SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number 0-4465
Sirco International Corp.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
New York 13-2511270
- -------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification No.)
24 Richmond Hill Avenue, Stamford Connecticut 06901
----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 203-359-4100
------------
-------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 1,209,700 shares of
Common Stock, par value $.10 per share, as of July 15, 1995.
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
May 31, 1995 Nov. 30, 1994
------------ -------------
(Unaudited) (See Note)
Assets
Current assets:
Cash and cash equivalents $ 628,229 $ 955,869
Accounts receivable 1,319,695 1,826,400
Inventories 3,873,964 5,213,120
Prepaid expenses 390,484 326,909
Other current assets 326,992 344,020
Total current assets 6,539,364 8,666,318
Property and equipment at cost 1,834,555 1,861,556
Less accumulated depreciation 1,127,842 1,088,524
---------- -----------
Net property and equipment 706,713 773,032
---------- -----------
Other assets 372,080 211,592
Investment in and advances to subsidiary 562,840 600,793
---------- -----------
Total assets $8,180,997 $10,251,735
========== ===========
Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
(Continued)
May 31, 1995 Nov. 30, 1994
------------ -------------
(Unaudited) (See Note)
Liabilities and stockholders' equity
Current liabilities:
Loans payable to financial institutions $1,514,189 $ 2,067,764
Short-term loan payable to related party 1,537,608 1,743,235
Current maturities of long-term debt 486,441 448,401
Accounts payable 1,874,808 1,981,945
Accrued expenses 1,005,738 1,062,692
---------- -----------
Total current liabilities 6,418,784 7,304,037
Noncurrent liabilities
Long-term debt, less current maturities 6,080 49,651
Other noncurrent accrued expenses 300,000 0
---------- -----------
Total noncurrent liabilities 306,080 49,651
Stockholders' equity:
Common stock, $.10 par value; 3,000,000 shares
authorized, 1,215,200 issued 121,520 121,520
Capital in excess of par value 4,027,534 4,027,534
Retained earnings (deficit) (2,086,499) (645,104)
Treasury stock at cost (27,500) (27,500)
Accumulated foreign currency translation adjustment (578,922) (578,403)
---------- -----------
Total stockholders' equity 1,456,133 2,898,047
---------- -----------
Total liabilities and stockholders' equity $8,180,997 $10,251,735
========== ===========
See notes to the condensed consolidated financial statements
Note: The balance sheet at November 30, 1994 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles.
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
For the six Months Ended For the Three Months Ended
May 31, 1995 May 31, 1994 May 31, 1995 May 31, 1994
------------ ------------ ------------ ------------
Net sales $ 10,106,586 $ 10,899,429 $ 5,281,094 $ 6,183,372
Cost of goods sold 7,659,887 8,533,046 3,837,546 5,008,417
------------ ------------ ------------ ------------
Gross profit 2,446,699 2,366,383 1,443,548 1,174,955
Selling, warehouse, general and
administrative expenses 3,094,663 3,438,553 1,477,247 1,921,212
Loss on sale of handbag division 423,716 0 423,716 0
------------ ------------ ------------ ------------
3,518,379 3,438,553 1,900,963 1,921,212
------------ ------------ ------------ ------------
(1,071,680) (1,072,170) (457,415) (746,257)
Other (income) expense
Interest expense 442,800 332,539 222,294 188,874
Interest income (45,009) (81,299) (23,324) (36,258)
Miscellaneous income, net (28,075) (721,645) (4,121) (692,535)
------------ ------------ ------------ ------------
369,716 (470,405) 194,849 (539,919)
------------ ------------ ------------ ------------
Net loss (1,441,396) (601,765) (652,264) (206,338)
Net loss per share of common
stock-primary and fully diluted ($ 1.19) ($ 0.50) ($ 0.54) ($ 0.17)
============ ============ ============ ============
Weighted average number of shares of
common stock outstanding-primary
and fully diluted 1,209,700 1,215,200 1,209,700 1,215,200
============ ============ ============ ============
See notes to the condensed consolidated financial statements
Sirco International corp. and Subsidiaries
Condensed Consolidated statements of Cash Flows
(Unaudited)
For the Six Months Ended
May 31, l99S May 31, 1994
------------ ------------
Cash flows from operating activities
Net loss ($1,441,396) ($ 601,765)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 74,554 68,008
Provision for losses in accounts receivable 26,054 24,266
Gain on sale of property, plant and equipment (35,234) 0
Restrictive covenant 7,777 0
Changes in operating assets and liabilities
Accounts receivable 515,097 596,852
Inventories 1,338,465 (379,527)
Prepaid expenses (63,575) (17,871)
Other current assets 7,511 183,824
other assets (131,122) (58,096)
Accounts payable (110,203) 1,118,410
Accrued expenses (57,880) (674,219)
----------- -----------
Net cash provided by operating activities 130,048 259,882
----------- -----------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 35,234 0
Purchases of property, plant and equipment (8,996) (62,312)
----------- -----------
Net cash provided by (used in) investing activities 26,238 (62,312)
----------- -----------
Cash flows from financing activities
Decrease in loans payable to financial
institutions and short-term loan payable to
related party (732,211) (64,273)
Other noncurrent accrued expenses 300,000 0
Repayment of long-term debt (44,185) (30,008)
----------- -----------
Net cash used by financing activities (476,396) (94,281)
----------- -----------
Effect of exchange rate changes on cash (7,530) (7,456)
----------- -----------
(Decrease) increase in cash and cash equivalents (327,640) 95,833
Cash and cash equivalents at beginning of period 955,869 702,916
----------- -----------
Cash and cash equivalents at end of period $ 628,229 $ 798,749
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 308,705 $ 282,985
Inoome taxes $ 0 $ 0
See notes to the condensed consolidated financial statements
SIRCO INTERNATIONAL CORP.
