-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pfdf5O/qB4sCW5rxPFYGiKBi10Du5tfG8KClGCMbsFi62ra2YyaraI8/Y2N2zug2 3KsK+X2/arhYkKxjCzLkKg== 0000890566-99-000497.txt : 19990414 0000890566-99-000497.hdr.sgml : 19990414 ACCESSION NUMBER: 0000890566-99-000497 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990227 FILED AS OF DATE: 19990413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRISTAR CORP CENTRAL INDEX KEY: 0000737203 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 133129318 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13099 FILM NUMBER: 99592942 BUSINESS ADDRESS: STREET 1: 12500 SAN PEDRO AVE STE 500 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2104022200 MAIL ADDRESS: STREET 1: 12500 SAN PEDRO AVE, STE 500 STREET 2: 12500 SAN PEDRO AVE, STE 500 CITY: SAN ANTONIO STATE: TX ZIP: 78216 FORMER COMPANY: FORMER CONFORMED NAME: ROSS COSMETICS DISTRIBUTION CENTERS INC DATE OF NAME CHANGE: 19930422 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: FEBRUARY 27, 1999 -OR- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ COMMISSION FILE NUMBER 0-13099 TRISTAR CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3129318 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 12500 SAN PEDRO AVENUE, SUITE 500, SAN ANTONIO, TEXAS 78216 (Address of principal executive offices) (Zip Code) (210) 402-2200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. ON APRIL 1, 1999, THERE WERE OUTSTANDING 16,765,256 SHARES OF COMMON STOCK, $.01 PAR VALUE, OF THE REGISTRANT. 1 TRISTAR CORPORATION AND SUBSIDIARIES INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE ----------- Item 1. Financial Statements (Unaudited) Consolidated balance sheets--February 27, 1999 and August 29, 1998 ..... 3 Consolidated statements of operations--thirteen and twenty-six week periods ended February 27, 1999 and February 28, 1998, respectively ................................................... 5 Consolidated statement of shareholders' equity -- twenty-six week period 6 ended February 27, 1999 Consolidated statements of cash flows--twenty-six week periods ended February 27, 1999 and February 28, 1998, respectively .......... 7 Notes to consolidated financial statements--February 27, 1999 .......... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................... 13 Item 3. Qualitative and Quantitative Disclosure About Market risk .............. 19 PART II.OTHER INFORMATION Item 1. Legal Proceedings ...................................................... 20 Item 2. Changes in Securities .................................................. 20 Item 3. Defaults Upon Senior Securities ........................................ 20 Item 4. Submission of Matters to a Vote of Security Holders .................... 20 Item 5. Other Information ...................................................... 20 Item 6. Exhibits and Reports on Form 8-K ....................................... 21 SIGNATURES ..................................................................... 22
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
FEBRUARY 27, 1999 August 29, ASSETS (UNAUDITED) 1998* ----------- ----------- Current assets: Cash ..................................................... $ 48,000 $ 66,000 Accounts receivable, less allowance for doubtful accounts of $697,000 and $895,000, respectively ................. 11,927,000 14,206,000 Accounts receivable - related parties - net .............. 3,315,000 3,607,000 Inventories .............................................. 10,510,000 11,375,000 Prepaid expenses ......................................... 248,000 186,000 Other current assets ..................................... 200,000 141,000 ----------- ----------- Total current assets ................................... 26,248,000 29,581,000 ----------- ----------- Property, plant and equipment, less accumulated depreciation of $9,575,000 and $8,805,000 ............................ 7,840,000 8,199,000 ----------- ----------- Other assets: Warrant valuation, less accumulated amortization of $1,805,000 .......................................... -- 103,000 Other assets ............................................. 569,000 825,000 ----------- ----------- Total other assets ..................................... 569,000 928,000 ----------- ----------- Total assets ............................................... $34,657,000 38,708,000 =========== ===========
* Prepared from audited financial statements for the year ended August 29, 1998. SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 3 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)
FEBRUARY 27, 1999 August 29, LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1998 * ------------ ------------ Current liabilities: Book overdraft .............................................. $ -- $ 334,000 Revolving credit agreement borrowings, current .............. 4,992,000 7,612,000 Accounts payable--trade ..................................... 7,350,000 9,289,000 Accounts payable--related parties - net ..................... 4,525,000 5,185,000 Accrued bonuses ............................................ 164,000 164,000 Accrued interest expense-subordinated debt .................. 1,731,000 1,731,000 Other accrued expenses ...................................... 1,477,000 1,467,000 Current portion of capital lease obligations ................ 136,000 144,000 Current portion of long-term obligations .................... 900,000 822,000 ------------ ------------ Total current liabilities ................................. 21,275,000 26,748,000 Long-term debt, less current portion .......................... 2,641,000 2,781,000 Obligations under capital leases, less current portion ........ 74,000 130,000 Subordinated long term debt - related parties ................. -- 1,700,000 ------------ ------------ Total liabilities .......................................... 23,990,000 31,359,000 ------------ ------------ Commitments and contingencies Shareholders' equity (deficit): Preferred stock, $.05 par value; authorized 1,000,000 shares; Series A, 537,142 shares and 666,529 shares, respectively, 3,760,000 4,666,000 issued and outstanding Series B, 120,690 shares issued and outstanding ........... 4,511,000 4,511,000 Series C, 78,333 shares issued and outstanding ............ 4,699,000 -- Common stock, $.01 par value; authorized 30,000,000 shares; issued and outstanding 16,765,256 shares and 16,761,493 shares, respectively .......................... 168,000 168,000 Additional paid-in-capital .................................. 12,867,000 12,483,000 Foreign currency translation ................................ -- (376,000) Accumulated deficit ......................................... (15,338,000) (14,103,000) ------------ ------------ Total shareholders' equity ................................ 10,667,000 7,349,000 ------------ ------------ Total liabilities and shareholders' equity .................... $ 34,657,000 $ 38,708,000 ============ ============
