SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendement No. 1
To Current Report on Form 8-K
On
FORM 8-K/A
CURRENT REPORT
Filed Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 15, 1999
TRISTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-13099 13-3129318
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation
or organization)
105 S. St. Mary's Street, Suite 1800, San Antonio, Texas 78205
(Address of principal executive offices) (Zip Code)
(210) 402-2200
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements of Fragrance Impressions Limited (Business Acquired):
-Independent Auditor's Report
-Audited Balance Sheet at December 31, 1998
-Audited Statement of Operations for the twelve months ended December 31,
1998
-Audited Statement of Retained Earnings for the twelve months ended
December 31, 1998
-Audited Statement of Cash Flows for the twelve months ended December 31,
1998
-Notes to December 31, 1998 audited financial statements
-Unaudited Balance Sheet at August 31, 1999
-Unaudited Statement of Operations for the 8 months ended August 31, 1999
and 1998
-Unaudited Statement of Cash Flows for the 8 months ended August 31, 1999
and 1998
-Notes to August 31, 1999 unaudited financial statements
b. Unaudited Pro Forma Condensed Consolidated Financial Statements -- Tristar
Corporation and Subsidiaries:
-Proforma Condensed Consolidated Balance Sheet at August 28, 1999
-Proforma Condensed Consolidated Statement of Operations for the
year ended August 28, 1999
c. Consent of McGladrey & Pullen, LLP
2
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 under
signed thereunto duly authorized.
TRISTAR CORPORATION
By /s/ ROBERT M. VIOLA
-------------------
Robert M. Viola, Senior Executive
Vice-President and Chief Financial Officer
Date: April 18, 2000 (Principal Financial and Accounting
Officer)
3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Fragrance Impressions Limited
Bridgeport, Connecticut
We have audited the accompanying balance sheet of Fragrance Impressions Limited
as of December 31, 1998, and the related statements of operations, retained
earnings, and cash flows for the years 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 conducted our audit 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 audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fragrance Impressions Limited
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ McGLADREY & PULLEN, LLP
New Haven, Connecticut
February 12, 1999
4
FRAGRANCE IMPRESSIONS LIMITED
BALANCE SHEET
DECEMBER 31,
ASSETS (Notes 6 and 7) 1998
----------
Current assets:
Cash .......................................................... $ 121,324
Accounts receivable, less allowance for doubtful accounts
of $733,851 (Note 2) ........................................ 4,036,152
Inventories (Note 3) .......................................... 2,977,966
Prepaid expenses and other current assets (Note 8) ............ 190,927
----------
Total current assets ......................................... 7,326,369
----------
Property, plant and equipment, less accumulated depreciation
of $1,104,385 (Note 5) ........................................ 629,030
----------
Other assets:
Security deposits ............................................. 7,758
----------
Total assets .................................................... $7,963,157
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable (Note 6) ......................................... $3,494,923
Current maturities of long-term debt (Note 7) ................. 610,220
Accounts payable (Note 2) ..................................... 1,437,406
Accrued commissions (Note 8) .................................. 475,439
Other accrued expenses ........................................ 187,339
----------
Total current liabilities ................................... 6,205,327
Long-term debt, less current portion (Note 7) ................... 5,625
----------
Total liabilities ............................................ 6,210,952
----------
COMMITMENTS (NOTES 4 AND 8)
Shareholders' equity:
Common stock, $1 par value; authorized 20,000 shares;
issued and outstanding 16,795 shares ....................... 16,795
Additional paid-in-capital .................................... 643,255
Retained earnings ............................................. 1,092,155
----------
Total Shareholders' equity ................................. 1,752,205
----------
Total liabilities and shareholders' equity ...................... $7,963,157
==========
See Notes to Financial Statements
5
FRAGRANCE IMPRESSIONS LIMITED
STATEMENT OF OPERATIONS
12 MONTHS ENDED
DECEMBER 31,
1998
------------
Net sales (Note 2) ........................................ $ 10,574,469
Cost of Goods Sold (Note 2) ............................... 4,733,223
------------
Gross profit ......................................... 5,841,246
Selling, general and administrative expenses
Selling ................................................. 3,549,632
General and administrative .............................. 2,070,414
------------
Operating income ..................................... 221,200
Interest expense .......................................... (350,782)
------------
Loss before State Income Taxes ....................... (129,582)
Provision for State Income Taxes .......................... 10,659
------------
Net loss ............................................. $ (140,241)
============
See Notes to Financial Statements
6
FRAGRANCE IMPRESSIONS LIMITED
STATEMENT OF RETAINED EARNINGS
12 MONTHS ENDED
DECEMBER 31,
1998
-----------
Balance, beginning .................................. $ 1,232,396
