<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, 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 August 12, 1999: 6,123,145
<PAGE> 2
HOLT'S CIGAR HOLDINGS, INC.
AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of June 30, 1999 (Unaudited)
And March 31, 1999 3
Consolidated Statements of Operations for the
Three Month Period ended June 30, 1999 and 1998 4
Consolidated Statements of Shareholders' Equity for the
Three Month Period ended June 30, 1999 5
Consolidated Statements of Cash Flows for the
Three Month Period ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 9
Item 6. Exhibits and Reports of Form 8-K 10
SIGNATURES 12
</TABLE>
2
<PAGE> 3
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
------------ --------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash $ 5,565,858 $ 5,010,009
Investment securities 8,170,443 8,136,060
Accounts receivable (net of allowance for doubtful accounts of $75,000) 2,207,964 1,268,553
Inventory 4,976,230 4,924,864
Deferred income taxes 141,500 141,500
Prepaid expenses and other current assets 1,066,946 840,324
------------ ------------
Total current assets 22,128,941 20,321,310
Investment securities 3,972,520 4,042,520
Property and equipment, net 1,504,213 1,481,536
Loan receivable - shareholder 700,000
Deferred income taxes 17,600 17,600
Other assets, net 768,208 756,736
------------ ------------
Total assets $ 29,091,482 $ 26,619,702
============ ============
Current liabilities:
Accounts payable $ 817,302 $ 720,149
Due to related party 1,654,557 860,360
Accrued expenses and other current liabilities 225,104 125,699
Income taxes payable
686,889 99,247
------------ ------------
Total current liabilities 3,383,852 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, 6,123,145
issued and outstanding, respectively 6,123 6,123
Additional paid-in capital 19,562,067 19,562,067
Retained earnings 6,985,133 5,941,989
------------ ------------
26,553,323 25,510,179
Treasury stock, 159,867 shares at cost (770,449) (620,688)
Stock purchase loans (75,244) (75,244)
------------ ------------
Total stockholders' equity 25,707,630 24,814,247
------------ ------------
Total liabilities and stockholders' equity $ 29,091,482 $ 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 JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $8,301,268 $7,299,619
Cost of goods sold 4,452,150 4,018,297
---------- ----------
Gross profit 3,849,118 3,281,322
Operating expenses 2,269,547 1,871,918
---------- ----------
Income from operations 1,579,571 1,409,404
Other income 159,002 200,298
---------- ----------
Income before income taxes 1,738,573 1,609,702
Provision for income tax 695,429 643,881
---------- ----------
Net income $1,043,144 $ 965,821
========== ==========
Net income per share (basic and diluted) $ 0.17 $ 0.16
========== ==========
Weighted average number of shares (basic and diluted)(1) 5,989,834 6,123,145
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
(1) Weighted average number of shares restated for the stock dividends effected
in Fiscal 1999 for the three months ended June 30, 1998.
4
<PAGE> 5
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 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 1,043,144 1,043,144
Purchase of Common Stock (149,761) (149,761)
-------- ----------- ---------- --------- -------- -----------
Balance at June 30, 1999 $ 6,123 $19,562,067 $6,985,133 $(770,449) $(75,244) $25,707,630
======== =========== ========== ========= ======== ===========
</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, 1999 AND 1998
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows from operating activities:
Net Income $ 1,043,144 $ 965,821
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 73,064 79,046
(Increase) decrease in:
Investments 35,617 (96,092)
Accounts receivable (939,411) (193,411)
Inventory (51,366) (626,030)
Prepaid expenses and other current assets (226,622) (144,396)
Increase (decrease) in:
Accounts payable and due to related party 891,350 630,754
Accrued expenses and other current liabilities 99,405 (184,482)
Income taxes payable 587,642 267,949
----------- -----------
Net cash provided by operating activities 1,519,823 699,159
----------- -----------
Cash flows from investing activities:
Purchase of property, equipment and other assets (107,213) (117,087)
Loan to Shareholder (700,000) --
----------- -----------
Net cash used in investing activities (807,213) (117,087)
----------- -----------
Cash flows from financing activities:
Purchase of company common stock (149,761) (14,616)
----------- -----------
Net cash provided by (used in) financing activities (149,761) (14,616)
----------- -----------
Net increase in cash 555,849 567,456
Cash ---- beginning of period 5,010,009 4,074,276
----------- -----------
Cash ---- end of period $ 5,565,859 $ 4,641,732
=========== ===========
Supplemental disclosures:
Income taxes paid $ 128,400 $ 365,232
=========== ===========
</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, 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 three months ended June 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 and 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 change 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>
