-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eDMZNn6JkduXhNb+ADsYQ4zCqiaPQ07atVMpwX38bM9HwmPzmQ1JmshAGjwxNsJ6 0o4i9reTyGCMTToNMgi1wA== 0000950129-95-000778.txt : 19950719 0000950129-95-000778.hdr.sgml : 19950719 ACCESSION NUMBER: 0000950129-95-000778 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950531 FILED AS OF DATE: 19950714 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRISTAR CORP CENTRAL INDEX KEY: 0000737203 STANDARD INDUSTRIAL CLASSIFICATION: 5122 IRS NUMBER: 133129318 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13099 FILM NUMBER: 95554192 BUSINESS ADDRESS: STREET 1: 12500 SAN PEDRO AVE STE 500 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2104022200 MAIL ADDRESS: 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 TRISTAR CORP. -- FORM 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: MAY 31, 1995 -OR- / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ COMMISSION FILE NUMBER 0-13099 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 JULY 6, 1995, THERE WERE OUTSTANDING 6,648,996 SHARES OF COMMON STOCK, $.01 PAR VALUE, OF THE REGISTRANT. There are 24 pages in the sequentially numbered, manually signed original. The exhibit index is located at page 19. Page 1 2 TRISTAR CORPORATION AND SUBSIDIARIES INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements (Unaudited) Consolidated balance sheets--May 31, 1995 and August 31, 1994 3 Consolidated statements of income--three and nine month periods ended May 31, 1995 and 1994 5 Consolidated statements of cash flows--nine month periods ended May 31, 1995 and 1994 6 Notes to consolidated financial statements--May 31, 1995 7 Report of Independent Accountants 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities 17 Item 3. Defaults Upon Senior Securities 17 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18
Page 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(UNAUDITED) MAY 31 August 31, ASSETS 1995 1994 * -------------- --------------- Current assets: Cash and cash equivalents $ 249,000 $ 269,000 Accounts receivable, less allowance for doubtful accounts of $447,000 and $589,000 4,952,000 6,430,000 Current portion note receivable-related party (Note 11) 50,000 --- Accounts receivable - insurance reimbursement (Note 6) 815,000 --- Inventories (Notes 3 and 11) 8,549,000 8,127,000 Prepaid expenses 297,000 243,000 Refundable income taxes (Note 4) 52,000 1,774,000 -------------- ---------------- Total current assets 14,964,000 16,843,000 -------------- ---------------- Note receivable-related party (Note 11) 550,000 --- Assets held for sale (Note 11) 648,000 --- Property, plant and equipment, less accumulated depreciation of $734,000 and $1,015,000 714,000 2,372,000 -------------- ---------------- Other assets: Warrant valuation, less accumulated amortization of $557,000 and $367,000 1,532,000 1,722,000 Other assets 56,000 84,000 -------------- ---------------- Total other assets 1,588,000 1,806,000 -------------- ---------------- TOTAL ASSETS $ 18,464,000 $ 21,021,000 ============== ================
* Prepared from audited financial statements for the year ended August 31, 1994. SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. Page 3 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -- Continued TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED) MAY 31 August 31, LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 * ------------- ------------- Current liabilities: Short-term borrowings (Note 5) $ 3,964,000 $ 4,511,000 Current portion of long-term obligations 35,000 38,000 Accounts payable-trade 474,000 865,000 Accounts payable-related parties-net (Note 9) 2,857,000 1,462,000 Accrued bonuses 212,000 302,000 Accrued litigation expense 177,000 175,000 Accrued interest expense 456,000 386,000 Accrued promotion expense 92,000 455,000 Other accrued expenses 655,000 694,000 ------------- ------------- Total current liabilities 8,922,000 8,888,000 ------------- ------------- Shareholder litigation settlement (Note 7) --- 4,500,000 Obligations under capital leases, less current portion 31,000 54,000 Subordinated long term debt - related parties (Notes 6 and 7) 8,000,000 5,000,000 ------------- ------------- Total liabilities 16,953,000 18,442,000 ------------- ------------- Commitments and contingencies (Note 8) --- --- Shareholders' equity: Preferred stock, $.05 par value; authorized 1,000,000 shares; no shares issued --- --- Common stock, $.01 par value; authorized 10,000,000 shares; issued and outstanding 6,648,966 shares in May 1995 and 6,641,538 shares in August 1994 67,000 66,000 Additional paid-in capital 10,281,000 10,229,000 Receivable from shareholders-related parties (Note 7) --- (500,000) Accumulated deficit (8,837,000) (7,216,000) ------------- ------------- Total shareholders' equity 1,511,000 2,579,000 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,464,000 $ 21,021,000 ============= =============