Net loss ......................................... (140,241)
-----------
Balance, ending ..................................... $ 1,092,155
===========
See Notes to Financial Statements
7
FRAGRANCE IMPRESSIONS LIMITED
STATEMENT OF CASH FLOWS
12 MONTHS ENDED
DECEMBER 31,
1998
---------------
Cash flows from operating activities
Net loss ................................................... $ (140,241)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation ........................................... 297,058
Provision for doubtful accounts ........................ 85,949
Change in working capital components:
Increase in accounts receivable ..................... (601,497)
Decrease in inventories, net ........................ 1,173,469
Increase in prepaid expenses and other current assets (17,273)
Decrease in accounts payable and accrued expenses ... (452,945)
---------------
Net cash provided by operating activities .............. 344,520
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and displays ......................... (307,581)
---------------
Net cash used in investing activities .................. (307,581)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principle payments on note payable ......................... (8,617,289)
Borrowings on note payable ................................. 8,430,331
Principal payments on long-term borrowings ................. (42,397)
Repayment of capital lease obligations ..................... (2,838)
---------------
Net cash used in financing activities .................. (232,193)
---------------
NET DECREASE IN CASH ............................................ (195,254)
CASH:
Beginning .................................................. 316,578
---------------
Ending ..................................................... $ 121,324
===============
Supplemental Disclosures of Cashflow Information
Cash payments for:
Interest ............................................... $ 320,431
State taxes ............................................ $ 7,100
See Notes to Financial Statements
8
FRAGRANCE IMPRESSIONS LIMITED
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Fragrance Impressions Limited (the "Company"), a Connecticut Corporation is in
the business of developing and distributing "Alternative" fragrances principally
to chain drugstores located throughout the United States. Segment information is
not presented since the Company's revenue is attributable to a single reportable
segment.
A summary of the Company's significant accounting policies follows:
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Certain significant estimates include the allowance for doubtful accounts and
reserve for obsolete inventory. These estimates are susceptible to change in the
near term, and these changes could be significant.
REVENUE RECOGNITION
Revenue is recognized upon shipment of merchandise. Allowances are established
for estimated returns based on historical trends. It is reasonably possible that
those estimated returns may be increased significantly in the near term. As a
result, revenue recognized may be reduced materially in the near term due to
increased returns.
CASH
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on its cash deposits.
9
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Work in process and finished goods include all direct material cost and
charges from outside suppliers for manufacturing.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed by both the
straight-line method and accelerated methods over the following estimated useful
lives of 3 to 7 years. Leasehold improvements are depreciated over the shorter
of the term of the lease or their estimated useful lives.
ADVERTISING
All costs associated with advertising are expensed in the year incurred.
Advertising expense included in selling expenses was approximately $1,800,000
for the year ended December 31, 1998.
INCOME TAXES
The Company, with the consent of its stockholders, has elected to be taxed under
sections of federal income tax law (S Corporation Status), which provide that in
lieu of corporation income taxes, all stockholders separately account for their
pro-rata shares of the Company's items of income, deductions, losses and
credits. The State of Connecticut currently taxes S Corporations. However, the S
Corporation income subject to tax at the corporate level is currently being
phased out, and by the year 2000, no S Corporation income will be taxed at the
corporate level. Therefore, all income from the Company will be taxed at the
stockholder level.
Deferred taxes for state income tax reporting purposes are provided on a
liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carry forwards and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
NOTE 2. CONCENTRATIONS OF CREDIT RISK
Sales to two large drugstore chains represented approximately 72% of sales
during the year ended December 31, 1998. Accounts receivable due from these
customers approximated $4,091,000 before reserves at December 31, 1998.
10
Purchases of services from one major vendor represented approximately 14% of
cost of sales during the year ended December 31, 1998.
NOTE 3. INVENTORIES
Inventories consist of the following components as of December 31, 1998:
Finished Goods $ 1,595,045
Work in process 26,954
Raw materials 1,455,967
---------
3,077,966
Less reserve for obsolete inventory (100,000)
----------
$ 2,977,966
==========
NOTE 4. DEFINED CONTRIBUTION RETIREMENT PLAN
The Company has a defined contribution retirement (401K) plan covering employees
who have completed six months of service and who are at least 21 years of age.
