-----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, Qlk9F30CJJ9TR7L57m4J7RnpqdEG3J+1fyI5c5FjwLPU2dhzGA8ewtw+7SYVYwnj sNgN1jj/kzo4DWzEa/fqLA== 0000914317-98-000628.txt : 19981216 0000914317-98-000628.hdr.sgml : 19981216 ACCESSION NUMBER: 0000914317-98-000628 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981015 DATE AS OF CHANGE: 19981215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIRCO INTERNATIONAL CORP CENTRAL INDEX KEY: 0000090721 STANDARD INDUSTRIAL CLASSIFICATION: 3100 IRS NUMBER: 132511270 STATE OF INCORPORATION: NY FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04465 FILM NUMBER: 98727013 BUSINESS ADDRESS: STREET 1: 24 RICHMOND HILL AVENUE STREET 2: SUITE 700 CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2033594100 MAIL ADDRESS: STREET 1: 24 RICHMOND HILL AVENUE STREET 2: SUITE 700 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 August 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 0-4465 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: 6,343,316 shares of Common Stock, par value $.10 per share, as of September 30, 1998. PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements Sirco International Corp. and Subsidiaries Condensed Consolidated Balance Sheets Aug 31, 1998 Nov. 30, 1997 ------------ ------------ (Unaudited) (See note) Assets Current assets: Cash and cash equivalents $ 510,632 $ 114,190 Accounts receivable 2,220,805 3,166,804 Inventories 5,056,290 7,707,631 Prepaid expenses 345,207 253,225 Other current assets 19,219 44,231 Recoverable income taxes -- 125,517 Total current assets 8,152,153 11,411,598 ------------ ------------ Property and equipment at cost 1,888,363 1,762,533 Less accumulated depreciation 1,053,759 935,220 ------------ ------------ Net property and equipment 834,604 827,313 ------------ ------------ Other assets 144,442 207,940 Investment in and advances to subsidiary 480,070 514,797 Investment in Access One Communications, Inc. 1,816,832 1,080,000 Goodwill 1,291,483 -- ------------ ------------ Total assets $ 12,719,584 $ 14,041,648 ============ ============ Liabilities and stockholders' equity Current liabilities: Current maturities of long-term debt $ 3,672,418 $ 1,522,060 Due to related parties 212,783 974,046 Accounts payable 1,703,332 2,489,259 Accrued expenses and other current liabilities 1,182,591 1,318,863 Total current liabilities 6,771,124 6,304,228 ------------ ------------ Long-term debt, less current maturities 287,777 4,521,795 ------------ ------------
Item 1. Financial Statements Sirco International Corp. and Subsidiaries Condensed Consolidated Balance Sheets (continued) Aug 31, 1998 Nov. 30, 1997 ------------ ------------ (Unaudited) (See note) Stockholders' equity: Preferred stock, $.10 par value; 1,000,000 shares authorized, Series A, 700 issued 70 -- Common stock, $.10 par value; 20,000,000 shares authorized, 5,862,400 issued (1998), 4,300,400 issued (1997) 586,240 430,040 Capital in excess of par value 12,231,575 7,753,368 Deficit (6,308,554) (3,887,532) Treasury stock at cost (27,500) (27,500) Treasury stock held by equity investee (85,000) (420,000) Accumulated foreign translation adjustment (736,148) (632,751) ------------ ------------ Total stockholders' equity 5,660,683 3,215,625 ------------ ------------ Total liabilities and stockholders' equity $ 12,719,584 $ 14,041,648 ============ ============
See notes to the condensed consolidated financial statements. Note: The balance sheet at November 30, 1997 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 Operations (Unaudited) For The Nine Months Ended For The Three Months Ended Aug 31, 1998 Aug 31, 1997 Aug 31, 1998 Aug 31, 1997 ------------ ------------ ------------ ------------ Net sales $ 13,403,557 $ 12,112,360 $ 4,373,563 $ 5,936,534 Cost of goods sold 10,502,276 9,756,035 3,343,042 4,813,371 ------------ ------------ ------------ ------------ Gross profit 2,901,281 2,356,325 1,030,521 1,123,163 Selling, warehouse, general and administrative expenses 4,424,797 3,590,880 1,533,515 1,360,511 ------------ ------------ ------------ ------------ Loss from operations (1,523,516) (1,234,555) (502,994) (237,348) Other (income) expense: Interest expense 412,592 373,828 115,340 136,352 Interest income (44,904) (47,775) (13,628) (16,029) Miscellaneous income, net (88,350) (280,919) (30,724) (106,600) Equity in loss of investee 618,168 -- 348,096 -- ------------ ------------ ------------ ------------ 897,506 45,134 419,084 13,723 Net loss $ (2,421,022) $ (1,279,689) $ (922,078) $ (251,071) ============ ============ ============ ============ Basic loss per share $ (0.49) $ (0.43) $ (0.17) $ (0.07) ============ ============ ============ ============ Diluted loss per share $ (0.49) $ (0.43) $ (0.17) $ (0.07) ============ ============ ============ ============ Shares used in computing loss per share Basic and diluted 4,942,134 2,985,061 5,553,270 3,361,107 ============ ============ ============ ============
See notes to the condensed consoladated financial statements
Sirco International Corp. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended Aug 31, 1998 Aug 31, 1997 ------------ ------------ Cash flows from operating activities: Net loss ($2,421,022) ($1,279,688) Adjustments to reconcile net loss, to net cash provided by (used in) operating activities: Depreciation and amortization 70,649 78,522 Provision for losses in accounts receivable 37,458 54,033 Loss in sale of property and equipment -- 7,104 Loss in equity of investee 618,168 -- Changes in operating assets and liabilities: Accounts receivable 894,156 (1,597,555) Inventories 2,621,761 (2,587,150) Prepaid expenses 35,719 (319,780) Other current assets 25,012 115,969 Other assets 63,498 (84,616) Accounts payable and accrued expenses (693,722) (648,561) ----------- ----------- Net cash provided by (used in) operating activities: 1,251,677 (6,261,722) ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (152,263) (36,277) Proceeds from sale of property and equipment -- 3,655 Cash inflow from agreement to sell subsidiary 34,727 21,145 ----------- ----------- Net cash used in investing activities (117,536) (11,477) ----------- ----------- Cash flows from financing activities: (Decrease) increase in loans payable to financial institutions and short-term and long-term loans payable- other (2,035,377) 4,153,675 Proceeds from exercise of stock options 18,187 195,567 Proceeds from private placement of common stock 75,000 609,000 Proceeds from exercise of warrants 488,250 1,347,592 Proceeds form private placement of preferred stock 658,000 -- ----------- ----------- Net cash (used in) provided by financing activities (795,940) 6,305,834 ----------- ----------- Effect of exchange rate changes on cash 58,241 (23,249) ----------- ----------- Increase in cash and cash equivalents 396,442 9,386 Cash and cash equivalents at beginning of period 114,190 390,043 ----------- ----------- Cash and cash equivalents at the end of period $ 510,632 $ 399,429 =========== ===========
