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U.S. 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 JULY 26, 1997
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-26874
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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 (IRS 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)
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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
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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 SEPTEMBER
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11, 1997
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Transitional Small Business Disclosure Format (check one);
Yes No X
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INTERNATIONAL CUTLERY, LTD.
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets as of
July 26, 1997 and April 26, 1997 3
Statements of Operations for the
Thirteen Weeks Ended July 26, 1997 and July 27, 1996 4
Statements of Cash Flows for the
Thirteen Weeks Ended July 26, 1997 and July 27, 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7-8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 9
PART II OTHER INFORMATION 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
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INTERNATIONAL CUTLERY, LTD.
Item 1. Financial Statements
BALANCE SHEETS
(UNAUDITED)
July 26, April 26,
1997 1997
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,361 $ 46,264
Inventories 962,876 1,110,986
Other current assets 2,561 2,293
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Total current assets 1,012,798 1,159,543
STORE FIXTURES AND DISPLAYS AND LEASEHOLD
IMPROVEMENTS, less accumulated depreciation and
amortization 1,156,025 1,187,750
OTHER ASSETS 62,607 49,488
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$ 2,231,430 $ 2,396,781
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, related parties $ 300,000 $ 150,000
Accounts payable and other current
liabilities 1,516,264 1,208,105
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Total current liabilities 1,816,264 1,358,105
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 1,000,000 shares, none issued
Common stock, $.01 par value,
authorized 10,000,000 shares,
issued and outstanding 3,939,248 39,392 39,392
Capital in excess of par value 5,101,686 5,101,686
Accumulated deficit (4,717,062) (4,093,552)
Notes receivable arising from stock purchase
agreements (8,850) (8,850)
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Total stockholders' equity 415,166 1,038,676
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$ 2,231,430 $ 2,396,781
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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 26, July 27,
1997 1996
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NET SALES $ 510,104 $ 359,372
COST OF SALES 212,152 143,127
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GROSS PROFIT 297,952 216,245
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STORE AND WAREHOUSE EXPENSES 657,760 413,200
GENERAL AND ADMINISTRATIVE EXPENSES 262,691 391,503
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920,451 804,703
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LOSS FROM OPERATIONS (622,499) (588,458)
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OTHER INCOME (EXPENSE):
Interest expense (1,011) (11,588)
Interest income 29,680
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(1,011) 18,092
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NET LOSS $ (623,510) $ (570,366)
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LOSS PER SHARE OF COMMON STOCK $ (.16) $ (.14)
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,939,248 3,939,248
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<TABLE>
<CAPTION>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THIRTEEN WEEKS ENDED
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July 26, July 27,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (623,510) $ (570,366)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 38,851 17,099
Amortization of bond premium 10,500
Changes in operating assets and liabilities:
(Increase) decrease in:
Inventories 148,110 (171,494)
Other current assets (268) (51,100)
Accounts payable and other current liabilities 308,159 (14,878)
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NET CASH USED IN OPERATING ACTIVITIES (128,658) (780,239)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for store fixtures and displays and
leasehold improvements (7,126) (389,921)
Payments for other assets (13,119)
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NET CASH USED IN INVESTING ACTIVITIES (20,245) (389,921)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable, related parties 150,000
Proceeds from due to broker 742,865
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NET CASH PROVIDED BY FINANCING ACTIVITIES 150,000 742,865
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,097 (427,295)
CASH AND CASH EQUIVALENTS, beginning of period 46,264 840,691
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CASH AND CASH EQUIVALENTS, end of period $ 47,361 $ 413,396
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</TABLE>
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 26, 1997 Form 10-KSB/A.
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 twelve cutlery retail stores and
eleven kiosks located in New York, New Jersey, Connecticut, Maryland
and Florida.
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.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEWLY ISSUED ACCOUNTING STANDARD - In February 1997, the Financial
Accounting Standards Board released Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), "Earnings Per Share". SFAS No. 128
requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations for all periods presented.
