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 August 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.
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-2511270
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification No.)
24 Richmond Hill Avenue, Stamford Connecticut 06901
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 203-359-4100
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(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 1,209,700 shares of
Common Stock, par value $.10 per share, as of October 10, 1995.
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
Aug. 31, 1995 Nov. 30, 1994
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(Unaudited) (See Note)
Assets
Current assets:
Cash and cash equivalents $ 81,477 $ 955,869
Accounts receivable 2,125,171 1,826,400
Inventories 3,182,971 5,213,120
Prepaid expenses 372,152 326,909
Other current assets 330,531 344,020
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Total current assets 6,092,302 8,666,318
Property and equipment at cost 1,780,771 1,861,556
Less accumulated depreciation 1,094,674 1,088,524
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Net property and equipment 686,097 773,032
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Other assets 324,463 211,592
Investment in and advances to subsidiary 561,603 600,793
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Total assets $7,664,465 $10,251,735
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Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
(Continued)
Aug. 31, 1995 Nov. 30, 1994
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(Unaudited) (See Note)
Liabilities and stockholders' equity
Current liabilities:
Loans payable to financial institutions $ 146,519 $ 2,067,764
Short-term loan payable to related party 672,237 1,743,235
Current maturities of long-term debt 501,833 448,401
Accounts payable 2,623,428 1,981,945
Accrued expenses 1,534,910 1,062,692
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Total current liabilities 5,478,927 7,304,037
Noncurrent liabilities
Long-term debt, less current maturities 0 49,651
Other noncurrent accrued expenses 300,000 0
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Total noncurrent liabilities 300,000 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) (1,676,377) (645,104)
Treasury stock at cost (27,500) (27,500)
Accumulated foreign currency translation adjustment (559,639) (578,403)
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Total stockholders' equity 1,885,538 2,898,047
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Total liabilities and stockholders' equity $7,664,465 $10,251,735
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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 Nine Months Ended For the Three Months Ended
Aug. 31, 1995 Aug. 31, 1994 Aug. 31, 1995 Aug. 31, 1994
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Net sales $ 18,026,093 $ 20,020,705 $ 7,919,507 $ 9,121,276
Cost of goods sold 13,477,671 15,234,520 5,817,784 6,701,474
------------ ------------ ------------ ------------
Gross profit 4,548,422 4,786,185 2,101,723 2,419,802
Selling, warehouse, general and
administrative expenses 4,692,426 5,503,002 1,597,763 2,064,449
Loss on sale of handbag division 425,163 0 1,447 0
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5,117,589 5,503,002 1,599,210 2,064,449
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(569,167) (716,817) 502,513 355,353
Other (income) expense
Interest expense 678,486 553,028 235,686 220,489
Interest income (91,335) (103,657) (46,326) (22,358)
Miscellaneous income, net (125,043) (791,559) (96,968) (69,914)
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462,108 (342,188) 92,392 128,217
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Net (loss) income (1,031,275) (374,629) 410,121 227,136
Net (loss) income per share of common
stock-primary and fully diluted ($ 0.85) ($ 0.31) $ 0.34 $ 0.19
============ ============ ============ ============
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 Nine Months Ended
Aug. 31, l995 Aug. 31, 1994
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Cash flows from operating activities
Net loss ($1,031,275) ($ 374,629)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 112,805 78,447
Provision for losses in accounts receivable 76,470 29,147
Gain on sale of property, plant and equipment (36,681) 0
Restrictive covenant 35,554 0
Changes in operating assets and liabilities
Accounts receivable (276,100) 16,317
Inventories 1,957,824 268,131
Prepaid expenses (33,341) (4,426)
Other current assets 3,972 64,556
other assets (73,689) (12,950)
Accounts payable 633,675 271,613
Accrued expenses 467,476 (453,347)
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Net cash provided by (used in) operating activities 1,836,690 (117,141)
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Cash flows from investing activities
Proceeds from sale of property, plant and equipment 35,234 0
Purchases of property, plant and equipment 24,236 (63,492)
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Net cash provided by (used in) investing activities 10,998 (63,492)
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Cash flows from financing activities
(Decrease) increase in loans payable to financial
institutions and short-term loan payable to
related party (2,958,532) 313,279
Other noncurrent accrued expenses 300,000 0
Repayment of long-term debt (50,197) (40,801)
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Net cash (used in) provided by financing activities (2,708,729) 272,478
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Effect of exchange rate changes on cash (13,351) 25,861
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(Decrease) increase in cash and cash equivalents (874,392) 117,706
Cash and cash equivalents at beginning of period 955,869 702,916
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Cash and cash equivalents at end of period $ 81,477 $ 820,622
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 501,382 $ 547,440
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 nine-month period ended August 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 had a bank credit agreement, which by its terms terminated on July
31, 1995. The agreement provided for a revolving line of credit of up to
$2,000,000 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 was secured by a certificate of deposit in the
amount of approximately $540,000, and the personal guaranty of the Company's
former Chairman. Borrowings under the facility were fully repaid on July 28,
1995.
