SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number 0-4465
Sirco International Corp.
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-2511270
- -------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification No.)
24 Richmond Hill Avenue, Stamford Connecticut 06901
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 203-359-4100
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(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 1,209,700 shares of
Common Stock, par value $.10 per share, as of October 10, 1995.
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
<TABLE>
<CAPTION>
Aug. 31, 1995 Nov. 30, 1994
------------- -------------
(Unaudited) (See Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 81,477 $ 955,869
Accounts receivable 2,125,171 1,826,400
Inventories 3,182,971 5,213,120
Prepaid expenses 372,152 326,909
Other current assets 330,531 344,020
---------- -----------
Total current assets 6,092,302 8,666,318
Property and equipment at cost 1,780,771 1,861,556
Less accumulated depreciation 1,094,674 1,088,524
---------- -----------
Net property and equipment 686,097 773,032
---------- -----------
Other assets 324,463 211,592
Investment in and advances to subsidiary 561,603 600,793
---------- -----------
Total assets $7,664,465 $10,251,735
========== ===========
</TABLE>
<PAGE>
Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
(Continued)
<TABLE>
<CAPTION>
Aug. 31, 1995 Nov. 30, 1994
------------- -------------
(Unaudited) (See Note)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Loans payable to financial institutions $ 146,519 $ 2,067,764
Short-term loan payable to related party 672,237 1,743,235
Current maturities of long-term debt 501,833 448,401
Accounts payable 2,623,428 1,981,945
Accrued expenses 1,534,910 1,062,692
---------- -----------
Total current liabilities 5,478,927 7,304,037
Noncurrent liabilities
Long-term debt, less current maturities 0 49,651
Other noncurrent accrued expenses 300,000 0
---------- -----------
Total noncurrent liabilities 300,000 49,651
Stockholders' equity:
Common stock, $.10 par value; 3,000,000 shares
authorized, 1,215,200 issued 121,520 121,520
Capital in excess of par value 4,027,534 4,027,534
Retained earnings (deficit) (1,676,377) (645,104)
Treasury stock at cost (27,500) (27,500)
Accumulated foreign currency translation adjustment (559,639) (578,403)
---------- -----------
Total stockholders' equity 1,885,538 2,898,047
---------- -----------
Total liabilities and stockholders' equity $7,664,465 $10,251,735
========== ===========
</TABLE>
See notes to the condensed consolidated financial statements
Note: The balance sheet at November 30, 1994 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles.
<PAGE>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
Aug. 31, 1995 Aug. 31, 1994 Aug. 31, 1995 Aug. 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 18,026,093 $ 20,020,705 $ 7,919,507 $ 9,121,276
Cost of goods sold 13,477,671 15,234,520 5,817,784 6,701,474
------------ ------------ ------------ ------------
Gross profit 4,548,422 4,786,185 2,101,723 2,419,802
Selling, warehouse, general and
administrative expenses 4,692,426 5,503,002 1,597,763 2,064,449
Loss on sale of handbag division 425,163 0 1,447 0
------------ ------------ ------------ ------------
5,117,589 5,503,002 1,599,210 2,064,449
------------ ------------ ------------ ------------
(569,167) (716,817) 502,513 355,353
Other (income) expense
Interest expense 678,486 553,028 235,686 220,489
Interest income (91,335) (103,657) (46,326) (22,358)
Miscellaneous income, net (125,043) (791,559) (96,968) (69,914)
------------ ------------ ------------ ------------
462,108 (342,188) 92,392 128,217
------------ ------------ ------------ ------------
Net (loss) income (1,031,275) (374,629) 410,121 227,136
Net (loss) income per share of common
stock-primary and fully diluted ($ 0.85) ($ 0.31) $ 0.34 $ 0.19
============ ============ ============ ============
Weighted average number of shares of
common stock outstanding-primary
and fully diluted 1,209,700 1,215,200 1,209,700 1,215,200
============ ============ ============ ============
</TABLE>
See notes to the condensed consolidated financial statements
<PAGE>
Sirco International corp. and Subsidiaries
Condensed Consolidated statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
Aug. 31, l995 Aug. 31, 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net loss ($1,031,275) ($ 374,629)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 112,805 78,447
Provision for losses in accounts receivable 76,470 29,147
Gain on sale of property, plant and equipment (36,681) 0
Restrictive covenant 35,554 0
Changes in operating assets and liabilities
