SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number 0-4465
Sirco International Corp.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New York 13-2511270
- -------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification No.)
24 Richmond Hill Avenue, Stamford Connecticut 06901
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 203-359-4100
------------
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(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 1,359,700 shares of
Common Stock, par value $.10 per share, as of April 1, 1997.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
Feb. 28, 1997 Nov. 30, 1996
------------ ------------
(Unaudited) (See note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................ $ 630,248 $ 390,043
Accounts receivable ...................................... 2,922,007 2,825,764
Inventories .............................................. 4,556,517 4,406,066
Prepaid expenses ......................................... 448,776 256,134
Other current assets ..................................... 54,183 123,245
------------ ------------
Total current assets ......................................... 8,611,731 8,001,252
------------ ------------
Property and equipment at cost ............................... 1,723,837 1,867,167
Less accumulated depreciation ................................ 859,096 979,457
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Net property and equipment ................................... 864,741 887,710
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Other assets ................................................. 210,338 147,402
Investment in and advances to subsidiary ..................... 532,941 540,497
------------ ------------
Total assets ................................................. $ 10,219,751 $ 9,576,861
============ ============
<PAGE>
<CAPTION>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(continued)
Feb. 28, 1997 Nov. 30, 1996
------------ ------------
(Unaudited) (See note)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Loans payable to financial institutions .................. $ 3,720,601 $ 1,071,000
Short-term loans payable - other ......................... 633,706 529,821
Current maturities of long-term debt ..................... 6,808 6,735
Accounts payable ......................................... 1,952,417 2,919,511
Accrued expenses ......................................... 1,214,901 1,920,897
------------ ------------
Total current liabilities .................................... 7,528,433 6,447,964
------------ ------------
Long-term debt, less current maturities ...................... 341,637 348,401
------------ ------------
Stockholders' equity:
Common stock, $.10 par value; 10,000,000 share authorized,
1,323,200 issued (1997), 1,315,200 issued (1996) ......... 132,320 131,520
Preferred stock, $.10 par value; 1,000,000 authorized,
none issued
Capital in excess of par value ........................... 4,282,734 4,267,534
Retained earnings (deficit) .............................. (1,446,449) (1,019,367)
Treasury stock at cost ................................... (27,500) (27,500)
Accumulated foreign translation adjustment ............... (591,424) (571,691)
------------ ------------
Total stockholders' equity ................................... 2,349,681 2,780,496
------------ ------------
Total liabilities and stockholders' equity ................... $ 10,219,751 $ 9,576,861
============ ============
See notes to the condensed consolidated financial statements.
Note:The balance sheet at November 30, 1996 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
Feb. 28, 1997 Feb. 29, 1996
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<S> <C> <C>
Net sales ..................................... $ 3,066,144 $ 6,578,047
Cost of goods sold ............................ 2,372,389 4,676,216
----------- -----------
Gross profit .................................. 693,755 1,901,831
Selling, warehouse, and general and
administrative expenses ................... 1,100,205 1,467,551
----------- -----------
(406,450) 434,280
Other (income) expense:
Interest expense .............................. 124,479 194,944
Interest income ............................... (9,186) (24,103)
Miscellaneous income, net ..................... (94,661) (48,654)
----------- -----------
20,632 122,187
----------- -----------
Net income (loss) before income taxes ......... (427,082) 312,093
Provision for income taxes .................... -- 51,278
----------- -----------
Net income (loss) ............................. ($ 427,082) $ 260,815
=========== ===========
Net income (loss) per share of common stock:
Primary ................................... ($ 0.32) $ 0.21
=========== ===========
Fully diluted ............................. ($ 0.32) $ 0.20
=========== ===========
Shares used in computing earnings
(loss) per common and common equivalent share:
Primary ................................... 1,314,233 1,261,633
=========== ===========
Assuming full dilution .................... 1,314,233 1,276,465
=========== ===========
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
Feb. 28, 1997 Feb. 29, 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................... ($ 427,082) $ 260,815
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization ........................ 24,815 17,696
Provision for losses in accounts receivable .......... 1,805 11,000
Loss in sale of property and equipment ............... 7,104 --
Changes in operating assets and liabilities:
Accounts receivable ................................. (118,198) (400,672)
Inventories ......................................... (154,197) (255,463)
Prepaid expenses .................................... (193,072) (31,972)
Other current assets ................................ 69,062 101,631
Other assets ........................................ (63,073) (72,963)
Accounts payable and accrued expenses ............... (1,662,933) 1,039,851
----------- -----------
Net cash (used in) provided by operating activities: ...... (2,515,769) 669,923
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ........................ (20,013) (42,027)
Proceeds from sale of property and equipment .............. 3,655 --
Proceeds from agreement to sell subsidiary ................ 7,556 --
----------- -----------
Net cash used in investing activities ..................... (8,802) (42,027)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in loans payable to
financial institutions and short-term
loans payable-other ................................... 2,753,675 (369,811)
Proceeds from exercise of stock options ................... 16,000 250,000
Repayment of long-term debt ............................... (857) (173,777)
----------- -----------
Net cash provided by (used in) financing activities ....... 2,768,818 (293,588)
----------- -----------
Effect of exchange rate changes on cash ................... (4,042) (2,221)
----------- -----------
Increase in cash and cash equivalents ..................... 240,205 332,087
Cash and cash equivalents at beginning of period .......... 390,043 176,241
----------- -----------
Cash and cash equivalents at the end of period ............ $ 630,248 $ 508,328
=========== ===========
<PAGE>
<CAPTION>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(continued)
For the Three Months Ended
Feb. 28, 1997 Feb. 29, 1996
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<S> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest .............................................. $ 127,938 $ 171,605
Income taxes .......................................... $ 300,015 $ --
See notes to the condensed consolidated financial statements.
