-----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, Gbm9GDSdUDH/6SlCuPVDJhpNH/8UyFuGQV2d6pwwTM5s4y/BQmqQ/ixJFhaG0h1t YG/+b7c1y+dm9qvCa4Cgyw== 0000914317-96-000191.txt : 19960716 0000914317-96-000191.hdr.sgml : 19960716 ACCESSION NUMBER: 0000914317-96-000191 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIRCO INTERNATIONAL CORP CENTRAL INDEX KEY: 0000090721 STANDARD INDUSTRIAL CLASSIFICATION: LEATHER & LEATHER PRODUCTS [3100] IRS NUMBER: 132511270 STATE OF INCORPORATION: NY FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04465 FILM NUMBER: 96594968 BUSINESS ADDRESS: STREET 1: 24 RICHMOND HILL AVENUE CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2033594100 MAIL ADDRESS: STREET 1: 24 RICHMOND HILL AVENUE CITY: NEW YORK STATE: CT ZIP: 06901 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (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, 1996 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 0-4465 Sirco International Corp. (Exact Name of Registrant as Specified in Its Charter) New York 13-2511270 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization Identification No.) 24 Richmond Hill Avenue, Stamford Connecticut 06901 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code 203-359-4100 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 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 registrant's classes of common stock, as of the latest practicable date: 1,309,700 shares of Common Stock, par value $.10 per share, as of July 1, 1996. PART 1. FINANCIAL INFORMATION Item 1. Financial Statements
Sirco International Corp. and Subsidiaries Condensed Consolidated Balance Sheets May 31, 1996 Nov. 30, 1995 (Unaudited) (See note) ----------- ---------- Assets Current assets: Cash and cash equivalents .................... $ 231,475 $ 176,241 Accounts receivable .......................... 2,703,644 2,184,468 Inventories .................................. 5,193,947 5,762,828 Prepaid expenses ............................. 494,896 257,809 Other current assets ......................... 75,298 276,815 ------------ ------------ Total current assets ........................... 8,699,260 8,658,161 Property and equipment at cost ................. 1,569,513 1,777,894 Less accumulated depreciation .................. 921,785 1,128,045 ------------ ------------ Net property and equipment ..................... 647,728 649,849 ------------ ------------ Other assets ................................... 241,116 154,233 Investment in and advances to subsidiary ....... 540,497 540,497 ------------ ------------ Total assets ................................... $ 10,128,601 $ 10,002,740 ============ ============ Liabilities and stockholders' equity Current liabilities: Loans payable to financial institutions ...... $ 1,800,000 $ 2,323,279 Short-term loans payable-other ............... 429,277 571,205 Current maturities of long-term debt ......... 149,162 222,119 Accounts payable ............................. 3,241,739 2,866,658 Accrued expenses ............................. 1,518,003 1,532,253 ------------ ------------ Total current liabilities ...................... 7,138,181 7,515,514 Sirco International Corp. and Subsidiaries Condensed Consolidated Balance Sheets (Continued) May 31, 1996 Nov. 30, 1995 (Unaudited) (See note) ----------- ---------- Long-term debt, less current maturities ........ 405,711 590,298 Stockholders' equity: Common stock, $.10 par value; 10,000,000 share authorized, 1,315,000 issued (1996), 1,215,000 issued (1995) ....... 131,520 121,520 Preferred stock, $.10 par value; 1,000,000 authorized, none issued Capital in excess of par value ............... 4,267,534 4,027,534 Retained earnings (deficit) .................. (1,197,850) (1,641,603) Treasury stock at cost ....................... (27,500) (27,500) Accumulated foreign translation adjustment ... (588,995) (583,023) ------------ ------------ Total stockholders' equity ..................... 2,584,709 1,896,928 ------------ ------------ Total liabilities and stockholders' equity ..... $ 10,128,601 $ 10,002,740 ============ ============
See notes to the condensed consolidated financial statements. Note: The balance sheet at November 30, 1995 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles.