Contributions to the plan are made from the Company's net profits or accumulated
earnings, as defined, in amounts determined annually by the Board of Directors
of the Company. There were no contributions to the plan for the year ended
December 31, 1998.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1998:
Vehicles, equipment and displays $ 1,561,042
Furniture and fixtures 92,214
Leasehold improvements 80,159
----------
1,733,415
Less accumulated depreciation 1,104,385
---------
$ 629,030
==========
NOTE 6. NOTE PAYABLE
During 1995, the Company entered into a revolving credit line agreement with
Peoples Bank. The credit line was collateralized by substantially all assets and
is personally guaranteed by the Chief Executive Officer and President of the
Company. The agreement expired on June 30, 1998. Under the agreement, the
Company was eligible to borrow up to the lesser of the
11
"maximum borrowing base" or $7,000,000. The maximum borrowing base consisted of
certain eligible trade receivables, net of reserves plus the lesser of 40% of
eligible inventory or $1,500,000. Interest was payable monthly at the Bank's
prime lending rate plus 1%.
The Company received extensions of the expired line of credit agreement through
October 31, 1998. The bank continued to advance funds to the Company according
to the terms of the expired line of credit through February 1999. At December
31, 1998, the Company was not in compliance with a financial convenant with
respect to this line of credit.
During February 1999, the Company entered into a revolving line of credit with
People's Bank (the Company's existing lender). The line of credit is
collateralized by substantially all assets of the Company and is personally
guaranteed by the Chief Executive Officer and President of the Company. The
agreement is for a term which expires on March 31, 1999 with an automatic one
year renewal through March 31, 2000. Under the agreement, the Company can borrow
up to the lesser of the "maximum borrowing base" or $5,000,000, plus a
"permitted overadvance" amount which begins at $693,000 and is subsequently
reduced (in various stages) to $98,250 by January 1, 2000. The maximum borrowing
base consists of certain eligible trade receivable, net of reserves plus the
lesser of 40% of eligible inventory or $1,250,000. Interest on the line of
credit is payable monthly at the bank's prime lending rate plus 1%. Interest on
the permitted overadvance is payable monthly at the bank's prime lending rate
plus 2%. The Company has agreed, among other things, not to incur additional
debt aggregating more than $50,000 in any one year. The Company also has
restrictions on the disposal of assets, annual increases in shareholder
compensation and the payment of dividends.
NOTE 7. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1998:
Unsecured note payable to an individual, interest at 10%,
due in monthly installments of $25,363 including interest
through June 1, 1998, which increased to $47,572 including
interest through December 1, 1998 with the outstanding
principal balance plus interest payable in ten equal monthly
installments thereafter, subordinate to revolving credit
line agreement. As of December 31, 1998 the Company is in
default with respect to this note as it has not made the
scheduled payments since February 1998. According to the
terms of the note, the interest rate of 18% applies while
the Company is in default $598,970
12
Note payable to bank, due in monthly installments of $938
including interest at 8.5% through May 10, 2000, secured by
substantially all assets of the Company 16,875
-------
615,845
Less current maturities 610,220
-------
$ 5,625
=======
Aggregate maturities required on long-term debt as of December 31, 1998 are due
in future years as follows:
1999 $ 610,220
2000 5,625
--------------
$ 615,845
==============
NOTE 8. RELATED PARTY TRANSACTIONS AND LEASES
STOCKHOLDER ADVANCES
Advances due from a stockholder totaling approximately $66,000 at December 31,
1998 are included in other current assets. These advances bear interest at 10%
per annum.
DUE FROM AFFILIATE
Unsecured, non-interest bearing advances due from a company related by common
control and ownership were approximately $35,000 at December 31, 1998 and were
included in other current assets.
COMMISSIONS
During the year ended December 31, 1998, the Company paid approximately $343,000
in sales commissions to an agent who is also a stockholder. These commissions
are included in selling expenses. Included in accrued commissions at December
31, 1998 is approximately $442,000 due to this stockholder.
LEASES AND RENT EXPENSE
The Company leases certain office and warehouse space for $3,500 per month from
Knowlton Street Properties which is solely owned by a stockholder of the
Company. The lease expires in July 1999. Rent expense under this lease during
the years ended December 31, 1998 amounted to approximately $42,000 and is
included in general and administrative expenses.
13
The Company has certain equipment and warehouse space from unrelated parties
under operating leases. Rent expense included in general and administrative
expenses for the year ended December 31, 1998 related to these operating leases
approximated $61,000.
