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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
to
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report:
JUNE 9, 1997
(Date of Earliest Event Reported)
CYRK, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-21878 04-3081657
(Commission File Number) (I.R.S. Employer Identification No.)
3 POND ROAD, GLOUCESTER, MA 01930
(Address of Principal Executive Offices)
(Zip Code)
(508) 283-5800
(Registrant's Telephone Number, Including Area Code)
2
The undersigned registrant hereby amends its current report on Form 8-K dated
June 24, 1997 to include the financial statements required by Item 7(a) and the
pro forma financial information required by Item 7(b).
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
On June 9, 1997, the registrant acquired all of the issued and outstanding
capital stock of Simon Marketing, Inc. ("Simon"), a Nevada corporation, by means
of the merger of Simon with and into SMI Merger, Inc. ("SMI"), a wholly-owned
subsidiary of the registrant, with SMI being the surviving corporation. The
aggregate consideration paid to Allan Brown and Eric Stanton, the holders of all
of the issued and outstanding Simon common stock prior to the merger, consisted
of $45,000,000, composed of (i) $25,000,000 in cash and (ii) 1,840,138 shares of
the registrant's common stock. If certain performance targets are achieved an
additional $5,000,000 may be paid to Allan Brown and Eric Stanton in the form of
shares of the registrant's common stock. In addition, $3,350,000 was paid to
key employees of Simon at closing. An additional $9,600,000 will be paid to
such persons within four years of the closing of which $5,100,000 is to be paid
in cash and $4,500,000 in the form of shares of the registrant's common stock.
The unaudited pro forma condensed combined balance sheet included in this report
assumes the acquisition took place on March 31, 1997, while the unaudited pro
forma condensed combined statements of operations included in this report
assume the acquisition took place on January 1, 1996. The unaudited pro forma
combined financial statements reflect the acquisition being accounted for under
the purchase method.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired:
Simon Marketing, Inc. and Subsidiaries
Report of Independent Public Accountants
Consolidated Balance Sheet as of November 30, 1996
Consolidated Statement of Operations and Retained Earnings for the Year
Ended November 30, 1996
Consolidated Statement of Cash Flows for the Year Ended November 30, 1996
Notes to Consolidated Financial Statements
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Simon Marketing, Inc. and Subsidiaries
Consolidated Balance Sheet as of February 28, 1997
Consolidated Statement of Operations and Retained Earnings for the Three
Months Ended February 28, 1997
Consolidated Statement of Cash Flows for the Three Months Ended
February 28, 1997
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information:
Pro Forma Condensed Combined Balance Sheet as of March 31, 1997
Pro Forma Condensed Combined Statements of Operations:
For the Year Ended December 31, 1996
For the Three Months Ended March 31, 1997
Notes to Pro Forma Condensed Combined Financial Information
(c) Exhibits:
Exhibit 23 Consent of Arthur Andersen LLP - Independent Accountants,
filed herewith
Exhibit 99.2 Amended Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Act of 1995,
filed herewith
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CYRK, INC.
Date: July 23, 1997 By:/s/ Dominic F. Mammola
----------------------
Dominic F. Mammola
Vice President and Chief Financial Officer
(duly authorized officer and principal
financial and accounting officer)
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Item 7(a)
SIMON MARKETING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1996
TOGETHER WITH AUDITORS' REPORT
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders of
Simon Marketing, Inc.:
We have audited the accompanying balance sheets of SIMON MARKETING, INC. (a
Nevada corporation) and subsidiaries as of November 30, 1996 and the related
consolidated statements of operations and retained earnings and cash flows for
the year ended November 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements of Simon Marketing International Limited, which statements
reflect total assets of 22 percent and revenues of 8 percent of the consolidated
totals in 1996. Those statements were audited by other auditors whose reports
have been furnished to us and our opinion, insofar as it relates to the amounts
included for this entity, is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Simon Marketing, Inc. and
subsidiaries as of November 30, 1996 and the results of their operations and
their cash flows for the year ended November 30, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 11, 1997
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SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
NOVEMBER 30, 1996
-----------------
CURRENT ASSETS:
Cash $ 23,388,715
Trade accounts receivable, net
of reserves of $579,000 20,978,932
Income tax/VAT receivable 485,246
Inventories 10,399,265
Prepaid expenses and other 334,120
Deferred income taxes 440,000
------------
56,026,278
------------
PROPERTY AND EQUIPMENT, net:
Furniture and office equipment 4,839,485
Automobiles 282,717
Leasehold improvements 596,761
------------
5,718,963
Less--Accumulated depreciation
and amortization (3,409,481)
------------
2,309,482
------------
OTHER ASSETS:
Advances to officers and employees 415,225
Deposits and other 424,268
Deferred income taxes 660,000
------------
1,499,493
------------
$ 59,835,253
============
The accompanying notes are an integral
part of this consolidated balance sheet.
