1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1995
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 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)
Registrant's telephone number, including area code 210-402-2200
------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
----
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
--------------------------------------
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sale price of the Common Stock on November 10,
1995, as reported on the NASDAQ National Market System, was $17,461,000. As of
November 10, 1995, the Registrant had outstanding 16,632,601 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held January 11, 1996 are incorporated by reference into Part III of this
Report.
2
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
TRISTAR CORPORATION ("Tristar" or the "Company") is a Delaware corporation
headquartered in San Antonio, Texas. The Company is principally engaged in
developing, manufacturing, marketing and distributing designer alternative
fragrances, original fragrances, and cosmetic pencils. The Company also
markets and distributes cosmetics and selected toiletry products. The Company
currently operates through its distribution facility in San Antonio, Texas, and
its manufacturing facility in Pleasanton, Texas.
The Company was incorporated in New York in 1982 and made an initial public
offering of its common stock in 1984. In 1987, the Company was reincorporated
in Delaware. The Company changed its name from Ross Cosmetics Distribution
Centers, Inc., to Tristar Corporation in 1993.
On August 31, 1995, Eurostar Perfumes, Inc., ("Eurostar"), an affiliate of the
Core Sheth Families and the manufacturer of substantially all of the Company's
products, was merged into the Company, and under the terms of the agreement,
the sole stockholder of Eurostar, Transvit Manufacturing Corporation
("Transvit"), a Core Sheth Families affiliate, received an aggregate of
9,977,810 shares of the Company's Common Stock. In addition, the exercise
price of existing warrants to purchase 2,000,000 shares of the Company's Common
Stock held by the Core Sheth Families may be reduced under certain
circumstances related to the performance of the Company's Common Stock price in
the public market during the period of August 31, 1995 through August 31, 1996.
After the merger, the Core Sheth Families beneficially own approximately 84% of
the outstanding shares of the Company's Common Stock (86% assuming the exercise
of all outstanding warrants).
The merger was accounted for in a manner similar to a pooling of interests.
Accordingly, the Company's financial statements have been restated to include
the results of Eurostar for all periods presented. Additionally, all
subsequent discussions and disclosures in this document are as though Eurostar
has been a part of Tristar since the inception of Eurostar in 1992.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
During the three fiscal years ended August 31, 1995, the Company has been, and
expects to continue to be, engaged in a single line of business and/or industry
segment, i.e., the development, manufacture, marketing and distribution of
designer alternative fragrances, original fragrances, and cosmetic pencils and
in the marketing and distribution of other cosmetic products and selected
toiletry products. See "Financial Statements" submitted in response to Item 8
of this Report.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company is engaged in the business of the development, manufacture,
marketing and distribution of designer alternative fragrances, original
fragrances and cosmetic pencils and in the marketing and distribution of other
cosmetic products and selected toiletry products. See "Financial Information
about Foreign and Domestic Operations and Export Sales" at page 6.
Products
The Company's principal product categories are fragrances and other selected
cosmetic products, including cosmetic pencils and toiletry products. The
following table reflects the approximate contributions to net sales for the
last three fiscal years for the major product categories sold by the Company:
================================================================================
PRODUCT CATEGORY FISCAL 1995 FISCAL 1994 FISCAL 1993
- --------------------------------------------------------------------------------
FRAGRANCES 78% 79% 82%
- --------------------------------------------------------------------------------
OTHER PRODUCTS 22% 21% 18%
================================================================================
Page 2
3
The above table reflects a decline in fragrance sales from fiscal 1994 to
fiscal 1995 as it did in fiscal 1993 to 1994. The growth of other products
reflects a market acceptance of new product lines introduced in fiscal 1995,
1994 and 1993 and the expansion of sales of other lines.
The Company conducts all market testing and develops all new and replacement
fragrance and cosmetic pencil products for introduction into the marketplace.
The success of these products is dependent on the Company's identifying the
best market niche and then, ultimately, on the customers' acceptance of the
product. Life cycles of products vary significantly, with some products
successfully marketed for more than five years, whereas other products may fail
to gain consumer acceptance and be discontinued within a short period of time.
The Company must accurately gauge acceptance for the products it manufactures.
While the Company is in a position to request the development of new or
redesigned cosmetic products, it is almost completely dependent on its
suppliers to develop these and other new and replacement cosmetic products,
other than cosmetic pencils, for introduction into the marketplace. As noted
above, market acceptance also plays a large role in the success or failure of
cosmetic products, and life cycles vary significantly. Designing fragrance and
cosmetic products to fit into specific market niches and gaining customer
acceptance is a very important part of product development and marketing.
Fragrances
Within the fragrances product category, in fiscal 1995 as in fiscal 1994, the
Company primarily marketed three product lines: "Euro Collections", "Club
Exclusif Fragrances", and "Premiere Fragrances" and in fiscal 1995 it added a
new fragrance line, "Euro Elegance". All lines feature a wide variety of
premium-look bottle shapes and packages containing fragrances which provide an
alternative to some of the most popular, nationally branded, designer
fragrances at a fraction of the designer fragrance's retail price.
The Euro Collections line, which was first introduced in 1989, is the primary
product line in the Company's fragrance category and is the major revenue
contributor. Included in this line, as well as in the Company's other fragrance
lines, are companion products, which are discussed further under "Other
Products" below.
The fragrance product lines other than the Euro Collections line constitute a
smaller portion of the Company's revenue with the revenue contribution of the
Club Exclusif line expected to continue to increase in 1996 as a result of
increased marketing efforts and consumer recognition and acceptance.
Other Products
The Company markets, under the brand names of "Gina Cosmetics, "Roxy Cosmetics"
and "Apple Cosmetics", proprietary lines of nail, lip and eye products and
other cosmetic accessories manufactured by others.
The Company manufactures, markets and distributes under the Apple Cosmetics,
Gina Cosmetics, and Roxy Cosmetics brand names, a proprietary line of cosmetic
pencils in assorted colors and sizes. It also produces private label cosmetic
pencils for selected customers, including an affiliate of the Core Sheth
Families.
In addition, the Company produces or purchases from affiliates, and markets
companion products to its Euro Collections, Club Exclusif and Premiere lines
such as eau de parfum sprays, body sprays, body oils, deodorant sticks, and
other bath products such as dusting powders and gift sets. Such companion
products are also marketed as designer alternatives and priced at a fraction of
the price of the original designer products.
New Products
As noted previously, the Company designs and develops new fragrance products to
meet consumer needs. During the fiscal year ended August 31, 1995, the Company
continued to strive for improvement of existing products and worked towards
development of additional product lines and complementary products to existing
lines. In fiscal 1995, the Company introduced a new fragrance line, Euro
Elegance, and a new deodorant stick line, Everscent. Additionally, the Company
selectively added new products to existing fragrance and cosmetic lines.
Page 3
4
The Company anticipates the introduction of additional new products and a new
product line during fiscal 1996.
Manufacturing
The Company owns and operates a manufacturing facility in Pleasanton, Texas.
The manufacturing facility, located on 14-acres, produces virtually all of the
fragrances and cosmetic pencils sold by the Company.
Distribution
The Company distributes its products in North and South America from its Texas,
Mexico and Brazil warehouse facilities. The Company has approximately 1,600
customers, including wholesalers, distributors, mass merchandising chains and
specialty chain stores. These customers represent over 28,000 outlets for the
Company's products. See "Narrative Description of Business (Customers)," and
"Narrative Description of Business (Suppliers)" below. The Company markets its
products through Company sales personnel located in various markets and through
a network of independent sales representatives.
Customers
The Company's customers are located primarily in North and South America.
Sales to customers in the United States were $27,563,000, $38,187,000 and
$40,329,000, for fiscal years 1995, 1994 and 1993, respectively. Total direct
export sales outside of the United States, for the years ended August 31, 1995,
1994 and 1993 were approximately $17,165,000, $13,057,000, and $11,361,000,
respectively, amounting to 38, 25, and 22 percent of total net sales for those
years. It is anticipated that the Company will continue to limit distribution
of its products to North and South America as other Core Sheth Families
affiliates distribute similar products in the rest of the world.
The Company is not dependent upon a single or a few customers, and the loss of
any single or a few customers would not have a material adverse effect on the
Company's business. In fiscal 1995, 1994, and 1993 no single customer
accounted for more than seven percent of the Company's total sales.
Suppliers
At present, the Company purchases a significant amount of glass products for
its fragrance products from European glass manufacturers. If the Company were
unable to purchase these products from one of these suppliers, the Company
believes that it could purchase such products from other suppliers without any
significant delays.
In addition, the Company purchases its fragrance supplies principally from one
company, which is a Core Sheth Families affiliate. In the event that the
Company were unable to purchase these supplies, the Company could suffer minor
manufacturing delays in producing its products until the primary suppliers
could be replaced by a Core Sheth Families affiliate or a secondary source.
The Company's ability to satisfy sales orders of its fragrance products is
directly dependent on its ability to manufacture these products. If the
Company were physically unable to manufacture its product, the effect on the
Company would be minimal as Core Sheth Families affiliates and others have
similar manufacturing facilities available to support the Company.
In addition to fragrance manufacturing at the Pleasanton, Texas facility, the
Company, at the same location, also manufactures cosmetic pencils. If the
Company were physically unable to manufacture cosmetic pencils, the lack of
these products could have an adverse effect on the Company until a secondary
supplier could be located.
The Company is dependent on the supply of cosmetic products, other than
cosmetic pencils, from Core Sheth Families affiliates. If any of these
companies were to cease or be unable to supply these cosmetic products, the
lack of such products could have an adverse effect on the Company until
secondary suppliers could be located.
Page 4
5
Patents and Trademarks
The Company and a Core Sheth Families affiliate own or have applied for,
substantially all of the product name trademarks for the fragrance products
sold by the Company. The Company is dependent on the continued use of these
trademarks; however, the cessation of the Company's right to use such
trademarks of the Core Sheth Families affiliate would only have a minor effect
on the Company.
Backlog of Orders
The Company had no substantial backlog of orders at the end of fiscal years
1995, 1994 and 1993.
Raw Materials
The Company's raw material inventories support the fragrance and cosmetic
pencil manufacturing operations. The principal components of that inventory
are currently purchased from limited or single sources of supply. Management
believes the cessation of supply for the fragrance components from any of the
primary suppliers could be replaced by a Core Sheth Families affiliate or a
secondary source.
Environmental Laws
In the opinion of management, compliance by the Company with federal, state and
local laws relating to the protection of the environment has had no material
effect upon the Company's capital expenditures, earnings or competitive
condition. The Company is currently reformulating certain of its products to
meet the requirements of the California Air Resources Board, See "Legal
Proceedings (Other)".
Competition in the Fragrance and Cosmetics Industry
The fragrance and cosmetics industry is characterized by intense competition.
While pricing and terms are the principal methods of competition, product
quality and customer service (incorporating prompt delivery through the
maintenance of sufficient inventory) are ancillary competitive considerations
in the overall cosmetics industry.
Principal competitors in designer alternative fragrances include Jean Philippe
Fragrances, Inc., Paris Designs, Inc., and Parfums de Coeur, and in budget
cosmetics, Artmatic USA Cosmetics, Wet-N-Wild, and Jordana Cosmetics
Corporation.
When viewing the fragrance and cosmetics industry as a whole, the Company is
relatively small and, consequently, is not a significant factor in the
industry. Many of the other companies in the industry, including virtually all
large product manufacturers such as Revlon and Proctor and Gamble are well
established and have been in existence for a significantly longer period of
time than the Company. Each of such companies has product inventory,
financial, marketing, research, and personnel, as well as other resources,
substantially greater than the Company, and has more extensive facilities than
those which in the foreseeable future will become available to the Company.
Historically, however, these large manufacturers have not sought to compete in
the same value-oriented markets in which the Company participates.
Inventory
The Company maintains finished goods inventory at its Texas, Mexico and Brazil
warehouse facilities. Raw material and work-in-process inventories related to
manufacturing of fragrances and cosmetic pencils are located at the Pleasanton,
Texas manufacturing facility.
Seasonality
The Company's business has historically been subject to seasonal factors
relating to calendar year-end holidays, which has resulted in increased net
sales in the first and fourth quarters of the Company's fiscal year.
Management expects this trend to continue.
Page 5
6
Employees
The Company employs approximately 300 people as regular employees.
Additionally, during peak production periods the Company utilizes temporary or
seasonal employees to augment its workforce. During the past two fiscal peak
production periods the Company has utilized up to 220 seasonal employees. None
of the Company's employees are covered by a collective bargaining agreement and
management believes that the Company's relationship with its employees is
satisfactory.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
Other than sales offices and distribution facilities in Mexico and Brazil, the
Company has no significant operations outside the continental United States.
The Company exports a significant portion of its sales directly to foreign
customers. For the years ended August 31, 1995, 1994, and 1993, $17,165,000
(38% of net sales), $13,057,000 (25% of net sales), and $11,361,000 (22% of net
sales), respectively, were exported directly to foreign customers or sold
through the Company's Mexico subsidiary. While management believes that some
products are sold to United States customers for ultimate resale outside the
United States, the amount of these indirect export sales cannot be determined
as the Company does not have access to its customers' sales information. See
"Narrative Description of Business (Customers)". A significant portion of the
Company's products are sold directly or indirectly into the Latin American
market. There are certain factors which could have an adverse effect on these
sales. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations (Mexican Market)" for a specific discussion of the
risks in Mexico.
