U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
- ---
For the transition period from______________ to______________
Commission File number 0-14575
IL INTERNATIONAL INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1331343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Long Beach Boulevard, Stratford, Connecticut 06497
(Address of principal executive offices)
(203) 378-4000
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ______
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes x No ______
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of November 8, 1996: 79,375,497 shares of Common Stock, $.01 par value
Transitional Small Business Disclosure Format (Check one:)
Yes ______ No x
Page 1 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
1996 1995
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 283,868 $ 686,215
Trade accounts receivable, net 2,250,891 2,512,104
Inventories, net 3,182,068 2,337,470
Deferred taxes 585,437 295,329
Other current assets 454,246 237,439
---------- ----------
Total current assets 6,756,510 6,068,557
Plant and equipment, net 925,255 818,366
Intangibles, net 45,690 80,453
Other assets 61,019 59,329
---------- ----------
Total Assets $7,788,474 $7,026,705
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $2,027,740 $ 473,327
Current installments of long-term debt 36,911 37,896
Accounts payable 1,045,073 1,423,778
Income taxes payable 5,039 27,126
Other accrued liabilities 1,305,872 1,325,256
---------- ----------
Total current liabilities 4,420,635 3,287,383
Long-term debt, excluding current installments 37,401 62,849
Other liabilities 506,435 479,561
---------- ----------
Total Liabilities 4,964,471 3,829,793
---------- ----------
Stockholders' equity:
Common stock, $.01 par value per share;
authorized 100,000,000 shares;
issued 79,375,497 shares 793,755 793,755
Additional paid-in capital 2,231,071 2,228,571
Retained earnings 171,633 661,982
Foreign currency translation adjustments (308,603) (423,543)
Treasury stock at cost
- 2,554,113 common shares (63,853) (63,853)
---------- ----------
Total stockholders' equity 2,824,003 3,196,912
---------- ----------
Total Liabilities and Stockholders' Equity $7,788,474 $7,026,705
========== ==========
See accompanying notes to condensed consolidated financial statements.
Page 2 of 12 pages
<PAGE>
<TABLE>
<CAPTION>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Nine months ended Quarter ended
September 30, September, 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 6,851,132 $ 7,443,631 $ 2,001,859 $ 2,126,398
Cost of sales 3,990,496 4,042,195 1,194,266 1,146,946
------------ ------------ ------------ ------------
Gross profit 2,860,636 3,401,436 807,593 979,452
Selling, general and
administrative
expenses 3,545,982 3,313,705 1,009,055 1,034,595
------------ ------------ ------------ ------------
Operating
income (loss) (685,346) 87,731 (201,462) (55,143)
Other income (expense):
Interest income 5,694 9,033 1,386 3,228
Interest expense (66,510) (43,982) (32,169) (18,818)
------------ ------------ ------------ ------------
Profit (loss) before
income taxes (746,162) 52,782 (232,245) (70,733)
Income taxes (255,813) 49,648 (89,575) (29,669)
------------ ------------ ------------ ------------
Net income (loss) $ (490,349) $ 3,134 $ (142,670) $ (41,064)
============ ============ ============ ============
Earnings (loss)
per common share: $ (0.0064) $ 0.0001 $ (0.0019) $ (0.0005)
============ ============ ============ ============
Weighted average
number of common
shares outstanding: 76,821,384 76,821,384 76,821,384 76,821,384
============ ============ ============ ============
</TABLE>
Page 3 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 30,
------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) $(490,349) $ 3,134
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 270,139 213,432
Other 7,289 129,625
Change in net assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 354,925 314,244
Inventories (763,946) (375,812)
Other current assets (487,091) 55,580
Other long-term assets 390 8,257
Increase (decrease) in:
Accounts payable (437,641) (821,496)
Income taxes payable (23,202) (32,226)
Other accrued liabilities (20,067) (102,858)
---------- ---------
Net cash used in operating activities: (1,589,553) (608,120)
---------- ---------
Cash flows from investing activities:
Additions to plant and equipment, net (303,265) (189,690)
Additions to intangibles (1,624) (23,325)
--------- ---------
Net cash used in investing activities (304,889) (213,015)
--------- ---------
Cash flows from financing activities:
Increase in short-term debt 1,506,129 827,430
Increase in long-term debt - 38,366
Payments of long-term debt (28,333) (11,671)
--------- ---------
Net cash provided by financing activities 1,477,796 854,125
--------- ---------
Effect of exchange rate changes on cash 14,299 (1,746)
--------- ---------
Net increase (decrease) in cash
and cash equivalents (402,347) 31,244
Cash and cash equivalents at beginning of year 686,215 349,538
--------- ---------
Cash and cash equivalents at end of period $ 283,868 $ 380,782
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 39,512 $ 24,521
Income taxes 36,666 13,665
See accompanying notes to condensed consolidated financial statements.
Page 4 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at September 30, 1996
NOTE 1 - Background
IL International Inc. (the "Company") was incorporated in June 1991 in
connection with the Amended Plan of Reorganization (the "Plan") of Chartwell
Group Ltd. ("Chartwell") and CGL Finance, Inc., a wholly owned subsidiary of
Chartwell. The Company is the successor corporation to Chartwell. The Company's
two operating subsidiaries are Italiana Luce S.r.l. ("Italiana Luce") and IL USA
Inc. ("IL USA").
