 1998, and $80,000 in
1997.
18. COMMITMENTS 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 alleged causes of action by two plaintiffs for libel and sought
indemnification of legal costs allegedly incurred by those plaintiffs in suits
and proceedings arising from the facts which were the subject of the
investigation conducted by the Special Committee of the Board of Directors in
1992. The complaint also alleged, on behalf of all four plaintiffs, that the
Company's disclosures relating to the Sheth Group's holding of Company stock 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. In October 1998, the Court dismissed the claim against the one
director. On November 3, 1999, the Court dismissed the remaining claims for
failure to prosecute.
F-20
<PAGE>
INTERNAL REVENUE SERVICE
In February, 1997, the Internal Revenue Service ("the IRS") concluded their
examination of the Company's tax returns submitted for fiscal years 1993, 1994
and 1995. The IRS proposed adjustments disallowing the deductions of payments
made in the settlement of the class action litigation and certain related legal
and professional fees. In June 1999, the Company reached an agreement with the
IRS resulting in a non-cash settlement, thereby concluding the matter with no
additional tax liability. As a result of the settlement, the Company's net
operating loss carryforward at August 28, 1999 was reduced by approximately
$2,500,000.
OTHER
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
any of these proceedings will not have a material adverse effect on the
Company's financial condition.
19. CLASS ACTION LITIGATION:
In December 1993, the Company reached an agreement to settle stockholder class
action litigation regarding alleged violations of the federal securities laws,
as well as common law fraud and negligence in connection with, among other
things, the nondisclosure of the ownership interest of the Sheth Group prior to
1992, for a cash payment of $9.5 million. The settlement resulted in a release
of claims by the plaintiff class against the Company and certain other
defendants.
In connection with the settlement, common stock purchase warrants to purchase
2,000,000 shares of the Company's common stock at a per share price of $5.34
were granted to the Sheth Group. The warrants are exercisable for a period of
ten years from their issuance. The per share price of the common stock under the
warrants will increase by ten percent per year after the first seven years. As
part of the settlement, the Company also extended to August 31, 2003, the
exercise date of warrants held by a Sheth Group affiliate to purchase 400,000
shares of the Company's common stock.
In recognition that value was received by the Company in return for extending
the expiration date of the warrants to purchase 400,000 shares and the granting
of the new warrants to purchase 2,000,000 shares as described above, the Company
utilized the Black Scholes Method to compute the value. The computation resulted
in the assignment of a value of $2,089,000 (net of the purchase price of the
warrants of $500,000). This net value was recorded as part of "Other assets" and
as an addition to "Additional paid-in capital" in fiscal 1994.
The class action settlement included a provision that protects the Company and
other settling defendants against further liability to the class for damages in
connection with related ongoing litigation.
The Company anticipates that it will continue to incur litigation expenses
related to ongoing litigation involving the defendants not covered under the
class action litigation settlement and related to a lawsuit against the
Company's former auditors separate from, but related to, the stockholder class
action against the Company. Any expenses incurred are not expected to be
material to the Company's financial results.
The Company has recorded legal and professional expenses associated with the
stockholder litigation settlement and other related events that were the subject
of an internal investigation by a Special Committee of the Board of Directors.
These expenses were approximately $69,000, $230,000, and $72,000 in fiscal 1999,
1998, and 1997, respectively.
20. FOREIGN SALES:
The Company exports a significant portion of its sales directly or through its
Mexican and Brazilian subsidiaries (prior to the Company's disposition of its
Mexican subsidiary in November 1998 and its Brazilian subsidiary in May 1998,
See Notes 6 and 7 of the Notes to Consolidated Financial Statements for
additional details).
F-21
<PAGE>
For the years ended August 28, 1999, August 29, 1998 and August 30, 1997, these
sales were $20,712,000 (37 % net sales), $29,690,000 (44% of net sales), and
$27,054,000 (39% of net sales), respectively. These customers are primarily
located in Latin America. In addition, certain U.S. based customers ultimately
distribute the Company's products into foreign countries ("indirect exports").
The volume of the indirect exports, which may be significant, could only be
estimated as customers do not provide that information to the Company.