ITEM 2. PROPERTIES
The Company owns a manufacturing plant which consists of a 132,000 square-foot
facility on a 14-acre site in Pleasanton, Texas. That facility has
approximately 12,000 square feet of office space.
The Company is currently leasing approximately 72,000 square feet of storage,
shipping, and office space for its San Antonio warehouse facility. The lease
has an annual rate of $207,000, subject to adjustments, and expires in February
1998.
The San Antonio offices occupy approximately 22,000 square feet of office
space. The leases have a current annual rate of $208,000, subject to
adjustments, and expires in January 1998.
In May 1990, the Company completed construction of a 21,000 square foot
manufacturing plant in Duncan, South Carolina, which prior to the relocation of
the cosmetic pencil manufacturing operations, was devoted exclusively to the
manufacture of cosmetic pencils. This facility, currently unoccupied, is
located on 16 acres of land. The Company is currently attempting to sell this
facility and land.
The Company leases approximately 7,000 square feet of office and distribution
space in Latin America.
The Company currently has under lease approximately 18,000 square feet of
facilities which it is subletting.
ITEM 3. LEGAL PROCEEDINGS
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 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 also alleges, on behalf of all four plaintiffs, that the
Company's disclosures relating to these and other matters were fraudulent or
negligently misrepresented. In April 1995, the court dismissed the complaint
Page 6
7
without prejudice, in part due to the plaintiffs' failure to state a claim for
relief. In May 1995 the plaintiffs refiled the complaint, asserting many of
the same claims. 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.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
In June 1992, the Company was advised that it was the subject of an
investigation by the staff of the United States Securities and Exchange
Commission regarding the non-disclosure of the shareholdings of the Core Sheth
Families, as well as potential accounting irregularities and other matters. In
September 1995, the Company, without admitting or denying the allegations of
the Securities and Exchange Commission, consented to the entry of an
administrative cease and desist order relating to future violations of the
federal securities laws.
INSURANCE POLICY REIMBURSEMENT
During 1995, the Company received a court approved distribution of $2,000,000
from the proceeds of an executive liability and indemnification policy owned by
the Company. The distribution of $750,000 of the total, plus interest of
approximately $65,000, has been contested by other claimants under the policy.
The Company believes that the ultimate disposition of the matter 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
its primary fragrance lines to achieve compliance with the VOC regulations.
The Company has filed with the CARB required registrations of its products and
an application for a temporary variance from VOC regulations until all products
not meeting the requirements can be reformulated. Based on preliminary
discussions with representatives of the CARB, the Company anticipates that it
will be allowed to continue to sell its products in California during
consideration of its variance application and that its variance will be
granted. Any interruption of the Company's sales in California would have a
material adverse effect on the Company's financial condition.
EMPLOYMENT CLAIMS
In May 1995, a suit was filed in Texas state court against the Company by John
Genung, formerly in-house counsel for Eurostar, who was terminated
approximately 45 days after his employment commenced and within the
probationary period of his employment arrangement. Plaintiff has filed suit
against the Company, making certain allegations, including breach of contract,
violations of various state and federal laws, retaliatory termination and
misrepresentations. The Company has filed counterclaims for actions that the
plaintiff took during the course of his limited employment with the Company.
It is expected that the ultimate disposition of this action will not have a
material adverse effect on the Company's financial condition.
OTHER
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. The Company anticipates that it may incur litigation
expenses related to ongoing litigation involving the non-settling defendants
from previously settled stockholder class action litigation against the Company
and a lawsuit against the Company's auditors prior to fiscal year-end 1993
related to such litigation. Any expenses incurred are not expected to be
material to the Company's financial results.
Page 7
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of the Stockholders was held on August 30,
1995 at the Company's corporate offices in San Antonio Texas.
(b) The following two matters, as described in the Company's Proxy
Statement dated August 4, 1995, were submitted to the stockholders, voted upon
and approved:
(1) A proposal to approve and adopt an Agreement and Plan
of Merger dated as of July 1, 1995 among the Company, Eurostar, and Transvit,
pursuant to which (i) Eurostar would be merged into Tristar, following which
Tristar would be the surviving corporation, and (ii) all the issued and
outstanding shares of Eurostar Common Stock would be converted into the right
to receive an aggregate of 9,977,810 shares of the Company's Common Stock. Of
the 5,064,944 shares represented at the meeting, this matter was approved with
4,878,217 of the votes received voting for the proposal, 143,770 against, 4,625
abstentions and 38,332 broker-non votes.
(2) In connection with the merger, a proposal to amend
Tristar's Certificate of Incorporation to increase the number of shares of
Tristar Common Stock from 10,000,000 to 30,000,000. Of the 5,064,944 shares
represented at the meeting, this matter was approved with 4,863,342 of the
votes received voting for the proposal, 182,294 against, 19,308 abstentions and
0 broker-non votes.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company has a single class of equity securities outstanding, its Common
Stock, $.01 par value ("Common Stock"). The Common Stock is traded
over-the-counter on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market under the symbol "TSAR". The following
table presents for the periods indicated the quarterly high and low bid
quotations in the over-the-counter market, as quoted by NASDAQ. These
quotations reflect the inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
===========================================================================
FISCAL 1995 FISCAL 1994
---------------------------------------------------
HIGH LOW HIGH LOW
- ---------------------------------------------------------------------------
FIRST QUARTER $5 7/8 $3 7/8 $7 7/8 $4 1/8
- ---------------------------------------------------------------------------
SECOND QUARTER $5 5/8 $5 1/8 $7 7/8 $5 3/8
- ---------------------------------------------------------------------------
THIRD QUARTER $6 $5 $6 1/4 $3 7/8
- ---------------------------------------------------------------------------
FOURTH QUARTER $5 1/2 $5 $4 1/8 $3 7/8
===========================================================================
On November 10, 1995, the closing bid price for the Company's Common Stock, as
reported by NASDAQ, was $6 5/8.
(B) HOLDERS
As of November 10, 1995, the approximate number of holders of record of the
Company's Common Stock, as reported by the Company's transfer agent, was 212.
(C) DIVIDENDS
The Company has paid no cash dividends on the Common Stock since its inception.
The payment by the Company of cash dividends, if any, in the future rests
within the discretion of the Board and will depend, among other things, upon
the Company's earnings, its capital requirements and its financial condition,
as well as other relevant factors.
Page 8
9
In addition, the Company's ability to pay cash dividends is subject to
restrictions imposed by the Company's principal lender. See Note 5 of the Notes
to Consolidated Financial Statements. The Company has no plans to pay any cash
dividends on the Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data for the Company and its
subsidiaries for each of the last five fiscal years:
================================================================================================================
YEARS ENDED AUGUST 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
REVENUES $44,728,000 $51,244,000 $51,690,000 $47,735,000 $30,865,000
- ----------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $(932,000) $1,390,000 $(4,724,000) $2,788,000 $1,977,000
- ----------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME PER COMMON
SHARE:
PRIMARY $(.06) $.08 $(.28) $.22 $.30
FULLY DILUTED $(.06) $.08 $(.28) $.22 $.28
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
PRIMARY 16,625,341 16,851,644 16,601,048 12,893,233 6,664,530
FULLY DILUTED 16,625,341 16,851,644 16,601,048 12,893,233 6,954,144
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $36,828,000 $40,902,000 $39,116,000 $27,771,000 $13,745,000
- ----------------------------------------------------------------------------------------------------------------
SHORT TERM BORROWINGS $5,383,000 $4,511,000 $2,505,000 $3,630,000 $1,706,000
- ----------------------------------------------------------------------------------------------------------------
LONG TERM DEBT $3,719,000 $4,861,000 $8,168,000 $5,801,000 $1,282,000
- ----------------------------------------------------------------------------------------------------------------
SUBORDINATED LONG TERM DEBT $12,666,000 $11,216,000 $10,469,000 $1,409,000 $-0-
- ----------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER
COMMON SHARE $ -0- $ -0- $ -0- $-0- $ -0-
================================================================================================================
The Company has significant related party transactions. See Note 7 of the
Notes to Consolidated Financial Statements.
In fiscal 1993, the Company recorded a $9.5 million (pretax) charge in
connection with settlement of the class action litigation.
The Company has recorded legal and professional expenses of $269,000, $208,000
and $2,758,000 in fiscal 1995, 1994 and 1993, respectively, associated with the
stockholder litigation and other events that were the subject of an internal
investigation by the Special Committee of the Board. See Note 14 of the Notes
to the Consolidated Financial Statements.
The Company recorded other income of $2,065,000 in connection with receipt of
insurance proceeds in fiscal 1995. See Note 17 of the Notes to the
Consolidated Financial Statements.
The Company recorded expense of $986,000 and $367,000 in fiscal 1995 and 1994,
respectively, associated with the value assigned to the granting of new common
stock purchase warrants related to the settlement of the prior stockholder
class action litigation and to the extension of the exercise date on existing
warrants.
The Company recorded merger related expenses of $686,000 in fiscal 1995.
Page 9
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis included in this section reflects the financial
results of the combined entities of Tristar and Eurostar, which were merged on
August 31, 1995. See Note 2 of the Notes to Consolidated Financial Statements.
The combination was treated in a manner similar to a pooling of interests.
Accordingly, the results include both the activities of Tristar as a
distributor in the NAFTA countries as well as all of the sales activities of
Eurostar in Central and South America and Eurostar's development and
manufacturing activities.
RESULTS OF OPERATIONS -- FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for the fiscal year ended August 31, 1995 were $44,728,000, a
decrease of 12.7%, compared to net sales of $51,244,000 in the fiscal year
ended August 31, 1994. This decrease is primarily attributable to the impact
of economic and political conditions on customers in Mexico.
Tristar markets and distributes products to wholesalers, distributors, chain
stores, mass merchandisers, and independent retail channels in various markets
throughout North and South America. The Company experienced a loss of sales in
fiscal 1995 in the wholesale channel, primarily because of the decrease in
sales in Mexico, and, to a much lesser extent, from a general decrease in the
market demand in that channel as it matures. The other channels grew in fiscal
1995 compared to fiscal 1994 primarily in Latin America (excluding Mexico) as
the Company appointed additional distributors and in the U.S. as the Company
continued to expand its marketing efforts in the chain store and mass
merchandising channels. The independent retail channel continues to remain a
small part of the Company's sales.
Overall the Company's direct exports increased to $17,165,000 (38%) of net
sales in fiscal 1995 compared to $13,057,000 (25%) of net sales in fiscal 1994.
The increase in direct exports is largely due to the increase in activity in
Latin America as the Company continues to expand in those markets. In fiscal
1995, the market for the Company's products in Mexico decreased substantially
as a result of economic and political conditions. Those conditions, which
included the devaluation of the Nuevo Peso in December 1994, severely affected
the purchasing power of the Mexican population. Direct exports to Mexico in
fiscal 1995 decreased from fiscal 1994, $1,492,000 compared to $6,639,000. The
economic and political conditions are believed to have caused indirect sales
into Mexico (product distributed into Mexico by U. S. based customers) to also
decline in fiscal 1995 as compared to fiscal 1994, although the precise volume
of indirect sales cannot be determined as customers do not provide such
information to the Company.
Export sales of cosmetic pencils to a Core Sheth Families affiliate increased
in fiscal 1995 to $514,000 from $374,000 in fiscal 1994. See "Narrative
Description of Business (Suppliers)" and Note 7 of the Notes to Consolidated
Financial Statements.
Distribution in the U. S. markets is believed to have remained relatively
constant between fiscal 1995 and fiscal 1994. As sales to U. S. customers
include product that is ultimately destined for countries outside of the U. S.,
as noted above, it is not possible to determine precisely the amount of sales
that ultimately remain in the U. S. marketplace. However, it is believed that
while there has been a decline in the wholesale market in the U.S., the growth
in the chain store and mass merchandising channels has compensated for such
decreases.
In fiscal 1995, the Euro Collections Fragrance line, the Company's largest
revenue producer, was adversely affected (1) by the decline of direct sales
into Mexico, as this was the primary product line purchased by Mexican
customers, (2) by the general decline in the wholesale channel, and (3) by the
maturation of this product line. Offsetting a significant portion of the
decline was a growth in the sales of this product line into the balance of
Latin America. In addition, in fiscal 1995, lower sales were realized in the
(1) cosmetics lines, (2) cosmetic pencil line, and (3) Premiere Fragrance line.
Partially offsetting these decreases was a growth in recently introduced
selected toiletry products.
Of the net sales in fiscal 1995, approximately 15%, or $6,808,000, resulted
from the sale of products purchased from related parties as finished goods.
For fiscal 1994, comparable numbers were 12%, or $6,236,000. In addition,
fragrance and other products manufactured and sold by the Company included some
components that were purchased from related parties. The cost of those
components approximated 8% of cost of sales in fiscal 1995
Page 10
11
and 4% in fiscal 1994. See Note 7 of the Notes to the Consolidated Financial
Statements for additional information and "Narrative Description of Business
(Suppliers)".
For additional information on products, channels of distribution, customers,
and suppliers, see Narrative Description of Business under Item 1.
Tristar's gross profit both in dollar terms and as a percentage of sales
declined in fiscal 1995 as compared to fiscal 1994. Comparable numbers were
$13,001,000, or 29.1%, in fiscal 1995 and $18,042,000, or 35.2%, in fiscal
1994. Gross profit in dollar terms decreased as a result of lower sales in
fiscal 1995 and of increased cost of product. The major cause of this decrease
in gross profit as a percentage of sales can be attributed to the decreased
purchasing power of the U.S. dollar in certain foreign markets where components
are purchased and to increased packaging costs. In addition, the margin
percentages were affected by the mix of product manufactured and sold in fiscal
1995 compared to fiscal 1994.