Basic earnings per share excludes dilution and is computed by dividing
income (loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997, and when
adopted, it will require restatement of prior years' earnings per
share. Management does not believe that SFAS No. 128 will have a
material impact upon historical net loss per share as reported.
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INTERNATIONAL CUTLERY, LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following management's discussion and analysis of results of operations and
financial condition include forward-looking statements with respect to the
Company's future financial performance. These forward-looking statements are
subject to various risks and uncertainties which could cause actual results to
differ materially from historical results of those currently anticipated.
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 26, 1997 (the "Current
Period"), the Company's revenues increased 41.9% to $510,104 from $359,372 for
the period from April 28, 1996 to July 27, 1996 (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 twenty-four retail
outlets, one of which was closed in July 1997. In the Prior Period, the Company
operated sixteen retail outlets, of which only four were open for the full
quarter. On a comparative basis, Current Period same store sales decreased
12.6% from the Prior Period, store inventory levels were significantly lower
than the previous year due to financial constraints.
Gross profit increased to $297,952 in the Current Period from $216,245 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 to $212,152 in the Current Period from $143,127 in the Prior
Period due to the increased sales. Cost of goods sold as a percentage of
revenues increased to 41.6% in the Current Period from 39.8% in the Prior
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
$657,760 compared to $413,200 in the Prior Period. The increase in expenses is
attributed primarily to the operation of additional stores. As a percentage of
revenues, store operating and warehousing expenses increased to 129.0% of sales
in the Current Period from 115.0% in the Prior Period.
General and administrative expenses decreased to $262,691 in the Current Period
from $391,503 in the Prior Period. The decrease in general and administrative
expenses results from cost cutting measures employed by the Company including a
decrease in administrative payroll.
The Company's interest expense for the Current Period decreased to $1,011 from
$11,588 in the Prior Period. This decrease resulted from the Company's
repayment of its borrowings from a financial institution.
Interest income, which was $29,680 in the Prior 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 Current Period.
The Current Period's net loss was $623,510, or $.16 per share as compared to the
Prior Period's net loss of $570,366, or $.14 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. In April 1997, the Company received a line of credit from the
Company's president whereby the Company may receive advances up to $250,000.
Advances under this line bear interest at 8% per annum and are due upon thirty
days demand. During the Current Period, the Company funded its operating loss by
borrowing an additional $150,000 through a line of credit from the Company's
president.
In April 1997, the Company issued a note to a director of the Company for
$50,000. The note bears interest at 8% per annum and is due upon thirty days
demand.
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 $75,000
per store and $50,000 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.
Cash requirements for the foreseeable future will include funds needed to
sustain the cash used in operations and additional capital to open new stores to
achieve a level of profitability. The Company is currently negotiating for
short-term financing and anticipates raising additional capital through a
private placement. There can be no assurance that the Company will be able to
raise such financing on acceptable terms, if at all. In addition, there can be
no assurance that such financing will not be dilutive to existing stockholders.
Failure to raise capital when needed could have a material adverse effect on the
financial condition and results of operations of the Company.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
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<PAGE>
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
None
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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.
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INTERNATIONAL CUTLERY, LTD.
(Registrant)
/s/ Joel J. Silver
-----------------------------------
Date: September 15, 1997 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> 3-MOS
<FISCAL-YEAR-END> APR-26-1997
<PERIOD-END> JUL-26-1997
<CASH> 47,361
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 962,876
<CURRENT-ASSETS> 1,012,798
<PP&E> 1,156,025
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,231,430
<CURRENT-LIABILITIES> 1,816,264
<BONDS> 0
0
0
<COMMON> 39,392
<OTHER-SE> 375,774
<TOTAL-LIABILITY-AND-EQUITY> 2,231,430
<SALES> 510,104
<TOTAL-REVENUES> 510,104
<CGS> 212,152
<TOTAL-COSTS> 212,152
<OTHER-EXPENSES> 920,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,011
<INCOME-PRETAX> (623,510)
<INCOME-TAX> 0
<INCOME-CONTINUING> (623,510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (623,510)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