Future minimum payments by year and in the aggregate, due under significant
noncancelable operating leases with initial or remaining terms of one year or
more, approximated the following at December 31, 1998:
1999 $47,500
2000 12,500
--------
$60,000
========
14
FRAGRANCE IMPRESSIONS LIMITED
BALANCE SHEET (UNAUDITED)
AUGUST 31,
1999
ASSETS -----------
(UNAUDITED)
Current assets:
Cash ........................................................... $ 244,000
Accounts receivable, less allowance for doubtful accounts
of $189,000 ................................................. 3,089,000
Accounts receivable - related parties - net .................... 126,000
Inventories .................................................... 3,618,000
Prepaid expenses ............................................... 19,000
Other current assets ........................................... 8,000
-----------
Total current assets ......................................... 7,104,000
-----------
Property, plant and equipment, less accumulated depreciation
of $1,183,000 .................................................. 506,000
-----------
Total assets ..................................................... $ 7,610,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit agreement borrowings .......................... $ 2,770,000
Accounts payable--trade ........................................ 2,010,000
Accounts payable--related parties - net ........................ 85,000
Accrued interest expense-subordinated debt ..................... 76,000
Other accrued expenses ......................................... 2,125,000
Current portion of long-term obligations ....................... 608,000
-----------
Total current liabilities .................................... 7,674,000
-----------
Total liabilities ................................................. 7,674,000
-----------
Shareholders' equity (deficit):
Common stock, $1 par value; authorized 20,000 shares;
issued and outstanding 16,795 shares ........................ 17,000
Additional paid-in-capital ..................................... 643,000
Retained Earnings .............................................. (724,000)
-----------
Total shareholders' equity ................................... (64,000)
-----------
Total liabilities and shareholders' equity ....................... $ 7,610,000
===========
See Notes to Financial Statements
15
FRAGRANCE IMPRESSIONS LIMITED
STATEMENTS OF OPERATIONS (UNAUDITED)
8 MONTHS ENDED 8 MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
----------- -----------
Net sales .................................... $ 4,968,000 $ 6,489,000
Cost of sales ................................ 3,492,000 3,424,000
----------- -----------
Gross profit ................................. 1,476,000 3,065,000
Selling, general and administrative expenses . 3,018,000 3,022,000
----------- -----------
Income (loss) from operations ................ (1,542,000) 43,000
Other income (expense):
Interest expense ......................... (177,000) (238,000)
Other expense ............................ (16,000) --
----------- -----------
Loss before provision for income taxes ....... (1,735,000) (195,000)
Provision for income taxes ................... -- --
----------- -----------
Net loss ..................................... $(1,735,000) $ (195,000)
=========== ===========
See Notes to Financial Statements
16
FRAGRANCE IMPRESSIONS LIMITED
STATEMENTS OF CASH FLOWS (UNAUDITED)
8 MONTHS ENDED 8 MONTHS ENDED
AUGUST 31, AUGUST 31,
1999 1998
----------- -----------
Cash flows from operating activities
Net loss .................................... $(1,735,000) (195,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation ............................ 191,000 182,000
Loss on disposal of equipment ........... 16,000 --
Provision for inventory allowances ...... -- 156,000
Changes in working capital components:
(Increase) decrease in:
Accounts receivable .................. 949,000 935,000
Accounts receivable other ............ (24,000) 16,000
Inventories .......................... (638,000) 613,000
Prepaid expenses ..................... 60,000 3,000
Security deposits .................... 7,000 --
Increase (decrease) in:
Accounts payable ..................... 817,000 (585,000)
Accrued Expenses - sub debt .......... 39,000 29,000
Accrued Expenses ..................... 1,343,000 230,000
----------- -----------
Net cash provided by operating activities 1,025,000 1,384,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......... (85,000) (290,000)
----------- -----------
Net cash used in investing activities ... (85,000) (290,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving credit agreements (724,000) (1,052,000)
Principal payments on short-term borrowings . (2,000) (145,000)
Principal payments on long-term borrowings .. (6,000) 92,000
Distribution to Stockholders ................ (85,000) (85,000)
----------- -----------
Net cash used in financing activities ... (817,000) (1,190,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH .................. 123,000 (96,000)
CASH:
Beginning ................................... 121,000 316,000
----------- -----------
Ending ...................................... $ 244,000 220,000
=========== ===========
See Notes to Financial Statements
17
FRAGRANCE IMPRESSIONS LIMITED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AUGUST 31, 1999
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Fragrance
Impressions Limited (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statement presentation.
NOTE 2. NATURE OF BUSINESS
The Company, a Connecticut Corporation is in the business of developing and
distributing "Alternative" fragrances principally to chain drugstores located
throughout the United States.
NOTE 3. CONCENTRATIONS OF CREDIT RISK
Sales to two large drugstore chains represented approximately 68% of sales
during the year ended August 31, 1999. Accounts receivable due from these
customers approximated $2,331,000 before reserves at August 31, 1999.