Accounts receivable (276,100) 16,317
Inventories 1,957,824 268,131
Prepaid expenses (33,341) (4,426)
Other current assets 3,972 64,556
other assets (73,689) (12,950)
Accounts payable 633,675 271,613
Accrued expenses 467,476 (453,347)
----------- -----------
Net cash provided by (used in) operating activities 1,836,690 (117,141)
----------- -----------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 35,234 0
Purchases of property, plant and equipment 24,236 (63,492)
----------- -----------
Net cash provided by (used in) investing activities 10,998 (63,492)
----------- -----------
Cash flows from financing activities
(Decrease) increase in loans payable to financial
institutions and short-term loan payable to
related party (2,958,532) 313,279
Other noncurrent accrued expenses 300,000 0
Repayment of long-term debt (50,197) (40,801)
----------- -----------
Net cash (used in) provided by financing activities (2,708,729) 272,478
----------- -----------
Effect of exchange rate changes on cash (13,351) 25,861
----------- -----------
(Decrease) increase in cash and cash equivalents (874,392) 117,706
Cash and cash equivalents at beginning of period 955,869 702,916
----------- -----------
Cash and cash equivalents at end of period $ 81,477 $ 820,622
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 501,382 $ 547,440
Inoome taxes $ 0 $ 0
</TABLE>
See notes to the condensed consolidated financial statements
<PAGE>
SIRCO INTERNATIONAL CORP.
Notes To Condensed Consolidated Financial Statements (Unaudited)
Note 1-Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended August 31, 1995
are not necessarily indicative of the results that may be expected for the year
ended November 30, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended November 30, 1994.
Note 2-Financing Arrangements
The Company had a bank credit agreement, which by its terms terminated on July
31, 1995. The agreement provided for a revolving line of credit of up to
$2,000,000 for the issuance of letters of credit in favor of the Company's
foreign suppliers for the purchase of inventory, with interest payable monthly
at prime plus 1%. This facility was secured by a certificate of deposit in the
amount of approximately $540,000, and the personal guaranty of the Company's
former Chairman. Borrowings under the facility were fully repaid on July 28,
1995.
The Company has an agreement with a factor pursuant to which the Company sells
substantially all of its accounts receivable on a pre-approved non-recourse
basis. Under the terms of the agreement, the factor advances funds to the
Company based on invoice amounts. Interest on such advances is payable at 2.5%
per annum above the prime rate. The Company also pays a factoring commission of
1% of each invoice amount, subject to a minimum of $96,000 per annum. From time
to time, the Company also receives short-term advances from the factor
collateralized by the Company's inventory. At August 31, 1995, approximately
$80,000 in short-term advances was outstanding. The Company repaid this advance
in September 1995. Interest on the advance was payable at 2.5% per annum above
the prime rate.
In 1992, the Company entered into an agreement with Yashiro Co., Inc.
("Yashiro"), a former affiliate of the Company, to provide short-term financing
for import purchases. Interest was payable at 7% per annum. Under the terms of
this line of credit, Yashiro established letters of credit, on behalf of the
Company, with a bank. Amounts borrowed under this line of credit were repayable
either 50 or 90 days after the delivery of goods. In addition to interest,
Yashiro was paid a handling fee of 3% of the cost of the goods. On March 20,
1995, the Company entered into a new Letter of Credit Agreement with Yashiro.
Pursuant to this Letter of Credit Agreement, Yashiro has agreed to issue, until
March 20, 1997, unsecured trade letters of credit in an aggregate amount of up
to the lesser of $1,200,000 or 35% of the book value of all inventory owned by
the Company. Amounts borrowed under this line of credit are repayable 100 days
after delivery of the goods. In addition to interest, Yashiro is paid a handling
fee of 3% of the cost of the goods. The amount owed to Yashiro under this line
of credit at August 31, 1995 was approximately $637,000. During the nine-month
periods ending August 31, 1995 and 1994, interest and handling fees paid to
Yashiro amounted to approximately $153,000 and $186,000, respectively.
On August 1, 1995, the Company's Canadian subsidiary entered into a financing
agreement with a bank that provided for a revolving loan in the amount of
$525,000, with interest payable monthly at 1.25% above the Canadian prime rate.
