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Previous: CRSS INC, SC 13G/A, 1996-02-15 |
Next: DANA CORP, SC 13G/A, 1996-02-15 |
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 December 31, 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
----- -----
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 -
December 31, 1995 and June 30, 1995 1-2
Consolidated Condensed Statements of Operations -
Six and Three Months Ended December 31, 1995 and
1994 3-4
Consolidated Condensed Statement of Shareholders'
Equity - Six Months Ended December 31, 1995 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended December 31, 1995 and 1994 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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
December 31, June 30,
1995 1995
------------- -------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $876,607 $1,096,793
Marketable securities 270,241 267,586
Notes and accounts receivable, net 437,897 545,588
Merchandise inventory 500,666 537,896
Prepaid and refundable income taxes 70,518 94,858
Deferred income taxes, net 135,000 135,000
Prepaid expenses and miscellaneous
receivables 47,024 84,358
------------- -------------
TOTAL CURRENT ASSETS 2,337,953 2,762,079
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Furniture, fixtures and equipment 2,544,473 2,609,826
Leasehold improvements 170,730 184,976
------------- -------------
2,715,203 2,794,802
Less accumulated depreciation
and amortization 1,367,532 1,338,702
------------- -------------
1,347,671 1,456,100
------------- -------------
OTHER ASSETS
Notes receivable, noncurrent 286,020 329,763
Deferred charges and other 491,702 520,276
Deposits 128,812 123,567
------------- -------------
906,534 973,606
------------- -------------
$4,592,158 $5,191,785
============= =============
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-1-
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - Continued
December 31, June 30,
1995 1995
------------- -------------
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued
expenses $1,009,603 $997,170
Current portion of long-term debt 77,262 78,996
Accrued and withheld taxes,
other than income taxes 85,748 204,167
Income taxes payable 12,869 31,276
------------- -------------
TOTAL CURRENT LIABILITIES 1,185,482 1,311,609
LONG-TERM DEBT 201,242 219,724
DEPOSITS PAYABLE 67,380 64,860
DEFERRED FRANCHISE FEE REVENUE, NET 130,597 232,462
DEFERRED INCOME TAXES 152,000 152,000
------------- -------------
TOTAL LIABILITIES 1,736,701 1,980,655
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock 188,371 188,371
Additional paid-in capital 4,185,250 4,185,250
Retained earnings 1,963,428 2,319,101
------------- -------------
6,337,049 6,692,722
Less treasury stock - at cost 3,481,592 3,481,592
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,855,457 3,211,130
------------- -------------
$4,592,158 $5,191,785
============= =============
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-2-
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Six Months Ended
December 31,
1995 1994
<S> <C> <C>
----------- -----------
Revenues:
Owned retail stores $4,956,817 $5,252,534
Sales of equipment and products 111,248 111,796
Royalties and service fees 1,049,769 1,168,464
Franchise fee income 121,865 98,469
Interest and dividend income 45,243 61,612
Other income, net 30,073 35,796
Loss on sale or abandonment of fixed assets, net (106,662) (55,934)
----------- -----------
6,208,353 6,672,737
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 4,729,637 5,064,668
Costs of equipment and products sold 92,160 70,807
Depreciation and amortization 294,341 286,093
Selling, general and administrative expenses 1,413,538 1,548,488
Interest expense 19,397 16,011
----------- -----------
6,549,073 6,986,067
----------- -----------
Loss before income taxes (benefit) (340,720) (313,330)
Income taxes (benefit) 14,953 (24,807)
----------- -----------
Net loss (355,673) (288,523)
=========== ===========
Loss per common share ($0.46) ($0.37)
=========== ===========
Weighted average number of shares outstanding 780,625 780,625
=========== ===========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-3-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
Revenues: ----------- -----------
Owned retail stores $2,415,502 $2,687,005
Sales of equipment and products 52,522 50,917
Royalties and service fees 418,148 552,521
Franchise fee income 59,879 55,854
Interest and dividend income 21,406 31,241
Other income, net 12,790 20,573
Loss on sale or abandonment of fixed assets, net (61,414) (43,000)
----------- -----------
2,918,833 3,355,111
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 2,276,528 2,609,033
Costs of equipment and products sold 41,778 31,192
Depreciation and amortization 147,736 145,429
Selling, general and administrative expenses 672,282 761,955
Interest expense 9,379 8,383
----------- -----------
3,147,703 3,555,992
----------- -----------
Loss before income taxes (228,870) (200,881)
Income taxes 7,301 3,466
----------- -----------
Net loss ($236,171) ($204,347)
=========== ===========
Loss per common share ($0.30) ($0.26)
=========== ===========
Weighted average number of shares outstanding 780,625 780,625
=========== ===========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-4-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1995
Common Stock Additional Treasury Stock
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 (355,673) (355,673)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31,
1995 (Unaudited) 1,883,706 $188,371 $4,185,250 $1,963,428 1,103,081 ($3,481,592) $2,855,457
============= ============= ============= ============= ============= ============= =============
See notes to unaudited consolidated condensed financial statements.