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SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
NOVEMBER 30, 1996
-----------------
CURRENT LIABILITIES:
Short term borrowings $ 876,880
Current portion of long term obligations 117,242
Accounts payable 23,058,470
Accrued expenses and other 8,081,278
Due to affiliates 3,405,982
Income taxes/VAT payable 3,072,738
Deferred revenue 7,779,643
-----------
46,392,233
-----------
RESERVE FOR INCOME TAXES AND INTEREST 1,665,323
-----------
LONG TERM OBLIGATIONS 292,956
-----------
LONG TERM LEASE LIABILITY 3,253,266
-----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $0.10 par value:
Authorized--500,000 shares
Outstanding--166,500 shares 16,650
Additional paid-in capital 42,500
Retained earnings 7,583,776
Cumulative translation adjustment 588,549
-----------
8,231,475
-----------
$59,835,253
===========
The accompanying notes are an integral
part of this consolidated balance sheet.
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SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
----------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1996
------------------------------------
REVENUES $395,255,521
COSTS AND EXPENSES:
Cost of products sold 346,457,918
Payroll and related taxes 27,238,853
General and administrative 17,683,110
Depreciation and amortization 949,212
------------
Operating income 2,926,428
INTEREST INCOME, net 34,869
------------
Income before income taxes 2,961,297
PROVISION FOR INCOME TAXES 2,809,145
------------
Net income 152,152
------------
RETAINED EARNINGS, beginning of year 7,431,624
------------
RETAINED EARNINGS, end of year $ 7,583,776
============
The accompanying notes are an integral
part of this consolidated statement.
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SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
Increase (decrease) in cash
---------------------------
FOR THE YEAR ENDED NOVEMBER 30, 1996
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 152,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 949,212
Lease expense in excess of cash payments 110,090
Increase in long term obligations 213,395
Net loss on sale of assets 26,573
Changes in assets and liabilities:
Trade accounts receivable, net 3,177,042
Due to affiliate 1,617,034
VAT and income taxes receivable 924,003
Inventories 2,074,974
Prepaid expenses and other 203,455
Deposits and other 7,210
Accounts payable 6,964,574
Accrued expenses and other 3,463,844
Income taxes/VAT payable 1,688,877
Deferred revenue 929,898
------------
Net cash provided by operating activities 22,502,333
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (1,589,751)
Proceeds from sale of assets 63,676
Advances to officers and employees 487,672
------------
Net cash used in investing activities (1,038,403)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short term borrowings, net (3,571,728)
Payments of principal portion of
capital leases (45,227)
------------
Net cash used in financing activities (3,616,955)
------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 368,455
-------------
NET INCREASE IN CASH 18,215,430
CASH, beginning of year 5,173,285
-------------
CASH, end of year $ 23,388,715
=============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 215,000
=============
Income taxes $ 1,354,000
=============
The accompanying notes are an integral part of this
consolidated statement.
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SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOVEMBER 30, 1996
-----------------
1. Summary of Business and Significant Accounting Policies
-------------------------------------------------------
a. Description of Business
-----------------------
Simon Marketing, Inc., a Nevada corporation, and its wholly owned
subsidiaries, are collectively referred to herein as the Company or Simon.
The Company designs and implements sales promotions for companies which are
primarily in the food service industry. Promotion activities include games
and contests, coupon offers and promotional retail items. The Company
conducts promotions for businesses operating throughout the United States
and in foreign countries.
b. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Simon Marketing International GmbH (a
German corporation), Simon Marketing International Limited (a United
Kingdom corporation), Simon Marketing International Services Limited (a
United Kingdom corporation), and Simon Marketing Consulting (Canada)
Limited (a Canada corporation). All significant accounts and transactions
between the Company and its subsidiaries have been eliminated in
consolidation.
c. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant estimates include reserve
for income taxes and interest, long term lease liabilities, deferred income
taxes and accrued expenses and other. Actual results could differ from
those estimates.
d. Revenue Recognition
-------------------
Revenues include amounts paid for promotional items and consulting fees.
