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, 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.)
6900 Jericho Turnpike, Syosset, New York 11791
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 677-0320
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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 11, 1997 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, 1997 and June 30, 1997 1-2
Consolidated Condensed Statements of Operations -
Three Months Ended September 30, 1997 and
1996 3
Consolidated Condensed Statement of Shareholders
Equity - Three Months Ended September 30, 1997 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended September 30, 1997 and 1996 5
Notes to Unaudited Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
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)
September 30, June 30,
1997 1997
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $470,642 $550,840
Marketable securities 501,073 499,383
Notes and accounts receivable, net 394,535 377,514
Merchandise inventory 393,214 376,797
Deferred income taxes 120,000 120,000
Prepaid expenses, taxes and
miscellaneous receivables 86,652 131,211
------------- -------------
TOTAL CURRENT ASSETS 1,966,116 2,055,745
PROPERTY AND EQUIPMENT, AT COST
Furniture, fixtures and equipment 1,990,849 2,137,829
Leasehold improvements 95,944 95,944
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2,086,793 2,233,773
Less accumulated depreciation
and amortization 1,048,385 1,010,791
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1,038,408 1,222,982
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OTHER ASSETS
Notes receivable, noncurrent, net 70,592 78,574
Deferred charges and other 254,391 287,639
Deposits 77,714 105,885
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402,697 472,098
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$3,407,221 $3,750,825
============= =============
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-1-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - Continued
(UNAUDITED)
September 30, June 30,
1997 1997
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accrued
expenses $738,168 $823,323
Current portion of long-term debt 154,567 167,558
Accrued and withheld taxes,
other than income taxes 60,940 75,167
Income taxes payable 20,645 31,453
------------- -------------
TOTAL CURRENT LIABILITIES 974,320 1,097,501
LONG-TERM DEBT 5,535 6,860
DEPOSITS PAYABLE 34,446 62,499
DEFERRED INCOME 56,299 45,709
DEFERRED INCOME TAXES 120,000 120,000
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TOTAL LIABILITIES 1,190,600 1,332,569
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SHAREHOLDERS' EQUITY
Common Stock 188,371 188,371
Additional paid-in capital 4,185,250 4,185,250
Retained earnings 1,324,592 1,526,227
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5,698,213 5,899,848
Less treasury stock - at cost 3,481,592 3,481,592
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TOTAL SHAREHOLDERS' EQUITY 2,216,621 2,418,256
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$3,407,221 $3,750,825
============= =============
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-2-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Owned retail stores $1,858,659 $2,047,155
Sales of equipment and products 52,394 47,341
Royalties and service fees 407,941 567,844
Franchise fee income 5,837 19,041
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2,324,831 2,681,381
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Costs and Expenses:
Direct costs of owned retail stores 1,719,748 1,910,983
Costs of equipment and products sold 34,592 31,277
Depreciation and amortization 114,720 117,275
Selling, general and administrative expenses 549,846 585,424
Provision for doubtful accounts and notes receivable 15,000 42,000
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2,433,906 2,686,959
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Other income (loss):
Interest and dividend income 8,591 20,705
Interest expense (4,284) (5,485)
Gain (loss) on sale/abandonment of assets, net (105,928) 3,717
Other income, net 18,112 5,112
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(83,509) 24,049
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Income (loss) before income taxes (192,584) 18,471
Income taxes 9,051 14,297
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Net income (loss) ($201,635) $4,174
=========== ===========
Earnings (loss) per common share ($0.26) $0.01
=========== ===========
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 STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 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, 1997 1,883,706 $188,371 $4,185,250 $1,526,227 1,103,081 ($3,481,592) $2,418,256
Net loss (201,635) (201,635)
----------- ----------- ------------ ------------ ---------- ------------ -----------
Balance at Septenber 30,
1997 (Unaudited) 1,883,706 $188,371 $4,185,250 $1,324,592 1,103,081 ($3,481,592) $2,216,621
=========== =========== ============ ============ ========== ============ ===========
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-4-
<TABLE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
Three Months Ended
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) September 30,
-----------------------------
1997 1996
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<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($201,635) $4,174
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 114,720 117,275
Provision for doubtful accounts and notes receivable 15,000 42,000
Loss on sale/abandonment of assets, net 105,928 (3,717)
Changes in operating assets and liabilities, net of effect of
acquisition and sale:
Notes and accounts receivable (24,039) (46,522)
Merchandise inventory (16,417) (84,854)
Prepaid expenses, taxes and miscellaneous receivables 44,559 (14,293)
Deposits and other 28,171 (3,464)
Accounts payable and accrued expenses (85,155) 60,122
Accrued and withheld taxes, other than income taxes (10,808) (98,445)
Income taxes payable (14,227) 5,393
Deposits payable (28,053) 2,859
Deferred income 10,590 (2,933)
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Net cash used in operating activities (61,366) (22,405)
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Cash flows from investing activities:
Purchases of property and equipment (2,926) (128,931)
Increase in marketable securities (1,690) (78,068)
Proceeds from sale of property and equipment 100 5,000
Payment for business acquired (45,000)
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Net cash used in investing activities (4,516) (246,999)
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Cash flows from financing activities:
Principal payments on loans (14,316) (13,362)
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Net cash used in financing activities (14,316) (13,362)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (80,198) (282,766)
Cash and cash equivalents at beginning of period 550,840 1,035,395
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Cash and cash equivalents at end of period $470,642 $752,629
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $3,545 $3,649
Income taxes $4,215 $15,209
Non cash investing and financing activities:
Notes and accounts receivable received in connection
with sale of salon $20,000
</TABLE>
See notes to unaudited consolidated condensed financial statements.
