SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO THE ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1995
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File No. 0-4465
SIRCO INTERNATIONAL CORP.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 13-2511270
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
24 Richmond Hill Avenue, Stamford, Connecticut 06901
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 359-4100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
<PAGE>
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. [ ]
As of July 15, 1996, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was $2,279,038.
As of July 15, 1996, there were 1,309,700 shares outstanding of the
Registrant's Common Stock.
<PAGE>
Sirco International Corp. (the "Registrant" or the "Company") hereby
amends and restates its Annual Report on Form 10-K for the fiscal year ended
November 30, 1995, as set forth below:
Part I
Item 1. - Business
Sirco International Corp. (the "Company") designs, manufacturers and
markets a broad line of soft luggage, sports bags, backpacks, children's bags,
tote bags and related products. The Company's strategy is to produce a diverse
line of high quality, fashionable products at competitive prices. The Company
believes its ability to merchandise high quality products is facilitated by its
creative design, manufacturing and sourcing capabilities. On March 20, 1995, the
Company sold its handbag division, which manufactured and marketed a line of
woman's handbags, to an entity controlled by the Company's former senior
management. See "Recent Events."
The Company sells its products under many trade names, including
"Action Luggage," "Cross Trainer," "Sirco Kids" and "Mondo," all of which are
registered. In addition, the Company sells its products under certain
trademarked names licensed from others, including "Atlantic," "Dunlop,"
"Cherokee," "Generra," "Golds Gym" and "FILA." See "License Agreements." During
its past fiscal year, the Company began designing and manufacturing soft luggage
and sports bags on a contract basis for unaffiliated retailers.
Virtually all of the Company's products are manufactured by foreign
suppliers in accordance with the Company's design specifications. During the
fiscal year ended November 30, 1995, approximately 94.13% of the Company's
products were manufactured in The People's Republic of China. The primary
markets for the Company's products are the United States and Canada. Reference
is hereby made to Note 9 of the Notes to Consolidated Financial Statements for
information with respect to the amount of net sales, net income (loss) and
identifiable assets of the Company's foreign operations. The Company engages in
only one line of business and does not consider such business to be divided into
"industry segments."
The Company was incorporated in New York in 1964.
Recent Events
During the fiscal years ended November 30, 1995, 1994 and 1993, the
Company experienced significant operating losses and reduced cash flow resulting
primarily from the operation of its former handbag division. See Item 7. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
On March 20, 1995, pursuant to a Stock Purchase Agreement, dated as of
March 20, 1995, among Joel Dupre (the current Chairman of the Board and Chief
Executive Officer of the Company), Pacific Million Enterprise, Ltd., a Hong Kong
corporation, Cheng-Sen Wang and Albert H. Cheng (collectively, the "Buyers"),
and Yashiro Company, Ltd. and Yashiro Co., Inc., corporations at that time
controlled by Yutaka Yamaguchi, then the Chairman of the Board and Chief
Executive Officer of the Company (collectively, the "Yashiro Companies"), the
Buyers acquired from the Yashiro Companies an aggregate of 681,000 shares of
Common Stock of the Company (constituting at the time of such purchase
approximately 56.04% of the outstanding shares of Common Stock of the Company)
<PAGE>
for a purchase price of $1,532,230. Concurrently with such purchase, the Company
entered into an Asset Purchase Agreement with Bueno of California, Inc., a
Delaware corporation ("Bueno") and an affiliate of the Yashiro Companies,
pursuant to which the Company sold to Bueno all of the assets relating to the
Company's handbag division for an aggregate purchase price of $1,785,666. During
the fiscal years ended November 30, 1995, 1994 and 1993, the Company's former
handbag division had net sales of approximately $1,423,000, $9,182,000 and
$9,805,000, respectively, which represented approximately 5.7%, 33.3% and 35.1%,
respectively, of the Company's total net sales for those periods. See "Item 11.
Executive Compensation -- Change in Control of the Company."
Markets and Customers
The Company sells its products primarily to large national retail chain
stores, including Target Stores, Sears Roebuck & Co., Inc., Kmart Corporation
and Wal-Mart Stores, and to regional discount store chains, such as Shopko
Stores, Inc., Bradlees Inc. and Caldor Corp. The Company also sells to
department stores and other specialty stores, including J.C. Penney Co. Inc.,
Liberty House Inc., Macy's Northeast, Inc. and Mervyn's, and apparel chain
stores, such as TJ Maxx/Marshall's and Ross Stores, Inc. The Company also sells
its products to sporting goods retailers, such as The Sports Authority and
Sports Mart, and to warehouse clubs, such as Price Costco. The loss by the
Company of several of these customers would have an adverse effect on the
Company's profitability. However, the Company believes that these customers, if
lost, could be partially, if not completely, replaced by others.
During the fiscal years ended November 30, 1995, 1994 and 1993, sales
to Target Stores represented approximately 25%, 22% and 20%, respectively, of
net sales. No other customer accounted for more than 10% of net sales in any of
such fiscal years.
The Company currently maintains showrooms in New York City and Toronto.
The Company solicits business directly from its customers, using the services of
both full-time sales persons and independent sales representatives. The
independent sales representatives represent a number of manufacturers or
wholesalers other than the Company, and are compensated on a commission basis,
typically pursuant to the terms of a non-exclusive sales representative
contract. The Company fills orders on the terms and conditions of standard
purchase orders it receives from customers.
The Company's sales are seasonal and are governed by the peak retail
seasons of Christmas, "back-to-school"/fall and spring. As a result of the
shipping deadlines of retailers designed to meet these peak seasons, the
Company's sales are higher in the third and fourth quarters than in the first
and second quarters of the Company's fiscal year.
The Company's percentage of sales by fiscal quarter for the fiscal
years ended November 30, 1995, 1994 and 1993:
1995 1994 1993
------ ------ -----
First fiscal quarter 19.5% 17.1% 18.0%
Second fiscal quarter 21.3 22.4 25.1
Third fiscal quarter 31.9 33.0 26.6
Fourth fiscal quarter 27.3 27.5 30.3
----- ----- -----
100.0% 100.0% 100.0%
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<PAGE>
Design and Merchandising
The Company's licensed and branded products feature dynamic and
colorful new styles that use innovative graphics and product designs and are
constructed of quality fabrics and other materials. In order to continue to
provide high-quality designs for both its licensed and non-licensed products,
the Company established a design development center employing creative and
merchandising professionals who work with state-of-the-art resources. In
addition, the Company actively solicits participation from key customers in the
development of specific products.
The Company's design and merchandising department, which includes five
full-time employees and is based out of the Company's headquarters, emphasizes
creativity and responsiveness to consumer preferences in the development of new
products. The design and merchandising department, together with the Company's
marketing personnel, evaluates the designs and fashion trends in the marketplace
and applies these in its product development. The Company's design and marketing
personnel frequently visit customers, suppliers and trade shows and conduct
market research to identify developing consumer trends and new product ideas.
The Company's existing customer base continues to be a significant
source of sales growth, and the Company remains committed to servicing their
production and quality needs. Management believes that the Company's
responsiveness to customer needs is widely recognized by retailers.
License Agreements
The Company has licensing agreements with Airway Industries, Inc.
(Atlantic), Dunlop Slazenger Corporation, The Generra Company, Cherokee Inc.,
FILA Sport S.p.A. ("FILA") and Gold's Gym International, Inc., and is in
negotiations for license agreements with several other licensors of national
reputation. Sales by the Company under trademarked names licensed from others
accounted for approximately 65%, 49% and 53% of the Company's net sales during
the fiscal years ended November 30, 1995, 1994 and 1993, respectively.
The following table sets forth the percentage of net sales attributable
to each of the Company's existing trademark licenses for the fiscal years ended
November 30, 1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
Dunlop ...................... 24.2% 29.8% 31.9%
Fila ........................ 21.4 4.9 --
Atlantic .................... 14.4 4.3 4.9
Cherokee .................... 4.3 3.8 10.8
In March 1996, the Company entered into a three-year license agreement
with Skechers U.S.A., Inc. pursuant to which the Company licensed the
"Skechers" trademark for use on sport bags, backpacks, belt bags, childrens
bags and luggage. In June 1996, the Company entered into a license agreement
with Perry Ellis International Inc. pursuant to which the Company licensed the
"Perry Ellis" and "Perry Ellis America" trademarks for use on luggage, backpacks
and other products sold to luggage departments. The Perry Ellis license is for
an initial term expiring on June 30, 1999, which term may be extended by the
Company for up to three years if certain minimum sales requirements are reached
in 1998.
<PAGE>
The Company's licenses generally entitle the Company to use the names,
symbols and logos of the licensors on a non-exclusive basis in the manufacture
and sale of the Company's products. All of the Company's licenses call for a
royalty to be paid to the licensor based on a percentage of net sales. Royalties
vary by product and licensor and generally range from 5.0% to 7.5%. Minimum
payments are applied against royalty fees either over the term of the contract
or annually, depending on the contract. In addition, the licenses generally
require payments by the Company to certain promotional programs sponsored by the
licensor.
The Company's license agreements generally have terms of three years.
The terms of renewal options are negotiated and vary on a license-by-license
basis. Historically, the Company's licenses have been renewed.
In February 1996, the Company entered into an amendment to its license
agreement with FILA, pursuant to which the Company has agreed to terminate its
marketing and sales of products incorporating the "FILA" name or trademark on
February 9, 1996, and to terminate shipping of any such products to customers on
June 30, 1996, subject to certain retained rights to liquidate any remaining
inventories over 60 days. During the two fiscal years ended November 30, 1995
and 1994, the Company's net sales of FILA products amounted to approximately
$5,314,000 and $1,357,000, respectively, which represented approximately 21.4%
and 4.9%, respectively, of the Company's total net sales for those periods. The
Company did not have any sales of FILA products during the year ended November
30, 1993. The Company believes that the loss of the FILA trademark may have an
adverse effect on the Company's results of operations for the fiscal quarter
ended August 31, 1996. However, the Company expects that a significant portion
of the net sales of FILA products that would have been realized by the Company
during the remaining 13 months of the original term of the FILA license
agreement will be replaced by sales of other licensed products, including
products incorporating the recently-licensed "Perry Ellis," "Skechers," "Gold's
Gym" and "Generra" names, symbols and logos. The termination of the FILA license
is not expected to have any adverse effect upon the Company's relationship with
its suppliers.
In August 1996, Airway Industries, Inc. ("Airway") notified the Company
that it will not renew its license agreement with the Company pursuant to which
Sirco International (Canada) Limited, the Company's Canadian subsidiary ("Sirco
Canada"), was granted an exclusive license to sell in Canada luggage and luggage
related products under the trade name "Atlantic" and "Oleg Cassini" through
December 31, 1996. In addition, following receipt of notification from Airway
and Douglas Turner, then the President of Sirco Canada and a director of the
Company, that Airway and Mr. Turner had mutually agreed to Airway's future
employment of Mr. Turner in its efforts to distribute directly its products in
Canada, the Company terminated its employment of Mr. Turner in September 1996.
During the six months ended May 31, 1996 and fiscal years ended November 30,
1995, 1994 and 1993, the Company's net sales of Airway products amounted to
approximately $2,825,000, $3,751,000, $1,190,000 and $1,356,000, respectively,
which represented approximately 19.9%, 14.4%, 4.3% and 4.9%, respectively, of
the Company's total net sales for those periods, and approximately 97.5%, 97.6%,
85.2% and 71.8%, respectively, of the total net sales of Sirco Canada for those
periods. Sirco Canada earned net profits of approximately $243,000 and $269,000
and incurred net losses of approximately $122,000 aand $51,000 during the six
months ended May 31, 1996 and the fiscal years ended November 30, 1995, 1994 and
1993, respectively. The loss of the Airway license agreement could have a
material adverse effect on the Company's results of operations for the fiscal
year ended November 30, 1997. The Company currently is evaluating various
alternatives for its Canadian operations, including, among other alternatives,
hiring new management and sales personnel for Sirco Canada in an effort
substantially to increase net sales in Canada of certain other licensed products
<PAGE>
of the Company, the sale of all or a portion of the Company's equity interests
in Sirco Canada and the liquidation of Sirco Canada.
Trademarks
The Company sells products under proprietary trade names and logos,
including "Action Luggage," "Cross Trainer," "Mondo," and "Sirco Kids," all of
which are registered in the United States. The Company considers its trademarks
to be of considerable value to its business and intends to protect them to the
fullest extent practicable. The Company takes all reasonable measures to assure
that any product bearing a Company-owned trademark or logo reflects the
consistency and quality associated with its licensed products.
Suppliers
The Company's products are produced by various manufacturers in The
People's Republic of China, Taiwan, Thailand and Viet Nam. Although the
simultaneous loss of several of these manufacturers would temporarily adversely
affect the Company's business, the Company is of the opinion that generally
these manufacturers could be replaced by others. The Company's business could
also be adversely affected by a disadvantageous change in the exchange rate of
the dollar with certain foreign currencies, by changes in tariffs or import
restrictions, as well as political and economic conditions in the countries from
which it imports.
