<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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 33-49854-A
INTILE DESIGNS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3625325
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9716 OLD KATY ROAD, SUITE 110
HOUSTON, TEXAS 77055
(Address of principal executive offices)
(713) 468-8400
(Issuer's telephone number, including area code)
Check whether the registrant (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....
State the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: The total number of shares
of Common Stock, par value $.0001 per share, outstanding as of November 19,
1996 was 2,806,711.
Page 1 of 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements of Intile Designs,
Inc. and subsidiaries (the Company) and related notes included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures included herein are adequate to make the
information presented not misleading. In the opinion of the Company's
management, all adjustments, which include only normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for the periods presented have been included. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Form 10-KSB for the year ended March 31,
1996. Operating results for the six-month period ended September 30,
1996 are not necessarily indicative of the results that may be expected for
the year ending March 31, 1997.
Page 2 of 13
<PAGE>
INTILE DESIGNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, March 31,
1996 1996
---- ----
ASSETS
------
Current assets:
Cash $ 204,257 $ 69,778
Accounts receivable, net of allowance for
doubtful accounts of $176,169 and $134,602 1,662,059 1,564,174
Inventory 8,493,651 8,447,237
Prepaid expenses and other assets 238,082 137,471
----------- -----------
Total current assets 10,598,049 10,218,660
Property and equipment, net 662,296 556,665
Other assets 442,058 216,256
----------- -----------
Total assets $11,702,403 $10,991,581
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of notes payable $ 4,965,521 $ 5,953,907
Accounts payable 2,811,163 3,163,884
Accrued expenses and other liabilities 321,094 281,658
----------- -----------
Total current liabilities 8,097,778 9,399,449
Noncurrent portion of notes payable 1,781,002 -
Other noncurrent liabilities 103,758 103,758
----------- -----------
Total liabilities 9,982,538 9,503,207
----------- -----------
Stockholders' equity:
Common stock, $.0001 par value, 10,000,000
shares authorized, 2,806,711 shares
issued and outstanding 281 560
Additional paid-in capital 4,722,767 4,717,420
Retained earnings (deficit) (3,003,183) (3,229,606)
----------- -----------
Total stockholders' equity 1,719,865 1,488,374
----------- -----------
Commitments and contingencies - -
Total liabilities and stockholders' equity $11,702,403 $10,991,581
----------- -----------
----------- -----------
Page 3 of 13
<PAGE>
INTILE DESIGNS, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $4,216,305 $5,345,729 $9,375,382 $11,246,078
Cost of goods sold 2,342,431 3,324,062 5,349,198 6,784,402
---------- ---------- ---------- -----------
Gross profit 1,873,874 2,021,667 4,026,184 4,461,676
Selling and administrative
expenses 1,734,135 2,022,864 3,526,481 4,279,383
---------- ---------- ---------- -----------
Income (loss) from operations 139,739 (1,197) 499,703 182,293
Other income (expense):
Equity in losses of investee - (390,994) - (2,569,128)
Interest expense (147,516) (114,923) (278,872) (205,729)
Other income 3,567 2,714 5,592 4,425
---------- ---------- ---------- -----------
Income (loss) before income taxes (4,210) (504,400) 226,423 (2,588,319)
Provision for income taxes - - - (80,000)
---------- ---------- ---------- -----------
Net income (loss) $ (4,210) $ (504,400) $ 226,423 $(2,508,319)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Earnings (Loss) per share $ (.00) $ (.18) $ .07 $ (.91)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average shares
outstanding 2,943,191 2,768,621 3,085,151 2,757,871
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
Page 4 of 13
<PAGE>
INTILE DESIGNS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1996 AND THE TWO QUARTERS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
Shares Common Paid-in Retained
outstanding stock capital earnings (deficit) Total
----------- ----- ------- ------------------ -----
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 2,746,129 $274 $4,695,980 $ 1,017,231 $ 5,713,485
Additional issuance costs relating to
issuance of common stock to acquire
TCM Holdings - - (68,644) - (68,644)
