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10QSB
Form 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 July 27, 1996
|_| Transition report under Section 13 and 15(d) of the Exchange Act
For the transition period from _________ to __________
Commission file number 0-26874
INTERNATIONAL CUTLERY, LTD.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3796781
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
127 West 25th Street, New York, New York 10001
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(Address of Principal Executive Offices)
(212) 924-7300
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(Issuer's Telephone Number, Including Area Code)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of September 1, there were
3,939,248 shares of the registrant's commom stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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INTERNATIONAL CUTLERY, LTD.
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Balance Sheets as of
July 27, 1996 and April 27, 1996 3
Statements of Operations for the
Thirteen Weeks Ended July 27, 1996 and July 29, 1995 4
Statements of Cash Flows for the
Thirteen Weeks Ended July 27, 1996 and July 29, 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7-8
PART II OTHER INFORMATION 9
Signature Page 10
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INTERNATIONAL CUTLERY, LTD.
Item 1. Financial Statements
BALANCE SHEETS
July 27, April 27,
1996 1996
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 413,396 $ 840,691
Investments 2,105,443 2,115,943
Inventories 924,657 753,163
Other current assets 71,222 20,122
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Total current assets 3,514,718 3,729,919
STORE FIXTURES AND DISPLAYS AND LEASEHOLD
IMPROVEMENTS, less accumulated
depreciation and amortization 680,532 307,710
OTHER ASSETS, security deposits 17,546 17,546
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$ 4,212,796 $ 4,055,175
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $ 200,000 $ 200,000
Due to broker 742,865
Accounts payable and other
current liabilities 534,876 549,754
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Total current liabilities 1,477,741 749,754
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 1,000,000 shares,
none issued
Common stock, $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 3,939,248 39,392 39,392
Capital in excess of par value 5,101,686 5,101,686
Accumulated deficit (2,397,173) (1,826,807)
Notes receivable arising from
stock purchase agreements (8,850) (8,850)
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Total stockholders' equity 2,735,055 3,305,421
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$ 4,212,796 $ 4,055,175
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See accompanying notes to financial statements.
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INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Ended
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July 27, July 29,
1996 1995
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NET SALES $ 359,372 $ 284,457
COST OF SALES 143,127 103,810
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GROSS PROFIT 216,245 180,647
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STORE AND WAREHOUSE EXPENSES 413,200 214,085
GENERAL AND ADMINISTRATIVE EXPENSES 391,503 201,786
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804,703 415,871
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LOSS FROM OPERATIONS (588,458) (235,224)
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OTHER INCOME (EXPENSE):
Interest expense (11,588) (4,500)
Interest income 29,680
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18,092 (4,500)
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NET LOSS $ (570,366) $ (239,724)
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LOSS PER SHARE OF COMMON STOCK $ (.14) $ (.11)
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,939,248 2,199,248
=============== ===============
See accompanying notes to financial statements.
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INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
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July 27, July 29,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (570,366) $ (239,724)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 17,099 12,092
Amortization of bond premium 10,500
Deferred rent 10,501
Changes in operating assets and
liabilities:
(Increase) decrease in:
Inventories (171,494) 12,458
Other current assets (51,100) (9,772)
Accounts payable and other
current liabilities (14,878) 100,150
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NET CASH USED IN OPERATING ACTIVITIES (780,239) (114,295)
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CASH FLOWS FROM INVESTING ACTIVITIES,
payments for store fixtures and
displays and leasehold improvements (389,921) (22,318)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock,
net of expenses 115,000
Deferred registration costs (15,000)
Proceeds from due to broker 742,865
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NET CASH PROVIDED BY FINANCING ACTIVITIES 742,865 100,000
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NET DECREASE IN CASH (427,295) (36,613)
CASH, beginning of period 840,691 40,148
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CASH, end of period $ 413,396 $ 3,535
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See accompanying notes to financial statements.
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INTERNATIONAL CUTLERY, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The financial statements included herein have been prepared by
International Cutlery, Ltd. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission
and reflect all adjustments, consisting only of normal recurring
adjustments, which are, in the opinion of management, necessary
to present a fair statement of the results for interim periods.
Certain information and footnote disclosures have been omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's April
27, 1996 Form 10-K-SB A-1.
NOTE 2 - BUSINESS AND ORGANIZATION:
International Cutlery, Ltd. was incorporated in September 1994
to operate retail cutlery stores and kiosks (mini-stores) in
malls and transportation centers. The Company commenced
operations on December 12, 1994 and currently operates thirteen
cutlery retail stores and three kiosks located in New York, New
Jersey and Connecticut. Ten of these locations commenced
operations during the period ended July 27, 1996.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting Period - The Company employs a 52-53 week accounting
period ending the Saturday closest to April 30.
Loss Per Common Share - Loss per share of common stock is based
upon the weighted average number of shares, including common
share equivalents, outstanding and gives effect to the 1 for
1.33 reverse stock split in September 1995. The weighted average
includes shares issued within one year prior to the filing of
the Company's registration statement at a price less than the
offering price.