Revenues are recognized when promotional goods are shipped or when services
are provided. Deferred revenue includes deposits related to merchandise for
which the Company has received payment
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but for which title and risk of loss have not passed. Consulting fees are
generally recognized on a cash basis and were approximately $5,863,000 for
the year ended November 30, 1996.
e. Inventories
-----------
Inventories include actual costs of materials incurred for specific
promotions.
f. Advances to Officers and Employees
----------------------------------
Advances to officers and employees consist primarily of unsecured,
non-interest bearing loans with face values of up to $325,000. These notes
contain no stipulated repayment terms.
g. Property and Equipment
----------------------
Property and equipment are stated at cost. Furniture and office equipment
are depreciated either on the straight-line or double declining balance
method up to eight years or the useful life of the assets, if shorter.
Leasehold improvements are amortized using the straight-line method over
the life of the lease.
The Company follows the policy of capitalizing expenditures that
significantly increase the useful life of the related assets. Ordinary
repairs and maintenance are charged to operations as incurred. The cost and
related accumulated depreciation and amortization of property and equipment
retired or sold are removed from the accounts, and the gain or loss
resulting from the disposition is reflected in operations.
h. Foreign Currency Translation
----------------------------
The functional currency applicable to the subsidiaries is their local
currency. Assets and liabilities are translated from the functional
currency into United States dollars at the exchange rates prevailing on the
balance sheet dates. Income and expenses are translated at the weighted
average exchange rate in effect during the year. The effect of translating
the financial statements of the subsidiaries is included as a separate
component of shareholders' equity entitled cumulative translation
adjustment.
The cumulative translation adjustment amounted to an increase in equity of
approximately $99,000 for the year ended November 30, 1996. The aggregate
effect of exchange rate changes during the year ended November 30, 1996 was
a loss of approximately $705,000 which is included in general and
administrative expense in the accompanying consolidated statement of
operations.
i. Concentration of Risk
---------------------
Approximately 95 percent of the Company's revenues for the year ended
November 30, 1996 were from an affiliated group of customers.
The Company maintains cash with various financial institutions. These
financial institutions are located in different geographic locations
throughout the world, and Company policy is designed to
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limit exposure with any one institution. As part of its cash management
process, the Company performs periodic evaluations of the relative credit
standing of these financial institutions. Cash balances generally exceed
regulatory insured levels at various periods throughout the year.
Accounts receivable represent unsecured balances due from customers and the
Company is at risk to the extent such amounts become uncollectible. The
Company performs credit evaluations of each of its customers and maintains
allowances for potential credit losses. Such losses have generally been
within management's expectations. The Company has significant receivables
from certain customers.
The Company purchases a significant portion of its manufactured products
from suppliers located in Southeast Asia, including the People's Republic
of China. Foreign manufacturing is subject to a number of risks, including
transportation delays and interruptions, political and economic
disruptions, the imposition of tariffs, quotas and other import or export
controls, and changes in governmental policies. Management believes that if
these foreign suppliers were no longer available, it would be able to
obtain its manufactured products from existing suppliers located within the
United States and other foreign countries. Management believes this would
not have a near-term severe impact on its financial condition or results of
operations.
j. Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income
Taxes". Under SFAS No. 109, deferred income tax assets and liabilities are
computed based on the temporary difference between the financial statement
and income tax basis of assets and liabilities using the enacted marginal
income tax rate in effect for the year in which the differences are
expected to reverse. SFAS No. 109 permits the recognition of a deferred tax
asset if it is more likely than not that the future tax benefit will be
realized. The Company does not recognize a deferred tax asset except to the
extent that future years' deductible items will offset future year's
taxable items, including currently undistributed earnings of foreign
subsidiaries.
Deferred income taxes are provided for temporary differences in the
recognition of income and expense items between accounting for financial
statement purposes and accounting for income tax purposes.
k. New Financial Accounting Pronouncements
---------------------------------------
The requirements of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", issued in
October 1995 is effective for financial statements for years that begin
after December 15, 1995. The effect of the new financial accounting
pronouncement is not expected to be material. The Company will adopt the
new financial accounting pronouncements beginning December 1, 1996.