Selling, general and administrative expenses ("SG&A") decreased in fiscal 1995
to $11,654,000 from the fiscal 1994 level of $12,906,000. The decrease can be
attributed to restructuring and reduced marketing promotions and advertising
production costs in fiscal 1995. In fiscal 1994, the expenses involved in
closing the South Carolina distribution center and the costs of selective
headcount reductions increased fiscal 1994 expenses. Offsetting the decreases
in fiscal 1995 were continued expansion of marketing activities and selective
hiring of new personnel, especially in support of the expansion of Latin
America markets. As a percentage of sales, SG&A was 26.1% on a lower sales
amount in fiscal 1995 compared to 25.2% in fiscal 1994. Fiscal 1995 SG&A
included expenses incurred in the relocation of the pencil manufacturing
operations from South Carolina to Texas and an expense of $187,000 to reduce
the book value of the plant and surrounding land to their estimated net
realizable value.
Management expects that SG&A will increase in dollar terms in fiscal 1996 as
the Company continues to expand its marketing efforts in the U.S. and Latin
America, while as a percentage of sales, SG&A is expected to decrease.
Interest expense increased $108,000 in fiscal 1995 from the 1994 level of
$1,533,000. This increase is attributable to several factors including an
increased prime rate in fiscal 1995, increased average short term borrowings,
and a change in the mix of long term debt such that interest rates increased.
The Company anticipates that interest expense will be higher in fiscal 1996 due
to expected increased borrowing levels under the revolving credit lines as the
Company attempts to expand its market position in the United States and Latin
America.
Fiscal 1995 expenses included merger related expenses of $686,000, litigation
expenses arising from events related to the shareholder litigation of $269,000,
and $986,000 of expenses related to the amortization of the warrant valuation
asset. These expenses in fiscal 1994 were $0, $208,000, and $367,000,
respectively.
In fiscal 1995, the Company received a court approved distribution of
$2,000,000 from the proceeds of an executive liability and indemnification
policy owned by the Company. In addition, a distribution of $65,000 of
interest earned was received. The distribution of $750,000 of the total has
been contested by other claimants under the policy. See "Legal Proceedings
(Insurance Policy Reimbursement)" at page 7.
The Company recorded income tax expense, net of benefits, of $661,000 in fiscal
1995 and $1,694,000 in fiscal 1994.
The Company recorded a net loss of $932,000 or $0.06 per share for fiscal 1995.
In fiscal 1994, the Company recorded net income of $1,390,000 or $0.08 per
share.
Potential Adverse Effects on Results of Operations for Future Periods
The results for fiscal 1996 could be adversely affected by each or all of the
following factors:
Page 11
12
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, has
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 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. 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 American Free Trade Agreement ("NAFTA")
has had or subsequently will have on the Company's business.
2. Economy. Weak economic conditions in Mexico combined with the
devaluation of the Mexican currency, noted above, are expected to
continue to restrict the growth of sales in Mexico.
3. Distribution Channels. Although the Company is making extensive
efforts to market products into Latin America and the chain and mass
merchandising channels, the Company remains heavily 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 the market. These factors are expected by
management to negatively affect fiscal 1996 results.
4. 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 an alternative source could be
found and/or developed.
In addition, the Company is dependent on the supply of cosmetic
products, other than cosmetic pencils, from a Core Sheth Families
affiliate. See "Narrative Description of Business (Suppliers)". If
such affiliate were to cease or 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.
5. New Markets. The Company continues to develop and expand sales and
marketing operations in Latin America. In the process the Company
incurs 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 and start up costs. In addition,
certain countries impose strict import restrictions and high levels of
taxes on imports which could affect the success of sales and marketing
activities and also affect the profitability of such activities.
At this time, it is not known whether, or to what degree, the above factors
will have a material adverse impact on fiscal 1996 results.
RESULTS OF OPERATIONS -- FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for fiscal 1994 were $51,244,000, relatively flat compared to net
sales of $51,690,000 for fiscal 1993.
Sales declines were incurred in the wholesale channel primarily as a result of
lower cosmetic pencil sales and lower sales into Canada in fiscal 1994 as
compared to fiscal 1993. The wholesale channel is also the most mature channel
of distribution for the type of products sold by the Company and, therefore,
has the most competitive pressures. Steady growth in sales in fiscal 1994 in
Latin America and in the chain and mass merchandising
Page 12
13
channel, including specialty chains, were the primary factors which offset the
sales declines in the wholesale channel.
Direct sales to foreign customers of $13,057,000 (25% of net sales) reflected
an increase in fiscal 1994 when compared to such sales of $11,361,000 (22% of
net sales) in fiscal 1993. The growth experienced was in the Latin American
markets including Mexico. The growth was partially offset by lower sales to
countries outside North and South America.
Certain of the Company's U.S. based customers sold the Company's products into
foreign countries ("indirect foreign sales") both in North and South America as
well as into other parts of the world. While the Company does not have access
to its customers records, these indirect foreign sales existed both in fiscal
1993 and fiscal 1994, but by the end of fiscal 1994 there were indications
that such sales were declining. The amount of any sales lost due to the
cessation of indirect shipments cannot be determined as the Company does not
have access to such customer information.
In fiscal 1994, the Mexico market continued to be a key market for the Company
in spite of the economic and political conditions that affected the purchasing
power of the Mexican population, and disruptions in the passage of products
through the United States-Mexico border. Direct exports to Mexico in fiscal
1994 increased over fiscal 1993, $6,639,000 compared to $4,269,000. Management
believes that indirect sales (product distributed into Mexico by U.S. based
customers) decreased in fiscal 1994 when compared to fiscal 1993 as a result of
the factors noted above. Although the precise volume of such a decrease in
indirect sales cannot be determined because customers do not provide such
information to the Company, management believes that any decrease in indirect
sales could possibly have offset any increase in direct sales in Mexico.
Export sales of cosmetic pencils to a Core Sheth Families affiliate decreased
from $1,359,000 in fiscal 1993 to $374,000 in fiscal 1994, contributing to the
decrease in foreign sales outside of North and South America noted above. See
"Narrative Description of Business (Suppliers)" and Note 7 of the Notes to
Consolidated Financial Statements. Of the total sales of cosmetic pencils for
fiscal years 1994 and 1993, approximately 8% and 25%, respectively, were sold
to the Core Sheth Families affiliate. This sharp decline in pencil sales can
be attributed to increased competitive activity in the affiliate's markets.
Distribution in the U. S. markets is believed to have remained relatively
constant between fiscal 1994 and fiscal 1993. As sales to U. S. customers
include product that is ultimately destined for countries outside of the U. S.
(indirect foreign sales), as noted above, it is not possible to determine
precisely the amount of sales that ultimately remain in the U. S. marketplace.
On a product line basis, in fiscal 1994 sales of the Euro Collections
Fragrances were adversely affected by the economy and by competition.
Partially offsetting these adverse effects was an increase in foreign sales. In
addition, in fiscal 1994, lower sales were realized in the (1) cosmetic pencil
line primarily due to a decrease in sales to a related party (see discussion
above), (2) Premiere Fragrance line and (3) Euro Luxury Fragrance line which
was discontinued in fiscal 1993. Partially offsetting these decreases was
growth in the Club Exclusif Fragrances, Gina Cosmetics, dusting powders, and in
the bath and body products introduced in fiscal 1994 .
Of the net sales in fiscal 1994, approximately 12%, or $6,236,000, resulted
from the sale of products purchased from related parties as finished goods.
For fiscal 1993, comparable numbers were 8%, or $3,921,000. In addition,
fragrance and other products manufactured and sold by the Company included some
components that were purchased from related parties. The cost of those
components approximated 4% of cost of sales in fiscal 1994 and 1% in fiscal
1993. See Note 7 to the Consolidated Financial Statements for additional
information and "Narrative Description of Business (Suppliers)".
For additional information on products, channels of distribution, customers,
and suppliers, see Narrative Description of Business under Item 1.
The Company's gross profit for fiscal 1994 was $18,042,000, or 35.2% of net
sales, compared to $17,153,000, or 33.2% of net sales, in fiscal 1993. The
improvement in the gross profit percentage is related to the mix of product
manufactured by the Company (a higher gross margin) and product purchased from
an outside party. In fiscal
Page 13
14
1994, all of the fragrance products were manufactured by the Company, whereas
in early fiscal 1993, approximately $6,631,000 was purchased from a Core Sheth
Families affiliate. Partially offsetting the benefit of in-house manufacturing
in fiscal 1994 was a higher level of sales promotions than in fiscal 1993,
dependence on sales in the competitive lower margin wholesale channel, and the
sale of discontinued or slow moving products at minimal gross profit or at a
loss.
The Company's selling, general, and administrative ("SG&A") expenses increased
10.4% to $12,906,000 for fiscal year 1994 from $11,691,000 in the prior fiscal
year. As a percentage of net sales, the Company's SG&A increased to 25.2% in
fiscal year 1994 from 22.6% in fiscal year 1993. The additional expenses were
primarily the result of advertising, new marketing promotions, costs associated
with closure of the South Carolina Distribution Center, and increased business
taxes and insurance expense.
Interest expense increased in fiscal year 1994 to $1,533,000, compared to
$590,000 in fiscal year 1993 as a result of (1) interest expense associated
with the stockholder litigation settlement, (2) higher average borrowings under
the revolving line of credit, and (3) a higher rate of interest (prime plus
five percentage points per annum, with additional fees approximating a
percentage point per annum) under the $10,000,000 revolving credit facility
established in fiscal 1994.
Fiscal year 1994 "Other income (expense)" includes $367,000 of amortization of
the $2,089,000 value assigned to the extension of the expiration date of
existing warrants to purchase 400,000 shares of the Company's common stock and
the granting of new warrants to purchase 2,000,000 shares of the Company's
common stock in connection with the stockholder litigation settlement. In
addition, the Company recorded litigation expenses of $208,000 in fiscal 1994
and $2,758,000 in fiscal 1993 consisting of legal and professional expenses
related to the stockholder litigation settlement and to other events that were
the subject of the internal investigation by a Special Committee of the
Company's Board of Directors. In fiscal 1993, the Company also recorded a
$9,500,000 charge related to the settlement of stockholder litigation.
The Company recorded an income tax expense of $1,694,000 in fiscal 1994 and an
income tax benefit of $2,629,000 in fiscal 1993. The income tax benefit in
fiscal 1993 was based on anticipated current and deferred benefits to be
received from the recording of the stockholder litigation settlement,
litigation expenses, and the net loss incurred.
The Company recorded a net income of $1,390,000, or $0.08 per share, in fiscal
1994, as compared to a net loss of $4,724,000, or $0.28 per share, in fiscal
1993.
OTHER MATTERS
Realization of the net deferred tax assets that are recorded is dependent upon
the Company earning approximately $11.4 million of taxable income in future
years. Management believes that future levels of pretax earnings will be
sufficient to generate this level of income.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for long-lived Assets to be Disposed of." The Company is
required to adopt Statement 121 in fiscal year 1997. Statement 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has not completed all of the analyses required to
estimate the impact of the new statement; however, the adoption of Statement
121 is not expected to have a material adverse impact on the Company's
financial position or the results of its operations at the time of adoption.
LIQUIDITY AND CAPITAL RESOURCES
The Company obtains working capital from two primary sources: revolving lines
of credit and cash generated by operations.
Page 14
15
OPERATING ACTIVITIES
Operating activities in fiscal 1995 utilized $5,255,000 in cash. The cash
utilized was primarily the result of the final payment under the stockholder
litigation settlement ($4,500,000), an increase in inventories ($3,111,000),a
decrease in income taxes payable ($1,787,000), an increase in accounts
receivable ($522,000), a decrease in accounts payable ($337,000), and a
decrease in accrued expenses ($163,000). Offsetting the uses of cash were net
income of $3,230,000 adjusted for non-cash items, and decreases in refundable
income taxes ($1,774,000) and in prepaid expenses ($169,000).
The final payment under the stockholder litigation settlement agreement of
$4,500,000 was made in December 1994. This payment was financed by the
incurrence of long-term subordinated debt ($4,000,000) with a related party as
further discussed below and from the proceeds of the sale of warrants
($500,000) to a related party.
The major component of the usage of cash for inventories ($3.1 million) in
fiscal 1995 was in raw materials inventory ($2.4 million) with the balance
being in finished goods. Tax payments net of refunds were $672,000. It is
anticipated that federal tax payments in fiscal 1996 will be minimal as a
material portion of taxable profits, if any, generated in fiscal 1996 will be
offset by net operating loss carryforwards available from prior years.
Accounts receivable increased by $522,000, primarily as a result of competitive
pressures and to meet customer requirements. A decrease of $337,000 in
accounts payable was attributable to increased borrowings under the revolving
line of credit and the term loan described below. Generally, vendor accounts
are being kept within customary terms with some variations due to seasonal
requirements.