During the fiscal years ended November 30, 1994 and 1993, certain
purchases by the Company's former handbag division were made from affiliates of
the Company. During those years, the Company purchased in the aggregate
approximately $9,000 and $221,000 of handbags and accessories from Yashiro Co.,
Inc. ("Yashiro"), representing approximately 0.1% and 1.6%, respectively, of the
Company's total purchases during those years. No such purchases were made during
the fiscal year ended November 30, 1995. Yutaka Yamaguchi, the former Chairman
of the Board and Chief Executive Officer of the Company, was, at the time of
such purchases, the President and a Director of Yashiro. The Company purchased
the handbags and accessories from Yashiro under the terms of a long-term Product
Supply Agreement with Yashiro (the "Product Supply Agreement"), that was
terminated on March 20, 1995. The terms of the Product Supply Agreement
permitted the Company to purchase goods from other suppliers. In addition,
during the fiscal years ended November 30, 1995, 1994 and 1993, the Company
purchased approximately $734,000, $3,489,000 and $2,858,000, respectively, of
handbags and accessories from Lucci Creations, Ltd., a manufacturer of handbags
("Lucci"), representing approximately 6.5%, 23.6% and 21.3%, respectively, of
the Company's total purchases during those periods. At the time of such
purchases, approximately 45% of Lucci was owned by the same individuals that
owned the Yashiro Companies. See "Item 13. - Certain Relationships and Related
Transactions."
The Company sold its former handbag division on March 20, 1995 (see
"Recent Events"). As a result, the Company does not anticipate making any
significant purchases in the future from either of the Yashiro Companies or
Lucci. The Company does not have any contractual arrangements with its
suppliers. Substantially all of the Company's purchasing is conducted through
the use of standard purchase orders, a substantial portion of which are
supported by trade letters of credit.
<PAGE>
For the fiscal years ended November 30, 1995, 1994 and 1993, the
Company's products were manufactured in the following countries:
1995 1994 1993
---- ---- ----
China 94.13% 79.57% 83.72%
Taiwan 4.39 14.66 10.18
Thailand 1.24 5.71 4.50
Viet Nam 0.24 -- --
Japan -- 0.06 1.60
------ ------ ------
Total 100.00% 100.00% 100.00%
====== ====== ======
Competition
The Company experiences substantial competition in most of its product
categories from a number of well established domestic and foreign distributors,
some of which have greater financial resources than the Company. The Company
believes the principal competitive factors affecting its business are styling,
pricing and distribution. Increased competition by existing and future
competitors could result in reductions in sales or prices of the Company's
products that could materially adversely affect the Company's profitability. In
addition, a substantial portion of the Company's products are sold under
non-exclusive licensing agreements. Although the Company has been successful in
obtaining and renewing such licenses, there can be no assurance that existing
competitors will not obtain competing licenses in the future or that additional
large, well-financed companies will not enter the licensed luggage, sport bag or
backpack business. Because the Company imports its manufactured goods from
overseas suppliers, delivery to its customers is dependent upon the timing of
overseas manufacturing and shipping schedules, which may put the Company at a
competitive disadvantage to domestic manufacturers.
Employees
At November 30, 1995, the Company employed 99 employees, of which 89
were employed on a full-time basis and 10 were employed on a part-time basis,
and had approximately 32 independent sales representatives. At such date,
approximately 16 of the Company's employees were employed in the Company's
executive offices in Stamford, Connecticut, approximately 75 were employed in
the Company's warehouse in La Mirada, California, one was employed in the
Company's showroom facility in New York, New York, and approximately seven were
employed in the Company's Canadian showroom and warehouse facilities in Ontario,
Canada. The Company is not subject to any collective bargaining agreement and
believes that its relationship with its employees is good.
<PAGE>
Item 2. - Properties
The following table sets forth pertinent facts concerning the Company's
material properties at February 15, 1996, all of which are owned or leased by
either the Company or one of its subsidiaries:
<TABLE>
<CAPTION>
Property Owned:
Location Use Approximate Square Feet
- ------------------------------------ ------------------------------------------- -----------------------------------------
<S> <C> <C>
1321 Blundell Rd. Showroom, Office, Warehouse 35,000 (Lease out 7,500)
Mississauga
Ontario, Canada
L4Y 1M6
<CAPTION>
Properties Leased:
Approximate Lease Annual
Location Use Square Feet Expires Rent (2)
- ---------------------- ---------------------- ----------- ------- --------
<S> <C> <C> <C> <C>
366 Fifth Avenue Showroom 3,340 (1) $ 83,500
New York, NY 10010
24 Richmond Hill Road Executive Offices 5,900 9/14/00 $ 84,000
Stamford, CT 06901
16000 Heron Avenue Warehouse, Offices 116,000(3) 3/31/00 $375,000
La Mirada, CA 90638
</TABLE>
- -----------------
(1) The lease expires 10 years and six months following the date of
substantial completion of the build out of these premises, which date
by the terms of the lease must be no later than April 18, 1996.
(2) The Company is required to pay its proportionate share of any increase
during the term of the lease in real estate taxes and expenses of
maintaining the premises computed on the basis of the percentage of the
total square footage of the premises occupied by the Company.
<PAGE>
(3) Approximately 38,000 square feet of warehouse and office space has been
subleased to Bueno through the end of the lease term at a rental rate
of $10,000 per month.
The Company estimates that its owned and leased space is fully utilized
for the purposes set forth in the table above under the caption "Use," and
believes that its properties are suitable and adequate for the business of the
Company.
<PAGE>
Item 3. - Legal Proceedings
The Company is not involved in any pending legal proceeding other than
non-material ordinary routine litigation incidental to its business.
Item 4. - Submission of Matters To A Vote of Security Holders
Not applicable.
<PAGE>
Part II
Item 5. - Market for the Company's Common
Equity and Related Stockholder Matters
The Common Stock, $.10 par value (the "Common Stock"), of the Company
is traded in the over-the-counter market and is quoted on the NASDAQ
inter-dealer automated quotations system. The high and low bid quotations for
each quarterly period of the Company's last two fiscal years are listed below:
High Low
----- -----
Fiscal 1995
1st quarter 2 3/4 2 1/4
2nd quarter 2 1/4 1 1/2
3rd quarter 2 1 1/4
4th quarter 2 1/2 1 1/2
Fiscal 1994
1st quarter 2 3/4 2 3/4
2nd quarter 3 2 3/4
3rd quarter 2 3/4 2 3/4
4th quarter 2 3/4 2 3/4
(The quotations set forth in the table above reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.)
As of February 15, 1996, there were 212 holders of record of the Common
Stock.
The Company has not declared any cash dividends during the past fiscal
year with respect to the Common Stock. The declaration by the Company of any
cash dividends in the future will depend upon the determination of the Company's
Board of Directors as to whether, in light of the Company's earnings, financial
position, cash requirements and other relevant factors existing at the time, it
appears advisable to do so.
<PAGE>
Item 6. - Selected Financial Data
The following selected financial information has been taken from the
consolidated financial statements of the Company. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this Report.
<TABLE>
<CAPTION>
Fiscal Years Ended November 30,
--------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings Statement:
Net Sales.................................... $24,812 $27,600 $27,954 $30,551 $33,339
Gross Profit................................. 6,130 6,067 6,620 8,736 8,903
(Loss) Income Before
Provision For Income Taxes
and Extraordinary Items................... (996) (2,435) (948) 3 (832)
Net (Loss) Income............................ (996) (2,435) (964) 63 (841)
Per Share of Common Stock
(Loss) Income............................. (.82) (2.01) (.79) .05 (.69)
Cash Dividends............................... -- -- -- -- --
Balance Sheet:
Working Capital.............................. $ 1,142 $ 1,362 $ 4,031 $ 4,684 $ 5,574
Property, Plant, Equipment................... 650 773 832 990 1,280
Total Assets................................. 10,003 10,252 11,929 14,255 18,266
Long-term Debt (Less Current
Maturities)............................... 590 50 506 557 454
Stockholders' Equity......................... 1,897 2,898 5,374 6,362 6,422
</TABLE>
<PAGE>
Item 7. - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales for fiscal year 1995 decreased by approximately $2,787,000 to
approximately $24,812,000 as compared to approximately $27,600,000 reported in
fiscal 1994. The reduction in net sales is primarily attributable to the sale of
the Company's handbag division on March 20, 1995, which division accounted for
net sales of approximately $9,182,000 in fiscal 1994 as compared to
approximately $1,423,000 through the date of its sale in fiscal 1995. This
$7,759,000 decrease in fiscal year 1995 net sales was partially offset by
increases in net sales for the Company's luggage and backpack divisions, which
increased by approximately $2,871,000, and by increases in the Company's
Canadian sales, which increased by approximately $2,263,000.
Although the Company's net sales were lower in fiscal 1995 as compared to
fiscal 1994, the Company's overall gross profit in fiscal 1995 increased by
$63,000, and the Company's gross profit percentage improved from 22.0% in fiscal
1994 to 24.7% in fiscal 1995. The ability of the Company to increase its gross
profit percentage and increase its overall gross profit is primarily attributed
to the increased sales of the Company's luggage and backpack divisions and the
Company's Canadian subsidiary, which have higher gross margins than the sales of
the former handbag division.
After extensive negotiations with FILA Sport S.p.A. ("FILA"), the
Company and FILA entered into an agreement in February 1996 pursuant to which
the Company ceased shipping products under the FILA license on June 30, 1996,
subject to certain rights with respect to remaining inventories. The Company is
no longer accepting sales orders for its FILA products. In August 1996, the
Company was notified by Airways Industries Inc. ("Airways") that it will not
renew its license agreement with Sirco Canada pursuant to which the Company
sells products in Canada under the Atlantic trademark. Net sales of the FILA
products and Atlantic products amounted to approximately $5,314,000 and
$3,511,000, respectively, in fiscal 1995. The Company expects to ship
approximately $8,000,000 of FILA product and approximately $5,000,000 of
Atlantic products in fiscal 1996. In order to maintain its sales levels in the
future, the Company has recently entered into several new license arrangements
(see "Item 1- Business - License Agreements); however, the Company's future net
sales could be negatively impacted if sales from new licenses or increases in
sales under existing licenses do not replace the lost FILA and Atlantic sales.
Selling, warehouse, general and administrative expenses decreased by
approximately $2,622,000 to approximately $6,276,000 in fiscal 1995 as compared
to $8,898,000 in fiscal 1994. The reduction in the above expenses is primarily
attributed to (i) the sale of the handbag division, resulting in cost and
expense reductions aggregating approximately $1,600,000 in fiscal 1995, (ii)
certain non-recurring charges aggregating approximately $930,000 in
fourth-quarter of fiscal 1994 (described more fully below), and (iii)
management's continuing effort to reduce operating costs.
Interest expense increased by approximately $78,000 from approximately
$789,000 in fiscal 1995 to approximately $867,000 in fiscal 1995. The increase
in interest expense is primarily attributed to higher average outstanding
borrowings during fiscal 1995. Of such increase, approximately $28,000
represents interest expense incurred in connection with the restrictive covenant
and severance agreements entered into with the Company's former controlling
shareholders.
The Company's sale of its former handbag division in the second quarter
of fiscal 1995 resulted in a non-recurring loss of approximately $425,000.
Miscellaneous income declined by approximately $693,000 in fiscal 1995 from
approximately $1,023,000 in fiscal 1994 to approximately $330,000 in fiscal
<PAGE>
1995. This decline was primarily attributable to a one-time income item in
fiscal 1994 resulting from the reversal in fiscal 1994 of an accrued expense in
the amount of approximately $620,000 related to a potential claim by a former
tax-exempt bondholder.
Fiscal Year 1994 Compared to Fiscal Year 1993
Net sales for fiscal year 1994 decreased by approximately $355,000 to
approximately $27,600,000 as compared to $27,954,000 reported in fiscal 1993.
Net sales for the Company's United States operations increased by approximately
$221,000; however, this increase was offset by sales decreases of approximately
$576,000 reported by the Company's Canadian and Hong Kong subsidiaries. Gross
profit for these same periods declined by approximately 8.4% to $6,067,000 in
fiscal 1994 from $6,620,000 in fiscal 1993. The gross profit percentage was
21.98% in fiscal 1994 as compared to 23.68% in fiscal 1993. The reduction in
gross profit was primarily attributable to the operations of the Company's
handbag division. As a result of a decline in sales volume of the handbag
division, the Company reduced the selling prices of its handbag products in
order to reduce inventory, which resulted in reduced gross profit margins. In
addition, the significant decline in net sales experienced by the Company's
former handbag division adversely impacted the Company's operating cash flow. In
order to generate sufficient cash flow for operations, the Company reduced the
selling prices of certain products in its luggage division, which resulted in
lower gross profit margins.