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2. Short-Term Borrowing
--------------------
The Company has the following lines of credit and other financing arrangements
outstanding as of November 30, 1996 with various banks:
Unsecured line of credit of $2,000,000, interest payable monthly
at the prime rate, expires in May 1997 $ --
Loan and Security agreement of $5,000,000, availability based on
90 percent of eligible accounts receivable, interest payable
quarterly at a rate that approximates the prime rate, secured by
eligible accounts receivable, expires in September 1997. As of
November 30, 1996, approximately $2,889,000 was available for
future borrowings under this agreement. 877,000
Lines of credit of DM 10,000,000 for working capital needs of
Simon Marketing, International GmbH. At November 30, 1996, a
letter of credit for DM 1,097,000 was issued under this credit
facility. No amounts have been drawn under the letter of credit
at November 30, 1996. --
--------
$877,000
========
Additionally, the Company has a letter of credit line of $5,000,000 which is
secured by cash deposits equaling 10% of any outstanding letter of credit
amounts. Interest at prime rate is payable monthly on amounts drawn under this
facility. This line expires in May 1997. At November 30, 1996, there is an
outstanding irrevocable letter of credit for $320,000 which has not been drawn
upon. The amount of this letter of credit decreases by $80,000 per year,
beginning in 1997, if not drawn upon. The letter of credit expires in June 2000.
Restricted cash of $32,000 is included in cash in the accompanying consolidated
balance sheet.
Substantially all of the Company's assets are pledged as collateral under the
Company's credit facilities.
The Company has a bank guarantee in the amount of GBP 600,000 to cover future
duties and customs in the United Kingdom. The bank charges a one percent annual
guarantee commission on the face value of the guarantee. No amounts are
outstanding under this guarantee at November 30, 1996.
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3. Income Taxes
------------
Income tax provision is comprised of the following:
Current
U.S. Federal $ 352,000
Foreign 2,162,000
State 16,000
Deferred
U.S. Federal 203,000
Foreign --
State 76,000
----------
Total income tax expense $2,809,000
==========
The reconciliation between the actual provision for income taxes and the
provision for income taxes at the U.S. federal statutory rate (34%) is as
follows:
U.S. federal statutory rate of tax $1,007,000
Foreign earnings taxed at
different rates 631,000
State taxes, net of federal benefit --
Foreign withholding tax 182,000
Temporary items not benefited 339,000
Non-deductible items 598,000
Other 52,000
----------
Total income tax expense $2,809,000
==========
Deferred tax assets at November 30, 1996 are comprised of the following:
Foreign tax credit carry forwards $ 1,774,000
Interest reserves 422,000
Deferred lease liabilities 313,000
Vacation and payroll accruals 659,000
Bad debt and inventory reserves 174,000
Prepaid revenue 267,000
Medical and general accruals 581,000
State income taxes 182,000
Book/tax depreciation 206,000
-----------
Gross deferred tax assets 4,578,000
Deferred tax asset valuation allowance (3,478,000)
-----------
Net deferred tax assets $ 1,100,000
===========
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United States and foreign earnings (losses) before income taxes were as follows
as of November 30, 1996:
United States $ (975,000)
Foreign 3,936,000
----------
$2,961,000
==========
The Internal Revenue Service (IRS) has disallowed certain prior year deductions
related to a limited partnership investment of the Company. Management has
retained legal counsel and filed a petition in the United States Tax Court. The
accompanying financial statements include reserves for taxes and interest, based
upon proposed settlement submitted to the IRS. If such settlement is not
ultimately attained, the Company's liability would be increased.
No provision was made in 1996 for U.S. income taxes on the undistributed
earnings of the foreign subsidiaries, as it is the Company's intention to
utilize those earnings in the foreign operations for an indefinite period of
time or repatriate such earnings only when tax effective to do so, including the
utilization of items expensed for financial accounting purposes, but not yet
expensed for income tax reporting purposes. At November 30, 1996, undistributed
earnings of the foreign subsidiaries amount to $5,906,000.
At November 30, 1996, the Company had U.S. foreign tax credit carry forwards of
$1,774,000 of which $1,097,000 expires in 1998, $244,000 expires in 1999 and
$433,000 expires in 2001. In addition, the Company has various U.S. federal
alternative minimum tax credit carry forwards and various state net operating
loss carry forwards.
4. Related-Party Transactions
--------------------------
Simon's shareholders are also the sole shareholders of a Hong Kong based company
which provides quality control services related to the manufacturing of
promotion premium items and related services to Simon. Included in the Company's
November 30, 1996 cost of products sold are charges of approximately $6,717,000
from this affiliate. The Company had outstanding amounts due to this related
party of $3,406,000 at November 30, 1996.