Sirco International Corp. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (continued) For the Nine Months Ended Aug 31, 1998 Aug 31, 1997 ------------ ------------ Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 385,623 $ 369,194 Income taxes $ -- $ 300,015
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 nine month period ended August 31, 1998 are not necessarily indicative of the results that may be expected for the year ended November 30, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K, as amended, for the year ended November 30, 1997. Note 2-Financing Arrangements On December 17, 1996, the Company's factoring agreement with Rosenthal & Rosenthal Inc. was terminated and replaced with a financing agreement with Coast Business Credit, a division of Southern Pacific Thrift and Loan Association ("Coast"), that provides for revolving loans and letter of credit financing in the amount of the lesser of $7,000,000 or the sum of (a) 80% of eligible accounts receivable (as defined) and (b) 50% of eligible inventory (as defined) up to a maximum inventory loan of $3,000,000 less 50% of letter of credit financing outstanding. The amount of the facility available for letter of credit financing is limited to $2,500,000. The loan bears interest at 2% above the prime rate, matures on December 31, 1998, and is guaranteed by the Company's Chairman and Chief Executive Officer. The Company has granted Coast a security interest in substantially all of the Company's travel division assets located in the United States. The agreement with Coast contains various restrictive covenants, including among others, a restriction on the payment or declaration of any cash dividends, a restriction on the acquisition of any assets other than in the ordinary course of business in excess of $100,000, restrictions related to mergers, borrowing and debt guarantees, and a $100,000 annual limitation on the acquisition or retirement of the Company's common and preferred stock, which acquisitions or retirements are limited to transactions with employees, directors and consultants pursuant to the terms of employment, consulting or other stock restriction agreements with such persons. The agreement also requires the Company to maintain a minimum tangible net worth of $1,400,000. As of August 31, 1998, the Company owed Coast approximately $3,665,000 and had no outstanding letters of credit. At August 31, 1998, the prime rate was 8.50%. In January 1997, the Company's Canadian subsidiary, Sirco International (Canada) Ltd. ("Sirco Canada"), was advised by its bank, National Bank of Canada, that it would no longer provide Sirco Canada a revolving line of credit but would continue to provide the real property mortgage loan on Sirco Canada's office and warehouse facility. The mortgage loan is payable in monthly installments of approximately $3,066, including interest at 10.25%, with a balloon payment of approximately $286,000 in the year 2000. At August 31, 1998, the principal amount of the mortgage loan was approximately $295,000. Note 3-Investment in Subsidiary On February 27, 1998, the Company acquired all the outstanding shares of common stock of Essex Communications, Inc. ("Essex") in exchange for 250,000 shares of the Company's common stock and warrants to purchase up to 225,000 shares of the Company's common stock at $2.75 per share, of which warrants to purchase 75,000 shares had vested at August 31, 1998 and warrants to purchase 150,000 shares will vest if certain performance conditions are met. The purchase agreement also provides for the issuance of up to 600,000 additional shares of the Company's common stock if certain performance conditions are met. As of September 30, 1998, 100,000 of such shares had been issued. Essex is a start-up telecommunications provider that is certified to resell local telephone services in the states of Connecticut, New Jersey and New York. Essex is currently seeking certification to resell local telephone services in the states of Massachusetts and Virginia. The acquisition has been accounted for as a purchase. On August 14, 1998, the Company acquired all the outstanding membership interests of WebQuill Internet Services LLC ("WebQuill") and American Telecom, LLC ("American Telecom") in exchange for 375,000 shares of the Company's common stock. The purchase agreement also provides that 150,000 additional shares of the Company's common stock be held in escrow and issued if certain performance objectives are achieved. WebQuill is an Internet provider and web-site developer. The acquisition has been accounted for as a purchase. Item 2. Management's Analysis and Discussion of Financial Condition and Results of Operations The following discussion and analysis contains forward-looking statements that involve risk and uncertainties. The Company's actual results may differ materially from results discussed in forward-looking statements. Factors that might cause such a difference include, among others, general economic conditions; industry trends; the loss of major customers; dependence on foreign sources of supply; the loss of licenses; availability of management; availability, terms and deployment of capital; the seasonal nature of the Company's business; and changes in