SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995 Commission file number 0-5223
CUTCO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
New York 11-1771806
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 South Service Road, Jericho, New York 11753
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 334-8400
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Former name, former address and former fiscal year, if changed
since last report.
* Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 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
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Number of common shares outstanding at November 10, 1995 is 780,625
Transitional Small Business Disclosure: Yes No X
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CUTCO INDUSTRIES, INC.
FORM 10-QSB
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
September 30, 1995 and June 30, 1995 1-2
Consolidated Condensed Statements of Operations -
Three Months Ended September 30, 1995 and 1994 3
Consolidated Condensed Statement of Shareholders'
Equity - Three Months Ended September 30, 1995 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended September 30, 1995 and 1994 5
Notes to Unaudited Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
September 30, June 30,
1995 1995
-------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $778,453 $1,096,793
Marketable securities 266,411 267,586
Notes and accounts receivable, net 599,837 545,588
Merchandise inventory 612,500 537,896
Prepaid and refundable income taxes 72,145 94,858
Deferred income taxes, net 135,000 135,000
Prepaid expenses and miscellaneous
receivables 67,761 84,358
------------- -------------
TOTAL CURRENT ASSETS 2,532,107 2,762,079
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Furniture, fixtures and equipment 2,677,387 2,609,826
Leasehold improvements 204,976 184,976
------------- -------------
2,882,363 2,794,802
Less accumulated depreciation
and amortization 1,406,973 1,338,702
------------- -------------
1,475,390 1,456,100
------------- -------------
OTHER ASSETS
Notes receivable, noncurrent 274,534 329,763
Deferred charges and other 531,235 520,276
Deposits 129,437 123,567
------------- -------------
935,206 973,606
------------- -------------
$4,942,703 $5,191,785
============= =============
See notes to unaudited consolidated condensed financial statements.
-1-
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - Continued
(UNAUDITED)
September 30, June 30,
1995 1995
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses $970,317 $997,170
Current portion of long-term debt 79,743 78,996
Accrued and withheld taxes,
other than income taxes 167,157 204,167
Income taxes payable 8,034 31,276
------------- -------------
TOTAL CURRENT LIABILITIES 1,225,251 1,311,609
LONG-TERM DEBT 218,484 219,724
DEPOSITS PAYABLE 64,863 64,860
DEFERRED FRANCHISE FEE REVENUE, NET 190,477 232,462
DEFERRED INCOME TAXES 152,000 152,000
------------- -------------
TOTAL LIABILITIES 1,851,075 1,980,655
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock 188,371 188,371
Additional paid-in capital 4,185,250 4,185,250
Retained earnings 2,199,599 2,319,101
------------- -------------
6,573,220 6,692,722
Less treasury stock - at cost 3,481,592 3,481,592
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 3,091,628 3,211,130
------------- -------------
$4,942,703 $5,191,785
============= =============
See notes to unaudited consolidated condensed financial statements.
-2-
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<S> <C> <S> <C>
Three Months Ended
September 30,
1995 1994
----------- -----------
Revenues:
Owned retail stores $2,541,315 $2,565,529
Sales of equipment and products 58,726 60,879
Royalties and service fees 631,621 615,943
Franchise fee income 61,986 42,615
Interest and dividend income 23,837 30,371
Other income, net 17,283 15,223
Loss on sale or abandonment of fixed assets, net (45,248) (12,934)
----------- -----------
3,289,520 3,317,626
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 2,453,109 2,455,635
Costs of equipment and products sold 50,382 39,615
Depreciation and amortization 146,605 140,664
Selling, general and administrative expenses 741,256 786,533
Interest expense 10,018 7,628
----------- -----------
3,401,370 3,430,075
----------- -----------
Loss before income taxes (benefit) (111,850) (112,449)
Income taxes (benefit) 7,652 (28,273)
----------- -----------
Net loss ($119,502) ($84,176)
=========== ===========
Loss per common share ($0.15) ($0.11)
=========== ===========
Weighted average number of shares outstanding 780,625 780,625
=========== ===========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-3-
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C> <S> <C> <S>
Common Stock Additional Treasury Stock
------------ Paid-In Retained --------------
Shares Amount Capital Earnings Shares Amount Total
--------- -------- ---------- ---------- ---------- ------------- -------------
Balance at July 1, 1995 1,883,706 $188,371 $4,185,250 $2,319,101 1,103,081 ($3,481,592) $3,211,130
Net loss (119,502) (119,502)
--------- --------- ---------- ---------- ---------- ------------- -------------
Balance at September 30,
1995 (Unaudited) 1,883,706 $188,371 $4,185,250 $2,199,599 1,103,081 ($3,481,592) $3,091,628
========= ========= ========== ========== ========== ============= =============
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-4-
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<S> <C>
Three Months Ended
September 30,
-----------------------------
1995 1994
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($119,502) ($84,176)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 146,605 140,664
Provision for doubtful accounts and notes receivable 30,000 30,000
Loss on sale and abandonment of property, plant,
and equipment 45,248 12,934
Changes in operating assets and liabilities, net of acquisition effect
(Increase) decrease in:
Notes and accounts receivable (78,980) (45,117)
Merchandise inventory (74,604) (51,468)
Prepaid and refundable income taxes 22,713 (3,630)
Prepaid expenses and miscellaneous receivables 16,597 7,024
Deposits (5,870) 55
Deferred charges and other (650) (12,604)
Increase (decrease) in:
Accounts payable and accrued expenses (26,853) (72,816)
Accrued and withheld taxes, other than income taxes (37,010) (30,819)
Income taxes payable (23,242) (33,966)
Deposits payable 3 795
Deferred franchise fee revenue, net (41,985) (39,904)
------------- -------------
Net cash used in operating activities (147,530) (183,028)
------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (138,112) (200,315)
Decrease in marketable securities 1,175 5,181
Proceeds from sale of property, plant, and equipment 1,620
Payment for salon acquired (15,000)
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Net cash used in investing activities (150,317) (195,134)
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Cash flows from financing activities:
Principal payments on loans (20,493) (16,699)
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Net cash used in financing activities (20,493) (16,699)
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Net decrease in cash and cash equivalents (318,340) (394,861)
Cash and cash equivalents at beginning of year 1,096,793 691,579
------------- -------------
Cash and cash equivalents at end of period $778,453 $296,718
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $5,276 $7,679
Income taxes $4,150 $10,188
Non cash investing and financing activities:
Notes payable in connection with acquisition of salon $20,000
Notes and accounts receivable forgiven in connection
with acquisition of salon $49,960
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-5-
CutCo Industries, Inc.
