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Previous: AMERICAN GENERAL FINANCE CORP, 424B3, 1997-05-13 |
Next: EIP MICROWAVE INC, 10QSB, 1997-05-13 |
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, 1997 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
--------------------
-----------------------------------------------------------------------
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, 1997 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, 1997 and June 30, 1996 1-2
Consolidated Condensed Statements of Operations -
Nine and Three Months Ended March 31, 1997 and
1996 3-4
Consolidated Condensed Statement of Shareholders'
Equity - Nine Months Ended March 31, 1997 5
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended March 31, 1997 and 1996 6
Notes to Unaudited Consolidated Condensed
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $415,417 $1,035,395
Marketable securities 642,772 565,725
Notes and accounts receivable, net 368,828 426,539
Merchandise inventory 459,273 415,236
Prepaid and refundable income taxes 21,405 12,851
Deferred income taxes 105,000 105,000
Prepaid expenses and miscellaneous
receivables 57,779 102,164
------------- -------------
TOTAL CURRENT ASSETS 2,070,474 2,662,910
------------- -------------
PROPERTY AND EQUIPMENT, AT COST
Furniture, fixtures and equipment 2,058,477 2,305,969
Leasehold improvements 95,944 158,230
------------- -------------
2,154,421 2,464,199
Less accumulated depreciation
and amortization 939,445 1,373,794
------------- -------------
1,214,976 1,090,405
------------- -------------
OTHER ASSETS
Notes receivable, noncurrent, net 111,495 120,898
Deferred charges and other 326,644 410,914
Deposits 115,381 116,677
------------- -------------
553,520 648,489
------------- -------------
$3,838,970 $4,401,804
============= =============
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-1-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - Continued
(UNAUDITED)
March 31, June 30,
1997 1996
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued
expenses $830,490 $961,731
Current portion of long-term debt 57,767 54,826
Accrued and withheld taxes,
other than income taxes 57,778 159,303
Income taxes payable 23,514 21,221
------------- -------------
TOTAL CURRENT LIABILITIES 969,549 1,197,081
LONG-TERM DEBT 130,718 174,430
DEPOSITS PAYABLE 52,974 55,637
DEFERRED INCOME 43,734 35,714
DEFERRED INCOME TAXES 105,000 105,000
------------- -------------
TOTAL LIABILITIES 1,301,975 1,567,862
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock 188,371 188,371
Additional paid-in capital 4,185,250 4,185,250
Retained earnings 1,644,966 1,941,913
------------- -------------
6,018,587 6,315,534
Less treasury stock - at cost 3,481,592 3,481,592
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,536,995 2,833,942
------------- -------------
$3,838,970 $4,401,804
============= =============
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-2-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
March 31,
1997 1996
------ ------
<S> <C> <C>
Revenues:
Owned retail stores $5,859,681 $7,153,203
Sales of equipment and products 115,086 167,290
Royalties and service fees 1,369,862 1,439,773
Franchise fee income 29,911 168,020
----------- -----------
7,374,540 8,928,286
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 5,513,771 6,757,667
Costs of equipment and products sold 81,390 123,974
Depreciation and amortization 338,232 429,784
Selling, general and administrative expenses 1,760,776 1,919,485
Provision for doubtful accounts and notes receivable 17,000 90,000
----------- -----------
7,711,169 9,320,910
----------- -----------
Other income (loss):
Interest and dividend income 59,532 67,086
Interest expense (14,301) (24,343)
Loss on sale/abandonment of assets, net (24,535) (160,238)
Other income, net 37,968 44,814
----------- -----------
58,664 (72,681)
----------- -----------
Loss before income taxes (277,965) (465,305)
Income taxes 18,982 21,217
----------- -----------
Net loss ($296,947) ($486,522)
=========== ===========
Net loss per common share ($0.38) ($0.62)
=========== ===========
Weighted average number of common 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
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Owned retail stores $1,636,362 $2,196,386
Sales of equipment and products 35,089 56,042
Royalties and service fees 363,619 390,004
Franchise fee income 3,524 46,155
----------- -----------
2,038,594 2,688,587
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 1,586,142 2,028,030
Costs of equipment and products sold 26,806 31,814
Depreciation and amortization 110,599 135,443
Selling, general and administrative expenses 602,411 565,947
Provision (recovery) for doubtful accounts and notes receivable (61,000) 30,000
----------- -----------
2,264,958 2,791,234
----------- -----------
Other income (loss):
Interest and dividend income 17,397 21,843
Interest expense (4,167) (4,946)
Gain (loss) on sale/abandonment of assets, net 3,154 (53,576)
Other income, net 18,917 14,741
----------- -----------
35,301 (21,938)
----------- -----------
Loss before income taxes (191,063) (124,585)
Income taxes 2,323 6,264
----------- -----------
Net loss ($193,386) ($130,849)
=========== ===========
Net loss per common share ($0.25) ($0.17)
=========== ===========
Weighted average number of common 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)
NINE MONTHS ENDED MARCH 31, 1997
Common Stock Additional Treasury Stock
