<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 September 30, 1999
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 November 11, 1999: 5,985,228
<PAGE> 2
HOLT'S CIGAR HOLDINGS, INC.
AND SUBSIDIARIES
INDEX TO FORM 10 -Q
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION ----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<S> <C>
Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and March 31, 1999 3
Consolidated Statements of Operations for the
Three Month Period ended September 30, 1999 and 1998 4
Consolidated Statements of Operations for the
Six Month Period ended September 30, 1999 and 1998 5
Consolidated Statements of Shareholders' Equity for the
Six Month Period ended September 30, 1999 6
Consolidated Statements of Cash Flows for the
Six Month Period ended September 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
Current assets: (UNAUDITED)
Cash $ 4,115,352 $ 5,010,009
Investment securities-held to maturity 8,210,719 8,136,060
Accounts receivable (net of allowance for doubtful accounts of $75,000
At September 30, 1999 and March 31, 1999) 2,510,704 1,268,553
Inventory 6,019,872 4,924,864
Deferred income taxes 141,500 141,500
Prepaid expenses and other current assets 1,214,169 840,324
Income tax receivable 102,179 --
------------ ------------
Total current assets $22,314,495 $20,321,310
Investment securities - held to maturity 3,977,520 4,042,520
Property and equipment, net 1,477,729 1,481,536
Loan to shareholder 700,000 --
Deferred income taxes 17,600 17,600
Other assets, net 778,346 756,736
------------ ------------
Total assets $29,265,690 $26,619,702
============ ============
Current liabilities:
Accounts payable $ 909,219 $ 720,149
Due to related party 1,665,494 860,360
Accrued expenses and other current liabilities 226,747 125,699
Income taxes payable -- 99,247
------------ ------------
Total current liabilities $ 2,801,460 $ 1,805,455
------------ ------------
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, 6,245,593 $ 6,246 $ 6,123
Issued and outstanding
Additional paid-in capital 20,054,541 19,562,067
Retained earnings 7,492,936 5,941,989
------------ ------------
$27,553,723 $25,510,179
Treasury stock, 222,265 and 126,967 shares at cost respectively (1,014,249) (620,688)
Stock purchase loans (75,244) (75,244)
------------ ------------
Total stockholders' equity $26,464,230 $24,814,247
------------ ------------
Total liabilities and stockholders' equity $ 29,265,690 $ 26,619,702
============ ============
</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 September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $8,950,493 $8,259,621
Cost of goods sold 5,126,167 4,597,753
----------- -----------
Gross profit 3,824,326 3,661,868
Operating expenses 2,421,328 2,109,009
----------- -----------
Income from operations 1,402,998 1,552,859
Other income 234,075 210,852
----------- -----------
Income before income taxes 1,637,073 1,763,711
Provision for income tax 636,675 638,016
----------- -----------
Net income $1,000,398 $1,125,695
=========== ===========
Net income per share (basic and diluted) $ 0.17 $ 0.18
=========== ===========
Weighted average number of shares(1) 6,054,816 6,219,049
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(1) The weighted average number of shares have been restated for the stock
dividends effected in fiscal 1999 and 2000 for the three months ended
September 30, 1999.
4
<PAGE> 5
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1998 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Net sales $17,251,761 $15,559,240
Cost of goods sold 9,578,317 8,616,050
----------- -----------
Gross profit 7,673,444 6,943,190
Operating expenses 4,690,873 3,980,927
----------- -----------
Income from operations 2,982,571 2,962,263
Other income 393,078 411,150
----------- -----------
Income before income taxes 3,375,649 3,373,413
Provision for income tax 1,332,105 1,281,897
----------- -----------
Net income $ 2,043,544 $ 2,091,516
=========== ===========
Net income per share (basic and diluted) $ 0.34 $ 0.34
=========== ===========
Weighted average number of shares(1) 6,081,354 6,228,931
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(1) The weighted average number of shares have been restated for the stock
dividends effected in fiscal 1999 and 2000 for the six months ended
September 30, 1998.
5
<PAGE> 6
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<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, 1999 $6,123 $19,562,067 $5,941,989 $ (620,688) $ (75,244) $24,814,247
Net Income 2,043,544 2,043,544
Stock Dividend 123 492,474 (492,597) --
Purchase of Common Stock -- -- -- (393,561) -- (393,561)
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 $6,246 $20,054,541 $7,492,936 $(1,014,249) $ (75,244) $26,464,230
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
September 30, September 30,
------------- -------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from operating activities: (UNAUDITED) (UNAUDITED)
Net Income $ 2,043,544 $ 2,091,516
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 147,127 154,625
(Increase) decrease in:
Investments (9,659) (111,570)
Accounts receivable (1,242,151) (223,500)
Inventory (1,095,008) (646,987)
Prepaid expenses and other assets (395,455) (19,518)
Income tax receivable (102,179) --
Increase (decrease) in:
Accounts payable and due to related party 994,204 710,101
Accrued expenses and other current liabilities 101,048 (170,732)
Income taxes payable (99,247) 1,070,050
----------- -----------
Net cash provided by operating activities 342,224 2,853,985
----------- -----------
Cash flows from investing activities:
Purchase of company stock (393,561) (178,784)
Purchase of property, equipment and other assets (143,320) (162,915)
Loan to Shareholder (700,000) --
----------- -----------
Net cash (used) in investing activities (1,236,881) (341,699)
----------- -----------
Net (Decrease) Increase in Cash (894,657) 2,512,286
Cash, beginning of period 5,010,009 4,074,276
----------- -----------
Cash, end of period $ 4,115,352 $ 6,586,562
=========== ===========
Supplemental disclosures:
Income taxes paid $ 1,376,300 $ 491,332
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
Holt's Cigar Holdings, Inc. and its 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, 1999 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 six months ended September 30, 1999 and 1998 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, the reported amounts of expenses during
the reported period and related disclosures.