Notes to Unaudited Consolidated Condensed Financial Statements
September 30, 1995
Note 1 - Financial Statements
The accompanying unaudited consolidated condensed financial
statements have been prepared without audit in accordance
with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-
QSB of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three month period ended September 30, 1995 are not
necessarily indicative of the results that may be expected
for the year ending June 30, 1996. For further information,
refer to the consolidated financial statements and footnotes
as of June 30, 1995 included in the Company's Annual Report
on Form 10-KSB for the Company's fiscal year then ended.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended September 30, 1995
Liquidity and Capital Resources:
Cash and cash equivalents were $778,453 at September 30,
1995, as compared to $296,718 at September 30, 1994.
Additionally, at September 30, 1995, the Company had
$266,411 of marketable securities, as compared to $868,726
at September 30, 1994. The Company had a current ratio of
2.07 at September 30, 1995, as compared to 2.11 at June 30,
1995, and 2.47 at September 30, 1994.
At September 30, 1995, commitments for capital expenditures
and other investments did not exceed $200,000, which
commitments were for acquisition or construction of salons,
salon refurbishing, and other investments. The Company
believes its working capital is adequate to support its
operations for at least the next twelve months.
Results of Operations:
Revenues from Company-owned hair salon operations decreased
by .9% ($24,214) in the three month period ended September
30, 1995. Comparable store sales operating throughout each
of the three month periods ended September 30, 1995 and 1994
declined by 5.3%. As of September 30, 1995, there were 51
Company-owned salons, compared to 51 at September 30, 1994.
During the three month period ended September 30, 1995, the
Company acquired one salon from a licensee, opened two
salons, and closed five salons. Management will continue to
close existing salons that do not meet its cash flow
criteria.
Direct costs of Company-owned hair care salons decreased by
.1% ($2,526) in the three month period ended September 30,
1995, as compared to the same period in 1994. Advertising
and occupancy costs increased as a percent of sales in 1995
as compared to the same period last year.
Sales of equipment and products declined by $2,153 in the
three month period ended September 30, 1995 as compared to
the same period in 1994. Correspondingly, cost of equipment
and products sold declined by $10,767 reflecting lower
margins. The decrease in sales is due in part to the
decreased number of franchised salons.
Consolidated royalties and service fees increased by 2.5%
($15,678) in the three month period ended September 30,
1995, as compared to the same period in 1994. The increase
is due to the recording of royalties from franchisees
previously deemed uncollectible. The Company does not
expect this trend to continue. The number of hair salon
franchised outlets at September 30, 1995 was 299, as
compared to 319 at September 30, 1994.
Franchise fee income increased in the three month period
ended September 30, 1995 by $19,371 as compared to the same
period in 1994. Franchise fee income increased because the
Company recorded a franchise fee from the opening of a salon
by a new licensee.
The number of franchised salons has been steadily decreasing
for several years and management believes that such
decreases will continue for the foreseeable future. It is
likely that the downward trend in franchise revenues and
revenues from sales of equipment and products will continue
for as long as the downward trend in the number of franchise
salons continues, despite the increases in the three month
period ended September 30, 1995.
Inflation has not materially affected the Company's revenues
and income during the past two fiscal years.
Interest and dividend income in the three month period ended
September 30, 1995 decreased by $6,534 due to a decline in
the amount of invested assets.
Selling, general, and administrative expenses decreased by
5.8% ($45,277) in the three month period ended September 30,
1995, as compared to the same period in 1994. The decrease
in 1995 is due in part to lower payroll costs.
The effective income tax benefit was 25.1% in the three
month period ended September 30, 1994. In 1995 the Company
was not able to utilize for federal income tax purposes its
operating losses. Additionally, since the Company files
separate subsidiary state income tax returns, versus
consolidated returns, it was not able to offset certain
subsidiary losses against other subsidiary income in the
1995 and 1994 periods.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Not Applicable.
b) None.
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CUTCO INDUSTRIES, INC.
(Registrant)
s/DON vonLIEBERMANN
____________________________________
DON vonLIEBERMANN
President
s/MICHAEL KRAMER
____________________________________
MICHAEL KRAMER
Principal Financial &
Chief Accounting Officer
Date: November 13, 1995
