1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 2, 1996
-----------------------
-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 0-13099
TRISTAR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3129318
------------------------------- ------------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78216
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(210) 402-2200
---------------
(Registrant's telephone number, including area code)
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.
On April 19, 1996, there were outstanding 16,635,064 shares of
Common Stock, $.01 par value, of the registrant.
Page 1
2
TRISTAR CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
--------
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--March 2, 1996 and August 31, 1995 3
Consolidated statements of operations--thirteen and twenty-six week and three and
six month periods ended March 2, 1996 and February 28, 1995, respectively 5
Consolidated statements of cash flows--twenty-six week and six month periods ended
March 2, 1996 and February 28, 1995, respectively 6
Notes to consolidated financial statements--March 2, 1996 7
Independent Accountants' review report 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Page 2
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 2, August 31,
ASSETS 1996 1995 *
----------------- -----------------
Current assets:
Cash $ 627,000 $ 806,000
Accounts receivable, less allowance for doubtful accounts
of $275,000 and $419,000, respectively 9,484,000 6,038,000
Accounts receivable-related parties-net 726,000 662,000
Inventories 16,241,000 14,406,000
Prepaid expenses 329,000 253,000
Deferred income taxes 1,101,000 1,101,000
----------------- -----------------
Total current assets 28,508,000 23,266,000
----------------- -----------------
Property, plant and equipment, less accumulated depreciation
of $4,697,000 and $3,637,000, respectively 9,564,000 9,851,000
----------------- -----------------
Other assets:
Warrant valuation, less accumulated amortization
of $1,394,000 and $1,353,000, respectively 695,000 736,000
Other assets 394,000 195,000
Deferred income taxes 2,780,000 2,780,000
----------------- -----------------
Total other assets 3,869,000 3,711,000
----------------- -----------------
Total assets $ 41,941,000 $ 36,828,000
================= =================
* Prepared from audited financial statements for the year ended August 31,
1995.
See notes to unaudited consolidated financial statements.
Page 3
4
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(unaudited)
March 2, August 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 *
--------------- ---------------
Current liabilities:
Short-term borrowings $ 10,271,000 $ 5,383,000
Accounts payable-trade 3,943,000 1,982,000
Accounts payable-related parties-net 1,095,000 536,000
Accrued bonuses 159,000 97,000
Accrued interest expense 676,000 603,000
Other accrued expenses 1,300,000 1,248,000
Taxes payable 391,000 508,000
Current portion of capital lease obligations 27,000 30,000
Current portion of long-term obligations 2,118,000 2,118,000
--------------- ---------------
Total current liabilities 19,980,000 12,505,000
Long-term debt, less current portion 2,937,000 3,044,000
Obligations under capital leases, less current portion 16,000 27,000
Subordinated long-term debt-related parties 11,166,000 11,166,000
--------------- ---------------
Total liabilities 34,099,000 26,742,000
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.05 par value; authorized
1,000,000 shares; no shares issued --- ---
Common stock, $.01 par value; authorized
30,000,000 shares; issued and outstanding
16,635,064 shares and 16,629,683
shares, respectively 166,000 166,000
Additional paid-in-capital 10,311,000 10,281,000
Accumulated deficit (2,635,000) (361,000)
--------------- ---------------
Total shareholders' equity 7,842,000 10,086,000
Total liabilities and shareholders' equity $ 41,941,000 $ 36,828,000
============== =============
* Prepared from audited financial statements for the year ended August 31,
1995.
See notes to unaudited consolidated financial statements.