* Prepared from audited financial statements for the year ended August 31, 1994. SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. Page 4 5 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -- Continued TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------------------ ------------------------------- 1995 1994 1995 1994 -------------- -------------- -------------- ---------------- Net sales $ 6,672,000 $ 9,557,000 $ 24,091,000 $ 35,861,000 Cost of sales (Note 10) 5,778,000 7,909,000 19,821,000 29,290,000 -------------- -------------- -------------- ---------------- Gross profit 894,000 1,648,000 4,270,000 6,571,000 Selling, general and administrative expenses (Note 11) 2,300,000 2,763,000 6,576,000 8,298,000 -------------- -------------- -------------- ---------------- Loss from operations (1,406,000) (1,115,000) (2,306,000) (1,727,000) Other income (expense): Interest expense (308,000) (299,000) (961,000) (859,000) Other (expense) income (297,000) 1,000 (419,000) 12,000 Insurance reimbursement (Note 6) 815,000 ---- 2,065,000 ---- -------------- -------------- -------------- ---------------- Loss before provision for income taxes (1,196,000) (1,413,000) (1,621,000) (2,574,000) Provision for income taxes ---- ---- ---- ---- -------------- -------------- -------------- ---------------- Net loss $ (1,196,000) $ (1,413,000) $ (1,621,000) $ (2,574,000) ============== ============== ============== ================ Net loss per common share (Note 2): Primary $ ( .18) $ ( .21) $ ( .24) $ ( .39) ============== ============== ============== ================ Fully diluted $ ( .18) $ ( .21) $ ( .24) $ ( .39) ============== ============== ============== ================ Weighted average common shares outstanding (Note 2): Primary 6,650,230 6,633,642 6,646,067 6,629,837 ============== ============== ============== ================ Fully diluted 6,650,230 6,633,642 6,646,067 6,629,837 ============== ============== ============== ================
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. Page 5 6 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -- Continued TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED ----------------------------- MAY 31, May 31, 1995 1994 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,621,000) $ (2,574,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 386,000 332,000 Provision for losses on accounts receivable 210,000 213,000 Provision for inventory 407,000 369,000 Impairment of assets reserve 150,000 Loss on asset disposals 23,000 71,000 Issuance of stock in connection with 401K plan 53,000 41,000 Amortization of warrant valuation 190,000 --- Change in operating assets and liabilities: Accounts receivable 1,268,000 (349,000) Accounts receivable-insurance reimbursement (815,000) Inventories (830,000) 376,000 Prepaid expenses (54,000) (86,000) Refundable income taxes 1,722,000 559,000 Accounts payable 1,004,000 (1,093,000) Accrued expenses (420,000) 468,000 Shareholder litigation settlement liability (4,500,000) (3,500,000) ------------ ------------ Net cash used in operating activities (2,827,000) (5,173,000) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (129,000) (195,000) Increase in other assets (33,000) (107,000) Proceeds from sale of assets 42,000 19,000 ------------ ------------ Net cash from (used in) investing activities (120,000) (283,000) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short term borrowings 30,749,000 40,167,000 Payments under short term borrowings (31,296,000) (38,167,000) Proceeds from issuance of subordinated long-term debt 4,000,000 3,500,000 Principal payments on subordinated long-term debt (1,000,000) --- Other principal payments (26,000) (21,000) Collection on receivable from shareholders 500,000 --- ------------ ------------ Net cash provided by financing activities 2,927,000 5,479,000 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS (20,000) 23,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 269,000 235,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 249,000 $ 258,000 ============ ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. Page 6 7 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -- Continued TRISTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MAY 31, 1995 NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended May 31, 1995, are not necessarily indicative of the results that may be expected for the year ending August 31, 1995. NOTE 2: NET LOSS PER SHARE Net loss per share amounts were computed based upon the weighted average number of common shares outstanding. NOTE 3: INVENTORIES Inventory is stated at the lower of cost (determined by the weighted average cost method) or market.
