INTERNATIONAL CUTLERY, LTD.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the quarterly period ended January 25, 1997
International Cutlery, LTD.
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(Exact name of registrant 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) (Zip Code)
(212) 924-7300 (Registrant's telephone number, including area code)
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Indicate by check mark whether in the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
As of March 1, 1997, there were 3,939,248 shares of the registrant's common
stock outstanding.
Traditional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>
INTERNATIONAL CUTLERY, LTD.
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Balance Sheets as of
January 25, 1997 and April 27, 1996 3
Statements of Operations for the
Thirty-Nine Weeks Ended January 25, 1997 and
January 27, 1996 4
Statements of Operations for the
Thirteen Weeks Ended January 25, 1997 and
January 27, 1996 5
Statements of Cash Flows for the
Thirty-Nine Weeks Ended January 25, 1997 and
January 27, 1996 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
Signature Page 12
<PAGE>
INTERNATIONAL CUTLERY, LTD.
Item 1. Financial Statements
BALANCE SHEETS
January 25, April 27,
1997 1996
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 394,594 $ 840,691
Investments 2,115,943
Inventories 1,388,985 753,163
Other current assets 127,043 20,122
----------- -----------
Total current assets 1,910,622 3,729,919
STORE FIXTURES AND DISPLAYS AND LEASEHOLD
IMPROVEMENTS, less accumulated depreciation and
amortization 1,174,118 307,710
OTHER ASSETS, security deposits 17,400 17,546
----------- -----------
$ 3,102,140 $ 4,055,175
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, bank $ 200,000 $ 200,000
Accounts payable and other current liabilities 863,404 549,754
----------- -----------
Total current liabilities 1,063,404 749,754
----------- -----------
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 (3,093,492) (1,826,807)
Notes receivable arising from stock purchase
agreements (8,850) (8,850)
----------- -----------
Total stockholders' equity 2,038,736 3,305,421
----------- -----------
$ 3,102,140 $ 4,055,175
=========== ===========
See accompanying notes to financial statements.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Thirty-Nine Weeks Ended
-------------------------
January 25, January 27,
1997 1996
----------- -----------
NET SALES $ 1,964,369 $ 1,326,920
COST OF SALES 676,533 513,551
----------- -----------
GROSS PROFIT 1,287,836 813,369
----------- -----------
STORE AND WAREHOUSE EXPENSES 1,298,233 660,902
GENERAL AND ADMINISTRATIVE EXPENSES 1,296,704 963,025
----------- -----------
2,594,937 1,623,927
----------- -----------
LOSS FROM OPERATIONS (1,307,101) (810,558)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (72,110) (85,910)
Accretion of discount on convertible
note payable (95,945)
Interest income 112,526 21,155
----------- -----------
40,416 (160,700)
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NET LOSS $(1,266,685) $ (971,258)
=========== ===========
LOSS PER SHARE OF COMMON STOCK $ (.32) $ (.38)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,939,248 2,530,978
=========== ===========
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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January 25, January 27,
1997 1996
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NET SALES $ 1,221,833 $ 749,617
COST OF SALES 430,142 317,232
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GROSS PROFIT 791,691 432,385
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STORE AND WAREHOUSE EXPENSES 417,448 273,372
GENERAL AND ADMINISTRATIVE EXPENSES 566,204 550,506
----------- -----------
983,652 823,878
----------- -----------
LOSS FROM OPERATIONS (191,961) (391,493)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (33,715) (45,790)
Accretion of discount on
convertible note payable (52,657)
Interest income 51,624 21,155
----------- -----------
17,909 (77,292)
----------- -----------
NET LOSS $ (174,052) $ (468,785)
=========== ===========
LOSS PER SHARE OF COMMON STOCK $ (.04) $ (.15)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,939,248 3,194,440
=========== ===========
See accompanying notes to financial statements.
-5-
<PAGE>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-Nine Weeks Ended
-------------------------------
January 25, January 27,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,266,685) $ (971,258)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 58,751 36,421
Issuance of common stock for services 30,000
Deferred rent 12,443
Compensation earned pursuant to
performance stock option agreement 135,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Inventories (635,822) (65,657)
Other current assets (106,921) (94,874)
Accounts payable and other
current liabilities 178,650 227,180
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NET CASH USED IN OPERATING ACTIVITIES (1,637,027) (825,745)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for store fixtures and displays
and leasehold improvements (925,159) (86,919)
Proceeds from (payments for)
security deposits 146 (13,656)
Proceeds from maturities of investments 2,115,943
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,190,930 (100,569)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from due to broker 125,000
Proceeds from sales of common stock, net
of expenses 4,689,947
Payments on notes payable (150,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,664,947
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (446,097) 3,738,633
CASH AND CASH EQUIVALENTS, beginning of period 840,691 40,148
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 394,594 $ 3,778,781
=========== ===========
See accompanying notes to financial statements.
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<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 currently operates twelve
cutlery retail stores and twelve 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.
NOTE 4 - PERFORMANCE STOCK OPTIONS:
During the quarter ended January 25, 1997, the President, Chief
Executive Officer and Chief Financial Officer earned options to
buy 337,500 shares of common stock of the Company pursuant to
the performance option agreement and, therefore, has recorded
$135,000 as compensation expense.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
For the Thirty-Nine Weeks Ended January 25, 1997 and January 27, 1996
The Company employs a 52 or 53 week fiscal year ending on the Saturday closest
to April 30. During the thirty-nine week period ended January 25, 1997 (the
"Current Period"), the Company's revenues increased 48.0% to $1,964,369 from
$1,326,920 for the thirty-nine week period ended January 27, 1996 (the "Prior
Period"). The increase in revenues are attributable to an increase in the number
of retail outlets operated by the Company during the Current Period and an
increase in same store sales. Revenues in the Current Period were derived from
the operation of twenty-five retail outlets, including one which closed in
September 1996 and nineteen that opened in the Current Period. In the Prior
Period, the Company operated seven retail outlets, of which two were closed in
March and September 1996, respectively. On a comparative basis, Current Period
same store sales increased 2.1% over the Prior Period.
