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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 March 31, 1996 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
----- -----
Number of common shares outstanding at May 9, 1996 is 780,625
Transitional Small Business Disclosure: Yes No X
----- -----
CUTCO INDUSTRIES, INC.
FORM 10-QSB
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
March 31, 1996 and June 30, 1995 1-2
Consolidated Condensed Statements of Operations -
Nine and Three Months Ended March 31, 1996 and
1995 3-4
Consolidated Condensed Statement of Shareholders'
Equity - Nine Months Ended March 31, 1996 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended March 31, 1996 and 1995 6
Notes to Unaudited Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, June 30,
1996 1995
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,017,252 $1,096,793
Marketable securities 269,962 267,586
Notes and accounts receivable, net 323,794 545,588
Merchandise inventory 461,071 537,896
Prepaid and refundable income taxes 4,479 94,858
Deferred income taxes, net 135,000 135,000
Prepaid expenses and miscellaneous
receivables 115,699 84,358
------------- -------------
TOTAL CURRENT ASSETS 2,327,257 2,762,079
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Furniture, fixtures and equipment 2,458,264 2,609,826
Leasehold improvements 170,730 184,976
------------- -------------
2,628,994 2,794,802
Less accumulated depreciation
and amortization 1,430,827 1,338,702
------------- -------------
1,198,167 1,456,100
------------- -------------
OTHER ASSETS
Notes receivable, noncurrent 280,489 329,763
Deferred charges and other 451,030 520,276
Deposits 127,422 123,567
------------- -------------
858,941 973,606
------------- -------------
$4,384,365 $5,191,785
============= =============
See notes to unaudited consolidated condensed financial statements.
-1-
</TABLE>
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - Continued
(UNAUDITED)
<CAPTION>
March 31, June 30,
1996 1995
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued
expenses $1,023,604 $997,170
Current portion of long-term debt 58,237 78,996
Accrued and withheld taxes,
other than income taxes 64,845 204,167
Income taxes payable 12,432 31,276
------------- -------------
TOTAL CURRENT LIABILITIES 1,159,118 1,311,609
LONG-TERM DEBT 188,485 219,724
DEPOSITS PAYABLE 66,462 64,860
DEFERRED FRANCHISE FEE REVENUE, NET 93,692 232,462
DEFERRED INCOME TAXES 152,000 152,000
------------- -------------
TOTAL LIABILITIES 1,659,757 1,980,655
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock 188,371 188,371
Additional paid-in capital 4,185,250 4,185,250
Retained earnings 1,832,579 2,319,101
------------- -------------
6,206,200 6,692,722
Less treasury stock - at cost 3,481,592 3,481,592
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,724,608 3,211,130
------------- -------------
$4,384,365 $5,191,785
============= =============
See notes to unaudited consolidated condensed financial statements.
-2-
</TABLE>
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Nine Months Ended
March 31,
1996 1995
<S> <C> <C>
----------- -----------
Revenues:
Owned retail stores $7,153,203 $7,932,067
Sales of equipment and products 167,290 152,091
Royalties and service fees 1,439,773 1,651,111
Franchise fee income 168,020 140,069
Interest and dividend income 67,086 85,984
Other income, net 44,814 69,203
Loss on sale or abandonment of salons, net (160,238) (77,977)
----------- -----------
8,879,948 9,952,548
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 6,757,667 7,559,189
Costs of equipment and products sold 123,974 95,748
Depreciation and amortization 429,784 435,137
Selling, general and administrative expenses 2,009,485 2,322,251
Interest expense 24,343 25,396
----------- -----------
9,345,253 10,437,721
----------- -----------
Loss before income taxes (benefit) (465,305) (485,173)
Income taxes (benefit) 21,217 (19,807)
----------- -----------
Net loss (486,522) (465,366)
=========== ===========
Loss per common share ($0.62) ($0.60)
=========== ===========
Weighted average number of shares outstanding 780,625 780,625
=========== ===========
-3-
</TABLE>
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Owned retail stores $2,196,386 $2,679,533
Sales of equipment and products 56,042 40,295
Royalties and service fees 390,004 482,647
Franchise fee income 46,155 41,600
Interest and dividend income 21,843 24,372
Other income, net 14,741 33,407
Loss on sale or abandonment of salons, net (53,576) (22,043)
----------- -----------
2,671,595 3,279,811
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 2,028,030 2,494,521
Costs of equipment and products sold 31,814 24,941
Depreciation and amortization 135,443 149,044
Selling, general and administrative expenses 595,947 773,763
Interest expense 4,946 9,385
----------- -----------
2,796,180 3,451,654
----------- -----------
Loss before income taxes (124,585) (171,843)
Income taxes 6,264 5,000
----------- -----------
Net loss ($130,849) ($176,843)
=========== ===========
Loss per common share ($0.17) ($0.23)
=========== ===========
Weighted average number of shares outstanding 780,625 780,625
=========== ===========
See notes to unaudited consolidated condensed financial statements.