Other factors, to a lesser extent, also contributed to the decline in
gross profit margins. During fiscal 1994, one of the principal suppliers to the
Company's former handbag division experienced production problems, which delayed
the Company's receipt of goods. As a result of the delay, the Company was unable
to fill customer orders on a timely basis. In order to satisfy its customers,
the Company substantially reduced the selling price of goods that were delivered
late. Competitive pressures faced by the Company also resulted in the reduction
by the Company of its selling prices in an attempt to maintain market share and
sales volume. Gross profit margins were also affected by additional reserves
(approximately $440,000, largely for customer chargebacks and sales credits)
established in the fourth quarter of fiscal 1994.
Selling, warehouse and general and administrative expenses increased
24% or $1,700,000 to approximately $8,900,000 in fiscal 1994 from approximately
$7,200,000 in fiscal 1993. This increase in expenses was primarily caused by the
following: (i) an increase in salaries of approximately $300,000, (ii) an
increase in letter of credit fees of approximately $135,000 due to the
additional utilization of the Yashiro credit line, (iii) an increase in
factoring fees of approximately $60,000 due to an increase in domestic sales,
(iv) an increase in bad debt expense and other allowances of approximately
$135,000, (v) an increase in overseas travel expense of approximately $170,000,
and (vi) the write-off of merchandise damage claims of approximately $200,000.
In addition, the Company incurred, approximately $936,000 of non-recurring
expenses in the fourth quarter of fiscal 1994, consisting of (i) the $125,000
reserve established for the Easement (as described below); (ii) a $275,000
allowance to provide for potential uncollectible amounts due from the sale of a
former subsidiary; (iii) write-offs of approximately $170,000 related to the
Company's Hong Kong subsidiary; (iv) a write-off in the amount of $192,000 of
receivables arising out of damage claims against suppliers deemed uncollectible;
(v) a write-off of approximately $103,000 due from Messrs. Takeshi Yamaguchi and
Yutaka Yamaguchi relating to indebtedness that was deemed uncollectible in the
fourth quarter; and (vi) $98,000 in other write-offs.
<PAGE>
During its fiscal year ended November 30, 1992, the Company sold to an
unrelated third party certain real property for $1,300,000 in cash. The Company
had retained certain rights under an easement relating to the real property (the
"Easement"), which it later sold to another unrelated third party. During the
fourth quarter of fiscal 1994, the Company determined that substantial doubt
existed as to its ability to collect a portion of the remaining amounts due from
the sale of the Easement and, accordingly, established a reserve of $125,000 to
provide for potential uncollectible amounts.
Interest expense in fiscal 1994 increased by approximately $160,000
over the interest expense in fiscal 1993. This change was caused primarily by
increases in interest rates and loans payable.
Miscellaneous income increased approximately $864,000 to $1,023,000 in
fiscal 1994 from $159,000 in fiscal 1993. This increase is primarily
attributable to the reversal of an accrued expense of $620,000 related to the
claim by a former tax-exempt Bondholder.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $176,000, and
working capital of approximately $1,143,000 at November 30, 1995. During fiscal
1995, the Company's operating activities used cash flow of approximately
$1,505,000, as compared to fiscal 1994, when operating activities used
approximately $441,000, and fiscal 1993 when operating activities provided
approximately $1,129,000 of cash flow.
Investing activities in each of the years in the three-year-period
ended November 30,1995 did not significantly impact the Company's cash flows. In
fiscal 1995, investing activities provided approximately $32,000 of cash, in
fiscal 1994, investing activities used approximately $110,000 of cash and in
fiscal 1993, investing activities provided approximately $85,000 of cash. The
principal uses of cash from investing activities were for the purchase of
property, plant and equipment ($30,000, $110,000 and $20,000 in fiscal 1995,
1994 and 1993 respectively). The principal sources of cash from investing
activities were proceeds from the sale of property and equipment and proceeds
from the sale of a subsidiary.
Financing activities provided approximately $697,000 of cash in fiscal
1995, and provided approximately $805,000 of cash in fiscal 1994. In fiscal
1993, financing activities used approximately $2,270,000 of cash. In fiscal 1995
and in fiscal 1994, the principal sources of net cash from financing activities
were from the proceeds of short-term and long-term borrowings in excess of debt
repayments in those years. In fiscal 1993, substantially all of the use of cash
from financing activities related to the repayment of loans to financial
institutions and repayment of short-term loans to related parties without any
significant borrowings.
In March 1995, the Company entered into an agreement with Yashiro,
pursuant to which Yashiro has agreed to issue or cause to be issued, 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 the Company's inventory.
Yashiro charges the Company a handling fee of 3% for each letter of credit that
is opened. The letter of credit facility enables the Company to maximize its
purchasing ability, as it provides a credit facility in addition to the
Company's factoring arrangement described below. At November 30, 1995, the
Company was directly indebted to Yashiro for approximately $536,000. There was
available approximately $664,000 under this facility at November 30, 1995, which
amount has since been utilized. Interest is payable to Yashiro monthly at 2%
above the prime rate.
<PAGE>
The Company has an agreement with Rosenthal & Rosenthal, Inc.
("Rosenthal") pursuant to which the Company sells its accounts receivable to
Rosenthal on a pre-approved non-recourse basis. Under the terms of the
agreement, Rosenthal advances funds to the Company on the basis of invoice
amounts. Interest on such advances is 1.75% per annum above the prime rate.
Additionally, Rosenthal provides inventory financing to the Company based on an
advance rate of 50% of the inventory value. At November 30 1995, Rosenthal had
advanced the Company $2,000,000 for inventory financing. Interest on such
advances is 1.75% per annum above the prime rate. At November 30, 1995, the
prime rate was 8.75% per annum. The Company also pays a factoring commisision of
.75% of each invoice amount, subject to a minimum of $96,000 per annum.
On August 1, 1995, the Company's Canadian subsidiary entered into a
financing agreement with a Canadian 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. The
bank extended two term loans to the Canadian subsidiary, pursuant to the
financing agreement, in 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.
Additionally, the Company has agreed to subordinate its loan to its Canadian
subsidiary to the amounts payable to the bank.
The Company presently anticipates that it will expend approximately
$150,000 in capital expenditures during fiscal 1996. A substantial portion of
the capital expenditures are related to the Company's new showroom in New York
City.
Management believes that the Company's present sources of financing,
combined with its present working capital and cash flow from operations will be
sufficient to provide adequate liquidity to the Company and to fund all of its
capital expenditures through the foreseeable future.
Item 8. - Financial Statements and Supplementary Data
The financial statements and supplementary data to be provided pursuant
to this Item 8 are included under Item 14 of this Report.
Item 9. - Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure
Not applicable.
<PAGE>
Part III
Item 10. - Directors and Executive Officers Of the Company
The following table contains certain information regarding directors
and executive officers of the Company serving at February 20, 1996, all of whom
were elected at the Annual Meeting of Shareholders of the Company held on August
17, 1995. Except for Mr. Hellige and Mr. Riss, all such directors and executive
officers served at all times during fiscal year 1995.
<TABLE>
<CAPTION>
Principal Occupation for Past 5
Name and Position Years and Current Public
with the Company Age Directorships or Trusteeships
- ----------------- --- -------------------------------
<S> <C> <C>
Joel Dupre 42 Director since 1990; Chairman of the
Board and Chief Executive Officer of
the Company since March 1995;
Executive Vice President from
November 1992 to March 1995 and a
Vice President from 1989 to 1992
Eric M. Hellige 41 Director since 1995 and Secretary of
the Company; Partner for more than
five years of Pryor, Cashman, Sherman
& Flynn, counsel to the Company
Ian Mitchell 58 Director since 1988; President and
Managing Director of Sirco
Leatherwares Ltd., a former
subsidiary of the Company since 1981
Paul Riss 40 Director since 1995; Chief Financial
Officer of Sequins International
Inc., a manufacturer of sequined
fabrics and trimmings, since June
1992; Chief Financial Officer,
Treasurer and Secretary of
ComponentGuard Inc., an administrator
of extended warranty contracts, from
August 1990 to June 1992.
ComponentGuard Inc. filed a petition
for protection under Chapter 11 of
the United States Bankruptcy Code in
May 1992
Principal Occupation for Past 5
Name and Position Years and Current Public
with the Company Age Directorships or Trusteeships
- ----------------- --- -------------------------------
<S> <C> <C>
Eric Smith 51 Director since 1988; Vice
President-General Manager of West
Coast Distribution Center since 1983
Douglas Turner* 57 Director since 1978; President
of Sirco International (Canada) Limited,
a subsidiary of the Company, for more
than five years
- -----------------------
*Mr. Turner resigned from the Board of Directors of the Company effective
September 10, 1996.
</TABLE>
<PAGE>
The term of office of the directors is one year, expiring on the date
of the next annual meeting and thereafter until their respective successors
shall have been elected and shall qualify, or until their death, resignation or
removal. Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities ("10% Stockholders"), to
file with the Securities and Exchange Commission (the "Commission") initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and 10% Stockholders
are required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file. Each of Mr. Eric Hellige and Paul Riss, directors
of the Company, failed to file with the Commission on a timely basis their Form
3 reports. Mr. Smith, a director of the Company, failed to file with the
Commission on a timely basis a Form 5 report with respect to the grant of
certain options.
<PAGE>
Item 11. - Executive Compensation
Summary of Cash and Certain Other Compensation
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") of the Company (Mr. Joel Dupre, the Chairman of the Board and Chief
Executive Officer of the Company since March 20, 1995; Mr. Yutaka Yamaguchi, the
Chairman of the Board and Chief Executive Officer of the Company prior to March
20, 1995). For the three fiscal years ended November 30, 1995, no other
executive officer of the Company had a salary and bonus which exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------------ ------------
Other Annual
Name and Compensation Options All Other
Principal Position Year Salary($) Bonus($) ($) (#) Compensation($)
- ------------------ ---- --------- -------- ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joel Dupre (1) 1995 $170,000 None None None None
Chairman of the 1994 170,000 $47,776 None None None
Board and Chief 1993 170,000 None None None None
Executive Officer
Yutaka Yamaguchi (2) 1995 None None None None None
Former Chairman 1994 None None None None None
of the Board and 1993 $50,000 None None None None
Chief Executive
Officer
</TABLE>
- ----------------
(1) Mr. Dupre held the title of Executive Vice President of the Company
during the fiscal year ended November 30, 1994. On March 29, 1995, in
connection with the transactions contemplated by the Stock Purchase
Agreement and the Asset Purchase Agreement (See "Item 12. - Security
Ownership of Certain Beneficial Owners and Management -- Change in
Control of Company"), Mr. Dupre was elected Chairman of the Board and
Chief Executive Officer of the Company.
(2) Mr. Yamaguchi resigned as an officer and director of the Company
effective January 1, 1995.
During the fiscal year ended November 30, 1995, neither of the
executive officers named in the Summary Compensation Table were granted any
options, nor did they exercise any options, under the 1995 Stock Option Plan of
the Company. In addition, at November 30, 1995, no options were held by the
executive officers named in the Summary Compensation Table.
Board of Directors Compensation
The Company does not currently compensate directors for service on the
Board of Directors.
<PAGE>
Employee Retirement Plan
In June 1995, the Board of Directors of the Company determined to
discontinue benefit accruals under the Company's tax-qualified Employee
Retirement Plan (the "Retirement Plan"). Pursuant to action taken by the Board
of Directors at such time, benefits ceased to accrue for all active participants
under the Retirement Plan on June 30, 1995. The Retirement Plan is administered
by the Board of Directors.
Each of the Company's United States-based employees was eligible to
participate in the Retirement Plan. However, effective as of July 1, 1995 and in
connection with the Board's action, the Retirement Plan was amended to provide
that no additional eligible employees may participate in the Retirement Plan and
accrue benefits thereunder. The following table discloses estimated annual
benefits payable upon retirement in specified compensation and years of service
classifications.
Projected Benefit at Retirement
Years of Service
-----------------------------------------
15 20 25 30 35
Salary(1)
--------
$ 20,000 $ 3,750 $ 5,000 $ 6,250 $ 7,500 $ 8,750
25,000 4,625 6,250 7,313 9,375 10,938
30,000 5,625 7,500 9,375 11,250 13,125
35,000 6,563 8,750 10,938 13,125 15,313
40,000 7,500 10,000 12,500 15,000 17,500
50,000 9,980 12,604 15,625 18,750 21,875
75,000 17,105 22,104 26,948 31,986 37,249
100,000 24,730 31,604 38,873 46,236 53,874
125,000 31,355 41,104 50,698 60,406 70,499
150,000(2) 38,480 50,004 62,573 74,736 87,124
175,000 45,605 60,104 74,448 88,986 103,749
200,000 52,730 69,604 86,323 103,236 120,374(3)
- ---------
(1) The annual benefits shown in the Table are integrated with Social
Security benefits and there are no other offsets to benefits.
(2) In general, section 401(a)(17) of the Internal Revenue Code provides
that for 1994, compensation used for computing benefits under a
tax-qualified employee pension plan cannot exceed $150,000 (as
adjusted).