(3) Loan to Shareholder
In May 1999, the Company loaned Mr. Levin the sum of $700,000 secured by a
pledge of the Company's common stock owned by Mr. Levin and equal in current
market value to 150% of the outstanding principal balance. Secured common stock
will be adjusted for changes in the market value periodically. This loan is for
a term of five years, and is payable interest only, at an annual rate of 6.0% in
semi-annual installments
(4) Segment Information
The Company has two reportable segments, wholesale and retail. Management
evaluates the segments based on net sales and gross profit.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
------------------------------------------- -------------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $4,978,964 $3,971,529 $8,950,493 $3,887,697 $4,371,924 $8,259,621
Cost of Goods Sold 2,893,082 2,233,085 5,126,167 2,185,999 2,411,754 4,597,753
------------- ------------- ------------- ------------- ------------- -------------
Gross Profit $2,085,882 $1,738,444 $3,824,326 $1,701,698 $1,960,170 $3,661,868
============= ============= ============= ============= ============= =============
Six Months Ended September 30,
1999 1998
------------------------------------------- -------------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
------------- ------------- ------------- ------------- ------------- -------------
Net Sales $9,153,294 $8,098,467 $17,251,761 $7,023,581 $8,535,659 $15,559,240
Cost of Goods Sold 5,056,042 4,522,275 9,578,317 3,836,554 4,779,496 8,616,050
------------- ------------- ------------- ------------- ------------- -------------
Gross Profit $4,097,252 $3,576,192 $7,673,444 $3,187,027 $3,756,163 $6,943,190
============= ============= ============= ============= ============= =============
</TABLE>
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 and
information in the Company's Annual Report on Form 10-K for the year ended March
31, 1999 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 Six Months Ended
------------------ ----------------
September 30 September 30
------------ ------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 57.3 55.7 55.5 55.4
------ ------ ------ ------
Gross profit 42.7 44.3 44.5 44.6
Operating expenses 27.0 25.5 27.2 25.6
------ ------ ------ ------
Income from operations 15.7 18.8 17.3 19.0
Other income 2.6 2.6 2.3 2.6
------ ------ ------ ------
Income before income taxes 18.3% 21.4% 19.6% 21.6%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
NET SALES. Net sales increased approximately $700,000 or 8.4% from $8.3 million
in Fiscal 1999 to $9.0 million in Fiscal 2000. The net sales increase is a
result of a 13% or $1.1 million increase in net sales of premium cigars in the
wholesale division offset by a 9.2% or $400,000 decrease in net sales of the
retail divisions. The increase in premium cigars in the wholesale division is
the result of the increasing strength of the Ashton brand, increased
availability of premium cigars from the Company's suppliers, the increased
market penetration by a dedicated sales force, the addition of the Antillian
Cigar brands and the continued demand for premium cigars. The decrease in the
retail divisions is the result of a decrease in retail traffic caused by
increased local retail competition.
GROSS PROFIT. Gross profit increased approximately $162,000 or 4.4% from $3.7
million in Fiscal 1999 to $3.8 million in Fiscal 2000. Gross profit, as a
percentage of net sales was 42.7% for Fiscal 2000 and 44.3% for Fiscal 1999.
This decrease of 1.6% is primarily the result of the wholesale division adding
the Sosa brand of premium cigars to the product line which carries a lower gross
margin than the Ashton brand.
OPERATING EXPENSES. Operating expenses increased approximately $300,000 or 14.1%
from $2.1 million in Fiscal 1999 to $2.4 million in Fiscal 2000. As a percentage
of net sales, operating expenses increased from 25.5% in Fiscal 1999 to 27.1% in
Fiscal 2000. This increase is primarily a result of increased advertising and
selling expenses associated with the national sales force and additional
warehouse and office staff to handle the additional wholesale business.
