<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NUMBER 3
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
--------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 0-25488
THE L.L. KNICKERBOCKER CO., INC.
(Name of Small Business Issuer in its Charter)
CALIFORNIA 33-0230641
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
30055 COMERCIO 92688
Rancho Santa Margarita, CA (Zip Code)
(Address of Principal Executive Offices)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 858-3661
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
---- ----
The number of shares outstanding of the registrant's Common Stock, as of
November 13, 1996 was 15,107,784.
Transitional Small Business Disclosure Format Yes No X
---- ----
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 5. Other Information
- ------- -----------------
A. Acquisition of Harlyn International Company, Ltd.
-------------------------------------------------
(i) Acquisition
-----------
On November 14, 1996, the Company completed a transaction whereby it
acquired one hundred percent (100%) of the outstanding common stock of Harlyn
International Company, Ltd. ("Harlyn"), a costume jewelry manufacturing company
located in Bangkok, Thailand, for approximately $2,300,000 in cash. The
effective date of the transaction was July 1, 1996. The Company acquired the
stock of Harlyn from Harlyn Products, Inc., a California corporation. The
Company used its own funds to pay the purchase price for the acquisition of
Harlyn. The assets of Harlyn include a manufacturing plant and equipment used in
connection with the manufacture of jewelry, and the Company intends to continue
to use the assets of Harlyn for the manufacture of jewelry.
(ii) Financial Statements of Business Acquired.
-----------------------------------------
The financial statements for the years ended June 30, 1996, June 30,
1995, and December 31, 1994 are included herewith. The financial statements for
the years ended June 30, 1996 and 1995 are stated in Thai Baht currency and the
financial statements for the year ended December 31, 1994 are in U.S. dollar.
The average Dollar/Baht exchange rate for the year ended December 31, 1994 was
approximately $1/26 Baht.
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
FINANCIAL STATEMENTS
PERIOD ENDED JUNE 30, 1995
<PAGE>
[LETTERHEAD OF DELOITTE TOUCHE TOHMATSU]
REPORT OF THE AUDITORS
We report to the shareholders of Harlyn International Company Limited that we
have examined the balance sheet as at June 30, 1995, and the related statement
of profit and loss and retained earnings for the period from January 1 to June
30, 1995 of Harlyn International Company Limited. Our examination was made in
accordance with generally accepted auditing standards, and accordingly included
such tests of the accounting records and such other auditing procedures as we
considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the
financial position as at June 30, 1995 and the results of operations for the
period from January 1 to June 30, 1995 of Harlyn International Company Limited,
in conformity with generally accepted accounting principles applied on a basis
consistent with that of the preceding period.
/s/ T. KRISHNAMRA
Toemsakdi Krishnamra
BANGKOK Certified Public Accountant
October 9, 1995 DELOITTE TOUCHE TOHMATSU
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
BALANCE SHEET
AS AT JUNE 30, 1995
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash in hand and at bank (Note 2) 305,647
Accounts receivable 30,265,756
Amount due from the parent company (Note 3) 68,459,725
Inventories (Notes 1.1 and 4) 57,550,801
Value added tax refundable 9,345,285
Other current assets 3,123,239
-----------
Total Current Assets 169,050,453
-----------
PROPERTY, PLANT AND EQUIPMENT - net (Notes 1.2 and 5) 64,653,784
OTHER ASSETS (Notes 1.3 and 6) 6,536,074
-----------
TOTAL ASSETS BAHT 240,240,311
===========
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
BALANCE SHEET
AS AT JUNE 30, 1995
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Bank overdraft and loan from bank (Note 7) 40,442,728
Accounts payable 7,885,574
Accounts payable - the related company (Note 3) 87,178,110
Amount due to the related company (Note 3) 13,271,183
Current portion of long-term loan (Note 8) 6,672,000
Short-term borrowing from the related company (Note 3) 14,700,000
Other current liabilities 4,045,800
-----------
Total Current Liabilities 174,195,395
-----------
LONG-TERM LOAN (Note 8) 19,436,000
OTHER LIABILITIES 811,667
-----------
TOTAL LIABILITIES 194,443,062
-----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Registered capital
150,000 ordinary shares of Baht 100.00 each 15,000,000
===========
Issued and paid-up capital
150,000 ordinary shares of Baht 100.00 each,
fully paid 15,000,000
RETAINED EARNINGS
Unappropriated 30,797,249
-----------
TOTAL SHAREHOLDERS' EQUITY 45,797,249
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY BAHT 240,240,311
===========
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
STATEMENT OF PROFIT AND LOSS AND RETAINED EARNINGS
FOR THE PERIOD FROM JANUARY 1 TO JUNE 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUES
Sales 215,355,324
Other income 326,623
-----------
Total Revenues 215,681,947
-----------
EXPENSES
Cost of sales 149,862,975
Selling and administrative expenses 36,400,658
Interest expenses 4,323,162
Income tax -
-----------
Total Expenses 190,586,795
-----------
NET PROFIT BAHT 25,095,152
===========
RETAINED EARNINGS BROUGHT FORWARD 5,702,097
NET PROFIT 25,095,152
-----------
RETAINED EARNINGS CARRIED FORWARD BAHT 30,797,249
===========
NET PROFIT PER SHARE (Note 1.5) BAHT 167.30
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1 TO JUNE 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 Inventories are stated at the lower of cost or market value.