21. QUARTERLY RESULTS (UNAUDITED):
Summarized quarterly results for 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 QUARTER ENDED
------------------------------------------------------------
NOV. 28 FEB. 27 MAY. 29 AUG. 28
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ........................................ $ 15,075,000 $ 13,440,000 $ 13,436,000 $ 14,043,000
Gross Profit ..................................... 4,643,000 3,820,000 3,730,000 4,638,000
Net Income (Loss) ................................ 224,000 (510,000) 10,000 698,000
Net Income (Loss) Applicable to
Common Stock ............................... (624,000) (747,000) (187,000) 502,000
Net Income (Loss) Per Common Share
Basic ...................................... (.04) (.04) (.01) .03
Diluted .................................... (.04) (.04) (.01) .03
<CAPTION>
1998 QUARTER ENDED
------------------------------------------------------------
NOV. 29 FEB. 28 MAY 30 AUG 29
------------ ------------ ------------ ------------
Net Sales ........................................ $ 20,865,000 $ 14,843,000 $ 17,185,000 $ 14,790,000
Gross Profit ..................................... 5,938,000 4,878,000 3,935,000 2,500,000
Net Income (Loss) ................................ 1,355,000 (37,000) (812,000) (1,997,000)
Net Income (Loss) Applicable to
Common Stock ....... 1,242,000 (150,000) (925,000) (2,111,000)
Net Income (Loss) Per Common Share
Basic ...................................... $ .07 $ (.01) $ (.06) $ (.13)
Diluted .................................... $ .07 $ (.01) $ (.06) $ (.13)
</TABLE>
22. SUBSEQUENT EVENTS (UNAUDITED):
Effective October 14, 1999, the Company completed a second private placement
whereby it sold an additional 21,667 shares of Series C Preferred Stock to a
private investor for $60 per share. In connection with such sale, the Company
issued warrants to purchase an aggregate of 60,000 shares of Common Stock at an
exercise price of $4.75 per share. The Company received approximately $1,300,000
in such private placement.
Effective November 1999 the Company, through a newly formed wholly-owned
subsidiary Tristar USA, Inc. ("Tristar USA"), purchased all of the issued and
outstanding common stock of Fragrance Impressions Limited ("FIL") for $500,000
in cash, $2,900,000 in interest bearing promissory notes ("Notes") due in equal
annual installments on November 15, 2000 through 2004 and options to purchase up
to 100,000 shares of the Company's common stock. The Notes are subject to post
closing adjustment to the outstanding principal balance, based upon sales
achievement during the next two calendar years. Cash used to finance this
transaction was derived from the sales of 21,667 shares of Series C Preferred
Stock in October 1999, discussed above.
F-22
<PAGE>
SCHEDULE II
TRISTAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ----------- ----------- ----------- ----------- -----------
ADDITIONS
-------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END
OF PERIOD EXPENSES DESCRIBE DESCRIBE * OF PERIOD
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended August 28, 1999 ...................... $ 895,000 $ 886,000 -- $ 1,130,000 $ 651,000
Year ended August 29, 1998 ...................... 1,052,000 998,000 -- 1,155,000 895,000
Year ended August 30, 1997 ...................... 850,000 729,000 -- 527,000 1,052,000
* Uncollectible accounts written off, net of recoveries.
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ----------- ----------- ----------- ----------- -----------
ADDITIONS
-------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS- END
OF PERIOD EXPENSES -DESCRIBE** DESCRIBE *** OF PERIOD
----------- ----------- ----------- ----------- -----------
Inventory reserves:
Year ended August 28, 1999 ...................... $ 490,000 $ 170,000 -- $ 355,000 $ 305,000
Year ended August 29, 1998 ...................... 1,381,000 720,000 -- 1,611,000 490,000
Year ended August 30, 1997 ...................... 612,000 1,005,000 -- 236,000 1,381,000
----------- ----------- ----------- ----------- -----------
</TABLE>
*** Write-offs against the reserve
F-23
EXHIBIT 10.48
STOCK WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER
THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND SUCH LAWS, WHICH, IN
THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL
FOR THIS CORPORATION, IS AVAILABLE.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF TRISTAR CORPORATION
Warrant Certificate No. 1999-1 Date: October 14, 1999 ("Effective Date")
This certifies that, for value received, Tristar Corporation, a
Delaware corporation (the "COMPANY"), hereby grants to Pioneer Ventures
Associates Limited Partnership (the "HOLDER") the right to purchase, subject to
adjustment and the other terms and conditions set forth herein, 60,000 shares of
common stock, par value $.01 per share (the "Stock"), at the WARRANT EXERCISE
PRICE per share (as defined in SECTION 1(D) hereof), subject to adjustment as
set forth in SECTION 3 hereof, at any time or from time to time after the date
hereof and prior to 5:00 P.M. (Eastern Time) on October 13, 2004 (the "WARRANT
EXPIRATION DATE").
