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 June 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 August 13, 1996: 79,375,497 shares of Common Stock, $.01 par value
Transitional Small Business Disclosure Format (Check one:)
Yes [ ] No [ x ]
Page 1 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 213,703 $ 686,215
Trade accounts receivable, net 2,321,667 2,512,104
Inventories, net 3,323,880 2,337,470
Deferred taxes 487,675 295,329
Other current assets 491,397 237,439
----------- -----------
Total current assets 6,838,322 6,068,557
Plant and equipment, net 877,858 818,366
Intangibles, net 58,144 80,453
Other assets 60,532 59,329
----------- -----------
Total Assets $ 7,834,856 $ 7,026,705
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,144,182 $ 473,327
Current installments of long-term debt 36,499 37,896
Accounts payable 1,817,355 1,423,778
Income taxes payable 4,471 27,126
Other accrued liabilities 1,331,086 1,325,256
----------- -----------
Total current liabilities 4,333,593 3,287,383
Long-term debt, excluding current installments 46,800 62,849
Other liabilities 507,076 479,561
----------- -----------
Total Liabilities 4,887,469 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 2,231,065 2,228,571
Retained earnings 314,303 661,982
Foreign currency translation adjustments (327,883) (423,543)
Treasury stock at cost
- 2,554,113 common shares (63,853) (63,853)
----------- -----------
Total stockholders' equity 2,947,387 3,196,912
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,834,856 $ 7,026,705
=========== ===========
See accompanying notes to condensed consolidated financial statements.
Page 2 of 14 pages
<PAGE>
<TABLE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Six months ended June 30, Quarter ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $4,849,273 $5,317,233 $2,276,414 $2,438,189
Cost of sales 2,796,230 2,895,249 1,405,824 1,369,870
---------- ---------- ---------- ----------
Gross profit 2,053,043 2,421,984 870,590 1,068,319
Selling, general and
administrative
expenses 2,536,927 2,279,110 1,341,065 1,070,656
---------- ---------- ---------- ----------
Operating
income (loss) (483,884) 142,874 (470,475) (10,337)
Other income (expense):
Interest income 4,308 5,805 1,903 2,633
Interest expense (34,341) (25,164) (22,810) (13,990)
---------- --------- ---------- ----------
Profit (loss) before
income taxes (513,917) 123,515 (491,382) (21,694)
Income taxes (166,238) 79,317 (157,289) (5,291)
---------- ---------- ---------- ----------
Net income (loss) $ (347,679) $ 44,198 $ (334,093) $ (16,403)
========== ========== ========== ==========
Earnings (loss)
per common share: $ (0.0045) $ 0.0006 $ (0.0043) $ (0.0002)
========== ========== ========== ==========
Weighted average
number of common
shares outstanding: 76,821,384 76,821,384 76,821,384 76,821,384
========== ========== ========== ==========
</TABLE>
Page 3 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30
-------------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income (loss) $(347,679) $ 44,198
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities:
Depreciation and amortization 187,111 146,056
Other 13,006 149,763
Change in net assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 267,983 289,682
Inventories (919,671) (474,308)
Other current assets (429,899) (4,525)
Other long-term assets 515 53
Increase (decrease) in:
Accounts payable 344,807 (391,340)
Income taxes payable (23,577) (37,393)
Other accrued liabilities (2,838) (103,663)
--------- ---------
Net cash used in operating activities: (910,242) (381,477)
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment, net (192,668) (94,804)
Additions to intangibles (1,151) (8,124)
--------- ---------
Net cash used in investing activities (193,819) (102,928)
--------- ---------
Cash flows from financing activities:
Increase in short-term debt 641,922 364,273
Increase in long-term debt - 6,344
Payments of long-term debt (19,435) (8,984)
--------- ---------
Net cash provided by financing activities 622,487 361,633
--------- ---------
Effect of exchange rate changes on cash 9,062 (3,566)
--------- ---------
Net decrease in cash and cash equivalents (472,512) (126,338)
Cash and cash equivalents at beginning of year 686,215 349,538
--------- ---------
Cash and cash equivalents at end of period $ 213,703 $ 223,200
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 22,643 $ 12,758
Income taxes 35,894 9,492
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at June 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 six months ended June 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 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at June 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 14 Pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at June 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:
June 30,
1996
----------
Raw materials $1,225,478
Work-in-progress 535,860
Finished goods 1,562,542
----------
$3,323,880
==========
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 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at June 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 six months ended
June 30, 1996 and 1995, $1,661 and $72,560, 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 six months ended
June 30, 1996 and 1995 with $833 and $24,384, respectively, in respect of the
reversal of tax liabilities set up on the Effective Date which were no longer
required.
Page 8 of 14 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 six months ended
June 30, 1996 and June 30, 1995 were Lit. 1,564 and Lit. 1,649, respectively.
For the quarters ended June 30, 1996 and June 30, 1995, the exchange rates used
were Lit. 1,554 and Lit. 1,664, respectively. The variation in the rates of
exchange in the periods under review has the effect of increasing the reported
dollar amounts for the current quarter and the year to date by 6.76% and 5.2%,
respectively, as compared to the comparable periods in the prior year. Balance
sheet items have been converted at the end of period rates of exchange. On June
30, 1996, the spot rate for the lira was Lit. 1,534 versus the dollar; at
December 31, 1995 it was Lit. 1,588.
Net sales of the Company for the quarter ended June 30, 1996 were
$2,276,414, 6.7% less than net sales of $2,438,189 for the quarter ended June
30, 1995. Adjusting for the exchange rate change, net sales for the quarter
ended June 30, 1996 were 11.4% less than those for the comparable period in
1995.