Sirco International Corp. and Subsidiaries Condensed Consolidated Statements of Operation (Unaudited) For the Six Months Ended For the Three Months Ended ---------------------------- ----------------------------- May 31, 1996 May 31, 1995 May 31, 1996 May 31, 1995 ------------ ------------ ------------ ------------ Net sales ........................... $ 14,216,211 $ 10,106,586 $ 7,638,164 $5,681,094 Cost of goods sold .................. 10,358,190 7,659,887 5,651,974 3,837,546 ------------ ------------ ------------ ------------ Gross profit ........................ 3,858,021 2,446,699 1,956,190 1,443,548 Selling, warehouse, general and administrative expenses ........... 2,984,770 3,094,663 1,517,219 1,477,247 Loss on sale of handbag division .... 0 423,716 0 423,716 ------------ ------------ ------------ ------------ 2,984,770 3,518,379 1,517,219 1,900,963 ------------ ------------ ------------ ------------ 873,251 (1,071,680) 438,971 (457,415) Other (income) expense: Interest expense .................... 385,571 442,800 190,627 222,294 Interest income ..................... (31,482) (45,009) (7,379) (23,324) Miscellaneous income, net ........... (98,347) (28,075) (49,693) (4,121) ------------ ------------ ------------ ------------ 255,742 369,716 133,555 194,849 ------------ ------------ ------------ ------------ Net income (loss) before income taxes 617,509 (1,441,396) 305,416 (652,264) Provision for income taxes .......... 173,756 0 122,478 0 ------------ ------------ ------------ ------------ Net income (loss) ................... $443,753 ($ 1,441,396) $182,938 ($652,264) ============ ============ ============ ========== Net income (loss) per share of common stock: Primary ........................... $0.34 ($1.19) $0.13 ($0.54) ============ ============ ============ ========== Fully diluted ..................... $0.34 ($1.19) $0.13 ($0.54) ============ ============ ============ ========== Weighted average number of shares of common stock outstanding-primary and fully diluted ................. 1,273,088 1,209,700 1,309,700 1,209,700 ============ ============ ============ ==========
See notes to the condensed consolidated financial statements
Sirco International Corp. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended May 31, 1996 May 31, 1995 ------------ ------------ Cash flows from operating activities: Net income (loss) ................................ $ 443,753 ($1,441,396) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ................. 44,864 74,554 Provision for losses in accounts receivable ... 10,479 26,054 Gain on sale of property and equipment ........ (313) (35,234) Restrictive covenant .......................... 0 7,777 Changes in operating assets and liabilities: Accounts receivable .......................... (540,111) 515,097 Inventories .................................. 562,294 1,338,465 Prepaid expenses ............................. (237,394) (63,575) Other current assets ......................... 201,517 7,511 Other assets ................................. (86,883) (131,122) Accounts payable and accrued expenses ........ 366,321 (168,083) ----------- ----------- Net cash provided by operating activities ........ 764,527 130,048 ----------- ----------- Cash flows from investing activities: Proceeds from sale of property and equipment ..... 3,000 35,234 Purchase of property and equipment ............... (47,925) (8,996) ----------- ----------- Net cash (used in) provided by investing activities ...................................... (44,925) 26,238 ----------- ----------- Sirco International Corp. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended May 31, 1996 May 31, 1995 ------------ ------------ Cash flows from financing activities: (Decrease) in loans payable to financial institutions and short-term loan payable-other .................................. (735,151) (732,211) Proceeds from issuance of common stock ........... 250,000 0 Other non-current accrued expenses ............... 0 300,000 Repayment of long-term debt ...................... (181,052) (44,185) ----------- ----------- Net cash used in financing activities ............ (666,203) (476,396) ----------- ----------- Effect of exchange rate changes on cash .......... 1,835 (7,530) ----------- ----------- Increase (decrease) in cash and cash equivalents .................................... 55,234 (327,640) Cash and cash equivalents at beginning of period ......................................... 176,241 955,869 ----------- ----------- Cash and cash equivalents at the end of period ......................................... $ 231,475 $ 628,229 =========== =========== Supplemental disclosures of cash flow information Cash paid during the period for: Interest ...................................... $ 360,689 $ 308,705 Income taxes .................................. $ 0 $ 0