INVESTING ACTIVITIES
Capital expenditures during fiscal 1995 totaled $787,000, primarily for
manufacturing equipment, distribution equipment, computer equipment and
software, and furniture and office equipment. Capital expenditures in fiscal
1994 and 1993 were $1,896,000 and $3,816,000, respectively. Offsetting the
fiscal 1995 capital expenditures were the proceeds of $64,000 from the sale of
capital assets. Capital expenditures in fiscal 1996 are expected to be
primarily for manufacturing equipment, and computer equipment and software with
lesser amounts being invested in equipment for distribution activities. Capital
expenditures are expected to increase in fiscal 1996 from the fiscal 1995
level.
FINANCING ACTIVITIES
The Company currently has two revolving credit agreements, one to finance
domestic accounts receivables and finished goods inventories ("distribution
related") and a second to finance raw materials inventories ("manufacturing
related"). The distribution related revolving credit agreement, amended as of
July 7, 1995, provides for maximum borrowings of $10,000,000 at the prime rate
(8.75% at August 31, 1995) plus three percentage points per annum, with
additional fees approximating a percentage point per annum. Borrowings under
this credit agreement are limited to 75% of eligible domestic accounts
receivable and 50% of eligible finished goods inventories. The manufacturing
related revolving credit agreement provides for $1,500,000 of maximum
borrowings bearing interest at the prime rate plus 1.75% per annum plus
additional fees. Borrowings are limited to 40% of eligible manufacturing
inventories. Both revolving lines of credit expire in July 1997.
These credit facilities, both with the same commercial lender, are secured by
substantially all of the assets of the Company. The agreements contain
material adverse change provisions, as well as certain restrictions and
conditions among which are limitations on cash dividends, capital expenditures
and repayments of a prior financing arrangement with a related party. During
fiscal 1995, net short-term borrowings increased by $872,000 to $5,383,000 at
August 31, 1995 under the two revolving lines of credit. Additional borrowings
of $2,440,000 were available as of August 31, 1995 based on the formulas used
to determine availability. See Note 5 of the Notes to Consolidated Financial
Statements for additional information on the current lines of credit.
In June 1995, the Company also entered into a term loan agreement for $3.7
million with the same commercial lender. The Company has borrowed $3.5 million
with the remainder expected to be utilized in the second quarter of fiscal 1996
for the purchase of manufacturing equipment. Borrowings under this loan were
utilized to repay existing accounts payable of $1.7 million and to repay $1.8
million of the note payable to a Core Sheth Families
Page 15
16
affiliate as described in the following paragraph. Payments under the term
loan are monthly over a seven year period with an acceleration clause in the
event the loan agreement is not renewed after the initial term of two years.
The loan bears interest at the prime rate plus 1.75% per annum plus additional
fees and is subject to similar conditions as described above under the
revolving lines of credit.
As of August 31, 1995, the Company was indebted in the amount of $4.7 million
to a Core Sheth Families affiliate under a loan agreement entered into in
August 1993. Under this loan agreement, in fiscal 1995 the Company borrowed
$2.5 million and repaid $4.1 million. The note, which is subordinated to the
commercial lender, bears interest at the rate of 4.5% per annum with repayment
governed by the terms and conditions of the revolving lines of credit. Based
on those terms and conditions and the anticipated cash flow of the Company
during fiscal 1996, $1.5 million has been classified as current and is expected
to be repaid in fiscal 1996. As prescribed by the terms and conditions,
repayment amounts could exceed or be less than the $1.5 million depending on
the Company's actual cash flows.
The settlement of the stockholder class action litigation recorded in May 1993
($9.5 million) resulted in a material change to the Company's long-term debt to
equity ratio. The Company at August 31, 1995 had outstanding subordinated
long-term debt to a Core Sheth Families affiliate of $8 million related to that
settlement. Four million dollars of the balance was incurred in December 1994
to meet the final payment of that settlement. These borrowings bear interest at
rates of 6.36% to 8.23% per annum. The $8 million is net of a repayment of $1
million made in December 1994 from the proceeds of an executive liability and
indemnification policy owned by the Company (See "Legal Proceedings (Insurance
Policy Reimbursement)"). Repayments of the remaining debt will begin in the
year 2001. Due to the subordination of the debt to senior lenders and the
long-term nature of the debt, the Company does not believe that the increase in
the ratio of long-term debt to equity has an adverse effect on the Company.
The Company also purchases certain equipment, primarily computer equipment and
software, under long-term purchase agreements. These are not material to the
Company's cash flow.
Management believes that the Company's revolving lines of credit, together with
cash generated by operations should be sufficient to meet the cash requirements
of the Company for fiscal 1996.
The Company does not have any plans to pay any cash dividends on the Common
Stock in the foreseeable future. Further, payments of such dividends are
subject to restrictions imposed by the Company's commercial lender in
connection with the existing revolving lines of credit.
INFLATION
During fiscal year ended 1995, and consistent with the Company's 1994 and 1993
fiscal years, inflation did not have a material adverse impact either on the
Company's net sales or income from continuing operations. However, the
devaluation of the Mexican Nuevo Peso in December 1994 had an impact on the
Company's sales with lower direct exports into Mexico. See Note 15 of the
Notes to the Consolidated Financial Statements for further discussion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement schedules listed
in Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section.
Page 16
17
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
DISMISSAL OF INDEPENDENT ACCOUNTANT
On September 5, 1995, the Company advised Coopers & Lybrand, L.L.P. ("Coopers")
that the Company intended to retain a different independent accounting firm for
the audit of its financial statements for the year ending August 31, 1995.
Coopers had been engaged as the principal accountant to audit the Company's
consolidated financial statements.
Coopers' reports on the Company's consolidated financial statements for the
past two years contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles, except that a report filed in connection with the Company's
consolidated financial statements for the year ended August 31, 1993, contained
an explanatory paragraph relating to a federal grand jury investigation being
conducted on the Company. The explanatory paragraph indicated that because the
ultimate outcome of the investigation could not be determined, no provision for
any liability that may result from the investigation had been made by the
Company in the financial statements.
The Audit Committee of the Company's Board of Directors recommended the action
taken with respect to Coopers.
There have been no disagreements with Coopers on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure during the Company's two most recent fiscal years or in the period
since the end of the most recent fiscal year which disagreements, if not
resolved to Coopers' satisfaction, would have caused Coopers to make reference
to the subject matter of the disagreement(s) in connection with its report.
ENGAGEMENT OF NEW INDEPENDENT ACCOUNTANT
KPMG Peat Marwick LLP ("Peat Marwick") has been engaged by the Company as its
new independent principal accountant to audit the Company's consolidated
financial statements. This engagement was effective as of September 5, 1995.
Peat Marwick was the principal accountant for Eurostar Perfumes, Inc.
("Eurostar") prior to the merger of Eurostar with and into Tristar on August
31, 1995.
Prior to engaging Peat Marwick, Tristar had not consulted with Peat Marwick
during the Company's two most recent fiscal years or in the period since the
end of the most recent fiscal year.
Page 17
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
Page 18
19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(A) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS: Consolidated Financial Statements as
detailed in the Index to Financial Statements and Schedules
for the years ended August 31, 1995, 1994 and 1993, required
in response to Item 8 of Part II of this report are annexed to
this report as a separate section.
2. FINANCIAL STATEMENT SCHEDULES: Any financial statement
schedules for the years ended August 31, 1995, 1994 and 1993,
required in Item 8 of Part II of this report are annexed to
this report as a separate section.
(B) REPORTS ON FORM 8-K:
1. The Company filed a report on Form 8-K dated August 31,
1995 reporting the merger of Eurostar into the Company. Such
report included the financial statements of Eurostar and
certain pro forma financial information.
2. The Company filed a report on Form 8-K dated September 5,
1995 reporting the change of the Company's accountants for
fiscal 1995 to KPMG Peat Marwick LLP, who had been the
auditors of Eurostar prior to the Merger.
(C) EXHIBITS
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Registrant, as amended.
Incorporated by reference to Exhibit 3.1 of the Report on Form
8-K dated August 31, 1995.
3.2 By-Laws of the Registrant (Amended as of August 14, 1992).
Incorporated by reference to Exhibit 3.2 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
4 Form of Registrant Common Stock certificate. Incorporated by
reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q
for the quarterly period ended February 28, 1993.
10.1 1991 Amended and Restated Stock Option Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
10.2 Loan and Security Agreement dated October 8, 1993 between
Registrant and Fremont Financial Corporation with Special
Provisions Rider. Incorporated by reference to Exhibit 10.11
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.3 First Amendment to Loan and Security Agreement dated July 7,
1995 between the Company and Fremont Financial Corporation,
amending Loan and Security agreement dated October 8, 1993.
Incorporated by reference to Exhibit 10 to the Quarterly
Report on Form 10-Q for the quarterly period ended May 31,
1995.
Page 19
20
10.4 Lease Agreement Re: South Carolina Facility. Incorporated by
reference to Exhibit 10(q) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.5 Lease Agreement Re: San Antonio Facility. Incorporated by
reference to Exhibit 10(r) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.6 Lease Agreement Re: San Antonio Facility Extension.
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1991.
10.7 Lease Agreement Re: San Antonio Facility Extension dated July
7, 1992. Incorporated by reference to Exhibit 10.3.4 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.8 Lease Agreement Re: San Antonio Facility Extension dated July
31, 1992. Incorporated by reference to Exhibit 10.3.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.9 Lease Agreement Re: Corporate Headquarters in San Antonio
dated January 13, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.17 of the Annual Report on Form 10-K for the year
ended August 31, 1993.
10.10 1990 Employment Agreement with Eugene H. Karam (unsigned).
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1992.
10.11 Employment Agreement with Loren M. Eltiste dated October 6,
1992. Incorporated by reference to Exhibit 10.4.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.12 Non-Qualified Stock Option Grant to Loren M. Eltiste dated
October 20,1992. Incorporated by reference to Exhibit 10.26
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.13 Distribution Agreement (the "Distribution Agreement") with
Eurostar Perfumes, Inc. and S&J Perfume, Ltd. Dated October
28, 1992. Incorporated by reference to Exhibit 10.5 of the
annual Report on Form 10-K for the year ended August 31, 1992.
10.14 Letter Agreement Amendment dated August 30, 1993 to the
Distribution Agreement. Incorporated by reference to Exhibit
10.28 of the Annual Report on Form 10-K for the year ended
August 31, 1993.
10.15 Agreement and First Amendment to Distribution Agreement dated
October 8, 1993 with Eurostar Perfumes, Inc. and S&J Perfume,
Ltd. Incorporated by reference to Exhibit 10.29 of the Annual
Report on Form 10-K for the year ended August 31, 1993.
10.16 Agreement dated August 31, 1995, among the Company, Eurostar
Perfumes, Inc. and Starion International, Ltd., terminating
the Distribution Agreement. Incorporated by reference to
Exhibit 10.3 of the Report on Form 8-K dated August 31, 1995.
Page 20
21
10.17 Agreement dated August 31, 1993 between the Core Sheth
Families, Viren Sheth, Starion International, Ltd. and the
Registrant. Incorporated by reference to Exhibit 10.31 of the
Annual Report on Form 10-K for the year ended August 31, 1993.
10.18 Financing Agreement dated August 31, 1993 between the Core
Sheth Families and the Registrant. Incorporated by reference
to Exhibit 10.32 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.19 Design Agreement dated October 28, 1993 between Eurostar
Perfumes Inc. and the Registrant. Incorporated by reference
to Exhibit 10.33 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.20 Lease Agreement Re: Bulk Warehouse Facility in San Antonio
dated December 8, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.1 of Quarterly Report on Form 10-Q for period ended
November 30, 1993.
10.21 Employment Agreement between the Company and Eugene H. Karam
dated January 14, 1994. Incorporated by reference to Exhibit
10.1 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
10.22 Incentive Stock Option between the Company and Eugene H. Karam
dated February 14, 1994. Incorporated by reference to Exhibit
10.2 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
10.23 Sub-Lease Agreement Re: former San Antonio Distribution
Facility, dated August 31, 1994, between DHI Enterprises, Inc.
d/b/a Service Tech. Supply and Registrant. Incorporated by
reference to Exhibit 10.37 of the Annual Report on Form 10-K
for the year ended August 31, 1994.
10.24 Agreement and Plan of Merger dated as of July 1, 1995, among
the Company, Eurostar Perfumes, Inc. and Transvit
Manufacturing Corporation. Incorporated by reference to
Exhibit 10.1 of the report on Form 8-K dated August 31, 1995.
10.25 Amendment to Common Stock Purchase Warrant dated August 31,
1995, between the Company and Starion International, Ltd.
Incorporated by reference to Exhibit 10.2 of the Report on
Form 8-K dated August 31, 1995.
*10.26 Line of Credit Promissory Note dated August 1, 1993, between
the Company (original entered into with Eurostar) and Transvit
Manufacturing Corporation.
*10.27 Loan and Security Agreement dated June 27, 1995, between the
Company (originally entered into with Eurostar) and Fremont
Financial Corporation with Special Provisions Rider.
*10.28 Employment Agreement between the Company (originally entered
into with Eurostar) and Ricardo Bunge dated January 1, 1993,
and as amended June 5, 1995.
*11 Statement Re: Computation of Per Share Earnings.
*18 Preferability letter from KPMG Peat Marwick LLP regarding
change in accounting principles dated November 6, 1995.
*24.1 Consent by Coopers and Lybrand L.L.P. for Fiscal 1994 and
Fiscal 1993.
Page 21
22
*24.2 Consent by KPMG Peat Marwick LLP for Fiscal 1995.
___________________________
* Attached as Exhibits hereto.