Cost is calculated on an average basis for precious stones, and on a
first-in, first-out basis for gold, silver and alloy.
1.2 Property, plant and equipment are stated at cost.
Depreciation is calculated by the straight-line method, based on the
estimated useful lives of the assets. The principal annual rates used
for this purpose are:
<TABLE>
<CAPTION>
<S> <C>
Building and improvements 5%
Vehicles 20%
Machinery and equipment 20%
Furniture and fixtures 20%
Tools 20%
</TABLE>
1.3 Deferred expenses are the incorporation expenses which are amortized
over 4 years commencement in 1995.
1.4 Assets and liabilities in foreign currencies are converted at commercial
bank rates prevailing at the period-end.
Gains or losses on exchange are included as income or expenses for the
period.
1.5 Net profit per share is computed on the basis of number of issued and
paid-up shares outstanding at the end of the period.
2. CASH IN HAND AND AT BANK
Cash in hand and at bank as at June 30, 1995 included time deposits of Baht
235,900 used as collateral for bank guarantees issued on the behalf of the
Company. (See note 9.1)
<PAGE>
-2-
3. RELATED COMPANY TRANSACTIONS
A portion of the Company's business is represented by transactions with its
parent and related companies and the financial statements reflects the effect
of these transactions on the basis determined by the companies concerned.
- Transactions with the parent company consisted mainly of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts receivable - trade 110,204,169
Accounts payable - trade (41,744,444)
-----------
BAHT 68,459,725
===========
Purchases BAHT 16,178,733
Sales BAHT 99,113,225
Management service fee BAHT 12,013,230
</TABLE>
- Transactions with the related company consisted mainly of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts payable - trade BAHT 87,178,110
Accounts payable - other 24,217,388
Accounts receivable - other (10,946,205)
-----------
BAHT 13,271,183
===========
Short-term borrowing BAHT 14,700,000
Purchases BAHT 67,874,208
Interest income BAHT 79,414
Interest expense BAHT 331,364
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Finished goods 16,486,362
Raw materials 35,556,087
Work-in-process 4,935,458
Factory supplies 572,894
----------
BAHT 57,550,801
==========
</TABLE>
<PAGE>
-3-
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<S> <C>
Land 11,528,000
Building and improvements 46,323,981
Vehicles 1,973,826
Machinery and equipment 2,694,947
Furniture and fixtures 3,624,017
Tools 467,520
----------
66,612,291
Less Accumulated depreciation (1,958,507)
---- ----------
BAHT 64,653,784
==========
Depreciation for the period BAHT 1,841,926
==========
</TABLE>
As at June 30, 1995, land and building have been mortgaged as collateral
for bank overdraft, loan from bank and long-term loan. (See notes 7, 8 and
9.2)
6. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<S> <C>
Deposits - condominium 5,600,000
Deposits - others 572,666
Deferred expenses 363,408
---------
BAHT 6,536,074
=========
</TABLE>
7. BANK OVERDRAFT AND LOAN FROM BANK
As at June 30, 1995, bank overdraft and loan from bank are guaranteed by
related company and certain directors of the Company and secured by a
mortgage of land and building as collateral. (See note 5)
<PAGE>
-4-
8. LONG-TERM LOAN
Long-term loan consists of the following:
<TABLE>
<S> <C>
Loan from bank
- interest rate at MLR + 1% p.a., repayable
monthly until 1998 26,108,000
Less Current portion of long-term loan (6,672,000)
---- ----------
BAHT 19,436,000
==========
</TABLE>
The long-term loan mentioned above has been guaranteed by related company
and certain directors of the Company and the agreement requires the Company
to mortgage land and building as collateral. (See note 5)
9. CONTINGENT LIABILITIES
9.1 The Company has contingent liabilities to a bank for guarantees issued
on its behalf for electricity amounting to Baht 235,900 as at June 30,
1995. (See note 2)
9.2 The Company has credit facilities which include bank overdraft, packing
credits, letters of credit, trust receipt, discount of export bills DP/
DA and/or general guaranteed lines of credit up to the limit of Baht
46,000,000 as at June 30, 1995. The credit facilities are guaranteed
by the related company and certain directors of the Company and the
facilities require the Company to mortgage land and building as
collateral. (See note 5)
10. INVESTMENT PROMOTION PRIVILEGES
The Company is entitled to certain rights and privileges as a promoted
industry under the Promotion of Investment Act of B.E. 2520 (1977),
including reducing custom duties on imported machinery and exemption of
duties on raw and essential materials imported for production for one year
from the date of first import and exemption from income tax for a period of
3 years from the date the Company commences receiving operating revenue. The
Company has also obtained a permission to deduct 5% of the increased income
over the previous year derived from exports for 10 years from the date the
Company commenced receiving the income, provided that such income from
export is not less than the average revenues from export sales over the
previous three year period except for the first two years.
The Company thus has to comply with certain conditions contained in the
promotion certificate.
<PAGE>
-5-
11. CHANGE OF THE ACCOUNTING PERIOD
The shareholders of company passed the special resolution at the
extraordinary meeting on January 23, 1995 to change the last day of the
accounting period from the year ending on December 31 to the year ending on
June 30, from January 1, 1995.