See notes to the condensed consolidated financial statements. SIRCO INTERNATIONAL CORP. Notes To Condensed Consolidated Financial Statements (Unaudited) Note 1-Basis of Presentation The accompanying unaudited condensed 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 Article 10 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 six month period ended May 31, 1996 are not necessarily indicative of the results that may be expected for the year ended November 30, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended November 30, 1995. Note 2-Financing Arrangements The Company has an agreement with a factor pursuant to which the Company sells its accounts receivable to the factor on a pre-approved non-recourse basis. Under the terms of the agreement, the factor advances funds to the Company on the basis of invoice amounts. Interest on such advances is 1.75% per annum above the prime rate. Additionally, the factor provides inventory financing to the Company based on an advance rate of up to 40% of the inventory value. At May 31, 1996, the factor had advanced the Company approximately $1,800,000 for inventory financing. Interest on such advances is 1.75% per annum above the prime rate. As of May 31, 1996, the prime rate was 8.25%. The Company also pays a factoring commission of .75% of each invoice amount, subject to a minimum of $96,000 per annum. On May 28, 1996, the Company's Canadian subsidiary renegotiated its financing agreement with a Canadian bank. The agreement provides for a revolving loan in the amount of approximately $876,000, with interest payable monthly at 1.25% above the Canadian prime rate. The proceeds of this loan are utilized by the Canadian subsidiary for purchasing inventory and financing day-to-day operations. As of May 31, 1996, there were no borrowings under this facility and the Canadian subsidiary had outstanding letters of credit totalling approximately $402,000. Under the renegotiated financing agreement, the bank also has outstanding two term loans to the Canadian subsidiary in amounts of approximately $353,000 and $12,000 at May 31, 1996, with interest payable monthly at 2.00% and 1.50%, respectively, above the Canadian prime rate. As of May 31, 1996, the Canadian prime rate was 6.50%. Substantially all of the assets of the Canadian subsidiary have been pledged as security for the revolving line of credit and the term loans. Additionally, the Company has agreed to subordinate its loan to its Canadian subsidiary to the amounts payable to the bank. However, subject to on-going compliance with all other covenants of the agreement, the subordinated loan may be repaid at $22,000 per month starting in July 1996. At May 31, 1996, the subordinated loan amounted to approximately $227,000. In March 1995, the Company entered into an agreement with Yashiro Co., Inc. ("Yashiro"), pursuant to which Yashiro agreed to issue or cause to be issued, until March 20, 1997, unsecured trade letters of credit in an aggregate amount of up to the lesser of $1,200,000 or 35% of the book value of the Company's inventory. Yashiro charges the Company a handling fee of 3% for each letter of credit that is opened. Interest is payable to Yashiro monthly at 2% above the prime rate. At May 31, 1996, the Company had direct borrowings under the facility of approximately $421,000 and outstanding letters of credit amounting to approximately $352,000. Note 3-Net Income (Loss) per Share Net income (loss) per share of common stock is computed on the basis of the weighted average number of shares outstanding plus the dilutive effect of stock options. Item 2. Management's Analysis and Discussion Of Financial Condition and Results Of Operations Three and Six Months Ended May 31, 1996 vs May 31, 1995 Results of Operations Net sales for the three and six months ended May 31, 1996 increased by approximately $2,357,000 and $4,109,000, respectively, to approximately $7,638,000 for the three months ended May 31, 1996 and $14,216,000 for the six months ended May 31, 1996, as compared to approximately $5,281,000 and $10,107,000, respectively, reported for the comparable periods in 1995. Net sales for the Company's Luggage and Backpack Divisions increased by approximately $1,973,000 and $3,921,000 for the three and six months ended May 31, 1996, primarily due to significant increases in the net sales of FILA products as discussed below. Net sales for the Company's Canadian subsidiary increased by approximately $772,000 and $1,624,000 for the