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 March 31, 1997
/ / 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 May 2, 1997: 79,375,497 shares of Common Stock, $.01 par value
Transitional Small Business Disclosure Format (Check one:)
Yes No / x /
Page 1 of 11 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 621,664 $ 324,298
Trade accounts receivable, net 2,194,552 2,675,435
Inventories, net 2,133,576 2,488,006
Other current assets 316,122 368,793
---------- ----------
Total current assets 5,265,914 5,856,532
Plant and equipment, net 770,158 775,529
Intangibles, net 24,210 32,445
Other assets 57,773 68,635
---------- ----------
Total Assets $6,118,055 $6,733,141
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $1,586,605 $1,704,354
Current installments of long-term debt 29,209 35,642
Accounts payable 1,021,715 922,612
Income taxes payable 2,563 325
Other accrued liabilities 1,054,943 1,371,674
---------- ----------
Total current liabilities 3,695,035 4,034,607
Long-term debt, excluding current installments 22,185 30,104
Other liabilities 377,426 482,715
---------- ----------
Total Liabilities 4,094,646 4,547,426
---------- ----------
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 2,229,415 2,229,415
Retained earnings (452,966) (467,643)
Foreign currency translation adjustments (482,942) (305,959)
Treasury stock at cost
- 2,554,113 common shares (63,853) (63,853)
---------- ----------
Total stockholders' equity 2,023,409 2,185,715
---------- ----------
Total Liabilities and Stockholders' Equity $6,118,055 $6,733,141
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2 of 11 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
1997 1996
------------ ------------
Net sales $ 2,317,322 $ 2,572,859
Cost of sales 1,369,708 1,390,406
------------ ------------
Gross profit 947,614 1,182,453
Selling, general and administrative expenses 900,514 1,195,862
------------ ------------
Operating income (loss) 47,100 (13,409)
Other income (expense):
Interest income 2,482 2,405
Interest expense (31,571) (11,531)
------------ ------------
Profit (loss) before income taxes 18,011 (22,535)
Income taxes 3,333 (8,949)
------------ ------------
Net income (loss) $ 14,678 $ (13,586)
============ ============
Earnings (loss) per common share: $ 0.0002 $ (0.0002)
============ ============
Weighted average number of
common shares outstanding: 76,821,384 76,821,384
============ ============
See accompanying notes to condensed consolidated financial statements.
Page 3 of 11 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
-----------------------
1997 1996
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 14,678 $ (13,586)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 79,654 91,033
Other (61,610) 18,174
Change in net assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 269,730 140,525
Inventories 168,256 (501,883)
Other current assets 26,669 (103,816)
Other long-term assets 702 (130)
Increase (decrease) in:
Accounts payable 181,329 246,294
Income taxes payable 2,238 (505)
Other accrued liabilities (244,586) (58,454)
--------- ---------
Net cash provided by (used in)
operating activities: 437,060 (182,348)
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment, net (143,989) (71,439)
Additions to intangibles -- 700
--------- ---------
Net cash used in investing activities (143,989) (72,139)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in short-term debt 40,572 (140,568)
Payments of long-term debt (7,781) (9,493)
--------- ---------
Net cash provided by (used in)
financing activities 32,791 (150,061)
--------- ---------
Effect of exchange rate changes on cash (28,496) 5,901
--------- ---------
Net increase (decrease) in cash
and cash equivalents 297,366 (398,647)
Cash and cash equivalents at beginning of year 324,298 686,215
------- -------
Cash and cash equivalents at end of period $ 621,664 $ 287,568
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 23,399 $ 5,803
Income taxes 1,103 1,818
See accompanying notes to condensed consolidated financial statements.
Page 4 of 11 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at March 31, 1997
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 Effective Date of the Plan was November 27, 1991. 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.
Financial statements prepared in accordance with generally accepted
accounting principles contemplate continuation of the company as a going
concern. However, during the year ended December 31, 1996 the Company
experienced declining sales and decreasing margins which caused a substantial
operating loss. During 1996, the Company used, rather than provided, cash in its
operations. In view of these events, recoverability of a major portion of the
recorded asset amounts shown in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements on a continuing basis, to
maintain present financing, and to succeed in its future operations. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management has taken various steps to revise its operating and financial
requirements which it believes are sufficient to provide the Company with the
ability to continue as a going concern and which it estimates will result in
annual savings of approximately $500,000.
Operating results for the three months ended March 31, 1997
Page 5 of 11 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at March 31, 1997
(Continued)
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended December 31, 1996.
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. Consequently, depreciation and amortization charges in the income
statement in subsequent years, principally 1992 through 1996, were 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 - Inventories
The components of inventory consist of the following:
March 31,
1997
----------
Raw materials $ 873,035
Work-in-progress 362,437
Finished goods 898,104
----------
$2,133,576
==========
Page 6 of 11 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at March 31, 1997
(Continued)
NOTE 5 - 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 6 - 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 it will generate sufficient
taxable income to utilize any of its deferred tax assets, 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 net operating loss carryforwards.
