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, 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 August 1, 1997: 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,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 405,755 $ 324,298
Trade accounts receivable, net 1,980,096 2,675,435
Inventories, net 2,200,043 2,488,006
Deferred taxes
Other current assets 249,355 368,793
----------- -----------
Total current assets 4,835,249 5,856,532
Plant and equipment, net 707,432 775,529
Intangibles, net 17,823 32,445
Other assets 57,084 68,635
----------- -----------
Total Assets $ 5,617,588 $ 6,733,141
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,212,546 $ 1,704,354
Current installments of long-term debt 25,588 35,642
Accounts payable 1,172,540 922,612
Income taxes payable 169 325
Other accrued liabilities 1,005,038 1,371,674
----------- -----------
Total current liabilities 3,415,881 4,034,607
Long-term debt, excluding current installments 16,640 30,104
Other liabilities 370,114 482,715
----------- -----------
Total Liabilities 3,802,635 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 (639,529) (467,643)
Foreign currency translation adjustments (504,836) (305,959)
Treasury stock at cost
- 2,554,113 common shares (63,853) (63,853)
----------- -----------
Total stockholders' equity 1,814,952 2,185,715
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,617,587 $ 6,733,141
=========== ===========
See accompanying notes to condensed consolidated financial statements.
Page 2 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, Quarter ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,315,431 $ 4,849,273 $ 1,998,109 $ 2,276,414
Cost of sales 2,627,590 2,796,230 1,257,882 1,405,824
------------ ------------ ------------ ------------
Gross profit 1,687,841 2,053,043 740,227 870,590
Selling, general and
administrative
expenses 1,795,530 2,536,927 895,016 1,341,065
------------ ------------ ------------ ------------
Operating
income (loss) (107,689) (483,884) (154,789) (470,475)
Other income (expense):
Interest income 7,321 4,308 4,839 1,903
Interest expense (64,959) (34,341) (33,388) (22,810)
------------ ------------ ------------ ------------
Profit (loss) before
income taxes (165,327) (513,917) (183,338) (491,382)
Income taxes 6,559 (166,238) 3,226 (157,289)
------------ ------------ ------------ ------------
Net income (loss) $ (171,886) $ (347,679) $ (186,564) $ (334,093)
============ ============ ============ ============
Earnings (loss)
per common share: $ (0.0022) $ (0.0045) $ (0.0024) $ (0.0043)
============ ============ ============ ============
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,
1997 1996
----------------------
Cash flows from operating activities:
Net loss $(171,886) $(347,679)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 170,447 187,111
Other (58,628) 13,006
Change in net assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 454,373 267,983
Inventories 75,505 (919,671)
Other current assets 89,765 (429,899)
Other long-term assets 692 515
Increase (decrease) in:
Accounts payable 343,763 344,807
Income taxes payable (156) (23,577)
Other accrued liabilities (293,509) (2,838)
--------- ---------
Net cash provided by (used in)
operating activities: 610,366 (910,242)
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment, net (173,769) (192,668)
Additions to intangibles (892) (1,151)
--------- ---------
Net cash used in investing activities (174,661) (193,819)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in short-term debt (311,134) 641,922
Payments of long-term debt (14,512) (19,435)
--------- ---------
Net cash (used in) provided by
financing activities (325,646) 622,487
--------- ---------
Effect of exchange rate changes on cash (28,602) 9,062
--------- ---------
Net increase (decrease) in cash
and cash equivalents 81,457 (472,512)
Cash and cash equivalents at beginning of year 324,298 686,215
--------- ---------
Cash and cash equivalents at end of period $ 405,755 $ 213,703
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period
for:
Interest $ 50,060 $ 22,643
Income taxes 2,206 35,894
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, 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 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 expense savings of approximately $500,000.
Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
Page 5 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at June 30, 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 6 - Inventories
The components of inventory consist of the following:
June 30,
1997
----------
Raw materials $ 847,772
Work-in-progress 364,795
Finished goods 987,476
----------
$2,200,043
==========
NOTE 7 - Loss Per Common Share
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.
Page 6 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at June 30, 1997
(Continued)
NOTE 8 - New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No 128, "Earnings per Share," which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The new standard eliminates primary and fully diluted
earnings per common share and requires presentation of basic and, if applicable,
diluted earnings per common share. Basic earnings per common share is computed
by dividing income available to common shareholders by the weighted average
common shares outstanding for the period. Diluted earnings per common share
reflects the weighted average common shares outstanding and dilutive potential
common shares such as stock options. The adoption of this new standard is not
expected to have a material impact on the disclosure of earnings per common
share in the financial statements of the Company.
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 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 loss carryforwards.
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 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, 1997 and 1996, $0 and $1,661,
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
Page 7 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
As at June 30, 1997
(Continued)
six months ended June 30, 1997 and 1996 with $0 and $833, 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, 1997 and June 30, 1996 were Lit. 1,666 and Lit. 1,564, respectively.
For the quarters ended June 30, 1997 and June 30, 1996, the exchange rates used
were Lit. 1,691 and Lit. 1,554, respectively. Balance sheet items have been
converted at the end of period rates of exchange. On June 30, 1997, the spot
rate for the lira was Lit. 1,698 versus the U.S. dollar; at December 31, 1996 it
was Lit. 1,518.
The effect of these exchange rate fluctations on the financial statements
has been to decrease, as compared to the comparable periods in the prior year,
the reported dollar amounts of those items relating to 1997 which were initially
denominated in Italian lire. Revenues and expenses for the current quarter and
the year to date have been decreased by 8.8% and 6.5%, respectively, while the
values on the balance sheet at June 30, 1997 have been decreased by 11.9% as
compared to those at December 31, 1996.