Page 4
5
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Thirteen Three Twenty-Six Six
Weeks Months Weeks Months
Ended Ended Ended Ended
March 2, February 28, March 2, February 28,
1996 1995 1996 1995
-------------- ------------- -------------- --------------
Net sales $ 10,112,000 $ 8,410,000 $ 27,514,000 $ 23,485,000
Cost of sales 8,189,000 5,840,000 21,013,000 16,223,000
-------------- ------------- -------------- --------------
Gross profit 1,923,000 2,570,000 6,501,000 7,262,000
Selling, general and administrative expenses 3,865,000 2,805,000 7,265,000 5,729,000
-------------- ------------- -------------- --------------
(Loss) income from operations (1,942,000) (235,000) (764,000) 1,533,000
Other income (expense):
Interest expense (589,000) (389,000) (1,125,000) (797,000)
Other expense (67,000) (66,000) (385,000) (52,000)
Insurance reimbursement --- --- 1,250,000
-------------- ------------- -------------- --------------
(Loss) income before provision for income taxes (2,598,000) (690,000) (2,274,000) 1,934,000
Provision for income taxes (120,000) (225,000) 0 1,042,000
Net (loss) income $ (2,478,000) $ (465,000) $ (2,274,000) $ 892,000
-------------- ------------- -------------- --------------
Net (loss) income per common share $ ( .15) $ ( .03) $ ( .14) $ 0.05
-------------- ------------- -------------- --------------
Weighted average shares outstanding 16,635,064 16,624,203 16,633,626 16,847,920
============== ============= ============== ==============
See notes to unaudited consolidated financial statements.
Page 5
6
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Twenty-Six Six
Weeks Months
Ended Ended
March 2, February 28,
1996 1995
--------------- ---------------
Cash flows from (used in) operating activities
Net (loss) income $ (2,274,000) $ 892,000
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 1,065,000 861,000
Provision for losses on accounts receivable 285,000 (99,000)
Provision for inventory allowances 632,000 728,000
Provision for LIFO valuation --- ---
Deferred income tax expense 0 ---
Loss on disposal of assets --- (4,000)
Reserve for impairment of assets --- ---
Issuance of stock in connection with 401K plan 30,000 6,000
Amortization of warrant valuations 41,000 126,000
Change in operating assets and liabilities:
Accounts receivable (3,795,000) 1,359,000
Accounts receivable-insurance reimbursement --- 1,250,000
Inventories (2,467,000) (1,967,000)
Prepaid expense (76,000) 83,000
Refundable income taxes --- 1,722,000
Income taxes payable (117,000) (571,000)
Accounts payable 2,520,000 (3,689,000)
Accrued expenses 187,000 (223,000)
Other liabilities ---
--------------- ---------------
Shareholder litigation settlement liability --- (4,500,000)
--------------- ---------------
Net cash used in operating activities (3,969,000) (4,026,000)
--------------- ---------------
Cash flows (used in) from investing activities:
Capital expenditures (772,000) (187,000)
(Increase) decrease in other assets (205,000) 25,000
--------------- ---------------
Net cash used in investing activities (977,000) (162,000)
--------------- ---------------
Cash flows from (used in) financing activities:
Net increase (decrease) in short term borrowings 4,888,000 (163,000)
Proceeds from subordinated long-term debt --- 2,850,000
Payments on subordinated long-term debt --- (1,000,000)
Proceeds from long-term debt 200,000 1,927,000
Principal payments under debt obligations (307,000) (481,000)
Principal payments other long-term debt (14,000) (52,000)
Collection on receivable from stockholder --- 500,000
--------------- ---------------
Net cash provided by (used in) financing activities 4,767,000 3,581,000
--------------- ---------------
Net (decrease) increase in cash (179,000) (607,000)
Cash at beginning of period 806,000 1,700,000
Pooling adjustment to beginning of --------------- ---------------
year balance to conform fiscal years
Cash at end of period $ 627,000 $ 1,093,000
=============== ===============
See notes to unaudited consolidated financial statements.
Page 6
7
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 2, 1996
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited 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 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 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 thirteen week period and twenty-six week period ended
March 2, 1996, are not necessarily indicative of the results that may be
expected for the year ending August 31, 1996.
The Company changed its fiscal year end from one ending on August 31, to a
52-53 week fiscal year ending on the Saturday nearest the last day of the month
of August in each year. In addition, the Company changed its fiscal quarters
such that each quarter consists of 13 weeks and ends on a Saturday.
NOTE 2: NET INCOME PER SHARE
Net income per share amounts were computed based upon the weighted average
number of common shares outstanding and common equivalents of dilutive stock
options and warrants.
NOTE 3: INVENTORIES
Inventory is stated at the lower of cost or market.