three and six months ended May 31, 1996, due primarily to the continued strong sales of its Atlantic luggage line. Included in the Company's net sales for the three and six months ended May 31, 1995 were approximately $388,000 and $1,436,000 in net sales attributable to the Company's former Handbag Division, which was sold in March 1995. The Company's overall gross profit for the three and six months ended May 31, 1996 increased to approximately $1,956,000 and $3,858,000, respectively, from approximately $1,444,000 and $2,447,000, respectively, reported for the comparable periods of 1995. The gross profit for the Company's Luggage and Backpack Divisions and Canadian subsidiary increased to approximately $1,956,000 and $3,858,000, respectively, from approximately $1,334,000 and $2,260,000, respectively, reported for the comparable periods of 1995. Gross profit increases resulted primarily from the increased net sales of the Company licensed products, which generally have higher profit margins than the Company's other product lines. Included in the Company's gross profit for the three and six months ended May 31, 1995 was approximately $109,000 and $186,000 attributable to the Company's former Handbag Division. After extensive negotiations with FILA Sport S.P.A. ("FILA") in February 1996, the Company and FILA entered into an agreement pursuant to which the Company ceased shipping FILA product under the FILA license on June 30, 1996, subject to certain rights with respect to liquidating the remaining inventory. Net sales of the FILA product for the three and six months ended May 31, 1996 were approximately $3,056,000 and $5,734,000, respectively, as compared to approximately $729,000 and $1,219,000, respectively, reported for the comparable periods of 1995. The Company shipped approximately $6,700,000 of FILA product in fiscal 1996 prior to the June 30, 1996 cut off date. The Company believes that the loss of the FILA trademark may have an adverse effect on the Company's results of operations for the fiscal quarter ended August 31, 1996. However, the Company expects that a significant portion of the net sales of FILA products that would have been realized by the Company during the remaining term of the FILA license will be replaced by sales of other licensed products incorporating the recently-licensed "Perry Ellis", "Skechers", "Gold's Gym", and "Generra" names, symbols and logos. Future net sales could be negatively impacted if sales from new licenses or increases in sales under existing licenses do not replace the sales of FILA products. Selling, warehouse, and general and administrative expenses increased approximately $40,000, to approximately $1,517,000 for the three months ended May 31, 1996 from approximately $1,477,000 for the three months ended May 31,1995 and decreased approximately $110,000, to approximately $2,985,000 for the six months ended May 31, 1996 from approximately $3,095,000 for the six months ended May 31, 1995. Selling, warehouse, and general and administrative expenses for the Company's Luggage and Backpack Divisions and Canadian subsidiary increased approximately $155,000 and $575,000, respectively, for the three and six months ended May 31, 1996. These increases in expenses are due primarily to the corresponding increases in the Company's sales for these periods. The major components of the increases are: 1) increased commission expenses, 2) increased warehousing costs, 3) increased salary expense, and 4) increased advertising costs. Included in the Company's expenses reported for the three and six months ended May 31, 1995 were approximately $115,000 and $685,000, respectively, of expenses attributable to the Company's former Handbag Division. Included in the Company's operating results for the three and six months ended May 31, 1995 was a one-time charge of approximately $424,000 attributable to the loss on the sale of the Company's former Handbag Division in March 1995 to Bueno of California, Inc., an affiliate of the Yashiro Company, Inc., the Company's former parent. Interest expense decreased for the three and six months ended May 31, 1996 by approximately $32,000 and $57,000, respectively, from the comparable periods in 1995. This decrease is attributable to lower borrowings and lower interest rates. Liquidity and Capital Resources The Company had cash and cash equivalents of approximately $231,000, and working capital of approximately $1,561,000, at May 31, 1996. During the first half of 1996, the Company's operating activities provided approximately $765,000 in cash flow as compared to $130,000 in cash flow provided in the comparable period of the prior year. Investing