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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 December 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 February 5, 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 -
December 31, 1996 and June 30, 1996 1-2
Consolidated Condensed Statements of Operations -
Six and Three Months Ended December 31, 1996 and
1995 3-4
Consolidated Condensed Statement of Shareholders'
Equity - Six Months Ended December 31, 1996 5
Consolidated Condensed Statements of Cash Flows -
Six Months Ended December 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 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
1996 1996
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $654,381 $1,035,395
Marketable securities 642,652 565,725
Notes and accounts receivable, net 429,194 426,539
Merchandise inventory 400,653 415,236
Prepaid and refundable income taxes 18,964 12,851
Deferred income taxes 105,000 105,000
Prepaid expenses and miscellaneous
receivables 57,919 102,164
------------- -------------
TOTAL CURRENT ASSETS 2,308,763 2,662,910
------------- -------------
PROPERTY AND EQUIPMENT, AT COST
Furniture, fixtures and equipment 1,902,727 2,305,969
Leasehold improvements 96,230 158,230
------------- -------------
1,998,957 2,464,199
Less accumulated depreciation
and amortization 862,734 1,373,794
------------- -------------
1,136,223 1,090,405
------------- -------------
OTHER ASSETS
Notes receivable, noncurrent, net 104,319 120,898
Deferred charges and other 358,994 410,914
Deposits 113,672 116,677
------------- -------------
576,985 648,489
------------- -------------
$4,021,971 $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)
December 31, June 30,
1996 1996
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued
expenses $820,762 $961,731
Current portion of long-term debt 56,773 54,826
Accrued and withheld taxes,
other than income taxes 50,080 159,303
Income taxes payable 23,514 21,221
------------- -------------
TOTAL CURRENT LIABILITIES 951,129 1,197,081
LONG-TERM DEBT 145,536 174,430
DEPOSITS PAYABLE 52,499 55,637
DEFERRED INCOME 37,426 35,714
DEFERRED INCOME TAXES 105,000 105,000
------------- -------------
TOTAL LIABILITIES 1,291,590 1,567,862
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock 188,371 188,371
Additional paid-in capital 4,185,250 4,185,250
Retained earnings 1,838,352 1,941,913
------------- -------------
6,211,973 6,315,534
Less treasury stock - at cost 3,481,592 3,481,592
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,730,381 2,833,942
------------- -------------
$4,021,971 $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)
Six Months Ended
December 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Owned retail stores $4,223,319 $4,956,817
Sales of equipment and products 79,997 111,248
Royalties and service fees 1,006,243 1,049,769
Franchise fee income 26,387 121,865
----------- -----------
5,335,946 6,239,699
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 3,927,629 4,729,637
Costs of equipment and products sold 54,584 92,160
Depreciation and amortization 227,633 294,341
Selling, general and administrative expenses 1,158,365 1,353,538
Provision for doubtful accounts and notes receivable 78,000 60,000
----------- -----------
5,446,211 6,529,676
----------- -----------
Other income (loss):
Interest and dividend income 42,135 45,243
Interest expense (10,134) (19,397)
Loss on sale/abandonment of assets, net (27,689) (106,662)
Other income, net 19,051 30,073
----------- -----------
23,363 (50,743)
----------- -----------
Loss before income taxes (86,902) (340,720)
Income taxes 16,659 14,953
----------- -----------
Net loss ($103,561) ($355,673)
=========== ===========
Net loss per common share ($0.13) ($0.46)
=========== ===========
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,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Owned retail stores $2,176,164 $2,415,502
Sales of equipment and products 32,656 52,522
Royalties and service fees 438,399 418,148
Franchise fee income 7,346 59,879
----------- -----------
2,654,565 2,946,051
----------- -----------
Costs and Expenses:
Direct costs of owned retail stores 2,016,646 2,276,528
Costs of equipment and products sold 23,307 41,778
Depreciation and amortization 110,358 147,736
Selling, general and administrative expenses 572,941 642,282
Provision for doubtful accounts and notes receivable 36,000 30,000
----------- -----------
2,759,252 3,138,324
----------- -----------
Other income (loss):
Interest and dividend income 21,430 21,406
Interest expense (4,649) (9,379)
Loss on sale/abandonment of assets, net (31,406) (61,414)
Other income, net 13,939 12,790
----------- -----------
(686) (36,597)
----------- -----------
Loss before income taxes (105,373) (228,870)
Income taxes 2,362 7,301
----------- -----------
Net loss ($107,735) ($236,171)
=========== ===========
Net loss per common share ($0.14) ($0.30)
=========== ===========
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, 1996
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, 1996 1,883,706 $188,371 $4,185,250 $1,941,913 1,103,081 ($3,481,592) $2,833,942
Net loss (103,561) (103,561)
----------- ----------- ------------ ------------ ---------- ------------ -----------
Balance at December 31,
1996 (Unaudited) 1,883,706 $188,371 $4,185,250 $1,838,352 1,103,081 ($3,481,592) $2,730,381
=========== =========== ============ ============ ========== ============ ===========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-5-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES Six Months Ended
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) December 31,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($103,561) ($355,673)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 227,633 294,341
Provision for doubtful accounts and notes receivable 78,000 60,000
Loss on sale/abandonment of assets, net 27,689 106,662
Changes in operating assets and liabilities, net of effect of
acquisition and sale:
Notes and accounts receivable (44,076) 76,474
Merchandise inventory 7,399 22,014
Prepaid and refundable income taxes (6,113) 24,340
Prepaid expenses and miscellaneous receivables 44,245 37,334
Deposits and other 922 (1,904)
Accounts payable and accrued expenses (140,969) 12,433
Accrued and withheld taxes, other than income taxes (109,223) (118,419)
Income taxes payable 2,293 (18,407)
Deposits payable (3,138) 2,520
Deferred income 1,712 (101,865)
------------- -------------
(17,187) 39,850
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (219,953) (216,235)
(Increase) decrease in marketable securities (76,927) (2,655)
Proceeds from sale of property and equipment 5,000 14,070
Payment for business acquired (45,000) (15,000)
------------- -------------
Net cash used in investing activities (336,880) (219,820)
------------- -------------
Cash flows from financing activities:
Principal payments on loans (26,947) (40,216)
------------- -------------
Net cash used in financing activities (26,947) (40,216)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (381,014) (220,186)
Cash and cash equivalents at beginning of period 1,035,395 1,096,793
------------- -------------
Cash and cash equivalents at end of period $654,381 $876,607
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $7,633 $10,659
Income taxes $18,594 $7,387
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
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-6-
CutCo Industries, Inc.