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1994
<PAGE>
[LETTERHEAD OF DELOITTE TOUCHE TOHMATSU]
REPORT OF THE AUDITORS
We report to the shareholders of Harlyn International Company Limited that we
have examined the balance sheet as at December 31, 1994, and the related
statement of profit and loss and retained earnings for the period from March 16
(Date of incorporation) to December 31, 1994 of Harlyn International Company
Limited. Our examination was made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting records and
such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned financial statements present fairly the
financial position as at December 31, 1994 and the results of operations for the
period from March 16 (Date of incorporation) to December 31, 1994 of Harlyn
International Company Limited, in conformity with generally accepted accounting
principles.
/s/ T. KRISHNAMRA
Toemsakdi Krishnamra
BANGKOK Certified Public Accountant
May 24, 1995 DELOITTE TOUCHE TOHMATSU
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
BALANCE SHEET
AS AT DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash at bank 7,824
Accounts receivable 379,097
Amount due from the parent company (Note 3) 298,441
Short-term loan to the related company (Note 3) 777,580
Inventories (Notes 1.1 and 4) 148,664
Prepaid expenses 187,909
Other current assets 68,785
---------
Total Current Assets 1,868,300
---------
PROPERTY, PLANT AND EQUIPMENT - net (Notes 1.2 and 5) 1,963,627
OTHER ASSETS (Notes 1.3 and 6) 148,715
---------
TOTAL ASSETS US$ 3,980,642
=========
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
BALANCE SHEET
AS AT DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Bank overdraft and loan from bank (Note 7) 845,154
Accounts payable - the related company (Note 3) 578,867
Amount due to the parent company and the related company (Note 3) 459,893
Current portion of long-term loan (Note 8) 265,394
Other current liabilities 65,466
---------
Total Current Liabilities 2,214,774
---------
LONG-TERM LOAN (Note 8) 927,923
---------
TOTAL LIABILITIES 3,142,697
---------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Registered capital
150,000 ordinary shares of Baht 100.00 each 596,659
=========
Issued and paid-up capital
150,000 ordinary shares of Baht 100.00 each, fully paid 596,659
RETAINED EARNINGS
Unappropriated 241,286
---------
TOTAL SHAREHOLDERS' EQUITY 837,945
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY US$ 3,980,642
=========
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
STATEMENT OF PROFIT AND LOSS AND RETAINED EARNINGS
FOR THE PERIOD FROM MARCH 16 TO DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
REVENUES
Sales (Note 2) 682,684
Other income 31,497
-------
Total Revenues 714,181
-------
EXPENSES
Cost of sales 479,369
Selling and administrative expenses 23,410
Income tax 8,706
-------
Total Expenses 511,485
-------
NET PROFIT US$ 202,696
=======
RETAINED EARNINGS BROUGHT FORWARD -
NET PROFIT 202,696
GAIN ON TRANSLATION (Note 2) 38,590
-------
RETAINED EARNINGS CARRIED FORWARD US$ 241,286
=======
NET PROFIT PER SHARE (Note 1.5) US$ 1.35
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM MARCH 16 TO DECEMBER 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 Inventories are stated at cost.
Cost is calculated on an average basis for precious stones, and on
a first-in, first-out basis for gold, silver and alloy.
1.2 Property, plant and equipment are stated at cost.
Depreciation is calculated by the straight-line method, based on
the estimated useful lives of the assets. The principal annual rates
used for this purpose are:
<TABLE>
<S> <C>
Vehicles 20%
Machinery and equipment 20%
Furniture and fixtures 20%
</TABLE>
1.3 Deferred expenses are the incorporation expenses which are amortized
over 4 years commencement in 1995.
1.4 Assets and liabilities in foreign currencies are converted at
commercial bank rates prevailing at the period-end.
Gains or losses on exchange are included as income or expenses
for the period.
1.5 Net profit per share is computed on the basis of number of issued and
paid-up shares outstanding at the end of the period.
2. FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company are measured
using local currency (Baht) as the functional currency. Assets,
liabilities, and equity are translated at current exchange rates and
revenues and expenses have been translated at average exchange rate in
effect for the period. Sales, related receivables and related payable
were made in U.S. Dollars, and are stated at actual invoice value.
<PAGE>
-2-
3. RELATED COMPANY TRANSACTIONS
A portion of the Company's business is represented by transactions with
its parent and related companies and the financial statements reflects
the effect of these transactions on the basis determined by the companies
concerned.