(3) Under current law, the maximum annual benefit payable under the
Retirement Plan cannot exceed $120,000 (as adjusted).
The Retirement Plan is funded by the Company on an actuarial basis, and
the Company contributes annually the minimum amount required to cover the normal
cost for current service and to fund supplemental costs, if any, from the date
each supplemental cost was incurred. Contributions were intended to provide for
benefits attributed to service to date, and also for those expected to vest in
the future. Based on the assumption used in the actuarial valuation, the
Retirement Plan is fully funded.
<PAGE>
The estimated credited years of service for each of the executive
officers named in the Summary Compensation Table is as follows: Joel Dupre (11
years) and Yutaka Yamaguchi (none). $150,000 of Mr. Dupre's compensation shown
in the Summary Compensation Table was used to compute his projected benefit
under the Retirement Plan.
Benefits are computed on the basis of a straight-life annuity. Benefits
under the Retirement Plan are integrated with Social Security benefits.
The Retirement Plan will continue to comply with the applicable
sections of the Internal Revenue Code, the Employee Retirement Income Security
Act, and applicable Internal Revenue Services rules and regulations. In
accordance with the terms of the Retirement Plan, distributions will continue to
be made to retired and terminated employees who are participants in the
Retirement Plan.
Board of Directors Interlocks and Insider Participation in
Compensation Decisions
The following former and present members of the Board of Directors were
officers of the Company or a subsidiary of the Company during the fiscal year
ended November 30, 1995: Joel Dupre, Eric Smith, Douglas Turner, Takeshi
Yamaguchi and Yutaka Yamaguchi. Such members participated in deliberations of
the Company's Board of Directors concerning executive officer compensation
during the fiscal year ended November 30, 1995.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 15, 1996, the names,
addresses and number of shares of Common Stock beneficially owned by all persons
known to the management of the Company to be beneficial owners of more than 5%
of the outstanding shares of Common Stock, and the names and number of shares
beneficially owned all directors of the Company and all executive officers and
directors of the Company as a group (except as indicated, each beneficial owner
listed exercises sole voting power and sole dispositive power over the shares
beneficially owned):
<TABLE>
<CAPTION>
Shares Percent of
Beneficially Outstanding
Name and Address Owned Common Stock
- ---------------- ------------ ------------
<S> <C> <C>
Joel Dupre(1) 681,000 52.0%
c/o Sirco International Corp.
24 Richmond Hill Avenue
Stamford, Connecticut 06901
Pacific Million Enterprise Ltd.(2)(3) 133,330 10.2%
The Gateway, Tower 2, Suite 1807
25 Canton Road
Tsimshatsui, Kowloon, Hong Kong
Joseph Takada(2)(3) 133,330 10.2%
c/o Pacific Million Enterprise Ltd.
The Gateway, Tower 2, Suite 1807
25 Canton Road
Tsimshatsui, Kowloon, Hong Kong
<PAGE>
<CAPTION>
Shares Percent of
Beneficially Outstanding
Name and Address Owned Common Stock
- ---------------- ------------ ------------
<S> <C> <C>
Cheng-Sen Wang(2) 88,889 6.8%
c/o Kao-Lien International Co., Ltd.
404 Jen-Air Road
6th Floor, Section 4
Taipei, Taiwan R.O.C.
Albert H. Cheng(2)(4) 44,444 3.4%
c/o Constellation Enterprises Co., Ltd.
199 Chung Ching North Road
11th Floor, Section 3
Taipei, Taiwan R.O.C.
Ian Mitchell 0 0
Eric Smith 0 0
Douglas Turner 0 0
Eric M. Hellige 0 0
Paul Riss (5) 10,000 less than 1%
Herzog, Heine, Geduld, Inc.(6) 66,931 5.1%
26 Broadway
New York, New York 10004
All directors and executive 691,000 52.4%
officers of the Company as a
group (six individuals)
</TABLE>
- -----------
(1) Includes 266,666 shares for which Mr. Dupre has the right to exercise
sole voting control pursuant to a Voting Agreement dated as of May 1,
1995 (the "Voting Agreement") under which Pacific, Mr. Wang and Mr.
Cheng granted Mr. Dupre the right to exercise sole voting control with
respect to 133,333, 88,889, and 44,444 shares, respectively, held of
record by them.
(2) As a result of the Voting Agreement, Mr. Dupre, Pacific (together with
Mr. Takada -- see Note 2), Mr. Wang and Mr. Cheng may be deemed to be a
"group" within the meaning of Section 13d-3 of the Securities Exchange
Act of 1934, and, therefore, deemed to beneficially own an aggregate of
681,000 shares of Common Stock.
(3) Pacific has granted to Mr. Dupre an option to purchase all of the
133,333 shares it owns of record. By virtue of his ownership of 95% of
the issued and outstanding shares of common stock of Pacific, Joseph
Takada may be deemed to be the beneficial owner of all the shares of
Common Stock beneficially owned by Pacific.
(4) Mr. Cheng has granted to Mr. Dupre an option to purchase all of the
44,444 shares he owns of record.
<PAGE>
(5) Consists of 10,000 shares of Common Stock subject to an option that is
exercisable within 60 days.
(6) Herzog, Heine, Geduld, Inc. reported ownership of 66,931 shares of
Common Stock pursuant to a Schedule 13G received by the Company in
December 1991, as amended in January 1992.
Change in Control of the Company
On March 20, 1995, pursuant to a Stock Purchase Agreement, dated as of
March 20, 1995 (the "Stock Purchase Agreement"), among Joel Dupre, the current
Chairman of the Board and Chief Executive Officer of the Company, Pacific
Million Enterprise, Ltd., a Hong Kong corporation ("Pacific"), Cheng-Sen Wang
and Albert H. Cheng (Mr. Cheng, Mr. Dupre, Pacific and Mr. Wang collectively,
the "Buyers"), and the Yashiro Companies, the Buyers acquired an aggregate of
681,000 shares of Common Stock, constituting at the time of purchase
approximately 56.04% of the issued and outstanding shares of Common Stock, for
an aggregate purchase price of $1,532,230.
Mr. Dupre acquired 414,334 shares of Common Stock, constituting at the
time of purchase approximately 34.10% of the issued and outstanding shares of
Common Stock, in exchange for a cash payment of $400,001.50 and the issuance of
a promissory note (the "Promissory Note") in the principal amount of $532,250 in
favor of Yashiro, individually and as agent for Yashiro Company, Ltd., which as
discussed below, has been paid in full. The principal amount of the Promissory
Note was payable in equal annual installments of $88,708.33 commencing on March
31, 1996, with interest at the rate of 10% per annum payable quarterly in
arrears commencing on June 30, 1996. Mr. Dupre borrowed $200,000 of the cash
portion of the purchase price from Mr. Wang, which loan is evidenced by a
promissory note dated March 9, 1995, bearing interest at 10% per annum and
maturing on March 31, 2000. Mr. Dupre borrowed an additional $200,000 from Mr.
Cheng, which loan is evidenced by a promissory note dated March 13, 1995,
bearing interest at 7 3/4% per annum and maturing on March 31, 2000.
Pacific acquired 133,333 shares of Common Stock, constituting at the
time of purchase approximately 10.97% of the issued and outstanding shares of
Common Stock, for $299,999.25 in cash. The funds for the purchase price were
obtained from Pacific's working capital. Mr. Wang acquired 88,889 shares of
Common Stock, constituting at the time of purchase approximately 7.31% of the
issued and outstanding shares of Common Stock, and Mr. Cheng acquired 44,444
shares of Common Stock, constituting at the time of purchase approximately 3.66%
of the issued and outstanding shares of Common Stock, for cash payments of
$200,000.25 and $99,999, respectively. Mr. Wang and Mr. Cheng paid the purchase
price from their respective personal funds.
As an inducement to the Yashiro Companies to enter into the Stock
Purchase Agreement and to cause Bueno of California, Inc., a Delaware
corporation ("Bueno") and an affiliate of the Yashiro Companies, to enter into
the Asset Purchase Agreement (described below) and related agreements, Mr. Dupre
executed and delivered to the Yashiro Companies a guaranty, dated March 20,
1995, pursuant to which Mr. Dupre guaranteed all of the obligations of the
Company under the Letter of Credit Agreement, the Non-Competition Agreements and
the Severance Agreement (each as defined below).
In addition, the Buyers entered into a Pledge Agreement, dated as of
March 20, 1995 (the "Pledge Agreement"), with Bueno and Yashiro, on its own
behalf and as agent for Yashiro Company, Ltd. Pursuant to the Pledge Agreement,
the Buyers pledged their shares of Common Stock to Bueno and the Yashiro
Companies as security for the payment of (i) all obligations of Mr. Dupre under
<PAGE>
the Promissory Note, (ii) all obligations of the Buyers under the Stock Purchase
Agreement, (iii) all obligations of the Company under the Asset Purchase
Agreement, (iv) all obligations of the Company under any agreement that is an
exhibit to the Asset Purchase Agreement, including the Exclusive Purchasing
Agreement, the Non-Competition Agreements and the Severance Agreement and (v)
all obligations of the Buyers under the Pledge Agreement. As discussed below,
the Pledge Agreement was amended as of August 28, 1996 to, among other things,
reduce the number of shares of Common Stock required to be pledged thereunder to
a maximum of 20% of the outstanding shares of Common Stock.
Concurrently with the closing of the transactions contemplated by the
Stock Purchase Agreement and the Asset Purchase Agreement, Takeshi Yamaguchi
resigned from the Board of Directors and the office of President of the Company;
Yutaka Yamaguchi resigned from the Board of Directors and the offices of
Chairman of the Board and Chief Executive Officer; Neil Grundman resigned from
the Board of Directors of the Company; and Tsuguya Saeki resigned from the
offices of Executive Vice President and Chief Financial Officer of the Company.
Pursuant to a Severance Agreement, dated as of March 20, 1995, with Takeshi
Yamaguchi, the Company agreed to pay Mr. Yamaguchi $100,000 plus interest at the
rate of 10% per annum on March 31, 1996 and $100,000 plus interest at a rate of
10% per annum on March 31, 1997. On March 29, 1995, the Board of Directors of
the Company, consisting of Mr. Dupre, Ian Mitchell, Eric Smith and Douglas
Turner, elected Mr. Dupre as the Chairman of the Board and Chief Executive
Officer of the Company.
Concurrently with the acquisition by the Buyers of the shares of Common
Stock under the Stock Purchase Agreement, the Company and Bueno entered into an
Asset Purchase Agreement, dated as of March 20, 1995 (the "Asset Purchase
Agreement"), pursuant to which the Company sold to Bueno all of the assets
relating to the Company's handbag division for a negotiated purchase price of
$1,785,666, of which $86,168 was paid in cash and $1,699,498 was applied by the
Company to the repayment of indebtedness of the Company to the Yashiro
Companies. The aggregate indebtedness owed by the Company to the Yashiro
Companies at the date of the acquisition was $2,238,506. The Yashiro Companies,
which are affiliates of Bueno, are controlled by Messrs. Yutaka and Takeshi
Yamaguchi.
In connection with the Asset Purchase Agreement, each of the Yashiro
Companies, Yutaka Yamaguchi and Takeshi Yamaguchi entered into non-competition
agreements with the Company (collectively, the "Non-Competition Agreements").
Pursuant to the terms of the Non-Competition Agreements, each of the Yashiro
Companies and Messrs. Yutaka and Takeshi Yamaguchi agreed not to compete with
the Company's luggage and related products business prior to the earlier of
March 20, 2001 and the date of repayment in full of all amounts due under the
Promissory Note (the "Restricted Period"). In consideration of the agreements
not to compete, the Company was obligated to pay $60,000 to each of the Yashiro
Companies and each of Messrs. Yutaka and Takeshi Yamaguchi, payable in three
equal annual installments commencing on March 31, 1996. Pursuant to a separate
non-competition agreement, the Company agreed not to compete with Bueno in the
handbag business during the Restricted Period. As discussed below, the
Non-Competition Agreements and the non-competition agreement between the Company
and Bueno were terminated on August 28, 1996.
Also in connection with the Asset Purchase Agreement, the Company
entered into an Exclusive Purchasing Agreement, dated as of March 20, 1995, with
Yashiro (the "Exclusive Purchasing Agreement"), pursuant to which the Company
granted to Yashiro and its designees the exclusive right to purchase in Japan,
at prices to be mutually agreed upon, any goods manufactured or purchased by the
Company from unaffiliated vendors (the "Vendors"). Under the Exclusive
<PAGE>
Purchasing Agreement, Yashiro will pay a commission to the Company for all goods
purchased by it or its designees equal to 5% of the purchase price of all such
goods paid by the Company (or directly by Yashiro or its designees) to the
Vendors. As discussed below, the Exclusive Purchasing Agreement was terminated
on August 28, 1996.
