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, 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.)
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
------- -------
Number of common shares outstanding at May 5, 1999 is 826,625
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 -
March 31, 1999 and June 30, 1998 1 - 2
Consolidated Condensed Statements of Operations -
Nine Months and Three Months Ended March 31,
1999 and 1998 3 - 4
Consolidated Condensed Statement of Shareholders
Equity - Nine Months Ended March 31, 1999 5
Consolidated Statements of Cash Flows - Nine Months
Ended March 31, 1999 and 1998 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>
MARCH 31 JUNE 30
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,646,277 $753,658
Marketable securities 721,993 153,376
Notes and accounts receivable, net 355,851 343,267
Merchandise inventory 35,436 364,185
Deferred income taxes 0 130,000
Prepaid expenses, taxes and miscellaneous receivables 18,047 85,259
Assets held for sale 24,000 100,000
--------- ---------
Total current assets 2,801,604 1,929,745
========= =========
Property and equipment:
Furniture, fixtures and equipment 131,266 1,841,077
Leasehold improvements 0 70,944
========= =========
131,266 1,912,021
Less accumulated depreciation and amortization 104,590 1,095,843
========= =========
26,676 816,178
========= =========
Other assets:
Notes receivable, non-current, net 230,273 77,246
Deferred charges and other 1,075 63,570
Deposits 43,941 74,733
========= ========
275,289 215,549
$3,103,569 $2,961,472
</TABLE>
(Continued)
See notes to unaudited financial statements.
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<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) - (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1999 1998
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $275,813 $567,381
Current portion of long-term debt - 6,860
Accrued and withheld taxes, other than income taxes 30,318 146,669
Income taxes payable 60,109 25,073
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Total current liabilities 366,240 745,983
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Long-term debt - -
------- -------
Deposits payable 16,966 31,369
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Deferred income 35,242 43,121
------- -------
Deferred income taxes 0 130,000
------- -------
Shareholders' equity:
Common stock, $.10 par value, authorized
5,000,000 shares, issued 1,909,206 shares 190,971 188,371
Additional paid-in-capital 4,224,149 4,185,250
Retained earnings 1,751,593 1,118,970
--------- ---------
6,166,713 5,492,591
Less common stock held in treasury, at cost,
1,103,081 shares (3,481,592) (3,481,592)
--------- ---------
2,685,121 2,010,999
--------- ---------
$3,103,569 $2,961,472
========= =========
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
1999 1998
<S> <C> <C>
Revenues:
Owned retail stores $4,403,700 $5,206,069
Sales of equipment and products 193,788 150,471
Royalties, service fees and franchise income 1,054,767 1,068,686
========= =========
5,652,255 6,425,226
--------- ---------
Costs and expenses:
Direct costs of owned retail stores 4,205,016 4,906,370
Costs of equipment and products sold 165,529 118,813
Depreciation and amortization 176,434 333,134
Selling, general and administrative expenses 1,296,519 1,693,389
Provision for doubtful accounts
and notes receivable 45,000 0
--------- ---------
5,888,498 7,051,706
--------- ---------
Other income (loss):
Interest and dividend income 84,562 36,041
Interest expense - (10,682)
Gain (loss) on sale/abandonment of assets, net 709,229 (120,104)
Other income, net 136,667 84,784
--------- ---------
930,458 (9,961)
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Income (loss) before income taxes 694,215 (636,441)
Income taxes 61,593 17,297
--------- ---------
Net income (loss) $632,622 ($653,738)
========= =========
Basic Earnings (loss) per common share $0.79 ($0.84)
========= =========
Diluted Earnings (loss) per common share $0.78 ($0.84)
========= =========
Weighted average number of common shares outstanding 799,123 780,625
========= =========
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- -----
<S> <C> <C>
Revenues:
Owned retail stores $1,060,080 $1,705,201
Sales of equipment and products 82,648 43,840
Royalties, service fees and franchise income 224,676 332,768
--------- --------
1,367,404 2,081,809
Costs and expenses:
Direct costs of owned retail stores 1,007,809 1,601,381
Costs of equipment and products sold 70,427 33,837
Depreciation and amortization 49,851 107,353
Selling, general and administrative expenses 396,093 572,284
Provision for doubtful accounts and
notes receivable 15,000 (15,000)
--------- ---------
1,539,180 2,299,855
--------- ---------
Other income (loss):
Interest and dividend income 23,041 13,757
Interest expense 0 (2,905)
Gain (loss) on sale/abandonment of assets, net 709,229 0
Other income, net 8,642 24,549
--------- --------
740,912 35,401
Income (loss) before income taxes 569,136 (182,645)
Income tax Provision (Credit) 60,000 3,000
--------- --------
Net income (loss) $509,136 ($185,645)
========= ========
Basic Earnings (loss) per common share $0.63 ($0.24)
========= ========
Diluted Earnings (loss) per common share $0.63 ($0.24)
========= ========
Weighted average number of common shares
outstanding 806,625 780,625
========= ========
</TABLE>
See notes to unaudited financial statements.