--------------------------------------------------------------
3/2/96 8/31/95
--------------------------------------------------------------
Raw materials $ 7,785,000 $ 7,269,000
Work-in-process 586,000 426,000
Finished goods 9,739,000 8,608,000
--------- ---------
18,109,000 16,303,000
Inventory allowances (1,869,000) (1,897,000)
---------- ----------
$ 16,241,000 $ 14,406,000
========== ==========
--------------------------------------------------------------
NOTE 4: SHORT-TERM BORROWING
The Company's line of credit provides for maximum borrowings of $15,500,000 at
prime rate (8.25%) plus 2.75 percentage points per annum, with additional fees
approximating a percentage point per annum. Borrowing capability is based on
eligible domestic and foreign accounts receivable, and on eligible finished
goods and manufacturing inventories, within limits established under the
agreement.
Page 7
8
The line of credit expires July 1997. This facility is secured by
substantially all of the assets of the Company. The agreement contains
material adverse change provisions, as well as certain restrictions and
conditions among which are limitations on cash dividends, capital expenditures,
maximum levels of accounts receivable from related parties, and repayments of a
prior financing arrangement with a related party.
Remaining availability under the line as of March 2, 1996, was $418,000, based
on the borrowing formulas.
NOTE 5: LITIGATION AND CONTINGENCIES
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company,
as well as two of its directors by Ross Freitas, Carolyn Kenner, Rose Freitas
and Melissa Freitas. The complaint as amended alleges causes of action by two
plaintiffs for libel and seeks indemnification in connection with the work of
the Special Committee of the Board of Directors that investigated, among other
things, a prior failure to disclose the Core Sheth Families' holdings of
Company stock. The complaint as amended also alleges, on behalf of all four
plaintiffs, that the Company's disclosures relating to these and other matters
were fraudulent or negligently misrepresented. The Company intends to dispute
these allegations vigorously and believes that ultimate disposition of the case
will not have a material adverse effect on its financial condition.
CALIFORNIA AIR RESOURCES BOARD
Since January 1, 1995, the Company's personal fragrance products have not been
in compliance with regulations of the California Air Resources Board (the
"CARB") with respect to volatile organic compounds ("VOC's"). The Company has
reformulated a number of its products and is in the process of reformulating
the remainder of its primary fragrance lines to achieve compliance with the VOC
regulations. The Company has filed with the CARB required registrations of its
products and has received a temporary variance from VOC regulations until all
products not meeting the requirements can be reformulated. The variance allows
the Company to sell its non-complying products in California until September
30, 1996. The Company believes that its products will be reformulated and will
comply with the VOC regulations by September 30, 1996. Any interruption of the
Company's sales in California would have a material adverse effect on the
Company's financial condition.
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
these proceedings will not have a material adverse effect on the Company's
financial condition.
NOTE 6: RELATED PARTY TRANSACTIONS:
Certain suppliers of fragrance product components and the primary suppliers of
cosmetic products are related parties. Related party accounts payable result
from the purchase of products from those vendors. Related party accounts
receivable result from the sale of products to related parties. The payables
and receivables balances are offset for presentation purposes and the net
balance of accounts receivable or accounts payable is presented on the balance
sheet. Related party payables also include payables due members of the
Company's Board of Directors which result, in the normal course of business,
from expenses associated with Board and related committee meetings. At August
31, 1995, these payable also
Page 8
9
included expenses incurred which related to the Company's merger with a related
party, Eurostar. The following summarizes the presentations at March 2, 1996
and August 31, 1995.
MARCH 2, AUGUST 31,
---------------------------------
1996 1995
---------------------------------
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties $ 869,000 1,070,000
Offset amount (143,000) (408,000)
---------------------------------
Net related parties receivables $ 726,000 662,000
=================================
ACCOUNTS PAYABLE:
Total accounts payable-related parties $ 1,238,000 944,000
Offset amount (143,000) (408,000)
---------------------------------
Net related parties payables $ 1,095,000 536,000
=================================
The Company purchases finished goods and fragrance product components from Core
Sheth Families affiliates. During the twenty six week period ended March 2,
1996, and for the respective period in fiscal 1995, the Company purchased
approximately $2,384,000 and $2,618,000, respectively.