-4-
</TABLE>
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1996
<CAPTION>
Common Stock Additional Treasury Stock
------------ Paid-In Retained --------------
Shares Amount Capital Earnings Shares Amount Total
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 (486,522) (486,522)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at March 31,
1996 (Unaudited) 1,883,706 $188,371 $4,185,250 $1,832,579 1,103,081 ($3,481,592) $2,724,608
============= ============= ============= ============= ============= ============= =============
See notes to unaudited consolidated condensed financial statements.
-5-
</TABLE>
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
Nine Months Ended
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) March 31,
-----------------------------
1996 1995
------------- -------------
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($486,522) ($465,366)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 429,784 435,137
Provision for doubtful accounts and notes receivable 90,000 55,000
Loss on sale and abandonment of salons 160,238 77,977
Changes in operating assets and liabilities, net of effect
of acquisition and dispositions
(Increase) decrease in:
Notes and accounts receivable 190,708 38,127
Merchandise inventory 67,591 (61,900)
Prepaid and refundable income taxes 90,379 36,607
Prepaid expenses and miscellaneous receivables (31,341) 48,377
Deposits (3,855) 5,169
Deferred charges and other (2,039) 292
Increase (decrease) in:
Accounts payable and accrued expenses 26,434 72,097
Accrued and withheld taxes, other than income taxes (139,322) (83,087)
Income taxes payable (18,844) (33,966)
Deposits payable 1,602 4,127
Deferred franchise fee revenue, net (138,770) (132,355)
------------- -------------
Net cash used in operating activities 236,043 (3,764)
------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (244,280) (348,503)
Decrease (increase) in marketable securities (2,376) 412,740
Proceeds from sale and abandonment of salons 18,070 3,025
Payment for salon acquired (15,000) (22,000)
------------- -------------
Net cash used in investing activities (243,586) 45,262
------------- -------------
Cash flows from financing activities:
Principal payments on loans (71,998) (53,466)
------------- -------------
Net cash used in financing activities (71,998) (53,466)
------------- -------------
Net decrease in cash and cash equivalents (79,541) (11,968)
Cash and cash equivalents at beginning of year 1,096,793 691,579
------------- -------------
Cash and cash equivalents at end of period $1,017,252 $679,611
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $15,180 $25,503
Income taxes $10,783 $21,121
Non cash investing and financing activities:
Notes payable in connection with acquisition of salon $20,000 $10,000
Notes and accounts receivable forgiven in connection
with acquisition of salon $49,960 $48,000
Notes and accounts receivable received in connection
with sale of salons $59,600
See notes to unaudited consolidated condensed financial statements.
-6-
</TABLE>
CutCo Industries, Inc.
Notes to Unaudited Consolidated Condensed Financial Statements
March 31, 1996
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
nine and three month periods ended March 31, 1996 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 finan-
cial statements and footnote as of June 30, 1995
included in the Company's Annual Report on Form 10-
KSB for the Company's fiscal year then ended.