-5-
CutCo Industries, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed Financial Statements
September 30, 1997
Note 1 - Financial Statements
The accompanying unaudited consolidated condensed finan-
cial statements have been prepared without audit in accor-
dance 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, 1997 are not
necessarily indicative of the results that may be expected
for the year ending June 30, 1998. For further informa-
tion, refer to the consolidated financial statements and
footnotes as of June 30, 1997 included in the Company's
Annual Report on Form 10-KSB for the Company's fiscal
year then ended.
-6-
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended September 30, 1997
Liquidity and Capital Resources:
Cash and cash equivalents were $470,642 at September 30,
1997, as compared to $550,840 at June 30, 1997. In addi-
tion, at September 30, 1997, the Company had $501,073 of
marketable securities, as compared to $499,383 at June 30,
1997. During the three months ended September 30, 1997,
the primary use of the Company's capital resources was net
cash used in operating activities of $61,366, as compared
to the primary use of the Company's capital resources in
the three months ended September 30, 1996 which was net
cash used in investing activities of $246,999.
The Company had a current ratio of 2.02 at September 30,
1997, as compared to 2.20 at September 30, 1996 and 1.87
at June 30, 1997.
At September 30, 1997, commitments for capital expen-
ditures and other investments did not exceed $30,000.
Such commitments were for 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 three months ended September 30, 1997, revenues
from Company-owned salon operations decreased by 9.2%
($188,000) as compared to the three months ended September
30, 1996. The decrease in revenues is attributable to a
decrease in comparable salon store sales of 8.6% in the
three months ending September 30, 1997. As of September
30, 1997 there were 43 company-owned salons, as compared
to 43 at September 30, 1996. In the three months ended
September 30, 1997, direct costs of Company-owned salons
decreased by 10.1% ($191,000) compared to such costs for
the three months ended September 30, 1996.
-7-
These variances are largely attributable to costs that
fluctuate in direct relation to sales. During the three
months ended September 30, 1997 the Company closed one
salon. Additionally, the loss on sale/abandonment of
assets, net of $106,000, includes the recorded loss
associated with the decision to close two salons in
October, 1997. Management's policy is to close existing
salons that do not meet its cash flow criteria.
In the three month period ended September 30, 1997,
royalties and service fees decreased by 28.2% ($160,000)
as compared to the three months ended September 30, 1996.
The overall decrease is due in part to a decline in the
number of franchised hair salons. The number of fran-
chised hair salons has been steadily decreasing
for .paseveral years (299 at September 30, 1995, 287 at
September 30, 1996 and 271 at September 30, 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 1998, due to increased competition
for obtaining new locations and recruiting licensed hair
stylists, coupled with a longer period from a salon's
opening until it achieves profitable operations.
Franchise fee income decreased in the three month period
ended September 30, 1997 by 69.3% ($13,000) as compared to
the three month period ended September 30, 1996. Fran-
chise fees, which were principally related to the New Area
Development Program, have ceased as the remaining payments
due to the Company under notes obtained in connection with
that Program have been paid.
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 .papersonnel. The Company believes that the
scarcity of hair stylists will continue to have a detri-
mental effect on salon operations and expansion by the
Company and its licensees for as long as the situation
continues.
-8-
Inflation has not materially affected the Company's reve-
nues and income during the past two fiscal years.
In the three month period ended September 30, 1997 sell-
ing, general, and administrative expenses decreased by
6.1% ($36,000) as compared to the same period ended Sep-
tember 30, 1996. The decrease is due to lower corporate
occupancy costs.
The provision for doubtful accounts and notes receivable
declined by $27,000 for the three month period ended
September 30, 1997 as compared to the same period ended
September 30, 1996. The allowance at September 30, 1997
was $369,725 as compared to $353,041 at June 30, 1997.
The income tax charges in the three month periods ended
September 30, 1997 and 1996 reflect 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.
-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
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: November 14, 1997
-11-
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 470642
<SECURITIES> 501073
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<INVENTORY> 393214
<CURRENT-ASSETS> 1966116
<PP&E> 2086793
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<BONDS> 5535
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<OTHER-SE> 2028250
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</TABLE>