This Warrant and all warrants hereafter issued in exchange or
substitution of this Warrant, are hereinafter referred to as the "WARRANTS."
THIS WARRANT, TO THE EXTENT NOT EXERCISED IN THE MANNER SET FORTH HEREIN, SHALL
TERMINATE AND BECOME NULL AND VOID AT 5:00 P.M. (EASTERN TIME) ON THE WARRANT
EXPIRATION DATE.
This Warrant is subject to the following terms and conditions.
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT OF SHARES.
2.
3. (a) This Warrant may be exercised, at the option of the Holder, in whole or
in part at any time prior to 5:00 P.M. (Eastern Time) on the Warrant Expiration
Date, by surrender to the Company of this Warrant Certificate properly endorsed
together with the Form of Subscription attached hereto duly filled in, signed
and with proper payment of the Warrant Exercise Price multiplied by the number
of shares of Stock for which the Warrant is being exercised. Payment shall be in
cash, certified check or official bank check or check, subject to collection,
payable to the order of the Company.
4. (b) In addition to the method of payment set forth in Section 1(a) above and
in lieu of any cash payment required thereunder, unless otherwise prohibited by
law, the Holder shall have the right at any time, when exercisable, and from
time to time to exercise the Warrants in full or in part by receiving from the
Company the number of shares of Stock equal to the
<PAGE>
number of shares of Stock otherwise issuable upon such exercise less the number
of shares of Stock having an aggregate "Fair Market Value" on the date of
exercise equal to the Warrant Exercise Price multiplied by the number of shares
of Stock for which this Warrant is being exercised. For purposes hereof, the
"Fair Market Value" of a share of Stock on a given date shall be equal to the
"Closing Sales Price" on such date. The "Closing Sales Price" as of a certain
date will mean the closing sales price, in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System, or if not so reported, as reported by the National Quotation Bureau,
Incorporated, or any successor thereof, or if not so reported, the closing sales
price as furnished by any member of the National Association of Securities
Dealers, Inc., selected from time to time by the Company for that purpose, or,
if the Stock is listed or admitted to trading on a national securities exchange,
the closing sales price, regular way, on the principal national securities
exchange on which the Stock is listed or admitted to trading.
5.
6. (c) The Company agrees that the shares of Stock purchased on the exercise of
each Warrant shall be deemed to be issued as of the close of business on the
date on which this Warrant Certificate shall have been surrendered and payment
made for such shares of Stock. Issuance of the shares of Stock shall be subject
to compliance with all provisions of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and any relevant state securities law. Subject to the
provisions of SECTION 2 hereof, certificates for the largest whole number of
shares of Stock so purchased, together with any other securities or property to
which the Holder is entitled upon such exercise, shall be delivered to the
Holder by the Company within two business days after this Warrant has been
exercised. No fractional shares of Stock shall be issued upon exercise of this
Warrant. Each Stock Certificate so delivered shall be registered in the name of
the Holder or such other name as shall be designated by the Holder, subject to
the provisions of SECTIONS 6 and 8 hereof. If prior to the Warrant Expiration
Date, this Warrant is exercised in part, one or more new Warrants substantially
in the form of, and on the terms contained in, this Warrant Certificate will be
issued for the remaining number of shares of Stock in respect of which this
Warrant has not been exercised.
7.
8. (d) The "WARRANT EXERCISE PRICE" shall be $4.75.
9.
10. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all shares of Stock which may be issued upon the exercise of this
Warrant will, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable. The Company further covenants and agrees that during the period
within which this Warrant may be exercised, the Company will at all times have
authorized and reserved, and will keep available solely for issuance upon
exercise of this Warrant, a sufficient number of shares of Stock or other
securities and properties as from time to time shall be receivable upon the
exercise of this Warrant. The Company shall provide that any successor
corporation will reserve a sufficient number of shares of authorized but
unissued stock or other securities or set aside sufficient other property, as
the case may be, as provided for in this SECTION 2.
11.
<PAGE>
12.ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES; EVENTS REQUIRING
NOTICE; CHANGES IN STOCK.
13.
13.1 METHOD OF ADJUSTMENT. The Warrant Exercise Price and the number
of shares of Stock purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the occurrence of the events
described in SECTION 3.2. Upon each adjustment of the Warrant Exercise Price,
the Holder shall thereafter be entitled to purchase, at the Warrant Exercise
Price resulting from such adjustment, the number of shares of Stock obtained by
multiplying the Warrant Exercise price in effect immediately prior to such
adjustment by the number of shares of Stock purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment.
