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, 1998 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 February 6, 1999 is 806,625
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 -
December 31, 1998 and June 30, 1998 1 - 2
Consolidated Condensed Statements of Operations -
Six Months and Three Months Ended December 31,
1998 and 1997 3 - 4
Consolidated Condensed Statement of Shareholders
Equity - Six Months Ended December 31, 1998 5
Consolidated Statements of Cash Flows - Six Months
Ended December 31, 1998 and 1997 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
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CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1998 1998
----- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $642,342 $753,658
Marketable securities 157,689 153,376
Notes and accounts receivable, net 343,091 343,267
Merchandise inventory 376,462 364,185
Deferred income taxes 130,000 130,000
Prepaid expenses, taxes and miscellaneous
receivables 32,972 85,259
Assets held for sale - 100,000
Total current assets 1,682,556 1,929,745
-------------- ------------
Property and equipment:
Furniture, fixtures and equipment 1,732,081 1,841,077
Leasehold improvements 62,956 70,944
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1,795,037 1,912,021
Less accumulated depreciation and
amortization 1,076,197 1,095,843
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718,840 816,178
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Other assets:
Notes receivable, non-current, net 325,997 77,246
Deferred charges and other 58,783 63,570
Deposits 63,821 74,733
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448,601 215,549
-------------- -------------
$2,849,997 $2,961,472
============== =============
</TABLE>
(Continued)
See notes to unaudited financial statements.
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CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1998 1998
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $343,940 $567,381
Current portion of long-term debt - 6,860
Accrued and withheld taxes, other than
income taxes 144,748 146,669
Income taxes payable 586 25,073
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Total current liabilities 489,274 745,983
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Long-term debt - -
Deposits payable 16,966 31,369
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Deferred income 38,397 43,121
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Deferred income taxes 130,000 130,000
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Shareholders' equity:
Common stock, $.10 par value,
authorized 5,000,000 shares,
issued 1,909,206 shares 190,921 188,371
Additional paid-in-capital 4,223,575 4,185,250
Retained earnings 1,242,456 1,118,970
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5,656,952 5,492,591
Less common stock held in treasury,
at cost, 1,103,081 shares (3,481,592) (3,481,592)
2,175,360 2,010,999
$2,849,997 $2,961,472
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</TABLE>
See notes to unaudited financial statements.
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CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
1998 1997
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<S> <C> <C>
Revenues:
Owned retail stores $3,343,620 $3,500,868
Sales of equipment and products 111,140 106,631
Royalties, service fees and
franchise income 830,091 735,918
4,284,851 4,343,417
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Costs and expenses:
Direct costs of owned retail
stores 3,197,207 3,304,989
Costs of equipment and products
sold 95,102 84,976
Depreciation and amortization 126,583 225,781
Selling, general and administrative
expenses 900,426 1,121,105
Provision for doubtful accounts
and notes receivable 30,000 15,000
4,349,318 4,751,851
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Other income (loss):
Interest and dividend income 61,521 22,284
Interest expense - (7777)
Gain (loss) on sale/abandonment
of assets, net - (120269)
Other income, net 128,025 60,400
189,546 (45,362)
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Income (loss) before income taxes 125,079 (453,796)
Income taxes 1,593 14,297
Net income (loss) $123,486 ($468,093)
============== =============
Basic Earnings (loss) per
common share $0.16 ($0.60)
============== =============
Diluted Earnings (loss) per
common share $0.15 ($0.60)
============== =============
Weighted average number of
common shares outstanding 795,454 780,625
============== =============
</TABLE>
See notes to unaudited financial statements.
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CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
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1998 1997
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<S> <C> <C>
Revenues:
Owned retail stores $1,707,982 $1,642,209
Sales of equipment and
products 73,842 54,237
Royalties, service fees and
franchise income 384,504 322,140
2,166,328 2,018,586
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Costs and expenses:
Direct costs of owned retail
stores 1,636,142 1,585,241
Costs of equipment and products
sold 64,202 50,384
Depreciation and amortization 62,607 111,061
Selling, general and
administrative expenses 458,623 571,259
Provision for doubtful accounts
and notes receivable 15,000 -
2,236,574 2,317,945
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Other income (loss):
Interest and dividend income 30,004 13,693
Interest expense - (3493)
Gain (loss) on sale/abandonment
of assets, net - (14341)
Other income, net 52,771 42,288
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82,775 38,147
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Income (loss) before income taxes 12,529 (261,212)
Income tax Provision (Credit) (1,360) 5,246
Net income (loss) $13,889 ($266,458)
============== =============
Basic Earnings (loss) per
common share $0.02 ($0.34)
============== =============
Diluted Earnings (loss) per
common share $0.02 ($0.34)
============== =============
Weighted average number of
common shares outstanding 806,125 780,625
============== =============
</TABLE>
See notes to unaudited financial statements.