OTHER INCOME. Other income increased by approximately $23,000.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998
NET SALES. Net sales increased approximately $1.7 million or 10.9% from $15.5
million in Fiscal 1999 to $17.3 million in Fiscal 2000. Net sales increased
primarily as a result of a $2.1 (30.3%) million increase in net sales of premium
cigars in the wholesale division offset by a $437,000 (5.1%) reduction in the
retail divisions. Mail order actually posted a 2.2% increase of $121,000 in
sales and the retail stores sales decreased $557,000 or 18.2%. These increases
in the wholesale line were the result of increased availability of premium
cigars from the Company's suppliers, continued demand of premium cigars, the
Company's distribution of the Antillian Cigar brands (Sosa) and the increased
market penetration by our national sales force. Retail store sales decrease is
attributable to a decline in the walk in traffic and lower average sales to
customers at the Company's center city store caused by increased local retail
competition.
9
<PAGE> 10
GROSS PROFIT. Gross profit increased approximately $730,000 or 10.5% from $6.9
million in Fiscal 1999 to $7.7 million in Fiscal 2000. Gross profit, as a
percentage of net sales is 44.5% for Fiscal 2000 and 44.6% for Fiscal 1999. This
decrease is the result of the wholesale division adding the Antillian brand
cigars (Sosa), which have a lower gross margin than the Ashton brand.
OPERATING EXPENSES. Operating expenses increased approximately $700,000 or 17.8%
from $4.0 million in Fiscal 1999 to $4.7 million in Fiscal 2000. As a percentage
of net sales, operating expenses increased from 25.6% in Fiscal 1999 to 27.2% in
Fiscal 2000. This increase is primarily a result of increased selling and
warehouse staff to handle the increase in the wholesale business and increased
advertising and sales program expenses in the wholesale division as the national
sales force continues to develop.
OTHER INCOME. Other income decreased by approximately $18,000.
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 (consumed) by
operations for the six months ended September 30,1999 and 1998 of $(894,657) and
$2,512,286, respectively, consisted primarily of net income and increases in
accounts payable, offset by increases in accounts receivable, inventory, loan to
shareholder and income taxes payable.
The Company has a $4,000,000 line of credit with a Bank with borrowings
thereunder accruing at the bank's prime rate. At September 30, 1999, the Company
had no borrowings under the line of credit.
The Company believes that cash generated by its operating activities, available
investment portfolio available bank borrowings 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.
YEAR 2000
The Company's response to the so called "Y2K Problem," pertaining to the
processing of data at the turn of the century, includes assessing and
documenting the current status of the Company's Y2K compliance; and the cost of
such compliance; establishing goals and schedules for Y2K compliance; and
implementing detailed plans so that both information technology systems and
non-information technology devices (including equipment-related embedded
computer, infrastructure and communication systems) are reviewed and the
necessary changes made prior to December 31, 1999. The Company's Y2K compliance
efforts are being directed by an outside consultant who is working under Company
supervision and control. The Company has inventoried, replaced and/or modified
its existing software systems. Because the Company, similar to all other
companies, is vulnerable to third parties' non-compliance, the Company conducted
a review of its software vendors' own Y2K compliance. All of the Company's major
software vendors have reported to the Company that they are materially Y2K
compliant. The Company's comprehensive analysis of its overall compliance,
originally expected to be completed by July 31, 1999 is now substantially
completed. The Company believes that its Y2K compliance program will be adequate
to eliminate any material adverse effect upon the Company, its future results of
operations, liquidity and capital resources, however, there can be no assurances
that the Year 2000 problem will not have a materially adverse impact on the
Company. Specifically, the Company may encounter problems with customer
ordering, invoicing and collection, as well as the product manufacture and
shipment. The Company has developed contingency plans to address those potential
problems should its compliance program prove to be inadequate. These plans
include increasing safety stock, where possible and manually executing computer
system functions.
10
<PAGE> 11
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K
<S> <C> <C>
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)
</TABLE>
b. The Company did not file any reports on File 8-K during the three months
ended September 30, 1999.
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/ KEITH A. GOORSKY
--------------------
KEITH A. GOORSKY, CHIEF FINANCIAL OFFICER
DATE: NOVEMBER 11, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001045549
<NAME> HOLT'S CIGAR HOLDINGS, INC.
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,115,352
<SECURITIES> 12,188,239
<RECEIVABLES> 2,585,704
<ALLOWANCES> 75,000
<INVENTORY> 6,019,872
<CURRENT-ASSETS> 22,314,495
<PP&E> 2,110,658
<DEPRECIATION> 632,929
<TOTAL-ASSETS> 29,265,690
<CURRENT-LIABILITIES> 2,801,460
<BONDS> 0
0
0
<COMMON> 6,246
<OTHER-SE> 26,457,984
<TOTAL-LIABILITY-AND-EQUITY> 29,265,690
<SALES> 8,950,493
<TOTAL-REVENUES> 8,950,493
<CGS> 5,126,167
<TOTAL-COSTS> 7,547,495
<OTHER-EXPENSES> (234,075)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,637,073
<INCOME-TAX> 636,675
<INCOME-CONTINUING> 1,000,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,000,398
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