activities in the six months ended May 31, 1996, and May 31, 1995 did not significantly impact the Company's cash flows. In 1996, investing activities used approximately $45,000 of net cash for the purchase of property and equipment. In 1995, investing activities provided approximately $26,000 of net cash from the sale of property and equipment. Financing activities for the six months ended May 31, 1996 used approximately $666,000 of cash. Approximately $735,000 of cash was used to repay short-term debt, and approximately $181,000 of cash was used to repay long-term debt. During the six months ended May 31, 1996, the Company received $250,000 of proceeds from the issuance of common stock. Financing activities in the six months ended May 31, 1995 used approximately $476,000 of cash. Approximately $732,000 was used to repay short-term debt, and approximately $44,000 was used to repay long-term debt. Other financing activities during the six months ended May 31, 1995, included a $300,000 accrual of non-current expenses. The Company has an agreement with a factor pursuant to which the Company sells its accounts receivable to the factor on a pre-approved non-recourse basis. Under the terms of the agreement, the factor advances funds to the Company on the basis of invoice amounts. Interest on such advances is 1.75% per annum above the prime rate. Additionally, the factor provides inventory financing to the Company based on an advance rate of up to 40% of the inventory value. At May 31, 1996, the factor had advanced the Company approximately $1,800,000 for inventory financing. Interest on such advances is 1.75% per annum above the prime rate. As of May 31, 1996, the prime rate was 8.25%. The Company also pays a factoring commission of .75% of each invoice amount, subject to a minimum of $96,000 per annum. On May 28, 1996, the Company's Canadian subsidiary renegotiated its financing agreement with a Canadian bank. The agreement provides for a revolving loan in the amount of approximately $876,000, with interest payable monthly at 1.25% above the Canadian prime rate. The proceeds of this loan are utilized by the Canadian subsidiary for purchasing inventory and financing day-to-day operations. As of May 31, 1996, their were no borrowings under this facility and the Canadian subsidiary had outstanding letters of credit totalling approximately $402,000. Under the renegotiated financing agreement, the bank also has outstanding two term loans to the Canadian subsidiary in amounts of approximately $353,000 and $12,000 at May 31, 1996, with interest payable monthly at 2.00% and 1.50%, respectively, above the Canadian prime rate. As of May 31, 1996, the Canadian prime rate was 6.50%. Substantially all of the assets of the Canadian subsidiary have been pledged as security for the revolving line of credit and the term loans. Additionally, the Company has agreed to subordinate its loan to its Canadian subsidiary to the amounts payable to the bank. However, subject to on-going compliance with all other covenants of the agreement, the subordinated loan may be repaid at $22,000 per month starting in July 1996. At May 31, 1996, the subordinated loan amounted to approximately $227,000. In March 1995, the Company entered into an agreement with Yashiro Co., Inc. ("Yashiro"), pursuant to which Yashiro agreed to issue or cause to be issued, until March 20, 1997, unsecured trade letters of credit in an aggregate amount of up to the lesser of $1,200,000 or 35% of the book value of the Company's inventory. Yashiro charges the Company a handling fee of 3% for each letter of credit that is opened. Interest is payable to Yashiro monthly at 2% above the prime rate. At May 31, 1996, the Company had direct borrowings under the facility of approximately $421,000 and outstanding letters of credit amounting to approximately $352,000. There were approximately $48,000 in capital expenditures during the first six months of 1996. The Company presently anticipates that it will expend an additional $200,000 for capital improvements during fiscal 1996. A substantial portion of capital expenditures are related to the Company's new showroom in New York City. Management believes that its cash and cash equivalents, lines of credit, factoring of accounts receivable and cash flows generated from operations will be sufficient to meet its liquidity and capital requirements for the next twelve months. SIRCO INTERNATIONAL CORP. PART II-OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10.1-- Credit Agreement. Credit agreement dated May 28, 1996 between Sirco International (Canada) Limited and the National Bank of Canada. 