-----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, MyTx08e+WLrj/t2IsRLTQWOjZqamBegCxrzO5PDnr58whL6+TkpnCYSI3PjYZKF2 ymKFIhrYdX6ODyDfD4cG3A== 0000950135-98-003315.txt : 19980518 0000950135-98-003315.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950135-98-003315 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYRK INC CENTRAL INDEX KEY: 0000864264 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 043081657 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21878 FILM NUMBER: 98622078 BUSINESS ADDRESS: STREET 1: 3 POND RD CITY: GLOUCESTER STATE: MA ZIP: 01930 BUSINESS PHONE: 5082835800 MAIL ADDRESS: STREET 1: 3 POND RD CITY: GLOCESTER STATE: MA ZIP: 01930 FORMER COMPANY: FORMER CONFORMED NAME: CYRK INTERNATIONAL INC DATE OF NAME CHANGE: 19930521 10-Q 1 CYRK, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1998 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 0-21878 CYRK, INC. (Exact name of Registrant as specified in its charter) DELAWARE 04-3081657 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3 POND ROAD, GLOUCESTER, MASSACHUSETTS 01930 (Address of principal executive offices) (Zip Code) (978) 283-5800 (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 ----- ----- At April 30, 1998, 14,734,326 shares of the Registrant's common stock were outstanding. 2 CYRK, INC. FORM 10-Q TABLE OF CONTENTS PART I FINANCIAL INFORMATION PAGE NUMBER Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 3 Consolidated Statements of Operations - For the three months ended March 31, 1998 and 1997 4 Consolidated Statements of Comprehensive Income - For the three months ended March 31, 1998 and 1997 5 Consolidated Statements of Cash Flows - For the three months ended March 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 PART II OTHER INFORMATION Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 2 3 PART I - FINANCIAL INFORMATION CYRK, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
March 31, 1998 December 31, 1997 -------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 61,148 $ 42,513 Accounts receivable: Trade, less allowance for doubtful accounts of $3,782 at March 31, 1998 and $3,801 at December 31, 1997 87,281 95,388 Officers, stockholders and related parties 233 228 Inventories 72,075 46,317 Prepaid expenses and other current assets 9,462 10,649 Deferred and refundable income taxes 12,055 9,746 -------- -------- Total current assets 242,254 204,841 Property and equipment, net 16,367 16,268 Excess of cost over net assets acquired, net 76,264 77,483 Investments in and advances to affiliates 8,411 9,506 Other assets 5,990 5,747 -------- -------- $349,286 $313,845 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings $ 25,099 $ 20,826 Accounts payable: Trade 60,776 57,690 Affiliates 155 180 Accrued expenses and other current liabilities 78,608 64,831 Accrued restructuring expenses 13,922 -- -------- -------- Total current liabilities 178,560 143,527 Long-term obligations 9,547 9,611 Deferred income taxes 704 704 -------- -------- Total liabilities 188,811 153,842 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 14,725,326 shares issued and outstanding at March 31, 1998 and 13,688,038 shares issued and outstanding at December 31, 1997 147 137 Additional paid-in capital 130,424 119,840 Retained earnings 30,758 40,609 Accumulated other comprehensive income: Cumulative translation adjustment (854) (583) -------- -------- Total stockholders' equity 160,475 160,003 -------- -------- $349,286 $313,845 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 CYRK, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
For the three months --------------------------- ended March 31, --------------------------- 1998 1997 -------- ------- Net sales $169,142 $97,188 Cost of sales 138,834 80,323 -------- ------- Gross profit 30,308 16,865 Selling, general and administrative expenses 30,234 11,136 Goodwill amortization expense 818 121 Restructuring expense 15,486 - -------- ------- Operating income (loss) (16,230) 5,608 Interest income (566) (861) Interest expense 614 555 Equity in loss of affiliates, net 419 307 -------- ------- Income (loss) before income taxes (16,697) 5,607 Income tax provision (benefit) (6,846) 3,364 -------- ------- Net income (loss) $ (9,851) $ 2,243 ======== ======= Earnings (loss) per common share - basic $ (0.69) $ 0.21 ======== ======= Earnings (loss) per common share - diluted $ (0.69) $ 0.21 ======== ======= Weighted average shares outstanding - basic 14,310 10,807 ======== ======= Weighted average shares outstanding - diluted 14,310 10,912 ======== =======
The accompanying notes are an integral part of the consolidated financial statements. 4 5 CYRK, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands)
For the three months --------------------------- ended March 31, --------------------------- 1998 1997 -------- ------- Net income (loss) $ (9,851) $ 2,243 -------- ------- Other comprehensive income (loss), before tax: Foreign currency translation adjustments (271) 77 Unrealized holding gains arising during period - 31 -------- ------- Other comprehensive income (loss), before tax (271) 108 Income tax expense (benefit) related to items of other comprehensive income (loss) (111) 65 -------- ------- Other Comprehensive income (loss), net of tax (160) 43 -------- ------- Comprehensive income (loss) $(10,011) $ 2,286 ======== =======