* Prepared from audited financial statements for the year ended August 29, 1998. SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 4 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED FEBRUARY 27, FEBRUARY 28, FEBRUARY 27, FEBRUARY 28, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Net sales ..................................... $ 13,440,000 $ 14,843,000 $ 28,515,000 $ 35,708,000 Cost of sales ................................. 9,620,000 9,965,000 20,052,000 24,892,000 ------------ ------------ ------------ ------------ Gross profit .................................. 3,820,000 4,878,000 8,463,000 10,816,000 Selling, general and administrative expenses .. 3,967,000 4,310,000 8,032,000 8,274,000 ------------ ------------ ------------ ------------ Income (loss) from operations ................. (147,000) 568,000 431,000 2,542,000 Other income (expense): Interest expense .......................... (307,000) (496,000) (638,000) (970,000) Amortization of warrants .................. (24,000) (11,000) (52,000) (21,000) Other expense ............................. (8,000) (93,000) (3,000) (178,000) ------------ ------------ ------------ ------------ Income (loss) before provision for income taxes (486,000) (32,000) (262,000) 1,373,000 Provision for income taxes .................... 24,000 5,000 24,000 55,000 ------------ ------------ ------------ ------------ Net income (loss) ............................. $ (510,000) $ (37,000) $ (286,000) $ 1,318,000 ------------ ------------ ------------ ------------ Less: Preferred stock dividends ................. (197,000) (113,000) (404,000) (226,000) Effect of beneficial conversion feature ... (40,000) -- (681,000) -- ============ ============ ============ ============ Net income (loss) applicable to common stock .. $ (747,000) $ (150,000) $ (1,371,000) $ 1,092,000 ============ ============ ============ ============ Earnings per common share: Basic ..................................... $ (0.04) $ (.01) $ (.08) $ .07 ============ ============ ============ ============ Diluted ................................... $ (0.04) $ (.01) $ (.08) $ .06 ============ ============ ============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 5 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PREFERRED STOCK ------------------------------------------------------------------ COMMON STOCK SERIES A SERIES B SERIES C ---------------------- --------------------- ------------------- -------------------- NUMBER NUMBER NUMBER NUMBER OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT ---------- --------- ------- ----------- ------- ---------- ------ ---------- Balance, August 28, 1998 16,761,493 $ 168,000 666,529 $ 4,666,000 120,690 $4,511,000 -- $ -- ========== ========= ======= =========== ======= ========== ====== ========== Net loss Preferred Stock Dividends Contribution to 401(k) Plan 3,763 Issuance of Series C Preferred Stock and related warrants 78,333 4,699,000 Sale of Mexican Subsidiary (129,387) (906,000) ---------- --------- ------- ----------- ------- ---------- ------ ---------- Balance, February 27, 1999 16,765,256 $ 168,000 537,142 $ 3,760,000 120,690 $4,511,000 78,333 $4,699,000 ========== ========= ======= =========== ======= ========== ====== ========== FOREIGN ADDITIONAL CURRENCY ACCUMULATED PAID-IN-CAPITAL TRANSLATION DEFICIT ------------ ----------- ------------ Balance, August 28, 1998 $ 12,483,000 $ (376,000) $(14,103,000) ============ ========= ============ Net loss (286,000) Preferred Stock Dividends (188,000) Contribution to 401(k) Plan 13,000 Issuance of Series C Preferred Stock and related warrants 307,000 (681,000) Sale of Mexican Subsidiary 64,000 376,000 (80,000) ------------ --------- ------------ Balance, February 27, 1999 $ 12,867,000 $ -- $(15,338,000) ============ ========= ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 6 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWENTY-SIX WEEKS ENDED FEBRUARY 27, February 28, 1999 1998 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) ....................................... $ (286,000) $ 1,318,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ........................ 868,000 904,000 Provision for losses on accounts receivable .......... 325,000 301,000 Provision for inventory allowances ................... 11,000 322,000 Issuance of stock in connection with 401K plan ....... 13,000 25,000 Amortization of warrant valuations ................... 52,000 21,000 Amortization of deferred loan costs .................. 127,000 42,000 Compensation expense for extension of stock options .. -- 217,000 Change in operating assets and liabilities: Accounts receivable ............................... 167,000 (1,349,000) Inventories ....................................... 717,000 (2,930,000) Prepaid expenses .................................. (94,000) (63,000) Other current assets .............................. 14,000 -- Income taxes payable .............................. -- (11,000) Accounts payable .................................. (2,497,000) 2,708,000 Accrued expenses .................................. 17,000 (50,000) ----------- ------------ Net cash provided by (used in) operating activities .. (566,000) 1,455,000 ----------- ------------ CASH FLOWS USED IN INVESTING ACTIVITIES: Capital expenditures .................................... (509,000) (899,000) Increase in other assets ................................ -- (13,000) ----------- ------------ Net cash used in investing activities ................ (509,000) (912,000) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Book overdraft .......................................... (334,000) 876,000 Net repayment of old revolving credit facility .......... -- (10,205,000) Repayments under new revolving credit facility .......... (4,746,000) 9,682,000 Borrowings under new revolving credit facility .......... 2,126,000 -- Proceeds from long-term debt ............................ 380,000 2,385,000 Principal payments under new debt ....................... (442,000) (121,000) Principal payments on capital leases .................... (64,000) (60,000) Principle payments under old long-term debt ............. -- (2,502,000) Issuance of Series C Preferred Stock and related warrants 4,699,000 -- Payment of issuance costs on Series C Preferred Stock ... (374,000) -- Payment of dividends on Series C Preferred Stock ........ (188,000) -- Deferred Loan Costs ..................................... -- (732,000) ----------- ------------ Net cash provided by (used in) financing activities .. 1,057,000 (677,000) ----------- ------------ NET DECREASE IN CASH ........................................ (18,000) (134,000) CASH AT BEGINNING OF PERIOD ................................. 66,000 492,000 ----------- ------------ CASH AT END OF PERIOD ....................................... $ 48,000 $ 358,000 =========== ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. 7 TRISTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FEBRUARY 27, 1999 NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Tristar Corporation ("the Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statement presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six week periods ended February 27, 1999, are not necessarily indicative of the results that may be expected for the year ending August 28, 1999. NOTE 2: EARNINGS (LOSS) PER COMMON SHARE A reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations, as required by SFAS No. 128, is presented below:
