<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended June 30, 1998
Commission file number 0-23403
HOLT'S CIGAR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0350003
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12270 TOWNSEND ROAD, PHILADELPHIA, PA 19154
(Address, including zip code, of registrant's principal executive offices)
(215) 676-8778
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No _
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock as of the latest practicable date.
Class: Common
Outstanding at August 12, 1998: 5,770,000
<PAGE> 2
HOLT'S CIGAR HOLDINGS, INC.
AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 1998 (Unaudited)
And March 31, 1998 3
Consolidated Statements of Operations for the
Three Month Period ended June 30, 1998 and 1997 4
Consolidated Statements of Shareholders' Equity for the
Three Month Period ended June 30, 1998 5
Consolidated Statements of Cash Flows for the
Three Month Period ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 10
Item 6. Exhibits and Reports of Form 8-K 11
SIGNATURES 12
2
<PAGE> 3
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 March 31, 1998
------------ --------------
Current assets: (UNAUDITED)
<S> <C> <C>
Cash $ 4,641,732 $ 4,074,276
Investment securities-held to maturity 4,154,973 4,096,361
Accounts receivable (net of allowance for doubtful accounts of $120,000
At June 30, 1998 and March 31, 1998) 1,512,552 1,319,141
Inventory 4,082,627 3,456,597
Deferred income taxes 161,000 161,000
Prepaid expenses and other current assets 547,259 402,863
------------ ------------
Total current assets 15,100,143 13,510,238
Investment securities - held to maturity 7,986,240 7,948,760
Property and equipment, net 1,504,716 1,456,567
Deferred income taxes 9,100 9,100
Other assets, net 805,729 815,837
------------ ------------
Total assets $ 25,405,928 $ 23,740,502
============ ============
Current liabilities:
Accounts payable $ 1,162,853 $ 657,424
Due to related party 659,482 534,157
Accrued expenses and other current liabilities 56,088 240,570
Income taxes payable 789,049 521,100
------------ ------------
Total current liabilities 2,667,472 1,953,251
------------ ------------
Commitments
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.001 par value, 25,000,000 shares authorized, 5,770,000
issued and outstanding 5,770 5,770
Additional paid-in capital 17,640,851 17,640,851
Retained earnings 5,191,343 4,225,522
------------ ------------
22,837,964 21,872,143
Treasury stock, 2,400 shares at cost
Stock purchase loans (14,616) --
(84,892) (84,892)
------------ ------------
Total stockholders' equity 22,738,456 21,787,251
------------ ------------
Total liabilities and stockholders' equity $ 25,405,928 $ 23,740,502
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $7,299,619 $ 6,361,422
Cost of goods sold 4,018,297 3,612,127
---------- --------------
Gross profit 3,281,322 2,749,295
Operating expenses 1,871,918 1,392,816
---------- --------------
Income from operations 1,409,404 1,356,479
Other income 200,298 13,933
---------- --------------
Income before income taxes 1,609,702 1,370,412
Provision for income tax $ 643,881 317,000
---------- --------------
Net income $ 965,821 $ 1,053,412
========== ==============
Net income per share (basic and diluted) $ 0 .17 $ 0 .26
========== ==============
Weighted average number of shares 5,770,000 4,020,000
========== ==============
Pro forma income data (unaudited): (I)
Income before income taxes, as reported $ 1,370,412
Pro forma amortization of goodwill 3,054
--------------
Pro forma income before income taxes 1,367,358
Pro forma provision for income taxes 547,000
--------------
Pro forma net income $ 820,358
==============
Pro forma net income per share (basic and diluted) $ 0.20
==============
Pro forma weighted average number of shares 4,020,000
==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------
(I) Pro forma amounts are not present for the quarter ended June 30, 1998, as
the Company's reorganization occurred in November 1997.