Pursuant to a letter agreement (the "Letter of Credit Agreement"),
Yashiro has agreed to issue, or cause to be issued, for the account of the
Company, from time to time until March 20, 1997, one or more 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. With respect to
each letter of credit issued under the Letter of Credit Agreement, the Company
will be obligated to pay an origination fee equal to 3% of the full amount of
such letter of credit and a financing fee based upon the outstanding balance of
any letter of credit equal to the base rate of interest announced publicly by
Citibank, N.A. in New York, New York, from time to time, as its base rate plus
two percent (2%).
On August 28, 1996, Mr. Dupre paid $390,000 to prepay in full all
amounts due under the Promissory Note, and the Company prepaid an aggregrate of
$140,000 under the Non-Competition Agreements and $51,830 under the Severance
Agreement as payments in full of all amounts due under such agreements. In
connection with such payments, the continuing obligations of the parties under
the Stock Purchase Agreement, the Asset Purchase Agreement, the Exclusive
Purchasing Agreement, the Non-Competition Agreements, the non-competition
agreement between the Company and Bueno and the Severance Agreement were
terminated. In addition, the Letter of Credit Agreement was amended to, among
other things, reduce to the lesser of $1,000,000 or 35% of the book value of all
inventory owned by the Company the aggregate amount of trade letters of credit
that may be issued thereunder, and the Pledge Agreement was amended to, among
other things, reduce to 25% of the outstanding shares of Common Stock the number
of shares of Comon Stock required to be pledged thereunder. To fund the
prepayment of the Promissory Note, Mr. Dupre borrowed an additional $200,000
from Mr. Wang, which loan is evidenced by a promissory note dated August 19,
1996, bearing interest at 10% per annum and maturing on August 19, 2001,
$150,000 from Pacific, which loan is evidenced by a promissory note dated August
19, 1996, bearing interest at 10% per annum and maturing on August 19, 1998, and
an additional $40,000 from Mr. Cheng, which loan is repayable on a demand basis
on terms to be agreed.
Item 13. - Certain Relationships and Related Transactions
Joseph Takada, the beneficial owner of approximately 10.18% of the
outstanding shares of Common Stock, is the Managing Director of Ideal Pacific
Ltd, the Company's manufacturing agent in Hong Kong ("Ideal"). During the fiscal
year ended November 30, 1995, the Company paid aggregate commissions of
approximately $315,000 to Ideal. Mr. Wang, the beneficial owner of approximately
6.79% of the outstanding shares of Common Stock, is the Managing Director of
Kao-Lien Industrial Co., Ltd., the Company's manufacturing agent in Taiwan
("Kao-Lien"). During the fiscal year ended November 30, 1995, the Company paid
aggregate commissions of approximately $287,000 to Kao-Lien. Albert Cheng, the
beneficial owner of 3.39% of the outstanding shares of Common Stock, is the
President of Constellation Enterprise Co., Ltd., ("Constellation"). During the
fiscal year ended November 30, 1995, the Company purchased approximately
$193,000 of luggage and backpack products from Constellation.
Eric M. Hellige, a director of the Company, is a member of Pryor,
Cashman, Sherman & Flynn, counsel to the Company ("Pryor, Cashman"). Fees paid
<PAGE>
by the Company to Pryor, Cashman for legal services rendered during the fiscal
year ended November 30, 1995 did not exceed 5% of such firm's or the Company's
revenues.
Neil Grundman, a former director of the Company, is a member of Olshan,
Grundman, Frome & Rosenzweig, former counsel to the Company ("Olshan"). Fees
paid by the Company to Olshan for legal services rendered during the fiscal year
ended November 30, 1995 did not exceed 5% of such firm's or the Company's
revenues.
Yashiro has made available to the Company a line of credit for
financing trade letters of credit. See Item 7. - Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources. At November 30, 1995, the Company owed Yashiro approximately
$536,000, which amount related to letter-of-credit financings bearing interest
at prime plus 2% per annum. Amounts borrowed under the line of credit with
Yashiro are repayable within 100 days after the delivery of the related goods.
The Company paid Yashiro interest of approximately $122,000 during the fiscal
year ended November 30, 1995. In addition to interest, Yashiro is paid a
handling fee of 3% of the cost of the goods. Such handling fees amounted to
approximately $245,000 during the fiscal year ended November 30, 1995. The
Company is current in its obligations to Yashiro.
In 1993, the Company entered into a revolving bank credit agreement for
up to $2,000,000 with Shinhan Bank (the "Shinhan Facility"). The Shinhan
Facility expired on July 31, 1995, at which time all amounts became due and
payable and were paid in full. The Shinhan Facility 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%. Borrowings under
the facility were repayable to Shinhan Bank within 180 days of shipment of the
goods. Repayment of amounts due under the facility were secured by the personal
guaranty of the Company's former Chairman, Mr. Yutaka Yamaguchi, and the
Company's $500,000 certificate of deposit held by the bank as collateral. Mr.
Yutaka Yamaguchi did not directly receive any compensation from the Company
during the fiscal year ended November 30, 1995; however, Yashiro was paid a fee
of $50,000 for all services provided to the Company by Mr. Yutaka Yamaguchi.
For the fiscal year ended November 30, 1995, the Company also purchased
in the ordinary course of business, $734,000 of handbags and accessories
(representing approximately 6% of total purchases by the Company for such year)
from Lucci. At the time of such purchases, 45% of Lucci was owned by the same
individuals that owned Yashiro Co. Ltd. and Yashiro, including Yutaka Yamaguchi.
The Company believes that all purchases from affiliated parties were on
terms and at prices substantially similar to those available from unaffiliated
third parties.
<PAGE>
Part IV
Item 14. - Exhibits, Financial Statement
Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
Reference is hereby made to the Table of Contents to the
Financial Statements and Schedules attached hereto.
2. Financial Statement Schedules
Reference is hereby made to the Table of Contents to the
Financial Statements and Schedules attached hereto.
3. Exhibits
(3)(a) Certificate of Incorporation, as amended, incorporated by
reference to the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on August
27, 1969 under Registration Number 2-34436.
(b) Certificate of Amendment of the Certificate of Incorporation,
incorporated by reference to the Company's definitive proxy
statement filed with the Securities and Exchange Commission in
connection with the Company's Annual Meeting of Shareholders
held in May, 1984.
(c) Certificate of Amendment of Certificate of Incorporation,
incorporated by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the year ended November 30,
1988.
(d) Certificate of Amendment to the Certificate of Incorporation,
incorporated by reference to Exhibit 3(e) to the Company's
Annual Report on Form 10-K for the year ended November 30,
1994, as
amended.
(e) By-laws, as amended, incorporated by reference to the
Company's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on August 27, 1969 under
Registration Number 2-34436.
(10)(a) Asset Purchase Agreement, dated as of March 20, 1995, between
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.
(b) Non-Competition Agreement, dated as of March 20, 1995, between
the Company and Yashiro Co., 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,
Chen-Sen Wang and Albert H. Cheng with respect to the
Company's Common Stock (the "Schedule 13D").
(c) Non-Competition Agreement, dated as of March 20, 1995, between
the Company and Yashiro Co., Inc., incorporated by referenced
to Exhibit F-2 of the Schedule 13D.
<PAGE>
(d) 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.
(e) 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.
(f) Exclusive Purchasing Agreement, dated as of March 20, 1995,
between the Company and Yashiro Co., Inc., incorporated by
reference to Exhibit G of the Schedule 13D.
(g) Letter of Credit Agreement, dated March 20, 1995, between the
Company and Yashiro Co., Inc., incorporated by reference to
Exhibit H of the Schedule 13D.
(h) Severance Agreement, dated as of March 20, 1995, between the
Company and Takeshi Yamaguchi, incorporated by reference to
Exhibit K of the Schedule 13D.
(i) Lease Agreement dated February 14, 1990 between Or-May-Broward
Investment Company and the Company for property located in La
Mirada, California, incorporated by reference to Exhibit 10(j)
to the Company's Annual Report on Form 10-k for the year ended
November 30, 1989.
(j) Employment Agreement, dated as of September 1, 1992, between
the Company and Gandolfo Verra, incorporated by reference to
Exhibit 10(h) to the Company's Annual Report on Form 10-K for
the year ended November 30, 1994, as amended.
(k) Sirco International Corp. 1995 Stock Option Plan,
incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the year
ended November 30, 1994, as amended.
(l) Factoring Agreement, dated September 16, 1992, between Sirco
International Corp. and Rosenthal & Rosenthal, Inc., as
amended.
(22) Subsidiaries of Company - The significant subsidiaries
of Company, all of which are wholly-owned by Company
and included in its consolidated financial statements,
are as follows:
Name Country of Organization
---- -----------------------
Sirco Industries, Limited Hong Kong
Sirco International Canada
(Canada) Limited
(23.1) Consent of Nussbaum Yates & Wolpow, P.C.
(23.2) Consent of Ernst & Young LLP
(23.3) Consent of Deloitte & Touche
(27) Financial Data Schedule.
(b) Reports on Form 8-K. None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 30th day of
August, 1996.
SIRCO INTERNATIONAL CORP.
(Company)
By: /s/ Joel Dupre
-----------------------
Joel Dupre, Chairman of
the Board and Chief
Executive 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
Company and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Joel Dupre
- ------------------- Chairman and Chief August 30, 1996
Joel Dupre Executive Officer
(Principal Executive
Officer)
/s/ Gandolfo Verra
- ------------------ Controller and August 30, 1996
Gandolfo Verra Assistant Secretary
(Principal Financial
Officer)
/s/ Eric M. Hellige
- ------------------- Director and August 30, 1996
Eric M. Hellige Secretary
/s/ Paul Riss
- ------------------- Director August 30, 1996
Paul Riss
/s/ Ian Mitchell
- ------------------- Director August 30, 1996
Ian Mitchell
/s/ Eric Smith
- ------------------- Director August 30, 1996
Eric Smith
<PAGE>
F-1
FORM 10-K/A
ITEM 14(a)(1) AND (2)
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Sirco International Corp. and
Subsidiaries are included in item 8:
Consolidated Balance Sheets - November 30, 1995 and 1994
Consolidated Statements of Operations - Years ended November 30,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity - Years ended
November 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended November 30,
1995, 1994 and 1993
Notes to Consolidated Financial Statements - Years ended November
30, 1995, 1994 and 1993
The following consolidated financial statement schedules of Sirco International
Corp. and Subsidiaries are included in Item 14(d):
Schedule I - Condensed Financial Information of the Registrant (Parent)
Schedule II - Valuation and Qualifying Accounts - Years ended November
30, 1995, 1994 and 1993
All other schedules are omitted because they are not required, are inapplicable,
or the information is included in the financial statements or notes thereto.
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Sirco International Corp.
We have audited the accompanying consolidated balance sheet of Sirco
International Corp. and subsidiaries as of November 30, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of Sirco International (Canada) Limited, subsidiary of Sirco
International Corp., which statements reflect total assets of approximately
$2,213,000 as of November 30, 1995, and net sales of approximately $3,660,000
for the year ended November 30, 1995. Those financial statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to data included for that subsidiary, is based solely on the
report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards required that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sirco International
Corp. and its subsidiaries as of November 30, 1995, and the consolidated results
of their operations and their consolidated cash flows for the year then ended,
in conformity with generally accepted accounting principles.
We have also audited Schedule I and Schedule II for the year ended November 30,
1995. In our opinion, these schedules present fairly, in all material respects,
the information required to be set forth therein.
/s/ NUSSBAUM YATES & WOLPOW, P.C.
----------------------------
NUSSBAUM YATES & WOLPOW, P.C.
MELVILLE, NEW YORK
February 12, 1996, except for Note 15,
as to which the date is September 10, 1996
<PAGE>
Deloitte & Touche
[Company Logo]
Chartered Accountants
1 City Centre Drive Telephone: (905) 803-5100
Suite 1100 Facsimile: (905) 803-6101
Mississauga, Ontario, L5B 1M2
Auditors' Report
To the Shareholder of
Sirco International (Canada) Limited
We have audited the balance sheets of Sirco International (Canada) Limited as at
November 30, 1995 and 1994 and the statements of operations, retained earnings
and changes in financial position for each of the years in the three year period
ended November 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at November 30, 1995 and 1994
and the results of its operations and the changes in its financial position for
each of the years in the three year period ended November 30, 1995 in accordance
with generally accepted accounting principles.
/s/Deloitte & Touche
-----------------
Deloitte & Touche
Chartered Accountants
December 18, 1995, except for Note 10, as
to which the date is September 10, 1996
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Sirco International Corp.
We have audited the accompanying consolidated balance sheet of Sirco
International Corp. and subsidiaries as of November 30, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the years ended November 30, 1994 and 1993. Our audits also included the
financial statement schedule for the years ended November 30, 1994 and 1993
listed in the index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Sirco International (Canada) Limited, subsidiary of
Sirco International Corp., which statements reflect total assets of
approximately $1,335,000 as of November 30, 1994, and net sales of approximately
$1,397,000 and $1,889,000 for the years ended November 30, 1994 and 1993,
respectively. Those financial statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it related to data
included for that subsidiary, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sirco International
Corp. International Corp. and its subsidiaries at November 30, 1994, and the
results of their operations and their cash flows for the years ended November
30, 1994 and 1993, in conformity with generally accepted accounting principles.