Exercise of stock options 35,239 4 56,688 - 56,692
Issuance of common stock 18,303 2 33,676 - 33,678
Net loss - - - (4,246,837) (4,246,837)
--------- ---- ---------- ----------- ----------
Balance, March 31, 1996 2,799,671 280 4,717,700 (3,229,606) 1,488,374
Issuance of common stock 7,040 1 5,067 - 5,068
Net income - - - 226,423 226,423
--------- ---- ---------- ----------- ----------
Balance, September 30, 1996 2,806,711 $281 $4,722,767 $(3,003,183) $1,719,865
--------- ---- ---------- ----------- ----------
--------- ---- ---------- ----------- ----------
</TABLE>
Page 5 of 13
<PAGE>
INTILE DESIGNS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Two Quarters ended
September 30,
-------------
1996 1995
---- ----
Cash flows from operating activities:-
Net income (loss) $ 226,423 $(2,508,319)
Adjustments:
Depreciation and amortization 91,559 102,450
Bad debt expense 78,072 77,147
Equity in loss of investee - 1,865,751
Changes in assets and liabilities (636,271) 443,021
----------- -----------
Net cash used by operating
activities (240,217) (19,950)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (186,093) (91,759)
Change in other assets and liabilities (236,894) (81,887)
----------- -----------
Net cash used by investing
activities (422,987) (173,646)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 1,863,606 47,300
Proceeds from sale of stock 5,068 -
Expenses on sale of stock - 41,094
Payments on debt (1,070,991) -
----------- -----------
Net cash provided by
financing activities 797,683 88,394
----------- -----------
Net increase in cash and cash equivalents 134,479 (105,202)
Cash and cash equivalents:
Beginning of period 69,778 224,432
----------- -----------
End of period $ 204,257 $ 119,230
----------- -----------
----------- -----------
Page 6 of 13
<PAGE>
INTILE DESIGNS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company is a direct importer and distributor of ceramic tile, marble and
related home design products. The Company also retails these items through
its various divisions and subsidiaries.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Intile Designs,
Inc. and its wholly-owned subsidiaries, except those where control is deemed
to be temporary. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Form 10-QSB previously filed for the six months ended September 30, 1995
included TCM Holdings as a consolidated subsidiary. Form 10-QSB for the
current period ended September 30, 1996 includes the results of operations of
TCM on the equity basis since control is deemed to be temporary, therefore,
the financial statements for the six months ended September 30, 1995 have
also been restated to report TCM on the equity basis.
EARNINGS PER SHARE
Earnings per share is calculated using the weighted average number of common
and common equivalent shares outstanding, including stock options and
warrants which have a dilutive effect.
NOTE 2 - BUSINESS COMBINATIONS AND CLOSURE:
Effective November 2, 1994, the Company acquired substantially all of the
assets of International Tile & Supply Corp. (International). The Company,
through its wholly owned subsidiary, Intile Designs of Los Angeles, Inc.,
purchased the assets of International by payment of cash at closing of
$1,050,000 and the assumption of liabilities totaling $609,265.
Additionally, the Company agreed to pay to the allowed general unsecured
creditors of International an amount equal to 10% of the net profits
generated from the operations of the business acquired for a period of four
years after the closing, with the maximum payments in aggregate totaling
$100,000. The funding of the cash at closing was accomplished through a
private placement of debt totaling $1,000,000. The Company issued a $650,000
convertible subordinated note and a $350,000 short-term bridge note to Retail
Associates Management
Page 7 of 13
<PAGE>
Company, L.P. (RAMCO). The transaction has been accounted for by the Company
as a purchase and, accordingly, results of International have been included
in the statement of income since November 2, 1994.
Effective February 21, 1995, the Company acquired 100% of the common stock of
TCM Holdings Corporation (TCM). The Company acquired the stock of TCM from
Retail Associates Management Company, Inc. in exchange for 322,138 shares of
the Company's common stock. The agreement provides for 120,000 shares to be
placed in escrow for subsequent distribution after the final price adjustment
is determined in accordance with the provisions of the agreement. The
Company currently estimates that all of the shares in escrow will be returned
to the Company.