4
<PAGE> 5
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Additional Stock
Common Paid-In Retained Treasury Purchase
Stock Capital Earnings Stock Loans Total
----- ------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998 $ 5,770 $17,640,851 $4,225,522 $ -- $(84,892) $21,787,251
Net Income 965,821 965,821
Purchase of Common Stock (14,616) (14,616)
---------- ----------- ---------- -------- --------- -----------
Balance at June 30, 1998 $ 5,770 $17,640,851 $5,191,343 $(14,616) $(84,892) $22,738,456
========== =========== ========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
Cash Flows from operating activities: (UNAUDITED) (UNAUDITED
<S> <C> <C>
Net Income $ 965,821 $ 1,053,412
Adjustments to reconcile net income to net cash provided by operations:
Allowance for doubtful accounts 5,500
Depreciation and amortization 79,046 28,797
(Increase) decrease in:
Investments (96,092) --
Accounts receivable (193,411) 43,562
Inventory (626,030) (39,400)
Prepaid expenses and other current assets (144,396) 21,839
Increase (decrease) in:
Accounts payable and due to related party 630,754 (262,363)
Accrued expenses and other current liabilities (184,482) (119,240)
Income taxes payable 267,949 102,958
----------- -----------
Net cash provided by operating activities 699,159 835,065
----------- -----------
Cash flows from investing activities:
Purchase of company stock (14,616) --
Purchase of property, equipment and other assets (117,087) (217,896)
----------- -----------
Net cash used in investing activities (131,703) (217,896)
----------- -----------
Cash flows from financing activities:
Payments on long term debt -- (34,465)
Stockholder distributions -- (427,006)
Proceeds from long-term debt -- 170,000
----------- -----------
Net cash provided by (used in) financing activities -- (291,471)
----------- -----------
Net increase in cash 567,456 325,698
Cash ---- beginning of period 4,074,276 515,520
----------- -----------
Cash ---- end of period $ 4,641,732 $ 841,218
=========== ===========
Supplemental disclosures:
Interest paid $ -- $ 7,467
=========== ===========
Income taxes paid $ 365,232 $ 325,150
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts
Holt's Cigar Holdings, Inc. and it wholly owned subsidiaries ("the Company").
The Company is engaged in the wholesale and retail sale of premium cigars and
cigar-related accessories.
These financial statements have been prepared by management without audit but in
accordance with generally accepted accounting principals applicable to interim
financial statements. These financial statements should be read in conjunction
with the more complete disclosures contained in the audited combined financial
statements and notes thereto for the year ended March 31, 1998 contained in the
Company's Annual Report on Form 10-K. The accompanying financial statements
reflect, in the opinion of management, all adjustments necessary for a fair
presentation of the interim financial statements. In the opinion of management,
all such adjustments are of a normal and recurring nature. The results of
operations for the three months ended June 30, 1998 and 1997 are not necessarily
indicative of the operating results to be expected for a full year.
(2) Management Estimates
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reported period and related disclosures.
(3) Adoption of Recently Issued Accounting Standard
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" (SFAS No. 128) for the period ended March 31, 1998 and June
30,1998, as required. This statement requires companies to present basic
earnings per share, and if applicable, diluted earnings per share. Comparable
prior periods have been restated in accordance with the standard's transition
provisions.
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 (SFAS 130), which establishes rules
for reporting and displaying all changes in shareholders' equity, such as
unrealized gains or losses on available for sale securities transaction
adjustments, and certain changes in minimum pension liabilities. The statement
is effective for the Company, April 1, 1998. Since the Company has no elements
of other comprehensive income at June 30, 1998, no separate presentation of
comprehensive income has been made in these financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 (SFAS 131), Disclosures about Segments of an Enterprise and Related
Information, which is effective for years beginning after December 15, 1997.
SFAS 131 establishes standards for the way that public businesses report
information about operating segments in annual financial statements and requires
that those businesses report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
will adopt the new requirements for the fiscal year ending March 31, 1999, which
will require retroactive application. The Company has not completed its review
of this standard and has not determined the impact its adoption will have on the
Company's financial statements.
(4) Equity Offering
In November 1997, the Company completed its reorganization and an initial public
offering of 1,750,000 shares of its common stock. The net proceeds to the
Company, after deducting underwriting discounts and commissions and expenses
were $17,031,500. The net proceeds were recorded as an increase to additional
paid in capital common stock. The proceeds were used, in part, to retire
long-term debt and short-term debt to fund the stockholder distribution made in
conjunction with the reorganization.
7
<PAGE> 8
(5) Pro Forma Information
Pro Forma Income Taxes
On November 24, 1997, the Company terminated the S Corporation status of Ashton
Distributors, Inc. (one of the wholly owned subsidiaries) and converted it to a
C Corporation status. As an S Corporation, the net income of this entity for
federal and state income tax purposes was taxable directly to the Company's
shareholder. The Company's future earnings will be subject to corporate income
taxes.
The proforma provision for income taxes represents the income tax provisions
that would have been reported had the Company been a C Corporation in the prior
period.
