<PAGE>
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 October 25, 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)
(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: 10,189,248
as of November 4, 1997
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Transitional Small Business Disclosure Format (check one);
Yes No X
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INTERNATIONAL CUTLERY, LTD.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Balance Sheets as of October 25, 1997 and April 26,
1997 3
Statements of Operations for the Twenty-Six Weeks
Ended October 25, 1997 and October 26, 1996 4
Statements of Operations for the Thirteen Weeks
Ended October 25, 1997 and October 26, 1996 5
Statements of Cash Flows for the Twenty-Six Weeks
Ended October 25, 1997 and October 26, 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INTERNATIONAL CUTLERY, LTD.
Item 1. Financial Statements
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 25, APRIL 26,
1997 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................ $28,816 $ 46,264
Inventories..................................................................... 964,547 1,110,986
Other current assets............................................................ 2,327 2,293
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Total current assets........................................................ 995,690 1,159,543
STORE FIXTURES AND DISPLAYS AND LEASEHOLD
IMPROVEMENTS, less accumulated depreciation and amortization........................ 1,349,206 1,187,750
OTHER ASSETS, security deposits..................................................... 104,266 49,488
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$2,449,162 $ 2,396,781
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, related party..................................................... $50,000 $ 150,000
Accounts payable and other current liabilities.................................. 1,381,319 1,208,105
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Total current liabilities..................................................... 1,431,319 1,358,105
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LONG-TERM LIABILITIES, note payable................................................. 900,000
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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 40,000,000 shares, issued and outstanding
10,189,248 and 3,939,248 shares, respectively................................. 101,892 39,392
Capital in excess of par value.................................................. 5,439,186 5,101,686
Accumulated deficit............................................................. (5,414,435) (4,093,552)
Notes receivable arising from stock purchase agreements......................... (8,850) (8,850)
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Total stockholders' equity.................................................. 117,793 1,038,676
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$2,449,162 $ 2,396,781
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</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
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<S> <C> <C>
OCTOBER 25, OCTOBER 26,
1997 1996
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NET SALES........................................................................... $ 1,010,898 $ 742,536
COST OF SALES....................................................................... 426,040 246,391
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GROSS PROFIT........................................................................ 584,858 496,145
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STORE AND WAREHOUSE EXPENSES........................................................ 1,347,491 880,785
GENERAL AND ADMINISTRATIVE EXPENSES................................................. 548,159 730,500
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1,895,650 1,611,285
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LOSS FROM OPERATIONS................................................................ (1,310,792) (1,115,140)
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OTHER INCOME (EXPENSE):
Interest expense................................................................ (10,091) (38,395)
Interest income................................................................. 60,902
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(10,091) 22,507
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NET LOSS............................................................................ $ (1,320,883) $ (1,092,633)
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LOSS PER SHARE OF COMMON STOCK...................................................... $ (.28) $ (.28)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING................................ 4,729,083 3,939,248
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</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------------
<S> <C> <C>
OCTOBER 25, OCTOBER 26,
1997 1996
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NET SALES...................................................................... $ 500,794 $ 383,164
COST OF SALES.................................................................. 213,888 103,264
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GROSS PROFIT................................................................... 286,906 279,900
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STORE AND WAREHOUSE EXPENSES................................................... 689,731 467,585
GENERAL AND ADMINISTRATIVE EXPENSES............................................ 285,468 338,997
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975,199 806,582
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LOSS FROM OPERATIONS........................................................... (688,293) (526,682)
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OTHER INCOME (EXPENSE):
Interest expense........................................................... (9,080) (26,807)
Interest income............................................................ 31,222
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(9,080) 4,415
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NET LOSS....................................................................... $ (697,373) $ (522,267)
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LOSS PER SHARE OF COMMON STOCK................................................. $ (.13) $ (.13)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........................... 5,518,918 3,939,248
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</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
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<S> <C> <C>
OCTOBER 25, OCTOBER 26,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (1,320,883) $ (1,092,633)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................. 76,322 41,447
Amortization of bond premium.................................................. 2,966
Officer's salary contributed to capital in excess of par value................ 150,000
Changes in operating assets and liabilities:
(Increase) decrease in inventories.......................................... 146,439 (536,879)
(Increase) decrease in other current assets................................. (34) 3,258
Increase (decrease) in accounts payable and other current liabilities....... 173,264 (57,139)
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NET CASH USED IN OPERATING ACTIVITIES............................................... (774,892) (1,638,980)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for store fixtures and displays and leasehold improvements............. (237,778) (520,671)
Proceeds from (payments for) security deposits.................................. 945
Payments for other assets....................................................... (54,778)
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NET CASH USED IN INVESTING ACTIVITIES............................................... (292,556) (519,726)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from due to broker......................................................... 1,557,065
Proceeds from note payable, related parties......................................... 150,000
Proceeds from notes payable......................................................... 900,000
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NET CASH PROVIDED BY FINANCING ACTIVITIES........................................... 1,050,000 1,557,065
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NET DECREASE IN CASH................................................................ (17,448) (601,641)
CASH, beginning of period........................................................... 46,264 840,691
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CASH, end of period................................................................. $ 28,816 $ 239,050
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SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES, issuance of common stock
through conversion of note payable, related parties............................... $ 250,000 $ --
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</TABLE>
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 fairly financial condition and results of operations
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.
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 eleven
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. Effective
October 28, 1997, the Company changed its year end to the period
ending the Saturday closest to January 31.
