SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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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 February 28, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number 0-4465
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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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10 West 33rd Street, Suite 606, New York, NY 10001
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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 April 15, 1995.
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Sirco International Corp. and Subsidiaries Condensed
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Feb. 28, 1995 Nov. 30, 1994
(Unaudited) (See Note)
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................... $ 674,637 $ 955,869
Accounts receivable ......................... 1,112,727 1,826,400
Inventories ................................. 6,012,962 5,213,120
Prepaid expenses ............................ 367,292 326,909
Other current assets ........................ 322,751 344,020
------------ ------------
Total current assets ......................... 8,490,369 8,666,318
Property and equipment at cost ............... 1,852,094 1,861,556
Less accumulated depreciation ................ 1,119,380 1,088,524
------------ ------------
Net property and equipment ................... 732,714 773,032
------------ ------------
Other assets ................................. 127,656 211,592
Investment in and advances
to subsidiary .............................. 588,003 600,793
------------ ------------
Total assets ................................. $ 9,938,742 $ 10,251,735
============ ============
<PAGE>
Sirco International Corp. and Subsidiaries Condensed
Consolidated Balance Sheets
(continued)
<CAPTION>
Feb. 28, 1995 Nov. 30, 1994
(Unaudited) (See Note)
------------ ------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Loans payable to financial institutions ..... $ 1,810,986 $ 2,067,764
Short-term loan payable to related party .... 2,139,069 1,743,235
Current maturities of long-term debt ........ 446,533 448,401
Accounts payable ............................ 2,414,357 1,981,945
Accrued expenses ............................ 1,009,057 1,062,692
------------ ------------
Total current liabilities .................... 7,820,002 7,304,037
Long-term debt, less current maturities ...... 27,853 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) ................. (1,434,236) (645,104)
Treasury stock at cost ...................... (27,500) (27,500)
Accumulated foreign currency
translation adjustment ..................... (596,431) (578,403)
------------ ------------
Total stockholders' equity ................... 2,090,887 2,898,047
------------ ------------
Total liabilities and stockholders' equity ... $ 9,935,742 $ 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 principals.
<PAGE>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
Feb. 28, 1995 Feb. 28, 1994
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<S> <C> <C>
Net sales .................................... $ 4,825,492 $ 4,716,057
Cost of goods sold ........................... 3,822,341 3,524,629
----------- -----------
Gross profit ................................. 1,003,151 1,191,428
Selling, warehouse, general and
administrative expenses .................... 1,617,416 1,517,341
----------- -----------
(614,265) (325,913)
Interest expense ............................. 220,506 143,665
Interest income .............................. (21,685) (45,041)
Miscellaneous income, net .................... (23,954) (29,110)
----------- -----------
(Loss) before provision for income taxes ..... (789,132) (395,427)
Provision for income taxes ................... 0 0
----------- -----------
Net (loss) ................................... ($ 789,132) ($ 395,427)
=========== ===========
Net(loss) per share of common
stock-primary and fully diluted ............ ($ 0.65) ($ 0.33)
=========== ===========
Weighted average number of shares of
common stock outstanding-primary
and fully diluted .......................... 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 Three Months Ended
Feb. 28, 1995 Feb. 28, 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net loss ......................................... ($ 789,132) ($ 395,427)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization ................. 30,815 27,160
Provision for losses (recoveries)
in accounts receivable ....................... 31,068 (13,770)
Changes in operating assets and liabilities
Accounts receivable .......................... 710,575 280,181
Inventories .................................. (802,349) (559,335)
Prepaid expenses ............................. (40,273) (78,428)
Other current assets ......................... 21,254 (45,895)
Other assets ................................. 83,936 (11,898)
Accounts payable ............................. 429,573 417,579
Accrued expenses ............................. (54,288) (131,583)
----------- -----------
Net cash used in operating activities ............ (378,821) (511,416)
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Cash flows from investing activities
Purchases of property, plant and equipment ....... (3,601) 0
----------- -----------
Net cash used in investing activities ............ (3,601) 0
----------- -----------
Cash flows from financing activities
Increase in loans payable to financial
institutions and short-term loan payable to
related party .................................. 131,412 1,108,209
Repayment of long-term debt ...................... (22,159) (20,501)
----------- -----------
Net cash provided by financing activities ........ 109,253 1,087,708
----------- -----------
Effect of exchange rate changes on cash .......... (8,063) (1,737)
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(Decrease) increase in cash and cash equivalents . (281,232) 574,555
Cash and cash equivalents at beginning of period . 955,869 702,916
----------- -----------
Cash and cash equivalents at end of period ....... $ 674,637 $ 1,277,471
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ..................................... $ 179,137 $ 161,080
Income 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 three month period ended February 28,
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 has a bank credit agreement, which by its terms, terminates on July
31, 1995, providing for a revolving line of credit of up to $2,000,000. The
agreement provides 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 is secured by a certificate of deposit
in the amount of approximately $540,000, and the personal guaranty of the
Company's former Chairman. Borrowing under the facility amounted to
approximately $1,761,000 at February 28, 1995.