In conjunction with the acquisition of TCM, RAMCO converted its $650,000
convertible subordinated note into 100,000 shares of the Company's common
stock. The transaction has been accounted for by the Company as a purchase
and, accordingly, operating results of TCM have been included in the
accompanying statement of income since February 21, 1995.
Due to recurring losses at TCM, TCM's management closed the retail operations
effective August 3, 1995. The Company recorded a charge against earnings
from the closure of TCM of approximately $1,865,000 in the two quarters ended
September 30, 1995.
Prior to the Company's acquisition of TCM, TCM had confirmed a Chapter 11
Plan of Reorganization in December 1994. Pursuant to the terms of the plan,
all property was to vest in the reorganized entity emerging from bankruptcy.
The bankruptcy estate of TCM remains in existence until the case is closed.
In October 1995, the U.S. Trustee petitioned the bankruptcy court to convert
TCM's Chapter 11 to a Chapter 7 case of the U.S. Bankruptcy Code. On
November 7, 1995, the U.S. Bankruptcy Court District of Massachusetts,
Eastern Division ruled in favor of the motion, finding that there had been a
material default by TCM with respect to the confirmed Plan of Reorganization
and converted the case (#94-10762-WCH). A Chapter 7 Trustee was appointed by
the U.S. Trustee.
The Company believes that the liquidation value of the assets of TCM, as the
reorganized entity, will be less than the value of the recorded liens against
such assets, of which the Company is the primary lienholder. Accordingly,
the Company anticipates that the unsecured creditors under the confirmed
plan, or otherwise, will not receive any proceeds from the Chapter 7
liquidation. Management believes that, as a result of the liquidation, the
Company will recover some previously recognized losses since certain
liabilities which have been previously recorded are not anticipated to be
paid by TCM's bankruptcy estate. No amount of the anticipated recovery has
been included in the Company's financial statements.
Also, effective February 21, 1995, the Company acquired substantially all of
the assets of the Orlando showroom (Orlando) of P&M Tile Inc. (P&M). The
Company acquired Orlando by a cash payment of $140,114 at closing and
issuance of a noninterest-bearing note to P&M for $257,518 which was paid in
full during the year ended March 31, 1996.
The transaction has been accounted for by the Company as a purchase and,
accordingly, operating results of Orlando have been included in the
accompanying statement of income since February 21, 1995.
Page 8 of 13
<PAGE>
NOTE 3 - CAPITALIZATION:
On August 5, 1996, the Board of Directors approved a one-for-two reverse
stock split. Shareholders received one new share of the Company's common
stock for each two shares they then held. All references and related
calculations to shares in this Form 10-QSB have been adjusted to reflect the
reverse split.
On August 13, 1996, the Company obtained 1) approval to complete the above
noted transactions and 2) a forbearance agreement from its primary lending
bank. The forbearance agreement, signed September 24, 1996, restructured the
covenants of which the Company was not in compliance, required the Company to
remit $1,000,000 to the bank from the proceeds of the above discussed
convertible subordinated debt, provides for additional borrowings up to
$300,000 for standby letters of credit, requires additional payments on
principal of $200,000 by December 1, 1996 and increases the interest rate to
2 1/2% above prime rate. The forbearance covers the term through the maturity
date of January 20, 1997.