5/31/95 8/31/94 ------------------ ----------------- Raw materials $ --- $ 227,000 Work-in-process 246,000 494,000 Finished goods 8,303,000 7,406,000 ------------------ ----------------- $ 8,549,000 $ 8,127,000 ================== =================
The inventory balances at May 31, 1995, and August 31, 1994, are shown net of reserves for market valuation and shrinkage of $807,000 and $400,000, respectively. Raw materials inventories as of August 31, 1994, relate to the cosmetic pencil manufacturing operations. These operations and the related inventories were sold to Eurostar, effective May 1995. Work-in-process inventories as of August 31, 1994, related partially to the cosmetic pencil manufacturing and partially to the distribution activity. The remaining work-in-process inventories relate only to the distribution activity. See Note 11 for further discussion of the pencil manufacturing operations sale. Page 7 8 NOTE 4: INCOME TAXES During the first quarter of fiscal 1995, TRISTAR CORPORATION (the "Company") received tax refunds of approximately $1,722,000 reducing the refundable taxes recorded at August 31, 1994. NOTE 5: SHORT-TERM BORROWING The Company had available at May 31, 1995, a revolving line of credit that permits borrowings of up to $10 million at prime rate plus five percentage points per annum, with additional fees approximating a percentage point per annum. Borrowings under this credit agreement are limited to 70% of eligible accounts receivable and 30% of eligible inventories as defined in the agreement. Collateral for the credit agreement consists of all assets of the Company. The agreement contains a material adverse change provision as well as certain restrictions and conditions, among which are limitations on cash dividends and capital expenditures. As of May 31, 1995, based on the borrowing formula in the agreement, the maximum borrowings available to the Company were $4,839,000 of which $875,000 was not utilized. As of July 7, 1995, the Company and its lender amended the existing credit agreement and extended the maturity date to July 7, 1997 from the original maturity date of October 7, 1995. Under the terms of the amendment, borrowing availability was increased to 75% of eligible accounts receivable and 50% of eligible inventories as defined in the original agreement. In addition, the interest expense was reduced to prime rate plus three percentage points per annum with additional fees approximating a percentage point per annum. NOTE 6: PROCEEDS OF AN EXECUTIVE LIABILITY AND INDEMNIFICATION POLICY On December 6, 1994, the Company received a court approved distribution of $1,250,000 from the proceeds of an executive liability and indemnification policy owned by the Company. In accordance with the financing agreement with the Core Sheth Families, a related party, $1,000,000 of the proceeds were utilized to repay a portion of the existing long term subordinated debt. The $1,000,000 repayment was made in December 1994. On June 23, 1995, the Company received a court approved distribution of the balance ($750,000) of the proceeds of the executive liability and indemnification policy owned by the Company. In addition, the Company received a distribution of approximately $65,000 of interest earned during the period the court held the proceeds. This court approved distribution is subject to appeal by other claimants under the policy. NOTE 7: LONG TERM LIABILITIES On December 16, 1994, the Company made its final payment of $4.5 million under the stockholder litigation settlement. The funds were provided by the borrowing of $4 million under the financing agreement entered into on August 31, 1993, with the Core Sheth Families, a related party. Such borrowings were recorded as subordinated long-term debt in accordance with the financing agreement. The remaining $500,000 was from the proceeds of the purchase by the Core Sheth Families of 10-year warrants to purchase 2 million shares of the Company's common stock at a per share price of $5.34. Page 8 9 NOTE 8: LITIGATION AND CONTINGENCIES 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 9: ACCOUNTS PAYABLE - RELATED PARTIES The Company's primary suppliers of fragrance products and cosmetic products are related parties, Eurostar Perfumes, Inc. ("Eurostar") and Emicos International, Ltd., ("Emicos"), respectively. Related party accounts payable result from the purchase of products from those vendors. Related party accounts receivable result from (1) transferring inventory to Eurostar for sale to Eurostar customers or repackaging for the Company, and (2) the sale of cosmetic pencils to Emicos and Eurostar. The payables and receivables balances are offset and the net balance of accounts receivable or accounts payable is presented on the balance sheet. Payables due members of the Company's Board of Directors result, in the normal course of business, from expenses associated with Board and related committee meetings. However, during the third fiscal quarter ended May 31, 1995, additional expenses were incurred which related to the Company's proposed merger with a related party, Eurostar. See Note 12 for further discussion of the proposed merger transaction. The following summarizes the presentations at May 31, 1995 and August 31, 1994.
5/31/95 8/31/94 ------------------ ------------- Total Accounts Payable-Related Parties $ 3,579,000 1,888,000 Total Accounts Receivable-Related Parties 775,000 438,000 ------------------ ------------- Offset Amount 771,000 438,000 ------------------ ------------- 2,808,000 1,450,000 ------------------ ------------- Payables due members of the Company's Board of Directors 49,000 12,000 ------------------ ------------- Net Related Parties Payables $ 2,857,000 1,462,000 ================== ==============