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CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional Treasury
Common Stock Paid-in Retained Stock
Shares Amount Capital Earnings Shares Amount Total
------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 1, 1998 1,883,706 $188,371 $4,185,250 $1,118,970 1,103,081 ($3,481,592) $2,010,999
Net Income 123,486 123,486
Exercise of employee
stock options 25,500 2,550 38,325 40,875
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Balance at
December 31, 1998 1,909,206 $190,921 $4,223,575 $1,242,456 1,103,081 ($3,481,592) $2,175,360
==========================================================================================
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
1998 1997
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $123,486 ($468,093)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 126,583 225,781
Provision for doubtful accounts
and notes receivable 15,344 15,000
Loss on sale/abandonment of assets, net - 120,269
Changes in operating assets and
liabilities, net of effect of
acquisition and sale:
Notes and accounts receivable 76 27,263
Merchandise inventory (12,277) 59,645
Prepaid expenses, taxes and
miscellaneous receivables 52,287 77,404
Deposits and assets held for sale 115,699 28,171
Accounts payable and accrued expenses (220,441) (234,821)
Accrued and withheld taxes, other
than income taxes (1,921) 66,624
Income taxes payable (24,487) (8,808)
Deposits payable (1,599) (28,053)
Deferred income (3,556) (19,513)
Net cash provided by operating activities 169,194 (139,131)
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Cash flows from investing activities:
Purchases of property and equipment (24,456) (11,667)
(Decrease)-Increase in marketable
securities (4,313) 148,334
Proceeds from sale of property
and equipment - 959
Increase in long-term notes receivable (248,731) -
Net cash used in investing activities (277,500) 137,626
Cash flows from financing activities:
Principal payments on loans - (28,883)
Proceed from exercise of stock options - -
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Net cash provided by financing
activities 0 (28,883)
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Increase (decrease) in cash and
cash equivalents (111,316) (30,388)
Cash and cash equivalents at
beginning of period 753,658 550,840
Cash and cash equivalents at
end of period $642,342 $520,452
============= ============
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $0 $5,688
Income taxes $0 $14,474
Non cash investing and
financing activities - -
</TABLE>
See notes to unaudited financial statements.
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CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
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NOTES TO UNAUDITED FINANCIAL STATEMENTS
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DECEMBER 31, 1998
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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 six month period ended December 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1999. For further information, refer to the consolidated
financial statements and footnotes as of June 30, 1998 included in the Company's
Annual Report on Form 10-KSB for the Company's fiscal year then ended.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Six Months Ended December 31, 1998
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LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents were $642,000 at December 31, 1998, as compared to
$753,00 at June 30, 1998. In addition, at December 31, 1998, the Company had
$158,000 of marketable securities, as compared to $153,000 at June 30, 1998.
Capital expenditures for the quarter were $24,000 as compared to $12,000 for the
prior year.
The Company had a current ratio of 3.44 at December 31, 1998, as compared to
2.30 at December 31, 1997 and 2.59 at June 30, 1998.
At December 31, 1998, commitments for capital expenditures and other investments
did not exceed $60,000. 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;
For the six months ended December 31, 1998, revenues from Company-owned salon
operations decreased by $157,000 or 4.4%. However, salon revenues for the three
months ended December 31, 1998 increased by $65,000 or 4%. The increase for the
last quarter results from better same store sales. The numbers and salons in
operation for both periods remained at forty-one salons. For the six month
period ended December 31, 1998, direct costs of Company-owned salons decreased
by 3.3% whereas direct costs for the three month period ended December 31, 1998
increased by 3.2%. These variances are largely attributed to costs that
fluctuate in direct relation to sales.
In the six and three month periods ended December 31, 1998 royalties and service
fees increased by $94,000 (12.8%) and $62,000 (19.2%), respectively, as compared
to the prior periods. The increases resulted from acceleration of collections
and resumption of royalties from certain licensees. The number of licensed
salons however continued to decline. At December 31, 1998 there were 176 salons
under license as compared to 254 salons at December 31, 1997.
The Company expects some decline in continuing royalties as a result of
attrition of existing licensees without replacements with new licensees. The
Company does not anticipate any significant hair care franchise sales from new
locations for fiscal 1999, 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.
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<PAGE>
For the six months and the three months ended December 31, 1998, interest income
increased $39,000 and $17,000 as compared to the prior period. These increases
largely resulted from financing arrangements with licensees for new capital
expenditures and working capital.
The Company has not provided for federal income taxes for the quarter ended
December 31, 1998 as the Company has net operating loss and tax credit
carryforwards of approximately $1,640,000 and $49,000, respectively, expiring
through 2013.
The Company's salons and franchising activities, including its sales of
franchises, are not materially affected by seasonal fluctuations, in the volume
of business.
The Company does not expect to incur significant expenses related to the year
2,000 computer programming changes, nor does it expect any material disruption
in its business or that of its suppliers and licensees.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Not Applicable.
b) None.
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CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
SIGNATURES
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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/ Marvin W. Marcus
-----------------------------------
Marvin W. Marcus
Chairman and Chief Financial Officer
DATE: February 8, 1999
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