Notes To Condensed Consolidated Financial Statements (Unaudited)
Note 1-Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended May 31, 1995 are
not necessarily indicative of the results that may be expected for the year
ended November 30, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended November 30, 1994.
Note 2-Financing Arrangements
The Company has a bank credit agreement, which by its terms terminates on July
31, 1995, providing for a revolving line of credit of up to $2,000,000. The
agreement provides for the issuance of letters of credit in favor of the
Company's foreign suppliers for the purchase of inventory, with interest payable
monthly at prime plus 1%. This facility is secured by a certificate of deposit
in the amount of approximately $540,000, and the personal guaranty of the
Company's former Chairman. Borrowing under the facility amounted to
approximately $1,210,000 at May 31, 1995.
On March 29, 1995, the Company received a short-term advance of $650,000 from a
factor collateralized by the Company's inventory. At May 31, 1995, $200,000 was
still outstanding. In June 1995, the Company borrowed an additional $400,000
from the factor bringing the total indebtedness to $600,000. The Company expects
to repay this advance by September 1995. Interest on these advances is payable
at 2.5% per annum above the prime rate.
The Company's Canadian subsidiary has a line of credit agreement with a bank in
the amount of approximately $395,000. Under this agreement, the bank provides a
revolving loan to the Canadian subsidiary for purposes of purchasing inventory,
with interest payable monthly at the Canadian prime rate. At May 31, 1995,
approximately $104,000 was outstanding under this facility. Substantially all
the assets of the Canadian subsidiary have been pledged as security for this
line of credit and a term loan. In addition, at May 31, 1995, the Canadian
subsidiary had outstanding letters of credit totalling approximately $89,000.
The Company has an agreement with a factor pursuant to which the Company sells
substantially all of its accounts receivable on a pre-approved non-recourse
basis. Under the terms of the agreement, the factor advances funds to the
Company based on invoice amounts. Interest on such advances is payable at 2.5%
per annum above the prime rate. The Company also pays a factoring commission of
1% of the invoice amount subject to a minimum of $96,000 per annum.
In 1992, the Company entered into an agreement with Yashiro Co., Inc.
("Yashiro") to provide short-term financing for import purchases. Interest was
payable at 7% per annum. Under the terms of this line of credit, Yashiro
established letters of credit, on behalf of the Company, with a bank. Amounts
borrowed under this line of credit were repayable either 50 or 90 days after the
delivery of goods. In addition to interest, Yashiro was paid a handling fee of
3% of the cost of the goods. On March 20, 1995, the Company entered into a new
Letter of Credit Agreement with Yashiro. Pursuant to this Letter of Credit
Agreement, Yashiro has agreed to issue, until March 20, 1997, unsecured trade
letters of credit in an aggregate amount of up to the lesser of $1,200,000 or
35% of the book value of all inventory owned by the Company. Amounts borrowed
under this line of credit are repayable 100 days after delivery of the goods. In
addition to interest, Yashiro is paid a handling fee of 3% of the cost of the
goods. The liability at May 31, 1995 and 1994 was $1,502,000 and $1,563,000,
respectively. During the six-month periods ending May 31, 1995 and 1994,
interest and handling fees paid to Yashiro amounted to $23,000 and $137,000,
respectively.
Item 2. Management's Analysis and Discussion of
Financial Condition and Results of Operations
Three and Six Months Ended May 31, 1995 vs May 31, 1994
Results of Operations
Net sales for the second quarter and first half of 1995 were less than the
comparable periods in 1994 by approximately $902,000 and $793,000, respectively.
The reduction in net sales is directly attributable to the sale of the Company's
Handbag Division in the second quarter of 1995. However, this reduction in
Handbag sales, amounting to approximately $1,850,000 in the second quarter and
approximately $2,134,000 in the first half, was partially offset by increases in
sales of approximately $948,000 and $1,341,000, for the Company's remaining
Luggage and Backpack Divisions and Canadian subsidiary. Gross profit for the
second quarter and first half of 1995 increased approximately $269,000 and
$90,000, respectively, over the comparable periods of the prior year and the
gross profit margins increased from 19.0% for the three months ended May 31,
1994 and 21.6% for the six months ended May 31, 1994 to 27.3% and 24.2% for the
three and six months ended May 31, 1995. The increase in gross profit is largely
attributable to the sale of the Handbag Division, whose gross margins have been
lower than the Company's remaining Luggage and Backpack Divisions due to the
Handbag Division's policy of deeply discounting prices and offering allowances
and markdowns on slow moving inventory.