------------ Paid-In Retained --------------
Shares Amount Capital Earnings Shares Amount Total
----------- ----------- ------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 1,883,706 $188,371 $4,185,250 $1,941,913 1,103,081 ($3,481,592) $2,833,942
Net loss (296,947) (296,947)
----------- ----------- ------------ ------------ ---------- ------------ -----------
Balance at March 31,
1997 (Unaudited) 1,883,706 $188,371 $4,185,250 $1,644,966 1,103,081 ($3,481,592) $2,536,995
=========== =========== ============ ============ ========== ============ ===========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
Nine Months Ended
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) March 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($296,947) ($486,522)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 338,232 429,784
Provision for doubtful accounts and notes receivable 17,000 90,000
Loss on sale/abandonment of assets, net 24,535 160,238
Changes in operating assets and liabilities, net of effect of
acquisition and sale:
Notes and accounts receivable 70,114 190,708
Merchandise inventory (48,067) 67,591
Prepaid and refundable income taxes (8,554) 90,379
Prepaid expenses and miscellaneous receivables 44,385 (31,341)
Deposits and other (1,917) (5,894)
Accounts payable and accrued expenses (131,241) 26,434
Accrued and withheld taxes, other than income taxes (101,525) (139,322)
Income taxes payable 2,293 (18,844)
Deposits payable (2,663) 1,602
Deferred income 8,020 (138,770)
------------- -------------
Net cash provided by (used in) operating activities (86,335) 236,043
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (379,925) (244,280)
Increase in marketable securities (77,047) (2,376)
Proceeds from sale of property and equipment 9,100 18,070
Payment for business acquired (45,000) (15,000)
------------- -------------
Net cash used in investing activities (492,872) (243,586)
------------- -------------
Cash flows from financing activities:
Principal payments on loans (40,771) (71,998)
------------- -------------
Net cash used in financing activities (40,771) (71,998)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (619,978) (79,541)
Cash and cash equivalents at beginning of period 1,035,395 1,096,793
------------- -------------
Cash and cash equivalents at end of period $415,417 $1,017,252
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $11,093 $15,180
Income taxes $22,064 $10,783
Non cash investing and financing activities:
Notes payable issued in connection with acquisition of salon $20,000
Notes and accounts receivable forgiven in connection
with acquisition of salon $49,960
Notes and accounts receivable received in connection
with sale of salon $20,000 $59,600
</TABLE>
See notes to unaudited consolidated condensed financial statements.
CutCo Industries, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed Financial Statements
March 31, 1997
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, 1997 are not necessarily indicative of the results
that may be expected for the year ending June 30,
1997. For further information, refer to the
consolidated financial statements and footnotes as of
June 30, 1996 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, 1997
Liquidity and Capital Resources:
Cash and cash equivalents were $415,417 at March 31, 1997,
as compared to $1,035,395 at June 30, 1996. In addition,
at March 31, 1997, the Company had $642,772 of marketable
securities, as compared to $565,725 at June 30, 1996.
During the nine months ended March 31, 1997, the primary
use of the Company's capital resources was net cash used
in investing activities of $493,000, as compared to
$244,000 in the comparable 1996 period. In the nine
months ended March 31, 1997, the Company invested $380,000
in property and equipment and cash of $45,000 to acquire
an accredited cosmetology technical training school. The
Company had net purchases of marketable securities of
$77,000, as compared to net purchases of $2,400 in the
nine months ended March 31, 1996.
The Company had a current ratio of 2.14 at March 31,
1997, as compared to 2.01 at March 31, 1996 and 2.22 at
June 30, 1996.
At March 31, 1997, commitments for capital expenditures
and other investments did not exceed $200,000. Such
commitments were for acquisition or construction of
salons, salon refurbishing, and other investments. The
Company believes its cash resources and liquidity are
adequate for its present short and long-term business
requirements.
Results of Operations:
In the nine and three months ended March 31, 1997,
revenues from Company-owned salon operations decreased by
18.1% ($1,294,000) and 25.5% ($560,000), respectively, as
compared to the same periods in 1996. The decrease in
revenues is mainly attributable to a decrease in the
average number of company-owned salons operating during
the nine and three months ending March 31, 1997. The
decrease also reflects the closing in January, 1997 of a
high volume salon whose lease was not renewed by
the Company. As of March 31, 1997, there were 42
company-owned salons, as compared to 43 at March 31,
-8-
1996. On a comparable basis, store sales for salons oper-
ating throughout the entire nine and three month periods
ended March 31, 1997 and 1996 declined by 1.1% and 3.7%,
respectively. In the nine and three months ended March 31,
1997, respectively, direct costs of Company- owned salons
decreased by 18.4% ($1,244,000) and 21.8% ($442,000) over
such total costs for the nine and three months ended March
31, 1996.