The proceeds of this loan are utilized by the Canadian subsidiary for purchasing
inventory and financing day-to-day operations. At August 31, 1995, approximately
$67,000 was outstanding under the revolving facility. The bank extended two term
loans to the Canadian subsidiary, pursuant to the financing agreement, in the
amounts of approximately $368,000 and $105,000, with interest payable monthly at
1.50% and 2.00%, respectively, above the Canadian prime rate. Substantially all
the assets of the Canadian subsidiary have been pledged as security for the
revolving line of credit and the term loans. At August 31, 1995, the Canadian
subsidiary had outstanding letters of credit totalling approximately $202,000.
<PAGE>
Item 2. Management's Analysis and Discussion of
Financial Condition and Results of Operations
Three and Nine Months Ended August 31, 1995 vs August 31, 1994
Results of Operations
Net sales for the third quarter and first nine months of fiscal 1995 were less
than the comparable periods in fiscal 1994 by approximately $1,202,000 and
$1,995,000, respectively. The reduction in net sales is directly attributable to
the sale of the Company's Handbag Division on March 20, 1995. Handbag sales
amounted to approximately $2,337,000 in the third quarter of fiscal 1994,
approximately $5,898,000 in the first nine months of fiscal 1994, and
approximately $1,446,000 from December 1, 1994 to March 20, 1995. This loss in
handbag sales was partially offset by increases in sales for the Company's
remaining Luggage and Backpack Divisions and Canadian subsidiary of
approximately $1,135,000 and $2,457,000 for the third quarter and first nine
months of fiscal 1995, respectively. Gross profit for the third quarter and
first nine months of fiscal 1995 decreased approximately $318,000 and $238,000,
respectively, over the comparable periods of the prior fiscal year. While the
gross profit margins remained at 26.5% for the three-month periods ended August
31, 1995 and August 31, 1994, the gross profit margins increased for the nine
months ended August 31, 1995 to 25.2% from 23.9% in the prior fiscal period.
Selling, warehouse and general and administrative expenses decreased during the
third quarter and first nine months of fiscal 1995 by approximately $467,000 and
$811,000 as compared to the corresponding periods in fiscal 1994. This decrease
in expenses is primarily attributable to the sale of the Company's Handbag
Division as well as management's continued commitment to control all costs and
expenses.
On March 20, 1995, an officer of the Company and certain other investors entered
into an agreement to purchase the Company's common stock owned by Yashiro and
one of its affiliates. On such date, the Company also sold its Handbag Division,
including inventory and related property and equipment, to an affiliate of
Yashiro. This sale resulted in a one-time loss to the Company of approximately
$425,000.
Interest expense increased during the third quarter and first nine months of
fiscal 1995 by approximately $15,000 and $125,000, respectively, from the
comparable periods in fiscal 1994. This increase was primarily caused by
increases in loans payable.
Miscellaneous income increased approximately $27,000 during the third quarter of
fiscal 1995 over the comparable period in fiscal 1994. However, for the first
nine months of fiscal 1995 miscellaneous income decreased by approximately
$667,000 over the comparable period in the prior fiscal year. This decrease is
largely attributable to a one-time reversal, booked in fiscal 1994, of an
accrued expense of $620,000 related to a potential claim by a former tax-exempt
bondholder.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $81,000, and working
capital of approximately $613,000 at August 31, 1995.
As described in Note 2 in Notes to Condensed Consolidated Financial Statements,
the Company had a bank credit agreement, which by its terms terminated on July
31, 1995, that provided a revolving line of credit of up to $2,000,000. The
agreement provided for the issuance of letters of credit in favor of the
Company's foreign suppliers for the purchase of inventory, with interest payable
monthly at prime plus 1%. This facility was secured by a certificate of deposit
in the amount of approximately $540,000, and the personal guaranty of the
Company's former Chairman. Borrowings under the facility were fully repaid on
July 28, 1995.
In accordance with the terms of the Letter of Credit Agreement, as described in
Note 2 in Notes to Condensed Consolidated Financial Statements, Yashiro has
agreed to issue, until March 20, 1997, unsecured trade letters of credit in an
aggregate amount of up to the lesser of $1,200,000 or 35% of the book value of
all the inventory owned by the Company. The Company is current on all payments
under this line of credit.
Also as described in Note 2 in Notes to Condensed Consolidated Financial
Statements, the Company has an agreement with a factor pursuant to which the
Company sells substantially all of its accounts receivable on a pre-approved
non-recourse basis. Under the terms of the agreement, the factor advances funds
to the Company based on invoice amounts. From time to time, the Company also
receives short-term advances from the factor collateralized by the Company's
inventory. At August 31, 1995, approximately $80,000 in short-term advances was
outstanding. The Company repaid this advance in September 1995. Interest on the
advance was payable at 2.5% per annum above the prime rate.