NOTE 2 - 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 Forms 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1995.
NOTE 3 - Fresh Start Accounting
Effective December 1, 1991, the Company implemented the accounting for
entities emerging from Chapter 11 and reorganization as set forth in Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" issued by the American Institute of Certified Public
Accountants ("Fresh Start Accounting"). Under this method, all assets and
liabilities were restated to reflect the emergence equity value of the
reorganized entity which was determined to be $2,000,000.
In accordance with the provisions of Statement of Position 90-7, the excess
of the carrying value of the assets of the Company immediately prior to its
reorganization over the emergence equity value of the entity was utilized to
reduce the carrying values of the non-current assets as of the Effective Date by
$1,106,220.
Page 5 of 12 pages
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IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at September 30, 1996
(Continued)
Consequently, depreciation and amortization charges in the income statement in
subsequent years, principally 1992 through 1996, will be less than they would
otherwise have been by a cumulative amount equal to the amount of the write-down
(as adjusted for exchange rate changes).
NOTE 4 - Impairment
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Accordingly, when indicators of impairment are
present, the Company periodically evaluates the carrying value of property,
plant and equipment and intangibles in relation to the operating performance and
future undiscounted cash flows of the underlying business. The Company adjusts
the carrying amounts of the respective assets if the expected future cash flows
are less than the book value.
NOTE 5 - Accounting for Stock-Based Compensation Plans
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123") which defines the fair value based method of
accounting for an employee stock option. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period. A company may elect to adopt
SFAS No. 123 or elect to continue accounting for its stock option or similar
equity awards using the intrinsic method, where compensation cost is measured at
the date of grant based on the excess of the market value of the underlying
stock over the exercise price. If a company elects not to adopt SFAS No. 123, it
must provide a pro forma disclosure of net income and earnings per share, as if
the fair value based method has been applied.
SFAS No. 123 is effective for transactions entered into for fiscal years
that begin after December 15, 1995. Pro forma disclosures for entities that
elect to continue to measure compensation cost under the old method must include
the effects of all awards granted in fiscal years that begin after December 15,
1994. At present, the Company does not have any stock-based compensation plans.
However, it is currently anticipated that the Company will account for any
stock-based compensation plan it introduces in the future under the intrinsic
method and will make the appropriate pro forma disclosures. Therefore, SFAS No.
123 is
Page 6 of 12 Pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at September 30, 1996
(Continued)
not expected to have any effect on the Company's consolidated financial
statements.
NOTE 6 - Inventories
The components of inventory consist of the following:
September 30,
1996
-----------
Raw materials $1,321,733
Work-in-progress 625,817
Finished goods 1,234,518
----------
$3,182,068
==========
NOTE 7 - Earnings (Loss) Per Common Share
Earnings (loss) per common share is based on 76,821,384 shares of common
stock, being the sum of the 79,375,497 shares of common stock issued under the
Plan less 2,554,113 shares of common stock held in treasury.
NOTE 8 - Income Taxes
The provision for income taxes is computed on the basis of financial
statement income. Deferred taxes result from temporary differences between the
amounts reported for financial statement and income tax purposes. These
temporary differences give rise to deferred tax assets.
In view of the uncertainty as to whether its North American operations will
generate sufficient taxable income to utilize any of the deferred tax assets
available in the United States, the Company has set up an allowance equal to
100% of the value of such deferred assets, inclusive of the full amount of the
available loss carryforwards. The deferred taxes reported on the balance sheet
relate only to the Italian operations of the Company.
NOTE 9 - Pre-Reorganization Tax Benefits
The Company has available to it certain tax benefits which arose prior to
the Effective Date. In view of the uncertainty as to whether the Company would
ever produce sufficient taxable income to utilize such benefits, these tax
assets were never recorded in the
Page 7 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at September 30, 1996
(Continued)
consolidated financial statements as of the Effective Date. Instead, the
Company determined that it would report any benefits derived from such tax
assets as additions to paid-in capital as they were realized. For the nine
months ended September 30, 1996 and 1995, $0 and $36,444, respectively,
arising from the utilization of such unrecorded tax assets have been reported
as direct additions to paid-in capital.
Additional paid-in capital has also been credited in the nine months ended
September 30, 1996 and 1995 with $840 and $23,953, respectively, in respect of
the reversal of tax liabilities set up on the Effective Date which were no
longer required.
Page 8 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Management's Discussion and Analysis or Plan of Operation:
Results of operations
The Italian lira exchange rates used for the conversion of the statements
of operations were the weighted average rates of exchange versus the U.S. dollar
during the respective periods. The exchange rates used for the nine months ended
September 30, 1996 and September 30, 1995 were Lit. 1,552 and Lit. 1,637,
respectively. For the quarters ended September 30, 1996 and September 30, 1995,
the exchange rates used were Lit. 1,521 and Lit. 1,611, respectively. The
variations in the rates of exchange in the periods under review have the effect
of increasing the reported dollar amounts for the current quarter and the year
to date by 5.6% and 5.2%, respectively, as compared to the same periods in the
prior year. Balance sheet items have been converted at the end of period rates
of exchange. On September 30, 1996, the spot rate for the lira was Lit. 1,523
versus the dollar; at December 31, 1995 it was Lit. 1,588.