-7-
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Nine Months Ended March 31, 1996
Liquidity and Capital Resources:
Cash and cash equivalents were $1,017,252 at March 31, 1996,
as compared to $679,611 at March 31, 1995.
Additionally, at March 31, 1996, the Company had $269,962 of
marketable securities, as compared to $461,167 at March
31, 1995. The Company had a current ratio of 2.01 at March
31, 1996, as compared to 2.11 at June 30, 1995, and 2.17 at
March 31, 1995.
At March 31, 1996, 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 9.8% ($779,000) and 18.0% ($483,000), respectively, in
the nine and three month periods ended March 31, 1996.
Comparable store sales operating throughout each of the nine
and three month periods ended March 31, 1996 and 1995
declined by 4.8% and 4.9%, respectively. As of March 31,
1996, there were 43 Company-owned salons, compared to 53 at
March 31, 1995. During the nine month period ended March
31, 1996, the Company acquired one salon from a licensee,
opened four salons, sold three salons and closed twelve
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
10.6% ($802,000) and 18.7% ($466,000), respectively, in the
nine and three month periods ended March 31, 1996, as
compared to the same periods in 1995. Payroll, advertising
and promotion and occupancy costs increased as a percent of
sales in 1996 as compared to the same periods last year.
Sales of equipment and products increased by $15,199 and
$15,747, respectively, in the nine and three month periods
ended March 31, 1996 as compared to the same periods in
1995. Correspondingly, cost of equipment and products sold
increased by $28,226 and $6,873, respectively, reflecting
lower margins year to date.
Consolidated royalties and service fees decreased by 12.8%
($211,000) and 19.2% ($93,000), respectively, in the nine
and three month periods ended March 31, 1996, as compared to
the same periods in 1995. The decreases are due to a lower
-8-
average number of franchised units operating and a decrease
in comparable store sales. The Company expects the decline
in royalties to continue. The number of hair salon
franchised outlets at March 31, 1996 was 301, as compared to
305 at March 31, 1995.
Franchise fee income increased in the nine and three month
periods ended March 31, 1996 by $27,951 and $4,555,
respectively, as compared to the same periods in 1995.
Franchise fee income for the nine month period increased
primarily due to the recording of a franchise fee from the
opening of a salon by a new licensee. Franchise fees
related to the New Area Development Program will begin to
decline as the note payments cease at varying maturities.
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 related revenues
will continue for as long as the downward trend in the
number of franchised salons continues. Inflation has not
materially affected the Company's revenues and income during
the past two fiscal years.
Interest and dividend income in the nine and three month
periods ended March 31, 1996 decreased by $18,898 and
$2,529, respectively, due to a decline in the amount of
invested assets and interest rates.
Selling, general, and administrative expenses decreased by
13.5% ($313,000) and 23.0% ($178,000), respectively, in the
nine and three month periods ended March 31, 1996, as
compared to the same periods in 1995. The decreases in 1996
are due primarily to lower general and administrative
payroll costs which are anticipated to continue throughout
the current fiscal year.
The effective income tax benefit was 4.1% in the nine month
period ended March 31, 1995. In 1996 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
1996 and 1995 periods.
-9-
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Not Applicable.
b) None.
-10-
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: May 14, 1996
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1017252
<SECURITIES> 269962
<RECEIVABLES> 323794
<ALLOWANCES> 0
<INVENTORY> 461071
<CURRENT-ASSETS> 2327257
<PP&E> 2628994
<DEPRECIATION> 1430827
<TOTAL-ASSETS> 4384365
<CURRENT-LIABILITIES> 1159118
<BONDS> 188485
<COMMON> 188371
0
0
<OTHER-SE> 2536237
<TOTAL-LIABILITY-AND-EQUITY> 4384365
<SALES> 167290
<TOTAL-REVENUES> 8879948
<CGS> 123974
<TOTAL-COSTS> 123974
<OTHER-EXPENSES> 9196936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24343
<INCOME-PRETAX> (465305)
<INCOME-TAX> 21217
<INCOME-CONTINUING> (486522)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (486522)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
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