The Company is seeking a relationship with a commercial bank or factor to
provide a new line of credit to replace the Company's line of credit that
terminated on July 31, 1995. Although management believes the Company will be
successful in obtaining financing, there can be no assurance that such financing
will be available on commercially reasonable terms if at all. Failure to obtain
such financing on commercially reasonable terms could have a material adverse
effect on the long-term prospects of the Company. Based on the Company's current
operations, however, management believes that the Company's cash and cash
equivalents, factoring of accounts receivable and cash flows generated from
operations will be sufficient to meet the Company's liquidity and capital
requirements through the next twelve months.
There were approximately $24,000 in capital expenditures during the first nine
months of 1995. No significant expenditures for capital improvements are planned
or committed to for the next twelve months.
<PAGE>
SIRCO INTERNATIONAL CORP.
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1995 Annual Meeting of Shareholders of the Company (the
"1995 Annual Meeting") was duly held on August 17, 1995.
(b) Inapplicable, as (i) proxies for the meeting were solicited
pursuant to Regulation 14 under the Act; (ii) there was no
solicitation in opposition to the management's nominees as
listed in the proxy statement relating to the 1995 Annual
Meeting (the "Proxy Statement"); and (iii) all of such
nominees were duly elected.
(c) Set forth below is a brief description of each other matter
voted upon at the 1995 Annual Meeting and the number of
affirmative votes and the number of negative votes cast:
(i) The approval and adoption of an amendment to the
Company's Certificate of Incorporation to increase the
number of authorized shares of the Company's Common
Stock from 3,000,000 to 10,000,000 shares and to
authorize the issuance of 1,000,000 shares of
Preferred Stock from time to time on terms to be
determined by the Board of Directors. The information
contained in the Proxy Statement at pages 6 through 7
under the heading "Proposal to Amend the Certificate
of Incorporation to Increase the Number of Authorized
Shares of Common Stock from 3,000,000 to 10,000,000
Shares and to Authorize 1,000,000 Shares of Preferred
Stock" is incorporated by reference herein.
Votes for ............... 772,808
Votes against ........... 81,365
Votes abstaining ........ 3,800
(ii) The approval and adoption of an amendment to the
Company's Certificate of Incorporation to limit the
personal liability of directors to the Company and its
shareholders. The information contained in the Proxy
Statement at page 8 under the heading "Proposal to
Amend the Certificate of Incorporation to Limit the
Personal Liability of Directors" is incorporated by
reference herein.
Votes for ............. 1,061,159
Votes against ......... 28,065
Votes abstaining ...... 5,650
(iii) The approval of the 1995 Stock Option Plan of the
Company. The information contained in the Proxy
Statement at pages 8 through 10 under the heading
"Proposal to Adopt the 1995 Stock Option Plan" is
incorporated by reference herein.
Votes for ............... 775,308
Votes against ........... 81,265
Votes abstaining ........ 1,600
(d) Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 -- Certificate of Amendment to the Certificate of Incorporation
of the Company filed with the Secretary of State of the State
of New York on October 6, 1995.
10.1 -- 1995 Stock Option Plan of the Company, incorporated by
reference to Exhibit B of the Company's definitive proxy
statement filed with the Securities and Exchange Commission in
connection with the Company's Annual Meeting of Shareholders
held on August 17, 1995.
10.2 -- Financing commitment dated June 22, 1995 by National Bank of
Canada in favor of Sirco International (Canada) Limited.
27 -- Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
August 31, 1995.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Sirco International Corp.
October 13, 1995 By: /s/ Joel/Dupre
- ---------------- -----------------------------
Date Joel Dupre
President and
Chief Executive Officer
October 13, 1995 By: /s/ Gandolfo J. Verra
- ---------------- -----------------------------
Date Gandolfo J. Verra
Secretary and Controller
(Chief Accounting Officer)
EXHIBIT 3
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
SIRCO INTERNATIONAL CORP.
Under Section 805 of the Business Corporation Law
FIRST: The name of the corporation is Sirco International Corp.
The name under which the corporation was formed is Sirco Products Co. Inc.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of State on July 22, 1964.