27-- Financial Data Schedule. (b) Reports on Form 8-K None. 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 hereunto duly authorized. Sirco International Corp. July 11, 1996 By: /s/ Joel Dupre - ------------- ------------------------- Date Joel Dupre Chairman of the Board and Chief Executive Officer July 11, 1996 By: /s/ Gandolfo J. Verra - ------------- ------------------------- Date Gandolfo J. Verra Controller and Assistant Secretary (Chief Accounting Officer) EX-10.1 2 (Company Logo) NATIONAL BANK OF CANADA 350 Burnhamthorpe Road West, Suite 216, Mississauga, Ontario L5B3J1 Telephone: (905) 276-9464 Fax: (905) 276-1750 Commercial Banking Centre May 28, 1996 Sirco International (Canada) Ltd. 1321 Blundell Road Mississauga, Ontario L4Y 1M6 ATTENTION: Mr. Doug Turner, President Dear Sirs: We are pleased to inform you that the National Bank of Canada (hereinafter called the "Bank") agrees to make available to Sirco International (Canada) Ltd. (hereinafter called the "Borrower") the following credit facilities subject to the ensuing terms and conditions: AMOUNT: A. $1,200,000 by way of an Operating Loan on a revolving demand loan agreement and/or Letters of Credit. B. $26,293 by way of a non-revolving demand loan. C. $483,447 by way of a non-revolving term loan. D. $150,000 by way of a Foreign Exchange Limit with net risk of 10% i.e. at any time, the total foreign exchange contracts outstanding may not exceed the Canadian equivalent of $1,500,000. PURPOSE: A. To finance day to day operations. B&C. To payout and consolidate an existing commercial mortgage with Royal Trust, and a term loan with the CIBC. D. To purchase United States dollar foreign exchange contracts. The equivalent of Canadian $25,000 is required to obtain an exchange contract. Applicable term will be from a minimum of 1 day to a maximum of 1 year. INTEREST RATE: A. Prime Rate of National Bank of Canada plus 1.25%, that is 7.75% as at May 28, 1996, calculated daily and paid monthly in arrears. Prime Rate is defined as the rate as established from time to time by the Bank for Canadian dollar loans in Canada. B. Prime rate of National Bank of Canada plus 1.50%, that is 8.00% as at May 28, 1996, calculated daily and paid monthly in arrears. Prime Rate is defined as the rate as established from time to time by the Bank for Canadian dollar loans in Canada. C. The Bank's cost of funds for fixed rate term loans +2.00%, that is 10.25% for the current 5 year term ending in July 2000. D. As quoted by International Dept., National Bank of Canada at date of booking. REPAYMENT: On Demand A. To revolve in multiples of $50,000 B. Monthly principal payments of $10,000 plus interest, 3 payments remaining. C. Monthly blended payments of $4,810; 240 month amortization, 230 payments remaining. D. According to the specified maturity date. DEMAND NATURE OF THE FACILITIES: The Borrower and the Guarantors acknowledge and agree that notwith- standing anything contained herein to the contrary these facilities constitute Demand Loans and as such, are due and payable at any time at the sole discretion of the Bank. MARGIN AVAILABILITY: Operating advances and Letters of Credit outstanding shall be limited to the lesser of $1,200,000 or the aggregrate of the following: a. 85% of good quality Canadian accounts receivable for "Major Retailers" (as approved by the Bank, see below), plus 65% of good quality Canadian accounts receivable for those Bank approved customers offered Future dating terms (see approved list below), plus 60% of all other good quality Canadian accounts receivable, excluding contra accounts and intercompany accounts, doubtful accounts, and those aged 60 days and over, plus b. 50% of all Letters of Credit outstanding and all current seasons finished goods inventory, plus 25% of all finished goods inventory for the prior 2 seasons excluding handbags, combined capped at an overall maximum of $450,000: less; c. all claims which rank prior to the Bank's security (i.e. deductions sources, GST, etc.). Major retailers: Bay, Costco, Eaton's, Sears, Zellers. Acceptable Future dating customers: Jovin, Pelle Imports, Access Leather and all major retailers. SECURITY: All legal and other documentation to be in a form and content satisfactory to the Bank and its solicitors and is to be supported by all usual representations and opinions to confirm its enforceability. To include but not limited to: 1. General Assignment of Book Debts, registered in Ontario and all other applicable jurisdictions, providing a first charge over accounts and other receivables. 2. Pledge of Inventory under Section 427 of the Bank Act providing a first charge over inventory. 