NOTE 10: RELATED PARTY COST OF SALES: The majority of the Company's sales, approximately 88% and 90% for the three and nine months ended May 31, 1995, respectively, and 92% for the same periods in fiscal 1994, are from product purchased from related parties. Correspondingly, the majority of the Company's cost of sales is a result of related party transactions. NOTE 11: COSMETIC PENCIL MANUFACTURING OPERATION In May 1995, the Company sold its cosmetic pencil manufacturing business, with the exception of the facility and surrounding land, to Eurostar in consideration for the cost of inventories, payable upon utilization of such inventories, and a seven-year note for approximately $600,000. In connection with the sale, Eurostar agreed to supply all of the Company's requirements for cosmetic pencils at contractual prices such that, under fiscal 1994 volume levels and selling prices, the Company would achieve in future periods the same contribution from cosmetic pencil Page 9 10 sales as was achieved in fiscal 1994. Expenses of $149,000 related to the closing were recorded in May 1995. The Company intends to sell or lease its manufacturing plant facilities in South Carolina. An impairment of assets reserve of $150,000 was recorded against the land and facility held for sale in order to value the assets at estimated net realizable value. NOTE 12: PROPOSED MERGER Subject to stockholders' approval, the Company has entered into an Agreement and Plan of Merger (the "Merger Agreement") dated as of July 1, 1995 under which Eurostar Perfumes, Inc., a Texas Corporation ("Eurostar"), will be merged with and into the Company, with the Company being the surviving corporation. Eurostar, the Company's major supplier and a related party, (see Note 9), is owned 100% by the Core Sheth Families, who indirectly own 60.5% of the Company's outstanding common stock. If the merger is consummated, the Company will be the surviving corporation and will issue approximately 10 million shares of its common stock in exchange for all of the issued and outstanding common stock of Eurostar. The merger will be accounted for in a manner similar to a pooling of interests. Page 10 11 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tristar Corporation We have reviewed the accompanying consolidated balance sheet of Tristar Corporation and Subsidiaries as of May 31, 1995, the consolidated statements of income for the three and nine month periods ended May 31, 1995 and 1994, and the consolidated statements of cash flows for the nine month periods ended May 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements of Tristar Corporation and Subsidiaries for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Tristar Corporation and Subsidiaries as of August 31, 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated November 11, 1994, except for Note 16, as to which the date is November 22, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of August 31, 1994, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it is derived. COOPERS & LYBRAND L.L.P. Dallas, Texas July 7, 1995 Page 11 12 PART I - FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THREE AND NINE MONTH PERIODS ENDED MAY 31, 1995 AND MAY 31, 1994 For the three months ended May 31, 1995, the Company recorded a net loss of $1,196,000 or $0.18 per share, bringing the results for the nine months ended May 31, 1995 to a loss of $1,621,000 or $0.24 per share. NET SALES Net sales for the third quarter of fiscal 1995 were $6,672,000, a decrease of 30.2% compared to net sales of $9,557,000 in the same quarter of fiscal 1994. Net sales of $24,091,000 for the nine month period ended May 31, 1995, decreased 32.8% compared to net sales of $35,861,000 for the same period in fiscal 1994 . The decrease in sales in the fiscal 1995 periods compared to the same periods in fiscal 1994 was primarily attributable to weak economic conditions in Mexico in the first quarter and the subsequent devaluation of the Mexican Peso in the latter half of December 1994. Also contributing to decreased sales were lower sales to certain U.S. based customers who sell outside the Company's exclusive marketing territories and a general decrease in demand in the wholesale channel of distribution. NET SALES - CHANNELS OF DISTRIBUTION The Company markets and distributes products to the wholesale, independent retail and chain/mass merchandiser channels. For the quarter and nine months ended May 31, 1995, the Company experienced a decrease in sales to the wholesale channel when compared to the same periods ended May 31, 1994. The decrease in sales to the wholesale channel is primarily attributable to the factors described in the preceding paragraph. Although slower and less than originally anticipated, the Company has experienced growth in the independent retail and chain/mass merchandiser channel. The Company is continuing to devote resources to all channels of distribution, with emphasis placed on promotional programs and limited advertising. The impact of these marketing efforts on the balance of fiscal 1995 is not known at this time. NET SALES - FOREIGN-BASED CUSTOMERS The Company's customers are located primarily in the United States, Mexico and Canada. Sales made directly to foreign-based customers as a group, which includes those in Mexico and Canada, decreased in the three month and nine month periods ended May 31, 1995, when compared to the same period ended May 31, 1994. These direct sales decreased to $3,042,000 (12.6% of net sales) from $6,278,000 (17.5% of net sales) when comparing the respective nine month periods ended May 31, 1995, and 1994. A major component of this continuing decline was sales to Mexico where economic conditions, including the Peso devaluation, and political conditions severely affected the purchasing power of a majority of the Mexican population. The conditions in Mexico also had a material adverse effect on indirect sales, by certain of the Company's U. S. based customers, into Mexico. In the first three quarters of fiscal 1994, certain of the Company's U. S. based customers continued to export a significant portion of their purchases to countries outside the Company's exclusive marketing territories. In the latter part of fiscal 1994 and in the first nine months of fiscal 1995, as