Gross profits increased to $1,287,836 in the Current Period from $813,369 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
$676,533 in the Current Period from $513,551 in the Prior Period due to the
increased sales. However, cost of sales as a percentage of revenues decreased to
34.4% in the Current Period from 38.7% 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
$1,298,233 compared to $660,902 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 nineteen new locations. As a
percentage of revenues, store operating and warehousing expenses increased to
65.5% of sales in the Current Period from 49.8% in the Prior Period.
General and administrative expenses increased to $1,296,704 in the Current
Period from $963,025 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 and a $135,000
compensation charge for performance options issued to the Company's Chief
Executive Officer pursuant to his employment agreement for increasing the number
of retail outlets the Company is operating.
The Company's interest expense for the Current Period decreased to $72,110 from
$85,910 in the Prior Period. The decrease resulted from the Company's repayment
of its borrowings from proceeds from the sale of their investments.
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 $95,945.
Interest income for the current period increased to $112,526 from $21,155 in the
Prior Period. The increase resulted from the interest earned on the proceeds of
the Company's initial public offering in December 1995. These proceeds were
invested primarily in U.S.government securities pending their use.
The Current Period's net loss was $1,266,685, or $.32 per share as compared to
the Prior Period's net loss of $971,258, or $.38 per share.
-8-
<PAGE>
INTERNATIONAL CUTLERY, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
For the Thirteen Weeks Ended January 25, 1997 and January 27, 1996
During the thirteen week period from ended January 25, 1997 (the "Current
Period"), the Company's revenues increased 63.0% to $1,221,833 from $749,617 for
the period ended January 27, 1996 (the "Prior Period"). The increase in revenues
is principally 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-five retail outlets, including
one which closed in September 1996 and nine that opened in that period. In the
Prior Period, the Company operated six retail outlets, of which two were closed
in March and September 1996, respectively. On a comparative basis, Current
Period same store sales increased 1.1% from the Prior Period.
Gross profits increased to $791,691 in the Current Period from $432,385 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
$430,142 in the Current Period from $317,232 in the Prior Period due to the
increased sales. However, cost of sales as a percentage of revenues decreased to
35.2% in the Current Period from 42.3% 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
$417,448 compared to $273,372 in the Prior Period. The increase in expenses are
attributed primarily to the operation of additional stores. As a percentage of
revenues, store operating and warehousing expenses decreased to 34.1% of sales
in the Current Period from 36.5% in the Prior Period.
General and administrative expenses increased to $566,204 in the Current Period
from $550,506 in the Prior Period. The Current Period included a $135,000
compensation charge for performance optoins issued to the Company's Chief
Executive Officer pursuant to his employment agreement for increasing the number
of retail outlets the Company is operating.
The Company's interest expense for the Current Period decreased to $33,715 from
$45,790 in the Prior Period. This decrease stemmed from the repayment of its
borrowings from proceeds from the sale of their investments. 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
$52,657.
Interest income for the Current Period increased to $51,624 from $21,155 in the
Prior Period. The increase resulted from the interest earned on the proceeds of
the Company's initial public offering in December 1995. These proceeds were
invested primarily in U.S.government securities pending their use.
The Current Period's net loss was $174,051, or $.04 per share as compared to the
Prior Period's net loss of $468,785, or $.15 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 January 25, 1997,
$337,362 of these funds remain on account to fund future operations.
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 March 1997
and is secured by a certificate of deposit. The company used the loan proceeds
for working capital.
In the thirty-nine weeks ended, the Company opened nineteen new locations
including eleven kiosk locations for an approximate cost of $925,000, 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 $90,000
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.
The Company is currently planning a private placement offering of its Cumalative
Convertible Preferred Stock to accredited investors for a minimum of $300,000,
and a maximum of $1,000,000. There can be no assurance that the Company will be
able to raise any funds from this, or any offering.
As of January 25, 1997, the Company has working capital of $847,218 and cash and
cash equivalents of $394,594. The Company will require additional capital to
fund operations until the Company reaches its break even point.
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.
-10-
<PAGE>
INTERNATIONAL CUTLERY, LTD.
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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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.
/s/ Joel J. Silver
--------------------------
INTERNATIONAL CUTLERY, LTD.
(Registrant)
/s/ Joel J. Silver
--------------------------
Date: March 13, 1997 By: Joel J. Silver
Title: President, Chief
Executive Officer
and Chief Accounting
Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-27-1996
<PERIOD-END> JAN-25-1997
<CASH> 394,594
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,388,985
<CURRENT-ASSETS> 127,043
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,102,140
<CURRENT-LIABILITIES> 1,063,404
<BONDS> 0
0
0
<COMMON> 39,342
<OTHER-SE> 1,999,344
<TOTAL-LIABILITY-AND-EQUITY> 3,102,140
<SALES> 1,964,369
<TOTAL-REVENUES> 1,964,369
<CGS> 676,533
<TOTAL-COSTS> 676,533
<OTHER-EXPENSES> 2,594,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72110
<INCOME-PRETAX> (1,266,685)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,266,685)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,266,685)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> 0
</TABLE>