state and federal regulations of the telecommunications industry. Three and Nine Months Ended August 31, 1998 vs. August 31, 1997 Net sales for the three and nine months ended August 31, 1998 decreased by approximately $1,563,000 and increased by approximately $1,291,000, respectively, to approximately $4,374,000 for the three months ended August 31, 1998 and approximately $13,404,000 for the nine months ended August 31, 1998, as compared to approximately $5,937,000 and $12,112,000, respectively, reported for the comparable periods in 1997. Net sales for the Company's United States operations decreased by approximately $1,807,000 and increased by approximately $1,311,000, respectively, for the three and nine months ended August 31, 1998 over comparable periods in 1997. The decline in net sales for the three months ended August 31, 1998 was primarily due to decreases in the sales of licensed product, that were partially offset by sales by the Company's recently-formed subsidiary, Airline Ventures, Inc. ("AVI"), which was not in operation in the prior fiscal period. The increase in net sales for the nine months ended August 31,1998 was primarily due to sales of certain discontinued and slow-moving product and sales by AVI, which was not in operation in the prior fiscal period. Net sales for the Company's Canadian operations increased by approximately $151,000 for the three months ended August 31, 1998 and decreased by approximately $113,000 for the nine months ended August 31, 1998 over comparable periods in 1997. The increase in net sales for the three months ended August 31, 1998 reflects an increased penetration of the Company's Hedgren and Perry Ellis product lines in the Canadian market, while the decrease in net sales for the nine months ended August 31, 1998 reflects the loss, by Sirco Canada in fiscal 1996, of the license from Airway Industries Inc. ("Airway") to sell Atlantic luggage (see below). The sale of Airway product accounted for approximately $472,000 in net sales for the first three months of fiscal 1997 prior to the December 31, 1996 termination date. The Company's gross profit for the three and nine months ended August 31, 1998 decreased by approximately $93,000 and increased by approximately $545,000, respectively, to approximately $1,030,000 and $2,901,000, respectively, from approximately $1,123,000 and $2,356,000, respectively, reported in the prior fiscal periods. The gross profit percentage for the three and nine months ended August 31, 1998 increased to approximately 23.6% and 21.6%, respectively, from approximately 18.9% and 19.5%, respectively, reported in the prior fiscal periods. While the gross profit percentage has shown improvement for the three and nine months ended August 31, 1998 as a result of the Company's ability to better manage its inventory levels, the sales of certain discontinued and slow-moving products at prices below the Company's normal selling price for similar items continues to have a negative impact on the gross profit percentage. During fiscal 1996, Airway notified the Company that it would not renew its license agreement with the Company, pursuant to which Sirco Canada was granted an exclusive license to sell in Canada, luggage and luggage related products under the trade names "Atlantic" and "Oleg Cassini" through December 31, 1996. In November 1996, the Company entered into an Asset Purchase Agreement with Airway, whereby Airway agreed, among other things, to purchase any remaining Atlantic inventory owned by Sirco Canada on December 31, 1996, to purchase certain fixed assets and to enter into a two year lease for a substantial portion of the premises owned by Sirco Canada at fair market value. Sirco Canada sold approximately $472,000 of Airway product in the first quarter of fiscal 1997 prior to the December 31, 1996 termination date. The loss of the Airway license had an adverse effect on the Company's results of operations for the three and nine months ended August 31, 1998 and will have an adverse effect on Sirco Canada's results of operations for the remainder of the fiscal year ended November 30, 1998. On February 27, 1998, the Company acquired Essex Communications, Inc., ("Essex"), a start-up telecommunications provider that is certified to resell local telephone services and value-added products in the states of Connecticut, New Jersey and New York. Essex commenced marketing efforts in May 1998 and first provided service in June 1998. For the three and nine months ended August 31, 1998, Essex had net sales of approximately $93,000. At August 31, 1998, Essex had customers utilizing approximately 1,000 telephone lines. Essex is currently seeking certification to resell local telephone service in the states of Massachusetts and Virginia and expects to be certified in each of these states by the end of the Company's current fiscal year. Selling, warehouse and general and administrative expenses increased for the three and nine months ended August 31, 1998 by approximately $173,000 and $834,000, respectively, to approximately $1,534,000 and $4,425,000, respectively, from approximately $1,361,000 and $3,591,000, respectively, reported in the prior fiscal periods. A major portion of the increase relates directly to the expenses incurred by the Company's wholly-owned subsidiaries AVI and Essex, which were not in operation in the prior fiscal periods. Interest expense for the three and nine months ended August 31, 1998 decreased by approximately $21,000 and increased by approximately $39,000, respectively, from the amounts reported in the same periods in fiscal 1997 due to the relative changes in average borrowings for the periods. Miscellaneous income for the three and nine months ended August 31, 1998 decreased by approximately $76,000 and $193,000, respectively, from amounts reported in the same periods in fiscal 1997. This decrease represents a decline in the Company's commission income generated from sales arranged by the Company between overseas suppliers and certain customers that was offset by an increase in rental income reported by Sirco Canada. The Company is