<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, 2000
Commission file number 0-23403
HOLT'S CIGAR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 51-0350003
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 7, 2000: 5,846,478
<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 September 30, 2000
And March 31, 2000 3
Consolidated Statements of Operations for the
Three Month Period ended September 30, 2000 and 1999 4
Consolidated Statements of Operations for the
Six Month Period ended September 30, 2000 and 1999 5
Consolidated Statements of Shareholders' Equity for the
Six Month Period ended September 30, 2000 6
Consolidated Statements of Cash Flows for the
Six Month Period ended September 30, 2000 and 1999 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>
9/30/2000 3/31/2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 6,676,539 $ 2,882,393
Investment Securities 4,420,695 4,183,179
Accounts Receivable (Net of $73,526 and $73,511 Allowance, respectively) 3,159,207 2,170,445
Inventory (Net of $202,000 reserve, respectively) 5,446,550 7,559,416
Deferred Income Taxes 106,885 106,885
Prepaid Expenses and Other Current Assets 255,584 390,032
Prepaid Income Taxes 243,238 602,704
------------ ------------
TOTAL CURRENT ASSETS 20,308,698 17,895,054
------------ ------------
Investment Securities 7,967,520 7,897,483
Property and Equipment (Net of $942,390 and $749,050 accumulated
depreciation, respectively) 2,682,750 2,048,521
Loan Receivable - Officer 700,000 700,000
Deferred Income Taxes 26,930 26,930
Other Assets (Net of $298,693 and $238,238 amortization for,
respectively) 758,203 753,929
------------ ------------
TOTAL ASSETS 32,444,101 29,321,917
============ ============
CURRENT LIABILITIES:
Accounts Payable 1,118,450 617,735
Due to Related Party 1,498,573 1,348,266
Accrued Expenses and Other Current Liabilities 798,193 401,180
------------ ------------
TOTAL CURRENT LIABILITIES 3,415,216 2,367,181
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value, 25,000,000 shares authorized,
none issued -- --
Common Stock, $.001 par value, 25,000,000 shares authorized,
6,245,593 issued, respectively, 5,846,478 and 5,847,728 outstanding,
respectively 6,246 6,246
Additional Paid-in Capital 20,054,541 20,054,541
Retained Earnings 10,748,014 8,685,334
------------ ------------
Subtotal 30,808,801 28,746,121
------------ ------------
Treasury Stock, 399,115 and 397,865 shares at cost, respectively (1,723,172) (1,716,141)
Stock Purchase Loans (65,597) (75,244)
Unrealized gain on Available for Sale Investments 8,853 --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 29,028,885 26,954,736
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,444,101 $ 29,321,917
============ ============
</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, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $9,947,821 $8,890,873
Cost of goods sold 5,507,542 5,126,167
---------- ----------
Gross profit 4,440,279 3,764,706
Operating expenses 2,737,878 2,337,058
---------- ----------
Income from operations 1,702,401 1,427,648
Other income 267,630 209,425
---------- ----------
Income before income taxes 1,970,031 1,637,073
Income taxes 842,335 636,675
---------- ----------
Net income 1,127,696 1,000,398
========== ==========
Net income per share (basic and diluted) $ 0.19 $ 0.17
========== ==========
Weighted average number of shares 5,846,899 6,048,186
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $18,690,241 $17,097,832
Cost of goods sold 10,464,975 9,578,315
----------- -----------
Gross profit 8,225,266 7,519,517
Operating expenses 5,288,262 4,494,063
----------- -----------
Income from operations 2,937,004 3,025,454
Other income 502,106 350,195
----------- -----------
Income before income taxes 3,439,110 3,375,649
Income taxes 1,376,430 1,332,105
----------- -----------
Net income 2,062,680 2,043,544
=========== ===========
Net income per share (basic and diluted) $ 0.35 $ 0.34
=========== ===========
Weighted average number of shares 5,874,838 6,078,421
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Stock Other
Common Paid-In Retained Treasury Purchase Comprehensive
Stock Capital Earnings Stock Loans Income Total
----------- ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 2000 $ 6,246 $20,054,541 $ 8,685,334 $(1,716,141) $ (75,244) $ -- $26,954,736
Net Income 2,062,680 2,062,680
Stock Dividend -- -- -- -- -- -- --
Purchase of Common Stock -- -- -- (7,031) 9,647 2,616
Market Price - Available for Sale
Investments -- -- -- -- -- 8,853 8,853
----------- ----------- ----------- ----------- ----------- -------- -----------
Balance at September 30, 2000 $ 6,246 $20,054,541 $10,748,014 $(1,723,172) $ (65,597) $ 8,853 $29,028,885
=========== =========== =========== =========== =========== ======== ===========
</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, 2000 AND 1999
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows from operating activities:
Net Income $ 2,062,680 $ 2,043,544
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 334,835 147,127
Write off of stock purchase loans 2,616
(Increase) decrease in:
Investments (307,553) (9,659)
Accounts receivable (988,762) (1,242,151)