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED FEBRUARY 27, FEBRUARY 28, FEBRUARY 27, FEBRUARY 28, 1999 1998 1999 1998 ----------------------------------------------------------- Basic EPS: Net earnings (loss) applicable to common stock ..... $ (747,000) $ (150,000) $(1,371,000) $ 1,092,000 Weighted-average number of common shares outstanding 16,763,845 16,730,197 16,762,669 16,774,829 ----------------------------------------------------------- Basic EPS .................................................. $ (.04) $ (.01) $ (.08) $ .07 =========================================================== Diluted EPS (1): Net income (loss) applicable to common stock ....... $ (747,000) $ (150,000) $(1,371,000) $ 1,092,000 Weighted-average number of common shares outstanding 16,763,845 16,730,197 16,762,669 16,744,829 Add: effects of assumed exercise of options and warrants Exercise of stock options ...................... -- -- -- 266,754 Exercise of warrants ........................... -- -- -- 1,275,783 ----------------------------------------------------------- Weighted-average number of common shares outstanding plus shares from assumed exercise of options and warrants ............. 16,763,845 16,730,197 16,762,669 18,287,366 ----------------------------------------------------------- Diluted EPS ................................................ $ (.04) $ (.01) $ (.08) $ .06 ===========================================================
1. Dilutive EPS equals basic EPS for the thirteen week periods ended February 27, 1999, and February 28, 1998 and the twenty-six week period ended February 27, 1999, as the assumed conversion of convertible preferred stock and the assumed exercise of outstanding options and warrants would have an anti-dilutive effect. 8 NOTE 3: INVENTORIES Inventory is stated at the lower of cost or market. The components of inventory are as follows: ----------------------------------- February 27, August 29, 1999 1998 ----------------------------------- Raw materials .................... $ 4,026,000 $ 4,728,000 Work-in-process .................. 693,000 1,209,000 Finished goods ................... 6,598,000 6,342,000 ------------ ------------ 11,317,000 12,279,000 Inventory reserves ............... (807,000) (904,000) ------------ ------------ $ 10,510,000 $ 11,375,000 ============ ============ NOTE 4: CREDIT AGREEMENT BORROWINGS The Company maintains a $22,000,000 Credit Agreement (the "Credit Agreement"). The Credit Agreement includes a revolving credit facility (the "Revolving Credit") which provides for $15,100,000 of maximum borrowings bearing interest, at the Company's election, at the Alternate Base Rate (the higher of the prime rate or the Federal Funds Rate plus .50%) plus 1.50% or the London Interbank Offered Rate (LIBOR) plus 3.50% (although, borrowings based on LIBOR cannot exceed 60% of the total outstanding borrowings under the Revolving Credit). At February 27, 1999, the Revolving Credit bore interest at a rate of 9.25%. Borrowings under the Revolving Credit are limited by a formula based on Eligible Accounts Receivable and Inventory. Remaining availability under the line as of February 27, 1999 approximated $2,902,000 based on the borrowing formula. Commitment fees equal to .50% per annum on the unused portion of the Revolving Credit are payable monthly. The Credit Agreement contains certain provisions giving the lender the right to accelerate payment of all outstanding amounts upon the occurrence of certain events. Accordingly, all Revolving Credit amounts are classified as current in the accompanying consolidated balance sheets. All outstanding amounts under the Revolving Credit Agreement are due in December 2001. The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan") and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term Loan bears interest, payable monthly, at the Alternate Base Rate (8.5% at February 27, 1999) plus 2.00%. Principal repayments of the Term Loan are $56,667 per month for 35 months beginning in January 1998 with a $1,416,655 balloon payment due in December 2001. Additionally, 50% of annual excess cash flow, as defined in the Cap Ex Facility must be applied to the Term Loan installments in the inverse order of maturity. Borrowings under the Cap Ex Facility are limited to 80% of the cost of new machinery and equipment, limited to annual utilization of $1,500,000. These borrowings also bear interest, payable monthly, at the Alternate Base Rate plus 2.00%. Principal payments on the Cap Ex Facility commence one month after the related borrowing at an amount based on a three year amortization. However, a balloon payment in an amount equal to all outstanding borrowings under the Cap Ex Facility is also due in December 2001. As of February 27, 1999, the Company had outstanding borrowings under the Cap Ex Facility totaling $916,000; principal repayments are currently set at the rate of $18,300 per month. 9 Borrowings under the Credit Agreement are collateralized by all of the Company's present and future assets. The Credit Agreement contains restrictive financial covenants including Minimum Tangible Net Worth ("MTNW"), Minimum EBITDA, Maximum Loss, Minimum Fixed Charge Coverage, Maximum Leverage and Maximum Capital Expenditures. Additional covenants limit borrowings, asset sales and dividends. The Company was in violation of the MTNW financial covenant as of February 27, 1999 primarily as a result of the disposal of it's wholly-owned Mexican subsidiary and the reduction of subordinated debt due to a related party. The Company was granted waivers by the lender and is currently discussing a modification to such covenant. NOTE 5: LITIGATION AND CONTINGENCIES FREITAS AND KENNER In October 1994, a suit was filed in Florida state court against the Company and two of its directors by Ross Freitas, Carolyn Kenner, Rose Freitas and Melissa Freitas. The complaint alleged causes of action by two plaintiffs for libel and seeks indemnification of legal costs allegedly incurred by those plaintiffs in suits and proceedings arising from the facts which were the subject of the investigation conducted by the Special Committee of the Board of Directors in 1992. The complaint also alleged, on behalf of all four plaintiffs, that the Company's disclosures relating to the Sheth Group's holding of Company stock and other matters were fraudulent or negligently misrepresented. In April 1995, the court dismissed the complaint 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, and in June 1996, amended their complaint yet again, naming only the Company and one of its directors as defendants. In October 1998, the Court dismissed the claim against the one director. 