currently the largest shareholder of Access One Communications Inc. (formerly CLEC Holding Corp.) ("Access One"), owning approximately 30.6% of Access One's capital stock. As the Company's investment in Access One is accounted for under the equity method of accounting, the Company is required to include its portion of Access One's net loss in the Company's results of operations. For the three and nine months ended August 31, 1998, the Company has recorded a loss of approximately $348,000 and $618,000, respectively, relating to its investment in Access One. The Access One losses are the result of aggressive customer growth and the related costs associated with gearing up for an expanded customer base, which includes the hiring of employees to verify and provision lines, to staff a customer service operation and to develop a management information system. During the period from the Company's initial investment in October 1997 until August 31, 1998, Access One experienced growth of approximately 10,000 installed access lines. The current Access One customer base is not large enough to generate the revenues needed to cover the overhead costs associated with a fully integrated communications service provider, and the Company believes that Access One will continue to lose money for at least the next twelve months. Liquidity and Capital Resources At August 31, 1998, the Company had cash and cash equivalents of approximately $511,000 and working capital of approximately $1,381,000. Net cash provided by (used in) operating activities aggregated approximately $1,252,000 and ($6,262,000) in the nine month fiscal periods ended August 31, 1998 and August 31, 1997, respectively. The increase of approximately $7,514,000 in net cash provided by operating activities in fiscal 1998 as compared to fiscal 1997, primarily reflects a decrease in inventory and accounts receivable, partially offset by an increase in the net loss. The reduction in inventory levels is primarily due to sales of certain discontinued and slow-moving inventory, the Company's ability to better manage its purchases relative to its sales forecasts and the lack of import quota constraints in fiscal 1998 that existed in fiscal 1997. The reduction in accounts receivable primarily reflects tighter credit and collection policies. Net cash used in investing activities aggregated approximately $118,000 and $11,000 in the nine month fiscal periods ended August 31, 1998 and August 31, 1997, respectively. The principal uses of cash in investing activities in fiscal 1998 and 1997 was for the purchase of equipment. The principal source of cash provided by investing activities in 1998 and 1997 was the proceeds of a note receivable from a 1992 sale of a subsidiary. Net cash (used in) provided by financing activities aggregated approximately ($796,000) and $6,306,000 in the nine month fiscal periods ended August 31, 1998 and August 31, 1997, respectively. In the nine month fiscal period ended August 31, 1998, net cash used in financing activities resulted from a decrease in short-term debt of approximately $2,035,000, partially offset by approximately $18,000 from the proceeds of the exercise of stock options, by approximately $488,000 from the proceeds of the exercise of warrants, by approximately $658,000 from the proceeds of a private placement of preferred stock and by approximately $75,000 from the proceeds of a private placement of common stock. In the nine month fiscal period ended August 31, 1997, approximately $4,154,000 of net cash was provided by short-term debt, approximately $196,000 was provided from the proceeds of the exercise of stock options, approximately $1,348,000 was provided from the proceeds of the exercise of warrants and approximately $609,000 was provided from the proceeds of a private placement of common stock. On December 17, 1996, the Company entered into a financing agreement with Coast Business Credit, a division of Southern Pacific Thrift & Loan Association ("Coast"). See Note 2 to Notes to Condensed Consolidated Financial Statements (Unaudited). As of August 31, 1998, the Company was indebted to Coast in the principal amount of approximately $3,665,000 and had no outstanding letters of credit. This loan matures on December 31, 1998. As a result, the entire indebtedness is classified as a current liability, whereas a significant portion of the indebtedness was considered a long-term liability at the Company's most recent fiscal year-end. The reclassification in debt from long-term to current had a significant impact on the Company's working capital position. However, management believes it can successfully refinance this working capital line in a manner that will not be disruptive to operations. The Company's ability to refinance the loan impacts materially on the Company's future liquidity. In January 1997, Sirco Canada was advised by its bank, National Bank of Canada, that it would no longer provide Sirco Canada a revolving line of credit but would continue to provide the real property mortgage loan on Sirco Canada's office and warehouse facility. See Note 2 to Notes to Condensed Consolidated Financial Statements (Unaudited). At August 31, 1998, the principal amount of the mortgage loan was approximately $295,000. The Company is currently using the Coast line of credit to provide letter of credit financing that was formerly provided by National Bank of Canada. For the nine month period ended August 31, 1998, the Company had approximately $152,000 in capital expenditures. The Company expects to make additional capital expenditures over the next twelve months to purchase equipment for its telecommunications division, but does not anticipate that these expenditures will be significant. The Company currently owns approximately 30.6% of Access One, a Florida-based competitive local exchange carrier. Access One is not publicly traded, there is no readily ascertainable market for the stock, and the shares held by the Company bear a restrictive legend stating that the shares have not been registered under the Securities Act of 1933. The investment in Access One is recorded