THIRD: The amendments of the certificate of incorporation effected by this
certificate of amendment are as follows:
To increase the number of authorized shares of the corporation's Common
Stock, par value $.10 per share, from 3,000,000 to 10,000,000 shares and to
authorize the issuance of 1,000,000 shares of Preferred Stock, par value
$.10 per share, from time to time on terms to be determined by the Board of
Directors.
To limit the personal liability of directors to the corporation and its
shareholders.
FOURTH: To accomplish the foregoing amendments.
Article FOURTH of the certificate of incorporation is hereby amended and
restated as follows:
Fourth: A. Authorized Shares. The total number of shares of all classes of
stock which the corporation shall have the authority to issue is Eleven
Million (11,000,000), of which Ten Million (10,000,000) shall be common
stock, par value $.10 per share, and One Million (1,000,000) shall be
preferred stock, par value $.10 per share.
B. Common Stock. Each holder of shares of common stock shall be entitled to
one vote for each share of common stock held by such holder. There shall be
no cumulative voting rights in the election of directors. Subject to any
preferential rights of preferred stock, the holders of shares of common
stock shall be entitled to receive, when and if declared by the Board of
Directors, out of the assets of the corporation which are by law available
therefor, dividends payable either in cash, in property, or in shares of
common stock.
C. Preferred Stock. The preferred stock may be issued from time to time in
one or more series. The Board of Directors is hereby expressly vested with
the authority to fix by resolution or resolutions the designations and the
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, including,
without limitation, the voting powers, if any, the dividend rate, the
conversion rights, the redemption price, or the liquidation preference, of
any series of preferred stock, and to fix the number of shares constituting
any such series, and to increase or decrease the number of shares of any
such series (but not below the number of shares thereof then outstanding).
In case the number of shares of any such series shall be so decreased, the
shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution or resolutions originally fixing
the number of shares of such series. The number or authorized shares of any
class or classes of stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the stock of the corporation entitled to vote.
A new Article Sixth is hereby added as follows:
SIXTH: No director of the corporation shall be liable to the corporation or
its shareholders for damages for any breach of duty in such capacity except
as provided in Section 402(b)(1) and (2) of the New York Business
Corporation Law.
FIFTH: The manner in which the foregoing amendment of the certificate of
incorporation was authorized is as follows:
The Board of Directors duly authorized the foregoing amendments at a Board
of Directors Meeting held on June 8, 1995. The shareholders of the corporation
subsequently authorized the amendment at an Annual Meeting of Shareholders held
on August 17, 1995.
IN WITNESS WHEREOF, we have subscribed this document on August 28, 1995 and
do hereby affirm under the penalties of perjury, that the statements contained
therein have been examined by us and are true and correct.
/s/ Joel Dupre
--------------------------
Joel Dupre
Chairman of the Board
/s/ Eric M. Hellige, Esq.
--------------------------
Eric M. Hellige, Esq.
Secretary
NATIONAL BANK OF CANADA
350 Burnhamthorpe Road West, Suite 216, Mississauga, Ontario L5B 3J1
Telephone: (905) 276-9464
FAX: (905) 276-1750
Commercial Banking Centre
June 22, 1994
Sirco International (Canada) Ltd.
1321 Blundell Road
Mississauga, Ontario
L4Y 1M6
ATTENTION: Mr. Doug Turner, President
Dear Sirs:
We are please to inform you that the National Bank of Canada (hereinafter called
the "Bank") agrees to make available to Sirco International (Canada) Ltd.
(hereinafter called the "Borrower") the financing below, subject to the
following terms and conditions:
AMOUNT: A. $700,000. by way of an Operating Loan on a revolving demand
loan agreement.
B. $630,000. by way of a non-revolving demand loan.
C. $150,000. by way of a Foreign exchange Limit with net risk
of 10% i.e. at any time, the total foreign exchange
contracts outstanding may not exceed the Canadian
equivalent of $1,500,000.
PURPOSE: A. To finance day to day operations.
B. To payout and consolidate an existing commercial mortgage
with Royal Trust, and a term loan with the CIBC.
C. To purchase United States dollar foreign exchange
contracts, the equivalent of Canadian $25,000 is required
to obtain an exchange contract. Applicable term will be
from a minimum of 1 day to a maximum of 1 year.
INTEREST RATE: A. Prime Rate of National Bank of Canada plus 1.25% , that is
10.00% as at June 22, 1995, calculated daily and paid
monthly in arrears. Prime Rate is defined as the rate as
established from time to time by the Bank for Canadian
dollar loans in Canada.