3. Assignment of sufficient fire insurance to protect the Bank's interest. 4. General Security Agreement providing a first floating and fixed charge over all assets of the Borrower. 5. Subordination and Postponement of Claim to the Bank of all loans, advances and accrued interest payable to shareholder(s). 6. A first fixed and floating charge Debenture in the amount of $1,500,000 over the real property located at 1321 Blundell Road, Mississauga accompanied by appropriate pledge agreement. 7. General Assignment of Rents and Leases. 8. Licensing agreement with Airway Industries, together with side agreement between Airway and the Bank. FINANCIAL COVENANTS: 1. Current Ratio: The ratio of Current Assets to Current Liabilities will not be less than 1.50 at anytime. Current Assets shall exclude any intercompany advances,deferred costs, or any other assets of doubtful or intangible nature. 2. Debt to Equity Ratio: The ratio of Debt to Equity will not be more than 1.50 at any time. Debt shall be defined as total liabilities less any shareholder loans postponed to the Bank, less deferred income taxes. Equity shall be defined as Share Captial plus year end Retained Earnings plus year to date net income after tax plus any shareholders' loans postponed to the Bank, less any deferred expenditures, loans to officers, directors, or shareholders, or intercompany advances and any other assets of doubtful value. 3. Debt Service Coverage: The ratio of Net Cash Flow to Debt Service shall be a minimum of 1.20. Net Cash flow shall be defined as the Income After Tax plus deferred taxes, depreciation, any other non-cash expenditures not funded by debt. Debt Service shall be defined as all debt principal payments plus all shareholder loan payments plus all cash interest expense. 4. Parent renumeration, whether a repayment of the parent company advance or a bonus/dividend, is prohibited without the prior written consent of the Bank. Notwithstanding, beginning July 31, 1996, but subject to ongoing compliance with all other covenants, the postponed shareholder loans may be repaid $30,000 per month. REPORTING CONDITIONS: 1. Within 25 days of each month-end, the Borrower shall provide the following information on Bank documents, signed by the appropriate authorized officer of the Borrower: a. monthly accounts receivable listing classified according to age; b. inventory declaration; c. borrowing base certificate; d. open order summary; e. internally prepared income statement and balance sheet as compared against last year actual and current year to date budget. 2. The Borrower agrees to submit to the Bank its annual audited financial statements within 90 days of the end of its fiscal year. 3. The Borrower agrees to submit to the Bank its annual budget including budgeted monthly balance sheet, income statement, and cash flow within 90 days of its fiscal year end. OTHER CONDITIONS: 1. All legal and registration fees incurred to prepare, execute and maintain legal documents will be assumed by the Borrower. 2. The cost of all appraisals and environmental reports requested by the Bank are the responsibility of the Borrower. 3. The Bank reserves the right to request appropriate annual financial statements or quarterly financial statements at any time and whenever it deems it appropriate. This information may be required on a continuous basis or for a specific period or periods and must always be to the Bank's satisfaction. 4. The ownership structure of the company shall not be altered without the Bank's prior written consent which shall not be unreasonably withheld. 5. The nature of the Borrower's business shall not be substantially changed without the Bank's prior written consent which shall not be unreasonably withheld. 6. The renewed licensing agreement with Airway Industries is to be submitted to the Bank no later than August 31, 1996 so that it may be reviewed and deemed satisfactory by the Bank's legal counsel. In addition, Airway Industries Inc. will agree in writing to: (i) provide the Bank notice in the event the agreement is to be terminated; and (ii) enable the Bank to dispose of the inventory in the event it chooses to realize on its security. FEES: 1. Review fee of $3,500 which is payable upon acceptance of this Offer Letter. 