5. Commitments and Contingencies
-----------------------------
a. Leases and Other Long Term Obligations
--------------------------------------
The Company leases office and warehouse facilities and office equipment
under operating leases expiring at various dates through November 2006.
Under the terms of certain office lease agreements, the Company had free or
reduced rent until 1993. The Company accrued and recognized the effective
straight-line rent expense during this free rent period. The amount of
accrued but unpaid office rent at November 30, 1996 is approximately
$2,696,000, which has been included within long term obligations in the
accompanying
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consolidated balance sheet. During the year ended November 30, 1996,
approximately $110,000 has been added to this reserve.
During 1996, the Company entered into a five year sublease agreement for a
portion of its office facilities through October 2001. The rental income
under this sublease is less than the Company's effective straight-line rent
expense for this space. The Company's obligation for this space, less
anticipated sublease income, have been discounted, and the net present
value obligation of $557,000 is included in the accompanying balance sheet.
During the year ended November 30, 1996, approximately $106,000 has been
charged against this reserve.
At November 30, 1996, future minimum payments under capital leases/other
long term obligations and under non-cancelable operating leases consist of
the following:
Capital Leases/ Noncancelable
Other Long Term Operating
Obligations Leases
Year ending November 30:
1997 $118,000 $ 3,520,000
1998 116,000 3,219,000
1999 110,000 2,868,000
2000 80,000 2,690,000
2001 -- 1,907,000
Thereafter -- 9,706,000
-------- -----------
Total minimum payments 424,000 $23,910,000
===========
Less--Amount representing
interest 14,000
--------
Present value of minimum
payment 410,000
Less--Current portion 117,000
--------
$293,000
========
In addition to minimum rentals, certain of the operating leases are triple
net leases that provide for additional payments based on increases in
various common area operating expenses. Rental expense for operating leases
was approximately $2,986,000 for the year ended November 30, 1996.
b. Litigation
----------
In connection with the discontinuance of its supermarket operations, the
Company filed a lawsuit in fiscal 1993 against its former contractual
partner. The Company's suit alleges breach of contract, interference and
other items claiming damages in excess of $1,000,000. The defendant has
countersued the Company alleging similar charges and also claiming damages
in excess of $1,000,000. While the Company believes it has meritorious
defenses against the suit, the ultimate resolution of this matter, which is
expected to occur in 1997, is unknown at this time.
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The Company is currently involved in other litigation arising from the
normal course of business. While the Company believes it has meritorious
defenses against the suits and sufficient insurance, the ultimate
resolution of these matters cannot be reasonably determined at this time.
Management does not believe the outcome of these suits will have a material
impact on the Company's financial position or results from operations.
c. Employment Agreements
---------------------
Certain key employees have entered into deferred compensation agreements
under which they would be entitled to compensation, as defined, in the
event of a change in ownership of 50 percent or more in the Company. As the
amount which would be paid is based upon the ultimate sales price of the
Company, the payment cannot be quantified at this time and thus no
provision has been recorded in the accompanying financial statements. An
employee of the Company is entitled to a $300,000 payment in the event of
his death.
6. Geographical Information and Major Customers
--------------------------------------------
The Company conducts operations in many countries including the United States,
Canada, Latin America, Germany, France, Japan and the United Kingdom. Transfers
between geographic areas are accounted for based on established sales prices
between the related companies. In computing earnings from operations for foreign
subsidiaries, no allocations of general corporate expenses, interest or income
taxes have been made.
Identifiable assets of European and other foreign subsidiaries are those assets
related to the operations of those subsidiaries. Unites States assets consist of
all other operating assets of the Company. Locations included within Europe in
the table below are Germany, France and the United Kingdom. Canada, Latin
America and Japan are included within other foreign subsidiaries.