</TABLE>
<PAGE>
SIRCO INTERNATIONAL CORP.
Notes To Condensed Consolidated Financial Statements (Unaudited)
Note 1-Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended February 28,
1997 are not necessarily indicative of the results that may be expected for the
year ended November 30, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended November 30, 1996.
Note 2-Financing Arrangements
On December 17, 1996, the Company's factoring agreement with Rosenthal &
Rosenthal Inc. was terminated and replaced with a financing agreement with Coast
Business Credit, a division of Southern Pacific Thrift and Loan Association
("Coast"), that provides for revolving loans and letter of credit financing in
the amount of the lesser of $7,000,000 or the sum of (a) 80% of eligible
accounts receivable (as defined) and (b) 50% of eligible inventory (as defined)
up to a maximum inventory loan of $3,000,000 less 50% of letter of credit
financing outstanding. The amount of the facility available for letter of credit
financing is limited to $2,500,000. The loan bears interest at 2% above the
prime rate, matures on December 17, 1998, and is guaranteed by the Company's
Chairman and Chief Executive Officer. The Company has granted Coast a security
interest in substantially all of the Company's assets. The agreement with Coast
contains various restrictive covenants, including among others, a restriction on
the payment or declaration of any cash dividends, a restriction on the
acquisition of any assets other than in the ordinary course of business in
excess of $100,000, restrictions related to mergers, borrowing and debt
guarantees, and a $100,000 annual limitation on the acquisition or retirement of
the Company's common and preferred stock, which acquisitions or retirements are
limited to transactions with employees, directors and consultants pursuant to
the terms of employment, consulting or other stock restriction agreements with
such persons. The agreement also requires the Company to maintain a minimum
tangible net worth of $1,400,000. As of February 28, 1997, the Company owed
Coast approximately $3,721,000 and had outstanding letters of credit amounting
to approximately $455,000. At February 28, 1997, the prime rate was 8.25%.
In January 1997, the Company's Canadian subsidiary, Sirco International (Canada)
Ltd. ("Sirco Canada"), was advised by its bank, National Bank of Canada, that it
would no longer provide Sirco Canada a revolving line of credit but would
continue to provide the real property mortgage. 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. At February 28,
1997, the mortgage was approximately $348,000.
<PAGE>
In March 1995, the Company entered into an agreement with Yashiro pursuant to
which Yashiro 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. On August
28,1996, the agreement was amended to, among other things, reduce the aggregate
amount of letters of credit to be issued to the lesser of $1,000,000 or 35% of
the book value of the Company's inventory. Yashiro charged the Company a
handling fee of 3% for each letter of credit that was opened. All amounts
borrowed from Yashiro under the agreement are due and payable on June 30, 1997.
Interest is payable to Yashiro monthly at 2% above the prime rate. At February
28, 1997, the Company was directly indebted to Yashiro for approximately
$634,000 and had outstanding letters of credit amounting to approximately
$14,000. At February 28, 1997, the prime rate was 8.25%.
<PAGE>
Item 2. Management's Analysis and Discussion of Financial Condition and Results
of Operations
Three Months Ended February 28, 1997 vs. February 29, 1996
Net sales for the three months ended February 28, 1997 decreased by
approximately $3,512,000 to approximately $3,066,000 as compared to
approximately $6,578,000 reported in the prior fiscal period. Net sales for the
Company's Luggage and Backpack Divisions decreased by approximately $2,721,000.
