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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 OR 1934
For Quarter Ended September 30, 1999 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.)
11777 San Vicente Blvd, Los Angeles, California 90049
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 979-8055
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6900 Jericho Turnpike, Syosset, New York 11791
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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 November 5, 1999 is 942,500
Transitional Small Business Disclosure:
Yes No X
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<PAGE>ii
CUTCIO INDUSTRIES, INC.
FORM 10-QSB
INDEX
<TABLE>
<S> <C>
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statments (Unauditied)
Consolidated Balance Sheets -
September 30, 1999 and June 30, 1999(Audited) 1 - 2
Consolidated Statements of Operations -
Three Months Ended September 30, 1999 and 1998 3
Consolidated Statement of Shareholders
Equity - Three Months Ended September 30, 1999 4
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1999 and 1998 5
Notes to Unaudited Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
<PAGE>1
CUTCO INDUSTRIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<S> <C> <C>
September 30, June 30,
1999 1999
-------------- -----------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $760,856 $1,528,108
Marketable securities 0 844,903
Notes and accounts receivable, net 400,571 433,182
Prepaid expenses, taxes and miscellaneous receivables 129,450 38,989
Notes receivable - related party $1,385,000 0
----------- -----------
Total current assets 2,675,877 2,845,182
Property and equipment:
Furniture, fixtures and equipment 43,863 130,253
----------- -----------
43,863 130,253
Less accumulated depreciation and amortization (23,891) (108,505)
----------- -----------
19,972 21,748
----------- -----------
Other assets:
Notes receivable 0 258,234
Deposits 44,458 22,708
----------- -----------
44,458 280,942
----------- -----------
$2,740,307 $3,147,872
=========== ===========
</TABLE>
(Continued)
See notes to unaudited financial statements
<PAGE>2
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
September 30 June 30
1999 1999
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(Unaudited) (Audited)
Current liabilities:
Accounts payable and accrued expenses 170,834 232,725
Accrued and witheld taxes, other than income taxes 287 398
Income taxes payable 0 31,558
-------------- ------------
Total current liabilities 171,121 264,681
Security deposit payable 12,416 0
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Total liabilities 183,537 264,681
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Shareholders' Equity:
Common stock, $.10 par value, authorized
5,000,000 shares, issued 1,950,206 shares 195,021 195,021
Additional paid-in capital 4,275,725 4,275,725
Retained earnings 1,598,002 1,894,037
-------------- ------------
6,068,748 6,364,783
Less common stock held in treasury, at cost
1,107,706 shares (3,511,978) (3,481,592)
-------------- -------------
2,556,770 2,883,191
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2,740,307 3,147,872
============== ==============
</TABLE>
See notes to unaudited financial statements
<PAGE>3
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30
--------------------------------
1999 1998
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Revenues:
Owned retail stores $ 0 $1,635,638
Sales of equipment and products 26,780 37,298
Royalties, service fees and franchise income 278,200 445,587
----------- -----------
304,980 2,118,523
----------- -----------
Cost and expenses:
Direct costs of owned retail stores 0 1,561,065
Costs of equipment and products sold 20,808 30,900
Depreciation and amortization 2,033 63,976
Selling, general and administrative expenses 599,013 441,803
Provision for doubtful accounts and notes receivable 0 15,000
----------- -----------
621,854 2,112,744
Other income (loss):
Interest and dividend income 30,197 31,629
Other income(loss), net (6,308) 75,142
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23, 889 106,771
-------------- -----------
Income (loss) before income taxes (292,985) 112,550
Income taxes (3,050) (2,953)
-------------- -----------
Net income (loss) (296,035) 109,597
-------------- -----------
Earnings (loss) per common share ($0.34) $0.14
-------------- ------------
Weighted average number of common shares outstanding 871,000 784,782
============== ============
</TABLE>
See notes to unaudited financial statements
<PAGE>4
CUTCO INDUSTRIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Additional Treasury
Common Stock Paid-In Retained Stock
Shares Amount Capital Earnings Shares Amount Total
----------- ----------- ------------- ----------- ----------- ------------ -----------
Balance at July 1, 1999 1,950,206 $ 195,021 $4,275,725 $1,894,037 1,103,081 ($3,481,592) $2,883,191
Net Loss (296,035) (296,035)
Acquisition of treasury stock -
average cost of $6.57 4,625 (30,386) (30,386)
----------- ----------- ------------- ----------- ----------- ------------ -----------
Balance at September 30,
1999 (unaudited) 1,950,206 $ 195,021 $4,275,725 $1.598,002 1,107,706 ($3,511,978) $2,556,770
----------- ----------- ------------- ----------- ----------- ------------ -----------
</TABLE>
See notes to unaudited financial statements
<PAGE>5
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<S> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
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Cash flows from operating activities:
Net income (loss) ($296,035) $109,597
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,033 63,976
Changes in operating assets and liabilities, net of effect of
acquisition and sale:
Notes and accounts receivable 37,354 33,837
Merchandise inventory 0 (18,256)
Prepaid expenses, taxes and miscellaneous receivables (95,461) 54,890
Deposits and assets held for sale (21,750) 105,661
Accounts payable and accrued expenses (61,891) (32,557)
Accrued and withheld taxes, other than income taxes (111) (26,297)
Income taxes payable (31,558) (14,676)
Deposits payable 12,416 (13,970)
---------- ----------
Net cash provided by operating activities 455,003 62,203
---------- ----------
Cash flows from investing activities:
(Purchases) of property and equipment 0 (17,625)
(Decrease) in marketable securities 844,903 (4,313)
(Increase), decrease in notes receivable (1,126,766) (258,005)
----------- ----------
Net cash used in investing activites (281,863) (279,943)
Cash flows from financing activities:
Principal payments on loans 0 (1,325)
Acquisition of treasury stock (30,386) 0
Proceed from exercise of stock options 0 40,875
---------- ----------
Net cash provided by financing activities (30,386) 39,550
---------- ----------
Increase (decrease) in cash and cash equivalents (767,252) 21,810
Cash and cash equivalents at beginning of period 1,528,108 753,658
---------- ----------
Cash and cash equivalents at end of period 760,856 775,468
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 0 $112
Income taxes $31,558 $14,676
</TABLE>
See notes to unaudited financial statements
<PAGE>6
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 - FINANCIAL STATEMENTS
The accompanying unaudited 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 three-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2000. For further information, refer to the consolidated
financial statements and footnotes as of June 30, 1999 included in the Company's
Annual Report on Form 10-KSB for the Company's fiscal year then ended.