The accompanying notes are an integral part of the consolidated financial statements. 5 6 CYRK, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
For the three months -------------------------------- ended March 31, -------------------------------- 1998 1997 -------- -------- Cash flows from operating activities: Net income (loss) $ (9,851) $ 2,243 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,253 817 Realized loss (gain) on sale of investments (215) 28 Provision for doubtful accounts 271 30 Equity in loss of affiliates 634 307 Increase (decrease) in cash from changes in working capital items: Accounts receivable 7,780 12,021 Inventories (25,777) 19,396 Prepaid expenses and other current assets 1,178 755 Refundable income taxes (2,309) - Accounts payable 3,046 (2,355) Accrued expenses and other current liabilities 27,523 690 -------- ------- Net cash provided by operating activities 4,533 33,932 -------- ------- Cash flows from investing activities: Purchase of property and equipment (1,543) (1,121) Repayments from affiliates, net 676 492 Purchase of investments - (3,337) Proceeds from sale of investments 529 4,009 Other, net (371) (211) -------- ------- Net cash used in investing activities (709) (168) -------- ------- Cash flows from financing activities: Proceeds from (repayments of) short-term borrowings, net 4,273 (3,946) Decrease in long-term obligations (64) - Proceeds from issuance of common stock 10,594 221 -------- ------- Net cash provided by (used in) financing activities 14,803 (3,725) -------- ------- Effect of exchange rate changes on cash 8 (3) -------- ------- Net increase in cash and cash equivalents 18,635 30,036 Cash and cash equivalents, beginning of year 42,513 44,224 -------- ------- Cash and cash equivalents, end of period $ 61,148 $74,260 ======== ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 509 $ 449 ======== ======= Income taxes $ 1,350 $ 1,947 ======== =======
The accompanying notes are an integral part of the consolidated financial statements. 6 7 CYRK, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes in accordance with generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods presented. The operating results for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform with the current period presentation. 2. Inventories Inventories consist of the following (in thousands): March 31, 1998 December 31, 1997 -------------- ----------------- Raw materials $17,332 $10,807 Work in process 15,554 5,033 Finished goods 39,189 30,477 ------ ------- $72,075 $46,317 ======= ======= 3. Short-Term Borrowings At March 31, 1998, the Company was contingently liable for letters of credit used to finance the purchase of inventory in the aggregate amount of $14.6 million. Such letters of credit expire at various dates through June 1998. As of March 31, 1998, the Company was in violation of certain financial covenants associated with its primary domestic line of credit which have been waived by the bank. 4. Private Placement In February 1998, the Company issued 975,610 shares of its common stock and a warrant to purchase up to 100,000 shares of its common stock in a private placement, resulting in net proceeds of approximately $10.0 million which will be used for general corporate purposes. 5. Restructuring On February 13, 1998, the Company announced a plan to restructure its worldwide operations. The plan reflects the Company's strategy to focus on its core business in the promotional marketing industry. The Company intends to consolidate certain operating facilities, discontinue certain divisions of its apparel business and eliminate approximately 450 positions or 28% of its worldwide work force. The majority of the eliminated positions will affect the screen printing and embroidery business in Gloucester, Massachusetts. As of March 31, 1998, approximately 55% of anticipated employee terminations have occurred. In the first quarter of 1998 the Company has recorded a charge to operations of $15.5 million primarily related to asset write-downs ($11.3 million), employee termination costs ($2.8 million), lease cancellations ($1.1 million) and other related exit costs ($.3 million). This charge has had the effect of reducing after tax earnings by $9.1 million or $0.64 per share. The Company anticipates the restructuring will be completed during 1998 and once completed is expected to yield annualized cost savings of $9 to $12 million. A summary of activity in the restructuring accrual is as follows (in thousands): Balance at January 1, 1998 $ -- Restructuring provision 15,486 Employee termination costs and other cash payments (928) Non-cash asset write-downs (636) ------- Balance at March 31, 1998 $13,922 ======= 7 8 6. Income Taxes The effective tax rate for the quarter ended March 31, 1998 was 41% as compared to an effective tax rate of 60% for the year ended December 31, 1997. The effective rate of 41% represents the estimated federal and state tax benefit expected to be realized as a result of the restructuring charge recorded in the current quarter. 