1999 1998
------------------------------------------ -----------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
---------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $4,174,331 $4,126,937 $8,301,268 $3,135,882 $4,163,737 $7,299,619
Cost of Goods Sold $2,162,960 $2,289,190 $4,452,150 $1,650,555 $2,367,742 $4,018,297
---------- ---------- ---------- ---------- ---------- ----------
Gross Profit $2,011,371 $1,837,749 $3,849,118 $1,485,327 $1,795,995 $3,281,322
========== ========== ========== ========== ========== ==========
</TABLE>
7
<PAGE> 8
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, 1998 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,
------------------
1999 1998
----- -----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 53.6 55.0
----- -----
Gross profit 46.4 45.0
Operating expenses 27.3 25.6
----- -----
Income from operations 19.1 19.4
Other income 1.9 2.7
----- -----
Income before income taxes 21.0% 22.1%
===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
NET SALES. Net sales increased approximately $1.0 million or 13.7% from $7.3
million in Fiscal 1999 to $8.3 million in Fiscal 2000. The net sales increase is
made up of $1,038,000 in the wholesale division and a $38,000 decline in the
retail division. The strong sales for the wholesale division are a result of the
increased supply and the strong demand for the Ashton Brand. Within the retail
division, mail order increased by 6.1% and the retail stores declined by 13.1%.
GROSS PROFIT. Gross profit increased approximately $568,000 or 17.3% from $3.3
million in Fiscal 1999 to $3.8 million in Fiscal 2000. Gross profit, as a
percentage of net sales was 46.4% for Fiscal 2000 and 45.0% for Fiscal 1999.
This increase of 1.4% 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 $398,000 or 21.2%
from $1.9 million in Fiscal 1999 to $2.3 million in Fiscal 2000. As a percentage
of net sales, operating expenses increased from 25.6% in Fiscal 1999 to 27.3% in
Fiscal 2000. This increase is primarily a result of a new co-operative
advertising program and promotional and volume discount programs for the
wholesale division, increased salaries and completion of the national sales
force.
OTHER INCOME. Other income decreased by approximately $41,000. This decrease is
mainly a result of the decline in the market value of the Company's investment
securities portfolio.
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 30,1999 and 1998 of $1,513,000 and $699,000,
respectively, consisted primarily of net income and increases in accounts
payable and income taxes payable, offset by increases in accounts receivable and
prepaid expenses.
8
<PAGE> 9
The Company has a $4,000,000 line of credit with a Bank with borrowings
thereunder accruing at the bank's prime rate less .25%. At June 30, 1999, 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.
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 and being
directed by an outside consultant who is working under Company supervision and
control.
The Company has begun to inventory, replace and/or modify 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 expected to be completed by September 30,
1999.
Although the Company believes, based upon currently available information, 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, 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 is in the process of
developing contingency plans to address those potential problems should its
compliance program prove to be inadequate. These plans may include increasing
safety stock and manually executing computer system functions.
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, 1998. The
Offering commenced on November 25, 1998 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>
9
<PAGE> 10
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
Loan to shareholder 600,000
Temporary investments(2) 12,340,500
------------
Total $ 17,031,500
============
</TABLE>
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, 19,1998 in contemplation
of the initial public offering of the Company's Common Stock on November 24,
1998. 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, 1999.
(2) The difference from the balance sheet is the change in market value.
10
<PAGE> 11
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, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,565,858
<SECURITIES> 12,142,963
<RECEIVABLES> 2,282,964
<ALLOWANCES> 75,000
<INVENTORY> 4,976,230
<CURRENT-ASSETS> 22,128,941
<PP&E> 2,089,106
<DEPRECIATION> 584,893
<TOTAL-ASSETS> 29,091,482
<CURRENT-LIABILITIES> 3,383,852
<BONDS> 0
0
0
<COMMON> 6,123
<OTHER-SE> 25,701,507
<TOTAL-LIABILITY-AND-EQUITY> 29,091,482
<SALES> 8,301,268
<TOTAL-REVENUES> 8,301,268
<CGS> 4,452,150
<TOTAL-COSTS> 4,452,150
<OTHER-EXPENSES> 2,110,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,738,573
<INCOME-TAX> 695,429
<INCOME-CONTINUING> 1,043,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,043,144
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