. Transactions with the parent company consisted mainly of the following:
<TABLE>
<S> <C> <C>
Accounts receivable - trade US$ 298,441
Accounts payable - other US$ 58,192
Sales US$ 298,441
</TABLE>
. Transactions with the related company consisted mainly of the following:
<TABLE>
<S> <C> <C>
Loan US$ 777,580
Accounts payable - trade US$ 578,867
Accounts payable - other 463,741
Accounts receivable - other (62,040)
-------
US$ 401,701
=======
Purchases US$ 541,859
Interest income US$ 29,020
</TABLE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<S> <C> <C>
Finished goods 71,673
Raw materials 10,577
Work-in-process 61,472
Factory supplies 4,942
-------
US$ 148,664
=======
</TABLE>
<PAGE>
-3-
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Land 460,200
Vehicles 78,795
Machinery and equipment 91,082
Furniture and fixtures 129,019
---------
759,096
Less Accumulated depreciation (4,654)
---- ---------
754,442
Construction in progress 1,209,185
---------
US$ 1,963,627
=========
Depreciation for the period US$ 4,645
=========
</TABLE>
As at December 31, 1994, land and building have been mortgaged as collateral
for bank overdraft, loan from bank and long-term loan. (See notes 7 and 8)
6. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Deposits - condominium 127,744
Deposits - other 4,391
Deferred expenses 16,580
-------
US$ 148,715
=======
</TABLE>
7. BANK OVERDRAFT AND LOAN FROM BANK
As at December 31, 1994, bank overdraft and loan from bank are guaranteed by
related company and certain directors of the Company and secured by a
mortgage of land and building as collateral. (See note 5)
<PAGE>
-4-
8. LONG-TERM LOAN
Long-term loan consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Loan from bank
- interest rate at MLR+1% p.a., repayable
monthly until 1998 1,193,317
Less Current portion of long-term loan (265,394)
---- ---------
US$ 927,923
=========
</TABLE>
The long-term loan mentioned above has been guaranteed by related company
and certain directors of the Company and the agreement requires the Company
to mortgage land and building as collateral. (See note 5)
9. CONTINGENT LIABILITIES
The Company has contingent liabilities to a bank for guarantees issued on
its behalf for electricity amounting to Baht 195,000 (US$ 7,757) as at
December 31, 1994.
10. INVESTMENT PROMOTION PRIVILEGES
The Company is entitled to certain rights and privileges as a promoted
industry under the Promotion of Investment Act of B.E. 2520 (1977),
including reducing custom duties on imported machinery and exemption of
duties on raw and essential materials imported for production for one year
from the date of first import and exemption from income tax for a period of
3 years from the date the Company commences receiving operating revenue. The
Company has also obtained a permission to deduct 5% of the increased income
over the previous year derived from exports for 10 years from the date the
Company commenced receiving the income, provided that such income from
export is not less than the average revenues from export sales over the
previous three year period except for the first two years.
The Company thus has to comply with certain conditions contained in the
promotion certificate.
<PAGE>
[LETTERHEAD OF DELOITTE TOUCHE TOHMATSU]
- --------------------------------------------------------------------------------
HARLYN INTERNATIONAL COMPANY LIMITED
FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1996
- --------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF DELOITTE TOUCHE TOHMATSU]
REPORT OF THE AUDITORS
We report to the shareholders of Harlyn International Company Limited that we
have examined the balance sheet as of June 30, 1996, and the related statement
of profit and loss and retained earnings for the year ended June 30, 1996 of
Harlyn International Company Limited. Our examination was made in accordance
with generally accepted auditing standards, and accordingly included such tests
of the accounting records and such other auditing procedures as we considered
necessary in the circumstances, except as stated in the following paragraphs.
From our examination we found that the Company may have investment in another
company as at June 30, 1996, but there is no resolution on this matter and the
Company has not recorded such investment in its accounts. (See note 13)
As at June 30, 1996, the Company has receivables from its major shareholder
company which has been long outstanding, the total amount is deemed material;
management of the Company considers that these receivable amounts may be
uncollectible as its major shareholder company is suffering from liquidity
problems. (See notes 3 and 12) However, no allowance has been made for such
receivable balances. Had an allowance been made, the Company may have a major
capital deficiency and this may affect its operations on a going concern basis.
Because of the matter referred to in paragraph 3 has a material effect on the
financial statements for the year ended June 30, 1996, we are unable to and we
do not express an opinion on the balance sheet as at June 30, 1996 and the
statement of profit and loss and retained earnings for the year ended June 30,
1996.