Also, in our opinion, based on our audits and the report of other auditors, the
related financial statement schedule, when considered in relation to the basic
financial; statements taken as a whole, present fairly in all material respects
information set forth therein.
/s/ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
February 17, 1995
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................... $ 176,241 $ 955,869
Accounts receivable, trade - net of allowance
of $286,000 in 1995 and $322,000 in 1994
and including $1,286,000 and $1,737,000,
net of advances, due from factor in 1995
and 1994, respectively (Notes 2 and 11) ... 2,184,468 1,826,400
Inventories (Notes 2 and 5) .................. 5,762,828 5,213,120
Prepaid expenses ............................. 257,809 326,909
Other current assets (Note 13) ............... 276,815 344,020
----------- -----------
Total current assets .... 8,658,161 8,666,318
----------- -----------
Property, plant and equipment - at cost:
Land ......................................... 208,826 206,383
Building ..................................... 499,186 493,347
Machinery and equipment ...................... 728,299 824,835
Automobiles and trucks ....................... 7,241 10,871
Leasehold improvements ....................... 334,342 326,120
----------- -----------
1,777,894 1,861,556
Less accumulated depreciation and amortization 1,128,045 1,088,524
----------- -----------
649,849 773,032
----------- -----------
Other assets (Note 13) ........................... 154,233 211,592
----------- -----------
Investment in and advances to subsidiary (Note 12) 540,497 600,793
----------- -----------
Total assets ............ $10,002,740 $10,251,735
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
NOVEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
------------ ------------
<S> <C> <C>
Current liabilities:
Loans payable to financial institutions (Note 2) .............. $ 2,323,279 $ 2,067,764
Short-term loan payable to related parties (Note 8) ........... 571,205 1,743,235
Current maturities of long-term debt (Note 5) ................. 222,119 448,401
Accounts payable .............................................. 2,866,658 1,981,945
Accrued expenses and taxes (including approximately
$50,000 due to a related party in 1994) (Note 4) ............ 1,532,253 1,062,692
------------ ------------
Total current liabilities ................ 7,515,514 7,304,037
------------ ------------
Long-term debt, less current maturities (Notes 5, 6
and 13) ....................................................... 590,298 49,651
------------ ------------
Commitments and contingencies (Notes 2, 4 and 6)
Stockholders' equity (Note 14):
Common stock, $.10 par value; 10,000,000
shares authorized, 1,215,200 shares issued ................. 121,520 121,520
Preferred stock, $.10 par value; 1,000,000 shares
authorized, none issued
Capital in excess of par value ................................ 4,027,534 4,027,534
Retained earnings (deficit) ................................... (1,641,603) (645,104)
Treasury stock at cost, 5,500 shares .......................... (27,500) (27,500)
Accumulated foreign currency translation
adjustment ................................................. (583,023) (578,403)
------------ ------------
Total stockholders' equity ............... 1,896,928 2,898,047
------------ ------------
Total liabilities and stockholders' equity $ 10,002,740 $ 10,251,735
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .............................. $ 24,812,147 $ 27,599,536 $ 27,954,106
Cost of goods sold ..................... 18,682,304 21,532,520 21,334,330
------------ ------------ ------------
Gross profit ........................... 6,129,843 6,067,016 6,619,776
Selling, warehouse, general and adminis-
trative expenses ................... 6,276,379 8,898,288 7,206,912
------------ ------------ ------------
Loss from operations ................... (146,536) (2,831,272) (587,136)
Interest expense ....................... 866,597 789,109 629,031
Interest income ........................ (111,710) (162,243) (108,384)
Loss on sale of handbag division ....... 425,163 -- --
Miscellaneous income, net .............. (330,087) (1,023,113) (159,316)
------------ ------------ ------------
Loss before provision for income taxes . (996,499) (2,435,025) (948,467)
Provision for income taxes ............. -- -- 15,516
------------ ------------ ------------
Net loss ............................... ($ 996,499) ($ 2,435,025) ($ 963,983)
============ ============ ============
Loss per share of common stock ......... ($ .82) ($ 2.01) ($ .79)
============ ============ ============
Weighted average number of shares of
common stock outstanding ........... 1,209,700 1,209,700 1,215,200
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock
------------------------ Capital Retained Currency
Number of In Excess of Earnings Treasury Translation
Shares Amount Par Value (Deficit) Stock Adjustment
--------- -------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30,
1992 1,215,200 $121,520 $4,027,534 $2,753,904 -- ($541,233)
Net loss .......................... -- -- -- (963,983) -- --
Currency translation
adjustment ..................... -- -- -- -- -- (24,222)
--------- -------- ---------- ---------- ------- ---------
Balance, November 30,
1993 1,215,200 121,520 4,027,534 1,789,921 -- (565,455)
Net loss .......................... -- -- -- (2,435,025) -- --
Purchase of Treasury
stock - 5,500 shares ........... -- -- -- -- ($27,500) --
Currency translation
adjustment ..................... -- -- -- -- -- (12,948)
--------- -------- ---------- ---------- ------- ---------
Balance, November 30,
1994 1,215,200 121,520 4,027,534 (645,104) (27,500) (578,403)
Net loss .......................... -- -- -- (996,499) -- --
Currency translation
adjustment ..................... -- -- -- -- -- (4,620)
--------- -------- ---------- ---------- ------- ---------
Balance, November 30,
1995 1,215,200 $121,520 $4,027,534 ($1,641,603) ($27,500) ($583,023)
========= ======== ========== =========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss .............................................. ($ 996,499) ($2,435,025) ($ 963,983)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization .................. 195,634 152,849 147,411
Loss on sale of handbag division (see Note 13) . 425,163 -- --
Provision for losses on accounts receivable
and other assets ............................ 128,000 560,000 200,000
Write-off of other current assets .............. -- 499,000 --
Loss on sale of property, plant and equipment .. 525 -- 9,651
Changes in operating assets and liabilities:
Accounts receivable ......................... (477,148) 1,021,724 (892,253)
Inventories ................................. (2,432,693) (256,443) 1,293,232
Prepaid expenses ............................ 62,525 80,901 (54,058)
Other current assets ........................ 157,707 59,280 (106,990)
Other assets ................................ 74,800 (120,053) (171,047)
Accounts payable and accrued expenses ....... 1,357,217 (3,888) 1,645,297
Income taxes ................................ -- 700 21,824
----------- ----------- -----------
Net cash provided by (used in) operating activities ... (1,504,769) (440,955) 1,129,084
----------- ----------- -----------
Investing activities:
Purchases of property, plant and equipment ........ (30,195) (110,036) (20,455)
Proceeds from sale of property, plant and equipment 1,605 -- 61,078
Cash inflow from agreement to sell subsidiary ..... 60,296 -- 44,635
----------- ----------- -----------
Net cash provided by (used in) investing activities ... 31,706 (110,036) 85,258
----------- ----------- -----------
</TABLE>
(Continued)
See accompanying notes to consolidated financial statements.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Financing activities:
Repayment of loans payable to financial institutions
and short-term loans payable to related parties .. ($1,761,501) ($ 746,608) ($2,229,815)
Proceeds from short-term borrowings ................ 2,506,995 -- --
Proceeds from long-term debt ....................... 357,455 1,579,263 --
Repayment of long-term debt ........................ (441,440) -- (40,127)
Purchase of treasury stock ......................... -- (27,500) --
Proceeds of officer loan ........................... 35,000 -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities .... 696,509 805,155 (2,269,942)
----------- ----------- -----------
Effect of exchange rate changes on cash ................ (3,074) (1,211) 16,587
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ....... (779,628) 252,953 (1,039,013)
Cash and cash equivalents at beginning of year ......... 955,869 702,916 1,741,929
----------- ----------- -----------
Cash and cash equivalents at end of year ............... $ 176,241 $ 955,869 $ 702,916
=========== =========== ===========
Cash paid during the year for:
Interest ........................................... $ 836,437 $ 780,482 $ 643,003
=========== =========== ===========
Income taxes ....................................... $ -- $ -- $ 28,550
=========== =========== ===========
</TABLE>
Supplemental disclosure of non-cash investing and financing activities: On March
20, 1995, the Company sold inventory of its handbag division with a book value
of $1,889,368 for a sale price of $1,700,431 to Bueno of California, Inc.
Substantially all of the sales price was not received in cash, but was offset by
the Company against the repayment of indebtedness of the Company to Bueno's
parent company, Yashiro Co., Inc.
See accompanying notes to consolidated financial statements.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
1. Description of Business and Summary of Accounting Principles
Description of Business and Concentration of Credit Risk
The Company is a wholesaler of children's bags, tote bags, soft luggage
and related products principally in the United States and Canada. The
principal markets for the Company's products are the large national
retail chain stores, department stores, specialty stores and sporting
goods retailers. Prior to the sale of its handbag division on March 20,
1995, the Company also was a wholesaler of handbags (see Note 13).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of significant intercompany
balances and transactions. At November 30, 1995, approximately 56% of the
common stock is owned by Joel Dupre, Joseph Takada and Albert Cheng,
pursuant to their acquisition of such stock on March 20, 1995 from
Yashiro Co., Inc. ("Yashiro") (see Note 13).
Revenue Recognition
Revenue is recognized upon the shipment of merchandise.
Inventories
Inventories, consisting primarily of finished goods purchased for resale,
are stated at the lower of cost (first-in, first-out and average) or
market.
Property, Plant and Equipment and Depreciation
Depreciation is computed primarily by use of accelerated methods over the
estimated useful lives of the assts. The estimated useful lives are 20
years for building, 5 to 10 years for machinery and equipment, life of
lease for leasehold improvements, and 3 to 5 years for automobiles.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and income and expenses are
translated at average exchange rates prevailing during the year with the
resulting adjustments accumulated in stockholders' equity.
<PAGE>
Income Taxes
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
As permitted under SFAS 109, the Company had elected not to restate the
financial statements of prior years. Application of SFAS 109 resulted in
the recognition of a net deferred tax asset as of December 1, 1993, of
approximately $1,900,000 primarily due to net operating loss
carryforwards, reserves for doubtful accounts, certain accrued expenses,
capitalization of inventory costs, depreciation and the agreement to sell
a subsidiary being treated as an installment sale for tax purposes (see
Note 12). The Company also recorded a valuation allowance of
approximately $1,900,000 due to uncertainty about the realizability of
this asset. Therefore, there was no effect on the Company's financial
statements as of December 1,1993 from the adoption of SFAS 109.
Income taxes have not been provided on undistributed earnings of foreign
subsidiaries, which amount to approximately $2,650,000 as of November 30,
1995 because the Company expects to reinvest these earnings in the
business of subsidiaries.
Loss Per Share
Loss per share is calculated based on the weighted average number of
common shares outstanding.
Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents for purposes of
the consolidated statement of cash flows.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the 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. Significant estimates are used in accounting for accounts
receivable allowances, income taxes and investments in and advances to
its subsidiary.
Future Effect of Recently Issued Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 123, Accounting for Stock
Based Compensation (SFAS 123). SFAS 123 requires entities to disclose the
fair value of their employee stock options. Disclosure requirements are
effective for the Company's fiscal year beginning December 1, 1996.
<PAGE>
2. Loans Payable to Financial Institutions
On October 31, 1995, the Company amended its factoring agreement (see
Note 11) whereby it may borrow up to 50% of the value of its finished
goods inventory. Interest under borrowings from the factor for inventory
advances are at prime plus 1.75% per annum (10.5% at November 30, 1995).
Borrowings are collateralized by the inventory. As of November 30, 1995,
the Company had outstanding $2,000,000 of borrowings under this
agreement.
On August 1, 1995, the Company's Canadian subsidiary entered into a
financing agreement with a Canadian bank that provides for a revolving
loan and letter of credit financing in the amount of the lesser of
$525,000 or the sum of a percentage of accounts receivable (as defined),
50% of letters of credit outstanding, and 25% of eligible finished goods
inventory (as defined) with interest payable monthly at 1.25% above the
Canadian prime rate. As of November 30, 1995, the Canadian prime rate was
7.75%. As of November 30, 1995, $323,279 was outstanding under this
agreement in direct borrowings. As of November 30, 1995 and 1994, there
were outstanding letters of credit in the amount of $88,000 and $50,000,
respectively. The bank also refinanced a real property mortgage of
approximately $368,000 and a term loan of approximately $105,000. The
mortgage is payable in monthly installments of approximately $3,500
including interest at 10.25% with a balloon payment of approximately
$325,000 in the year 2000. The term loan bears interest at 1.5% above the
Canadian prime rate and is due June 1996. Substantially all of the assets
of the Canadian subsidiary have been pledged as collateral for the above
loans. The Canadian subsidiary has agreed to certain financial covenants
(current ratio, debt-to-equity ratio, debt service coverage) and not to
pay dividends to the parent.