During the twenty six week period ended March 2, 1996, and for the respective
period in fiscal 1995, the Company sold products to Core Sheth Families
affiliates in the amounts of approximately $865,000 and $500,000, respectively.
NOTE 7: SUBSEQUENT EVENTS:
In March 1996 the Company sold the facility and land located in South Carolina
previously utilized for its pencil plant operations. The transaction will be
accounted for in the third quarter of fiscal 1996.
Page 9
10
PAGE NOT USED
10
11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED MARCH
2, 1996, AND THE THREE AND SIX MONTH PERIODS ENDED FEBRUARY 28, 1995.
On August 31, 1995, the Company merged with Eurostar Perfumes, Inc., and its
subsidiaries, accordingly, all fiscal 1995 amounts have been restated to
reflect the merger.
For the thirteen week period ended March 2, 1996, the Company recorded a net
loss of $2,478,000 or $0.15 per share, bringing the results for the twenty-six
weeks ended March 2, 1996 to a loss of $2,274,000, or $0.14 per share. For
the three months and six months ended February 28, 1995, the company recorded
net loss of $465,000 or $0.03 per share and net income of $892,000, or $0.05
per share, respectively.
NET SALES
Net sales for the thirteen weeks ended March 2, 1996 were $10,112,000, an
increase of 20.2%, compared to the net sales of $8,410,000 for the three months
ended February 28, 1995. For the twenty-six weeks ended March 2, 1996, sales
were $27,514,000, an increase of 17.2% over the six months ended February 28,
1995 ($23,485,000). The increase over the prior fiscal period can be primarily
attributed to growth in the U.S. chains, specialty chains, and mass
merchandisers. Sales outside the U.S. remained relatively constant in relation
to the same periods of fiscal 1995.
NET SALES - CHANNELS OF DISTRIBUTION
The Company markets and distributes products to wholesalers, distributors,
chain stores, mass merchandisers, and independent retail channels in various
markets throughout North and South America.
For the twenty-six weeks ended March 2, 1996, the Company continued to
experience growth in the U.S. market in chains, specialty chains, and mass
merchandiser channels while experiencing a decline in the wholesale channel.
The growth was attributable to new customers and products and to expanded
distribution within the existing customers base. The wholesale channel has
been negatively affected by increased competition, a maturation of that market,
and a decrease in purchases by customers who ultimately distributed the
Company's product into Mexico, Central and South America. This trend is
anticipated to continue. The Company continues to devote resources to all
channels of distribution in the U.S. with programs including, but not limited
to, promotions and limited advertising.
Sales made directly to foreign-based customers in North and South America as a
group remained relatively constant during the first two quarters of fiscal 1996
when compared to the prior year's first two quarters. Economic and political
conditions continue to restrict growth in those markets. However, the Company
continues to devote resources to these channels of distribution with similar
programs to those in the U.S.
NET SALES - RELATED PARTIES
In the second thirteen week quarter of fiscal 1996, sales to affiliates of the
Core Sheth Families, the Company's major stockholder, were $424,000 as compared
to $140,000 for the comparable period ended February 28, 1995. Year to date
sales to the Core Sheth Families for fiscal 1996 were $865,000, compared with
$500,000 for the six months ended February 28, 1995.
NET SALES - PRODUCTS PURCHASED FROM RELATED PARTIES
Of the net sales in the first twenty-six weeks of fiscal 1996, approximately
12%, or $3,222,000, resulted from the sale of products purchased from related
parties as finished goods. For the same period in fiscal 1995, comparable
numbers were 13%, or $3,085,000. In addition, fragrance and other products
manufactured and sold by the Company included some components that were
purchased from related
Page 11
12
parties. The cost of those components approximated 12% and 13% of cost of
sales in the same periods of fiscal 1996 and 1995, respectively.