On August 23, 1996, the Company, through a Placement Agent Agreement with
Coleman and Company Securities, Inc. (Coleman), sold to private investors
$1,600,000 of Notes of which Mr. C. William Cox, President of the Company,
purchased $100,000 of the Notes. These Notes which mature on July 31, 1999
are subordinated to the Company's line of credit with a bank, are convertible
into the Company's common stock and bear interest at twelve (12) percent for
the first six months. The interest rate increases two (2) percent each six
months up to a maximum of 18%. The conversion rights are exercisable at
$1.50 per share or 50% of any public offering price. Additionally, the
holders were issued warrants to purchase up to 800,000 shares of the
Company's common stock at $.25 per share and Coleman was issued warrants to
purchase up to 80,000 shares at the same price. Coleman received for its
services a fee of 10% of the proceeds of the placement and an expense
reimbursement of 3% of the proceeds of the placement. Total costs of the
placement were approximately $223,000 and the Company netted proceeds in the
amount of $1,377,000. Ehud D. Laska, a Director of the Company is the
Chairman of Coleman.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
The discussion which follows summarizes the Company's financial position at
September 30, 1996 and the results of its operations for the six-month period
then ended, and should be read in conjunction with the summarized financial
statements and notes thereto included elsewhere in this Form 10-QSB and the
financial statements, notes thereto and other financial data included in the
Company's Form 10-KSB for the year ended March 31, 1996.
GENERAL
Intile Designs, Inc. (the Company) is a direct importer, retailer and
distributor of ceramic tile, marble and related home design products.
Operating revenue is generated by the retail and wholesale sale of these
products. The Company has twelve (12) showroom/warehouse facilities and
three (3) retail showrooms in seven states. The showrooms are located in
Houston (2), Dallas, Austin, The Woodlands, Webster and Corpus Christi,
Texas; Atlanta, Georgia; Orlando, Florida; Phoenix, Arizona; Anaheim,
Northridge, Los Angeles (2), California and Denver, Colorado.
Page 9 of 13
<PAGE>
The Company seeks to expand its operations through acquisitions of companies
with existing retail stores financed through an influx of capital from both
private and secondary equity markets.
BUSINESS COMBINATIONS
INTERNATIONAL TILE & SUPPLY CORPORATION: In November 1994, the Company
acquired substantially all of the assets of International Tile & Supply
(International), a 40 year old tile retailer located in Los Angeles,
California. The company paid approximately $1,350,000, which was the fair
value of the assets acquired. The acquisition was structured as a cash
purchase.
International was a significant acquisition to Intile in that the assets
acquired (approximately $1,537,000) represented approximately 17.7% of
Intile's assets (15.8% of combined total), while the revenues for the
previous fiscal year for International (approximately $4,797,000) were 39.5%
of Intile's for its last fiscal year. Although the previous year's net loss
for International was significant (approximately $243,000), this was not
indicative of the normal profit since International was in bankruptcy during
this period and could not take advantage of purchasing volume, had to
purchase on a cash basis and incurred significant additional expenses related
to the bankruptcy process.
TCM HOLDINGS CORPORATION: In February 1995, the Company acquired 100% of the
common stock of TCM Holdings Corporation, a Massachusetts corporation which
had been a debtor in possession in a bankruptcy filing in Massachusetts since
February 1994 until a plan was approved in December 1994. The Company
acquired the stock of TCM in exchange for 322,138 of the Company's common
stock. Due to recurring losses, the Company closed the retail operations of
TCM in August 1995.
LIQUIDITY AND CAPITAL RESOURCES
Effective January 1995, the Company negotiated a new line of credit with a
new bank which increased the Company's borrowing capacity to $6,000,000.
Other significant changes to the terms include removal of any ceiling on
inventory availability for the borrowing base and limitation of $1,000,000 on
the personal guaranty of C. William Cox. Under the existing agreement,
borrowings exceeded the borrowing base by approximately $34,039 at September
30, 1996, down from $952,000 at June 30, 1996. Although in non-monetary
default during, the Company has reached obtained forbearance from the bank
which has allowed the Company to return to compliance under restructured
covenants (see Note 3).
Positive cash flow in the quarter has enabled the Company to improve the
timeliness of meeting vendor obligations. Although the Company is not
current with all of its vendors, it has reached a position whereby the flow
of product is orderly and able to meet current demand. Funds obtained
through the private placement of debt (see Note 3) have helped alleviate
problems with vendors. Standby letters of credit have been issued on a
limited basis. Management is continuing its pursuit of additional financing
from equity and debt sources. Although Management is optimistic, there is no
assurance that these efforts will be successful.