<PAGE>7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended September 30, 1999
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents were $760,856 at September 30, 1999, as compared to
$1,528,000 at June 30, 1999. In addition, as of September 30, 1999, the Company
sold its portfolio of marketable securities, for approximately $825,000.
The Company had a current ratio of 7.1 at September 30, 1999, as compared to 2.7
at September 30, 1998.
At September 30, 1999 commitments for capital expenditures and other investments
did not exceed $10,000. The Company believes its cash resources and liquidity
are adequate for its present short and long-term business requirements.
In August 1999 the Company made a $1,385,000 loan with a one year maturity to a
related party.
RESULTS OF OPERATIONS
In the three months ended September 10, 1999, revenues from Company-owned salon
operations were 0 as compared to the three months ended September 30, 1998
($1,635,000). The decrease in revenues is attributable to sale, closure and
abandonment of all company-owned stores as of June 30, 1999. As of September 30,
1998 there were 43 company-owned salons.
In the three-month period ended September 30, 1999 franchise income decreased by
38% ($167,000) as compared to the three months ended September 30, 1998.
Recurring royalties from existing licensees continued to decline and the number
of franchised hair salons declined from 196 at September 30, 1998 to 160 at June
30, 1999 and 157 at September 30, 1999.
The Company expects the decline in recurring royalties to continue as a result
of attrition of existing licensees. However the company, under its new
management, is pursuing programs to increase the number franchisees.
Inflation has not materially affected the Company's revenues and income during
the past two fiscal years.
<PAGE>8
In the three month period ended Setember 30, 1999 selling, general, and
administrative expenses increased by 35% ($157,000) as compared to the same
period ended September 30, 1998. The increase is due to a decline in personnel
costs significantly offset by $264,000 in special fees paid in August 1999 to
two former shareholders who served as senior management of the Company.
During the quarter ended September 30, 1998 the Company collected $57,000 in
settlement of certain contracts and reflected this gain in Other Income.
The Company has not provided for Federal income taxes for the quarter ended
September 30, 1999 as the Company has net operating loss and tax credit
carryforwards of approximately $917,000 and $52,000, respectively, expiring
through 2018.
The Company's salons and franchising activities, including its sales of
franchises, are not materially affected by seasonal fluctuations, in the volume
of business.
<PAGE>9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Not Applicable
b) On September 22, 1999 a Form 8-K was filed relating to
Item 4. changes in Registrant's Certifying Accountant
<PAGE>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/ RICHARD ARONS
---------------------------
Richard Arons
President
/s/ LAURA BALLEGEER
---------------------------
Laura Ballegeer
Secretary
DATE: November 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED BY THE 10-QSB FOR
THE PERIOD ENDED SEPTEMBER 30, 1999 FOR CUTCO INDUSTRIES, INC. AND IS QUALIFIED
BY ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 760,856
<SECURITIES> 0
<RECEIVABLES> 1,785,571
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,675,877
<PP&E> 43,863
<DEPRECIATION> 23,891
<TOTAL-ASSETS> 2,740,307
<CURRENT-LIABILITIES> 171,121
<BONDS> 0
0
0
<COMMON> 958,771
<OTHER-SE> 1,598,002
<TOTAL-LIABILITY-AND-EQUITY> 2,740,307
<SALES> 304,980
<TOTAL-REVENUES> 328,569
<CGS> 621,554
<TOTAL-COSTS> 621,554
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (292,985)
<INCOME-TAX> (3,050)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,035)
<EPS-BASIC> (.34)
<EPS-DILUTED> (.34)
</TABLE>
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