NOTE 4. INVENTORIES
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Work in process and finished goods include all direct material cost and
charges from outside suppliers for manufacturing.
Inventories consist of the following components at August 31, 1999:
Finished Goods $ 1,976,000
Work in process 16,000
Raw materials 1,726,000
Less reserve for obsolete inventory (100,000)
----------
$ 3,618,000
==========
18
NOTE 5. REVOLVING CREDIT AGREEMENT BORROWINGS $ 2,770,000
=========
During February 1999, the Company entered into a revolving line of credit with
People's Bank (the Company's existing lender). The line of credit is
collateralized by substantially all assets of the Company and is personally
guaranteed by the Chief Executive Officer and President of the Company. The
agreement is for a term which expires on March 31, 1999 with an automatic one
year renewal through March 31, 2000. Under the agreement, the Company can borrow
up to the lesser of the "maximum borrowing base" or $5,000,000, plus a
"permitted overadvance" amount which begins at $693,000 and is subsequently
reduced (in various stages) to $98,250 by January 1, 2000. The maximum borrowing
base consists of certain eligible trade receivable, net of reserves plus the
lesser of 40% of eligible inventory or $1,250,000. Interest on the line of
credit is payable monthly at the bank's prime lending rate plus 1%. Interest on
the permitted overadvance is payable monthly at the bank's prime lending rate
plus 2%. The Company has agreed, among other things, not to incur additional
debt aggregating more than $50,000 in any one year. The Company also has
restrictions on the disposal of assets, annual increases in shareholder
compensation and the payment of dividends.
NOTE 6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following at August 31, 1999:
Sales Returns and Allowances $1,267,000
Sales commissions 525,000
Co-Op Advertising 220,000
All Other 113,000
---------
$2,125,000
=========
NOTE 7. CURRENT PORTION OF LONG-TERM DEBT
Current portion of Long-term debt consists of the following as of August 31,
1999:
Note payable to bank, due in monthly installments of $938
including interest at 8.5% through May 10, 2000, secured
by substantially all assets of the Company. $ 9,000
19
Unsecured note payable to an individual, interest
at 10%, due in Monthly installments of $25,363
including interest through June 1, 1998, which
increased to $47,572 including interest through
December 1, 1998 with the outstanding priciple
balance plus interest payable in ten equal
monthly installments thereafter, subordinate
to revolving credit line agreement.
599,000
----------
$ 608,000
==========
20
TRISTAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
On November 15, 1999, Tristar Corporation (The "Company"), and its newly formed
wholly owned subsidiary, Tristar USA, Inc. ("Tristar USA"), entered into an
acquisition agreement dated effective November 1, 1999 to acquire Fragrance
Impressions Limited, a Connecticut Corporation ("FIL"). FIL, headquartered in
Bridgeport, Connecticut, markets and distributes designer alternative
fragrances, cosmetics and bath and body products.
Under the terms of the acquisition agreement, FIL was merged into Tristar USA
which purchased all of the issued and outstanding common stock of FIL for
$350,000 in cash, $3,050,000 in promissory notes ("Notes"), and options to
purchase up to 100,000 shares of the Company's common stock at $5.82 per share
which were valued at approximately $307,000 utilizing the Black Scholes Method.
Effective October 14, 1999, the Company completed a second private placement
whereby it sold an additional 21,667 shares of Series C Preferred Stock to a
private investor for $60 per share. A portion of the proceeds from this private
placement were used to finance the FIL acquisition. Accordingly, the proceeds of
this private placement were integral to the acquisition of FIL. Each share of
Series C Preferred Stock is convertible into 11.0345 common shares at a
conversion price of $5.44 per share. On October 14, 1999, the date of the
issuance of 21,667 shares of the Series C Preferred Stock, the closing bid price
of the Company's common stock as reported by NASDAQ was $6.00. The Series C
Preferred Stock conversion ratio was based on $5.44 conversion price resulting
in a beneficial conversion feature of $133,887. In addition, in connection with
the Series C Preferred Stock issuance the Company issued warrants to purchase an
aggregate of 60,000 shares of common stock at $4.75 per share. The common stock
warrants issued to the holders of the Series C Preferred Stock were valued at
approximately $185,000 utilizing the Black Scholes Method. Additionally, the
Company incurred costs of $53,000 in connection with the Series C Preferred
Stock issuance. The beneficial conversion, the value of common stock warrants
and the issuance costs have been accounted for as a beneficial conversion
feature to the preferred shareholders and thus have been charged directly to
accumulated deficit and have been reflected as a reduction in net income
applicable to common stock.