expected, sales to such customers decreased significantly, due to the Distribution Agreement concluded in October 1992 between the Company and its fragrance suppliers, wherein the Company agreed not to sell or cause to be sold any products of those suppliers in any country other Page 12 13 than the United States, Mexico, Canada and Puerto Rico. The amount of any sales lost cannot be determined as the Company does not have access to such customer information. NET SALES - PRODUCTS PURCHASED FROM RELATED PARTIES Of the net sales for the three and nine months ended May 31, 1995, approximately 88.3% ($5,889,000) and 90.0% ($21,686,000), respectively, resulted from the sale of products purchased from related parties. For the comparable periods ended May 31, 1994, sales of products purchased from related parties accounted for 92% of total net sales. The balance of the net sales in those periods was generated primarily from products produced by the Company's cosmetic pencil factory. Sales of cosmetic pencils included sales of $220,000 and $630,000, respectively, for the three and nine months ended May 31, 1995, to Emicos International, Ltd. ("Emicos"), a related party. For the comparable three and nine month periods in fiscal 1994, sales to the same related party were $79,000 and $191,000, respectively. GROSS PROFIT The Company's gross profit for the three and nine months ended May 31, 1995, was $894,000, or 13.4% of net sales and $4,270,000 or 17.7% of net sales, respectively, compared to $1,648,000, or 17.2% of net sales and $6,571,000 or 18.3% of net sales, respectively, for the same periods in fiscal 1994. The decrease in gross profit percentage when comparing both periods was principally due to increasing inventory reserves by $261,000 to re-value certain inventories discontinued in the third quarter of fiscal 1995 to anticipated market prices. In addition, in fiscal 1995, the Company has experienced increased freight costs offset somewhat by selective pricing policy changes that were instituted in the last quarter of fiscal 1994. The Company anticipates that gross profits, as a percentage of sales, for the balance of the year are expected to remain at or will be slightly lower than those of the previous quarters of fiscal 1995 as the Company pares its inventory levels. EXPENSES The Company's selling, general and administrative ("SG&A") expenses decreased for the three and nine months ended May 31, 1995 by 16.8% to $2,300,000 and by 20.8% to $6,576,000, respectively. As a percentage of net sales for the three and nine month periods ended May 31, 1995, the Company's SG&A increased to 34.5% and 27.3%, respectively, from 28.9% and 23.1%, respectively, for the same periods in fiscal 1994. These increases in SG&A expenses as a percentage of sales were attributable to lower sales in the fiscal 1995 periods as compared to the same periods in fiscal 1994. The decrease of SG&A expenses in the fiscal 1995 periods were largely attributable to restructuring, and reduced marketing promotions and advertising production costs occurring in the first nine months of fiscal 1995, closure of the South Carolina distribution center in May 1994 and the effect of selective headcount reductions in fiscal 1994. Included in the three and nine month amounts for fiscal 1995 are expenses of $149,000 incurred in the sale and closing of the pencil plant manufacturing operations in May 1995. Also included is an expense of $150,000 to write the pencil manufacturing facility and land down to estimated net realizable value. See Note 11 to the financial statements for further discussion of the sale of the Company's cosmetic pencil manufacturing business. Management expects that for the remainder of fiscal 1995, SG&A expenses will remain below the 1994 levels as the Company continues to realize benefits associated with the lower advertising expenses, closure of the South Carolina distribution center and the selective headcount reductions that occurred in fiscal 1994, plus continued efforts to control expenses in fiscal 1995. However, as sales continue to be impacted by instability in the Company's markets, SG&A expenses as a percentage of sales may remain above levels of fiscal 1994. INTEREST EXPENSE Interest expense increased in the first nine months of fiscal 1995 to $961,000, compared to $859,000 for the comparable period of fiscal 1994, primarily as a result of a higher rate of interest due to prime rate increases under the $10,000,000 revolving credit facility. Page 13 14 OTHER (EXPENSE) INCOME The third quarter included expenses of $87,000 incurred in preparing for the possible merger of Eurostar with and into the Company, $177,000 of litigation expenses arising from events related to the shareholder litigation, and $63,000 from the amortization of the valuation of warrants offset partially by miscellaneous income items. In addition, the nine months of fiscal 1995 included $127,000 of warrant valuation amortization for the first six months of fiscal 1995. The Company anticipates that expenses related to the proposed merger will be materially higher in the fourth quarter of fiscal 1995. INSURANCE REIMBURSEMENT On December 6, 1994, the Company received a court approved distribution of $1,250,000 from the proceeds of an executive liability and indemnification policy owned by the Company, which was recorded as other income in the financial statements of the Company for the quarter ended November 30, 1994. On June 23, 1995, the Company received a court approved distribution of the balance ($750,000) of the proceeds of an executive liability and indemnification policy owned by the Company. In addition, the Company received a distribution of $65,000 of interest earned during the period the court held the proceeds. This court approved distribution is subject to appeal by other claimants under the policy. NET LOSS The Company recorded a net loss for the third quarter of fiscal 1995 of $1,196,000, or $.18 per share compared to a net loss of $1,413,000 or $.21 per share for the same period in fiscal 1994. The net loss for the nine months ended May 31, 1995, was $1,621,000 or $.24 per share, compared to a net loss of $2,574,000, or $.39 per share, in the same period of fiscal 1994. POTENTIAL ADVERSE EFFECTS ON RESULTS OF OPERATIONS FOR FUTURE PERIODS Each or all of the following factors could have an adverse effect on anticipated results for the balance of fiscal 1995. 