Inventory 2,112,866 (1,095,008)
Prepaid expenses and other assets 73,665 (395,455)
Income tax receivable 359,466 (102,179)
Increase (decrease) in:
Accounts payable and due to related party 651,022 994,204
Accrued expenses and other current liabilities 405,865 101,048
Income taxes payable -- (99,247)
----------- -----------
Net cash provided by operating activities 4,706,700 342,224
----------- -----------
Cash flows from investing activities:
Purchase of property, equipment and other assets (912,554) (143,320)
Loan to shareholder -- (700,000)
----------- -----------
Net cash (used) in investing activities (912,554) (843,320)
----------- -----------
Cash flows from financing activities:
Purchase of company stock -- (393,561)
----------- -----------
Net cash provided by (used in) financing activities -- (393,561)
----------- -----------
Net (Decrease) Increase in Cash 3,794,146 (894,657)
Cash ---- beginning of period 2,882,393 5,010,009
----------- -----------
Cash ---- end of period $ 6,676,539 $ 4,115,352
=========== ===========
Supplemental disclosures:
Income taxes paid $ 1,060,200 $ 1,376,300
=========== ===========
</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 principles 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, 2000 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, 2000 and 1999 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) Segment Information
The Company has two reportable segments, wholesale and retail. Management
evaluates the segments based on net sales and gross profit.
Three Months Ended September 30,
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------- --------------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 6,100,412 $ 3,847,409 $ 9,947,821 $ 4,919,345 $ 3,971,528 $ 8,890,873
Cost of Goods Sold 2,945,610 2,561,932 5,507,542 2,623,304 2,502,863 5,126,167
----------- ----------- ----------- ----------- ----------- -----------
Gross Profit $ 3,154,802 $ 1,285,477 $ 4,440,279 $ 2,296,041 $ 1,468,665 $ 3,764,706
=========== =========== =========== =========== =========== ===========
</TABLE>
Six Months Ended September 30,
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------- --------------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 10,846,775 $ 7,843,465 $ 18,690,241 $ 8,999,365 $ 8,098,467 $ 17,097,832
Cost of Goods Sold 5,290,905 5,174,069 10,464,975 4,521,799 5,056,516 9,578,315
----------- ----------- ----------- ----------- ----------- -----------
Gross Profit $ 5,555,870 $ 2,669,396 $ 8,225,266 $ 4,477,566 $ 3,041,951 $ 7,519,517
=========== =========== =========== =========== =========== ===========
</TABLE>
The Company is currently in the process of splitting the retail segment into two
segments, the traditional retail store business and the catalog business.
Management currently analyzes these segments only at the sales level. Prior to
fiscal 2000 the Company' s reporting systems were not designed to separately
report these two segments and management analyzed them as one. Sales in the
quarter ended September 2000 for the retail store and catalog segments were
$1,138,278 and $2,709,132, respectively. Sales in the quarter ended September
1999 for the retail store and catalog segments were $1,178,730 and $2,792,799,
respectively. Sales in the six months ended September 2000 for the retail store
and catalog segments were $2,321,193 and $5,522,272, respectively. Sales in the
six months ended September 1999 for the retail store and catalog segments were
$2,502,324 and $5,596,143, respectively.
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 in the Company's Annual Report on Form 10-K for the year ended March
31, 2000 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
---------------------- ----------------------
30-Sep 30-Sep
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of goods sold 55.36 57.66 55.99 56.02
------- ------- ------- -------
Gross profit 44.64 42.34 44.01 43.98
Operating expenses 27.52 26.29 28.29 26.28
------- ------- ------- -------
Income from operations 17.11 16.06 15.71 17.69
Other income 2.69 2.36 2.69 2.05
------- ------- ------- -------
Income before income taxes 19.80% 18.41% 18.40% 19.74%
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
NET SALES. Net sales increased approximately $1.0 million or 11.9% to $9.9
million in Fiscal 2001 from $8.9 million in Fiscal 2000. The net sales increase
is a result of a 24.0% or $1.2 million increase in net sales in the wholesale
division partially offset by a 3.1% or $0.1 million decrease in net sales of the
retail division. The increase in the wholesale division is the result of the
increasing strength of the Ashton brand, the introduction of the Ashton VSG
brand of premium cigars and the addition of the Peterson of Dublin line of
pipes. Also contributing to the increase is the increased market penetration by
a dedicated sales force and the continued demand for premium cigars. The
decrease in the retail division is the result of a decrease in both mail order
sales and in retail traffic caused by the general downward trend in retail cigar
sales and local retail competition at the flagship store in downtown
Philadelphia.