7. Litigation The Company and certain of its officers and directors were named as defendants in a putative class action filed on October 18, 1995 in the United States District Court for the Southern District of New York ( Barry Hallet, Jr. v. Li & Fung, et al., Docket No. 95 Civ. 8917). On March 4, 1998, with the assistance of a professional mediator, all parties to the litigation reached an agreement to settle the case. The settlement agreement has been preliminarily approved by the Federal District Court and notice of the settlement agreement has been distributed to all class members. A hearing on the final approval has been scheduled by the Court for June 26, 1998. The settlement agreement called for a cash contribution by the Company of $4.0 million into escrow on April 7, 1998; other parties and various insurance carriers have also contributed to the settlement. In the opinion of management, after consideration of amounts accrued, this settlement does not have a material adverse effect on the Company's financial condition or results of operations. 8. Earnings Per Share Disclosure The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computation for "income (loss) available to common stockholders" and other related disclosures required by Statement of Financial Accounting Standards No. 128, "Earnings per Share" (in thousands, except share data):
For the Quarters Ended March 31, 1998 1997 --------------------------------------- ---------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount --------------------------------------- ---------------------------------------- Basic EPS: Income (loss) available to common stockholders $(9,851) 14,310,300 $(0.69) $2,243 10,807,401 $0.21 ====== ===== Effect of Dilutive Securities: Common stock equivalents -- 104,200 ----------------------- ------------------------ Diluted EPS: Income (loss) available to common stockholders and assumed conversions $(9,851) 14,310,300 $(0.69) $2,243 10,911,601 $0.21 ======================= ====== ========================= =====
For the quarter ended March 31, 1998, 638,345 of common stock equivalents and contingently and non-contingently issuable shares related to acquired companies were not included in the computation of diluted EPS because to do so would have been antidilutive. 9. New Accounting Standards In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 specifies new guidelines for determining a company's operating segments and related requirements for disclosure. The Company is in the process of evaluating the impact of the new standard on the presentation of the financial statements and the disclosures therein. The Statement will become effective for fiscal years beginning after December 15, 1997. The Company will adopt the new standard for the fiscal year ending December 31, 1998. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Company for the three month period ended March 31, 1998 as compared to the same period in the previous year. This discussion should be read in conjunction with the Consolidated Financial Statements of the Company and related Notes included elsewhere in this Form 10-Q. FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS From time to time, the Company may provide forward-looking information such as forecasts of expected future performance or statements about the Company's plans and objectives. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. The Company wishes to caution readers that actual results may differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company as a result of factors described in the Company's Amended Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, filed as Exhibit 99.3 to the Company's 1997 Annual Report on Form 10-K which is incorporated herein by reference. GENERAL The Company is a full-service, integrated provider of marketing and promotional products and services. As such, the Company generates revenue from the sale of promotional products and the development of marketing programs. The majority of the Company's revenue is derived from the sale of promotional products to consumer product companies seeking to promote their brand and build customer loyalty. Historically, the Company's business has been heavily concentrated with two customers, Philip Morris Incorporated ("Philip Morris") and Pepsi-Cola Company ("Pepsi"). Purchases of promotional products by Philip Morris and Pepsi in 1997 accounted for 16% and 21% of net sales, respectively. Net sales to Philip Morris and Pepsi accounted for 11% and 3%, respectively, of total net sales in the first three months of 1998. As a part of its continuing effort to diversify its customer base and broaden its capability, the Company completed the acquisition of two providers of promotional services and products during the second quarter of 1997. These transactions were completed through mergers of these providers with and into wholly-owned subsidiaries of the Company. On April 7, 1997, the Company acquired Tonkin, Inc. ("Tonkin"), a Monroe, Washington provider of custom promotional programs and licensed promotional products. On June 9, 1997, the Company acquired Simon Marketing, Inc. ("Simon"), a Los Angeles-based global marketing and promotion agency and provider of custom promotional products. Simon's business is heavily concentrated with McDonald's Corporation ("McDonald's"). Net sales to McDonald's accounted for 36% of the Company's total net sales in 1997 and 58% of the Company's total net sales for the first quarter of 1998. The Company's business with McDonald's, Philip