on the Company's books by the equity method of accounting. In October 1998, the Company signed a non-binding letter of intent to acquire for stock additional shares of Access One to increase the Company's ownership in Access One to 80%. The closing of this proposed transaction, which is subject to the negotiation by November 30, 1998 of a definitive acquisition agreement and typical closing conditions, is expected to occur following receipt of shareholder approval. However, no assurances can be given that such transaction will occur. Management believes that the Company's present sources of financing, combined with its present working capital and cash flow from operations may not be sufficient to meet the cash and capital requirements of the Company's travel division for the next twelve months. If the depressed level in net sales of the Company's travel division does not increase or the Company is unable to improve its cash position by raising capital, the Company may experience temporary cash shortages. Such cash shortages may negatively impact the Company's ability to purchase inventory in a timely manner, which could impact the Company's results of operations. The Company anticipates that it will be able to raise $1,300,000 over the next 60 days to fund some of the losses of its travel division and to support the business plan for the Company's telecommunications division for the next twelve months, as it is expected that this division will incur losses during this period. The Company also anticipates that, if it completes its proporsed purchase of additional shares of Access One as discussed above, it will need to raise capital in excess of $2 million to support the growth plan of Access One into ten states that are located in the southeastern United States. Even though the Company has identified financing sources and has negotiated terms on a preliminary basis, there can be no assurances that the Company will be able to obtain such funding when needed, or that such funding, if available, will be obtainable on terms acceptable to the Company. The failure by the Company to raise the necessary funds to finance its telecommunications operations will have an adverse effect on the ability of the Company to carry out its business plan for its telecommunications division. SIRCO INTERNATIONAL CORP. PART II-OTHER INFORMATION Item 2. Changes in Securities On September 10, 1998, the Company sold to Access One 400,000 shares of common stock of the Company in consideration of the issuance to the Company by Access One of 400,000 shares of common stock, par value $.001 per share, of Access One. Such transaction was effected pursuant to Section 4(2) of the Securities Act of 1933, as amended. On September 4, 1998, the Company issued to the former shareholders of Essex 50,000 shares of common stock of the Company in conjunction with the satisfaction of certain performance criteria established in connection with the acquisition of Essex. Such transaction was effected pursuant to Section 4(2) of the Securities Act of 1933, as amended. On August 14, 1998, the Company issued to the then members of WebQuill Internet Services LLC and American Telecom, LLC, 375,000 shares of the Company's common stock in conjunction with the purchase of all the outstanding membership interests of WebQuill and American Telecom. Such transaction was effected pursuant to Section 4(2) of the Securities Act of 1933 ,as amended. On June 18, 1998, the Company issued 700 shares of the Company's Series A Preferred Stock, par value $0.10 per share, in consideration of a payment of $658,000. Each share is entitled to dividends and distributions at the same rate and in like kind as is declared on the shares of the Company's common stock; shall receive preference to the common stock shareholders in the event of any liquidation, dissolution or winding-up of the corporation; and shall have a minimum conversion price into fully paid and non-assessable shares of common stock at the option of the holder at a rate of 667 shares of common stock for each share of preferred stock. It is anticipated that the number of shares of common stock issuable will be increased to 1,000 in conjunction with the issuance of additional shares of Series A Preferred Stock in October 1998. Such transaction was effected pursuant to Section 4(2) of the Securities Act of 1933, as amended. Item 6. Exhibits and Reports on Form 8-K Exhibit No. Description ----------- ----------- 3.1 Certificate of Amendment of the Certificate of Incorporation, June 24, 1998 3.2 Certificate of Amendment of the Certificate of Incorporation, July 9, 1998 27 Financial Data Schedule 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. October 15, 1998 By: /s/Joel Dupre ---------------- ------------- Date Joel Dupre Chairman of the Board and Chief Executive Officer October 15, 1998 By: /s/Paul Riss ---------------- ------------ Date Paul Riss Chief Financial Officer (Principal Financial and Accounting Officer) EXHIBIT INDEX No. Description 27 Financial Data Schedule. EX-3.1 2 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF SIRCO INTERNATIONAL CORP. Under Section 805 of the Business Corporation Law -------------------- FIRST: The name of the corporation is Sirco International Corp. The name under which the corporation was formed is Sirco Products Co. Inc. SECOND: The certificate of incorporation of the corporation was filed by the Department of State on July 22, 1964. THIRD: The amendment to the certificate of incorporation effected by this certificate of amendment is as follows: To increase the number of authorized shares of the corporation's Common Stock, par value $.10 per share, from 10,000,000 shares to 20,000,000 shares. FOURTH: To accomplish the foregoing amendment, Article FOURTH of the certificate of incorporation is hereby amended and restated as follows: Fourth: A. Authorized Shares. The total number of shares of all classes of stock which the corporation shall have the authority to issue is Twenty-One Million (21,000,000), of which Twenty Million (20,000,000) shall be common stock, par value $.10 per share, and