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 business, financial condition or results of operations. INTERNAL REVENUE SERVICE EXAMINATION In February 1997 the Internal Revenue Service ("the IRS") concluded their examination of the Company's tax returns submitted for fiscal years 1993, 1994 and 1995. The IRS proposed adjustments disallowing the deductions of payments made in the settlement of the class action litigation and certain related legal and professional fees. In April 1998, the Company filed a protest letter with the IRS. In a letter dated August 17, 1998, the IRS rejected the Company's response. The Company has raised this issue with the Dallas Appeals office and has scheduled a hearing for later this year. If the Company is unsuccessful in its discussions or ultimately in an appeal, it could be required to pay taxes from prior years and related interest thereon exceeding $1,800,000, and it could lose a significant amount of its existing net operating loss carryforward benefits. No accrual for the impact of the proposed IRS adjustments has been recorded in the accompanying financial statements as the Company does not believe it is probable that the IRS will prevail in this matter. 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. NOTE 6: RELATED PARTY TRANSACTIONS Certain suppliers of fragrance product components and the primary suppliers of cosmetic products are affiliates of the Sheth Group who beneficially own 73% of the Company's outstanding common stock. Related party accounts payable result from the purchase of products from those vendors. Related party 10 accounts receivable result from the sale of products to those and other affiliates of the Sheth Group. The payables and receivables balances for individual parties are offset for presentation purposes and the net balance of accounts receivable or accounts payable is presented on the balance sheet. Related party payables also include payables due members of the Company's Board of Directors which result, in the normal course of business, from expenses associated with Board and related committee meetings. The following summarizes the presentations at February 27, 1999 and August 29, 1998. - -------------------------------------------------------------------------------- FEBRUARY 27, August 29, 1999 1998 ----------- ----------- ACCOUNTS RECEIVABLE: Total accounts receivable-related parties .... $ 3,721,000 $ 4,153,000 Offset amount ................................ (406,000) (546,000) ----------- ----------- Net related parties receivables .............. $ 3,315,000 $ 3,607,000 =========== =========== ACCOUNTS PAYABLE: Total accounts payable-related parties ....... $ 4,931,000 $ 5,731,000 Offset amount ................................ (406,000) (546,000) ----------- ----------- Net related parties payables ................. $ 4,525,000 $ 5,185,000 =========== =========== - -------------------------------------------------------------------------------- The Company purchases finished goods and fragrance product components from Sheth Group affiliates. During the twenty-six week period ended February 27, 1999, and for the comparable period in fiscal 1998, the Company purchased approximately $2,266,000 and $2,148,000, respectively. During the twenty-six week period ended February 27, 1999, and for the comparable period in fiscal 1998, the Company sold products to Sheth Group affiliates in the amounts of approximately $1,881,000 and $2,131,000, respectively. NOTE 7: SALE OF WHOLLY-OWNED MEXICAN SUBSIDIARY On March 15, 1999, pursuant to a stock purchase agreement entered into by and among Tristar Corporation ("Registrant"), Transvit Holding Corporation ("THC"), a wholly-owned affiliate of the Core Sheth Family ("Sheth Group"), the majority stockholder of the Registrant, and Nevell Investments, S.A. ("Nevell"), another affiliate of the Sheth Group, the Registrant sold to THC for $2,686,000 all of the issued and outstanding capital stock ("Trimex Stock") and certain distribution rights of its wholly-owned subsidiary, Tristar de Mexico, S.A. de C.V. ("Trimex"), a distributor of fragrance and cosmetic products into the formal retail market in the United Mexican States. The transaction was effective as of November 29, 1998. 11 The transaction provides for a non-compete restriction and a supply agreement whereby the Registrant agreed to continue selling certain products to Trimex. The Registrant also received an option to repurchase the Trimex Stock and distribution rights from THC at a fair value at anytime prior to March 15, 2004. The Registrant currently has no plans to exercise such option but may do so in the future. The Registrant received payment in the form of a reduction of debt due Nevell, and redemption of shares of the Registrant's Series A Convertible Preferred Stock, $.05 par value ("Series A Preferred"), issued to Nevell, at a redemption price of $7.62 per share. Of the total purchase price of $2,686,000, an amount equal to $1,700,000 was applied to a reduction of debt due Nevell with the remaining $986,000 attributed to redeemed shares of the Series A Preferred at a total redemption of approximately $906,000 plus $80,000 of dividends in arrears. Warrant valuation costs of $99,000 associated with the subordinated debt reduction were written-off in connection with the sale. The excess proceeds over the carrying value of the Registrant's investment in Trimex was recorded as an increase in additional paid-in-capital. NOTE 8: ISSUANCE OF SERIES C PREFERRED STOCK Effective September 3, 1998 (pursuant to a private placement), the Company sold 78,333 shares of Series C Senior Convertible Preferred Stock ("Series C Preferred Stock") to a private investor for $60 per share. Each share of Series C Preferred Stock is convertible into 11.0345 shares of the Company's common stock. In connection with the Series C Preferred Stock issuance, the Company issued 125,000 common stock warrants which are exercisable at a price of between $4.00 and $6.28 per share. The Company received proceeds from issuance of the Series C Preferred Stock of approximately $4,699,000 and expects to receive an additional $1,300,000 in fiscal 1999 upon issuance of an additional 21,667 shares of Series C Preferred Stock to the same investor, in accordance with the stated closing schedule. The Series C Preferred Stockholders are entitled to receive a cumulative cash dividend of $4.80 per share annually. The dividend is payable quarterly ($1.20 per share). The dividends may be paid by issuance of additional shares of Series C Preferred Stock except such shares bear a cumulative cash dividend of $7.80 per share annually. Dividends of approximately $188,000 were paid in cash on the Series C Preferred Stock during the twenty-six week period ended February 27, 1999. The Series C Preferred Stockholders are entitled to receive a liquidation preference equal to $60.00 per share plus interest thereon from the date of issue until redemption or conversion at a compound rate of 20% per year. The Series C Preferred Stock has full voting rights based on the number of common shares into which it is convertible and is voted together with the Common Stock as one class. On September 3, 1998, the closing bid price of the Company's common stock as reported by the NASDAQ was $5.44. The Series C Preferred Stock conversion ratio was based on this closing bid price at date of issuance. The common stock warrants issued to the Series C Preferred Stockholders were valued at approximately $307,000 utilizing the Black Scholes Method. Additionally, the Company incurred costs totaling $374,000 in connection with the Series C Preferred Stock sale. The value of the common stock warrants and the issuance costs have been accounted for as a beneficial conversion feature to the preferred shareholders and thus have been charged directly to Accumulated Deficit and have been reflected as a reduction in net income applicable to common stock. NOTE 9: SERIES A AND B PREFERRED STOCK The Company's Series A and B Preferred Stockholders are entitled to receive cumulative dividends of $.315 per share and $2.03 per share, respectively. To date, no dividends have been paid on the Series A and B Preferred Stock except those paid in connection with the sale of Trimex Stock (see Note 7). Dividends accumulated on the Series A and B Preferred Stock for the thirteen week periods ended February 27, 1999 and February 28, 1998 of approximately $103,000 and $113,000, respectively and for the twenty-six week period then ended of approximately $216,000 and $226,000, respectively have been reflected as a reduction in net income applicable to common stock. Cumulative dividends in arrears on the Series A and B Preferred Stock totaled approximately $845,000 at February 27, 1999. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This document contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this document, including without limitation statements that use terminology such as "anticipate", "believe," "continue," "estimate," "expect," "intend," "may,", "plan," "predict," "should," "will," and similar expressions, are forward-looking statements. These forward-looking statements include, among other things, the Company's business strategy and expectations concerning the Company's market position, future operations, margins, profitability, liquidity and capital resources, expenditures for capital projects and attempts to reduce costs. Although the Company believes that the assumptions upon which the forward-looking statements contained in this document are based are reasonable, any of the assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be incorrect. All phases of the operations of the Company involve risks and uncertainties, many of which are outside the control of the Company and any one of which, or a combination of which, could materially affect the results of the Company's operations and whether the forward-looking statements ultimately prove to be correct. Important factors that could cause actual results to differ materially from the Company's expectations are set forth under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this document. Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, the timing and extent of changes in fragrance components, fragrance and cosmetic prices and underlying demand and availability of fragrance components; changes in the cost or availability of means of transporting products; execution of planned capital projects; adverse changes in the credit ratings assigned to the Company's trade credit; the extent of the Company's success in developing and marketing new product lines; state and federal environmental, economic, safety and other policies and regulations, and changes therein, and any legal or regulatory delays or other factors beyond the Company's control; adverse rulings, judgments, or settlements in litigation or other legal matters; actions of customers and competitors; economic conditions affecting the areas in which the Company's products are marketed; political developments in foreign countries; and the conditions of the capital markets and equity markets during the periods covered by the forward-looking statements. Many of the factors are described in greater detail in other of the Company's filings with the Commission. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing. The Company undertakes no obligation to publicly release the results of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED FEBRUARY 27, 1999 AND FEBRUARY 28, 1998 For the thirteen week period ended February 27, 1999, the Company recorded a net loss of $510,000 compared to a net loss of $37,000 for the thirteen week period ended February 28, 1998. The February 27, 1999 results were negatively affected primarily by lower sales and reduced profit margins relating to the final phase of an inventory reduction plan, partially offset by lower selling, general and administrative expenses ("SG&A") and interest expense. After giving effect to preferred stock dividends and the beneficial conversion feature associated with the issuance of Series C Preferred Stock, the Company recorded a net loss applicable to common stock of $747,000 or $.04 per diluted share for the thirteen week period ended February 27, 1999 compared to net loss applicable to common stock of $150,000 or $.01 per diluted share for the related fiscal 1998 period. 13 For the twenty-six week period ended February 27, 1999, the Company recorded a net loss of $286,000 compared to net income of $1,318,000 for the comparable period in 1998. The February 27, 1999 year-to-date results were negatively impacted by lower sales and reduced profit margins relating to the final phase of an inventory reduction plan, partially offset by lower SG&A and interest expense. Net loss applicable to common stock after giving effect to preferred stock dividends and the beneficial conversion feature associated with the issuance of Series C Preferred Stock was $1,371,000 or $.08 per diluted share for the twenty-six week period ended February 27, 1999. This compares to a net income applicable to common stock of $1,092,000 or $.07 per basic share and $.06 per diluted share for the same period in 1998. NET SALES Net sales were $13,440,000 for the thirteen week period ended February 27, 1999, a decrease of 9.5% versus net sales of $14,843,000 for the same period in fiscal 1998. For the twenty-six week period ended February 27, 1999, net sales were $28,515,000, a decrease of 20.1% versus net sales of $35,708,000 for the twenty-six week period ended February 28, 1998. The decline in the thirteen week period ended February 27, 1999 is related mainly to volume decreases in Latin America, primarily in the Royal Selections fragrance line. This decline was somewhat offset by a volume increase in combined U.S. chain, specialty chain, and mass merchandise channels, primarily in the Euro Collections line. The decrease in the twenty-six week period ended February 27, 1999, is related mainly to volume decreases in both the U.S. wholesale and Latin America markets, primarily in the Royal Selections fragrance lines. Additionally, for both the thirteen and twenty-six week periods ended February 27, 1999, sales were lower over the previous year as a result of the Company's sale of its wholly-owned Mexican subsidiary ("Tristar de Mexico"). NET SALES - CHANNELS OF DISTRIBUTION The Company markets and distributes products to wholesalers, distributors, chain stores, mass merchandisers and independent retail channels in various markets throughout North and South America. For the thirteen week period ended February 27, 1999, the Company experienced a decline mainly in the Latin America market somewhat offset by increases in combined U.S. chain, specialty chain, and mass merchandise channels. U.S. wholesale and Latin America channels experienced significant turmoil relating to instability in the global financial markets. Sales of the Euro Collections fragrance line grew significantly in the chain, specialty chain, and mass merchandise channels and Latin America. For the twenty-six week period ended February 27, 1999, the Company experienced a decline in the U.S. wholesale and Latin America markets while combined chain, specialty chain, and mass merchandise channels remain somewhat flat when compared to the comparable period in 1998. NET SALES - RELATED PARTIES In the thirteen and twenty-six week periods ended February 27, 1999, sales to affiliates of the Sheth Group were $1,274,000 and $1,881,000, respectively, compared with $1,089,000 and $2,131,000 for the same period in fiscal 1998. PRODUCTS PURCHASED FROM RELATED PARTIES The Company purchases finished goods and fragrance product components from Sheth Group affiliates. During the twenty-six week period ended February 27, 1999, and for the comparable period in fiscal 1998, the Company purchased approximately $2,266,000 and $2,148,000, respectively. 