1. The Mexican Market. In late December 1994, the Mexican government devalued the Mexican Neuvo Peso by allowing the Peso to float freely against the U. S. dollar. This devaluation has resulted in a general increase of 80% or more in the cost of imported products to the Mexican consumer. The increase and the resultant instability, including significant business failures and resultant unemployment, has caused a sharp decline in purchases of the Company's products by the Mexican consumer. It is not known if and when the Peso will stabilize at a level where somewhat normal purchasing will resume. Prior to the above mentioned economic and political instability, sales directly and indirectly into Mexico accounted for a significant portion of the Company's total sales. The Company's products have been and are sold, directly or indirectly, into the Mexican market. The Company believes that some of its customers based in the United States sell the Company's products (as well as the products of other companies) to purchasers who, in turn, may attempt to import goods into Mexico without full payment of applicable Mexican taxes and customs duties. Enhanced enforcement efforts by Mexican authorities may have an adverse effect on the Company's sales to such customers. The Company has been unable to determine the effect, if any, that the implementation of the North American Free Trade Agreement (the "NAFTA") has had or will have on the Company's business. Page 14 15 2. The Economy. Weak economic conditions in Mexico combined with the devaluation of the Mexican currency, noted above, will continue to adversely impact sales. 3. The Distribution Channels. Although the Company is making extensive efforts to market products into the chain/mass merchandiser marketplace, the Company remains heavily dependent on its original markets, the wholesale and independent retail distribution channels. The maturation of these original markets, combined with the continued economic conditions and competitive pressures, have resulted in a slowing of the general growth of the market. These factors are expected by management to have some effect on the remainder of fiscal 1995. 4. Loss of Foreign-Based Customers. Under the Distribution Agreement concluded in October 1992 between the Company and its fragrance suppliers, the Company agreed not to sell or cause to be sold any products of those suppliers in any country other than the United States, Mexico, Canada and Puerto Rico. In fiscal 1994 and 1995, direct sales outside of the named countries were negligible. However, through the first three quarters of fiscal 1994, certain of the Company's U. S. based customers continued to export a significant portion of their purchases to countries outside the Company's exclusive marketing territories. In the latter part of fiscal 1994 and in the first nine months of fiscal 1995, as expected, sales to such customers decreased significantly due to the Distribution Agreement. While management believed that the amount of these lost sales would be replaced by additional sales within the exclusive marketing territories, to date, due to economic conditions and slower than anticipated growth in the mass merchandising channel, the Company has not been successful in doing so, and it is not expected that this will occur in the remainder of fiscal 1995. 5. Supply of Products. The Company's ability to satisfy sales orders for its fragrance products is directly dependent on the supply of products from Eurostar, which is a related party. As part of the settlement of the stockholders' class action litigation, Eurostar and the Company reached an agreement whereby the relationship between the two entities will continue through at least fiscal 1999. If Eurostar was physically unable to provide product, the effect on the Company would be minimal as two other related parties have similar manufacturing facilities available to support the Company. The Company is dependent on the supply of cosmetic products and cosmetic pencils, from related parties. If such related parties were to cease or to be unable to supply these products, the lack of such products would have an adverse effect on the Company until a secondary supplier could be located. 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 had available at May 31, 1995, a revolving line of credit that permits borrowings of up to $10 million at prime rate plus five percentage points per annum, with additional fees approximating a percentage point per annum. Borrowings under this credit agreement are limited to 70% of eligible accounts receivable and 30% of eligible inventories as defined in the agreement. Collateral for the credit agreement consists of all assets of the Company. The agreement contains a material adverse change provision as well as certain restrictions and conditions, among which are limitations on cash dividends and capital expenditures. Page 15 16 As of July 7, 1995, the Company and its lender amended the existing credit agreement and extended the maturity date to July 7, 1997 from the original maturity date of October 7, 1995. Under the terms of the amendment, borrowing availability was increased to 75% of eligible accounts receivable and 50% of eligible inventories as defined in the original agreement. In addition, the interest expense was reduced to prime rate plus three percentage points per annum with additional fees approximating a percentage point per annum. During the nine months ended May 31, 1995, net borrowings decreased by $547,000 to $3,964,000 under the revolving line of credit. Additional borrowings of $875,000 were available as of May 31, 1995, under the revolving