Page 22
23
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
Date: December 11, 1995 TRISTAR CORPORATION
By: /s/ Viren S. Sheth
-------------------
VIREN S. SHETH,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/Loren M. Eltiste
-------------------
LOREN M. ELTISTE,
Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: December 11, 1995 /s/Richard P. Rifenburgh
------------------------
RICHARD P. RIFENBURGH, Director
Date: December 11, 1995 /s/Robert R. Sparacino
----------------------
ROBERT R. SPARACINO, Director
Date: December 11, 1995 /s/Viren S. Sheth
-----------------
VIREN S. SHETH, Director
Date: December 11, 1995 /s/Aaron Zutler
---------------
AARON ZUTLER, Director
Date: December 11, 1995 Shashikant S. Sheth
-------------------
SHASHIKANT S. SHETH, Director
Page 23
24
TRISTAR CORPORATION
SAN ANTONIO, TEXAS
ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 31, 1995
Item 14(a)(1) and (2), (c), and (d)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
TRISTAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
ITEM 14(A)(1) AND (2)
The following consolidated financial statements of TRISTAR CORPORATION and
subsidiaries are included in Item 8:
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Auditors F1 AND F2
Consolidated Financial Statements:
Balance sheets as of August 31, 1995 and 1994 F3 AND F4
Statements of operations for each of the three
years in the period ended August 31, 1995 F5
Statements of shareholders' equity for each of the
three years in the period ended August 31, 1995 F6
Statements of cash flows for each of the three years in
the period ended August 31, 1995 F7
Notes to consolidated financial statements F8 TO F24
25
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of TRISTAR CORPORATION
and subsidiaries are included in Item 14(d):
Schedule VIII -- Valuation and qualifying accounts F25
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Tristar Corporation:
We have audited the consolidated financial statements of Tristar Corporation
and subsidiaries as listed in the accompanying index as of and for the year
ended August 31, 1995. In connection with our audit of the consolidated
financial statements, we also have audited the financial statement schedule as
of and for the year ended August 31, 1995 as listed in the accompanying index.
These consolidated financial statements and the financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedule 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 provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tristar Corporation
and subsidiaries as of August 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule as of and for the year ended August 31, 1995, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We previously audited and reported on the consolidated balance sheet as of
September 30, 1994 of Eurostar Perfumes, Inc. and subsidiaries and the related
consolidated statements of operations and cash flows for the years ended
September 30, 1994 and 1993, prior to Tristar Corporation's pooling of
interests with Eurostar Perfumes, Inc. As described in Note 2 to the
consolidated financial statements, Tristar Corporation's financial statements
were restated for the August 31, 1995 combination. The contribution of
Eurostar Perfumes, Inc. and subsidiaries to total assets represented 45% of the
restated totals after elimination of intercompany balances in 1994, and
represented 9% and 1% of revenues after elimination of intercompany sales of
$26,725,000 and $27,864,000 in 1994 and 1993, respectively. Separate financial
statements of Tristar Corporation included in the 1994 and 1993 restated
consolidated financial statements were audited and reported on separately by
other auditors. We also audited the combination of the consolidated financial
statements as of and for each of the years in the two year period ended
August 31, 1994 as listed in the accompanying index, after restatement for the
August 31, 1995 pooling of interests; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 2 to the
consolidated financial statements. We also audited the combination of the
financial statement schedule as of and for the years ended August 31, 1994 and
1993, after restatement for the August 31, 1995 pooling of interests; in our
opinion, the schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, has been properly combined on the basis
described in Note 2 to the consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for inventories in 1994.
KPMG PEAT MARWICK LLP
San Antonio, Texas
November 6, 1995
F-1
27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Tristar Corporation
We have audited the consolidated balance sheet of Tristar Corporation and
Subsidiaries as of August 31, 1994, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the two years in the
period ended August 31, 1994 (not presented herein). In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules as of and for the years then ended (not presented herein).
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tristar
Corporation and Subsidiaries as of August 31, 1994, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended August 31, 1994 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
November 11, 1994, except for Note 16
as to which the date is November 22, 1994
F-2
28
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31
---------------------------------
1995 1994
----------- ------------
ASSETS
Current assets:
Cash $ 806,000 $ 1,700,000
Accounts receivable, less allowance for doubtful accounts
of $419,000 and $589,000, respectively 6,038,000 7,025,000
Accounts receivable - related parties - net (Note 8) 662,000 445,000
Inventories (Note 4) 14,406,000 13,585,000
Prepaid expenses 253,000 345,000
Refundable income taxes (Note 10) -- 1,774,000
Deferred income taxes (Note 10) 1,101,000 2,812,000
----------- ------------
Total current assets 23,266,000 27,686,000
----------- ------------
Property, plant and equipment, less accumulated depreciation
of $3,637,000 and $2,669,000 (Note 3) 9,851,000 10,812,000
----------- ------------
Other assets:
Warrant valuation, less accumulated amortization
of $1,353,000 and $367,000, respectively (Notes 7 and 14) 736,000 1,722,000
Other assets 195,000 150,000
Deferred income taxes (Note 10) 2,780,000 532,000
----------- ------------
Total other assets 3,711,000 2,404,000
----------- ------------
Total assets $36,828,000 $ 40,902,000
=========== ============
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-3
29
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31
-----------------------------------
1995 1994
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (Note 5) $ 5,383,000 $ 4,511,000
Accounts payable-trade 1,982,000 2,471,000
Accounts payable-related parties - net (Note 8) 536,000 1,750,000
Accrued bonuses 97,000 302,000
Accrued litigation expense 2,000 175,000
Accrued interest expense 603,000 434,000
Accrued promotion expense 62,000 455,000
Other accrued expenses 1,184,000 1,403,000
Income taxes payable (Note 10) 508,000 2,028,000
Current portion of capital lease obligations 30,000 38,000
Current portion of long-term obligations (Note 6) 2,118,000 2,134,000
------------- -------------
Total current liabilities 12,505,000 15,701,000
Shareholder litigation settlement (Note 14) -- 4,500,000
Long-term debt, less current portion (Note 6) 3,044,000 185,000
Obligations under capital leases, less current portion 27,000 54,000
Subordinated long term debt - related parties (Notes 6 and 7) 11,166,000 9,166,000
------------- -------------
Total liabilities 26,742,000 29,606,000
------------- -------------
Commitments and contingencies (Notes 9, 13 and 14)
Shareholders' equity (Notes 7 and 11):
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 16,629,683 shares in 1995 and
16,619,348 shares in 1994 166,000 166,000
Additional paid-in-capital 10,281,000 10,229,000
Receivable from shareholders - related parties -- (500,000)
Accumulated deficit (361,000) 1,401,000
------------- -------------
Total shareholders' equity 10,086,000 11,296,000
------------- -------------
Total liabilities and shareholders' equity $ 36,828,000 $ 40,902,000
============= =============
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-4
30
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31
--------------------------------------------------
1995 1994 1993
----------- ----------- -----------
Net sales $44,728,000 $51,244,000 $51,690,000
Cost of sales (Note 7) 31,727,000 33,202,000 34,537,000
----------- ----------- -----------
Gross profit 13,001,000 18,042,000 17,153,000
Selling, general and administrative expenses (Note 7) 11,654,000 12,906,000 11,691,000
----------- ----------- -----------
Income from operations 1,347,000 5,136,000 5,462,000
Other income (expense):
Interest expense (1,641,000) (1,533,000) (590,000)
Other (expense) income (Note 7) (1,773,000) (311,000) 33,000
Insurance reimbursement (Note 17) 2,065,000 -- --
Litigation expenses (Note 14) (269,000) (208,000) (2,758,000)
Shareholders litigation settlement (Note 14) -- -- (9,500,000)
----------- ----------- -----------
(Loss) income before income taxes (271,000) 3,084,000 (7,353,000)
(Benefit) expense for income taxes (Note 10) 661,000 1,694,000 (2,629,000)
----------- ----------- -----------
Net (loss) income $ (932,000) $ 1,390,000 $(4,724,000)
=========== =========== ===========
(Loss) income per common share (Note 11) $ (0.06) $ 0.08 $ (0.28)
=========== =========== ===========
Weighted average number of shares outstanding 16,625,341 16,851,644 16,601,048
=========== =========== ===========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-5
31
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
COMMON STOCK
-------------------------- ADDITIONAL RETAINED RECEIVABLES
NUMBER PAID-IN (DEFICIT) FROM
OF SHARES AMOUNT CAPITAL EARNINGS SHAREHOLDERS
---------- --------- ------------ ----------- ------------
Balance, August 31, 1992, as previously reported 6,618,641 $ 66,000 $ 7,527,000 $ 5,234,000 $
---------- --------- ------------ ----------- ----------
Adjustments for Eurostar
Perfumes, Inc., pooling of interests 9,977,810 100,000 (499,000)
---------- --------- ------------ ----------- ----------
Balance, August 31, 1992, as restated 16,596,451 $ 166,000 $ 7,527,000 $ 4,735,000 $ --
Net loss (4,724,000)
Contribution to 401(k) Plan 7,262 49,000
Exercise of stock options 2,000 3,000
Stock warrants (Notes 7 and 11) 500,000 (500,000)
---------- --------- ------------ ----------- ----------
Balance, August 31, 1993 16,605,713 $ 166,000 $ 8,079,000 $ 11,000 $ (500,000)
Net income 1,390,000
Contribution to 401(k) Plan 11,635 58,000
Exercise of stock options 2,000 3,000
Stock warrants (Notes 7 and 11) 2,089,000
---------- --------- ------------ ----------- ----------
Balance, August 31, 1994 16,619,348 $ 166,000 $ 10,229,000 $ 1,401,000 $ (500,000)
Adjustment to conform fiscal year of Eurostar
Perfumes, Inc. (830,000)
Net loss (932,000)
Contribution to 401(k) Plan 10,335 52,000
Repayment of receivable from
shareholders (Notes 7 and 11) 500,000
---------- --------- ------------ ----------- ----------
Balance, August 31, 1995 16,629,683 $ 166,000 $ 10,281,000 $ (361,000) $ --
========== ========= ============ =========== ==========
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-6
32
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31
-----------------------------------------------------
1995 1994 1993
----------- ----------- -----------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net (loss) income $ (932,000) $ 1,390,000 $(4,724,000)
Adjustments to reconcile net (loss)
income to net cash (used in) provided by
operating activities:
Shareholder litigation settlement -- -- 9,500,000
Depreciation and amortization 1,611,000 1,412,000 1,004,000
Provision for losses on accounts receivable 349,000 500,000 255,000
Provision for market valuation of inventory 469,000 600,000 254,000
Provision for LIFO valuation 995,000 281,000 --
Deferred income tax expense (benefit) (537,000) 1,383,000 (4,094,000)
Loss on disposal of assets 50,000 71,000 99,000
Reserve for impairment of assets 187,000 -- --
Issuance of stock in connection with 401K plan 52,000 58,000 49,000
Amortization of warrant valuations 986,000 367,000 --
Change in operating assets and liabilities:
Accounts receivable (522,000) (411,000) (3,495,000)
Inventories (3,111,000) (590,000) (1,462,000)
Prepaid expense 169,000 (18,000) (57,000)
Refundable income taxes 1,774,000 (354,000) 1,019,000
Income taxes payable (1,787,000) (220,000) --
Accounts payable (337,000) (2,271,000) 3,506,000
Accrued expenses (163,000) 1,444,000 341,000
Other liabilities (8,000) 95,000 123,000
Shareholder litigation settlement liability (4,500,000) (3,500,000) (1,500,000)
----------- ----------- -----------
Net cash (used in) provided by operating activities (5,255,000) 237,000 818,000
----------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures (787,000) (1,896,000) (3,816,000)
Proceeds from sale of investment -- 100,000 --
Proceeds from sale of fixed assets 64,000 26,000 18,000
(Increase) decrease in other assets (120,000) (149,000) 77,000
----------- ----------- -----------
Net cash (used in) provided by investing activities (843,000) (1,919,000) (3,721,000)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net increase (decrease) in short term borrowings 872,000 2,006,000 (1,125,000)
Proceeds from long-term subordinated debt 6,500,000 3,500,000 9,159,000
Payments of subordinated long-term debt (5,050,000) (2,753,000) --
Proceeds from long-term debt 3,570,000 -- 2,015,000
Principal payments under debt obligations (177,000) (30,000) (6,697,000)
Principal payments other long-term debt (23,000) -- (1,088,000)
Collection on receivable from stockholder 500,000 -- --
Proceeds from issuance of common stock -- 3,000 3,000
----------- ----------- -----------
Net cash provided by (used in) financing activities 6,192,000 2,726,000 2,267,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 94,000 1,044,000 (636,000)
CASH AT BEGINNING OF YEAR 1,700,000 656,000 1,292,000
POOLING ADJUSTMENT TO BEGINNING OF
YEAR BALANCE TO CONFORM FISCAL YEARS (988,000) -- --
----------- ----------- -----------
CASH AT END OF YEAR $ 806,000 $ 1,700,000 $ 656,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,446,000 $933,000 $501,000
Income taxes paid net of refunds $672,000 $958,000 $560,000
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-7
33
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
AFFILIATION:
The Company, which is primarily owned by companies under the control of the
Core Sheth Families (Starion International, Ltd., a British Virgin Islands
Limited Partnership ("Starion B.V.I.")and Transvit Manufacturing Corporation
("Transvit")), merged with its primary fragrance supplier and manufacturer,
Eurostar Perfumes, Inc., on August 31, 1995. The merger has been accounted for
in a manner similar to a pooling of interests, as the companies were considered
entities under common control. See Note 2 for further discussion of the merger
transaction. The Company operates in one industry segment, the development,
manufacture, marketing and distribution of designer alternative fragrances,
original fragrances and cosmetic pencils and in the marketing and distribution
of other cosmetic products and selected toiletry products.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Tristar
Corporation and all subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
INVENTORY:
Inventories are stated at the lower of cost or market.