14 GROSS PROFIT The Company's gross profit for the thirteen week periods ended February 27, 1999 and February 28, 1998 was $3,820,000 or 28.4% of sales and $4,878,000 or 32.9% of sales, respectively. Gross profit for the twenty-six week periods ended February 27, 1999 and February 28, 1998 was $8,463,000, or 29.7% of sales and $10,816,000 or 30.3% of sales, respectively. The decline in gross profit in the thirteen and twenty-six week periods related primarily to the overall sales decrease and reduced profit margins relating to the final phase of an inventory reduction plan. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") for the thirteen week period ended February 27, 1999 was $3,967,000, a decrease of 8.0% versus the $4,310,000 for the February 28, 1998 period. SG&A for the twenty-six week period was $8,032,000, a decrease of 2.9% versus the $8,274,000 for the February 28, 1998 period. For both the thirteen and twenty-six week periods ended February 27, 1999, a portion of the SG&A decrease resulted from the sale of the Company's wholly-owned Mexican subsidiary ("Tristar de Mexico"). As a percentage of sales SG&A was 29.5% and 29.0% for the thirteen week periods ended February 27, 1999 and February 28, 1998, respectively, or relatively flat. SG&A as a percentage of sales for the twenty-six week periods ended February 27, 1999 and February 28, 1998 were 28.2% and 23.2% respectively. The increase in SG&A as a percentage of sales in fiscal 1999 is primarily due to lower sales in that period. NON OPERATING INCOME OR EXPENSE Interest expense decreased when comparing the thirteen and twenty-six week periods of fiscal 1999 to the same period of fiscal 1998 as a result of lower revolving credit borrowings in the current fiscal year. Other expense declined in the thirteen and twenty-six week periods ended February 27,1999 as compared with the same period in fiscal 1998 due mainly to a decrease in foreign exchange losses and disposal of the Company's wholly-owned Mexican subsidiary. POTENTIAL ADVERSE AFFECTS ON RESULTS OF OPERATIONS FOR FUTURE PERIODS The Company's business, financial condition and results of operations could be materially adversely affected by each or all of the following factors: 1. MEXICAN MARKET. The market for the Company's products continues to be negatively impacted as a result of the devaluation of the Mexican Nuevo Peso in December 1994 and the subsequent economic and political instability. These factors sharply reduced the purchasing power of the Mexican consumer and therefore the demand for the Company's products was adversely affected. Any future significant deterioration of the Peso's value would be expected to further adversely affect the Company's sales in Mexico and also the collectability of accounts receivable. Although the Company has no such knowledge, some of its customers based in the United States may 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, should they arise, may have an adverse effect on the Company's sales to such customers. 2. LATIN AMERICA ECONOMIES. Growth in sales, or even the maintenance of existing sales levels, in certain Latin American countries depends to a large extent on the economic health and political stability of those countries. Any deterioration in the economic or political stability in such countries could adversely affect sales. 15 3. SUPPLY OF PRODUCTS. The Company's ability to manufacture and to satisfy consumer demand for fragrances is dependent on the supply of certain components from single sources including an affiliate of the Sheth Group. 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 Sheth Group affiliates. If such affiliates 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. 4. NEW AND DEVELOPING MARKETS. The Company continues to develop and expand sales 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 or that it will recover its initial expenses and start up costs. In addition, certain countries from time to time impose strict import restrictions, high levels of taxes on imports, and restrictions on currency transactions, all of which could affect the success of sales and marketing activities and also affect the profitability of such activities. 5. INTERNAL REVENUE SERVICE. In February 1997, the Internal Revenue Service ("the IRS") concluded its examination of the Company's tax returns submitted for fiscal years 1993, 1994 and 1995. The IRS proposed adjustments disallowing the deductions of payments made in the settlement of the class action litigation and certain related legal and professional fees. The Company has raised this issue with the Dallas Appeals office and has scheduled a hearing for later this year. If the Company is unsuccessful in its discussions or ultimately in an appeal, it may be required to pay taxes from prior years and related interest thereon exceeding $1,800,000, and it may lose a significant amount of its existing net operating loss carryforward benefits. No accrual for the impact of the proposed IRS adjustments has been recorded in the accompanying financial statements as the Company does not believe it is probable that the IRS will prevail in this matter. At this time, it is not known whether, or to what degree, the above factors will have a material adverse impact on future results. LIQUIDITY AND CAPITAL RESOURCES The Company currently is obtaining its working capital from a revolving line of credit and cash generated from operations. OPERATING ACTIVITIES Operations in the twenty-six week period ended February 27, 1999, used $566,000 in cash primarily due to net loss adjusted for non-cash items and decreases in accounts receivable and inventory, offset by a decrease in accounts payable. Accounts receivable decreased due to lower sales and more aggressive collection efforts. Inventory decreased as a result of an inventory reduction plan that the Company implemented in fiscal 1998 which was designed to sell slower rotating finished goods at reduced margins. Accounts payable decreased as the Company made payments to certain vendors in accordance with their terms. INVESTING ACTIVITIES Capital expenditures during the twenty-six week period were $509,000, consisting primarily of investments in production related machinery and equipment, facilities related items, and computer equipment. Capital expenditures in fiscal 1999 are expected to exceed the fiscal 1998 level with the major portion being devoted to manufacturing equipment which will enable the Company to enhance its capacity, efficiency and level of customer service. 