This decrease in net sales is attributable to the loss by the Company in fiscal
1996 of the license from FILA Sport S.p.A. ("FILA") (see below). The sale of
FILA product accounted for approximately $2,768,000 in net sales for the first
three months of fiscal 1996. Net sales of the Company's Canadian subsidiary
decreased by approximately $791,000. This decrease is primarily attributable to
the loss by Sirco Canada in fiscal 1996 of the license from Airway Industries
Inc. ("Airway") to sell "Atlantic" luggage (see below). The sale of Airway
products accounted for approximately $514,000 in net sales for the first three
months of fiscal 1997 as compared to approximately $1,248,000 in net sales
reported in the first three months of fiscal 1996. The Company's gross profit
for the three months ended February 28, 1997 decreased by approximately
$1,208,000 to approximately $694,000 from approximately $1,902,000 reported in
the prior fiscal period, and the gross profit percentage for the three months
ended February 28, 1997 decreased to 22.6% from 28.9% reported in the prior
fiscal period. The decrease in gross profit is primarily attributable to the
reduction in sales of licensed product that traditionally had a higher gross
profit margin than the Company's other product lines.
After extensive negotiations in February 1996, the Company and FILA entered into
an agreement pursuant to which the Company ceased shipping products under the
FILA license on June 30, 1996, subject to certain rights with respect to
remaining inventory. The Company sold approximately $2,768,000 of FILA product
in the fiscal quarter ended February 29, 1996 and approximately $8,584,000 of
FILA product in fiscal 1996. The loss of the FILA trademark had an adverse
impact on the Company's results of operations for the fiscal quarter ending
February 28, 1997 and may have an adverse impact on the Company's results of
operations for the fiscal quarter ending May 31, 1997. However, the Company
expects that a significant portion of the net sales of FILA product will be
replaced by sales of other licensed products incorporating the recently licensed
"Perry Ellis", "Hedgren" and "Skechers" names, symbols and logos. The Company
started shipping a significant amount of product under these licenses in the
fourth quarter of fiscal 1996 and expects to recoup a significant portion of the
lost FILA sales by the end of fiscal 1997. However, future net sales could be
negatively impacted if sales from these licenses or increases in sales under
other existing licenses do not replace the sales of FILA product.
During fiscal 1996, Airway notified the Company that it would not renew its
license agreement with the Company, pursuant to which Sirco Canada was granted
an exclusive license to sell in Canada, luggage and luggage related products
under the trade names "Atlantic" and "Oleg Cassini" through December 31, 1996.
In November 1996, the Company entered into an Asset Purchase Agreement with
Airway, whereby Airway agreed, among other things, to purchase any remaining
Atlantic inventory owned by Sirco Canada on December 31, 1996, to purchase
certain fixed assets and to enter into a two year lease for a substantial
portion of the premises owned by Sirco Canada at fair market value. In November
1996, the Company restructured Sirco Canada, hired a new President to run the
<PAGE>
operation and started to market the Company's other licensed products in Canada,
including product incorporating its recently licensed "Perry Ellis" and
"Hedgren" names, symbols and logos. During the fiscal quarters ended February
28, 1997 and February 29, 1996 and the fiscal year ended November 30, 1996, the
Company's net sales of Airway product amounted to approximately $514,000,
$1,248,000 and $5,782,000, respectively. The loss of the Airway license had an
adverse effect on the Company's results of operations for the fiscal quarter
ended February 28, 1997 and could have an adverse effect on the Company's
results of operations for the remainder of fiscal year ended November 30, 1997.
However, the Company expects to recoup a significant portion of Airway sales
from sales in Canada of its other licensed products.
Selling, warehouse, and general and administrative expenses decreased for the
three months ended February 28, 1997 by approximately $368,000 to approximately
$1,100,000 from approximately $1,468,000 reported in prior fiscal period.
Selling, warehouse, and general and administrative expenses decreased by
approximately $227,000 for the Company's Luggage and Backpack Divisions and
approximately $141,000 for the Company's Canadian subsidiary. Of the overall
decrease, approximately $258,000 was in selling expense, approximately $69,000
was in warehouse expense and approximately $41,000 was in general and
administrative expense. The decrease in selling expense is a direct result of
the reduction in sales of licensed product in the first three months of fiscal
1997 while the reduction in warehouse and general and administrative expense is
primarily a result of the restructuring of the Company's Canadian operation at
the end of fiscal 1996.
Interest expense for the three months ended February 28, 1997 decreased by
approximately $70,000 from the amount reported in the three months ended
February 29, 1996 due to lower average borrowings.
Miscellaneous income for the three months ended February 28, 1997 increased by
approximately $46,000 over the amounts reported in the prior fiscal period due
to continued strong performance of the Company's "direct-buy" program.
Liquidity and Capital Resources
At February 28, 1997, the Company had cash and cash equivalents of approximately
$630,000, and working capital of approximately $1,084,000.