13.2
13.3 SUBDIVISION OR COMBINATION OF STOCK AND STOCK DIVIDEND. In case the Company
shall at any time subdivide its outstanding shares of Stock into a greater
number of shares of Stock or declare a dividend upon its Stock payable solely in
shares of Stock, the Warrant Exercise Price in effect immediately prior to such
subdivision or dividend shall be proportionately reduced, and conversely, in
case the outstanding shares of Stock of the Company shall be combined into a
smaller number of shares of Stock, the Warrant Exercise Price in effect
immediately prior to such combination shall be proportionately increased.
13.4
13.5 ADJUSTMENTS FOR DIVIDENDS IN SECURITIES OTHER THAN COMPANY STOCK. While
this Warrant, or any portion hereof, remains outstanding and unexpired, if the
Holders of the Stock shall have received, or, on or after the record date fixed
for the determination of eligible stockholders, shall have become entitled to
receive, without payment therefore, shares of capital stock of a subsidiary of
the Company by way of dividend or otherwise, then in such case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
Stock receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such capital stock of such
subsidiary that the Holder would have received if the Holder had exercised this
Warrant prior to any such capital stock distribution; provided, however, no
adjustment to the Warrant Exercise Price shall occur as a result of any such
dividend of the capital stock of a subsidiary of the Company.
13.6
13.7 NOTICE OF ADJUSTMENT. Upon any adjustment of the Warrant Exercise Price and
any increase or decrease in the number of shares of Stock purchasable upon the
exercise of this Warrant, the Company promptly shall give written notice thereof
to the Holder, which shall state the Warrant Exercise Price resulting from such
adjustment and increase or decrease, if any, in the number of shares of Stock
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
13.8
13.9 OTHER NOTICES. If at any time:
13.10
13.11 (a) the Company shall declare a dividend upon its Stock payable in shares
of capital stock of one of its subsidiaries;
<PAGE>
13.12
13.13 (b) there shall be any consolidation or merger of the Company with another
corporation, or a sale of all or substantially all of the Company's assets to
another corporation; or
13.14
13.15 (c) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
13.16
13.17 then, in any one or more of said cases, the Company shall give the Holder
(i) at least thirty (30) days' prior written notice of the date on which the
books of the Company shall close or a record date shall have occurred for such
dividend or distribution or for determining rights to vote in respect of any
such consolidation, merger, sale, dissolution, liquidation or winding-up, and
(ii) in the case of any such consolidation, merger, sale, dissolution,
liquidation or winding-up, at least twelve (12) calendar days' written notice of
the date when the same shall take place. Any notice given in accordance with
clause (i) above shall also specify, in the case of any such dividend or
distribution, the date on which the holders of Stock shall be entitled thereof.
Any notice given in accordance with clause (ii) above shall also specify the
date on which the holders of Stock shall be entitled to exchange their Stock for
securities or other property deliverable upon such consolidation, merger, sale,
dissolution, liquidation or winding-up, as the case may be. Notwithstanding
anything contained herein to the contrary, if the Holder does not exercise this
Warrant prior to a record date or the occurrence of an event described above, as
applicable, except as provided in SECTION 3.2, the Holder shall not be entitled
to receive the benefits accruing to existing holders of the Stock in such event.
13.18
14. ISSUE TAX. The issuance of certificates for shares of Stock upon the
exercise of this Warrant shall be made without charge to the Holder or its
limited partners for any issue tax in respect thereof; PROVIDED, HOWEVER, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the Holder or its limited partners.
15.
16. NO VOTING OR DIVIDEND RIGHTS. This Warrant does not confer upon the Holder
the right to vote or to consent or to receive notice as a stockholder of the
Company, in respect of meetings of stockholders for the election of directors of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company prior to the exercise hereof. No cash dividends shall be payable or
accrued in respect of this Warrant or the shares of Stock purchasable hereunder
until, and only to the extent that, this Warrant shall have been exercised.
17.
<PAGE>
18. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES
ACT.
19.
19.1 RESTRICTIONS ON TRANSFERABILITY. The Holder may transfer or assign this
Warrant, except that the Company shall not be obligated to effect any transfer
of this Warrant unless a registration statement is in effect with respect
thereto under applicable state and Federal securities laws or the Company has
received an opinion in substance reasonably satisfactory to it from counsel
reasonably satisfactory to it that such registration is not required and this
Warrant is surrendered to the Company at its principal office together with the
Assignment Form annexed hereto, duly completed and executed, and sufficient
funds to pay any transfer tax.