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 each invoice amount, subject to a minimum of $96,000 per annum. From time
to time, the Company also receives short-term advances from the factor
collateralized by the Company's inventory. At August 31, 1995, approximately
$80,000 in short-term advances was outstanding. The Company repaid this advance
in September 1995. Interest on the advance was payable at 2.5% per annum above
the prime rate.
In 1992, the Company entered into an agreement with Yashiro Co., Inc.
("Yashiro"), a former affiliate of the Company, 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 amount owed to Yashiro under this line
of credit at August 31, 1995 was approximately $637,000. During the nine-month
periods ending August 31, 1995 and 1994, interest and handling fees paid to
Yashiro amounted to approximately $153,000 and $186,000, respectively.
On August 1, 1995, the Company's Canadian subsidiary entered into a financing
agreement with a bank that provided for a revolving loan in the amount of
$525,000, with interest payable monthly at 1.25% above the Canadian prime rate.
The proceeds of this loan are utilized by the Canadian subsidiary for purchasing
inventory and financing day-to-day operations. At August 31, 1995, approximately
$67,000 was outstanding under the revolving facility. The bank extended two term
loans to the Canadian subsidiary, pursuant to the financing agreement, in the
amounts of approximately $368,000 and $105,000, with interest payable monthly at
1.50% and 2.00%, respectively, above the Canadian prime rate. Substantially all
the assets of the Canadian subsidiary have been pledged as security for the
revolving line of credit and the term loans. At August 31, 1995, the Canadian
subsidiary had outstanding letters of credit totalling approximately $202,000.
Item 2. Management's Analysis and Discussion of
Financial Condition and Results of Operations
Three and Nine Months Ended August 31, 1995 vs August 31, 1994
Results of Operations
Net sales for the third quarter and first nine months of fiscal 1995 were less
than the comparable periods in fiscal 1994 by approximately $1,202,000 and
$1,995,000, respectively. The reduction in net sales is directly attributable to
the sale of the Company's Handbag Division on March 20, 1995. Handbag sales
amounted to approximately $2,337,000 in the third quarter of fiscal 1994,
approximately $5,898,000 in the first nine months of fiscal 1994, and
approximately $1,446,000 from December 1, 1994 to March 20, 1995. This loss in
handbag sales was partially offset by increases in sales for the Company's
remaining Luggage and Backpack Divisions and Canadian subsidiary of
approximately $1,135,000 and $2,457,000 for the third quarter and first nine
months of fiscal 1995, respectively. Gross profit for the third quarter and
first nine months of fiscal 1995 decreased approximately $318,000 and $238,000,
respectively, over the comparable periods of the prior fiscal year. While the
gross profit margins remained at 26.5% for the three-month periods ended August
31, 1995 and August 31, 1994, the gross profit margins increased for the nine
months ended August 31, 1995 to 25.2% from 23.9% in the prior fiscal period.
Selling, warehouse and general and administrative expenses decreased during the
third quarter and first nine months of fiscal 1995 by approximately $467,000 and
$811,000 as compared to the corresponding periods in fiscal 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, an officer of the Company and certain other investors entered
into an agreement to purchase the Company's common stock owned by Yashiro and
one of its affiliates. On such date, the Company also 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
$425,000.
Interest expense increased during the third quarter and first nine months of
fiscal 1995 by approximately $15,000 and $125,000, respectively, from the
comparable periods in fiscal 1994. This increase was primarily caused by
increases in loans payable.
Miscellaneous income increased approximately $27,000 during the third quarter of
fiscal 1995 over the comparable period in fiscal 1994. However, for the first
nine months of fiscal 1995 miscellaneous income decreased by approximately
$667,000 over the comparable period in the prior fiscal year. This decrease is
largely attributable to a one-time reversal, booked in fiscal 1994, of an
accrued expense of $620,000 related to a potential claim by a former tax-exempt
bondholder.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $81,000, and working
capital of approximately $613,000 at August 31, 1995.