Approximately 96% and 46% of inventories were determined using the last-in,
first-out (LIFO) method in 1995 and 1994, respectively. Non-LIFO inventories
were valued using either the first-in, first-out (FIFO) or weighted average
cost methods. Effective September 1, 1993, the Company changed its method of
accounting for certain inventories from the FIFO method to the LIFO method.
Management believes that the LIFO method has the effect of minimizing the
impact of price level changes on inventory valuations and generally matches
current costs against current revenues in the consolidated statement of
operations. The pro forma effect of retroactive application is not
determinable, and, therefore, no cumulative effect on beginning retained
earnings is presented. The effect of the change on net (loss) income was not
material.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is determined
by the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to operations.
REVENUE RECOGNITION:
Revenue is recognized by the Company when goods are shipped and title passes to
the purchaser.
F-8
34
NET (LOSS) INCOME PER SHARE:
Net (loss) income per share is computed based on the weighted average number of
common shares outstanding during each year and common equivalent shares of
dilutive stock options and warrants.
WARRANT VALUATION:
Common stock purchase warrants related to the Stockholder Class Action
Litigation Settlement were valued using the Black Scholes Method. Amortization
of the value will be straight line into fiscal 2006.
RECLASSIFICATIONS:
Certain data within the financial statements has been reclassified for prior
years to conform to the current year's presentation.
FOREIGN CURRENCY TRANSACTIONS:
The Company purchases a significant portion of its inventory for its
manufacturing operations from foreign suppliers. Such inventory is recorded
using currency exchange rates in effect on the date of purchase. Gains and
losses on the settlement of accounts payable for such purchases are recorded
based upon the currency exchange rates in effect on the date of settlement.
Gains and losses on accounts payable to be settled subsequent to August 31,
1995, 1994 and 1993 have been provided based upon the currency exchange rates
in effect on August 31, 1995, 1994 and 1993. Financial statements from foreign
subsidiaries have been translated based on the U.S. dollar being the functional
currency of the subsidiaries. Assets, with the exception of inventories, fixed
assets, and liabilities are translated at the appropriate period ending
exchange rates. Inventories and fixed assets are translated at historical
exchange rates. Results of operations, with the exception of cost of sales,
are translated using the average exchange rates prevailing throughout the year.
Cost of sales is translated at the historic rates of the inventory sold.
Translation gains or losses and exchange gains or losses are reflected in the
Statements of Operations.
The net gain (loss) on transactions in foreign currencies and translation gains
(losses) for the years ended August 31, 1995, 1994 and 1993 were ($94,000),
$59,058 and ($5,205), respectively.
2. MERGER:
Merger with Eurostar Perfumes, Inc. and Subsidiaries.
On August 30, 1995 the stockholders of Tristar Corporation ("Tristar"),
approved the merger of Eurostar Perfumes, Inc., ("Eurostar"), with and into
Tristar where Tristar is the surviving corporation. The merger was effective
August 31, 1995. Under the terms of the agreement the sole stockholder of
Eurostar, Transvit Manufacturing Corporation ("Transvit"), a Core Sheth
Families affiliate, received an aggregate of 9,977,810 shares of Tristar Common
Stock in exchange for all the issued and outstanding shares of Eurostar Common
Stock. In addition, the exercise price of certain warrants held by an
affiliate of the Core Sheth Families may be reduced in connection with the
Merger in fiscal 1996 under certain conditions related to the performance of
the Company's Common Stock price in the public market. The repricing feature
did not have a significant effect to the financial statements of the Company.
F-9
35
Tristar has, over a period of several years, engaged in numerous transactions
with Eurostar. Prior to the merger, a majority of Tristar's outstanding stock
(approximately 60.5%, disregarding outstanding warrants) was controlled by the
Core Sheth Families, principally through their ownership and control of
("Starion B.V.I."). The Core Sheth Families also own and control Emicos
International Ltd., ("Emicos"), Tristar's primary supplier of cosmetic products
other than cosmetic pencils. After the merger, the Core Sheth Families
beneficially own approximately 84% of the outstanding shares of Tristar Common
Stock (86% assuming the exercise of all outstanding warrants).
In order to facilitate the issuance of the merger-related shares to the Core
Sheth Families, Tristar's stockholders also approved an amendment of the
Certificate of Incorporation of Tristar to increase the authorized number of
shares of Tristar Common Stock from 10,000,000 shares to 30,000,000 shares.
The merger qualifies as a tax-free reorganization and was accounted for in a
manner similar to a pooling of interests. Accordingly, the Company's financial
statements have been restated to include the results of Eurostar for all
periods presented. All significant intercompany transactions have been
eliminated.
Separate results of Tristar and Eurostar during the periods preceding the
merger were as follows:
- -------------------------------------------------------------------------------------
Fiscal year ended: Tristar
(in thousands) as Combined
previously and
reported Eurostar Adjusted
- -------------------------------------------------------------------------------------
AUGUST 31, 1995
---------------
Net sales $ 32,923 $ 34,651 $44,728
Net income (loss) $ (3,831) $ 2,631 $ (932)
AUGUST 31, 1994
---------------
Net sales $ 46,488 $ 31,481 $ 51,244
Net income (loss) $ (4,291) $ 3,163 $ 1,390
AUGUST 31, 1993
---------------
Net sales $ 51,409 $ 28,145 $ 51,690
Net income (loss) $ (8,159) $ 3,839 $(4,724)
- -------------------------------------------------------------------------------------
Eurostar adopted LIFO in fiscal 1994. In order to conform the accounting
policies of the two companies, Tristar's inventories were converted to LIFO in
fiscal 1995.
Prior to the merger, Eurostar's fiscal year end was September 30. The restated
fiscal 1995 financial statements combine financial statements of the Company
with the financial statements of Eurostar for the twelve month period ended
August 31. Accordingly, to conform Eurostar's fiscal year 1995 to Tristar's
fiscal year, the financial results of Eurostar for September 1994 are included
in both fiscal 1994 and 1995. Net sales and net income of Eurostar for the one
month of September 1994, are $4,395,000 and $830,000 respectively, with the net
income reflected as an adjustment to retained earnings in fiscal 1995.
F-10
36
In connection with the merger, the Company recorded one-time transaction costs
of $686,000 in the fourth quarter of fiscal 1995. The transaction costs
include expenses for investment bankers and other professional fees.
3. PROPERTY, PLANT AND EQUIPMENT:
- --------------------------------------------------------------------------------------
AUGUST 31
1995 1994
------------ -------------
Land $ 266,000 $ 266,000
Building 4,442,000 4,389,000
Machinery and equipment 7,920,000 7,751,000
Transportation equipment 120,000 121,000
Fixtures and equipment 750,000 754,000
Leasehold improvements 177,000 200,000
------------ -------------
13,675,000 13,481,000
Less accumulated depreciation (3,637,000) (2,669,000)
Less reserve to reduce assets held for
sale to estimated net realizable value (187,000) --
------------ -------------
$ 9,851,000 $ 10,812,000
============ =============
- --------------------------------------------------------------------------------------
4. INVENTORIES:
- --------------------------------------------------------------------------------------
AUGUST 31
1995 1994
------------ -------------
Raw materials $ 7,269,000 $ 6,041,000
Work-in-process 426,000 810,000
Finished goods 8,608,000 7,765,000
------------ -------------
16,303,000 14,616,000
Reserves for market valuation (621,000) (750,000)
LIFO valuation allowance (1,276,000) (281,000)
------------ -------------
$ 14,406,000 $ 13,585,000
============ =============
- --------------------------------------------------------------------------------------
5. SHORT-TERM BORROWINGS:
The Company had at August 31, 1995, two revolving credit agreements, one to
finance domestic accounts receivables and finished goods inventories
("distribution related")and a second to finance raw materials inventories
("manufacturing related").
The distribution related revolving credit agreement, amended as of July 7,
1995, provides for $10,000,000 of maximum borrowings at the prime rate (8.75%
at August 31, 1995) plus three percentage points per annum, with additional
fees approximating one percentage point per annum. Borrowings under this
credit agreement are limited to 75% of eligible domestic accounts receivable
and 50% of eligible finished goods inventories as defined in the related
agreement. This agreement expires July 1997.
The manufacturing related revolving credit agreement provides for $1,500,000 of
maximum borrowings bearing interest at the prime rate (8.75% at August 31,
1995), plus 1.75% per annum plus additional fees. Borrowings are limited to
F-11
37
40% of eligible manufacturing inventories as defined in the agreement. This
revolving line of credit expires in July 1997.
The credit facilities are secured by substantially all of the assets of the
Company. The agreements contain material adverse change provisions, as well as
certain restrictions and conditions among which are limitations on cash
dividends, capital expenditures and repayments of a prior financing arrangement
with a related party (See Note 6).
As of August 31, 1995, remaining combined availability was $2,440,000, based on
the borrowing formulas above.
The Company is in the process of negotiations for combining the two separate
credit agreements into a single revolving credit line with similar terms and
conditions.
6. LONG-TERM DEBT:
Other long-term debt
- --------------------------------------------------------------------------------------
AUGUST 31
---------------------------------
1995 1994
------------ -------------
Term loan $ 3,417,000 $ --
Equipment purchase agreements 245,000 269,000
------------ -------------
Total $ 3,662,000 $ 269,000
Current maturities of other long-term debt 618,000 84,000
------------ -------------
$ 3,044,000 $ 185,000
============ =============
- --------------------------------------------------------------------------------------
The term loan entered into in July 1995 with the same lender as the short term
revolving credit lines, provides for borrowings of $3.7 million, $0.2 million
of which is still available. This loan is subject to the same debt
restrictions listed above for the revolving credit lines. The interest rate on
this debt is the prime rate (8.75% at August 31, 1995), plus 1.75 percent per
annum plus additional fees. The loan calls for monthly installments and the
loan matures in 2002.
The Company is a party to several long term purchase agreements for computer
and other equipment. Maturity dates range from 1996 to 2000 and interest rates
range from 10.5% to 25.9%. Such agreements provide for monthly payments.
F-12
38
Subordinated long-term debt
- --------------------------------------------------------------------------------------
AUGUST 31
---------------------------------
1995 1994
------------ -------------
Subordinated Debt-Nevell Investments, S.A.,
a related party $ 8,000,000 5,000,000
Subordinated Debt-Transvit Manufacturing
Corporation, a related party 4,666,000 6,216,000
------------ -------------
Total 12,666,000 11,216,000
Current portion of subordinated long-term debt 1,500,000 2,050,000
------------ -------------
$ 11,166,000 $ 9,166,000
============ =============
- --------------------------------------------------------------------------------------
Subordinated Debt-Nevell Investments represents loans made by the Core Sheth
Families through their affiliate Nevell Investments, S.A., to finance the
Company's payments under the stockholder litigation settlement (See Note 14).
The debt bears interest at 6.36% to 8.23% per annum and has a term of ten years
with principal payable 20% at the end of the eighth and ninth years and the
remaining 60% payable at the end of the tenth year.
The agreement with Transvit, a related party, was entered into in August 1993
with maximum borrowings available of $9 million at an interest rate of 4.5
percent per annum. The maturity date under the agreement is July 31, 1996.
However, under the short-term revolving credit agreement (See Note 5) with the
Company's commercial lender, this debt was subordinated to the commercial
lender's debt and repayments were restricted by formula. Based on management's
projections and the utilization of the aforementioned formula, the Company
anticipates that approximately $1.5 million of this debt will be repaid in
fiscal 1996, which has been classified as current maturities of long-term debt
on the accompanying financial statements of the Company.
Aggregate maturities of long-term debt for each of the five years subsequent to
August 31, 1995 are as follows:
----------------------------------
Year ending
August 31, Amount
-------------- ------------
1996 $618,000
1997 599,000
1998 523,000
1999 500,000
2000 500,000
------------
$ 2,740,000
============
----------------------------------
The above schedule does not include anticipated payments on the subordinated
long-term debt to Transvit Manufacturing Corporation as there is no set
payment schedule.
F-13
39
7. RELATED PARTY TRANSACTIONS:
As of August 31, 1995, a majority of the Company's outstanding stock (84%) is
owned by companies under control of the Core Sheth Families. The acquisition
of this ownership occurred in several stages beginning in February 1986 and
ending in August 1995 as a result of the merger of Tristar and Eurostar
discussed in Note 2.
The Company purchases finished goods and fragrance product components from Core
Sheth Families affiliates. During the fiscal years of 1995, 1994, and 1993 the
Company purchased approximately $6,285,000, $7,422,000 and $7,219,000,
respectively, of such products.
During the years ended August 31, 1995, 1994 and 1993, the Company sold
products to Core Sheth Families affiliates in the amounts of approximately
$1,299,000, $1,036,000, and $1,359,000, respectively.