Other
United Foreign
States Europe Subsidiaries Eliminations Consolidated
------------ ------------ ----------- ---------- ------------
1996
Revenues $222,365,000 $133,726,000 $39,165,000 $ -- $395,256,000
============ ============ =========== ========== ============
Income
(loss) from
operations $ (2,394,000) $ 3,468,000 $ 1,886,000 $ (34,000) $ 2,926,000
============ ============ =========== ========== ============
Identifiable
assets $ 19,592,000 $ 28,200,000 $ 7,351,000 $4,692,000 $ 59,835,000
============ ============ =========== ========== ============
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SIMON MARKETING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997
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SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
-----------
ASSETS
------
FEBRUARY 28, 1997
-----------------
CURRENT ASSETS:
Cash $22,864,027
Trade accounts receivable, net
of reserves of $515,000 28,215,748
Income tax/VAT receivable 97,833
Inventories 5,613,137
Due from affiliates 360,766
Prepaid expenses and other 545,932
Deferred income taxes 440,000
-----------
58,137,443
-----------
PROPERTY AND EQUIPMENT, net:
Furniture and office equipment 5,247,358
Automobiles 352,178
Leasehold improvements 849,466
-----------
6,449,002
Less--Accumulated depreciation
and amortization (3,567,088)
-----------
2,881,914
-----------
OTHER ASSETS:
Advances to officers and employees 414,845
Deposits and other 441,786
Deferred income taxes 660,000
-----------
1,516,631
-----------
$62,535,988
===========
The accompanying notes are an integral
part of this consolidated balance sheet.
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SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited)
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
FEBRUARY 28, 1997
-----------------
CURRENT LIABILITIES:
Short term borrowings $ 1,552,417
Current portion of long term obligations 35,000
Accounts payable 32,504,842
Accrued expenses 6,989,566
Deferred revenue 6,410,102
Income taxes/VAT payable 2,491,027
-----------
49,982,954
-----------
RESERVE FOR INCOME TAXES AND INTEREST 1,697,770
-----------
LONG TERM OBLIGATIONS 290,506
-----------
LONG TERM LEASE LIABILITY 3,201,751
-----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.10 par value:
Authorized--500,000 shares
Outstanding--166,500 shares 16,650
Additional paid-in capital 42,500
Retained earnings 6,967,724
Cumulative translation adjustment 336,133
-----------
7,363,007
-----------
$62,535,988
===========
The accompanying notes are an integral
part of this consolidated balance sheet.
21
22
SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
----------------------------------------------------------
(Unaudited)
-----------
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997
--------------------------------------------
REVENUES $101,583,414
COSTS AND EXPENSES:
Cost of products sold 90,312,465
Payroll and related taxes 6,733,777
General and administrative 4,385,485
Depreciation and amortization 263,512
------------
Operating loss (111,825)
INTEREST INCOME, net 417,952
------------
Income before income taxes 306,127
PROVISION FOR INCOME TAXES 922,179
------------
Net loss (616,052)
------------
RETAINED EARNINGS, beginning of year 7,583,776
------------
RETAINED EARNINGS, end of period $ 6,967,724
============
The accompanying notes are an integral
part of this consolidated statement.
22
23
SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Unaudited)
-----------
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997
--------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (616,052)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 263,512
Change in assets and liabilities:
Increase in Trade accounts receivable, net (7,765,527)
Increase in Due from affiliate (3,613,776)
Decrease in VAT and income taxes receivable 368,785
Decrease in Inventories 4,273,663
Increase in Prepaid expenses and other (238,782)
Increase in Deposits and other (17,533)
Increase in Accounts payable 9,858,342
Decrease in Accrued expenses and other (859,316)
Decrease in Income taxes/VAT payable (432,339)
Decrease in Deferred revenue (1,078,890)
Increase in Deferred income taxes 32,447
-----------
Net cash provided by operating activities 174,534
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (883,682)
Advances to officers and employees 380
-----------
Net cash used in investing activities (883,302)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increases in short term borrowings, net 675,935
Payments of principal portion of
capital leases (136,207)
-----------
Net cash provided by financing activities 539,728
-----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (355,648)
-----------
NET DECREASE IN CASH (524,688)
CASH, beginning of year 23,388,715
-----------
CASH, end of period $22,864,027
===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 215,000
===========
Income taxes $ 1,354,000
===========
The accompanying notes are an integral
part of this consolidated statement.
23
24
SIMON MARKETING, INC. AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
-----------
February 28, 1997
-----------------
1. The accompanying unaudited financial statements have been prepared by the
Company for interim reporting purposes only. Accordingly, they do not
include all of the information and footnotes in accordance with generally
accepted accounting principles for complete financial statements and should
be read in conjunction with the audited financial statements included in
the Company's annual report for the year ended November 30, 1996. In the
opinion of management, the accompanying unaudited financial statements
contain all adjustments, consisting only of those of a normal recurring
nature, necessary for fair presentation of the Company's financial
position, results of operations and cash flows at the dates and for the
periods presented.
The operating results for the three months ended February 28, 1997 are not
necessarily indicative of the results to be expected for the full year.