NOTE 7 - 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 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 three months ended March 31, 1997 and 1996, $0 and
$31,000, 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 three months ended
March 31, 1997 and 1996 with $0 and $829, respectively, in respect of the
reversal of tax liabilities set up on the Effective Date which were no longer
required.
Page 7 of 11 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 dollar
during the respective periods, namely Lit. 1,643 for the three months ended
March 31, 1997 and Lit. 1,572 for the comparable period in 1996. Balance sheet
items have been converted at the end of period rates of exchange. On March 31,
1997, the spot rate for the lira was Lit. 1,674; at December 31, 1996 it was
Lit. 1,518. The effect of these exchange rate fluctuations is (i) to decrease
the reported dollar amounts on the income statement for the three months ended
March 31, 1997 of the revenues and expenses originally denominated in Italian
lire by approximately 4.5% as compared to those for the quarter ended March 31,
1996 and (ii) to decrease the values on the balance sheet at the end of the
current quarter by about 10% as compared to those at December 31, 1996.
Net sales of the Company for the quarter ended March 31, 1997 were
$2,317,322, 9.9% less than net sales of $2,572,859 for the quarter ended March
31, 1996. Adjusting for the exchange rate change, net sales for the quarter
ended March 31, 1997 were 6.9% less than in the comparable period in 1996.
Sales of Italiana Luce, when expressed in lire, decreased 13.3% during the
first quarter of 1997, reflecting principally the continued stagnation of
Europe's economies.
Aided by a major shipment of custom chandeliers from Foscarini for a
commercial installation, sales in North America rose 13.0% during the quarter,
having increased 17.2% in the first quarter of 1996. Sales to the contract
market continue to be an important source of growth.
Gross profit for the Company as a percent of net sales was 40.9% for the
quarter ended March 31, 1997, compared to 46.0% for the quarter ended March 31,
1996. The reduction in the gross profit percentage was due principally to heavy
price discounting by Italiana Luce in an effort to boost volume. Higher material
costs was another contributing factor.
Selling, general and administrative expenses were 38.9% of net sales for
the quarter ended March 31, 1997 versus 46.5% for the quarter ended March 31,
1996. The sharp drop in selling, general and administrative expenses as a
percentage of net sales in the current quarter was due primarily to the
reorganization of the Italian operation which took effect during this period.
The steps taken to reduce expenses included the termination of nine employees at
Italiana Luce, equivalent to 30% of the its workforce, a 30%
Page 8 of 11 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Management's Discussion and Analysis (continued):
reduction in warehouse space in Italy and lower salaries for management. Costs
associated with these moves were written off against the $165,000 restructuring
charge included in the financial statements for the year ended December 31,
1996.
Liquidity and Capital Resources
The Company's current major source of financing is its short term lines of
credit with certain Italian banks. The lines of credit total Lit. 6.45 billion
($3.85 million when converted at the end of period rate of exchange) of which
Lit. 2.65 billion ($1.59 million) had been drawn down at March 31, 1997.
The persistent economic problems in the Company's major European markets
and the resultant decline in its sales revenue have adversely affected its
liquidity and financial flexibility. During 1996, the Company took actions which
are expected to reduce its annual expenses by approximately $500,000. Although
there can be no assurance that these measures will be successful, the Company
presently believes the steps it has taken, supplemented by the amounts available
under its short-term lines of credit, will provide sufficient liquidity to fund
its operations.
Page 9 of 11 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 March 31, 1997.
Page 10 of 11 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)
May 7, 1997 By /s/ Keith G. Frey
------------------
Keith G. Frey
Vice President, Finance and
Administration and Chief
Financial Officer
Page 11 of 11 pages
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 621,664
<SECURITIES> 0
<RECEIVABLES> 2,520,297
<ALLOWANCES> (325,745)
<INVENTORY> 2,133,576
<CURRENT-ASSETS> 5,265,914
<PP&E> 1,913,487
<DEPRECIATION> (1,143,329)
<TOTAL-ASSETS> 6,118,056
<CURRENT-LIABILITIES> 3,695,035
<BONDS> 0
0
0
<COMMON> 793,755
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,118,055
<SALES> 2,317,322
<TOTAL-REVENUES> 2,317,322
<CGS> 1,369,708
<TOTAL-COSTS> 900,514
<OTHER-EXPENSES> (2,482)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,571
<INCOME-PRETAX> 18,011
<INCOME-TAX> 3,333
<INCOME-CONTINUING> 14,678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,678
<EPS-PRIMARY> 0.002
<EPS-DILUTED> 0.002
</TABLE>