/s/ TOEMSAKDI KRISHNAMRA
------------------------------
Toemsakdi Krishnamra
BANGKOK Certified Public Accountant
August 28, 1996 DELOITTE TOUCHE TOHMATSU
(Except for notes 4.12 and 13 which are dated November 7, 1996)
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
BALANCE SHEET
AS AT JUNE 30, 1996
- -------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash in hand and at bank 60,990
Accounts receivable - net (Note 2) 9,582,466
Accounts receivable - the parent company (Note 3.1) 153,869,161
Amount due from the parent company (Note 3.1) 10,026,270
Inventories (Notes 1.1 and 4) 38,503,641
Deposits used as collateral (Note 5) 334,648
Other current assets 1,826,229
-----------
Total Current Assets 214,203,405
===========
PROPERTY, PLANT AND EQUIPMENT - net (Notes 1.2 and 6) 64,081,165
OTHER ASSETS (Notes 1.3 and 7) 957,827
-----------
TOTAL ASSETS BAHT 279,242,397
===========
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
BALANCE SHEET
AS AT JUNE 30, 1996
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Bank overdraft and loan from bank (Note 8) 38,190,760
Accounts payable 5,977,630
Accounts payable - the related company (Note 3.2) 87,292,666
Amount due to the parent company (Note 3.1) 35,623,863
Amount due to the related company (Note 3.2) 13,435,461
Current portion of long-term loan (Note 9) 6,672,000
Short-term borrowing from the related company (Note 3.2) 16,620,000
Other current liabilities 6,545,612
-----------
Total Current Liabilities 210,357,992
-----------
LONG-TERM LOAN (Note 9) 12,764,000
OTHER LIABILITIES 998,070
-----------
TOTAL LIABILITIES 224,120,062
-----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Registered capital
150,000 ordinary shares of Baht 100.00 each 15,000,000
===========
Issued and paid-up capital
150,000 ordinary shares of Baht 100.00 each, fully paid 15,000,000
RETAINED EARNINGS
Unappropriated 40,122,335
-----------
TOTAL SHAREHOLDERS' EQUITY 55,122,335
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY BAHT 279,242,397
===========
</TABLE>
Notes to financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
STATEMENT OF PROFIT AND LOSS AND RETAINED EARNINGS
FOR THE YEAR ENDED JUNE 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUES
Sales 328,718,198
Other income 5,675,367
-----------
Total Revenues 334,393,565
-----------
EXPENSES
Cost of sales 258,789,773
Selling and administrative expenses 52,381,593
Interest expense 13,897,113
-----------
Total Expenses 325,068,479
-----------
NET PROFIT BAHT 9,325,086
===========
RETAINED EARNINGS BROUGHT FORWARD 30,797,249
NET PROFIT 9,325,086
-----------
RETAINED EARNINGS CARRIED FORWARD BAHT 40,122,335
===========
NET PROFIT PER SHARE (Note 1.5) BAHT 62.17
</TABLE>
Notes to the financial statements form an integral part of these statements
<PAGE>
HARLYN INTERNATIONAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 Inventories are stated at the lower of cost or market value.
Cost is calculated on an average basis for precious stones, and on a
first-in, first-out basis for gold, silver and alloy.
1.2 Property, plant and equipment are stated at cost.
Depreciation is calculated by the straight-line method, based on the
estimated useful lives of the assets. The principal annual rates used
for this purpose are:
<TABLE>
<CAPTION>
<S> <C>
Building and improvements 5%
Vehicles 20%
Machinery and equipment 20%
Furniture and fixtures 20%
Tools 20%
</TABLE>
1.3 Deferred expenses are the incorporation expenses which are amortized
over 4 years commencement in 1995.
1.4 Assets and liabilities in foreign currencies are converted at commercial
bank rates prevailing at the period-end.
Gains or losses on exchange are included as income or expenses for the
period.
1.5 Net profit per share is computed on the basis of number of issued and
paid-up shares outstanding at the end of the period.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable 10,553,201
Less Allowance for doubtful accounts (970,735)
---- ----------
Accounts receivable - net BAHT 9,582,466
==========
</TABLE>
<PAGE>
-2-
3. RELATED COMPANY TRANSACTIONS
A portion of the Company's business is represented by transactions with its
parent and related companies and the financial statements reflects the effect
of these transactions on the basis determined by the companies concerned.
3.1 Transactions with the parent company consisted mainly of the following:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable - trade 181,404,744
Accounts payable - trade (27,535,583)
-----------
BAHT 153,869,161
===========
Accounts receivable - other 23,239,795
Accounts payable - other (13,213,525)
-----------
BAHT 10,026,270
===========
Accounts payable - management fee BAHT (35,623,863)
Purchases BAHT 20,837,003
Sales BAHT 98,425,436
Management service fee BAHT 23,497,877
</TABLE>
3.2 Transactions with the related company consisted mainly of the following:
<TABLE>
<CAPTION>
<S> <C>
Accounts payable - trade BAHT (87,292,666)
Accounts receivable - other 13,283,941
Accounts payable - other (26,160,440)
-----------
BAHT (12,876,499)
===========
Accrued interest income 1,334,189
Accrued interest expense (1,893,151)
-----------
BAHT (558,962)
-----------
Short-term borrowing BAHT (16,620,000)
Purchases BAHT 107,062
Interest income BAHT 526,384
Interest expense BAHT 1,561,787
</TABLE>
<PAGE>
-3-
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<S> <C>
Finished goods 13,956,095
Raw materials 19,294,861
Work-in-process 4,977,821
Factory supplies 274,864
----------
BAHT 38,503,641
==========
</TABLE>
5. DEPOSITS USED AS COLLATERAL
Time deposits at bank of Baht 334,648 as at June 30, 1996 are used as
collateral for bank guarantees issued on the behalf of the Company.
