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.
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-2511270
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
24 Richmond Hill Avenue, Stamford Connecticut 06901
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(Address of Principal Executive Offices) (Zip Code)
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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.
<PAGE>
PART 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
Sirco International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
Aug 31, 1998 Nov. 30, 1997
------------ ------------
(Unaudited) (See note)
<S> <C> <C>
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
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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
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 1. Financial Statements
Sirco International Corp. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
Aug 31, 1998 Nov. 30, 1997
------------ ------------
(Unaudited) (See note)
<S> <C> <C>
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
============ ============
</TABLE>
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.
<PAGE>
<TABLE>
<CAPTION>
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
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
See notes to the condensed consoladated financial statements
<PAGE>
<TABLE>
<CAPTION>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
Aug 31, 1998 Aug 31, 1997
------------ ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited) (continued)
For the Nine Months Ended
Aug 31, 1998 Aug 31, 1997
------------ ------------
<S> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 385,623 $ 369,194
Income taxes $ -- $ 300,015
</TABLE>
See notes to the condensed consolidated financial statements.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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)
<PAGE>
EXHIBIT INDEX
No. Description
27 Financial Data Schedule.
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
<PAGE>
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
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.
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> AUG-31-1998
<CASH> 510,632
<SECURITIES> 0
<RECEIVABLES> 2,671,453
<ALLOWANCES> 450,648
<INVENTORY> 5,056,290
<CURRENT-ASSETS> 8,152,153
<PP&E> 1,888,363
<DEPRECIATION> 1,053,759
<TOTAL-ASSETS> 12,719,584
<CURRENT-LIABILITIES> 6,771,124
<BONDS> 287,777
0
70
<COMMON> 586,240
<OTHER-SE> 5,074,373
<TOTAL-LIABILITY-AND-EQUITY> 12,719,584
<SALES> 13,403,557
<TOTAL-REVENUES> 13,491,907
<CGS> 10,502,276
<TOTAL-COSTS> 4,424,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 412,592
<INCOME-PRETAX> (2,421,022)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,421,022)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,241,022)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