One Million (1,000,000) shall be preferred stock, par value $.10 per share. B. Common Stock. Each holder of shares of common stock shall be entitled to one vote for each share of common stock held by such holder. There shall be no cumulative voting rights in the election of directors. Subject to any preferential rights of preferred stock, the holders of shares of common stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of common stock. C. Preferred Stock. The preferred stock may be issued from time to time in one or more series. The Board of Directors is hereby expressly vested with the authority to fix by resolution or resolutions the designations and the powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation, the voting powers, if any, the dividend rate, the conversion rights, the redemption price, or the liquidation preference, of any series of preferred stock, and to fix the number of shares constituting any such series, and to increase or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution or resolutions originally fixing the number of shares of such series. The number or authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote. FIFTH: The manner in which the foregoing amendment of the certificate of incorporation was authorized is as follows: The Board of Directors duly authorized the foregoing amendment at a Board of Directors meeting held on April 28, 1998. The shareholders of the corporation subsequently authorized the amendment at an Annual Meeting of Shareholders held on June 11, 1998. IN WITNESS WHEREOF, we have subscribed this document on June 17, 1998 and do hereby affirm under the penalties of perjury, that the statements contained therein have been examined by us and are true and correct. /s/Joel Dupre ------------- Joel Dupre Chairman of the Board and Chief Executive Officer /s/Eric M. Hellige ------------------ Eric M. Hellige Secretary EX-3.2 3 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION OF SIRCO INTERNATIONAL CORP. Under Section 805 of the Business Corporation Law -------------------- FIRST: The name of the corporation is Sirco International Corp. The name under which the corporation was formed is Sirco Products Co. Inc. SECOND: The certificate of incorporation of the corporation was filed by the Department of State on July 22, 1964. THIRD: The amendment to the certificate of incorporation effected by this certificate of amendment is as follows: To create a series of Preferred Stock, par value $.10 per share, designated Series A Preferred Stock. FOURTH: To accomplish the foregoing amendment, Article FOURTH of the certificate of incorporation is hereby amended to add the following paragraph D: D. Series A Preferred Stock. A series of 700 shares of preferred stock, par value $0.10 per share, of the corporation shall be created and be designated "Series A Preferred Stock" having the following rights and preferences: SECTION 1. Dividends and Distributions. Commencing from the date of initial issuance of shares of Series A Preferred Stock (the "Date of Issuance"), the holder of each issued and outstanding share of Series A Preferred Stock shall be entitled to receive, out of assets at the time legally available for such purpose, dividends and distributions, whether in cash or property or in securities of the corporation, including subscription or other rights to purchase or acquire securities of the corporation ("Distributions"), when and as declared by the Board of Directors of the corporation (each such date, a "Dividend Payment Date") on the shares of common stock, par value $0.10 per share, of the corporation, such that when and as a Distribution is declared, paid and made on shares of common stock, the Board of Directors shall also declare a Distribution at the same rate and in like kind on the shares of Series A Preferred Stock, so that the Series A Preferred Stock will participate equally with the common stock, share for share, in such Distribution. In connection therewith, each share of Series A Preferred Stock shall entitle the holder thereof to such Distributions based upon the number of shares of common stock into which such share of Series A Preferred Stock is then convertible, rounded to the nearest one tenth of a share. If on any Dividend Payment Date the corporation shall not be lawfully permitted under New York law to pay all or a portion of any such declared Distributions, the corporation shall take such action as may be lawfully permitted in order to enable the corporation, to the extent permitted by New York law, lawfully to pay such Distributions. SECTION 2. Liquidation. (a) In the event of any liquidation, dissolution or winding-up of the corporation, either voluntary or involuntary (a "Liquidation"), the holders of shares of Series A Preferred Stock then issued and outstanding shall be entitled to be paid out of the assets of the corporation available for distribution to its shareholders, whether from capital, surplus or earnings, before any payment shall be made to the holders of shares of common stock or upon any other series of preferred stock of the corporation with a liquidation preference subordinate to the liquidation preference of the Series A Preferred Stock, an amount equal to one thousand dollars ($1,000) per share. If, upon any Liquidation of the corporation, the assets of the corporation available for distribution to its shareholders shall be insufficient to pay the holders of shares of the Series A Preferred Stock, and the holders of any other series of preferred stock with a liquidation preference equal to the liquidation preference of the Series A Preferred Stock, the full amounts to which they shall respectively be entitled, the holders of shares of Series A Preferred Stock and the holders of any other series of preferred stock with liquidation preference equal to the liquidation preference of the Series A Preferred Stock shall receive all of the assets of the corporation available for distribution and each such holder of shares of Series A Preferred Stock and the holders of any other series of preferred stock with a liquidation preference