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 issued 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.
-7-
<PAGE>
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 25, 1997 and October 26, 1996
The Company employed a 52 or 53 week fiscal year ending on the Saturday
closest to April 30. During the twenty-six week period ended October 25,
1997 (the "Current Period"), the Company's revenues increased 36.1% to
$1,010,898 from $742,536 for the period from April 26, 1996 to October 26,
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, one of which was closed in September 1996. On a
comparative basis, Current Period same store sales decreased 12.5% from
the Prior Period, and store inventory levels were significantly lower than
the previous year due to financial constraints.
Gross profit increased to $584,858 in the Current Period from $496,145 in
the Prior Period. The increase was due to the increase in revenues and
offset by an increase in the cost of goods sold. Cost of goods sold
increased to $426,040 in the Current Period from $246,391 in the Prior
Period due to the increased sales. Cost of goods sold as a percentage of
revenues increased to 42.1% in the Current Period from 33.2% 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
$1,347,491 compared to $880,785 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 133.3% of sales in the Current Period from 118.6% in the
Prior Period.
General and administrative expenses decreased to $548,159 in the Current
Period from $730,500 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 $10,091
from $38,395 in the Prior Period. This decrease resulted from the
Company's repayment of its borrowings from a financial institution.
Interest income of $60,902 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
since all funds were used prior to April 26, 1997.
The Current Period's net loss was $1,320,883, or $.28 per share as
compared to the Prior Period's net loss of $1,092,633, or $.28 per share.
-8-
<PAGE>
INTERNATIONAL CUTLERY, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
For the Thirteen Weeks Ended October 25, 1997 and October 26, 1996
During the thirteen week period from July 26, 1997 through October 25,
1997 (the "Current Period"), the Company's revenues increased 30.7% to
$500,794 from $383,164 for the period from July 26, 1996 through October
26, 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-three retail outlets. In the
Prior Period, the Company operated sixteen retail outlets, one of which
was closed in September 1996. On a comparative basis, Current Period same
store sales decreased 19.1% from the Prior Period, and store inventory
levels were significantly lower than the previous year due to financial
constraints.
Gross profit increased to $286,906 in the Current Period from $279,900 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 $213,888 in the Current Period
from $103,264 in the Prior Period due to the increased sales. However,
cost of goods sold as a percentage of revenues increased to 42.7% in the
Current Period from 26.9% 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
$689,731 compared to $467,585 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 137.7% of sales in the Current Period from 122.0% in the
Prior Period.
General and administrative expenses decreased to $285,468 in the Current
Period from $338,997 in the Prior Period. The decrease in general and
administrative expenses results from cost cutting measures employed by the
Company, including a decreased in administrative payroll.
The Company's interest expense for the Current Period decreased to $9,080
from $26,807 in the Prior Period. This decrease resulted from the
Company's repayment of its borrowings from a financial institution.
Interest income of $31,222 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
since all funds were used prior to July 26, 1997.
The Current Period's net loss was $697,373, or $.13 per share as compared
to the Prior Period's net loss of $522,267, or $.13 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, to redeem a
convertible debt instrument of the Company for $360,000, and for working
capital purposes. 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
borrowed an additional $150,000 through the line of credit.
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.
In April 1997, the Company received a convertible line of credit for a
maximum amount of $250,000, from the Company's president. In October
1997, under the provisions of the line of credit agreement, the advances
of $250,000 was converted into 6,250,000 shares of the Company's common
stock.
In October 1997, the Company increased the number of authorized shares of
common stock to 40,000,000.
In October 1997, the Company received a line of credit from Sharp of
Florida, Inc. whereby the Company may receive advances up to $1,300,000.
Advances under the line bear interest at 7% per annum. Interest is due
quarterly and the principal amount is due on July 31, 2001. The principal
amount due on the note can be converted into a maximum of 60% of the
outstanding shares of the Company's common stock, excluding the Class A
and Class B Common Stock Purchase Warrants. In October 1997, the Company
was advanced $900,000.
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 believes that
cash from operations in addition to amounts available with the line of
credit available from Sharp of Florida, Inc. will be adequate to meet the
Company's anticipated requirements for working capital, and capital
expenditures for the next 12 months.
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<PAGE>
INTERNATIONAL CUTLERY, LTD.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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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<PAGE>
INTERNATIONAL CUTLERY, LTD.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
-12-
<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
On October 17, 1997, the Company filed a Form 8-K relating to a
change in control of the registrant.
On October 28, 1997, the Company filed a Form 8-K relating to an
amendment of the certificate of incorporation and the change in the
Company's fiscal year.
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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)
/s/ Joel J. Silver
-----------------------------------
Date: December 9, 1997 By: Joel J. Silver
Title: President, Chief Executive
Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> OCT-25-1997
<CASH> 28,816
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 964,547
<CURRENT-ASSETS> 995,690
<PP&E> 1,349,206
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,449,162
<CURRENT-LIABILITIES> 1,431,319
<BONDS> 0
0
0
<COMMON> 101,892
<OTHER-SE> 15,901
<TOTAL-LIABILITY-AND-EQUITY> 2,449,162
<SALES> 1,010,898
<TOTAL-REVENUES> 1,010,898
<CGS> 426,040
<TOTAL-COSTS> 426,040
<OTHER-EXPENSES> 1,895,650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,091
<INCOME-PRETAX> (1,320,883)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,320,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,320,883)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