Prior to establishing the Company's manufacturing operations in September 1992
in Pleasanton, Texas, another Core Sheth Families affiliate, S&J Perfumes (now
known as Starion U.K.), supplied fragrances to the Company. The fragrances
supplied by Starion U.K. were purchased through Amuli Export Company ("Amuli"),
an entity which assumed the credit risk involved in Starion U.K.'s sales to the
Company. Purchases through Amuli for the year ended August 31, 1993 were
$6,631,000. No purchases have been made through Amuli in subsequent fiscal
years.
Mr. Eugene Derry, a director, Chairman of the Board and President of the
Company for the period July 1989 through July 1992, acted as a representative
of Amuli in connection with Amuli's dealings with the Company. A business
associate of Mr. Derry's is the owner of Amuli. Final purchases through Amuli
were made in December 1992. The Company had no outstanding liabilities to
Amuli as of August 31, 1995 or 1994.
For the years ended August 31, 1995, 1994 and 1993, the Company incurred fees
to directors of $248,000, $235,000, and $402,000, respectively, of which
$23,000 and $12,000 were unpaid at August 31, 1995 and 1994, respectively.
Such fees related to the Board of Directors meetings, other committee meetings
and events associated with the investigation performed by the Special Committee
of the Board of Directors, formed in October 1992 to conduct a review of
matters associated with the Stockholder Class Action Litigation and the
Securities Commission Investigation. See Note 14 for further discussion.
Selling, general and administrative expenses for the year ended August 31,
1993, included management fees of $979,000 paid to Eurostar Corporation
("EuroCorp."), a wholly-owned subsidiary of Transvit, which employed certain
executives of the Company and provided management services to the Company.
Management fees were equal to the costs incurred by EuroCorp. which included
primarily payroll and related items. Effective with the beginning of fiscal
1994, the employees of EuroCorp. were transferred to the Company.
As part of a sale of Common Stock to the Core Sheth Families in 1990, the
Company for $50,000 issued common stock purchase warrants to the Core Sheth
Families to purchase 400,000 shares of the Company's common stock at a per
share price of $2.75. In connection with the settlement of the shareholder
litigation, the expiration date of these warrants was extended to 2003.
F-14
40
In connection with the settlement of the stockholder class action litigation,
common stock purchase warrants to purchase 2,000,000 shares of the Company's
common stock at a per share price of $5.34 were granted to the Core Sheth
Families. The warrants are exercisable for a period of ten years from their
issuance. A non-interest bearing receivable in the amount of $500,000 (the
cost of the warrants), was recorded in Shareholder's equity in the fiscal 1993
financial statements. This receivable was paid in full in December 1994. See
Note 14 for a description of the litigation settlement.
In recognition that value was received by the Company in return for extending
the expiration date of the warrants to purchase 400,000 shares and the granting
of the new warrants to purchase 2,000,000 shares as described above, the
Company utilized the Black Scholes Method to compute the value. The
computation resulted in the assignment of a value of $2,089,000 (net of the
purchase price of the warrants of $500,000). This net value has been recorded
as part of "Other assets" and as an addition to "Additional paid-in capital".
In fiscal 1995 and 1994, $986,000 and $367,000, respectively, of the $2,089,000
was charged to Other income (expense). The fiscal 1995 amortization expense of
$986,000 included additional warrant amortization expense of approximately
$743,000 which resulted from (1) the write-off of the portion of the warrant
valuation associated with the distribution agreement between Eurostar and
Tristar, which was no longer applicable after the Merger, and (2) the repayment
of $1 million of the subordinated debt with a portion of the proceeds received
from the insurance policy reimbursement (See Note 17). The remainder of the
balance, which is attributable to the favorable terms of the subordinated
long-term financing of the shareholder litigation settlement provided by the
Core Sheth Families, will be amortized to expense through fiscal 2006 when the
final payment is made on the related subordinated debt.
8. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - RELATED PARTIES:
The Company's primary suppliers of fragrance product components and 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 cosmetic pencils to related parties located outside
North and South American countries. 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
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. However, during the fourth fiscal quarter ended
August 31, 1995, additional expenses were incurred which related to the
Company's merger with a related party, Eurostar. See Note 2 for further
discussion of the merger transaction. The following summarizes the
presentations at August 31, 1995 and August 31, 1994.
F-15
41
- --------------------------------------------------------------------------------------
AUGUST 31
---------------------------------
1995 1994
------------ -------------
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties $ 1,070,000 608,000
Offset amount 408,000 163,000
------------ -------------
Net related parties receivables $ 662,000 445,000
============ =============
ACCOUNTS PAYABLE:
Total accounts payable-related parties $ 944,000 1,913,000
Offset amount 408,000 163,000
------------ -------------
Net related parties payables $ 536,000 1,750,000
============ =============
- --------------------------------------------------------------------------------------
9. LEASES:
At August 31, 1995, the approximate aggregate minimum annual rental payments
under non-cancelable operating leases for facilities, excluding renewals, are
as follows:
----------------------------------
Year ending
August 31, Amount
-------------- ------------
1996 $ 505,000
1997 417,000
1998 182,000
1999 --
2000 --
------------
$ 1,104,000
============
----------------------------------
Certain of the above leases include escalation charges based on increases in
real estate taxes, utilities and common maintenance charges.
Rental expense for the years ended August 31, 1995, 1994 and 1993, amounted to
approximately $568,000, $761,000, and $594,000, respectively.
10. INCOME TAXES:
Under the Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109")
the asset and liability method is used in accounting for income taxes.
Deferred tax balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted marginal tax rates and laws that will be in effect when the differences
are expected to reverse.
F-16
42
Income tax expense (benefit) consists of the following:
- --------------------------------------------------------------------------------------------------------------
Current Deferred Total
----------------------------------------------------------
Year ended August 31, 1995
U.S. Federal $ 1,128,000 $ (493,000) $ 635,000
State 70,000 (44,000) 26,000
------------ ----------- ------------
$ 1,198,000 $ (537,000) $ 661,000
============ ============ ============
Year ended August 31, 1994
U.S. Federal $ 62,000 $ 1,271,000 $ 1,333,000
State 249,000 112,000 361,000
------------ ----------- ------------
$ 311,000 $ 1,383,000 $ 1,694,000
============ ============ ============
Year ended August 31, 1993
U.S. Federal $ 1,205,000 $(3,762,000) $(2,557,000)
State 260,000 (332,000) (72,000)
------------ ------------ ------------
$ 1,465,000 $(4,094,000) $(2,629,000)
============ ============ ============
- --------------------------------------------------------------------------------------------------------------
Income tax expense for the years ended August 31, 1995, 1994, and 1993 differed
from the amounts computed by applying the U.S. federal income tax rate to
income before income taxes as a result of the following:
- ---------------------------------------------------------------------------------------------------------------------------
Years ended August 31,
------------------------------------------------------
1995 1994 1993
---------- ---------- ------------
Computed expected tax expense (benefit): $ (92,000) $1,048,000 $(2,500,000)
Increase (decrease) in income taxes resulting from:
State income tax net operating loss carryforward (220,000) -- --
Merger costs not deductible for income tax purposes 248,000 -- --
Warrant expenses not deductible for income tax purposes 335,000 125,000 --
Foreign subsidiary loss not deductible for income tax
purposes 189,000 -- --
State income taxes, net of federal income tax benefit 2,000 276,000 (160,000)
Foreign sales corporation commissions not subject to
income taxes (34,000) (36,000) --
Other, net 233,000 281,000 31,000
---------- ---------- ------------
Total income tax expense $ 661,000 $1,694,000 $(2,629,000)
========== ========== ============
- ---------------------------------------------------------------------------------------------------------------------------
F-17
43
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at August 31, 1995 and
1994 are presented below:
- --------------------------------------------------------------------------------------------------------
AUGUST 31
1995 1994
---------- ----------
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts $ 154,000 $ 169,000
Inventories, principally due to allowance for obsolescence
and difference in LIFO reserve 909,000 777,000
Start-up, organizational costs, and packaging design costs 235,000 164,000
Accrued litigation expenses -- 1,665,000
Compensated absences, principally due to accrual for
financial reporting purposes 44,000 63,000
Net operating loss carryforward 3,099,000 760,000
Alternative minimum tax credit carryforwards 111,000 108,000
Other -- 137,000
---------- ----------
Total deferred tax assets $4,552,000 $3,843,000
---------- ----------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest (665,000) (499,000)
Other (6,000) --
---------- ----------
Total deferred tax liabilities (671,000) (499,000)
---------- ----------
Net deferred tax asset $3,881,000 $3,444,000
========== ==========
- --------------------------------------------------------------------------------------------------------
Based upon the level of historical taxable income and projections for future
taxable income, including the reversal of existing taxable temporary
differences, over the periods which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize
the benefits of these deductible differences.
At August 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $7,405,000 which are available to
offset future federal taxable income, if any, through 2010. The Company also
has alternative minimum tax credit carryforwards of approximately $111,000
which are available to reduce future federal regular income taxes, if any, over
an indefinite period.
11. SHAREHOLDERS' EQUITY:
The Company has a stock option plan, the Amended and Restated Option Plan (the
"1991 Plan"), which allows for granting both incentive and non-incentive
options, totaling 800,000 shares to key employees.
F-18
44
Options under the 1991 Plan expire ten years from the date of grant. No shares
acquired upon exercise of an option may be sold within six months from the date
of grant of such option. The option price, determined by the Board of
Directors, shall not be less than fair market value of the common stock at the
time of grant, and not less than 110% of such fair market value if granted to
an individual owning more than 10% of the then issued and outstanding shares of
the Company's common stock. To the extent that the aggregate fair market value
(determined as of the date an option is granted) of shares with respect to
which incentive stock options are exercisable for the first time by an optionee
in any calendar year exceeds $100,000, such options shall be treated as
non-incentive options.
- ------------------------------------------------------------------------------------------------
Options Outstanding
Shares -----------------------------------------
Available Number Price
To Grant Of shares Ranges
- ------------------------------------------------------------------------------------------------
Balance at August 31, 1992 353,200 129,000 * $0.50 to $15.875
Options Granted -- --
Options Exercised -- (2,000) $1.4375
Options Canceled/Terminated 24,000 (24,000) $0.50 to $15.875
--------------------- ------------------
Balance at August 31, 1993 377,200 103,000 * $0.50 to $8.125
Options Granted (99,420) 99,420 $5.3750
Options Exercised -- (2,000) $1.4375
Options Canceled/Terminated -- --
--------------------- ------------------
Balance at August 31, 1994 277,780 200,420 ** $0.50 to $8.125
Options Granted -- --
Options Exercised -- --
Options Canceled/Terminated -- --
- ----------------------------------------------------------------- ------------------
Balance at August 31, 1995 277,780 200,420 *** $0.50 to $8.125
===================== ==================
- ------------------------------------------------------------------------------------------------
* All options outstanding were exercisable at the respective date.
** 101,000 shares of the outstanding balance were exercisable as of
August 31, 1994.
*** 134,000 shares of the outstanding balance were exercisable as of
August 31, 1995.
During 1992, a non-qualified stock option for 66,206 shares at $6.875 per share
was granted pursuant to an employment contract with an officer. The option is
exercisable in three annual increments. This option is not part of the 1991
Plan.
The Company has 544,406 common shares reserved for future issuance as stock
options (277,780 available to grant and 266,626 granted, but not exercised) and
2,400,000 shares reserved for warrants (Notes 7 and 14).
As part of the agreement of merger between Tristar and Eurostar, the
stockholders of Tristar voted to increase the authorized number of shares from
F-19
45
10,000,000 to 30,000,000. The increase in the number of authorized shares was
necessary in part to issue the 9,977,810 shares to Transvit for all of the
outstanding common shares of Eurostar. See Note 2 for further discussion of
the merger transaction.
12. BENEFIT PLAN:
Substantially all of the Company's full time employees are eligible or will be
eligible on January 1, 1996 to participate in the Company's 401(k) Plan. The
Plan specifies that one-half of the Company's matching contribution is to be
paid by the issuance of common stock at the closing price at the end of each
calendar quarter. During fiscal 1995, 1994 and 1993, a total of 10,335,
11,635, and 7,262, respectively, of such shares were issued to the Plan.
Contributions including the issuance of Common Stock to the Plan were $118,000
in 1995, $108,000 in 1994, and $88,000 in 1993.
13. COMMITMENTS AND CONTINGENCIES:
FREITAS AND KENNER
The Company brought an action in the United States District Court for the
Eastern District of New York seeking to recover from Ross Freitas and Carolyn
Kenner short-swing profits resulting from the purchase and subsequent sale of
Company stock in 1989 while both were officers and directors of the Company.
On November 9, 1994, the Court awarded the Company partial summary judgment
with respect to these claims for approximately $101,000 against Mr. Freitas and
$80,000 against Ms. Kenner, plus interest running from May 1989. Mr. Freitas
and Ms. Kenner have appealed this judgment.
On October 20, 1994, a suit was filed in Florida state court against the
Company, as well as two of its directors, Richard P. Rifenburgh and Robert R.
Sparacino. The plaintiffs in the action are Ross Freitas and Carolyn Kenner,
along with two other individuals, Rose Freitas and Melissa Freitas. The
complaint alleges causes of action by Mr. Freitas and Ms. Kenner for libel and
seeks indemnification in connection with the work of the Special Committee of
the Board of Directors that investigated, among other things, the failure to
disclose the Core Sheth Families' holdings of Company stock. The complaint
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 its ultimate disposition 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
its primary fragrance lines to achieve compliance with the VOC regulations.