equal to the liquidation preference of the Series A Preferred Stock shall share ratably in any distribution in accordance with the amounts due such shareholders. After payment shall have been made to the holders of shares of the Series A Preferred Stock of the full amount to which they shall be entitled, as aforesaid, the holders of shares of Series A Preferred Stock shall be entitled to no further distributions thereon and the holders of shares of common stock and of shares of any other series of stock of the corporation shall be entitled to share, according to their respective rights and preferences, in all remaining assets of the corporation available for distribution to its shareholders. (b) A merger or consolidation of the corporation with or into any other corporation, or a sale, lease, exchange or transfer of all or any part of the assets of the corporation which shall not in fact result in the liquidation (in whole or in part) of the corporation and the distribution of its assets to its shareholders shall not be deemed to be a voluntary or involuntary liquidation (in whole or in part), dissolution or winding-up of the corporation. SECTION 3. Conversion of Series A Preferred Stock. The holders of Series A Preferred Stock shall have the following conversion rights: (a) Optional Right to Convert. Each share of Series A Preferred Stock shall be convertible at the option of the holder (an "Optional Conversion") into fully paid and non-assessable shares of common stock at any time after the original issuance of the Series A Preferred Stock (such date being referred to as a "Conversion Date") at the conversion price (the "Conversion Price") set forth below. (b) Mechanics of Conversion. Each holder of Series A Preferred Stock who desires to convert the same into shares of common stock shall provide written notice (a "Conversion Notice") via confirmed facsimile to the corporation at its principal executive offices. The original Conversion Notice and the certificate or certificates representing the Series A Preferred Stock for which conversion is elected, duly endorsed in blank or accompanied by proper instruments of transfer, shall be delivered to the corporation at its principal executive offices by overnight domestic courier or by international courier. The date upon which a Conversion Notice is properly received by the corporation shall be a "Notice Date". (c) Conversion Price. Each share of Series A Preferred Stock shall be convertible into a number of shares of common stock determined in accordance with the following formula (the "Conversion Formula"): 1,000 ---------------- Conversion Price where: Conversion Price = (A) prior to May 31, 1999, $3.33 or (B) on or after May 31, 1999, the lesser of (i) $3.33 or (ii) the average closing share price of the common stock, as reported by NASDAQ, for the twenty (20) trading days immediately preceding May 31, 1999; provided, however, that in no event shall the Conversion Price be less than $1.66. (d) Mandatory Conversion. At any time after May 31, 1999, the corporation may cause the conversion (a "Mandatory Conversion") of the Series A Preferred Stock outstanding into fully paid and non-assessable shares of common stock pursuant to the Conversion Formula, based upon the Conversion Price then in effect. To effect a Mandatory Conversion, the corporation shall issue to each holder of record of the Series A Preferred Stock a notice stating that the corporation is effecting a Mandatory Conversion with regard to the Series A Preferred Stock. Such notice shall contain a statement indicating the number of shares of Series A Preferred Stock subject to the Mandatory Conversion, the number of shares of common stock to be received by holders upon conversion and the effective date of such conversion (the "Conversion Date"). As soon as practicable after the Conversion Date, each holder of Series A Preferred Stock shall surrender certificates for all shares being converted duly endorsed in blank or accompanied by proper instruments of transfer and the corporation shall deliver to such holder or such holder's nominee certificates representing the number of shares of common stock to which such holder shall be entitled. The Mandatory Conversion of Series A Convertible Stock shall be deemed to have occurred on the Conversion Date without regard to the time of surrender of such shares of Series A Preferred Stock and (i) such shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights whatsoever with respect to such shares shall terminate (except the right of a holder to receive certificates representing the number of shares of common stock to which such holder is entitled, together with a cash payment in lieu of any fractional shares of common stock) and (ii) holders entitled to receive shares of common stock deliverable upon conversion of such shares of Series A Preferred Stock shall be treated for all purposes as the holder of record of such shares of common stock on the Conversion Date notwithstanding that the share register of the corporation shall then be closed or the certificates representing the shares of common stock shall not then be actually delivered to such holder. (e) Fractional Shares. No fractional share shall be issued upon the conversion of any of the Series A Preferred Stock. All shares of common stock (including fractions thereof) issuable upon conversion of the Series A Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of common stock, the corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the closing price per share of the common stock, as reported by NASDAQ, on the Notice Date multiplied by such fraction. (f) Reservation of Common Stock Issuable Upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of common stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of shares of common stock free of preemptive rights as shall be sufficient to effect the conversion of all shares of Series A Preferred Stock then outstanding; and if at any time the number of authorized but unissued shares of common stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock, the corporation will