Selling, warehouse and general and administrative expenses decreased during the
second quarter and first half of 1995 by approximately $444,000 and $344,000 as
compared to the same periods in 1994. This decrease in expenses is primarily
attributable to the sale of the Company's Handbag Division as well as
management's continued commitment to control all costs and expenses.
On March 20, 1995, Yashiro and one of its affiliates and an officer of the
Comapny and certain other investors entered into an agreement to purchase the
Company's common stock owned by Yashiro. Also, the Company sold its Handbag
Division, including inventory and related property and equipment, to an
affiliate of Yashiro. This sale resulted in a one-time loss to the Company of
approximately $423,000.
Interest expense increased during the second quarter and first half of 1995 by
approximately $33,000 and $101,000, respectively, from the comparable periods in
1994. This increase was primarily caused by increases in loans payable as well
as an increase in interest rates.
Miscellaneous income decreased approximately $688,000 and $694,000 during the
second quarter and first half of 1995 over the comparable periods in 1994. This
decrease is largely attributable to a one-time reversal, booked in 1994, of an
accrued expense related to a claim by a former tax-exempt bondholder in the
amount of $620,000.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $628,000, and working
capital of approximately $120,000 at May 31, 1995.
In accordance with the terms of the Letter of Credit Agreement, as described in
Note 2 in Notes to Condensed Consolidated Financial Statements, Yashiro has
agreed to issue, until March 20, 1997, unsecured trade letters of credit in an
aggregate amount of up to the lesser of $1,200,000 or 35% of the book value of
all the inventory owned by the Company. The former Chairman (who is an officer
of Yashiro) will continue to provide a personal guaranty of a $2,000,000 line of
credit through its expiration on July 31, 1995. At June 30, 1995, approximately
$848,000 was outstanding under the line of credit. The Company expects to pay
the line of credit in full out of its current working capital.
As described in Note 2 in Notes to Condensed Consolidated Financial Statements,
the Company has an agreement with a factor pursuant to which the Company sells
substantially all of its accounts receivable on a pre-approved non-recourse
basis. Under the terms of the agreement, the factor advances funds to the
Company based on invoice amounts. On March 29, 1995, the Company received a
short-term advance of $650,000 from a factor collateralized by the Company's
inventory. At May 31, 1995, $200,000 was still outstanding. In June 1995, the
Company borrowed an additional $400,000 from the factor bringing the total
indebtedness to $600,000. The Company expects to repay this advance by September
1995. Interest on advances is payable at 2.5% per annum above the prime rate.
The Company is negotiating with a commercial bank to provide a new line of
credit to replace the Company's line of credit expiring on July 31, 1995. In
addition, the Company is actively seeking alternative financing, primarily from
asset based lenders, in the event the Company is unable to obtain a new line of
credit from the bank. Although management believes the Company will be
successful in obtaining financing, there can be no assurance that such financing
will be available on commercially reasonable terms if at all. Failure to obtain
such financing on commercially reasonable terms could have a material adverse
effect on the long-term prospects of the Company. Based on the Company's current
operations, however, management believes that the Company's cash and cash
equivalents, factoring of accounts receivable and cash flows generated from
operations will be sufficient to meet the Company's liquidity and capital
requirements for the remainder of the fiscal year.
There were approximately $9,000 in capital expenditures during the first six
months of 1995. No significant expenditures for capital improvements are planned
or committed to for the reminder of the year.
SIRCO INTERNATIONAL CORP.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 -- Financial Data Schedule.
(b) Reports on Form 8-K
(i) On April 12, 1995, the Company filed a Form 8-K/A amending
its Current Report on Form 8-K filed with respect to events
occurring on April 3, 1995 (the "April 8-K") to include a
letter from the Company's former accountants, Ernst & Young,
expressing their agreement with the contents of the April
8-K.
(ii) On April 19, 1995, the Company filed a Form 8-K/A amending
its Current Report on Form 8-K filed with respect to events
occurring on March 20, 1995 (the "March 8-K") to include
Schedule 1.1(B) as part of the Asset Purchase Agreement,
dated as of March 20, 1995, between the Company and Bueno of
California, Inc. filed as Exhibit 2(b).
(iii) On May 25, 1995, the Company filed a Form 8-K/A amending the
March 8-K to include pro forma consolidated financial
statements giving effect to the sale of assets of the
Company's Handbag Division as if it had occurred on November
30, 1994.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Sirco International Corp.
July 13, 1995 By: /s/ Joel/Dupre
- ------------- -----------------------------
Date Joel Dupre
President and
Chief Executive Officer
July 13, 1995 By: /s/ Gandolfo J. Verra
- ------------- -----------------------------
Date Gandolfo J. Verra
Secretary and Controller
(Chief Accounting Officer)