GROSS PROFIT. Gross profit increased approximately $0.6 million or 17.9% from
$3.8 million in Fiscal 2000 to $4.4 million in Fiscal 2001. The increase in
volume contributed $0.4 million to gross profit. Gross profits, as a percentage
of net sales were 44.6% for Fiscal 2001 and 42.3% for Fiscal 2000. This increase
of 2.3 percentage points is primarily the result of the product mix changes from
last year with the sales increase coming from higher than average margin
products in the wholesale division partially offset by additional discount
offers in the retail division to boost sales.
OPERATING EXPENSES. Operating expenses increased $0.4 million or 17.1% from $2.3
million in the quarter ended September 1999 to $2.7 million in the quarter ended
September 2000. This increase is primarily the result of increased operating
expenses for labor and benefits associated with the wholesale sales force and
additional warehouse and office staff to handle the additional wholesale
business and increases in depreciation expense for the enterprise wide software
system that was installed and our E-Commerce software. Freight out was also a
contributing factor with rates rising from increased rates and fuel surcharges.
As a percentage of net sales, operating expenses increased from 26.3% in Fiscal
2000 to 27.5% in Fiscal 2001.
OTHER INCOME. Other income increased slightly due to better performance of the
investment portfolio.
9
<PAGE> 10
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1999
NET SALES. Net sales increased approximately $1.6 million or 9.3% to $18.7
million in Fiscal 2001 from $17.1 million in Fiscal 2000. The net sales increase
is a result of a 21% or $1.8 million increase in net sales in the wholesale
division, Ashton Distributors. The increase in the wholesale division is the
result of the increasing strength of the Ashton brand, the introduction of the
Ashton VSG brand of premium cigars and the addition of the Peterson of Dublin
line of pipes. Also contributing to the increase is the increased market
penetration and the continued demand for premium cigars. This was partially
offset by a 3.1% or $0.3 million decrease in net sales of the retail division as
the result of a decrease in both mail order sales and in retail traffic caused
by the general downward trend in retail cigar sales and local retail competition
at the flagship store in downtown Philadelphia.
GROSS PROFIT. Gross profit increased approximately $0.7 million or 9.4% from
$7.5 million in Fiscal 2000 to $8.2 million in Fiscal 2001. The increase in
volume contributed $0.7 million to gross profit. Gross profits, as a percentage
of net sales were 44.0% for Fiscal 2001 and 44.0% for Fiscal 2000. The wholesale
division increased due to the product mix changes from last year with the sales
increase coming from higher than average margin products. This was offset by
additional discount offers in the retail divisions to boost sales lowering the
profit.
OPERATING EXPENSES. Operating expenses increased $0.8 million or 17.7% from $4.5
million in the six month period ended September 1999 to $5.3 million in the
quarter ended September 2000. This increase is primarily the result of increased
labor and benefits associated with the wholesale sales force and additional
warehouse and office staff to handle the additional wholesale business and
increases in depreciation expense for the enterprise wide software system that
was installed and our E-Commerce initiative. Increased packaging expenses and
freight out expense were also contributing factors with freight rate increases
and fuel surcharges. As a percentage of net sales, operating expenses increased
from 26.3% in Fiscal 2000 to 28.3% in Fiscal 2001.
OTHER INCOME. Other income increased $0.2 million due to improved performance of
the investment 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
six months ended September 30, 2000 of $4.7 million consisted primarily of net
income and decreases in inventory, partially offset by increases in accounts
receivable. Net cash provided by operations for the six months ended September
30, 1999 of $0.3 million consisted primarily of net income and increases in
accounts payable, offset by increases in accounts receivable and inventory.
The Company has a $4,000,000 line of credit with a Bank with borrowings
thereunder accruing at the bank's prime rate (9% at September 30, 2000) less
0.25%. At September 30, 2000, the Company had no borrowings under the line of
credit.
The Company believes that cash generated by its operating activities, available
investment portfolio and 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.
SUBSEQUENT EVENTS
HCH Acquisition Corp., a Delaware corporation (the "Offeror"), is making a
tender offer for all of the outstanding shares of common stock, par value $0.001
per share, of Holt's Cigar Holdings, Inc. not already beneficially owned by the
shareholders of the Offeror, Fuente Investment Partnership and Robert G. Levin.
A condition of the making of the tender offer by the Offeror was a favorable
recommendation by the Company's Board of Directors to its shareholders that they
tender their shares in response to the offer. On November 8, 2000, the Board
resolved to make such a recommendation based on a report it received from a
special committee of independent directors which it appointed to analyze the
offer and negotiate its terms. The special committee retained counsel and an
investment banking firm which rendered a fairness opinion with respect to the
offer. The tender offer is expected to be filed with the Securities and Exchange
Commission.
10
<PAGE> 11
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 September 30, 2000.
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 8, 2000
12