(See note 10.1)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<S> <C>
Land 11,528,000
Building and improvements 48,774,565
Vehicles 1,973,826
Machinery and equipment 2,782,409
Furniture and fixtures 3,909,560
Tools 1,372,677
----------
70,341,037
Less Accumulated depreciation (6,259,872)
---- ----------
BAHT 64,081,165
==========
Depreciation for the year BAHT 4,301,365
==========
</TABLE>
As at June 30, 1996, land and building have been mortgaged as collateral
for bank overdraft, loan from bank and long-term loan. (See notes 8.9 and
10.2)
7. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<S> <C>
Deposits 698,250
Deferred expenses 259,577
-------
BAHT 957,827
=======
</TABLE>
<PAGE>
-4-
8. BANK OVERDRAFT AND LOAN FROM BANK
As at June 30, 1996, bank overdraft and loan from bank are guaranteed
by related company and certain directors of the Company and secured by a
mortgage of land and building as collateral. (See note 6)
9. LONG-TERM LOAN
Long-term loan consists of the following:
<TABLE>
<S> <C>
Loan from bank
- interest rate at MLR + 1% p.a., repayable
monthly until 1998 19,436,000
Less Current portion of long-term loan (6,672,000)
----------
BAHT 12,764,000
==========
</TABLE>
The long-term loan mentioned above has been guaranteed by related company
and certain directors of the Company and the agreement requires the Company
to mortgage land and building as collateral. (See note 6)
10. CONTINGENT LIABILITIES
10.1 The Company has contingent liabilities to a bank for guarantees
issued on its behalf for electricity amounting to Baht 316,300 as at
June 30, 1996. (See note 5)
10.2 The Company has credit facilities which include bank overdraft,
packing credits, letters of credit, trust receipts, discount of
export bills DP/DA and/or general guaranteed lines of credit up to
the limit of Baht 76,000,000 as at June 30, 1996. The credit
facilities are guaranteed by the related company and certain
directors of the Company and the facilities require the Company
to mortgage land and building as collateral. (See note 6)
11. INVESTMENT PROMOTION PRIVILEGES
The Company is granted certain rights and privileges as a promoted industry
under the Promotion of Investment Act of B.E. 2520 (1977), including
reduction of customs duties on imported machinery and exemption of duties
on raw and essential materials imported for production for one year from
the date of first import and exemption from income tax for a period of 3
years from the date the Company commences receiving operating revenue. The
Company has also obtained a permission to deduct 5% of the increased income
over the previous year derived from exports for 10 years from the date the
Company commenced receiving the income, provided that such income from
export is not less than the average revenues from export sales over the
previous three year period except for the first two years.
The Company thus has to comply with certain conditions contained in the
promotion certificate.
<PAGE>
-5-
12. PARENT COMPANY - FINANCIAL CONDITION
The parent company filed an 8K with the U.S. Securities and Exchange
Commission in September 1996 stating that it is suffering from liquidity
problems, and is trying to negotiate an extension of its bank borrowing and
gold lease agreements. It reported that if negotiations with its financing
sources were unsuccessful, the company would be forced to consider the
possibility of filing for protection under Chapter 11.
13. INVESTMENT IN SUBSIDIARY
On June 15, 1995, Harlyn (Thailand) Co. Ltd., filed a shareholders' list
with the Ministry of Commerce that showed the Company as the owner of
99,994 of the 100,000 ordinary shares issued by that company. On October 1,
1996, a new shareholders' list was prepared, which shows Harlyn Products
Incorporated as the owner of those shares.
No consideration was recorded for either the acquisition by the Company
in June 1995 or for the disposition in October 1996.
<PAGE>
(iii) Pro Forma Financial Information.
-------------------------------
<PAGE>
THE L.L. KNICKERBOCKER CO., INC. (THE "COMPANY") AND
HARLYN INTERNATIONAL (HI)
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Acquisition Pro Forma
Company HI Adjustments Note Condensed
Historical Historical Incr. (Decr.) Reference Consolidated
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 10,580,888 $ 5,250,746 (1,152,952) 7 $ 14,678,682
Cost of goods sold 5,292,050 4,769,991 (1,050,410) 7 9,011,631
-------------------------------------------------- ------------
Gross Margin 5,288,838 480,755 (102,542) 5,667,051
Selling, general
and administrative expenses 3,527,733 818,695 13,120 1 4,034,064
(325,484) 6
-------------------------------------------------- ------------
Income from operations 1,761,105 (337,940) 209,822 1,632,987
Other Income/(expense) 36,487 (218,205) (181,718)
-------------------------------------------------- ------------
Income before taxes 1,797,592 (556,145) 209,822 1,451,269
Provision for Income Taxes 719,037 719,037
-------------------------------------------------- ------------
Net Income $ 1,078,555 $ (556,145) $ 209,822 $ 732,232
================================================== ============
Earnings per share $ 0.07 0.04
================================================== ============
Weighted average common and
common equivalent shares
outstanding 16,514,166 16,514,166
================================================== ============
</TABLE>
<PAGE>
THE L.L. KNICKERBOCKER CO., INC. (THE "COMPANY") AND
HARLYN INTERNATIONAL (HI)
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Acquisition Pro Forma
Company HI Adjustments Note Condensed
Historical Historical Incr. (Decr.) Reference Consolidated
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $13,140,346 $15,458,195 (6,596,113) 7 $22,002,428
Cost of goods sold 6,327,322 10,882,786 (4,910,151) 7 12,299,957
------------------------------------------ ------------
Gross Margin 6,813,024 4,575,409 (1,685,962) 9,702,471
Selling, general and administrative expenses 4,767,170 2,295,316 26,239 1 6,012,250
(1,076,475) 6
------------------------------------------ ------------