line of credit based on the formulas used to determine availability. See Note 5 of the Notes to Consolidated Financial Statements for additional information on the line of credit. Operations in the nine months ended May 31, 1995, utilized $2,827,000 in cash primarily due to increased inventories ($830,000), decreased accrued expenses ($420,000) and the final payment into escrow of the stockholders litigation settlement ($4,500,000) and net loss adjusted for non-cash items ($202,000) which included an executive liability and indemnification insurance policy reimbursement of $2,000,000, plus $65,000 in accumulated interest. This item was the major factor in reducing the net loss for the nine months ended May 31, 1995. Offsetting these were a refund of federal income taxes of $1,722,000, decreased trade accounts receivable ($1,268,000), and increased accounts payable ($1,004,000). Maturity of the varying financing terms offered to customers due to seasonality and competitive pressures and lower sales levels, were the major contributors to the $1,268,000 decrease in accounts receivable balances for the first nine months of fiscal 1995. Inventories increased ($830,000) partially in anticipation of historical seasonal upsurge in sales in the last few months of the calendar year, which did not occur, and the loss of sales due to economic and political conditions in the Mexican market. Accrued expenses were reduced as payments were made of bonuses, sales promotions and interest that had been accrued during fiscal 1994. Capital expenditures during the nine months ended May 31, 1995 were $129,000, consisting primarily of investments in machinery and equipment. Capital expenditures in the remainder of fiscal 1995 are expected to be primarily for computer equipment and software with minimal amounts being invested in equipment for distribution activities. These amounts are not expected to be material to the cash flow of the Company. Additional subordinated debt borrowings of $4,000,000 plus $500,000 received from the purchase of warrants for 2 million shares of the Company's common stock by the Core Sheth Families were used to fund the final payment on the stockholder litigation settlement. Offsetting the increase in subordinated debt was utilization of $1,000,000 of the $1,250,000 insurance proceeds received in December 1994 for repayment of subordinated debt. Management believes that the Company's revolving line of credit and the continued ability to extend credit terms as necessary with the Company's primary supplier, Eurostar, a related party, should be sufficient to meet the cash requirements of the Company for the remainder of fiscal 1995. INFLATION During the nine months ended May 31, 1995, and consistent with the nine months ended May 31, 1994, inflation did not have a material adverse impact either on the Company's net sales or results from operations. Page 16 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In August 1993, Talamas Enterprises, Inc., a former customer of the Company ("Talamas"), filed suit against the Company, alleging that the Company had sold products to Talamas' customers in Mexico in breach of promises and representations made by the Company to Talamas. Although the Company denied the allegations in the suit, the suit was settled in April 1995 for an immaterial amount. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A) EXHIBITS 10. First Amendment to Loan and Security Agreement with Fremont Financial 23. Awareness Letter of Coopers and Lybrand. 27. Financial Data Schedule B) REPORTS ON FORM 8-K None Page 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized. TRISTAR CORPORATION (Registrant) Date: July 13, 1995 /s/ Viren S. Sheth ------------------------------------------ Viren S. Sheth President and Chief Executive Officer Date: July 13, 1995 /s/ Loren M. Eltiste ------------------------------------------ Loren M. Eltiste Vice-President and Chief Financial Officer (Principal Financial Officer) Page 18 19 EXHIBIT INDEX
Exhibit Number - - ------ 10. First Amendment to Loan and Security agreement with Fremont Financial 23. Awareness Letter of Coopers and Lybrand 27. Financial Data Schedule
EX-10 2 LOAN & SECURITY AGREEMENT 1 EXHIBIT 10 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT BETWEEN TRISTAR CORPORATION AND FREMONT FINANCIAL CORPORATION This FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made as of July 7, 1995 by and between FREMONT FINANCIAL CORPORATION ("Fremont") and TRISTAR CORPORATION ("Borrower"), in light of the following: WHEREAS, Borrower and Fremont entered into a Loan and Security Agreement dated October 8, 1993 (as amended from time to time,, the "Loan Agreement"; Capitalized terms used herein shall have the meanings set forth in the Loan Agreement unless specifically defined herein); and WHEREAS, Borrower and Fremont wish to amend the Loan Agreement as set forth herein. NOW THEREFORE, in consideration of the mutual promises and agreements of the parties hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged the parties hereto agree as follows: 1. Section 2.1 of the Loan Agreement is deleted in its entirety and replaced with the following: "2.1 Revolving Advances; Advance Limit. Upon the request of Borrower, made at any time or from time to time during the term hereof, and so long as no Event of Default has occurred and is continuing, Fremont shall, in its sole and absolute discretion, make advances to Borrower in an amount up to (a) seventy-five percent (75%) of the aggregate outstanding amount of Eligible Accounts, plus (b) the lesser of (1) fifty percent (50%) of the aggregate value of the Eligible Inventory or (2) Five Million and No/100 Dollars ($5,000,000.00); provided, however, that in no event shall the aggregate amount of the outstanding advances made pursuant to this Section 2.1 be greater than, at any time, the sum of Ten Million Dollars ($10,000,000.00) (the Advance Limit)." 