On December 5, 1994, the Company received a short-term advance of $250,000 from
a factor collateralized by the Company's inventory. At February 28, 1995,
$50,000 was still outstanding. This advance was repaid in the first half of
March 1995. Additionally, on March 29, 1995, the Company received a short-term
advance of $650,000 from a factor collateralized by the Company's inventory.
This advance is scheduled to be repaid by July 1995. Interest on these advances
is payable at 2.5% per annum above the prime rate.
The Company's Canadian subsidiary has a line of credit agreement with a bank in
the amount of approximately $395,000. Under this agreement, the bank provides a
revolving loan to the Canadian subsidiary for purposes of purchasing inventory,
with interest payable monthly at the Canadian prime rate. There was no borrowing
under this facility at February 28, 1995. Substantially all the assets of the
Canadian subsidiary have been pledged as security for this line of credit and a
term loan. In addition, at February 28, 1995, the Canadian subsidiary had
outstanding letters of credit totalling approximately $264,000.
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 the invoice amount subject to a minimum of $96,000 per annum.
In 1992, the Company entered into an agreement with Yashiro Co., Inc.
("Yashiro") 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. The liability at February 28, 1995 and 1994 was
$2,139,000 and $1,455,000, respectively. During these same periods, interest and
handling fees paid to Yashiro amounted to $67,000 and $69,000, respectively. On
March 20, 1995, the Company entered into a new Letter of Credit Agreement with
Yashiro. For a description of this Agreement see Note 3 - Subsequent Event
below. This Letter of Credit Agreement replaces the facility described above.
Note 3 - Subsequent Event
On March 20, 1995, Yashiro and one of its affiliates and an officer of the
Company and other investors entered into a Stock Purchase Agreement to purchase
the Company's common stock owned by Yashiro and such affiliates. Concurrently,
the Company negotiated an Asset Purchase Agreement for the sale of its Handbag
Division, including inventory and related property and equipment, to an
affiliate of Yashiro. In addition, pursuant to a 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. Net sales, gross profit and
net loss of the Company's Handbag Division for the quarter ended February 28,
1995, were approximately $1,047,000, $76,000 and $550,000, respectively. Net
sales, gross profit and net loss of the Company's Handbag Division for the
quarter ended February 28, 1994, were approximately $1,330,000, $270,000 and
$272,000, respectively.
The sale of the Company's common stock owned by Yashiro resulted in a stock
"ownership change" in accordance with Internal Revenue Code Section 382.
Accordingly, as a result of such sale, the Company is subject to a further
annual limitation on the utilization of net operating loss carryforwards for
federal income tax purposes.