The consideration paid by Tristar USA was arrived at through negotiations
between the Company, Tristar USA, and FIL and was based on a variety of issues,
including without limitation, earnings and revenue, the value of goodwill and
the nature of alternative designer fragrance, cosmetic and bath and body
industry.
21
The acquisition of FIL has been treated as a purchase acquisition for accounting
purposes. Accordingly, net assets acquired have been adjusted to fair value as
appropriate. The excess of the purchase price over the related fair value of net
assets acquired of approximately $5.3 million has been recorded as goodwill to
be amortized over 20 years.
The unaudited pro forma consolidated statements are provided to demonstrate the
effect of the acquisition of Tristar USA on the consolidated balance sheet at
August 28, 1999 and the results of operations of Tristar Corporation ("Tristar")
as of August 28, 1999. The unaudited pro forma balance sheet assumes the
purchase acquisition transaction occurred at August 28, 1999, the latest balance
sheet date. The unaudited pro forma Statement of Operations assumes the
acquisition occurred at the beginning of the most recent period presented (ie.
September 1, 1998).
Accordingly, all adjustments necessary to record this transaction have been
reflected.
22
TRISTAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT AUGUST 28, 1999
TRISTAR TRISTAR, USA PROFORMA
ASSETS CORPORATION (FIL) ADJUSTMENTS TOTAL
------------ ------------ ------------ ------------
Current assets:
Cash $ 90,000 244,000 (d) -- $ 334,000
Accounts receivable, less allowance for doubtful accounts 13,519,000 3,089,000 -- 16,608,000
Accounts receivable - related parties - net 4,118,000 126,000 -- 4,244,000
Inventories 9,531,000 3,618,000 (a) (545,000) 12,604,000
Other current assets 72,000 27,000 -- 99,000
------------ ------------ ------------ ------------
Total current assets 27,330,000 7,104,000 (545,000) 33,889,000
------------ ------------ ------------ ------------
Property, plant and equipment, less accumulated depreciation 8,364,000 506,000 -- 8,870,000
------------ ------------ ------------ ------------
Other assets:
Goodwill -- - (b) 5,256,000 5,256,000
Other assets 435,000 - (c) 203,000 638,000
------------ ------------ ------------ ------------
Total other assets 435,000 -- 5,459,000 5,894,000
------------ ------------ ------------ ------------
Total assets $ 36,129,000 7,610,000 4,914,000 $ 48,653,000
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit agreement borrowings $ 8,926,000 2,770,000 (m) (697,000) $ 10,999,000
Accounts payable--trade 7,055,000 2,010,000 -- 9,065,000
Accounts payable--related party 3,516,000 85,000 (e) (400,000) 3,201,000
Accrued interest expense-subordinated debt 1,731,000 76,000 -- 1,807,000
Other accrued expenses 1,997,000 2,125,000 (f) 492,000 4,614,000
Current portion of capital lease obligations 132,000 -- -- 132,000
Current portion of long-term obligations 1,283,000 608,000 (g) 654,000 2,545,000
------------ ------------ ------------ ------------
Total current liabilities 24,640,000 7,674,000 49,000 32,363,000
Long-term debt, less current portion 2,738,000 -- (h)3,153,000 5,891,000
Obligations under capital leases, less current portion 20,000 -- -- 20,000
Subordinated long term debt - related parties -- -- -- --
------------ ------------ ------------ ------------
Total liabilities 27,398,000 7,674,000 3,202,000 38,274,000
------------ ------------ ------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $.05 par value; authorized 1,000,000 shares;
Series A, 537,142 shares issued and outstanding 3,760,000 -- -- 3,760,000
Series B, 120,690 shares issued and outstanding 4,511,000 -- -- 4,511,000
Series C, 100,000 shares issued and outstanding 4,699,000 -- (i)1,434,000 6,133,000
Common stock 168,000 17,000 (j) (17,000) 168,000
Additional paid-in-capital 12,841,000 643,000 (k) (57,000) 13,427,000
Related party receivables (2,365,000) -- -- (2,365,000)
Accumulated deficit (14,883,000) (724,000) (l) 352,000 (15,255,000)
------------ ------------ ------------ ------------
Total shareholders' equity 8,731,000 (64,000) 1,712,000 10,379,000
------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 36,129,000 7,610,000 4,914,000 $ 48,653,000
============ ============ ============ ============
See Notes to Financial Statements
23
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AUGUST 28, 1999
a) Represents additional estimated provision for potentially obsolete and $ (545,000)
slow moving inventory in conformity with Tristar Corporation's policy
of liquidating slow moving inventory faster than Tristar USA ("FIL").
b) Represents the excess of the purchase price over the related fair $ 5,256,000
value of net assets acquired relative to the Tristar USA, (FIL)
acquisition.
c) Represents the following items:
- Warrants issued to consultant in connection with Tristar USA, $ 94,000
(FIL) acquisition which were valued using the Black Scholes Method.