GROSS PROFIT
The Company's gross profit for the thirteen week and twenty-six week periods
ended March 2, 1996 was $1,923,000, or 19.0% of sales and $6,501,000 or 23.6%
of sales, respectively. Gross profit for the three months and six months ended
February 28, 1995 was $2,570,000, or 30.6% of sales and $7,262,000, or 30.9% of
sales, respectively. The decrease in gross profit in the second quarter of
fiscal 1996 in comparison to the second quarter of fiscal 1995 was due to
manufacturing variances attributable to the extension of production efforts to
meet market demands and to costs associated with the introduction and
manufacturing of a new product line. Improved gross profit margins are
anticipated for the remainder of the fiscal year as production efficiencies are
expected to improve.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the thirteen and
twenty-six week periods ended March 2, 1996 increased 26.8% to $3,865,000 and
37.8% to $7,265,000, respectively, from $2,805,000 and 5,729,000, respectively,
for the like fiscal 1995 periods. SG&A expenses, unrelated to the introduction
of new products, as a percentage of sales remained approximately the same. The
increases over the prior fiscal periods were due primarily to growth in support
of all sales channels and to improved support and controls over other functions
within the Company.
NON OPERATING INCOME OR EXPENSE
Interest expense increased for the second thirteen week period of fiscal 1996
over the previous year's like quarter to $589,000 from $389,000, respectively,
as a result of increased borrowings under the Company's lines of credit.
Interest expense for the twenty-six weeks ended March 2, 1996, increased to
$1,125,000 compared to $797,000, for the same period of fiscal 1995.
Foreign currency translation losses of $104,000, merger costs of $76,000, and
financing costs associated with Brazilian operations were the primary
contributors to increased other expenses in year to date fiscal 1996.
The first quarter of fiscal 1995 included other income of $1,250,000 from
insurance proceeds under a company owned executive liability and indemnity
policy.
POTENTIAL ADVERSE AFFECTS ON RESULTS OF OPERATIONS FOR FUTURE PERIODS
The results for the remainder of fiscal 1996 could be adversely affected by
each or all of the following factors:
1. Mexican market. In December 1994, the Mexican government devalued the
Mexican Nuevo Peso by allowing the peso to float freely against the
U.S. dollar. This devaluation has resulted in a general increase of
100% or more in the cost of imported products to the Mexican consumer.
The increase and the resultant instability, including significant
business failures, higher interest rates, and high unemployment, have
caused a sharp decline in purchases of the Company's products by the
Mexican consumer. It is not known if and when the Peso will stabilize
at a level where somewhat normal purchasing will resume. Prior to the
above mentioned economic and political instability, sales directly and
indirectly into Mexico had accounted for a significant portion of
Tristar's total sales.
The Company believes that some of its customers based in the United
States sell the Company's products (as well as the products of other
companies) to purchasers who, in turn, may attempt to import goods
into Mexico without full payment of applicable Mexican taxes and
customs duties.
Page 12
13
Enhanced enforcement efforts by Mexican authorities may have an
adverse effect on the Company's sales to such customers.
The Company has been unable to determine the effect, if any, that the
implementation of the North America Free Trade Agreement ("NAFTA") has
had or ultimately will have on the Company's business.
2. Distribution channels. Although the Company is making extensive
efforts to market products into Latin America and in the chain and
mass merchandising channels, the Company continues to remain dependent
on its original market, the wholesale channel. The maturation of this
market combined with competitive pressures have resulted in a slowing
of the general growth of this market. These factors are expected by
management to continue to negatively affect results for the remainder
of fiscal 1996.
3. Supply of products. The Company's ability to manufacture and to
satisfy consumer demand for fragrances is dependent on the supply of
certain components from single sources. Any inability of these
vendors to meet the Company's requirements could have an adverse
effect on the Company's results until alternate sources could be found
and/or developed.
In addition, the Company is dependent on the supply of cosmetic
products, other than cosmetic pencils, from related parties. If such
affiliates were to cease or to be unable to supply these cosmetic
products, the lack of these products, would have an adverse effect on
the Company until a secondary supplier could be located.
4. New and developing markets. The Company continues to develop and
expand marketing operations in Latin and South America. In the
process, the Company has invested in inventories and related taxes and
continues to incur significant expenses in order to establish a
marketing presence and an economically viable amount of sales. There
is no assurance that the Company will be successful in those endeavors
nor that it will recover its initial expenses or start up costs. In
addition certain countries impose strict import restrictions and high
levels of taxes on imports that could affect the success of sales and
marketing activities and also affect the profitability of such
activities.