24
25
Item 7(b)
CYRK, INC.
AND
SIMON MARKETING, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(unaudited)
(in thousands)
On June 9, 1997, Cyrk, Inc. ("Cyrk") acquired all of the issued and outstanding
capital stock of Simon Marketing, Inc. ("Simon"), a Nevada corporation, by means
of the merger of Simon with and into SMI Merger, Inc. ("SMI"), a wholly-owned
subsidiary of the registrant, with SMI being the surviving corporation.
The following unaudited pro forma condensed combined balance sheet combines the
historical balance sheets of Cyrk and Simon at March 31,1997 and February 28,
1997, respectively, and assumes the acquisition of Simon by Cyrk took place on
March 31, 1997. The unaudited pro forma balance sheet information reflects the
acquisition accounted for under the purchase method. The unaudited pro forma
condensed combined balance sheet is shown for illustrative purposes only and is
not necessarily indicative of the future financial position of the combined
companies, or of the financial position of the combined companies had the
transaction been in effect as of March 31, 1997.
The unaudited pro forma condensed combined balance sheet should be read in
conjunction with the historical financial statements and related notes of the
respective companies included elsewhere in this report or, in the case of Cyrk,
previously filed with the Securities and Exchange Commission.
Cyrk Simon Pro Pro
March 31, February 28, Forma Forma
ASSETS 1997 1997 Adjustments Combined
---- ---- ----------- --------
Current assets:
Cash and cash equivalents $ 74,260 $22,864 $(28,350)(1) $ 68,774
Investments 1,751 1,751
Accounts receivable, net 50,892 28,216 79,108
Inventories 26,518 5,613 32,131
Prepaid expenses and other
current assets 11,553 1,444 12,997
-------- -------- -------- --------
Total current assets 164,974 58,137 (28,350) 194,761
Property and equipment, net 10,836 2,882 13,718
Excess of cost over net assets
acquired 52,787(2) 52,787
Other assets 11,365 1,517 12,882
-------- -------- -------- --------
$187,175 $62,536 $ 24,437 $274,148
======== ======= ======== ========
25
26
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 14,803 $ 1,552 $ $ 16,355
Current portion of long-term
obligations 35 35
Accounts payable and accrued 2,200 (2)
expenses 44,650 48,396 5,100 (1) 100,346
-------- ------- ------- --------
Total current liabilities 59,453 49,983 7,300 116,736
Long-term liabilities 803 5,190 5,993
-------- ------- ------- --------
Total liabilities 60,256 55,173 7,300 122,729
-------- ------- ------- --------
Stockholders' equity
23 (1)
Common stock 108 17 (17)(1) 131
24,477 (1)
Additional paid-in-capital 87,623 42 (42)(1) 112,100
Retained earnings 39,616 6,968 (6,968)(1) 39,616
Net unrealized loss on available-
for-sale securities (25) (25)
Cumulative translation adjustment (403) 336 (336)(1) (403)
-------- ------- ------- --------
Total stockholders' equity 126,919 7,363 17,137 151,419
-------- ------- ------- --------
$187,175 $62,536 $24,437 $274,148
======== ======= ======= ========
See notes to pro forma financial information.
26
27
CYRK, INC.
AND
SIMON MARKETING, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
The following unaudited pro forma condensed combined statements of operations
combine the consolidated statements of operations of Cyrk and Simon,
respectively, for the periods shown and assume the acquisition of Simon by Cyrk
occurred on the first day of fiscal 1996. The unaudited pro forma information
reflects the acquisition accounted for under the purchase method.
The pro forma results of operations are not necessarily indicative of future
operations or the actual results that would have occurred had the transaction
been consummated on the first day of fiscal 1996. These statements should be
read in conjunction with the historical financial statements and related notes
of the respective companies included elsewhere in this report or, in the case
of Cyrk, previously filed with the Securities and Exchange Commission.