Morris and Pepsi (as well as other promotional customers) is based upon purchase orders placed from time to time during the course of promotions. There are no written agreements which commit them to make a certain level of purchases. The actual level of purchases depends on a number of factors, including the duration of the promotion and consumer redemption rates. Consequently, the Company's level of net sales is difficult to predict accurately and can fluctuate greatly from quarter to quarter. The Company expects that a significant percentage of its net sales in 1998 will be to McDonald's and Philip Morris. The Company's agreements with Pepsi were terminated in December 1997 and the Company expects sales to Pepsi in 1998 to be minimal. While the Company has been seeking new major promotional customers in an effort to replace the 1997 Pepsi revenues of $117.1 million, it is very unlikely that sales to new customers, or increased sales to existing customers, in 1998 will materially reduce the revenue shortfall caused by the termination of the Pepsi agreements. Therefore, while the restructuring described below will help mitigate the impact of the loss of Pepsi revenues on 1998 earnings, the Company expects to report operating losses for the balance of the year. Philip Morris solicits competitive bids for its promotional programs. The Company's profit margin depends, to a great extent, on its competitive position when bidding and its ability to manage its costs after being awarded bids. Increased competition is expected to continue and may adversely impact the Company's profit margin on Philip Morris promotions in the future. Recent negotiations between state attorneys general and certain tobacco companies, including Philip Morris, as well as recent federal regulations, would result in a ban on promotional programs relating to tobacco products and would have a material adverse effect on the Company's business with Philip Morris and its results of operations. 9 10 At March 31, 1998, the Company had written purchase orders for $301.9 million as compared to $51.3 million at March 31, 1997. The comparative increase in the Company's backlog is the result of the Simon and Tonkin acquisitions. The Company's purchase orders are generally subject to cancellation with limited penalty and are therefore not necessarily indicative of future revenues or earnings. CORPORATE RESTRUCTURING On February 13, 1998, the Company announced a plan to restructure its worldwide operations. The plan reflects the Company's strategy to focus on its core business in the promotional marketing industry. The Company intends to consolidate certain operating facilities, discontinue certain divisions of its apparel business and eliminate approximately 450 positions or 28% of its worldwide work force. The majority of the eliminated positions will affect the screen printing and embroidery business in Gloucester, Massachusetts. In the first quarter of 1998 the Company has recorded a charge to operations of $15.5 million for asset write-downs, employee termination costs, lease cancellations and other related exit costs associated with the restructuring. The Company anticipates the restructuring will be completed during 1998 and once completed is expected to yield annulized cost savings of $9 to $12 million. See notes to consolidated financial statements. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 Net sales increased $71.9 million, or 74%, to $169.1 million in the first quarter ended March 31, 1998 from $97.2 million in the first quarter of 1997. The increase in net sales was primarily attributable to revenues associated with Simon and Tonkin. Promotional product sales in the first quarter of 1998 totaled $163.4 million, or an increase of 89%, as compared to $86.6 million in the first quarter of 1997. Net sales related to the Company's private label and Cyrk brand business in the first quarter of 1998 totaled $5.8 million, or a decrease of 46%, as compared to $10.6 million in the first quarter of 1997. This comparative decrease in sales of the Company's private label and Cyrk brand business is a direct result of the Company's strategy to focus on its core business in the promotional marketing industry. Gross profit increased $13.4 million, or 80%, to $30.3 million in the first quarter of 1998 from $16.9 million in the first quarter of 1997. As a percentage of net sales, the first quarter gross profit increased to 17.9% in 1998 from 17.4% in 1997. This increase was due principally to more favorable margins associated with the Company's diversified customer base and the increased sales mix in the promotional industry segments characterized by higher gross margins. Selling, general and administrative expenses totaled $31.1 million at March 31, 1998 as compared to $11.3 million in the first quarter of 1997. As a percentage of net sales, selling, general and administrative costs totaled 18.4% as compared to 11.6% in the first quarter of 1997. The Company's increased spending was primarily attributable to its expanded global sales and operations. In connection with its February 1998 announcement to restructure worldwide operations, the Company recorded a restructuring charge of $15.5 million attributable to asset write-downs, employee termination costs, lease cancellations and other