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<PAGE>
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 $188,271 $4,185,250 $1,118,970 1,103,081 ($3,481,592) $2,010,999
Net Income 632,622 632,622
Exercise of employee
stock options 26,000 2,600 38,900 41,500
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Balance at December 31, 1998 1,909,706 $190,971 $4,224,150 $1,751,592 1,103,081 ($3,481,592) $2,685,121
</TABLE>
See notes to unaudited financial statements
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<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MARCH 31,
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) $632,622 ($653,738)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 176,434 333,134
Provision for doubtful accounts and
notes receivable 45,000 0
(Gain) Loss on sale/abandonment of assets, net -709,229 120,104
Changes in operating assets and liabilities,
net of effect of acquisition and sale:
Notes and accounts receivable (210,611) 97,686
Merchandise inventory 253,749 26,326
Prepaid expenses, taxes and miscellaneous
receivables 67,210 48,114
Deposits and assets held for sale 30,792 25,718
Assets held for sale 76,000 0
Accounts payable and accrued expenses (346,362) (75,301)
Accrued and withheld taxes, other than
income taxes (116,351) 65,812
Income taxes payable 35,036 (5,806)
Deposits payable (14,403) (28,053)
Deferred income (7,879) 869
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Net cash provided by operating activities (87,992) (45,135)
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Cash flows from investing activities:
Purchases of property and equipment (31,399) (17,292)
Sale (purchase) of marketable securities (568,615) 145,367
Net proceeds from sale of property and equipment 1,580,000 959
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Net cash used in investing activities 979,986 129,034
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Cash flows from financing activities:
Principal payments on loans - (43,706)
Proceed from exercise of stock options 625 -
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Net cash provided by financing activities 625 (43,706)
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Increase (decrease) in cash and cash equivalents 892,619 40,193
Cash and cash equivalents at beginning of period 753,658 550,840
--------- --------
Cash and cash equivalents, end of period $1,646,277 $591,033
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $0 $8,593
-------- --------
Income taxes $0 $17,474
-------- --------
Non cash investing and financing activities
See notes to unaudited financial statements.
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<PAGE>
CUTCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 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 nine month period ended March 31, 1999
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
Nine Months Ended March 31, 1999
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents were $1,646,000 at March 31, 1999, as compared to
$753,00 at June 30, 1998. In addition, at March 31, 1999, the Company had
$722,000 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. At March 31, 1999, commitments for capital expenditures and
other investments did not exceed $200,000. Such commitments were for franchise
development costs, 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 nine months ended March 31, 1999, revenues from Company-owned salons
decreased by $802,000 or 15.4% as compared to the prior period. Salon revenues
for the three months ended March 31, 1999 decreased by $645,000 or 37% as
compared to the prior period. Correspondingly direct costs of Company-owned
salons for the nine months ended March 31, 1999 decreased by $701,000 or 14%
and direct costs of Company-owned salons for the three months ended March 31,
1999 decreased by $593,000 or 37% as comparedto applicable periods ending
March 31, 1998. These decreases reflected the sales and disposition of salons
during the last quarter. During the period the Company sold thirty-two salons
and closed four. Five salons were retained but are scheduled for sale or
closing in the next quarter.
With respect to existing licensees for the nine months ending March 31, 1999
royalties and service fees decreased by $14,000 or 1.3% as compared to the
prior nine month period. For the three months ended March 31, 1999 royalties
and service fees decreased by $108,000 or 32% as compared to the comparable
period in 1998. The decrease is attributable to terminations of licensed
salons as well as delayed reporting and collections. At March 31, 1999
there were 163 salons under license as compared to 233 at March 31, 1998.
-8-
<PAGE>
RESULTS OF OPERATIONS: (Continued)
The Company expects some decline in continuing royalties as a result of
attrition of existing licensees with limited replacements by 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.
In March of 1999 the Company subscribed to a 50% interest in a new entity
formed to develop a hair care and retail toy franchise for children. The new
entity is now in the development stage.
For the nine months and the three months ended March 31, 1999, interest and
dividend income increased $48,000 and $9,000 as compared to the prior period.
These increases largely resulted from financing arrangements with licensees
for new capital expenditures and working capital as well as increased
investments in marketable securities.
The Company has not provided for federal income taxes for the nine months
ended March 31, 1999, as the Company had net operating loss and tax credit
carryforwards of approximately $1,640,000 and $49,000, respectively, expiring
through 2013 as at June 30, 1998.
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) A report on Form 8-K was filed on March 3, 1999 with
respect to the sale by Registrant of a number of retail hair care salons to
Regis Corporation. Financial statements filed as part of this report included
a pro forma condensed consolidated balance sheet (unaudited) as of December 31,
1998, a pro forma condensed consolidated statement of operations (unaudited)
for the year ended June 30, 1998, and a pro forma condensed consolidated
statement of operations (unaudited) for the six months ended December 31, 1998.
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<PAGE>
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/ Marvin W. Marcus
------------------------------
Marvin W. Marcus
Chairman and Chief Financial Officer
DATE: May 5, 1999
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