-5-
</TABLE>
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
Six Months Ended
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) December 31,
-----------------------------
1995 1994
<S> <C> <C>
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($355,673) ($288,523)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 294,341 286,093
Provision for doubtful accounts and notes receivable 60,000 25,000
Loss on sale and abandonment of property, plant,
and equipment 106,662 55,934
Changes in operating assets and liabilities, net of acquisition effect
(Increase) decrease in:
Notes and accounts receivable 76,474 15,052
Merchandise inventory 22,014 (19,554)
Prepaid and refundable income taxes 24,340 (12,182)
Prepaid expenses and miscellaneous receivables 37,334 (15,143)
Deposits (5,245) (4,905)
Deferred charges and other 3,341 (2,767)
Increase (decrease) in:
Accounts payable and accrued expenses 12,433 50,220
Accrued and withheld taxes, other than income taxes (118,419) (90,934)
Income taxes payable (18,407) (33,966)
Deposits payable 2,520 789
Deferred franchise fee revenue, net (101,865) (83,255)
------------- -------------
Net cash used in operating activities 39,850 (118,141)
------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (216,235) (286,867)
Decrease (increase) in marketable securities (2,655) 373,838
Proceeds from sale of property, plant, and equipment 14,070
Payment for salon acquired (15,000) (22,000)
------------- -------------
Net cash used in investing activities (219,820) 64,971
------------- -------------
Cash flows from financing activities:
Principal payments on loans (40,216) (33,708)
------------- -------------
Net cash used in financing activities (40,216) (33,708)
------------- -------------
Net decrease in cash and cash equivalents (220,186) (86,878)
Cash and cash equivalents at beginning of year 1,096,793 691,579
------------- -------------
Cash and cash equivalents at end of period $876,607 $604,701
=============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $10,659 $16,050
Income taxes $7,387 $14,383
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
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-6-
CutCo Industries, Inc.
Notes to Unaudited Consolidated Condensed Financial Statements
December 31, 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
six and three month periods ended December 31, 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.
-7-
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources:
Cash and cash equivalents were $876,607 at December 31,
1995, as compared to $604,701 at December 31, 1994.
Additionally, at December 31, 1995, the Company had $270,241
of marketable securities, as compared to $500,069 at
December 31, 1994. The Company had a current ratio of 1.97
at December 31, 1995, as compared to 2.11 at June 30, 1995,
and 2.25 at December 31, 1994.
At December 31, 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 5.6% ($295,717) and 10.1% ($271,503), respectively, in
the six and three month periods ended December 31, 1995.
Comparable store sales operating throughout each of the six
and three month periods ended December 31, 1995 and 1994
declined by 5.9% and 6.9%, respectively. As of December 31,
1995, there were 46 Company-owned salons, compared to 56 at
December 31, 1994. During the six month period ended
December 31, 1995, the Company acquired one salon from a
licensee, opened three salons, sold two salons and closed
nine 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
6.6% ($335,031) and 12.7% ($332,505), respectively, in the
six and three month periods ended December 31, 1995, as
compared to the same periods in 1994. Advertising and
promotion and occupancy costs increased as a percent of
sales in 1995 as compared to the same periods last year.
Sales of equipment and products declined by $548 and
increased by $1,605, respectively, in the six and three
month periods ended December 31, 1995 as compared to the
same periods in 1994. Correspondingly, cost of equipment
and products sold increased by $21,353 and $10,586,
respectively, reflecting lower margins.
-8-
Consolidated royalties and service fees decreased by 10.2%
($118,695) and 24.3% ($134,373), respectively, in the six
and three month periods ended December 31, 1995, as compared
to the same periods in 1994. The decreases are due to a
lower 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 December 31, 1995 was 305, as compared
to 309 at December 31, 1994.
Franchise fee income increased in the six and three month
periods ended December 31, 1995 by $23,396 and $4,025,
respectively, as compared to the same periods in 1994.
Franchise fee income 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 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. Inflation has not materially affected the
Company's revenues and income during the past two fiscal
years.
Interest and dividend income in the six and three month
periods ended December 31, 1995 decreased by $16,369 and
$9,835, respectively, due to a decline in the amount of
invested assets.
Selling, general, and administrative expenses decreased by
8.7% ($134,950) and 11.8% ($89,673), respectively, in the
six and three month periods ended December 31, 1995, as
compared to the same periods in 1994. The decreases in 1995
are due in part to lower general and administrative payroll
costs which will continue throughout the current fiscal
year.
The effective income tax benefit was 7.9% in the six month
period ended December 31, 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.
-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: February 13, 1996
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 876607
<SECURITIES> 270241
<RECEIVABLES> 437897
<ALLOWANCES> 0
<INVENTORY> 500666
<CURRENT-ASSETS> 2337953
<PP&E> 2715203
<DEPRECIATION> 1367532
<TOTAL-ASSETS> 4592158
<CURRENT-LIABILITIES> 1185482
<BONDS> 201242
<COMMON> 188371
0
0
<OTHER-SE> 2667086
<TOTAL-LIABILITY-AND-EQUITY> 4592158
<SALES> 111248
<TOTAL-REVENUES> 6208353
<CGS> 92160
<TOTAL-COSTS> 92160
<OTHER-EXPENSES> 6437516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19397
<INCOME-PRETAX> (340720)
<INCOME-TAX> 14953
<INCOME-CONTINUING> (355673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355673)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
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