- Deferred bank and legal costs associated with Tristar USA, 109,000
(FIL) acquisition. -------------
$ 203,000
=============
d) Represents the following items:
- Proceeds received from the sale of 21,667 shares of Series C $ 1,300,000
Preferred Stock at $60.00 per share and related issuance of
warrants to purchase 60,000 shares of Tristar common stock. Each share
of Series C Preferred Stock is convertible into ll.0345 common shares
at a conversion price of $5.44 per share. On October 14, 1999, the
date of issuance of the 21,667 shares of Series C Preferred stock, the
closing price of the Company's common stock as reported by NASDAQ was
$6.00. The Series C Preferred Stock conversion ratio was based on a
$5.44 conversion price resulting in a beneficial conversion feature of
$133,887. Also, in connection with this private placement, the Company
issued warrants to purchase an aggregate of 60,000 shares of common
stock at $4.75 per share. These warrants were valued using the Black
Scholes Method at $185,000. Additionally, the Company incurred costs
of $53,000 in connection with the Series C Preferred Stock issuance.
The beneficial conversion, the value of the common stock warrants and
the related issuance costs have been accounted for as a beneficial
conversion to preferred shareholders and thus have been charged to
accumulated deficit and have been reflected as a reduction in net
income applicable to common stock.
24
- Cash disbursed at closing of Tristar USA, (FIL) acquisition to selling (597,000)
shareholders, key employees for change in control and consultant.
- Miscellaneous Expenses incurred for bank charges and interest
relative to Tristar USA, (FIL) acquisition. (6,000)
- Paydown of revolving credit agreement borrowings (697,000)
-------------
$ 0
=============
e) Represents reclassification of consultant short-term commission $ (400,000)
liability refinanced in connection with the acquisition to
long-term notes payable relative to Tristar USA, (FIL) acquisition.
f) Represents the following items:
- Costs incurred in connection with the FIL acquisition, primarily 487,000
legal and accounting.
- Other miscellaneous costs associated with Tristar, USA (FIL)
acquisition and costs associated with Preferred Series C issuance. 5,000
-------------
$ 492,000
=============
g) Represents current portion of long-term debt relative to Tristar $ 654,000
USA, (FIL) acquisition to selling shareholders, key employees
for change in control, consultant, creditor and other parties:
- Selling shareholders $ 729,000
- Key employees for change in control 137,000
- Consultant 116,000
- Creditor reclass to long term note (449,000)
- Other parties - net 121,000
--------------
$ 654,000
==============
25
h) Represents long-term debt relative to Tristar USA, (FIL) $ 3,153,000
acquisition to selling shareholders, key employees for change in
control, consultant, creditor and other parties:
- Selling shareholders $ 2,186,000
- Key employees for change in control 274,000
- Consultant 233,000
- Creditor reclass from current 449,000
- Other - net 11,000
---------------
$ 3,153,000
===============
i) Represents the following items:
- Issuance of Series C Preferred Stock and related warrants (See $ 1,300,000
aforementioned footnote d. for further discussion).
- Beneficial conversion feature associated with issuance of Series C 134,000
Preferred Stock and related warrants (See aforementioned footnote d. --------------
for further discussion). $ 1,434,000
==============
j) Represents elimination of historical common stock of Tristar USA, $ (17,000)
(FIL) at August 28, 1999.
k) Represents the following:
- Elimination of historical additional paid in capital of Tristar USA, $ (643,000)
(FIL) at August 28, 1999.
- Record options to selling shareholders to purchase up to 100,000 307,000
shares of the Company's common stock at $5.82 per share (valued
utilizing the Black Scholes method).
- Record warrants issued to consultant to purchase up to 20,000 94,000
shares of the Company's common stock @ $5.82 per share (valued
utilizing the Black Scholes method) in connection with Tristar USA,
(FIL) acquisition.
- Record common stock warrants issued in connection with the 185,000
issuance of Series C Preferred Stock (valued utilizing the Black
method). See aforementioned footnote d. for further discussion. --------------
$ (57,000)
==============
26
l) Represents the following items:
- Elimination of historical accumulated deficit of Tristar USA, (FIL) $ 724,000
at August 28, 1999.
