<PAGE>
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 October 26, 1996
/ / Transition report under Section 13 and 15(d) of the Exchange Act
For the transition period from to
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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)
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(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
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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: 3,939,248 as of December 10,
----------------------------
1996
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Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Balance Sheets as of
October 26, 1996 and April 27, 1996 3
Statements of Operations for the
Twenty-Six Weeks Ended October 26, 1996 and
October 28, 1995 4
Statements of Operations for the
Thirteen Weeks Ended October 26, 1996 and
October 28, 1995 5
Statements of Cash Flows for the
Twenty-Six Weeks Ended October 26, 1996 and
October 28, 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8-10
PART II OTHER INFORMATION 11
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Signature Page 12
<PAGE>
INTERNATIONAL CUTLERY, LTD.
Item 1. Financial Statements
BALANCE SHEETS
October 26, April 27,
1996 1996
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(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 239,050 $ 840,691
Investments 2,112,977 2,115,943
Inventories 1,290,042 753,163
Other current assets 16,864 20,122
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Total current assets 3,658,933 3,729,919
STORE FIXTURES AND DISPLAYS AND LEASEHOLD
IMPROVEMENTS, less accumulated
depreciation and amortization 786,934 307,710
OTHER ASSETS, security deposits 16,601 17,546
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$ 4,462,468 $ 4,055,175
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $ 200,000 $ 200,000
Due to broker 1,557,065
Accounts payable and other
current liabilities 492,615 549,754
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Total current liabilities 2,249,680 749,754
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 1,000,000 shares, none issued
Common stock, $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 3,939,248 39,392 39,392
Capital in excess of par value 5,101,686 5,101,686
Accumulated deficit (2,919,440) (1,826,807)
Notes receivable arising from
stock purchase agreements (8,850) (8,850)
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Total stockholders' equity 2,212,788 3,305,421
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$ 4,462,468 $ 4,055,175
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Twenty-Six Weeks Ended
----------------------------
October 26, October 28,
1996 1995
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NET SALES $ 742,536 $ 577,303
COST OF SALES 246,391 196,319
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GROSS PROFIT 496,145 380,984
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STORE AND WAREHOUSE EXPENSES 880,785 387,530
GENERAL AND ADMINISTRATIVE EXPENSES 730,500 412,519
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1,611,285 800,049
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LOSS FROM OPERATIONS (1,115,140) (419,065)
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OTHER INCOME (EXPENSE):
Interest expense (38,395) (15,080)
Accretion of discount on
convertible note payable (68,328)
Interest income 60,902
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22,507 (83,408)
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NET LOSS $ (1,092,633) $ (502,473)
========== =========
LOSS PER SHARE OF COMMON STOCK $ (.28) $ (.23)
========== =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,939,248 2,214,248
========== =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Thirteen Weeks Ended
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October 26, October 28,
1996 1995
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NET SALES $ 383,164 $ 292,846
COST OF SALES 103,264 92,509
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GROSS PROFIT 279,900 200,337
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STORE AND WAREHOUSE EXPENSES 467,585 173,445
GENERAL AND ADMINISTRATIVE EXPENSES 338,997 210,733
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806,582 384,178
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LOSS FROM OPERATIONS (526,682) (183,841)
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OTHER INCOME (EXPENSE):
Interest expense (26,807) (10,580)
Accretion of discount on convertible
note payable (68,328)
Interest income 31,222
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4,415 (78,908)
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NET LOSS $ (522,267) $ (262,749)
========== ==========
LOSS PER SHARE OF COMMON STOCK $ (.13) $ (.12)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,939,248 2,214,248
========== ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twenty-Six Weeks Ended
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October 26, October 28,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,092,633) $ (502,473)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 41,447 24,043
Amortization of bond premium 2,966 12,443
Accretion of discount on convertible 68,328
note payable
Changes in operating assets and liabilities:
(Increase) decrease in:
Inventories (536,879) (63,223)
Other current assets 3,258 (931)
Accounts payable and other (57,139) 140,658
current liabilities ------------- --------
NET CASH USED IN OPERATING ACTIVITIES (1,638,980) (321,155)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for store fixtures and displays
and leasehold improvements (520,671) (32,337)
Proceeds from (payments for) security deposits 945 (623)
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NET CASH USED IN INVESTING ACTIVITIES (519,726) (32,960)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from due to broker 1,557,065
Proceeds from sales of common stock,
net of expenses 115,000
Deferred registration costs (76,033)
Proceeds from notes payable 275,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,557,065 313,967
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NET DECREASE IN CASH (601,641) (40,148)
CASH, beginning of period 840,691 40,148
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CASH, end of period $ 239,050 $ -
============= ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
-6-
<PAGE>
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 operates retail cutlery stores located in
New York, New Jersey and Connecticut.