Pro Forma New Income Per Share
The computation of pro forma earnings per share is based on the weighted average
number of outstanding common shares during the period plus common stock
equivalents, if dilutive. The Company has certain stock options (for 482,000
shares) outstanding with exercise prices less that the current market price for
which controlling stockholder has agreed that upon exercise of any such options
he will contribute the capital of the Company one share of common stock for each
share purchased pursuant to those options, thereby reducing his ownership
interest.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements. These forward-looking statements do not constitute historical facts
and involve risks and uncertainties. Actual results could differ materially from
those referred to in the forward-looking statements due to a number of factors.
For information concerning factors that could cause actual results to differ
materially from the information contained herein, reference is made to the
information under the heading "Risk Factors" in the Company's Registration
Statement on Form S-1 (Registration No. 333-36263) dated November 24, 1997 as
filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain items in
the Company's statement of operations for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
------------------
June 30,
1998 1997
---- ----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 55.0 56.8
----- -----
Gross profit 45.0 43.2
Operating expenses 25.6 21.9
----- -----
Income from operations 19.4 21.3
Other income 2.7 0.2
----- -----
Income before income taxes 22.1% 21.5%
===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
NET SALES. Net sales increased approximately $938,000 or 14.7% from $6.4 million
in Fiscal 1997 to $7.3 million in Fiscal 1998. Net sales increased primarily as
a result of a $1.0 million increase in net sales of premium cigars from $5.8
million for Fiscal 1997 to $6.9 million for Fiscal 1998. Of such increase
$453,000 was attributable to increased retail sales of premium cigars and
$559,000 was attributable to increased wholesale sales of premium cigars. These
increases were the result of (i) increased availability of premium cigars from
the Company's suppliers, (ii) continued demand for premium cigars, and (iii)
increases in the average selling price per cigar of premium cigars. Accessory
sales declined by approximately $74,000. The wholesale division sales accounted
for 65.5% of the increase while the retail division accounted for 34.5% of the
increase. Of the retail division's increase in net sales, retail - store
accounted for 59.3% of such increase and retail - mail order accounted for 40.7%
of such increase.
GROSS PROFIT. Gross profit increased approximately $532,000 or 19.4% from $2.8
million in Fiscal 1997 to $3.3 million in Fiscal 1998. Gross profit, as a
percentage of net sales was 45.0% for Fiscal 1998 and 43.2% for Fiscal 1997.
This increase of 1.8% was the result of the sales mix shifting in favor of the
wholesale division, which has higher gross margins than the retail division.
OPERATING EXPENSES. Operating expenses increased approximately $479,000 or 34.4%
from $1.4 million in Fiscal 1997 to $1.9 million in Fiscal 1998. As a percentage
of net sales, operating expenses increased from 21.9% in Fiscal 1997 to 25.6% in
Fiscal 1998. This increase is primarily a result of increased staff and salaries
plus the establishment of the Company's in-house sales force.
OTHER INCOME. Other income increased by approximately $186,000. This is a result
of the Company investing the majority of the proceeds from its public offering
in marketable securities.
9
<PAGE> 10
Liquidity And Capital Reserves
The Company has historically financed its business through a combination of cash
generated from operations and bank debt. Net cash provided by operations for the
three months ended June 30,1998 and 1997 of $699,000 and $835,000, respectively,
consisted primarily of net income and increases in accounts payable and income
taxes payable, offset by increases in accounts receivable and inventory.
On October 24, 1997, Ashton Distributors, Inc. declared a distribution of $2.7
million to Robert G. Levin, its shareholder and Chairman of the Board, Chief
Executive Officer and President of the Company, such amount being estimated to
equal the accumulated but undistributed earnings of Ashton Distributors, Inc. as
of the date of the Offering which have been or will be taxed to Mr. Levin.
Ashton Distributors, Inc. borrowed this amount from a Bank pursuant to a demand
note due no later than December 1, 1997 with interest accruing at the rate of
6%. This note was guaranteed by Mr. Levin and was repaid with the proceeds of
the Offering.
The Company has a $4,000,000 line of credit with a Bank with borrowings
thereunder accruing at the bank's prime rate. At June 30, 1998, the Company had
no borrowings under the line of credit.
The Company believes that cash generated from its operating activities and
available bank borrowings along with proceeds from its initial public offering
of Common Stock will be sufficient to fund its operations and expansion programs
for the foreseeable future.