Net cash (used in) provided by operating activities aggregated approximately
($2,516,000) and $670,000 in fiscal quarters ended February 28, 1997 and
February 29, 1996, respectively. The increase of approximately $3,178,000 in net
cash used in operating activities in fiscal 1997, as compared to fiscal 1996,
primarily reflects the net loss of approximately $427,000 for the first quarter
of fiscal 1997 as compared to net income of approximately $261,000 in fiscal
1996, and an increase in the use of cash of approximately $2,703,000 for
accounts payables and accrued expenses. This increase is the result of higher
than normal trade accounts payable at February 29, 1996 to support the high
sales volume from the first quarter of fiscal 1996, and efforts by the Company
to stay current with trade vendors in fiscal 1997.
Net cash used in investing activities aggregated approximately ($9,000) and
($42,000) in fiscal quarters ended February 28, 1997 and February 29, 1996,
respectively. The principle uses of cash from investing activities in 1997 and
1996 was for the purchase of equipment. The principal source of cash provided
from investing activities for the quarter ended February 28, 1997 was the
proceeds of the sale of equipment and the proceeds of a note receivable from the
1992 sale of a subsidiary.
<PAGE>
Net cash provided by (used in) financing activities aggregated approximately
$2,769,000 and ($294,000) in fiscal quarters ended February 28, 1997 and
February 29, 1996, respectively. In the first fiscal quarter of 1997,
approximately $2,754,000 of net cash was provided by short-term debt and $16,000
was provided from the proceeds of the exercise of stock options. In the first
quarter of fiscal 1996, the Company used net cash to re-pay approximately
$544,000 in short and long-term debt. Also in fiscal 1996, the Company received
$250,000 in proceeds from the exercise of stock options.
In March 1995, the Company entered into an agreement with Yashiro Company, Inc.
("Yashhiro"), pursuant to which Yashiro had 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. See Note 2 to Notes to Condensed Consolidated Financial
Statements (Unaudited). At February 28, 1997, the Company was directly indebted
to Yashiro for approximately $634,000 and had outstanding letters of credit
amounting to approximately $14,000.
On December 17, 1996, the Company's factoring agreement with Rosenthal &
Rosenthal Inc. was terminated and replaced with a financing agreement with Coast
Business Credit, a division of Southern Pacific Thrift & Loan Association
("Coast"). See Note 2 to Notes to Condensed Consolidated Financial Statements
(Unaudited). As of February 28, 1997, the Company was indebted to Coast in the
amount of approximately $3,721,000 and had outstanding letters of credit
amounting to approximately $455,000.
In January 1997, Sirco Canada was advised by its bank, National Bank of Canada,
that it would no longer provide Sirco Canada a revolving line of credit but
would continue to provide the real property mortgage. See Note 2 to Notes to
Condensed Consolidated Financial Statements (Unaudited). At February 28, 1997,
the mortgage was approximately $348,000. The Company is currently using the
Coast line of credit to provide letter of credit financing that was formerly
provided by National Bank of Canada.
For the quarter ended February 28, 1997, the Company had approximately $20,000
in capital expenditures. The Company does not plan to make significant capital
expenditures in fiscal 1997.
The Company is currently exploring alternatives for raising additional equity
capital. Management believes that by increasing its working capital through the
sale of common stock, it will be able to more effectively market and develop its
newly licensed product under the "Hedgren" and "Perry Ellis" names. There can be
no assurance, however, that the Company will be able to raise any additional
equity capital. The Company believes that its existing cash and cash equivalent
balances, present sources of financing and cash flow from operations will be
sufficient to meet the Company's cash and capital requirements for at least the
next twelve months.
<PAGE>
SIRCO INTERNATIONAL CORP.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Sirco International Corp.
Date: April 9, 1997 By: /s/Joel Dupre
-------------
Joel Dupre
Chairman of the Board and
Chief Executive Officer
Date: April 9, 1997 By: /s/Paul Riss
------------
Paul Riss
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
No. Description
- --- -----------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 630,248
<SECURITIES> 0
<RECEIVABLES> 3,918,439
<ALLOWANCES> 996,432
<INVENTORY> 4,556,517
<CURRENT-ASSETS> 8,611,731
<PP&E> 1,723,837
<DEPRECIATION> 859,096
<TOTAL-ASSETS> 10,219,751
<CURRENT-LIABILITIES> 7,870,070
<BONDS> 348,445
0
0
<COMMON> 132,320
<OTHER-SE> 2,217,361
<TOTAL-LIABILITY-AND-EQUITY> 10,219,751
<SALES> 3,066,144
<TOTAL-REVENUES> 3,160,805
<CGS> 2,372,389
<TOTAL-COSTS> 1,100,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,479
<INCOME-PRETAX> (427,082)
<INCOME-TAX> 0
<INCOME-CONTINUING> (427,082)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (427,082)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
</TABLE>