These variances are largely attributable to costs that
fluctuate in direct relation to sales. However, the
Company incurred decreased payroll and occupancy costs, as
a percent of sales during the three months ended March
31, 1997 compared to the same period in 1996. During the
nine months ended March 31, 1997 the Company opened six
salons, sold one salon to a licensee, closed four salons
and acquired one accredited cosmetology technical training
school. Management's policy is to close existing salons
that do not meet its cash flow criteria.
In the nine and three month periods ended March 31, 1997,
sales of equipment and products decreased by 31.2%
($52,000) and 37.4% ($21,000), respectively, compared to
the same periods in 1996. Correspondingly, cost of
equipment and products sold decreased by 34.4% and 15.8%,
respectively. The decrease in sales is due in part to the
decreased number of franchised salons.
In the nine and three month periods ended March 31, 1997,
royalties and service fees decreased by 4.9% ($70,000) and
6.8% ($26,000), respectively, as compared to the same
periods in 1996. The overall decrease is due in part to
a decline in the number of franchised hair salons. The
number of franchised hair salons has been steadily
decreasing for several years (305 at March 31, 1995, 301
at March 31, 1996 and 281 at March 31, 1997).
The Company expects the decline in royalties to continue
as a result of attrition of existing licensees without
replacements with new licensees. The Company does not
anticipate significant hair care franchise sales from new
locations for fiscal 1997, due to increased competition
for new locations, coupled with a longer period from a
salon's opening until it achieves profitable operations.
Franchise fee income decreased in the nine and three month
periods ended March 31, 1997 by 82.2% ($138,000) and
92.4% ($43,000), respectively, as compared to the same
periods ended March 31, 1996. Franchise fees, which are
principally related to the New Area Development Program,
will continue to decline as payments to the Company under
notes obtained in connection with that Program, cease at
the varying maturities of such notes.
-9-
The number of franchised salons has been steadily decreas-
ing 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 reve-
nues will continue for as long as the downward trend in
the number of franchised salons continues.
The lack of an adequate number of licensed hair stylists
has become a major industry-wide problem and makes it
difficult to recruit the required number of qualified
personnel. The Company believes that the scarcity of hair
stylists will continue to have a detrimental effect on
salon operations and expansion by the Company and its
licensees for as long as the situation continues.
Inflation has not materially affected the Company's
revenues and income during the past two fiscal years.
In the nine and three month periods ended March 31, 1997
selling, general, and administrative expenses decreased by
8.3% ($159,000) and increased by 6.4% ($36,000),
respectively, as compared to the same periods ended March
31, 1996. The decrease in the nine month period is due in
part to lower general and administrative payroll costs
and the increase in the three month period is due in part
to operation of the cosmetology school acquired in
September, 1996.
The provision (recovery) for doubtful accounts and notes
receivable declined for the nine and three month periods
ended March 31, 1997 as compared to the same periods ended
March 31, 1996 due in part to recoveries and evaluation of
accounts previously deemed uncollectible. The allowance
at March 31, 1997 was $374,674 as compared to $335,904 at
June 30, 1996.
The income tax charges in the nine and three month periods
ended March 31, 1997 reflects that since the Company files
separate subsidiary state income tax returns, rather than
consolidated state income tax returns, the Company was not
able to offset certain subsidiary losses against other
subsidiary income.
The Company's salons and franchising activities, including
its sales of franchises, are not materially affected by
seasonal fluctuations, in the volume of business.
-10-
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Not Applicable.
b) None.
-11-
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
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.
CUTCO INDUSTRIES, INC.
(Registrant)
s/DON vonLIEBERMANN
____________________________________
DON vonLIEBERMANN
President
s/MICHAEL KRAMER
____________________________________
MICHAEL KRAMER
Principal Financial &
Chief Accounting Officer
DATE: May 13, 1997
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 415417
<SECURITIES> 642772
<RECEIVABLES> 368828
<ALLOWANCES> 0
<INVENTORY> 459273
<CURRENT-ASSETS> 2070474
<PP&E> 2154421
<DEPRECIATION> 939445
<TOTAL-ASSETS> 3838970
<CURRENT-LIABILITIES> 969549
<BONDS> 130718
<COMMON> 188371
0
0
<OTHER-SE> 2348624
<TOTAL-LIABILITY-AND-EQUITY> 3838970
<SALES> 115086
<TOTAL-REVENUES> 7374540
<CGS> 81390
<TOTAL-COSTS> 81390
<OTHER-EXPENSES> 7629779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14301
<INCOME-PRETAX> (277965)
<INCOME-TAX> 18982
<INCOME-CONTINUING> (296947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296947)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
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