1.1 OWNERSHIP. The Company and any agent of the Company may treat the person in
whose name this Warrant Certificate is registered on the register which the
Company shall cause to be maintained for such purpose as the owner and holder
thereof for all purposes. This Warrant Certificate, if properly assigned, may be
exercised by a new holder without first having a new Warrant Certificate issued.
1.2
1.3 LEGEND. A legend setting forth or referring to the above restrictions shall
be placed on this Warrant, any replacement hereof or any certificate
representing the Stock, and a stop transfer restriction or order shall be placed
on the books of the Company and with any transfer agent until such securities
may be legally sold or otherwise transferred.
1.4
2. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the Party against which enforcement of the same is sought.
3.
4. NOTICES. Any notice, request or other document required or permitted to be
given or delivered to the Holder or the Company shall be personally delivered or
shall be sent by certified or registered mail, postage prepaid, if to the Holder
at 651 Day Hill Road, Windsor, Connecticut 06095, or if to the Company at its
principal office at 12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78216.
Any notice, request or other document shall be deemed to have been given upon
receipt if personally delivered, or on the seventh day after being mailed if
mailed, registered or certified mail. Each party shall notify the other party in
writing of any change of address of the Company within a reasonable time
following such change of address.
5.
6. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the
several sections and paragraphs of this Warrant Certificate are inserted for
convenience only and do not constitute a part of this Warrant Certificate. This
Warrant Certificate shall be construed and enforced in accordance with, and the
rights of the Parties shall be governed by, the laws of the State of Delaware.
7.
8. LOST WARRANT CERTIFICATES OR STOCK CERTIFICATES. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant Certificate or any stock certificate deliverable upon
the exercise hereof and, in the case of any such loss, theft or destruction,
upon receipt of an indemnity and, if requested, bond reasonably
<PAGE>
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of this Warrant Certificate or such stock
certificate, the Company at its expense shall make and deliver a new Warrant
Certificate or stock certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant Certificate or stock certificate.
9.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be executed by its officer, thereunder duly authorized as of the _____ day of
October, 1999.
TRISTAR CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: TRISTAR CORPORATION
The undersigned, the holder of the within Warrant,
hereby irrevocably elects to exercise this Warrant for, and to purchase
thereunder, _______________ shares of Common Stock of TRISTAR CORPORATION and
herewith makes payment of $____________ therefore and requests that the
certificates for such shares be issued in the name of, and delivered to,
_________________________________________________________________________whose
address is
____________________________________________________________________________.
Dated: ______________, _____
___________________________________
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant in accordance
with the provisions of SECTION 6 of the Warrant Certificate)
For value received, the undersigned hereby sells,
assigns, and transfers unto _____________________ the right represented by the
written Warrant to purchase shares of Common Stock of TRISTAR CORPORATION to
which the within Warrant relates and appoints Attorney to transfer such rights
on the books of TRISTAR CORPORATION with full power of substitution in the
premises.
Dated: _____________, _____
___________________________________
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
(Nos. 33-45396 and 333-26567) on Form S-8 of Ross Cosmetics Distributions
Centers, Inc. and Tristar Corporation, respectively, of our report dated
November 24, 1999, related to the consolidated financial statements and
financial statement schedule of Tristar Corporation and Subsidiaries, which
report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Dallas, Texas
November 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-28-1999
<PERIOD-END> AUG-28-1999
<CASH> 90,000
<SECURITIES> 0
<RECEIVABLES> 17,637,000
<ALLOWANCES> 651,000
<INVENTORY> 9,531,000
<CURRENT-ASSETS> 27,330,000
<PP&E> 8,364,000
<DEPRECIATION> 10,434,000
<TOTAL-ASSETS> 36,129,000
<CURRENT-LIABILITIES> 24,640,000
<BONDS> 0
0
12,970,000
<COMMON> 168,000
<OTHER-SE> (4,407,000)
<TOTAL-LIABILITY-AND-EQUITY> 36,129,000
<SALES> 55,994,000
<TOTAL-REVENUES> 55,994,000
<CGS> 39,163,000
<TOTAL-COSTS> 54,122,000
<OTHER-EXPENSES> 1,443,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,246,000
<INCOME-PRETAX> 429,000
<INCOME-TAX> 7,000
<INCOME-CONTINUING> 422,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,000
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
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