16 FINANCING ACTIVITIES During the twenty-six week period ended February 27, 1999, revolving credit decreased by $2,620,000. This was offset primarily by proceeds from the sale of Series C Preferred Stock and related warrants, resulting in net cash provided by financing activities of $1,057,000 for the period. The Company maintains a $22,000,000 credit agreement (the "Credit Agreement"). The Credit Agreement includes a revolving credit facility (the "Revolving Credit") which provides for $15,100,000 of maximum borrowings bearing interest, at the company's election, at the Alternate Base Rate (the higher of the prime rate or the Federal Funds Rate plus .50%) plus 1.50% or the London Interbank Offered Rate (LIBOR) plus 3.50% (although, borrowings based on LIBOR cannot exceed 60% of the total outstanding borrowings under the Revolving Credit). At February 27, 1999, the Revolving Credit bore interest at a rate of 9.25%. Borrowings under the Revolving Credit are limited by a formula based on Eligible Accounts Receivable and Inventory. Remaining availability under the line as of February 27, 1999 approximated $2,902,000 based on the borrowing formula. Commitment fees equal to .50% per annum on the unused portion of the Revolving Credit are payable monthly. The Credit Agreement contains certain provisions giving the lender the right to accelerate payment of all outstanding amounts upon the occurrence of certain events. Accordingly, all revolving Credit amounts are classified as current in the accompanying consolidated balance sheets. All outstanding amounts under the Revolving Credit Agreement are due in December 2001. The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan") and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term Loan bears interest, payable monthly, at the Alternate Base Rate (8.5% at February 27, 1999) plus 2.00%. Principal payments on the Term Loan will equal monthly principal payments in the amount of $56,667 for 35 months beginning in January 1998 with a $1,416,655 balloon payment due in December 2001. Additionally, 50% of annual excess cash flow, as defined in the Cap Ex Facility, must be applied to the Term Loan installments in the inverse order of maturity. Borrowings under the Cap Ex Facility are limited to 80% of the cost of new machinery and equipment, limited to annual utilization of $1,500,000. These borrowings also bear interest, payable monthly, at the Alternate Base Rate plus 2.00%. Principal payments on the Cap Ex Facility commence one month after the related borrowing at an amount based on a three year amortization. However, a balloon payment in an amount equal to all outstanding borrowings under the Cap Ex Facility is also due in December 2001. As of February 27, 1999, the Company had outstanding borrowings under the Cap Ex Facility totaling $916,000; principal payments are currently set at the rate of $18,300 per month. Borrowings under the Credit Agreement are collateralized by all of the Company's present and future assets. The Credit Agreement contains restrictive financial covenants including Minimum Tangible Net Worth ("MTNW"), Minimum EBITDA, Maximum Loss, Minimum Fixed Charge Coverage, Maximum Leverage and Maximum Capital Expenditures. Additional covenants limit borrowings, asset sales and dividends. The Company was in violation of the MTNW financial covenant as of February 27, 1999 primarily as a result of the disposal of it's wholly-owned Mexican subsidiary and the reduction of subordinated debt due to a related party. The Company was granted waivers by the lender and is currently discussing a modification to such covenant. The Company also purchases certain equipment, primarily office furniture, computer equipment and software, under long-term purchase agreements. These amounts are not material to the Company's cash flow. The Company does not have any plans to pay any cash dividends on the Common or the Series A and B Preferred 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 Credit Agreement. During the twenty-six week period ended February 27, 1999, the Company paid $188,000 in dividends to the Series C Preferred Stockholders. 17 The Company believes the lines of credit, together with cash generated by operations will provide sufficient cash to meet the requirements of the Company for fiscal 1999. Effective September 3, 1998 (pursuant to a private placement), the Company sold 78,333 shares of Series C Senior Convertible Preferred Stock ("Series C Preferred Stock") to a private investor for $60 per share. Each share of Series C Preferred Stock is convertible into 11.0345 shares of the Company's common stock. In connection with the Series C Preferred Stock issuance, the Company issued a warrant to purchase 125,000 shares of common stock ("The Series C Warrant") which is exercisable at a price of between $4.00 and $6.28 per share. The Company received proceeds from issuance of the Series C Preferred Stock of approximately $4,699,000 and expects to receive an additional $1,300,000 in fiscal 1999 upon issuance of an additional 21,667 shares of Series C Preferred Stock to the same investor, in accordance with the stated closing schedule. The Series C Preferred Stockholders are entitled to receive a cumulative cash dividend of $4.80 per share annually. The dividend is payable quarterly ($1.20 per share). The dividends may be paid by issuance of additional shares of Series C Preferred Stock except such shares bear a cumulative cash dividend of $7.80 per share annually. Dividends of approximately $188,000 were paid in cash on the Series C Preferred Stock during the twenty-six week period ended February 27, 1999. The Series C Preferred Stockholders are entitled to receive a liquidation preference equal to $60.00 per share plus interest thereon from the date of issue until redemption or conversion at a compound rate of 20% per year. The Series C Preferred Stock has full voting rights based on the number of common shares into which it is convertible and is voted together with the Common Stock as one class. On September 3, 1998, the closing bid price of the Company's common stock as reported by the NASDAQ was $5.44. The Series C Preferred Stock conversion ratio was based on this closing bid price at date of issuance. The common stock warrants issued to the Series C Preferred Stockholders were valued at approximately $307,000 utilizing the Black Scholes Method. Additionally, the Company incurred costs totaling $374,000 in connection with the Series C Preferred Stock sale. The value of the common stock warrants and issuance costs have been accounted for as a beneficial conversion feature to the preferred shareholders and thus have been charged directly to Accumulated Deficit and have been reflected as a reduction in net income applicable to common stock. The Company's Series A and B Preferred Stockholders are entitled to receive cumulative