- Common stock warrants issued in connection with the Series C (185,000)
Preferred Stock issuance valued under Black Scholes (See
aforementioned footnote d. for further discussion).
- Beneficial conversion feature relative to Series C Preferred Stock (134,000)
issuance (See aforementioned footnote d. for further discussion).
- Issuance cost relative to Series C Preferred Stock issuance (See
aforementioned footnote d. for further discussion). (53,000)
--------------
$ 352,000
==============
m) Paydown of revolving credit agreement borrowings with a portion $ (697,000)
of proceeds from the sale of Series C Preferred Stock and related
issuance of warrants.
27
TRISTAR CORPORATION AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 28, 1999
TRISTAR TRISTAR, USA PROFORMA
CORPORATION (FIL) ADJUSTMENTS TOTAL
------------ ------------ ------------ ------------
Net sales $ 55,994,000 9,053,000 -- $ 65,047,000
Cost of sales 39,163,000 5,501,000 -- 44,664,000
------------ ------------ ------------ ------------
Gross profit 16,831,000 3,552,000 -- 20,383,000
Selling, general and administrative expenses 14,959,000 4,916,000 (a) 282,000 20,157,000
------------ ------------ ------------ ------------
Income from operations 1,872,000 (1,364,000) (282,000) 226,000
Other income (expense):
Interest expense (1,246,000) (290,000) (b) (277,000) (1,813,000)
Other expense (197,000) (16,000) (c) (34,000) (247,000)
------------ ------------ ------------ ------------
Income (loss) before provision for income taxes 429,000 (1,670,000) (593,000) (1,834,000)
Provision for income taxes 7,000 11,000 -- 18,000
------------ ------------ ------------ ------------
Net income (loss) 422,000 (1,681,000) (593,000) (1,852,000)
------------ ------------ ------------ ------------
Less:
Preferred stock dividends (797,000) -- (d) (104,000) (901,000)
Beneficial conversion feature (681,000) -- (e) (372,000) (1,053,000)
------------ ------------ ------------ ------------
Net income (loss) applicable to common stock (1,056,000) (1,681,000) (1,069,000) (3,806,000)
============ ============ ============ ============
Earnings per common share:
Basic $ (0.06) $ (0.23)
============ ============ ============ ============
Diluted $ (0.06) $ (0.23)
============ ============ ============ ============
See Notes to Financial Statements
28
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
AS OF AUGUST 28, 1999
a) - Represents amortization expense relative to the excess of the purchase $ 263,000
price over the related fair value of net assets acquired (ie.
Goodwill) associated with the Tristar USA, (FIL) acquisition. The
recorded goodwill amount of approximately $5.3 million is to be
amortized over 20 years.
- Represents amortization of warrants issued to a consultant valued at 19,000
$94,200 under Black Scholes Method in connection with the acquisition --------------
of Tristar USA, (FIL)
$ 282,000
==============
b) Represents the following items:
- Interest expense on short-term and long-term notes payable established $ (241,000)
in connection with the Tristar USA, (FIL) acquisition relative to
selling shareholders, key employees for change in control, consultant,
creditor and other parties.
- Amortization of deferred GMACC bank and legal costs incurred as a (36,000)
result of the Tristar USA, (FIL) acquisition. --------------
$ (277,000)
==============
c) Amortization of discounts on short-term and long-term notes payable. $ (34,000)
d) Represents Preferred Stock dividends relative to the October 14, 1999 $ (104,000)
second private placement in which Tristar (The "Company") issued 21,667
shares of Series C Preferred Stock to a private investor for $60.00 per
share. The holders of the Series C Preferred Stock are entitled to
receive a cumulative cash dividend of $4.80 per share annually.
e) Represents the following items:
- Beneficial conversion feature associated with the issuance of Series $ (134,000)
C Preferred Stock and related warrants.
29
- In connection with the second private placement of Series C Preferred (185,000)
Stock, the Company issued warrants to purchase up to 60,000 shares of
common stock at $4.75 (valued utilizing the Black Scholes method).
- Series C Preferred Stock issuance costs incurred. (53,000)
--------------
$ (372,000)
==============
30
CONSENT OF INDEPENDENT AUDITOR'S
We hereby consent to the use in Amendment No. 1 to Form 8K of Tristar
Corporation of our report, dated February 12, 1999, relating to the financial
statements of Fragrance Impressions Limited.
McGladrey & Pullen, LLP
/s/ MCGLADREY & PULLEN, LLP
New Haven, Connecticut
April 18, 2000