The Company has filed with the CARB required registrations of its products and
an application for a temporary variance from VOC regulations until all products
not meeting the requirements can be reformulated. Based on preliminary
discussions with representatives of the CARB, the Company
F-20
46
anticipates that it will be allowed to continue to sell its products in
California during consideration of its variance application and that its
variance will be granted. Any interruption of the Company's sales in
California would have a material adverse effect on the Company's financial
condition.
OTHER
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
any of these proceedings will not have a material adverse effect on the
Company's financial condition.
14. CLASS ACTION LITIGATION:
In December 1993, the Company reached an agreement to settle stockholder class
action litigation regarding alleged violations of the federal securities laws,
as well as common law fraud and negligence in connection with, among other
things, the nondisclosure of the ownership interest of the Core Sheth Families
prior to 1992, for a cash payment of $9.5 million. The settlement resulted in
a release of claims by the plaintiff class against the Company and certain
other defendants. Utilizing $9 million in proceeds from notes payable entered
into under an agreement with the Core Sheth Families, (See Note 7), the Company
paid the total settlement in four installments ($1.5 million in August 1993,
$900,000 in January 1994, $2.6 million in May 1994, and $4.5 million in
December 1994).
In connection with the settlement, common stock purchase warrants to purchase
2,000,000 shares of the Company's common stock at a per share price of $5.34
were granted to the Core Sheth Families. The warrants are exercisable for a
period of ten years from their issuance. A non-interest bearing receivable in
the amount of $500,000 (the cost of the warrants), recorded in Shareholder's
Equity in the fiscal 1993 financial statements was paid in December 1994. The
per share price of the common stock under the warrants will increase by ten
percent per year after the first seven years. As part of the merger agreement
with the Core Sheth Families described in Note 2, the $5.34 purchase price may
be reduced in fiscal 1996 under certain conditions related to the performance
of the Company's stock price in the public market. As part of the settlement,
the Company also extended to August 31, 2003, the exercise date of warrants
held by a Core Sheth Families affiliate, to purchase 400,000 shares of the
Company's common stock.
In recognition that value was received by the Company in return for extending
the expiration date of the warrants to purchase 400,000 shares and the granting
of the new warrants to purchase 2,000,000 shares as described above, the
Company utilized the Black Scholes Method to compute the value. The
computation resulted in the assignment of a value of $2,089,000 (net of the
purchase price of the warrants of $500,000). This net value was recorded as
part of "Other assets" and as an addition to "Additional paid-in capital" in
fiscal 1994.
The class action settlement included a provision that protects the Company and
other settling defendants against further liability to the class for damages in
connection with related ongoing litigation.
F-21
47
The Company anticipates that it will continue to incur litigation expenses
related to ongoing litigation involving the defendants not covered under the
class action litigation settlement and related to a lawsuit against the
Company's former auditors separate from, but related to, the stockholder class
action against the Company. Any expenses incurred are not expected to be
material to the Company's financial results.
The Company has recorded legal and professional expenses associated with the
stockholder litigation settlement and other related events that were the
subject of an internal investigation by a Special Committee of the Board of
Directors. These expenses were $269,000, $208,000, and $2,758,000 in fiscal
1995, 1994, and 1993, respectively.
15. FOREIGN SALES
The Company exports a significant portion of its sales directly or through its
Mexican and Brazilian subsidiaries to foreign customers. For the years ended
August 31, 1995, 1994, and 1993, these sales were $17,165,000 (38% of net
sales), $13,057,000 (25% of net sales), and $11,361,000 (22% of net sales),
respectively. In fiscal 1995 and 1994 these customers were primarily located
in Latin America. In addition, certain U.S. based customers ultimately
distribute the Company's products in foreign countries. The volume of the
indirect exports, which may be significant, can only be estimated as customers
do not provide that information to the Company.
16. QUARTERLY RESULTS (UNAUDITED):
As discussed in Note 2, Tristar merged with its primary fragrance supplier
Eurostar at August 31, 1995. The following tables reflect the restatement of
the first three quarters of fiscal 1995 and fiscal year 1994 for the merger,
which was treated in a manner similar to a pooling of interests.
- ---------------------------------------------------------------------------------------------------
1995
QUARTER ENDED
- ---------------------------------------------------------------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
------------ ------------ ------------ -------------
Net Sales $ 15,075,000 $ 8,410,000 $ 8,935,000 $ 12,308,000
Gross Profit 4,692,000 2,570,000 2,403,000 3,336,000
Net Income (loss) 1,357,000 (465,000) (450,000) (1,374,000)
Net Income (loss) Per Share $ .08 $ (.03) $ (.03) $ (.08)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
1994
QUARTER ENDED
- ---------------------------------------------------------------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
------------ ------------ ------------ -------------
Net Sales $ 15,866,000 $ 11,937,000 $ 10,727,000 $12,714,000
Gross Profit 6,376,000 4,627,000 3,422,000 3,617,000
Net Income (loss) 1,212,000 503,000 (55,000) (270,000)
Net Income (loss) Per Share $ .07 $ .03 $ (.00) $ (.02)
- ---------------------------------------------------------------------------------------------------
The fourth quarter of fiscal 1995 includes merger related expenses of $686,000
and warrant amortization of $743,000 related to the write-off of the portion of
the warrant valuation associated with the distribution agreement that was
F-22
48
in existence between Eurostar and Tristar, which was no longer applicable after
the Merger, and to the repayment of $1 million of the subordinated debt with a
portion of the proceeds received from the insurance policy disbursement.
The second quarter of fiscal 1994 and the fourth quarter of fiscal 1995 include
insurance proceeds (See Note 17), of $1,250,000 and $815,000, respectively.
The fourth quarter of fiscal 1994 includes inventory and allowances for
doubtful account reserve estimation revisions approximating $500,000.
The summation of the quarterly earnings per share may not be equal to the
annual earnings per share due to rounding.
17. PROCEEDS OF AN EXECUTIVE LIABILITY AND INDEMNIFICATION POLICY
In November 1994, the United States District Court for the District of South
Carolina approved the disbursement of $1.25 million to the Company from the
proceeds of an executive liability and indemnification policy owned by the
Company, which is recorded under other income in the accompanying financial
statements. In December 1994, $1,000,000 of the proceeds were utilized to
repay a portion of the existing long term subordinated debt in accordance with
the financing agreement with the Core Sheth Families, a related party.
In June 1995, the Company received the balance ($750,000) of the proceeds of
the policy as well as approximately $65,000 of interest earned during the
period the court held the proceeds, all of which is recorded under other income
in the accompanying financial statements. This court approved distribution is
subject to appeal by other claimants under the policy.
F-23
49
SCHEDULE VIII
TRISTAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END
OF PERIOD EXPENSES DESCRIBE DESCRIBE * OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts:
Year ended August 31, 1995 $589,000 $349,000 $519,000 $419,000
Year ended August 31, 1994 $314,000 $500,000 $225,000 $589,000
Year ended August 31, 1993 $358,000 $255,000 $299,000 $314,000
* Uncollectible accounts written off, net of recoveries.
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
(1) (2)
BALANCE AT CHARGED TO COSTS CHARGED TO
BEGINNING AND OTHER ACCOUNTS- DEDUCTIONS- BALANCE AT END
OF PERIOD EXPENSES DESCRIBE** DESCRIBE *** OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
Inventory reserves:
Year ended August 31, 1995 $750,000 $1,229,000 ($995,000) $363,000 $621,000
Year ended August 31, 1994 $422,000 $600,000 $272,000 $750,000
Year ended August 31, 1993 $168,000 $254,000 $0 $422,000
- -----------------------------------------------------------------------------------------------------------------------------------
** Transfer to LIFO Valuation
*** Lower of cost or market adjustment.
50
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Registrant, as amended.
Incorporated by reference to Exhibit 3.1 of the Report on Form
8-K dated August 31, 1995.
3.2 By-Laws of the Registrant (Amended as of August 14, 1992).
Incorporated by reference to Exhibit 3.2 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
4 Form of Registrant Common Stock certificate. Incorporated by
reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q
for the quarterly period ended February 28, 1993.
10.1 1991 Amended and Restated Stock Option Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
10.2 Loan and Security Agreement dated October 8, 1993 between
Registrant and Fremont Financial Corporation with Special
Provisions Rider. Incorporated by reference to Exhibit 10.11
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.3 First Amendment to Loan and Security Agreement dated July 7,
1995 between the Company and Fremont Financial Corporation,
amending Loan and Security agreement dated October 8, 1993.
Incorporated by reference to Exhibit 10 to the Quarterly
Report on form 10-Q for the quarterly period ended May 31,
1995.
10.4 Lease Agreement Re: South Carolina Facility. Incorporated by
reference to Exhibit 10(q) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.5 Lease Agreement Re: San Antonio Facility. Incorporated by
reference to Exhibit 10(r) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.6 Lease Agreement Re: San Antonio Facility Extension.
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1991.
10.7 Lease Agreement Re: San Antonio Facility Extension dated July
7, 1992. Incorporated by reference to Exhibit 10.3.4 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.8 Lease Agreement Re: San Antonio Facility Extension dated July
31, 1992. Incorporated by reference to Exhibit 10.3.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.9 Lease Agreement Re: Corporate Headquarters in San Antonio
dated January 13, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.17 of the Annual Report on Form 10-K for the year
ended August 31, 1993.
51
10.10 1990 Employment Agreement with Eugene H. Karam (unsigned).
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1992.
10.11 Employment Agreement with Loren M. Eltiste dated October 6,
1992. Incorporated by reference to Exhibit 10.4.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.12 Non-Qualified Stock Option Grant to Loren M. Eltiste dated
October 20,1992. Incorporated by reference to Exhibit 10.26
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.13 Distribution Agreement ("Distribution Agreement") with
Eurostar Perfumes, Inc. and S&J Perfume, Ltd. Dated October
28, 1992. Incorporated by reference to Exhibit 10.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.14 Letter Agreement Amendment dated August 30, 1993 to the
Distribution Agreement. Incorporated by reference to Exhibit
10.28 of the Annual Report on Form 10-K for the year ended
August 31, 1993.
10.15 Agreement and First Amendment to Distribution Agreement dated
October 8, 1993 with Eurostar Perfumes, Inc. and S&J Perfume,
Ltd. Incorporated by reference to Exhibit 10.29 of the Annual
Report on Form 10- K for the year ended August 31, 1993.
10.16 Agreement dated August 31, 1995, among the Company, Eurostar
Perfumes, Inc. and Starion International, Ltd., terminating
the Distribution Agreement. Incorporated by reference to
Exhibit 10.3 of the Report on Form 8-K dated August 31, 1995.
10.17 Agreement dated August 31, 1993 between the Core Sheth
Families, Viren Sheth, Starion International, Ltd. and the
Registrant. Incorporated by reference to Exhibit 10.31 of the
Annual Report on Form 10-K for the year ended August 31, 1993.
10.18 Financing Agreement dated August 31, 1993 between the Core
Sheth Families and the Registrant. Incorporated by reference
to Exhibit 10.32 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.19 Design Agreement dated October 28, 1993 between Eurostar
Perfumes Inc. and the Registrant. Incorporated by reference
to Exhibit 10.33 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.20 Lease Agreement Re: Bulk Warehouse Facility in San Antonio
dated December 8, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.1 of Quarterly Report on Form 10-Q for period ended
November 30, 1993.
10.21 Employment Agreement between the Company and Eugene H. Karam
dated January 14, 1994. Incorporated by reference to Exhibit
10.1 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
52
10.22 Incentive Stock Option between the Company and Eugene H. Karam
dated February 14, 1994. Incorporated by reference to Exhibit
10.2 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
10.23 Sub-Lease Agreement Re: former San Antonio Distribution
Facility, dated August 31, 1994, between DHI Enterprises, Inc.
d/b/a Service Tech. Supply and Registrant. Incorporated by
reference to Exhibit 10.37 of the Annual Report on Form 10-K
for the year ended August 31, 1994.
10.24 Agreement and Plan of Merger dated as of July 1, 1995, among
the Company, Eurostar Perfumes, Inc. and Transvit
Manufacturing Corporation. Incorporated by reference to
Exhibit 10.1 of the report on Form 8- K dated August 31, 1995.
10.25 Amendment to Common Stock Purchase Warrant dated August 31,
1995, between the Company and Starion International, Ltd.
Incorporated by reference to Exhibit 10.2 of the Report on
Form 8-K dated August 31, 1995.
*10.26 Line of Credit Promissory Note dated August 1, 1993, between
the Company (original entered into with Eurostar) and Transvit
Manufacturing Corporation.
*10.27 Loan and Security Agreement dated June 27, 1995, between the
Company (originally entered into with Eurostar) and Fremont
Financial Corporation with Special Provisions Rider.
*10.28 Employment Agreement between the Company (originally entered
into with Eurostar) and Ricardo Bunge dated January 1, 1993,
and as amended June 5, 1995.
*11 Statement Re: Computation of Per Share Earnings.
*18 Preferability letter from KPMG Peat Marwick LLP regarding
change in accounting principles dated November 6, 1995.
*24.1 Consent by Coopers and Lybrand L.L.P. for Fiscal 1994 and
Fiscal 1993.
*24.2 Consent by KPMG Peat Marwick LLP for Fiscal 1995.
*27 Financial Data Schedule.
___________________________
* Attached as Exhibits hereto.