Impact of Inflation
The Company does not believe that inflation has had a material impact on its net
sales or results of operations.
Part II Other Information
Item 2. Changes in Securities and Use of Proceeds
(d) The Company filed a Registration Statement on Form S-1 with
the Securities and Exchange Commission (Registration No.
333-36263 for the Sale of Common Stock in the Company's
initial public offering (the "Offering"). The Company
registered 1,750,000 shares of Common Stock. The effective
date of the registration Statement was November 24, 1997. The
Offering commenced on November 25, 1997 and was terminated
after the sale of all securities registered. The managing
underwriters for the Offering were Prudential Securities
Incorporated and Janney Montgomery Scott, Inc. The aggregate
price to the public of the 1,750,000 shares of Common Stock
registered was $19,250,000. The Company completed the
Offering, selling all 1,750,000 shares of Common Stock
registered for the aggregate offering price of $19,250,000.
The Company incurred the following expenses in connection with
the issuance and distribution of its Common Stock in the
Offering:
<TABLE>
<S> <C>
Underwriting Discounts and Commissions $1,347,500
Other Expenses 871,000
----------
Total Expenses $2,218,500
==========
</TABLE>
All payments of expenses were direct or indirect payments to
persons other than directors or officers of the Company or their associates,
persons owning ten percent or more of any class of equity securities of the
Company, or affiliates of the Company, except for $20,000 payable to Cogen
Sklar, LLP, an accounting firm in which Harvey W. Grossman, a director of the
Company is a principal.
The Company used the net proceeds of the Offering ($17,031,500
after deducting total expenses set forth above) for the following purposes:
<TABLE>
<S> <C>
Repayment of outstanding bank indebtedness $ 3,352,000
Payment of S Corporation Distribution 240,000
Increase inventory of premium cigars 499,000
Temporary investments 12,940,500
-----------
Total $17,031,500
===========
</TABLE>
10
<PAGE> 11
The payment with respect to the S Corporation Distribution was made to
Robert G. Levin, a shareholder owning more that 10% of the Common Stock of the
Company and the Chairman of the Board, Chief Executive Officer and President and
a director of the Company. Payment of $2,7000.000 of the outstanding bank in
indebtedness was in satisfaction of a loan to the Company to fund a distribution
to Mr. Levin of undistributed earnings of Ashton Distributors, Inc. prior to the
reorganization of the Company undertaken on November 19, 1997 in contemplation
of the initial public offering of the Company's Common Stock on November 24,
1997. All other payments were direct or indirect payments to persons other than
directors or officers of the Company or their associates, persons owning ten
percent or more of any class of equity securities of the Company, or affiliates
of the Company.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27.1 Financial Data Schedule
99.1 Financial Statements and accompanying Notes
incorporated by reference from the Company's
Registration Statement on Form S-1 (Registration No.
333-36263) pursuant to Rule 12b-23 (a) (3)
99.2 Risk factors incorporated by reference from the
Company's Registration Statement on Form S-1
(Registration No. 333-36263) pursuant to Rule 12b-23
(a) (3)
b. The Company did not file any reports on File 8-K during the
three months ended June 30, 1998.
11
<PAGE> 12
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
HOLT'S CIGAR HOLDINGS, INC.
/s/ ROBERT G. LEVIN
--------------------------------
ROBERT G. LEVIN, PRESIDENT AND CHAIRMAN
/s/ JERRY L. COX
--------------------------------
JERRY L. COX, CHIEF FINANCIAL OFFICER
DATE: AUGUST 13, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q, JUNE 30, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,461,732
<SECURITIES> 4,154,973
<RECEIVABLES> 1,632,552
<ALLOWANCES> 120,000
<INVENTORY> 4,082,627
<CURRENT-ASSETS> 15,100,143
<PP&E> 2,378,615
<DEPRECIATION> 436,759
<TOTAL-ASSETS> 23,405,928
<CURRENT-LIABILITIES> 2,667,472
<BONDS> 0
0
0
<COMMON> 5,770
<OTHER-SE> 22,732,686
<TOTAL-LIABILITY-AND-EQUITY> 25,405,928
<SALES> 7,299,619
<TOTAL-REVENUES> 7,299,619
<CGS> 4,018,297
<TOTAL-COSTS> 4,018,297
<OTHER-EXPENSES> 1,871,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,609,702
<INCOME-TAX> 643,881
<INCOME-CONTINUING> 965,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 965,821
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