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
RESULTS OF OPERATIONS
For the Twenty-Six Weeks Ended October 26, 1996 and October 28, 1995
The Company employs a 52 or 53 week fiscal year ending on the Saturday closest
to April 30. During the twenty-six week period ended October 26, 1996 (the
"Current Period"), the Company's revenues increased 28.6% to $742,536 from
$577,703 for the period from April 30, 1995 to October 28, 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, of which one was closed in September 1996 including ten that opened in
that period. In the Prior Period, the Company operated seven retail outlets,
one of which was closed in March 1996. On a comparative basis, Current Period
same store sales increased 7.0% over the Prior Period.
Gross profits increased to $496,145 in the Current Period from $380,984 in the
Prior Period. The increase was due to the increase in revenues and a decrease
in the cost of sales as a percentage of revenues. Cost of sales increased to
$246,391 in the Current Period from $196,319 in the Prior Period due to the
increased sales. However, cost of sales as a percentage of revenues decreased
to 33.2% in the Current Period from 34.0% in the Prior Period. This decrease
was principally due to a change in the product mix of merchandise sold.
During the Current Period, store operating and warehousing expenses were
$880,785 compared to $387,530 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 to 118.6% of sales
in the Current Period from 67.1% in the Prior Period.
General and administrative expenses increased to $730,500 in the Current Period
from $412,519 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 $38,395 from
$15,080 in the Prior Period. This increase stemmed partly from additional
borrowing to fund the Company's growth and expansion.
Interest income of $60,902 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.
During the Prior Period, in connection with the Company's initial public
offering, the Company recorded accretion of discount on the convertible note
payable in the amount of $68,328.
The Current Period's net loss was $1,092,633, or $.28 per share as compared to
the Prior Period's net loss of $502,473, or $.23 per share.
-8-
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INTERNATIONAL CUTLERY, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
For the Thirteen Weeks Ended October 26, 1996 and October 28, 1995
During the thirteen week period from July 28, 1996 through October 26, 1996 (the
"Current Period"), the Company's revenues increased 30.8% to $383,164 from
$292,846 for the period from July 30, 1995 through October 28, 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 of which one closed in September 1996, including ten that opened in that
period. In the Prior Period, the Company operated seven retail outlets, one of
which was closed in March 1996. On a comparative basis, Current Period same
store sales increased 1.8% over the Prior Period.
Gross profits increased to $279,900 in the Current Period from $200,337 in the
Prior Period. The increase was due to the increase in revenues and a decrease
in the cost of sales as a percentage of revenues. Cost of sales increased to
$103,264 in the Current Period from $92,509 in the Prior Period due to the
increased sales. However, cost of sales as a percentage of revenues was
decreased to 26.9% in the Prior Period from 31.6% in the Prior Period. This
decrease was principally due to a change in the product mix of merchandise sold.
During the Current Period, store operating and warehousing expenses were
$467,585 compared to $173,445 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 to 122.0% of sales
in the Current Period to 59.2% in the Prior Period.
General and administrative expenses increased to $338,997 in the Current Period
from $210,773 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 $26,807 from
$10,580 in the Prior Period. This increase stemmed partly from additional
borrowing to fund the Company's growth and expansion.
Interest income of $31,222 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.
During the Prior Period, in connection with the Company's initial public
offering, the Company recorded accretion of discount on the convertible note
payable in the amount of $68,328.
The Current Period's net loss was $522,267, or $.13 per share as compared to the
Prior Period's net loss of $262,749, or $.12 per share.
-9-
<PAGE>
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 October 28,
1996, $2,112,977 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 $1,557,065 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 December
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 $500,000, 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 $50,000
per store and $40,000 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. Subsequent to October 1996, the Company opened eight additional
kiosk's located in New York, New Jersey, Maryland, Florida and Connecticut. The
Company believes that its current capital position is sufficient to fund
continued expansion.
In the Current Period, the Company has working capital of $1,409,253 and cash
and cash equivalents of $239,050. 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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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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<PAGE>
INTERNATIONAL CUTLERY, LTD.
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: December 10, 1996 /s/Joel J. Silver
-----------------------------------
By: Joel J. Silver
Title: President, Chief Executive
Officer and Chief Financial
Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-27-1996
<PERIOD-START> JUL-28-1996
<PERIOD-END> OCT-26-1996
<CASH> 189,050
<SECURITIES> 2,112,977
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,290,042
<CURRENT-ASSETS> 3,608,933
<PP&E> 901,125
<DEPRECIATION> 114,191
<TOTAL-ASSETS> 4,412,468
<CURRENT-LIABILITIES> 2,199,680
<BONDS> 0
0
0
<COMMON> 39,392
<OTHER-SE> (8,850)
<TOTAL-LIABILITY-AND-EQUITY> 2,212,788
<SALES> 742,536
<TOTAL-REVENUES> 742,536
<CGS> 246,391
<TOTAL-COSTS> 1,611,285
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,395
<INCOME-PRETAX> (1,115,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,092,633)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
</TABLE>