Income from operations 2,045,854 2,280,093 (635,726) 3,690,221
Other Income/(expense) 105,879 (651,163) (545,284)
------------------------------------------ ------------
Income before taxes 2,151,733 1,628,930 (635,726) 3,144,937
Provision for Income Taxes 883,213 488,679 1,371,892
------------------------------------------ ------------
Net Income 1,268,520 1,140,251 (635,726) 1,773,045
========================================== ===========
Earnings per share 0.10 0.13
========================================== ===========
Weighted average common and common
equivalent shares outstanding 13,280,199 13,280,199
========================================== ===========
</TABLE>
<PAGE>
THE L.L. KNICKERBOCKER CO., INC. (THE "COMPANY") AND
HARLYN INTERNATIONAL (HI)
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Acquisition Pro Forma
Company HI Adjustments Note Condensed
Historical Historical Incr. (Decr.) Reference Consolidated
----------- ---------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Assets
- ------
Current assets
Cash and equivalents $ 3,807,348 $ 2,440 $(2,421,112) 2 $ 1,388,676
Accounts receivable 7,290,632 383,280 7,673,912
Accounts receivable - parent - 7,482,080 (7,482,080) 3 -
Inventories 2,438,351 1,802,960 4,241,311
Prepaid expenses 1,375,339 - 1,375,339
Value added tax refundable - 47,600 47,600
Deposits - 13,400 13,400
Other current assets 433,953 25,440 459,393
---------------------------------------------- -----------
Total current assets 15,345,623 9,757,200 (9,903,192) 15,199,631
Property and equipment, net 957,564 2,685,080 3,642,644
Goodwill - - 262,392 4 262,392
Investments 3,118,352 - 3,118,352
Other assets 4,808,109 70,440 4,878,549
---------------------------------------------- -----------
Total assets 24,229,648 12,512,720 (9,640,800) 27,101,568
============================================== ===========
Liabilities
- -----------
Current liabilities
Bank Overdrafts and loan from bank - 1,539,360 1,539,360
Accounts payable 3,765,241 239,120 4,004,361
Accounts payable - related company - 3,754,520 (3,754,520) 3 -
Accrued liabilities 2,195,169 - 2,195,169
Amount due parent & related company - 3,062,760 (3,062,760) 3 -
Loans/notes payable 1,645,205 266,880 1,912,085
Short-term borrowing - related company - 664,800 (664,800) 3 -
Other current liabilities 273,729 276,080 549,809
---------------------------------------------- -----------
Total current liabilities 7,879,344 9,803,520 (7,482,080) 10,200,784
Long-term liabilities
Long-term loan - 510,560 510,560
Other liabilities - 39,920 39,920
Deferred income 127,777 - 127,777
Deferred income taxes 19,450 - 19,450
---------------------------------------------- -----------
Total liabilities 8,026,571 10,354,000 (7,482,080) 10,898,491
---------------------------------------------- -----------
Stockholders' Equity
Common stock 8,173,355 600,000 (600,000) 5 8,173,355
Additional paid-in capital 5,175,700 - 5,175,700
Retained earnings 2,854,022 1,558,720 (1,558,720) 5 2,854,022
---------------------------------------------- -----------
Total stockholders' equity 16,203,077 2,158,720 (2,158,720) 16,203,077
---------------------------------------------- -----------
Total liabilities and stockholders' equity 24,229,648 12,512,720 (9,640,800) 27,101,568
============================================== ===========
</TABLE>
<PAGE>
THE L.L. KNICKERBOCKER CO., INC.
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The preceding statements set forth pro forma financial data of the Company for
the year ended December 31, 1995, the six months ended June 30, 1996, and the
balance sheet as of June 30, 1996. The pro forma condensed consolidated
statements of operation for the year ended December 31, 1995 and for the six
months ended June 30, 1996 gives pro forma effect to the Acquisition, related
purchase accounting adjustments and to certain other adjustments as if the
Acquisition and related transactions had occurred on January 1, 1995. The pro
forma condensed consolidated balance sheet data as of June 30, 1996 gives pro
forma effect to the Acquisiton and related transactions as if they had been
consummated on June 30, 1996. The adjustments relating to the Acquisition and
related transactions are described in the notes hereto. The pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable.
The pro forma financial data does not necessarily reflect the results
of operations or the financial position of the Company which actually would
have resulted had the Acquisition been consummated as of the date or for the
period indicated, and the pro forma financial data excludes the nonrecurring
effects of certain purchase adjustments which will be reflected in financial
statements prepared in accordance with generally accepted accounting principles.
The pro forma adjustments are based on management's preliminary assumptions
regarding purchase accounting adjustments. The actual allocation of the purchase
price will be adjusted in accordance with Statement of Financial Accounting
Standards No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises," to the extent that actual amounts differ from mangement's
estimates.
<PAGE>
The pro forma financial data should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto.
(1) To record amortization of Goodwill recorded in connection with the
acquisition of Harlyn International Company Limited.
(2) To record cash payment in connection with the acquisition of Harlyn
International Company Limited.
(3) To eliminate intercompany receivable and payables to Harlyn Products,
Inc., not included in the acquisition.
(4) To record Goodwill in connection with the acquisition of Harlyn
International Company Limited.
(5) To eliminate the historical equity accounts of Harlyn International
Company Limited as required by Purchase accounting rules.
(6) To eliminate management fee from Harlyn Products, Inc. that will no
longer be incurred on a combined company basis.
(7) To eliminate sales to Harlyn Products, Inc. and related cost of sales as
there is no assurance that Harlyn Products, Inc. will continue as a
customer subsequent to the Acquisition.