2. Section 2.12 of the Loan Agreement is deleted in its entirety and replaced with the following: "2.12 Maintenance Fee. Borrower agrees to pay Fremont a fee (Maintenance Fee) in an amount equal to one-twelfth of one percent of the outstanding loan balance on or before the first (1st) day of each calendar month, in respect of Fremont's services for the preceding calendar month, during the term of this Agreement, including all renewal terms, or so long as any of the Obligations are outstanding." 1 2 3. Section 3.1 of the Loan Agreement is deleted in its entirety and replaced with the following: "3.1 Renewal Date. This Agreement shall become effective upon acceptance by Fremont and shall continue in full force and effect for a term ending on July __, 1997 (the Renewal Date) and from year to year thereafter, unless sooner terminated pursuant to the terms hereof; provided that, Borrower hereby agrees that Fremont may, at Fremont's option, extend the Renewal Date to July 7, 1998 by giving Borrower notice at least seventy (70) days prior to the Renewal Date. Either party may terminate this Agreement on the Renewal Date or on the anniversary of the Renewal Date in any year by giving the other party at least sixty (60) days prior written notice by registered or certified mail, return receipt requested and, in addition, Fremont shall have the right to terminate this Agreement immediately at any time upon the occurrence of an Event of Default. No termination of this Agreement, however, shall relieve or discharge Borrower of Borrower's duties, Obligations and covenants hereunder until all Obligations have been paid in full, and Fremont's continuing security interest in the Collateral shall remain in effect until all of Borrower's Obligations to Fremont have been fully paid and satisfied. Upon termination of this Agreement, all of the Obligations shall be immediately due and payable in full." 4. Section 3.2 of the Loan Agreement is deleted in its entirety and replaced with the following: "3.2 Early Termination Fee. If this Agreement is terminated by Fremont upon the occurrence of an Event of Default, or is terminated at Borrower's request other than pursuant to Section 3.1, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Fremont's lost profits as a result thereof, Borrower shall pay to Fremont upon the effective date of such termination a fee (Early Termination Fee) in an amount equal to: (a) two percent (2.0%) of the Advance Limit if such termination occurs on or prior to July 7, 1996; or (b) one percent (1.0%) of the Advance Limit if such termination occurs after July 7, 1996 other than on the Renewal Date or on a subsequent anniversary of the Renewal Date. The Early Termination Fee shall be presumed to be the amount of damages sustained by Fremont, as the result of the early termination and Borrower agrees that it is reasonable under the circumstances currently existing. The Early Termination Fee provided for in this Section 3.2 shall be deemed included in the Obligations. Anything contained herein to the contrary notwithstanding, if and to the extent the Early Termination Fee constitutes interest under applicable law, the Early Termination Fee, when added to all other interest contracted for, charged or received under this Agreement or any other Loan Documents, shall not exceed, and shall be limited to an amount which constitutes, interest at the Maximum Rate." 5. Borrower reaffirms, ratifies and confirms its Obligations under the Loan Agreement, acknowledges that all the terms and conditions in the Loan Agreement (except as 2 3 amended herein) remain in full force and effect and further acknowledges that the security interest granted to Fremont in the Collateral is valid and perfected. 6. Borrower is not aware of any events which now constitute, or with the passage of time or the giving of notice would constitute, an Event of Default under the Loan Agreement. 7. This Amendment constitutes the entire agreement of the parties in connection with the subject matter of this Amendment and cannot be changed or terminated orally. All prior agreements, understandings, representations, warranties and negotiations regarding the subject matter hereof, if any, are merged into this Amendment. 8. This Amendment may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, and all of such counterparts together shall constitute but one and the same agreement. 9. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Georgia. IN WITNESS WHEREOF, Borrower and Fremont have executed this Amendment as of the date first written above. FREMONT FINANCIAL CORPORATION, a California corporation, By: _______________________________________ James M. O'Callahan Assistant Vice President TRISTAR CORPORATION, a Delaware corporation By: --------------------------------------- Print Name: ------------------------------- Title/Capacity: --------------------------- 3 EX-23 3 AWARENESS LETTER 1 EXHIBIT 23 Securities and Exchange Commission 450 Fifth Street, Northwest Washington, D. C. 20549 Attention: Document Control RE: Tristar Corporation Form 10Q We are aware that our report dated July 7, 1995 on our review of the consolidated balance sheet of Tristar Corporation and Subsidiaries as of May 31, 1995, the consolidated statements of income for the three and nine month periods ended May 31, 1995 and 1994, and the consolidated statements of cash flows for the nine month periods ended May 31, 1995 and 1994, included in this Form 10-Q, is incorporated by reference in the following registration statement: On Form S-8 for: Registration No. ---------------- 400,000 shares of Common Stock of Ross Cosmetics Distribution Centers, Inc. 33-45396 Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. COOPERS & LYBRAND L.L.P. Dallas, Texas July 13, 1995 EX-27 4 FINANCIAL DATA SCHEDULE
5 1 9-MOS AUG-31-1995 SEP-01-1994 MAY-31-1995 249,000 0 4,952,000 447,000 8,549,000 14,964,000 714,000 734,000 18,464,000 8,922,000 0 67,000 0 0 1,444,000 18,464,000 24,091,000 24,091,000 19,821,000 19,821,000 0 210,000 961,000 (1,621,000) 0 (1,621,000) 0 0 0 (1,621,000) .24 .24
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