5. Working capital availability. The Company is experiencing a limitation on
working capital availability as a result of investments in foreign markets,
investments in a new product line, entering a new marketing channel,
and operating losses. The Company is currently meeting working capital
requirements by maximizing borrowings under the Company's credit
facility and by delaying payments to vendors (primarily related
parties) beyond customary terms. The inability of the Company to
continue to delay payments could have a material adverse effect on the
Company.
At this time, it is not known whether, or to what degree, the above
factors will have a material adverse impact on future results.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently is obtaining its working capital from three primary
sources: a revolving line of credit, cash generated by operations, and from the
delaying in payments to vendors beyond customary terms.
Page 13
14
Operating Activities
Operations in the twenty-six week period ended March 2, 1996, utilized
$3,969,000 in cash primarily due to increased trade accounts receivable
($3,795,000) and increased inventory levels ($2,467,000). Offsetting the usage
was an increase in accounts payable ($2,520,000).
Accounts receivable grew primarily as a result of a seasonal growth in sales,
varying extended seasonal financing terms given to customers, and extended
terms given to foreign customers in order to develop those markets. Inventory
levels grew primarily as a result of establishing a distribution center in a
foreign market and as a result of developing a new product line. Accounts
payable increased as the Company delayed payments to certain vendors (primarily
related parties) and as the Company increased its purchases for the newly
developed product line.
Investing Activities
Capital expenditures during the twenty-six week period were $772,000,
consisting primarily of investments in machinery and equipment, facilities
related items, and computer equipment. Capital expenditures for the remainder
of the fiscal year are expected to be primarily for manufacturing equipment,
and computer equipment and software with lesser amounts being invested in
equipment for distribution activities
Financing Activities
During the twenty-six week period ending March 2, 1996, short term borrowings
increased $4,888,000 to $10,271,000 under its revolving line of credit.
Remaining availability under the line as of March 2, 1996, was $418,000 based
on the borrowing formulas.
The Company is currently experiencing a limitation on working capital
availability primarily as a result of (1) investments in foreign markets with
significant repayments of those investments not projected in the immediate
future, (2) investments in the development and introduction of the new product
line noted above, (3) the cost of entry into the marketing channel where this
new product line is currently being sold, and (4) losses incurred on operations
unrelated to the new product line. The restricted availability has resulted in
maximization of borrowings under the Company's credit facility and in the
delaying of payments to certain vendors (primarily related parties) beyond
customary terms. The Company has established programs to improve liquidity
through increased emphasis on selling slow moving inventory, through improved
management of other inventories, and tightened controls on the utilization of
cash in other areas. While the Company anticipates that these measures
combined with utilizing its credit facility, cash generated by operations, and
the continued ability to extend the payment terms of certain vendors will
relieve the limitation on availability prior to the end of the fiscal year,
there can be no assurance that the Company will be successful.
Page 14
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CALIFORNIA AIR RESOURCES BOARD
Since January 1, 1995, the Company's personal fragrance products have not been
in compliance with regulations of the California Air Resources Board (the
"CARB") with respect to volatile organic compounds ("VOC's"). The Company has
reformulated a number of its products and is in the process of reformulating
the remainder of its primary fragrance lines to achieve compliance with the VOC
regulations. The Company has filed with the CARB required registrations of its
products and has received a temporary variance from VOC regulations until all
products not meeting the requirements can be reformulated. The variance allows
the Company to sell its non-complying products in California until September
30, 1996. The Company believes that its products will be reformulated and will
comply with the VOC regulations by September 30, 1996. Any interruption of the
Company's sales in California would have a material adverse effect on the
Company's financial condition.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
27. Financial Data Schedule.
Page 15
16
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 thereunto duly authorized.
TRISTAR CORPORATION
(Registrant)
Date: April 22, 1996 /s/ Viren S. Sheth
---------------------- -------------------------------------------
Viren S. Sheth
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 22, 1996 /s/ Loren M. Eltiste
---------------------- -------------------------------------------
Loren M. Eltiste
Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 16
17
EXHIBITS INDEX
27. Financial Data Schedule.