Item 2. Management's Analysis and Discussion Of
Financial Condition and Results Of Operations
Three Months Ended February 28, 1995 vs February 28, 1994
Results of Operations
Net sales for the three months ended February 28, 1995, increased $109,000 to
approximately $4,825,000 as compared to $4,716,000 reported in 1994. Gross
profit declined approximately 16% to $1,003,000 from $1,191,000 reported in the
first quarter of 1994, and the gross profit percentage decreased to 21% from 25%
reported the year earlier. The decline in gross profit and the gross profit
percentage from the first quarter in 1994, is attributable to an increase in
allowances and reserves for future credits (approximately $300,000), and an
increase in royalty expense (approximately $50,000), which the Company treats as
sales credits.
Selling, warehouse, general and administrative expenses increased 6.6% or
$100,000, to approximately $1,617,000 from approximately $1,517,000 reported in
the first quarter of 1994. This increase is attributable to 1) higher factoring
costs, 2) higher letter of credit fees and 3)increased bad debt expense.
During the first quarter of 1995, interest expense increased by approximately
$76,000 over the same period in 1994. The higher interest expense was caused
primarily by increases in interest rates and loans payable.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $674,000, and working
capital of approximately $670,000 at February 28, 1995.
On March 20, 1995, Yashiro and one of its affiliates and an officer of the
Company and certain other investors entered into an agreement to purchase the
Company's common stock owned by Yashiro. Also, the Company negotiated an
agreement for the sale of its Handbag Division, including inventory and related
property and equipment, to an affiliate of Yashiro. Additionally, in accordance
with the terms of a 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 the inventory
owned by the Company. The former Chairman (who is an officer of Yashiro) will
continue to provide a personal guaranty of a $2,000,000 line of credit through
its expiration on July 31, 1995. Currently, the Company is actively negotiating
with several lenders to obtain alternative financing to replace this credit
facility.
In addition, 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. On December 5, 1994, the Company
received a short-term advance of $250,000 from a factor collateralized by its
inventory. At February 28, 1995, $50,000 was still outstanding. This advance was
repaid by March 15, 1995. Additionally, on March 29, 1995, the Company received
a short- term advance of $650,000 from a factor collateralized by the Company's
inventory. This advance is scheduled to be repaid by July 1995. Interest on
advances is payable at 2.5% per annum above the prime rate.
Management believes that its cash and cash equivalents, lines of credit,
factoring of accounts receivable and cash flows generated from operations will
be sufficient to meet its liquidity and capital requirements.
There were approximately $4,000 in capital expenditures during the first three
months of 1995. No significant expenditures for capital improvements are planned
for the reminder of the year.
<PAGE>
SIRCO INTERNATIONAL CORP.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 - Asset Purchase Agreement, dated as of March 20, 1995, between Sirco
International Corp. (the "Company") and Bueno of California, Inc.
(incorporated by reference to Exhibit 2(b) of the Company's Current
Report on Form 8-K filed on April 4, 1995.)
10.2 - Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Yashiro Company, Ltd. ("Yashiro, Ltd") (incorporated by
reference to Exhibit F-1 of the Schedule 13D filed on April 4, 1995 by
Joel Dupre, Pacific Million Enterprise Ltd., Joseph Takada, Cheng-Sen
Wang and Albert H. Cheng with respect to the Company's Common Stock
(the "Schedule 13D")).
10.3 - Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Yashiro Co., Inc. ("Yashiro") (incorporated by reference to
Exhibit F-2 of the Schedule 13D).
10.4 - Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Yutaka Yamaguchi (incorporated by reference to Exhibit F-3
of the Schedule 13D).
10.5 - Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Takeshi Yamaguchi (incorporated by reference to Exhibit F-4
of the Schedule 13D).
10.6 - Exclusive Purchasing Agreement, dated as of March 20, 1995, between the
Company and Yashiro (incorporated by reference to Exhibit G of the
Schedule 13D).
10.7 - Letter of Credit Agreement, dated March 20, 1995, between the Company
and Yashiro (incorporated by reference to Exhibit H of the schedule
13D).
10.8 - Severance Agreement, dated as of March 20, 1995, between the Company
and Takeshi Yamaguchi (incorporated by reference to Exhibit K of the
Scheduled 13D).