<PAGE>
B. Issuance of Convertible Debentures and Warrant.
-----------------------------------------------
On September 24, 1996, the Company completed a private placement of
convertible debentures of the Company which raised gross proceeds of $15,500,000
and net proceeds to the Company of $14,800,000. The debentures bear interest at
the annual rate of seven percent (7%) and interest is paid quarterly in arrears.
The maturity date of each debenture is four years from the date of issuance. The
outstanding principal amount of and all accrued and unpaid interest under each
debenture may be converted, at the option of the holder thereof, into shares of
common stock of the Company at the conversion price in effect on the date of
conversion. The conversion price per share of common stock of the Company may
not be less than $5.25 per share nor greater than $12.00 per share and shall be
determined as follows: during the first and second years that each debenture is
outstanding the conversion price shall be equal to eight-five percent (85%) of
the market price of the Company's common stock on the date of conversion, and
during the fourth year that each debenture is outstanding the conversion price
shall be equal to one hundred twenty percent (120%) of the market price of the
Company's common stock on the date of conversion. Up to 1/3 of the outstanding
principal amount, and all accrued and unpaid interest thereon at such time, of
each debenture will become convertible on the date that is ten (10) days after
the date that the registration statement of the common shares underlying the
debentures has been declared effective by the Securities and Exchange Commission
(the "Registration Date"), with an additional 1/3 of the outstanding principal
amount of, and all accrued and unpaid interest thereon at such time, of each
debenture becoming convertible on the dates that are thirty (30) and sixty (60)
days from the Registration Date.
In connection with the purchase and sale of the debentures, (i) the
Company and each investor entered into a Private Securities Subscription
Agreement pursuant to which each investor and the Company made certain
representations and warranties to each other in connection with the purchase of
the debentures by the investors, (ii) the Company executed and delivered to each
investor a 7% Convertible Debenture containing the terms discussed above, (iii)
the Company and each investor entered into a Registration Rights Agreement
pursuant to which the Company granted to each investor certain registration
rights with respect to the shares of the Common Stock of the Company into which
the Debentures are convertible, and (iv) the Company executed and delivered to
Shoreline Pacific Institutional Finance, the Institutional Division of Financial
West Group, a Common Stock Purchase Warrant Certificate for the purchase of
31,313 shares of the Common Stock of the Company at an exercise price of $9.90
per share.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
A. Exhibits.
---------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
3.1 Articles of Incorporation of International Beauty Supply, Ltd.
("IBS") dated July 11, 1985.(1)
3.2 Amendment to Articles of Incorporation of IBS dated May 24, 1993.(1)
3.3 Certificate of Amendment to Articles of Incorporation of The L. L.
Knickerbocker Co., Inc. (the "Company") dated June 20, 1994.(1)
3.4 Certificate of Amendment to Articles of Incorporation of the Company
dated September 27, 1994.(1)
3.5 Bylaws of the Company.(2)
4.1 Qualified Stock Option Plan adopted by the Company on September 27,
1994 along with form of Stock Option Agreement.(3)
4.2 Form of Warrant Agreement.(3)
4.3 Form of Representative's Warrant issued to W.B. McKee Securities, Inc.
upon consummation of the Company's offering on January 25, 1995.(3)
4.4 Form of Common Stock Purchase Warrant Certificate issued to
Shoreline Pacific, the Institutional Finance Division of Financial
West Group.(4)
4.5 Form of 7% Convertible Debenture.(4)
10.1 Form of Private Securities Subscription Agreement.(4)
10.2 Form of Registration Rights Agreement.(4)
10.3 Stock Purchase Agreement dated September 30, 1996 by and among Harlyn
Products, Inc., Harlyn International and the Company.(4)
10.4 First Amendment to Stock Purchase Agreement dated October 15, 1996 by
and among Harlyn Products, Inc., Harlyn International Company, Ltd. and
the Company.(4)
10.5 Second Amendment to Stock Purchase Agreement dated November 7, 1996 by
and among Harlyn Products, Inc., Harlyn International Company, Ltd.
and the Company.(4)
27.1 Financial Data Schedule(5)
</TABLE>
- -------------------------------------------
(1) Filed as part of Exhibit 3.1 to The L. L. Knickerbocker Co., Inc. Form SB-2
Registration Statement No. 33-85230-LA as filed with the Securities and
Exchange Commission on or about October 13, 1994.
(2) Filed as an Exhibit to The L. L. Knickerbocker Co., Inc. Annual Report
on Form 10-KSB as filed with the Securities and Exchange Commission on or
about March 29, 1995.
(3) Filed as an Exhibit to The L. L. Knickerbocker Co., Inc. Form SB-2
Registration Statement No. 33-85230-LA as filed with the Securities and
Exchange Commission on or about October 13, 1994.
(4) Filed as an Exhibit to The L.L. Knickerbocker Co., Inc. Form 10-QSB/A as
filed with the Securities and Exchange Commission on November 27, 1996.
<PAGE>
(5) Filed as an exhibit to the L.L. Knickerbocker Co., Inc. form 10-QSB
Amendment number 2 as filed with the Securities and Exchange Commission on
January 16, 1997.
<PAGE>
B. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE L.L. KNICKERBOCKER CO., INC.
Date: January 27, 1997 By: /s/ Anthony P. Shutts
-----------------------------
Anthony P. Shutts
Chief Financial Officer