Notes to Unaudited Consolidated Condensed Financial Statements
December 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
six and three month periods ended December 31, 1996 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
Six Months Ended December 31, 1996
Liquidity and Capital Resources:
Cash and cash equivalents were $654,381 at December
31, 1996, as compared to $1,035,395 at June 30,
1996. In addition, at December 31, 1996, the
Company had $642,652 of marketable securities, as
compared to $565,725 at June 30, 1996. During the
six months ended December 31, 1996, the primary use
of the Company's capital resources was net cash
used in investing activities of $337,000, as
compared to $220,000 in the comparable 1995 period.
In the six months ended December 31, 1996, the
Company invested $220,000 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 sales of $3,000 in the
six months ended December 31, 1995.
The Company had a current ratio of 2.43 at December
31, 1996, as compared to 1.97 at December 31, 1995
and 2.22 at June 30, 1996.
At December 31, 1996, commitments for capital
expenditures and other investments did not exceed
$300,000. 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 six and three months ended December 31,
1996, revenues from Company-owned salon operations
decreased by 14.8% ($733,000) and 9.9% ($239,000),
respectively, as compared to the same periods in
1995. The decrease in revenues is mainly
attributable to a decrease in the average number of
company-owned salons operating during the six and
three months ending December 31, 1996. As of
December 31, 1996, there were 41 company-owned
salons, as compared to 46 at December 31, 1995. On
a comparable basis, store sales for salons
operating throughout the entire six and three month
periods ended December 31, 1996 and 1995 declined
by 2.4% and 1.1%, respectively. In the six and
-8-
three months ended December 31, 1996, respectively,
direct costs of Company-owned salons decreased by
17.0% ($802,000) and 11.4% ($260,000) over such
total costs for the six and three months ended
December 31, 1995. 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 six months ended December 31,
1996 compared to the same period in 1995. During
the three months ended December 31, 1996 as a
percent of sales occupancy costs declined and
payroll costs increased as compared to the
respective 1995 period. During the six months ended
December 31, 1996 the Company opened four salons,
sold one salon to a licensee, closed three 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 six and three month periods ended December
31, 1996, sales of equipment and products decreased
by 28.1% ($31,000) and 37.8% ($20,000),
respectively, compared to the same periods in 1995.
Correspondingly, cost of equipment and products
sold decreased by 40.8% and 44.2%, respectively,
reflecting higher margins. The decrease in sales
is due in part to the decreased number of
franchised salons.
In the six and three month periods ended December
31, 1996, royalties and service fees decreased by
4.1% ($44,000) and increased by 4.8% ($20,000),
respectively, as compared to the same periods in
1995. 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 (309 at
December 31, 1994, 305 at December 31, 1995 and
284 at December 31, 1996).
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.
-9-
Franchise fee income decreased in the six and three
month periods ended December 31, 1996 by 78.3%
($95,000) and 87.7% ($53,000), respectively, as
compared to the same periods ended December 31,
1995. 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.
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.
In the six and three month periods ended December
31, 1996 selling, general, and administrative
expenses decreased by 14.4% ($195,000) and 10.8%
($69,000), respectively, as compared to the same
periods ended December 31, 1995. The decreases are
due in part to lower general and administrative
payroll costs.
The income tax charges in the six and three month
periods ended December 31, 1996 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
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 7, 1997
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 654381
<SECURITIES> 642652
<RECEIVABLES> 429194
<ALLOWANCES> 0
<INVENTORY> 400653
<CURRENT-ASSETS> 2308763
<PP&E> 1998957
<DEPRECIATION> 862734
<TOTAL-ASSETS> 4021971
<CURRENT-LIABILITIES> 951129
<BONDS> 145536
<COMMON> 188371
0
0
<OTHER-SE> 2542010
<TOTAL-LIABILITY-AND-EQUITY> 4021971
<SALES> 79997
<TOTAL-REVENUES> 5335946
<CGS> 54584
<TOTAL-COSTS> 54584
<OTHER-EXPENSES> 5391627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10134
<INCOME-PRETAX> (86902)
<INCOME-TAX> 16659
<INCOME-CONTINUING> (103561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103561)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
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