Sales of Italiana Luce, when expressed in lire, fell 14.5% during the
second quarter of 1996 versus 1995. While sales in Italy were down only
marginally as compared to the prior year, sales to the rest of Europe were
negatively affected both by the prolonged weakness in consumer demand in the
Company's major export markets as well as the strengthening of the lira against
most other major currencies.
Sales in North America during the quarter were level with those in the
prior year. Continued growth in the sales of Italiana Luce and Foscarini
products were offset primarily by a drop in the sales of the Rialto line which
last year benefited from a major delivery to the Olympic Village in Atlanta,
Georgia.
Net sales of the Company for the six months ended June 30, 1996 were
$4,849,273, 8.8% less than net sales of $5,317,233 for the six months ended June
30, 1995. Adjusting for the exchange rate change, net sales for the six months
ended June 30, 1996 were 12.6% less than those for the comparable period in
1995. Sales of Italiana Luce, when expressed in lire, fell by 17.6%; sales of IL
USA rose by 7.7%. The Euroluce lighting fair was held in April. Traffic at the
fair was reported to have been up substantially as compared to the previous
exhibition in 1994. In the short term, the Company's sales may have been hurt as
retailers curtailed their purchases until after reviewing the new product
introductions. Orders written by the Company at the fair were ahead of 1994.
Page 9 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Management's Discussion and Analysis (continued):
Gross profit as a percent of net sales was 38.2% for the quarter ended June
30, 1996, compared to 43.8% for the quarter ended June 30, 1995. For the six
months ended June 30, 1996, gross profit was 42.3% of net sales versus 45.5% 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, during the second quarter Italiana Luce increased
its level of price promotions in an effort to boost volume.
Selling, general and administrative expenses were 58.9% and 52.3% of net
sales for the quarter and six months, respectively, ended June 30, 1996 compared
to 43.9% and 42.9%, respectively, for the comparable periods in 1995. These
significant increases in the percentages of net sales were attributable to three
factors: the strengthening of the lira, an increase in the advertising and
promotional expenses during the second quarter due to participation in the
important Euroluce fair which is held every other year, and the lower sales
volume. The most important of these factors has been the strengthening of the
lira which began in late 1995. As the lira fell during most of 1995, Italiana
Luce recorded foreign exchange gains when converting receipts from its foreign
customers into lire. Now that the lira is strengthening this trend has been
reversed. As a result, expenses for the six months ended June 30, 1996 were
approximately $120,000 greater than in the prior year due to the swing from
realized foreign exchange gains to realized foreign exchange losses.
The strengthening of the lira has also resulted in an increase in the
reported dollar amounts of the selling, general and administrative expenses for
the three and six months ended June 30, 1996. If these expenses were converted
at the applicable 1995 rates they would be $57,000 and $101,000, respectively,
less than reported. Excluding all the foreign exchange effects and the marketing
costs associated with Euroluce, expenses in 1996 were less than in the prior
year.
Given projected market conditions in Europe for the rest of 1996,
management considers it unlikely that the Company will be able to achieve a
taxable profit for the year. Consequently, the income tax credit of $166,238 for
the six months ended June 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.
Page 10 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Management's Discussion and Analysis (continued):
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. 5.5 billion ($3.6
million when converted at the end of period rate of exchange) of which Lit.
1.755 billion ($1.144 million) had been drawn down at June 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 11 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders (the "Meeting") of the Company was
held on May 23, 1996.
(b) Not applicable because:
(i) Proxies for the Meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934; (ii) there was no
solicitation in opposition to management's nominees as listed in the
Company's proxy statement dated April 22, 1996; and (iii) all such
nominees were elected.
(c) The matters voted upon at the Meeting were as follows:
(i) The election of five directors of the Company.
Keith G. Frey
FOR 70,562,451
----------
WITHHOLD AUTHORITY 3,102,587
----------
Luigi Giroletti
FOR 70,564,624
----------
WITHHOLD AUTHORITY 3,100,414
----------
Michel F. Leemans
FOR 70,564,624
----------
WITHHOLD AUTHORITY 3,100,414
----------
Thomas R. Reardon
FOR 70,564,624
----------
WITHHOLD AUTHORITY 3,100,414
----------
Lewis G. Singer
FOR 70,564,624
----------
WITHHOLD AUTHORITY 3,100,414
----------
Page 12 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders. (Continued).
(ii) A proposal to ratify the Board of Director's selection of Grant
Thornton to serve as the Company's independent accountants for 1996.
FOR 70,676,988
----------
AGAINST 2,953,240
----------
ABSTENTIONS AND
BROKER NON-VOTES 34,810
----------
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
June 30, 1996.
Page 13 of 14 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)
August 13, 1996 By /s/ Keith G. Frey
---------------------
Keith G. Frey
Vice President, Finance and
Administration and Chief
Financial Officer
Page 14 of 14 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> JUN-30-1996
<CASH> 213,703
<SECURITIES> 0
<RECEIVABLES> 2,681,666
<ALLOWANCES> (359,999)
<INVENTORY> 3,323,880
<CURRENT-ASSETS> 6,838,322
<PP&E> 1,878,384
<DEPRECIATION> (1,000,526)
<TOTAL-ASSETS> 7,834,856
<CURRENT-LIABILITIES> 4,333,593
<BONDS> 0
0
0
<COMMON> 793,755
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,834,856
<SALES> 4,849,273
<TOTAL-REVENUES> 4,849,273
<CGS> 2,796,230
<TOTAL-COSTS> 2,796,230
<OTHER-EXPENSES> 2,536,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,341
<INCOME-PRETAX> (513,917)
<INCOME-TAX> (166,238)<F1>
<INCOME-CONTINUING> (347,679)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (347,679)
<EPS-PRIMARY> (0.005)
<EPS-DILUTED> (0.005)
<FN>
<F1> i.e. credit
</FN>
</TABLE>