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INTERNATIONAL CUTLERY, LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company employs a 52 or 53 week fiscal year ending on the Saturday closest
to April 30. During the thirteen week period ended July 27, 1996 (the "Current
Period"), the Company's revenues increased 26.3% to $359,372 from $284,457 for
the period from April 30, 1995 to July 29, 1995 (the "Prior Period"). The
increase in revenues is partially attributable to an increase in the number of
retail outlets operated by the Company during the current period. Revenues in
the Current Period were derived from the operation of sixteen retail outlets,
including ten that opened in that period. In the Prior Period, the Company
operated six retail outlets, one of which was closed in March 1996. On a
comparative basis, Current Period same store sales increased 9.1% over the Prior
Period.
Gross profits increased to $216,245 in the Current Period from $180,647 in the
Prior Period. The increase was due to the increase in revenues and offset by an
increase in the cost of goods sold as a percentage of revenues. Cost of goods
sold increased from $103,810 in the Prior Period to $143,127 in the Current
Period due to the increased sales. However, cost of goods sold as a percentage
of revenues was increased from 36.5% in the Prior Period to 39.8% in the Current
Period. This increase was principally due to a change in the product mix of
merchandise sold.
During the Current Period, store operating and warehousing expenses were
$413,200 compared to $214,085 in the Prior Period. The increase in expenses are
attributed primarily to the operation of additional stores and certain start-up
costs associated with the opening of the ten new locations. As a percentage of
revenues, store operating and warehousing expenses increased from 75.3% of sales
in the Prior Period to 115.0% in the Current Period.
General and administrative expenses increased to $391,503 in the Current Period
from $201,786 in the Prior Period. The increase in general and administrative
expenses results from additional expenses necessitated by the Company's growth,
including increased administrative payroll.
The Company's interest expense for the Current Period increased to $11,588 from
$4,500 in the Prior Period. This increase stemmed partly from additional
borrowing to fund the growth and expansion of the Company.
Interest income, which was $29,680 in the Current Period resulted from interest
earned on the proceeds of the Company's initial public offering. These proceeds
were invested primarily in U.S.government securities pending their use. The
Company did not have interest income in the Prior Period.
The Current Period's net loss was $570,366, or $.14 per share as compared to the
Prior Period's net loss of $239,724, or $.11 per share.
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INTERNATIONAL CUTLERY, LTD.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed an initial public offering in December 1995 (the
"Offering") in which it sold 1,725,000 units, with each unit consisting of one
share of common stock, $.01 par value (the "Common Stock"), one Class A warrant,
and one Class B warrant at a price of $3.35 per unit. The Offering, which was
declared effective on December 6, 1995, generated gross proceeds of $5,778,750
and after fees and expenses the Company received net proceeds of $4,527,079. The
net proceeds of the Offering were used to repay $275,000 of outstanding
promissory notes and to redeem a convertible debt instrument of the Company for
$360,000. The remaining funds from the Offering are to be used as working
capital and to finance the opening of additional stores. As of July 27, 1996,
$2,105,443 remain invested primarily in US government securities, and these
funds will be used to finance the continued expansion of the Company. During the
Current Period, the Company funded its operating loss and expansion of
activities primarily through borrowings of $742,865 against the securities held
in their brokerage account.
In February 1996, the Company borrowed $200,000, bearing interest at a rate of
8.25% per annum, from a financial institution. The note is payable in October
1996 and is secured by a certificate of deposit. The company used the loan
proceeds for working capital.
In the Current Period, the Company opened ten new locations including two kiosk
locations for an approximate cost of $400,000, exclusive of inventories.
As the Company opens new stores and kiosks it will incur immediate expenses
while having to wait for the benefits of such stores which may negatively affect
the Company's working capital. The Company believes that costs related to the
opening of a store, exclusive of inventory, should average approximately $45,000
per store and $32,000 per kiosk. These opening costs are contained by the
Company's practice of finding store locations that have previously been used as
a retail store. If the Company is unable to find such locations, the cost of
opening stores could be significantly higher, hindering the expansion of the
Company. The Company believes that its current capital position is sufficient to
fund continued expansion.
In the Current Period, the Company has working capital of $2,036,977 and cash
and cash equivalents of $413,396. The Company anticipates that these funds will
be enough to finance the Company's planned expansion for the next twelve months.
Seasonality
Due to the importance of the Christmas selling season, the Company anticipates
that revenue in that period will constitute a disproportionate amount of net
sales for the period. The Company's annual earnings are expected to be
substantially dependent on results of operations in the Christmas selling
season. Unfavorable economic conditions affecting retailers generally during the
Christmas selling season in any period could materially adversely affect the
Company's results of operations for the period. The Company must also make
decisions regarding how much inventory to buy well in advance of the season in
which it will be sold, especially for the Christmas selling season. Significant
deviations from projected demand for products may have a material adverse effect
on the Company's sales and profitability.
Inflation
There was no significant impact on the Company's operations as a result of
inflation during the Current Period, or the Prior Period.
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INTERNATIONAL CUTLERY, LTD.
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
None
(b) Reports on Form 8-K
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL CUTLERY, LTD.
(Registrant)
Date: September 9, 1996 /s/ JOEL J. SILVER
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By: Joel J. Silver
Title: President, Chief Executive Officer and
Chief Financial Officer
/s/ KUMAR BASIL
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By: Kumar Basil
Title: Chief Accounting Officer