Cyrk Simon
Year Ended Year Ended Pro Pro
December 31, November 30, Forma Forma
1996 1996 Adjustments Combined
----------- ------------ ----------- --------
(Audited) (Audited)
Net sales $250,901 $395,255 $ $646,156
Cost of sales 213,915 346,458 560,373
-------- -------- ------- --------
Gross profit 36,986 48,797 85,783
(1,051)(6)
Selling, general and (6,795)(5)
administrative expenses 37,035 45,871 1,760 (3) 76,820
-------- -------- ------- --------
Operating income (loss) (49) 2,926 6,086 8,963
Interest income, net (2,423) (35) 1,488 (4) (970)
Equity in loss of affiliates 1,111 1,111
-------- -------- ------- --------
Income before income taxes 1,263 2,961 4,598 8,822
Income tax provision 825 2,809 2,153 (7) 5,787
-------- -------- ------- --------
Net income $ 438 $ 152 $ 2,445 $ 3,035
======== ======== ======= ========
Earnings per share $ 0.04 $ 0.23
======== ========
Weighted average shares
outstanding 10,909 13,163
======== ========
27
28
Cyrk Simon
Three Months Three Months
Ended Ended Pro Pro
March 31, February 28, Forma Forma
1997 1997 Adjustments Combined
------------ ------------ ----------- --------
(Unaudited) (Unaudited)
Net sales $97,188 $101,583 $ $198,771
Cost of sales 80,323 90,312 170,635
------- -------- ------- --------
Gross profit 16,865 11,271 28,136
(205)(6)
Selling, general and (1,484)(5)
administrative expenses 11,257 11,383 440 (3) 21,391
------- -------- ------- --------
Operating income (loss) 5,608 (112) 1,249 6,745
Interest expense 555 555
Interest income (861) (418) 372 (4) (907)
Equity in loss of affiliates 307 307
------- -------- ------- --------
Income before income
taxes 5,607 306 877 6,790
Income tax provision (benefit) 3,364 922 (153)(7) 4,133
------- -------- ------- --------
Net income (loss) $ 2,243 $(616) $1,030 $ 2,657
======= ======== ======= ========
Earnings per share $ 0.21 $ 0.20
======= ========
Weighted average shares
outstanding 10,807 13,061
======= =======
See notes to pro forma financial information.
28
29
CYRK, INC.
AND
SIMON MARKETING, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(unaudited)
(in thousands, except share data)
The pro forma unaudited condensed combined balance sheet of Cyrk and Simon as of
March 31, 1997 and the pro forma unaudited condensed combined statements of
operations of Cyrk and Simon for the years ended December 31, 1996 and November
30, 1996, respectively, and for the three months ended March 31, 1997 and
February 28, 1997, respectively, have been prepared under the purchase method
assuming:
(1) Pro forma adjustment to give effect to the payment by Cyrk of $28,350 in
cash at closing, Cyrk's liability to pay $5,100 in cash to key employees of
Simon within four years of the closing and the issuance by Cyrk of $24,500 in
Cyrk common stock (2,254,169 shares, based on the average of the last sale price
of $10.86875 per share, as reported by Nasdaq, for the twenty trading days ended
May 6, 1997) for all of the issued and outstanding capital stock of Simon and to
eliminate Simon's equity accounts.
(2) Pro forma adjustment to give effect to the excess of the purchase price of
$60,150 over the fair value of net assets acquired of $7,363 as of March 31,
1997, determined as follows:
Total amount of cash and Cyrk stock paid or to be paid
to Simon Shareholders or key employees $57,950
Estimate of capitalizeable direct expenses
related to the acquisition 2,200
-------
Estimated total purchase price 60,150
Less: fair value of Simon's net assets as of the
end of Simon's first quarter of fiscal 1997 7,363
-------
Excess of the purchase price over the fair value
of net assets acquired/goodwill $52,787
=======
(3) Pro forma adjustment to reflect amortization of goodwill over a period of 30
years.
(4) Pro forma adjustment to reduce Cyrk's interest income as a result of its
$28,350 cash outlay at closing to acquire Simon, assuming an effective interest
rate of 5 1/4%, which approximates Cyrk's 1996 average yield on its short-term
investments of excess cash.
(5) Pro forma adjustment to reflect the elimination of non-recurring Simon
compensation related expenses as a result of the acquisition.
29
30
(6) Pro forma adjustment to reflect the elimination of legal and accounting fees
attributable to the transaction which were expensed.
(7) Pro forma adjustment to reflect the tax effect of tax deductible pro forma
adjustments at applicable statutory rates, determined as follows:
December 31, March 31,
1996 1997
------------ ---------
Total pro forma adjustments $4,598 $ 877
Add: Non-deductible goodwill 1,760 440
Less: Simon domestic losses
previously reserved to
a valuation allowance
which can be offset by
taxable income (975) (1,700)
------ -------
5,383 (383)
Statutory rate 40% 40%
------ -------
Income tax provision (benefit) $2,153 $ (153)
====== =======
30