Net sales of the Company for the quarter ended September 30, 1996 were
$2,001,859, 5.9% less than net sales of $2,126,398 for the quarter ended
September 30, 1995. Adjusting for the exchange rate change, net sales for the
quarter ended September 30, 1996 were 9.6% less than those for the comparable
period in 1995.
Sales of Italiana Luce, when expressed in lire, fell 15.7% during the third
quarter of 1996 versus 1995. While sales in Italy were down only marginally,
sales to the rest of Europe continued well below the levels achieved in the
prior year.
Sales in North America during the quarter rose 11.4% as compared to the
prior year with most of the growth coming from the Foscarini fixtures where the
Company is having continued success in expanding the number of stores carrying
the line and increasing sales through existing stockists.
Net sales of the Company for the nine months ended September 30, 1996 were
$6,851,132, 8.0% less than net sales of $7,443,631 for the nine months ended
September 30, 1995. Adjusting for the exchange rate change, net sales for the
nine months ended September 30, 1996 were 11.8% less than those for the
comparable period in 1995. Sales of Italiana Luce, when expressed in lire, fell
by 17.1%. Consumer confidence in the Company's major European markets has been
at a low level for much of the past eighteen months as governments struggle to
curb expenditures on their generous social programs, notwithstanding high
unemployment, in order to reduce their deficits so as to meet the criteria set
for joining the proposed common European currency. The strengthening of the lira
this year against most other major currencies has further dampened demand
outside Italy. Sales of IL USA rose by 8.9% with growth
Page 9 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Management's Discussion and Analysis (continued):
being concentrated in the Italiana Luce and Foscarini lines.
Gross profit as a percent of net sales was 40.3% for the quarter ended
September 30, 1996, compared to 46.1% for the quarter ended September 30, 1995.
For the nine months ended September 30, 1996, gross profit was 41.8% of net
sales versus 45.7% for the same period in 1995. The decrease in the percentage
gross profit margin in 1996 was due principally to the lower sales revenue
recorded by Italiana Luce and the higher cost of imports into the United States
as a result of the stronger lira. In addition, Italiana Luce has increased its
price promotions in an effort to boost volume and reduce inventory.
Selling, general and administrative expenses were 50.4% and 51.8% of net
sales for the quarter and nine months, respectively, ended September 30, 1996
compared to 48.7% and 44.5%, respectively, for the comparable periods in 1995.
Excluding the foreign exchange effects of the changing value of the lira,
expenses were flat for both the three months and nine months ended September 30,
1996 with legally mandated increases in salaries in Italy and a substantial rise
in advertising costs being offset by reductions in promotional and variable
selling expenses.
Given projected market conditions in Europe for the rest of 1996,
management does not believe that the Company will achieve a taxable profit for
the year. Consequently, the income tax credit of $255,813 for the nine months
ended September 30, 1996 does not include any tax shield in respect of ILOR, the
smaller of the two Italian income taxes, since ILOR does not permit any net
operating loss carryforwards.
Liquidity and Capital Resources
The Company's current major source of financing is its short term lines of
credit with certain Italian banks. The Company uses these facilities primarily
to fund its seasonal needs. The lines of credit total Lit. 6.1 billion ($4.0
million when converted at the end of period rate of exchange) of which Lit.
3.089 billion ($2.027 million) had been drawn down at September 30, 1996.
The persistent economic problems in the Company's major European markets
continues to be cause for concern. Nevertheless, the Company presently believes
that cash generated from operations during 1996, supplemented by the amounts
available under its short-term lines of credit, will be sufficient to finance
adequately its existing operations, and that cash generated from future
operations will provide it with adequate liquidity for the foreseeable future.
Page 10 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K during the
quarter ended September 30, 1996.
Page 11 of 12 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IL INTERNATIONAL INC.
---------------------
(Registrant)
November 8, 1996 By /s/ Keith G. Frey
----------------------------
Keith G. Frey
Vice President, Finance and
Administration and Chief
Financial Officer
Page 12 of 12 pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 283,868
<SECURITIES> 0
<RECEIVABLES> 2,614,608
<ALLOWANCES> (363,717)
<INVENTORY> 3,182,068
<CURRENT-ASSETS> 6,756,510
<PP&E> 2,002,340
<DEPRECIATION> (1,077,085)
<TOTAL-ASSETS> 7,788,474
<CURRENT-LIABILITIES> 4,420,635
<BONDS> 0
0
0
<COMMON> 793,755
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,788,474
<SALES> 6,851,132
<TOTAL-REVENUES> 6,851,132
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,510
<INCOME-PRETAX> (746,162)
<INCOME-TAX> (255,813)
<INCOME-CONTINUING> (490,349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (490,349)
<EPS-PRIMARY> (0.006)
<EPS-DILUTED> (0.006)
</TABLE>