related exit costs. See notes to consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 1998 was $63.7 million compared to $61.3 million at December 31, 1997. The primary sources of cash provided by operations were principally related to a decrease in accounts receivable and an increase in accrued expenses (of which $13.9 million is related to the first quarter restructuring charge) totaling $35.3 million, which was partially offset by an increase in inventory of $25.8 million. Trade accounts receivable declined to $87.3 million at March 31, 1998 from $95.4 million at December 31, 1997, primarily as a result of reduced sales in the first quarter of 1998 compared to the fourth quarter of 1997. The increase in inventories was primarily due to a higher level of inventory purchases related to promotional customer orders. Net cash used in investing activities was $.7 million, which was primarily attributable to $1.5 million for purchases of property and equipment, which were partially offset by $.7 of repayments of advances from an affiliate. In the first quarter of 1997, net cash used by investing activities was $.2 million, which included $1.1 million for additions to property and equipment, which was partially offset by $.7 million of net sales of investments. 10 11 The Company expects to make cash payments of approximately $4.0 million for employee termination costs, lease buyouts and other exit costs associated with its plan to restructure its operations. In February 1998, the Company issued 975,610 shares of its common stock and a warrant to purchase up to 100,000 shares of its common stock in a private placement, resulting in net proceeds of approximately $10.0 million which will be used for general corporate purposes. Since inception, the Company has financed its working capital and capital expenditure requirements through cash generated from operations, public sales of common stock, bank borrowings and capital equipment leases. Such cash requirements for 1997 were provided principally by operating activities, and principally by financing and operating activities for 1998 to date. The Company currently has available several worldwide bank letters of credit and revolving credit facilities which expire at various dates beginning in May 1998. As of March 31, 1998, based on the borrowing base formulas prescribed by these credit facilities, the Company's borrowing capacity was $104.2 million, of which $24.8 million of short-term borrowings and $15.1 million in letters of credit were outstanding. Borrowings under these facilities are collateralized by all assets of the Company. OUTLOOK: ISSUES AND UNCERTAINTIES Management believes that the Company's existing cash position, credit facilities, and its ability to obtain additional financing, combined with internally generated cash flow, as well as the anticipated proceeds in the second half of the year from the sale of an equity investment, will satisfy its liquidity and capital needs through the end of 1998. However, the likelihood of operating losses for the balance of the year will exert increasing pressure on its existing cash position. In the event of sustained operating losses, the Company will incur increasing difficulty in renewing existing credit facilities, or obtaining additional financing. The Company may seek additional equity financing during the next twelve months. However, there can be no assurance that such financing will be available on acceptable terms, and any additional equity financing could result in additional dilution to existing investors. 11 12 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and certain of its officers and directors were named as defendants in a putative class action filed on October 18, 1995 in the United States District Court for the Southern District of New York ( BARRY HALLET, JR. v. LI & FUNG, et al., Docket No. 95 Civ. 8917). On March 4, 1998, with the assistance of a professional mediator, all parties to the litigation reached an agreement to settle the case. The settlement agreement has been preliminarily approved by the Federal District Court and notice of the settlement agreement has been distributed to all class members. A hearing on the final approval has been scheduled by the Court for June 26, 1998. The settlement agreement called for a cash contribution by the Company of $4.0 million into escrow on April 7, 1998; other parties and various insurance carriers have also contributed to the settlement. In the opinion of management, after consideration of amounts accrued, this settlement does not have a material adverse effect on the Company's financial condition or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) No reports on Form 8-K were filed during the quarter for which this report is filed. 12 13 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. Date: May 14, 1998 CYRK, INC. /s/ Dominic F. Mammola ----------------------------------------- Dominic F. Mammola Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial and accounting officer) 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 61,148 0 91,063 3,782 72,075 242,254 33,591 17,224 349,286 178,560 0 0 0 147 160,328 349,286 169,142 169,142 138,834 138,834 419 271 614 (16,697) (6,846) (9,851) 0 0 0 (9,851) (0.69) (0.69)
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