As described in Note 2 in Notes to Condensed Consolidated Financial Statements,
the Company had a bank credit agreement, which by its terms terminated on July
31, 1995, that provided a revolving line of credit of up to $2,000,000. The
agreement provided for the issuance of letters of credit in favor of the
Company's foreign suppliers for the purchase of inventory, with interest payable
monthly at prime plus 1%. This facility was secured by a certificate of deposit
in the amount of approximately $540,000, and the personal guaranty of the
Company's former Chairman. Borrowings under the facility were fully repaid on
July 28, 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 Company is current on all payments
under this line of credit.
Also 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. From time to time, the Company also
receives short-term advances from the factor collateralized by the Company's
inventory. At August 31, 1995, approximately $80,000 in short-term advances was
outstanding. The Company repaid this advance in September 1995. Interest on the
advance was payable at 2.5% per annum above the prime rate.
The Company is seeking a relationship with a commercial bank or factor to
provide a new line of credit to replace the Company's line of credit that
terminated on July 31, 1995. 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 through the next twelve months.
There were approximately $24,000 in capital expenditures during the first nine
months of 1995. No significant expenditures for capital improvements are planned
or committed to for the next twelve months.
SIRCO INTERNATIONAL CORP.
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1995 Annual Meeting of Shareholders of the Company (the
"1995 Annual Meeting") was duly held on August 17, 1995.
(b) Inapplicable, as (i) proxies for the meeting were solicited
pursuant to Regulation 14 under the Act; (ii) there was no
solicitation in opposition to the management's nominees as
listed in the proxy statement relating to the 1995 Annual
Meeting (the "Proxy Statement"); and (iii) all of such
nominees were duly elected.
(c) Set forth below is a brief description of each other matter
voted upon at the 1995 Annual Meeting and the number of
affirmative votes and the number of negative votes cast:
(i) The approval and adoption of an amendment to the
Company's Certificate of Incorporation to increase the
number of authorized shares of the Company's Common
Stock from 3,000,000 to 10,000,000 shares and to
authorize the issuance of 1,000,000 shares of
Preferred Stock from time to time on terms to be
determined by the Board of Directors. The information
contained in the Proxy Statement at pages 6 through 7
under the heading "Proposal to Amend the Certificate
of Incorporation to Increase the Number of Authorized
Shares of Common Stock from 3,000,000 to 10,000,000
Shares and to Authorize 1,000,000 Shares of Preferred
Stock" is incorporated by reference herein.
Votes for ............... 772,808
Votes against ........... 81,365
Votes abstaining ........ 3,800
(ii) The approval and adoption of an amendment to the
Company's Certificate of Incorporation to limit the
personal liability of directors to the Company and its
shareholders. The information contained in the Proxy
Statement at page 8 under the heading "Proposal to
Amend the Certificate of Incorporation to Limit the
Personal Liability of Directors" is incorporated by
reference herein.
Votes for ............. 1,061,159
Votes against ......... 28,065
Votes abstaining ...... 5,650
(iii) The approval of the 1995 Stock Option Plan of the
Company. The information contained in the Proxy
Statement at pages 8 through 10 under the heading
"Proposal to Adopt the 1995 Stock Option Plan" is
incorporated by reference herein.
Votes for ............... 775,308
Votes against ........... 81,265
Votes abstaining ........ 1,600
(d) Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 -- Certificate of Amendment to the Certificate of Incorporation
of the Company filed with the Secretary of State of the State
of New York on October 6, 1995.
10.1 -- 1995 Stock Option Plan of the Company, incorporated by
reference to Exhibit B of the Company's definitive proxy
statement filed with the Securities and Exchange Commission in
connection with the Company's Annual Meeting of Shareholders
held on August 17, 1995.
10.2 -- Financing commitment dated June 22, 1995 by National Bank of
Canada in favor of Sirco International (Canada) Limited.
27 -- Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
August 31, 1995.
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.
October 13, 1995 By: /s/ Joel/Dupre
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Date Joel Dupre
President and
Chief Executive Officer
October 13, 1995 By: /s/ Gandolfo J. Verra
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Date Gandolfo J. Verra
Secretary and Controller
(Chief Accounting Officer)