The Company had a prior bank credit agreement providing for a revolving
line of credit at 1% above prime for up to $2,000,000 which expired on
July 31, 1995 and was paid in full. The facility was secured by a
$500,000 certificate of deposit and the personal guaranty of the
Company's former chairman.
In fiscal 1994, the Company received two short-term advances of $600,000
and $350,000 from a factor (see Note 11) of which $350,000 was
outstanding at November 30, 1994. Interest on these advances was payable
at prime plus 2.5% per annum (9.75% at November 30, 1994). The second
advance was repaid in February 1995.
3. Income Taxes
At November 30, 1995, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $3,500,000 expiring in
the years 2001 through 2010. There is an annual limitation of
approximately $187,000 on the utilization of approximately $2,800,000 of
net operating loss carryforwards under the provisions of Internal Revenue
Code Section 382.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities as of November 30, 1995 and 1994 are as follows:
<PAGE>
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .............. $ 1,460,000 $ 1,990,000
Reserve for doubtful accounts and accruals .... 610,000 710,000
Inventory cost capitalization ................. 110,000 110,000
Depreciation .................................. 120,000 100,000
----------- -----------
2,300,000 2,910,000
Deferred tax liabilities:
Installment sale of investment ................ (60,000) (70,000)
----------- -----------
2,240,000 2,840,000
Valuation allowance .............................. (2,240,000) (2,840,000)
----------- -----------
Net deferred tax assets .......................... $ -- $ --
=========== ===========
</TABLE>
Income tax expense consists of current domestic state and local taxes in
1993.
The following is a reconciliation of the tax provisions for the three
years ended November 30, 1995 with the statutory Federal income tax
rates:
<TABLE>
<CAPTION>
Percentage of Pre-Tax Income
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income tax rate ........... (34.0)% (34.0)% (34.0)%
State and local income taxes, net of
Federal income tax benefit ............... -- -- 1.1
Utilization of foreign tax loss carryforwards (7.8) -- --
Operating losses generating no current tax
benefit:
United States ........................ 37.8 31.3 31.7
Foreign .............................. 1.6 1.9 1.8
Other items, primarily disallowed expenses .. 2.4 .8 1.0
----- ----- -----
-- % -- % 1.6%
===== ===== =====
</TABLE>
<PAGE>
4. Pension Plans
The Company has a defined benefit plan covering substantially all of its
domestic employees. The benefits provided are primarily based upon years
of service and compensation, as defined. The Company's funding policy is
to contribute annually the minimum amount required to cover the normal
cost and to fund supplemental costs, if any, from the date each
supplemental cost was incurred. Contributions were intended to provide
not only for benefits attributed to service to date, but also for those
expected to be earned in the future. Plan assets consist primarily of
investments in marketable securities.
Effective June 30, 1995, the plan was frozen, ceasing all benefit
accruals and resulting in a plan curtailment. The Company recognized a
curtailment gain of approximately $112,500 in accordance with Statement
of Financial Accounting Standards No. 88 - "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits."
Net periodic pension cost (exclusive of the curtailment gain in 1995)
included the following components:
<TABLE>
<CAPTION>
Year Ended November 30,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned in current year $ 39,355 $ 62,711 $ 83,617
Interest cost on projected benefit obligation 54,221 53,733 56,684
Return on assets ............................. (71,434) (66,109) (68,952)
Net amortization and deferral ................ (12,198) (4,452) (1,642)
-------- -------- --------
$ 9,944 $ 45,883 $ 69,707
======== ======== ========
</TABLE>
Following is a summary of significant actuarial assumptions used:
<TABLE>
<CAPTION>
November 30,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rates .................... 7.5% 7.25% 7.5%
Rates of increase in compensation levels ........... 5.0% 5.0% 5.0%
Expected long-term rate of return on assets ........ 8.0% 8.0% 8.0%
</TABLE>
<PAGE>
The following table sets forth the Plan's funded status and amounts
recognized in the Company's statement of financial position at:
<TABLE>
<CAPTION>
November 30,
1995 1994
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $742,330 and $621,530 at
November 30, 1995 and 1994, respectively .......... ($745,493) ($659,959)
========= =========
Projected benefit obligation for service rendered
to date ........................................... ($745,493) ($822,061)
Plan assets at fair value, primarily listed stocks ... 868,442 856,950
--------- ---------
Plan assets in excess of projected benefit obligation 122,949 34,889
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions ............................ (85,498) (117,100)
Unrecognized prior service cost ...................... -- 21,205
Unrecognized net asset being amortized over
13 years from December 1, 1987 .................... (20,439) (24,551)
--------- ---------
Prepaid (accrued) pension cost ....................... $ 17,012 ($ 85,557)
========= =========
</TABLE>
5. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Subsidiary mortgage payable (see Note 2) ............. $357,975 $361,209
Subsidiary term loan (see Note 2) .................... 56,092 136,843
Restrictive covenant obligation (see Note 13) ........ 198,350 --
Severance agreement with former shareholders
(see Note 13) .................................... 200,000 --
-------- --------
812,417 498,052
Less current maturities .............................. 222,119 448,401
-------- --------
$590,298 $ 49,651
======== ========
</TABLE>
<PAGE>
Principal payments are due as follows:
<TABLE>
<CAPTION>
Year ended November 30,
-----------------------
<S> <C>
1996 $222,119
1997 181,624
1998 70,686
1999 8,124
2000 329,864
--------
$812,417
========
</TABLE>
6. Commitments
The Company conducts a substantial portion of its operations utilizing
leased facilities. Rent expense, charged to operations, was $725,000,
$825,000 and $924,000 in 1995, 1994 and 1993, respectively. In addition
to the annual rent, the Company pays real estate taxes, insurance and
other occupancy costs on its leased facilities. A portion of one
warehouse facility is subleased to a subsidiary of Yashiro (see Note 8)
under a lease which expires in May, 2000. Total future minimum sublease
rentals amounted to $637,000 at November 30, 1995.
The minimum annual rental commitments exclusive of sublease rentals under
operating leases that have remaining non-cancelable terms in excess of
one year are approximately as follows:
<TABLE>
<CAPTION>
Year ended November 30,
-----------------------
<S> <C>
1996 $ 612,000
1997 637,000
1998 670,000
1999 685,000
2000 410,000
Thereafter 452,000
----------
$3,466,000
==========
</TABLE>
<PAGE>
The Company has entered into various licensing agreements under which it
has obtained the right to market children's bags, tote bags and related
products with trade names. The terms of such agreements vary, but range
from 4 to 7 years through May 2000. The agreements provide for royalties
based upon net sales with certain stated minimum annual amounts. The
amount of future minimum royalties aggregate approximately $1,820,000.
Royalty expense amounted to $937,000, $883,000 and $969,000 in 1995, 1994
and 1993, respectively. As of November 30, 1995 and 1994, approximately
$480,000 and $110,000, respectively, had been accrued for unpaid
royalties.
The Company has modified its agreement with a licensor whereby the
Company will cease to ship its product under its license after June 30,
1996. Sales of this licensed product amounted to approximately 21% of the
Company's net sales in 1995.
7. Miscellaneous Income
Accrued expenses at November 30, 1993 included $620,000 related to a
claim by a former tax-exempt bondholder. Management believes that it is
remote that the Company would be required to pay this claim and,
accordingly, miscellaneous income for 1994 includes the reversal of this
accrual.
8. Related Party Transactions
On March 20, 1995, the Company entered into a Letter of Credit Agreement
with Yashiro to provide for short-term financing for import purchases.
Pursuant to this 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 Company's inventory. Amounts
borrowed under this agreement are repayable 100 days after delivery of
the goods. In addition to interest, which is payable monthly at 2% above
the prime rate, Yashiro is paid a handling fee of 3% of the cost of the
goods. The Company, prior to March 20, 1995, had a product supply
agreement with Yashiro whereby the Company was free to purchase goods
from other suppliers if it could do so on more favorable terms. During
1995, 1994 and 1993, purchases from Yashiro were approximately $-0-,
$9,000 and $221,000, respectively. The Company's liability to Yashiro was
approximately $536,000 and $1,743,000 at November 30, 1995 and 1994. The
liability at November 30, 1994 included a short-term line of credit of
approximately $1,664,000, bearing interest at 7% per annum. In fiscal
1995, 1994 and 1993, interest and handling and other fees paid to Yashiro
amounted to approximately $417,000, $300,000 and $188,000, respectively.
At November 30, 1993, the Company was due approximately $132,000 from
Yashiro which primarily related to inventory returns and merchandise
damage claims and was included in other current assets. Approximately
$36,000 of such amounts were received in 1994, and the balance was
written off as uncollectible in the fourth quarter of fiscal 1994. In
addition, selling, warehouse, general and administrative expenses for the
year ended November 30, 1994 includes $100,000 charged by Yashiro for
services provided to the Company by an officer of Yashiro.
During the years ended November 30, 1995, 1994 and 1993, the Company
purchased approximately $734,000, $3,489,000 and $2,858,000,
respectively, of handbags and accessories from an affiliate of Yashiro.
In addition, approximately $21,000 was paid to this affiliate for
services rendered during the year ended November 30, 1994.
<PAGE>
During the year ended November 30, 1995, the Company purchased
approximately $193,000 of luggage and backpack products from a related
party.
During the years ended November 30, 1995, 1994 and 1993, the Company paid
approximately $602,000, $245,000 and $393,000, respectively, as buying
commissions to related parties.
Included in short-term loans payable to related parties is a $35,000
demand loan from the Company's president that bears interest at 6%.
9. Segment Reporting
<TABLE>
<CAPTION>
United Hong
Consolidated States Canada Kong
------------ ------------ ------------ ---------
(see Note 15)
<S> <C> <C> <C> <C>
Year ended November 30, 1995:
Net sales ..................... $ 24,812,147 $ 21,132,714 $ 3,660,079 $ 19,354
============ ============ ============ =========
Net income (loss) and income
(loss) before provision for
income taxes ........... ($ 996,499) ($ 1,154,408) $ 269,488 ($111,579)
============ ============ ============ =========
Identifiable assets ........... $ 10,002,740 $ 7,780,427 $ 2,213,154 $ 9,159
============ ============ ============ =========
Year ended November 30, 1994:
Net sales ..................... $ 27,599,536 $ 26,039,666 $ 1,397,411 $ 162,459
============ ============ ============ =========
Net loss and loss before
provision for income taxes ($ 2,435,025) ($ 2,183,590) ($ 121,933) ($129,502)
============ ============ ============ =========
Identifiable assets ........... $ 10,251,735 $ 8,686,936 $ 1,335,118 $ 229,681
============ ============ ============ =========
Year ended November 30, 1993:
Net sales ..................... $ 27,954,106 $ 25,818,873 $ 1,889,223 $ 246,010
============ ============ ============ =========
Income (loss) before provision
for income taxes .......... ($ 948,467) ($ 899,120) ($ 51,204) $ 1,857
============ ============ ============ =========
Net income (loss) ......... ($ 963,983) ($ 914,636) ($ 51,204) $ 1,857
============ ============ ============ =========
Identifiable assets ....... $ 11,929,219 $ 10,008,771 $ 1,559,906 $ 360,542
============ ============ ============ =========
</TABLE>
10. Sale of Real Property
In fiscal 1992, the Company sold real property for $1,300,000 in cash and
the right to receive the consideration under an easement agreement that
was assigned to the buyer. The present value of the consideration to be
received under the easement agreement was recorded as a receivable in the
accompanying financial statements. The net gain on this sale amounted to
approximately $317,000. In the fourth quarter of fiscal 1994, the Company
established a reserve of $125,000 due to doubts about the collectibility
of the amount due from the buyer.
<PAGE>
11. Accounts Receivable and Major Customer
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
was payable at 2% in excess of the prime rate through October 31, 1995
and 1.75% in excess of the prime rate thereafter. The Company also paid a
factoring commission of 1% (.75% after November 1, 1995) of the invoice
amount subject to a minimum of $96,000 per annum.
Substantially all of the Company's accounts receivable that are not
financed by the factor are not collateralized. The Company periodically
reviews the status of its accounts receivable and, accordingly,
establishes reserves for uncollectible accounts. In the fourth quarter of
fiscal 1994, the Company established additional accruals for future
credits totaling approximately $440,000. In addition, the Company wrote
off merchandise damage claims of approximately $33,000 and uncollectible
amounts related to a subsidiary of approximately $170,000 in the fourth
quarter of fiscal 1994.
Sales to one customer amounted to 25%, 22%, and 20% of net sales in
fiscal 1995, 1994 and 1993, respectively.