B. Floating Rate Option: Prime rate of National Bank of Canada
plus 1.50%, that is 10.25% as at June 22, 1995, calculated
daily and paid monthly in arrears. Prime Rate is defined as
the rate as established from time to time by the Bank for
Canadian dollar loans in Canada.
Fixed Rate Option: (available for a maximum of $490,000 or
that amount required to retire the Royal Trust commercial
mortgage) The Bank's cost of funds for fixed rate term
loans + 2.00%, that is 9.75% as at June 22, 1995 for a 5
year term.
C. As quoted by International Dept., National Bank of Canada
at date of booking.
REPAYMENT: On demand.
A. To revolve in multiples of $25,000.
B. Floating Rate Option:
(i) $490,000 or the amount required to retire the Royal
Trust commercial mortgage. Based on a 20 year
amortization, repaid in monthly payments of $2,042
plus interest.
(ii) $140,000 or the amount required to retire the CIBC
term loan. Monthly payments of $10,000 plus interest.
Fixed Rate Option: (available for a maximum of $490,000)
Based on a 20 year amortization, and cost of funds for a 5
years term as quoted herein, repaid in monthly blended
payments of $4,586.
C. According to the specified maturity date.
DEMAND NATURE OF
THE FACILITIES:
The Borrower and the Guarantors acknowledge and agree that
notwithstanding anything contained herein to the contrary
theses facilities constitute Demand Loans and as such, are due
and payable at any time at the sole discretion of the Bank.
MARGIN AVAILABILITY:
The sum of operating advances and total Letters of Credit
outstanding shall be limited to the lesser of $700,000 or the
aggregate of the following:
(a) 85% of good quality Canadian accounts receivable for
"Major Retailers" ( as approved by the Bank, see below),
plus 65% of good qualify Canadian accounts receivable for
those Bank approved customers offered Future dating terms
(see approved list below), plus 60% of all other good
quality Canadian accounts receivable, excluding contra
accounts and intercompany accounts, doubtful accounts,
and those aged 60 days and over; plus
(b) 50% of all letters of Credit outstanding and all current
season's (i.e. Spring `95) finished goods inventory, plus
25% of all finished goods inventory for the prior 2
seasons (i.e. Fall `94 and Spring `94) excluding
handbags, combined capped at an overall maximum of
$300,000; less;
(c) all claims which rank prior to the Bank's security (i.e.
deductions at source, GST, etc).
Major retailers: Bay, Costco, Eaton's, K-Mart, Sears, Zellers.
Acceptable Future dating customers: Jovin, Pelle Imports,
Access Leather and all major retailers. Non-Acceptable Future
dating customers: Curry's Jewelers.
SECURITY:
All legal and other documentation to be in a form and content
satisfactory to the Bank and its solicitors and is to be
supported by all usual representations and opinions to confirm
its enforceability. To include but not limited to:
1. General Assignment of Book Debts, registered in Ontario
and all other applicable jurisdictions, providing a first
charge over accounts and other receivables.
2. Pledge of Inventory under Section 427 of the Bank Act
providing a first charge over inventory.
3. Assignment of sufficient fire insurance to protect the
Bank's interest.
4. General Security Agreement providing a first floating and
fixed charge over all assets of the Borrower.
5. Subordination and Postponement of Claim to the Bank of all
loans, advances and accrued interest payable to
shareholder(s) totalling $304,581 as at May 31, 1995. US
$223,958 @ .7353 exchange rate.
6. A first fixed and floating charge Debenture in the amount
of $1,500,000 over the real property located at 1321
Blundell Road, Mississauga (the "Property") accompanied by
appropriate pledge agreement.
7. General Assignment of Rents and Leases.
CONDITIONS PRECEDENT:
The following information/documentation satisfactory to the
Bank is to be provided prior to the completion of a formal
credit application (or prior to the advance of funds).
1. Receipt of the Borrower's Review Engagement financial
statement for the 6 months ending May 31, 1995 which will
not be materially different from the May 31, 1995 internal
financial statement already received.