2. $75 monthly management fee to review the monthly reporting package; margin the account and process note rollovers. ENVIRONMENTAL MATTERS: 1. The Borrower and the Guarantors represent and warrant that the owner of the subject property has complied and is complying in all respects with all applicable laws relating to the environment, that no contaminants, pollutants or other hazardous substances (including, without limitation, asbestos, products containing urea formaldehyde or polychlorinated biphenyl or any radioactive substances) have been or are now stored or located at the subject property, that no order, approval, direction or other government or regulatory notice relating to the environment has been threatened against, is pending or has been issued with respect to the subject property or the operations of the business being conducted at the subject property, and that none of them is aware of any pending or threatened action, suit or proceedings relating to any actual or alleged environmental violation from or at the subject property. 2. The Borrower and Guarantors shall permit the Lender to conduct, at the Borrower's expense, such test, inspections and environmental audits as may be required by the Lender including without limitation, the right to take soil samples from the subject property and the right to review and photocopy all records relating to the subject property or the business or operations now or herinbefore conducted at the subject property in order to attempt to corroborate the veracity of the aforementioned representations and warranties. 3. The Borrower and Guarantors agree to pay the cost of all environmental audits which may be deemed necessary by the Bank. 4. The Borrower and Guarantors agree to deliver to the Bank documents guaranteeing compliance and showing that the land and buildings are not contaminated by hazardous materials. 5. The Borrower and Guarantors certify that past and present owners have not violated environmental law and regulations and that, to the best of their knowledge, no proceedings have been or are being instituted to make him comply with environmental laws and regulations. 6. The Borrower and Guarantors agree to comply with and respect any and all environmental laws and regulations. 7. The Borrower and Guarantors agree to maintain a system or mechanism through which the emission or release of contaminants can be controlled in compliance with laws and regulations. 8. The Borrower and Guarantors agree to periodically provide the Bank with a summary report stating the Borrower's status with regard to environmental laws and regulations, such as confirmation of the renewal of permits, certificates of compliance and the proper applicaton of control procedures. 9. The Borrower and Guarantors agree to indemnify the Bank for all decontamination costs or for damages incurred by the Bank or its agents as a result of such contamination. 10. The loan shall be disbursed upon performance and/or completion of the above conditions to the Bank's satisfaction. 11. In the event any environmental report shows that a decontamination is required the Borrower and Guarantors undertake to carry out decontamination at their own expense should this be required or requested. However, the undertaking of such decontamination shall not guarantee that the Bank will make any disbursements. All the other conditions stipulated in this Offer of Finance shall be performed to the Bank's satisfaction. ACKNOWLEDGEMENT ON NON MERGER: The terms and conditions contained in this Offer to Finance shall not merge upon the execution and delivery of the security documentation referred to herein but shall at all times remain in full force and effect. The events of default as stated herein (if applicable), shall be in addition to and not restrict in any way whatsoever the events of default as stated in the security documents. ANNUAL REVIEW: To be reviewed at least annually, and in any event not later than Marh 31, 1997. OTHER: The Borrower agrees to keep the contents of this Letter strictly confidential. If these conditions are acceptable to you, please indicate your acceptance thereof by signing and returning a copy of this letter to the Bank before June 7, 1996, after which time this offer is null and void. Yours truly, /s/ W. WYSOCZANKSKYJ /s/ R. A. GARRARD W. Wysoczanskyj R.A. Garrard Account Manager Senior Manager ACCEPTANCE: WE ACCEPT THE TERMS AND CONDITIONS OUTLINED HEREIN THIS 4TH DAY OF JUNE, 1996. SIRCO INTERNATIONAL (CANADA) LIMITED. Per: Per: /s/ DOUG TURNER /s/ MARIE WEICHEL Doug Turner Marie Weichel President Office Manager EX-27 3
5 This schedule contains summary financial information extracted from the Balance Sheet and Income Statement and is qualified in its entirety by reference to such financial statements. 6-MOS NOV-30-1996 MAY-31-1996 231,475 0 3,672,983 969,339 5,193,947 8,699,260 1,569,513 921,785 10,128,601 7,138,181 405,711 0 0 131,520 2,453,189 10,128,601 14,216,211 14,314,558 10,358,190 2,984,770 0 0 385,571 617,509 173,756 443,753 0 0 0 443,753 .34 .34
-----END PRIVACY-ENHANCED MESSAGE-----