12. Investment In and Advances to Subsidiary
Effective July 15, 1992, the Company entered into an agreement to sell
all of the stock of its then wholly-owned subsidiary, Sirco Leatherwares
Limited (the "Subsidiary"). In exchange for the stock, the Company
received a non-interest bearing $650,000 note. The note is guaranteed by
an officer of the Subsidiary who is also an officer of the buyer. The
agreement also requires the Company to forgive a portion of the amounts
due to it from the Subsidiary. The Company's ability to collect the note
receivable and the balance of the receivable from the Subsidiary is
dependent upon cash flows from the Subsidiary's operations and/or the
buyer's ability to refinance the obligations. Under the terms of the
agreement, the Company is also required to provide the Subsidiary (i) a
$200,000 line of credit through 1997 and (ii) design and production
services. As the risks and other incidents of ownership have not
transferred to the buyer with sufficient certainty, this transaction has
not been accounted for as a sale for accounting purposes.
The Company recorded a loss on this transaction in a prior year, as the
present value of the amounts to be received under the note and the
revised accounts receivable were less than (i) the carrying value of the
Company's investment in the Subsidiary plus (ii) the amounts receivable
from the Subsidiary.
The non-interest bearing $650,000 note received in exchange for stock in
the Subsidiary is due in thirty-two equal quarterly installments of
$20,213 beginning in August 1992. Payments are being received on a
current basis.
Also, pursuant to the agreement to sell the Company's investment in the
Subsidiary, the Subsidiary agreed to pay interest at 8.5% per annum on a
receivable of approximately $720,000. This interest is payable quarterly
commencing in August 1992. If the Subsidiary is not in default on the
payment of interest, the Company will forgive a portion of the
receivable, in amounts as defined, through May 1, 1998. An amount of
<PAGE>
$40,000 was forgiven in each of 1995, 1994 and 1993. The total amount
forgiven will be $280,000. The remaining receivable of approximately
$440,000 is payable in ten equal quarterly installments commencing in
August 1998. Amounts outstanding after May 1, 1998 will bear interest at
the prime rate.
In the fourth quarter of fiscal 1994, the Company established a reserve
of $275,000 due to doubts about the collectibility of the amounts due
from the subsidiary.
13. Loss on Sale of Handbag Division
On March 20, 1995, the Company sold its handbag division to Bueno of
California, Inc. ("Bueno"), a subsidiary of Yashiro. The Company and
Bueno entered into an Asset Purchase Agreement pursuant to which the
Company sold to Bueno all of the inventory relating to the Company's
handbag division, and certain equipment relating to the Company's handbag
division for $1,785,666, of which $86,168 was paid in cash and $1,699,448
was applied by the Company to the repayment of indebtedness of the
Company to Yashiro. This sale resulted in a loss to the Company of
$425,163. Net sales of the Company's handbag division for the years ended
November 30, 1995 and 1994 were $1,423,000 and $9,182,000, and gross
profits on these sales were $81,000 and 1,878,000, respectively.
In connection therewith, the Company has entered into six year
non-competition agreements covering North America with Yashiro, another
affiliate of Yashiro, Mr. Yutaka Yamaguchi and Mr. Taheshi Yamaguchi,
former stockholders and/or officers of the Company. Aggregate
consideration to these parties is $240,000 payable in three annual
installments of $80,000 including interest at 10% commencing March 31,
1996. The present value of the restrictive covenant ($198,350) is being
amortized over the life of the agreement.
In addition, the Company has agreed to pay severance pay to Mr. Taheshi
Yamaguchi in the amount of $200,000, payable in two annual installments
of $100,000 plus interest at 10% per annum commencing March 31, 1996.
This amount has been charged to operations in 1995.
14. Stockholders' Equity
On August 17, 1995, the stockholders of the Company (i) approved an
increase in the number of authorized shares of common stock from
3,000,000 shares to 10,000,000 shares; (ii) authorized the Company to
issue 1,000,000 shares of preferred stock, par value $.10 per share, with
rights and privileges to be determined by the board of directors; and
(iii) approved the 1995 Stock Option Plan of the Company (the "Plan").
The Plan provides for the grant of incentive stock options, non-qualified
stock options, tandem stock appreciation rights, and stock appreciation
rights exercisable in conjunction with stock options to purchase up to an
aggregate of 200,000 shares of common stock.
The above plan is accounted for under APB Opinion 25 and related
Interpretations. On September 20, 1995 and October 4, 1995, the Company
granted 10,000 non-qualified stock options each to a consultant and a
director of the Company which are exercisable over a period not to exceed
five years. On October 4, 1995, the Company granted 53,000 incentive
stock options in varying amounts to seven employees which are exercisable
commencing October 5, 1996 to October 4, 2000. The exercise price of each
<PAGE>
option equals the market price of the Company's stock on the dates of
grant. Accordingly, no compensation cost has been recognized for the
plan. Stock option transactions for the year ended November 30, 1995 are
summarized below:
<TABLE>
<CAPTION>
Number Exercise
of Price
Shares Per Share
------ ---------
<S> <C> <C>
Outstanding, beginning of year -0-
Granted during year 73,000 $2.00
------ -----
Outstanding, end of year 73,000 $2.00
====== =====
</TABLE>
15. Subsequent Event
On August 23, 1996, the Company received notification from a licensor
that the licensing agreement with the Company's Canadian subsidiary will not be
renewed afer December 31, 1996. As the sales from the licensing products account
for substantially all of the Canadian subsidiary's sales, the future viability
of the subsidiary will depend on its ability to introduce new products. See Note
9 to the consolidated financial statements for information with respect to the
Canadian operation.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
BALANCE SHEET
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents ................................... $ 167,082
Accounts receivable, trade - net of allowance of $282,000
and including $1,286,000, net of advances, due from factor 1,188,211
Inventories ................................................. 5,077,646
Prepaid expenses ............................................ 244,004
Other current assets ........................................ 276,815
-----------
6,953,758
-----------
Property, plant and equipment - at cost ......................... 909,763
Less accumulated depreciation and amortization .............. 777,824
-----------
131,939
-----------
Other assets .................................................... 154,233
-----------
Investment in and advances to subsidiaries, net of advances from
subsidiaries ................................................ 1,530,409
-----------
$ 8,770,339
===========
</TABLE>
(Continued)
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
BALANCE SHEET
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Loans payable to financial institutions ..................... $ 2,000,000
Short-term loan payable to related parties .................. 571,205
Current maturities of long-term debt ........................ 160,000
Accounts payable ............................................ 2,650,547
Accrued expenses and taxes .................................. 1,253,309
-----------
Total current liabilities .............. 6,635,061
-----------
Long-term debt, less current maturities ......................... 238,350
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value; 10,000,000 shares authorized,
1,215,200 shares issued .................................. 121,520
Preferred stock, $.10 par value; 1,000,000 shares authorized,
none issued .............................................. --
Capital in excess of par value .............................. 4,027,534
Retained earnings deficit ................................... (1,641,603)
Treasury stock - at cost .................................... (27,500)
Accumulated foreign currency translation adjustment ......... (583,023)
-----------
1,896,928
-----------
$ 8,770,339
===========
</TABLE>
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
Net sales .................................................. $ 21,132,714
Cost of goods sold ......................................... 16,164,170
------------
Gross profit ............................................... 4,968,544
Selling, warehouse, general and administrative expenses .... 5,310,442
------------
Loss from operations ....................................... (341,898)
Interest expense ........................................... 803,202
Interest income ............................................ (111,412)
Loss on sale of handbag division ........................... 425,163
Miscellaneous income, net .................................. (304,443)
------------
Loss before equity in net income of subsidiaries ........... (1,154,408)
Equity in net income of subsidiaries ....................... 157,909
------------
Net loss ................................................... ($ 996,499)
============
</TABLE>
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
STATEMENT OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash used by operations ..................................... ($1,058,536)
-----------
Financing activities:
Repayment of loans payable to financial institutions and
short-term loans payable to related parties ............. (1,761,501)
Proceeds from short-term borrowings ......................... 2,186,205
Proceeds of officer loan .................................... 35,000
-----------
459,704
-----------
Investing activities:
Cash inflow from agreement to sell subsidiary ............... 60,296
Purchases of property, plant and
equipment ............................................... (27,586)
-----------
32,710
-----------
Net decrease in cash ........................................ ($ 566,122)
===========
</TABLE>
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE I (CONTINUED)
CONDENSED FINANCIAL STATEMENTS OF THE REGISTRANT (PARENT)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
1. Long-Term Debt (Net of Current Portion)
Restrictive covenant obligation $138,350
Severance agreement with former shareholders 100,000
-------
$238,350
========
</TABLE>
Maturities of long-term debt is as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended November 30,
-----------------------
1996 $160,000
1997 175,000
1998 63,350
</TABLE>
2. Dividends from Subsidiaries
There were no dividends paid to Sirco International Corp. by its
consolidated subsidiaries.
3. Commitments and Contingencies (Not Disclosed in the Consolidated
Financial Statements)
None.
<PAGE>
SIRCO INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED NOVEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------- ---------- ---------- ---------- ----------
Additions
Balance at Charged to Accounts Balance at
Beginning Costs and Written End of
Description of Period Expenses* Off Period
- ------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended November 30, 1995:
Allowance for doubtful accounts $ 322,000 $ 128,000 $ 164,000 $ 286,000
Valuation allowance for deferred
tax asset ................... $2,840,000 ($ 600,000) -- $2,240,000
Year ended November 30, 1994:
Allowance for doubtful accounts $ 242,000 $ 160,000 $ 80,000 $ 322,000
Valuation allowance for deferred
tax asset (1) ............... $1,900,000 $ 940,000 $ -- $2,840,000
Investments in and advances to
subsidiary and other assets . $ -- $ 400,000 $ -- $ 400,000
Year ended November 30, 1993:
Allowance for doubtful accounts $ 721,000 $ 200,000 $ 679,000 $ 242,000
* Net of recoveries
</TABLE>
(1) A valuation allowance of $1,900,000 was established upon the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", effective December 1, 1993.
[Company Logo]
Nussbaum Yates & Wolpow, P.C.
- --------------------------------------------------------------------------------
Certified Public Accountants
445 BROAD HOLLOW ROAD, MELVILLE, NY 11747
(516) 845-5252 FAX (516) 845-5279
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Sirco International Corp.
We have issued our report dated February 12, 1996, except for Note 15, as to
which the date is September 10, 1996, accompanying the consolidated financial
statements and schedules included in the Annual Report of Sirco International
Corp. and subsidiaries on Form 10-K for the year ended November 30, 1995. We
hereby consent to the incorporation by reference of said report in Registration
Statement No. 333-637 of Sirco International Corp. on Form S-8 and in
Registration Statement No. 333-481 of Sirco International Corp. on Form S-3.
/s/NUSSBAUM YATES & WOLPOW, P.C.
-----------------------------
NUSSBAUM YATES & WOLPOW, P.C.
Melville, New York
September 16, 1996
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-3481) of Sirco International Corp. and in the related Prospectus, and
in the Registration Statement (Form S-8 No. 33-3637) of our report dated
February 17, 1995, with respect to the consolidated financial statements and
schedule of Sirco International Corp. as of November 30, 1994 and for the years
ended November 30, 1994 and 1993 included in this Annual Report (Form 10-K/A)
for the year ended November 30, 1995.
/s/ERNST & YOUNG LLP
-----------------
ERNST & YOUNG LLP
New York, New York
September 16, 1996
Deloitte & Touche
[Company Logo]
Chartered Accountants
1 City Centre Drive Telephone: (905) 803-5100
Suite 1100 Facsimile: (905) 803-6101
Mississauga, Ontario, L5B 1M2
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated December 18, 1995, except for Note 10, as to
which the date is September 10, 1996, on the financial statements of Sirco
International (Canada) Limited for the years ended November 30, 1995 and
November 30, 1994 accompanying the consolidated financial statements and
schedules included in the Annual Report of Sirco International Corp. and
subsidiaries on Form 10-K for the year ended November 30, 1995. We hereby
consent to the incorporation by reference of said report in Registration
Statement No. 333-637 of Sirco International Corp. on Form S-8 and in
Registration Statement No. 333-481 of Sirco International Corp. on Form S-3.
We do not report on the financial statements of Sirco International Corp.
/s/Deloitte & Touche
- --------------------
DeLoitte & Touche
Chartered Accountants
September 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 176,241
<SECURITIES> 0
<RECEIVABLES> 2,470,468
<ALLOWANCES> 286,000
<INVENTORY> 5,762,828
<CURRENT-ASSETS> 8,658,161
<PP&E> 1,777,894
<DEPRECIATION> 1,128,045
<TOTAL-ASSETS> 10,002,740
<CURRENT-LIABILITIES> 7,515,514
<BONDS> 590,298
0
0
<COMMON> 121,520
<OTHER-SE> 1,775,408
<TOTAL-LIABILITY-AND-EQUITY> 10,002,740
<SALES> 24,812,147
<TOTAL-REVENUES> 25,142,234
<CGS> 18,682,304
<TOTAL-COSTS> 6,276,379
<OTHER-EXPENSES> 425,163
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 866,597
<INCOME-PRETAX> (996,499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (996,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (996,499)
<EPS-PRIMARY> (.82)
<EPS-DILUTED> (.82)
</TABLE>