dividends of $.315 per share and $2.03 per share, respectively. To date, no dividends have been paid on the Series A and B Preferred Stock except those paid in connection with the sale of Trimex Stock (see Note 7). Dividends accumulated on the Series A and B Preferred Stock for the thirteen week periods ended February 27, 1999 and February 28, 1998 of approximately $103,000 and $113,000, respectively and for the twenty-six week periods then ended of approximately $216,000 and $226,000, respectively have been reflected as a reduction in net income applicable to common stock. Cumulative dividends in arrears on the Series A and B Preferred Stock totaled approximately $845,000 at February 27, 1999. YEAR 2000 COMPLIANCE The efficient operation of the Company's business is dependent on its computer software programs and operating systems (collectively, "Programs and Systems"). These Programs and Systems are used in all key areas of the Company's business, including information management services and financial reporting, as well as in various administrative functions. The Company has been evaluating its Programs and Systems to identify potential year 2000 compliance problems, as well as manual processes, external interfaces with customers, and services supplied by vendors to coordinate year 2000 compliance and conversion. The year 2000 problem refers to the limitations of the programming code in certain existing software programs to recognize date sensitive information for the year 2000 and beyond. Unless modified prior to the year 2000, such systems may not properly recognize such information and could generate erroneous data or cause a system to fail to operate properly. 18 The Company believes that it will be year 2000 compliant and plans to test its modificaations and replacements in September 1999. Modification and replacement of the Company's Programs and Systems are being made by Company or contract personnel. The Company believes that, with modifications to existing software and conversions to new software, the year 2000 problem will not pose a significant operational problem for the Company. However, because most computer systems are, by their very nature, interdependent, it is possible that non-compliant third party computers may not interface properly with the Company's computer systems. The Company could be adversely affected by the year 2000 problem if it or unrelated parties fail to successfully address this issue. Although the ultimate costs of attaining Year 2000 compliance is not fully known at this time, management anticipates that its external costs will not exceed $200,000. The above Year 2000 disclosure constitutes a "Year 2000 Readiness Disclosure" as defined in the Year 2000 Information and Readiness Disclosure Act (the "Act"), which was signed into law on October 19, 1998. The Act provides added protection from liability for certain public and private statements concerning a Company's Year 2000 readiness. The Act also potentially provides added protection from liability for certain types of Year 2000 disclosures made after January 1, 1996 and before October 19, 1998. As such, to the extent permitted by applicable law, previously disclosed statements of or by the Company and its management concerning the Company's Year 2000 readiness are intended to constitute "Year 2000 Readiness Disclosures" as defined by the Act. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK Market risk represents the risk of loss that may occur due to adverse changes in financial market prices, including interest rate risk and foreign currency exchange risk, and the effect they may have on the financial position, results of operation or cashflow of the Company. The Company's short term and long term debt at February 27, 1999 bears interest at variable rates (See Note 4 of the Notes to the consolidated Financial Statements). A one percentage point increase in the effective interest rate on the debt based on amounts outstanding at February 27, 1999 would result in an approximate $90,000 reduction in annual pretax earnings. This estimate assumes no change in the volume or composition of the short term and long term debt as of February 27, 1999. The Company's direct exports comprise approximately 39% of net sales for the twenty-six week period ended February 27, 1999. In addition, certain U.S. based customers ultimately distribute the Company's products into foreign countries. As a result, the Company has exposure to risk associated with the decrease in value of foreign currencies. Although the risk cannot be quantified, any significant decrease in value of the currency of foreign countries where the Company's products are distributed could have a material adverse effect on the Company's sales and results of operations. 19 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See Note 5 of the Notes to the Consolidated Financial Statement. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a.) The Annual Meeting of Stockholders was held on February 10, 1999. b.) The following directors were elected to serve until the next Annual Meeting of Stockholders or until their successors have been elected and qualified: Richard P. Rifenburgh Jay J. Sheth Robert R. Sparacino Robert A. Lerman Viren S. Sheth B. J. Harid Aaron Zutler c.) (1) The director's listed in item 4 b) above were elected by the following votes: NUMBER OF VOTES NAME NUMBER OF VOTES FOR WITHHELD ---- ------------------- -------- Richard P. Rifenburgh 15,535,436 8,700 Robert R. Sparacino 15,535,336 8,800 Viren S. Sheth 15,535,336 8,800 Aaron Zutler 15,535,336 8,800 Jay J. Sheth 15,535,336 8,800 Robert A. Lerman 15,535,336 8,800 B. J. Harid 15,535,436 8,700 (2) Of the 15,544,136 number shares voting at the meeting, 15,538,536 voted for the ratification of the appointment of the firm PricewaterhouseCoopers LLP as the Company's independent public accountants for fiscal 1999. The number of shares that voted against such ratification was 1,600 and the holders of 4,000 shares abstained from voting on this matter. ITEM 5. OTHER INFORMATION Not Applicable. 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBIT 2.1 STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND TRANSVIT HOLDING CORPORATION DATED EFFECTIVE AS OF NOVEMBER 29, 1998 (INCORPORATED HEREIN BY REFERENCE TO EXHIBIT 2.1 TO COMPANY'S CURRENT REPORT FORM 8-K DATED MARCH 25, 1999). *27.1 FINANCIAL DATA SCHEDULE. b) REPORT FORM 8-K DATED MARCH 25, 1999. --------------------------- * FILED HEREWITH. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRISTAR CORPORATION (Registrant) Date: April 13, 1999 /s/ Richard R. Howard RICHARD R. HOWARD President and Chief Executive Officer (Principal Executive Officer) Date: April 13, 1999 /s/ Robert M. Viola ROBERT M. VIOLA Executive Vice-President and Chief Financial Officer (Principal Financial and Accounting Officer) 22 EX-27.1 2
5 6-MOS AUG-29-1998 FEB-27-1999 48,000 0 15,242,000 697,000 10,510,000 26,248,000 7,840,000 9,575,000 34,657,000 21,275,000 0 168,000 0 12,970,000 (2,471,000) 34,657,000 13,440,000 13,440,000 9,620,000 13,587,000 32,000 0 307,000 (486,000) 24,000 (510,000) 0 0 0 (510,000) (0.04) (0.04)
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