Borrowings under the line of credit with a bank remained $4,780,000 at
September 30, 1996. The company's cash position for the six month period
ending September 30, 1996 increased $134,000 compared to a decrease of
$105,000 for the comparable period ending September 30, 1995. The increase
is due in part to net cash provided by financing activities of $798,000 and
cash flow from operations of $396,000, offset by cash used
Page 10 of 13
<PAGE>
for increases of $175,000 in accounts receivable, increases of $46,000 in
inventory, increases in property and equipment and other assets of $423,000,
and reductions of $353,000 of vendor accounts payable.
RESULTS OF OPERATIONS
The Company reported a net loss of $4,210 for the quarter and net income of
$226,423 for the six month period ending September 30, 1996, as compared to a
net loss of approximately $504,400 and $2,508,000 for the comparable period
ending September 30, 1995. The improvement is attributable to a return to
profitable operations compared to the significant losses reported in
conjunction with the closure of TCM Holdings (see Note 2).
Sales decreased approximately 21.1% from $5,345,729 to $4,216,305 for the
three-month period ending September 30, 1996, when compared to the same
quarter of last year, while costs of goods sold decreased approximately 29.5%
from $3,324,062 to $2,342,431 for the same period. As a result, the
Company's gross profit during the three months ended September 30, 1996 was
$1,873,874 (44.4%) as compared to $2,021,667 (37.8%) during the three months
ended September 30, 1995. The decrease in revenues is primarily caused by
the continued softness in the building construction industry in the West
Region of the Company. Revenues in the West Region have decreased
approximately $927,000 and $1,614,000 for the quarter and two quarters ended
September 30, 1996 respectively. The decrease in gross profit is likewise
attributable to the decrease in revenues from the Company's West Region.
Profit margins improved 17.5% due in part to increased sales to custom
homebuilders and reductions in cost of materials through improved purchasing
economies of scale.
Selling and administrative expenses decreased approximately $288,700 (14.3%)
for the three-month period ending September 30, 1996, when compared to the
same period of last year, primarily as a result of downsizing the
International Tile operation ($181,000), consolidation of one Houston
location into the central warehouse ($103,000) and general reductions due to
a smaller company with TCM closed.
Income from operations increased approximately $140,900 for the quarter and
$317,410 for the six month period ending September 30, 1996 due to the
greater reduction of operating costs offsetting the reduced gross profit from
lower revenues. Other expense was down $288,700 for the quarter and $752,900
for the six month period ending September 30, 1996 due to the overall
reduction in selling, general and administrative expenses.
Page 11 of 13
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
27 - Financial Data Schedule
(b) Reports on Form 8-K - None
Page 12 of 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
INTILE DESIGNS, INC.
-----------------------------
(Registrant)
/s/ C. WILLIAM COX
Date: November 19, 1996 -----------------------------
C. William Cox
President
(Chief Financial and
Accounting Officer)
Page 13 of 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 204,257
<SECURITIES> 0
<RECEIVABLES> 1,662,059
<ALLOWANCES> 176,169
<INVENTORY> 8,493,651
<CURRENT-ASSETS> 10,598,049
<PP&E> 662,296
<DEPRECIATION> 1,077,662
<TOTAL-ASSETS> 11,702,403
<CURRENT-LIABILITIES> 8,097,778
<BONDS> 6,746,523
0
0
<COMMON> 281
<OTHER-SE> 1,719,584
<TOTAL-LIABILITY-AND-EQUITY> 11,702,403
<SALES> 9,375,382
<TOTAL-REVENUES> 9,375,382
<CGS> 5,349,198
<TOTAL-COSTS> 3,526,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 78,072
<INTEREST-EXPENSE> 278,872
<INCOME-PRETAX> 226,423
<INCOME-TAX> 0
<INCOME-CONTINUING> 226,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,423
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