take such action as may be necessary to increase its authorized but unissued shares of common stock to such number of shares as shall be sufficient for such purpose. (g) Adjustment of Conversion Price. (i) If, prior to the conversion of all outstanding shares of Series A Preferred Stock, the corporation shall reclassify, subdivide or combine its outstanding shares of common stock into a greater or smaller number of shares by a stock split, stock dividend or other similar event, then in each such case the Conversion Price shall be adjusted to that price which will permit the number of shares of common stock into which Series A Preferred Stock may be converted to be increased or reduced in the same proportion as are the number of shares of common stock. (ii) If, prior to the conversion of all of the outstanding shares of Series A Preferred Stock, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of common stock of the corporation shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the corporation or another entity, then the holders of shares of Series A Preferred Stock shall thereafter have the right to purchase and receive upon conversion of the Series A Preferred Stock, upon the basis and upon the terms and conditions specified in this Paragraph D of this Article Fourth and in lieu of the shares of common stock immediately theretofore issuable upon conversion, such share of stock and/or securities as may be issued or payable with respect to or in exchange for the number of shares of common stock immediately theretofore purchasable and receivable upon the conversion of the Series A Preferred Stock held by such holders had such merger, consolidation, exchange of shares, recapitalization or reorganization not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the holders of the Series A Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Series A Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the exercise hereof. The corporation shall not effect any transaction described in this subsection unless the resulting successor or acquiring entity (if not the corporation) assumes by written instrument the obligation to deliver to the holders of the Series A Preferred Stock such shares of stock and/or securities as, in accordance with the foregoing provisions, the holders of the Series A Preferred Stock may be entitled to purchase. (iii) If any adjustment under this subsection would create a fractional share of common stock or a right to acquire a fractional share of common stock, such fractional share shall be disregarded and the number of shares of common stock issuable upon conversion shall be the next higher number of shares. (h) The corporation will pay any and all issue or other taxes that may be payable in respect of any issue or delivery of shares of common stock on conversion of shares of Series A Preferred Stock pursuant hereto. The corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of common stock in a name other than that in which the shares of Series A Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the corporation the amount of such tax, or has established, to the satisfaction of the corporation, that such tax has been paid. SECTION 4. Status of Converted Shares. In the event any shares of Series A Preferred Stock shall be converted as contemplated by this Paragraph D of this Article Fourth, the shares so converted shall be canceled, shall return to the status of authorized but unissued preferred stock, par value $0.10 per share, of the corporation, of no designated class or series, and shall not be issuable by the corporation as Series A Preferred Stock. SECTION 5. Voting Rights. (a) Except as otherwise specifically provided by the New York Business Corporation Law or as otherwise provided herein, the holders of Series A Preferred Stock shall be entitled to vote on any matters required or permitted to be submitted to the holders of shares of common stock for their approval, and such holders of shares of Series A Preferred Stock and holders of shares of common stock shall vote as a single class, with the holders of shares of Series A Preferred Stock having the number of votes to which they would be entitled if the Series A Preferred Stock were converted into shares of common stock in accordance with the Conversion Formula. (b) So long as Series A Preferred Stock is outstanding, the corporation shall not, without the affirmative vote or consent of the holders of at least a majority (or such higher percentage, if any, as may then be required by applicable law) of all outstanding shares of Series A Preferred Stock, voting separately as a class, amend any provision of the certificate of incorporation of the corporation so as to change the preferences, conversion or other rights, voting powers, restrictions or limitations as to dividends or other distributions of the Series A Preferred Stock. SECTION 6. Rank and Limitations of Preferred Stock. All shares of Series A Preferred Stock shall rank equally with each other share of Series A Preferred Stock and shall be identical in all respects. FIFTH: The manner in which the foregoing amendment of the certificate of incorporation was authorized is as follows: The Board of Directors duly authorized the foregoing amendment at a Board of Directors meeting held on May 19, 1998. IN WITNESS WHEREOF, the undersigned have subscribed this document on June 17, 1998 and do hereby affirm under the penalties of perjury, that the statements contained therein have been examined by the undersigned and are true and correct. /s/Joel Dupre -------------------------------- Joel Dupre Chairman of the Board and Chief Executive Officer /s/Eric M. Hellige -------------------------------- Eric M. Hellige Secretary EX-27 4
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. 9-MOS NOV-30-1998 AUG-31-1998 510,632 0 2,671,453 450,648 5,056,290 8,152,153 1,888,363 1,053,759 12,719,584 6,771,124 287,777 0 70 586,240 5,074,373 12,719,584 13,403,557 13,491,907 10,502,276 4,424,797 0 0 412,592 (2,421,022) 0 (2,421,022) 0 0 0 (2,241,022) (.49) (.49)
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