2. The licensing agreement with Airway Industries Inc. is to
be reviewed and deemed satisfactory by the Bank's legal
counsel. In addition, ad addendum to the licensing
agreement is to be executed by the licensor:
(i) providing the Bank notice in the event the agreement
is to be terminated; and
(ii) enabling the Bank to dispose of the inventory in the
event it chooses to realize on its security
3. Satisfactory report from the Bank's consultant with
respect to a review of current assets and the internal
financial reporting system. Consultant's cost is to the
account of the Borrower, and is estimated at $250.
4. All legal and security documents to be in form and
substance, satisfactory to the Bank and its solicitors,
accompanied by the relevant legal opinions and registered
in the appropriate jurisdictions.
5. Report from Hendren Mitchell Real Estate Appraisal Ltd.
updating the Oct. 31, 1989 appraisal on the Property
completed by Huronia York Appraisal Corp. evidencing a
minimum value of $900,000.
6. Satisfactory Phase I environmental audit from a firm
acceptable to the Bank and completion of the Bank's
standard environmental questionnaire.
7. Any other important information.
FINANCIAL COVENANTS:
The Borrower agrees to the following covenants which shall be
calculated as indicated below, maintained at all time and
tested monthly except where otherwise indicated:
1. Current Ratio: The ratio of Current Assets to Current
Liabilities will not be less than 1.50 at anytime. Current
Assets shall exclude any intercompany advances, deferred
costs, or any other assets of doubtful or intangible
nature. Current Liabilities to include only the true
current portion of the commercial mortgage.
2. Debt to Equity Ratio: The ratio of Debt to Equity will not
be more than 1.50 at any time. Debt shall be defined as
total liabilities less any shareholder loans postponed to
the Bank, less deferred income taxes. Equity shall be
defined as Share Capital plus Retained Earnings plus any
Shareholders' loans postponed to the Bank, less any
deferred expenditures, loans to officers, directors, or
shareholders, or intercompany advances and any other
assets of value.
3. Debt Service Coverage: The ratio of Net Cash Flow to Debt
Service shall be a minimum of 1.20. Net Cash Flow shall be
defined as the Income After Tax plus: deferred taxes;
depreciation; any other non-cash expenses; and all cash
interest expense; less: dividends and capital expenditures
not funded by debt. Debt Service shall be defined as all
debt principal payments plus all cash interest expense.
4. Parent remuneration, whether a repayment of the parent
company advance ($304,581 @ May 31, 1995) or a
bonus/dividend, is prohibited without the prior written
consent of the Bank. US $223,958 @.7353 exchange rate.
REPORTING CONDITIONS:
1. Within 25 days of each month-end, the Borrower shall
provide the following information on Bank documents,
signed by the appropriate authorized officer of the
Borrower:
(a) monthly accounts receivable listing classified
according to age;
(b) inventory declaration;
(c) prior claims declaration;
(d) internally prepared income statement, balance sheet
and statement of financial changes as compared against
last year actual and current year to date budget.
(e) order backlog report.
2. The Borrower agrees to submit to the Bank its annual
audited financial statement within 90 days of the end of
its fiscal year.
3. The Borrower agrees to submit to the Bank its annual
budget including budgeted monthly balance sheet, income
statement, and cashflow within 90 days of its fiscal year
end.
OTHER CONDITIONS:
1. All legal and registration fees incurred to prepare,
execute and maintain legal documents will be assumed by
the Borrower.
2. The cost of all appraisals and environmental reports
requested by the Bank are the responsibility of the
Borrower.
3. The Bank reserves the right to request appropriate annual
financial statements or quarterly financial statements at
any time and whenever it deems it appropriate. This
information may be required on a continuous basis or for a
specific period or periods and must always be to the
Bank's satisfaction.
4. The ownership structure of the company shall not be
altered without the Bank's prior written consent which
shall be unreasonably withheld.
5. The nature of the Borrower's business shall not be
substantially changed without the Bank's prior written
consent which shall not be unreasonably withheld.
FEES:
1. Transaction fee of $6,250 which is payable upon acceptance
of this Discussion Paper. These monies are refundable if
such approval is not provided as outlined herein.
2. $75 monthly management fee to review the monthly reporting
package, margin the account and process note rollovers.
ENVIRONMENTAL MATTERS:
1. The Borrower and the Guarantors represent and warrant that
the owner of the subject property has complied and is
complying in all respects with all applicable laws
relating to the environment, that no contaminants,
pollutants or other hazardous substances (including,
without limitation, asbestos, products containing urea
formaldehyde or polychlorinated biphenyl or any
radioactive substances) have been or are now stored or
located at the subject property, that no order, approval,
direction or other governmental or regulatory notice
relating to the environment has been threatened against,
is pending or has been issued with respect to the subject
property, and that none of them is aware of any pending or
threatened action, suit or proceedings relating to any
actual or alleged environmental violation from or at the
subject property.