27 - Financial Data Schedule.
<PAGE>
(b) Reports on Form 8-K
(i) The Company filed a Current Report on Form 8-K on March 4,
1995 to report (1) the sale of an aggregate of 56.3% of the issued and
outstanding capital stock of the Company by Yashiro and Yashiro Ltd. to Joel
Dupre, Pacific Million Enterprise, Ltd., Cheng-Sen Wang and Albert H. Cheng and
(2) the sale of the Company's assets relating to its handbag division to Bueno
of California, Inc. The Company intends to file the pro forma financial
information required to be included in this Current Report on Form 8-K by
amendment on or before June 5, 1995.
(ii) The Company filed an additional Current Report on Form 8-K on
March 4, 1995 to report the dismissal of Ernst & Young, LLP and the appointment
of Nussbaum Yates and Wolpow, P.C. as the Company's independent auditors.
<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.
April 12, 1995 By: /s/ Joel/Dupre
- -------------- -----------------------------
Date Joel Dupre
President and
Chief Executive Officer
April 12, 1995 By: /s/ Gandolfo J. Verra
- -------------- -----------------------------
Date Gandolfo J. Verra
Secretary and Controller
(Chief Accounting Officer)
<PAGE>
EXHIBIT INDEX
No. Description
- --- -----------
10.1 Asset Purchase Agreement, dated as of March 20, 1995, between Sirco
International Corp. (the "Company") and Bueno of California, Inc.
(incorporated by reference to Exhibit 2(b) of the Company's Current
Report on Form 8-K filed on April 4, 1995.
10.2 Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Yashiro Company, Ltd. ("Yashiro, Ltd") (incorporated by
reference to Exhibit F-1 of the Schedule 13D filed on April 4, 1995 by
Joel Dupre, Pacific Million Enterprise Ltd., Joseph Takada, Cheng-Sen
Wang and Albert H. Cheng with respect to the Company's Common Stock (the
"Schedule 13D")).
10.3 Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Yashiro Co., Inc. ("Yashiro") (incorporated by reference to
Exhibit F-2 of the Schedule 13D).
10.4 Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Yutaka Yamaguchi (incorporated by reference to Exhibit F-3
of the Schedule 13D).
10.5 Non-Competition Agreement, dated as of March 20, 1995, between the
Company and Takeshi Yamaguchi (incorporated by reference to Exhibit F-4
of the Schedule 13D).
10.6 Exclusive Purchasing Agreement, dated as of March 20, 1995, between the
Company and Yashiro (incorporated by reference to Exhibit G of the
Schedule 13D).
10.7 Letter of Credit Agreement, dated March 20, 1995, between the Company
and Yashiro (incorporated by reference to Exhibit H of the Schedule
13D).
10.8 Severance Agreement, dated as of March 20, 1995, between the Company and
Takeshi Yamaguchi (incorporated by reference to Exhibit K of the
Schedule 13D).
27 Financial Data Schedule.
<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 reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-END> FEB-28-1995
<CASH> 674,637
<SECURITIES> 0
<RECEIVABLES> 1,421,499
<ALLOWANCES> 308,772
<INVENTORY> 6,012,962
<CURRENT-ASSETS> 8,490,369
<PP&E> 1,852,094
<DEPRECIATION> 1,119,380
<TOTAL-ASSETS> 9,938,742
<CURRENT-LIABILITIES> 7,820,002
<BONDS> 27,853
<COMMON> 121,520
0
0
<OTHER-SE> 1,969,367
<TOTAL-LIABILITY-AND-EQUITY> 9,938,742
<SALES> 4,825,492
<TOTAL-REVENUES> 4,849,446
<CGS> 3,822,341
<TOTAL-COSTS> 1,617,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31,068
<INTEREST-EXPENSE> 220,506
<INCOME-PRETAX> (789,132)
<INCOME-TAX> 0
<INCOME-CONTINUING> (789,132)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789,132)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