Net sales of the Company for the quarter ended June 30, 1997 were
$1,998,109, 12.2% less than net sales of $2,276,414 for the quarter ended June
30, 1996. Adjusting for the exchange rate change, net sales for the quarter
ended June 30, 1997 were 6.6% less than those for the comparable period in 1996.
Sales of Italiana Luce, when expressed in lire, fell 14.1% during the
second quarter of 1997 versus 1996 reflecting principally the continued extreme
softness of consumer demand in Europe for Italian lighting fixtures of
contemporary design. Many other Italian lighting manufacturers in this market
niche appear to be experiencing the same substantial drop in revenues.
Sales in North America during the quarter were 14.5% ahead of the prior
year. Sales of the Foscarini line showed especially strong gains. Effective June
30, 1997, the Company voluntarily relinquished its right to distribute the Nemo
line in the United States. To replace the Nemo line and to broaden its product
offerings, the Company has reached an agreement in principle with Tre Ci Luce to
become its exclusive distributor in the United States. Tre Ci Luce is a
manufacturer of contemporary lighting fixtures located outside Milan, Italy.
Presently, it has only limited representation in North America.
Net sales of the Company for the six months ended June 30, 1997 were
$4,315,431, 11.0% less than net sales of $4,849,273 for the six months ended
June 30, 1996. Adjusting for the exchange rate change, net sales for the six
months ended June 30, 1997 were 6.7%
Page 9 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Management's Discussion and Analysis (continued):
less than those for the comparable period in 1996. Sales of Italiana Luce, when
expressed in lire, fell by 13.6% while sales of IL USA rose by 13.7%.
Gross profit as a percent of net sales was 37.1% for the quarter ended June
30, 1997, compared to 38.2% for the quarter ended June 30, 1996. For the six
months ended June 30, 1997, gross profit was 39.1% of net sales versus 42.3% for
the same period in 1996. The decrease in the percentage gross profit margin was
due principally to heavy price discounting by Italiana Luce. The lower margin
also reflects the effects of close out sales. In order to focus on its core
business, the Company has discontinued both its Le Stelle line of traditional
Venetian design lamps and many of its slow-moving contemporary design products.
The gross profit margin of IL USA has been positively affected by the lower cost
of imports from Italy thanks to a 12% reduction in the value of the lira against
the U.S. dollar since the beginning of the year.
Selling, general and administrative expenses were 44.8% and 41.6% of net
sales for the quarter and six months, respectively, ended June 30, 1997 compared
to 58.9% and 52.3%, respectively, for the comparable periods in 1996. The
reduction in expenses as a percent of net sales is a result principally of the
actions taken by the Company during the first quarter to reduce its headcount
and cut back on its warehouse space. Costs associated with these measures were
written off against the $165,000 restructuring charge included in the financial
statements for the year ended December 31, 1996. In addition, the Company has
eliminated during 1997 much of its advertising expenditures in Europe.
Excluding the cut backs in advertising expenditures, expenses which are
variable with sales, and the foreign exchange effects of the changing
relationship of the lira against the dollar, selling, general and administrative
expenses for the three and six months ended June 30, 1997, were approximately
$210,000 and $415,000, respectively less than in the comparable periods in 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 Company uses these facilities primarily
to fund its seasonal needs. The lines of credit total Lit. 6.5 billion ($3.8
million when converted at the end of period rate of exchange) of which Lit. 2.1
billion ($1.2 million) had been drawn down at June 30, 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.
Page 10 of 14 pages
<PAGE>
IL INTERNATIONAL INC. AND SUBSIDIARIES
Management's Discussion and Analysis (continued):
During 1996, the Company took actions which it is anticipated will reduce its
annual fixed costs by approximately $500,000. The Company has also taken actions
during 1997 to reduce its discretionary spending. Although there can be no
assurance that these measures will be sucessful, the Company presently believes
that 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 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 22, 1997.
(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 21, 1997; 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 68,846,869
WITHHOLD AUTHORITY 4,537,036
Luigi Giroletti
FOR 68,846,869
WITHHOLD AUTHORITY 4,537,036
Michel F. Leemans
FOR 68,773,704
WITHHOLD AUTHORITY 4,610,201
Thomas R. Reardon
FOR 68,846,786
WITHHOLD AUTHORITY 4,537,119
Lewis G. Singer
FOR 68,846,869
WITHHOLD AUTHORITY 4,537,036
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
1997.
FOR 71,194,568
----------
AGAINST 2,125,936
----------
ABSTENTIONS AND
BROKER NON-VOTES 63,401
----------
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, 1997.
Pafe 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 1, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 405,755
<SECURITIES> 0
<RECEIVABLES> 2,301,566
<ALLOWANCES> (321,470)
<INVENTORY> 2,200,043
<CURRENT-ASSETS> 4,835,249
<PP&E> 1,907,581
<DEPRECIATION> (1,200,149)
<TOTAL-ASSETS> 5,617,588
<CURRENT-LIABILITIES> 3,415,881
<BONDS> 0
0
0
<COMMON> 793,755
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,617,587
<SALES> 4,315,431
<TOTAL-REVENUES> 4,315,431
<CGS> 2,627,590
<TOTAL-COSTS> 1,795,530
<OTHER-EXPENSES> (7,321)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,959
<INCOME-PRETAX> (165,327)
<INCOME-TAX> 6,559
<INCOME-CONTINUING> (171,886)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (171,886)
<EPS-PRIMARY> (0.002)
<EPS-DILUTED> (0.002)
</TABLE>