2. The Borrower and Guarantors shall permit the Lender to
conduct, at the Borrower's expense, such test, inspections
and environmental audits as may be required by the Lender
including without limitation, the right to take soil
samples from the subject property and the right to review
and photocopy all records relating to the subject property
or the business or operations now or hereinbefore
conducted at the subject property in order to attempt to
corroborate the veracity of the aforementioned
representations and warranties.
3. The Borrower and Guarantors agree to pay the cost of all
environmental audits which may be deemed necessary by the
Bank.
4. The Borrower and Guarantors agree to delivery to the Bank
documents guaranteeing compliance and showing that the
land and building are not contaminated by hazardous
materials.
5. The Borrower and Guarantors certify that past and present
owners have not violated environmental law and regulations
and that, to the best of their knowledge, no proceedings
have been or are being instituted to make him comply with
environmental laws and regulations.
6. The Borrower and Guarantors agree to comply with and
respect any and all environmental laws and regulations.
7. The Borrower and Guarantors agree to maintain a system or
mechanism through which the emission or release of
contaminants can be controlled in compliance with laws and
regulations.
8. The Borrower and Guarantors agree to periodically provide
the Bank with a summary report stating the Borrower's
status with regard to environmental laws and regulations,
such as confirmation of the renewal of permits,
certificates of compliance and the proper application of
control procedures.
9. The Borrower and Guarantors agree to indemnify the Bank
for all decontamination costs or for damages incurred by
the Bank or its agents as a result of such contamination.
10. The loan shall be disbursed upon performance and/or
completion of the above conditions to the Bank's
satisfaction.
11. In the event any environmental report shows that
decontamination is required the Borrower and Guarantors
undertake to carry out decontamination at their own
expense should this be required or requested. However, the
undertaking of such decontamination's shall not guarantee
that the Bank will make any disbursements. All the other
conditions stipulated in this Offer of Finance shall be
performed to the Bank's satisfaction.
ACKNOWLEDGMENT
OF NON MERGER:
The terms and conditions contained in this Offer to Finance
shall not merge upon the execution and delivery of the
security documentation referred to herein but shall at all
times remain in full force and effect. The events of default
as stated herein (if applicable), shall be in addition to and
not restrict in any way whatsoever the events of default as
stated in the security documents.
ANNUAL REVIEW:
To be reviewed at least annually, and in any event not later
than March 31, 1996.
OTHER:
The Borrower agrees to keep the contents of this Letter
strictly confidential.
If these conditions are acceptable to you, please indicate your acceptance
thereof by signing and returning a copy of this letter to the Bank before June
27, 1995, after which time this offer in null and void.
Your truly,
/s/Guy Jarvis /s/ R.A. Garrad
Guy Jarvis R.A. Garrard
Account Manager Senior Manager
a:/guydp\sirco.mp
ACCEPTANCE:
WE ACCEPT THE TERMS AND CONDITIONS OUTLINED HEREIN THIS 26TH DAY OF JUNE, 1995
SIRCO INTERNATIONAL (CANADA) LIMITED
Per: /s/ Doug Turner Per: /s/ Maric Weichel
Doug Turner, President Maric Weichel, Office Manager
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Income Statement and is qualified in its entirety by references to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> AUG-31-1995
<CASH> 81,477
<SECURITIES> 0
<RECEIVABLES> 2,433,706
<ALLOWANCES> 308,535
<INVENTORY> 3,182,971
<CURRENT-ASSETS> 6,092,302
<PP&E> 1,780,771
<DEPRECIATION> 1,094,674
<TOTAL-ASSETS> 7,664,465
<CURRENT-LIABILITIES> 5,478,927
<BONDS> 0
<COMMON> 121,520
0
0
<OTHER-SE> 1,764,018
<TOTAL-LIABILITY-AND-EQUITY> 7,664,465
<SALES> 18,026,093
<TOTAL-REVENUES> 18,026,093
<CGS> 13,477,671
<TOTAL-COSTS> 4,692,426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 76,470
<INTEREST-EXPENSE> 425,163
<INCOME-PRETAX> (1,031,275)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,031,275)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,031,275
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
