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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, 2000
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 (I.R.S. Employer
of incorporation or Identification No.)
organization)
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 10, 2000: 6,245,593
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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, 2000
And March 31, 2000 3
Consolidated Statements of Operations for the
Three Month Period ended June 30, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity for the
Three Month Period ended June 30, 2000 5
Consolidated Statements of Cash Flows for the
Three Month Period ended June 30, 2000 and 1999 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 6. Exhibits and Reports of Form 8-K 10
SIGNATURES 11
</TABLE>
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\ HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
06/30/00 03/31/00
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,595,386 $ 2,882,393
Investment Securities 4,258,468 4,183,179
Accounts Receivable (Net of $73,526 and $73,511 Allowance for
June and March, respectively) 2,707,360 2,170,445
Inventory (Net of $202,000 reserve for June and March) 6,278,206 7,559,416
Deferred Income Taxes 106,885 106,885
Prepaid Expenses and Other Current Assets 416,975 390,033
Income Taxes 135,207 602,704
------------ ------------
TOTAL CURRENT ASSETS 18,498,487 17,895,055
------------ ------------
Investment Securities 7,907,480 7,897,483
Property and Equipment (Net of $879,457 and $749,050 Accumulated
depreciation for June and March, respectively) 2,217,832 2,048,521
Loan Receivable - Officer 700,000 700,000
Deferred Income Taxes 26,930 26,930
Other Assets (Net of $270,243 and $238,238 Amortization for June
and March, respectively) 771,189 753,929
------------ ------------
TOTAL ASSETS 30,121,918 29,321,918
============ ============
CURRENT LIABILITIES:
Accounts Payable 664,225 617,735
Due to related Party 1,166,711 1,348,266
Accrued Expenses and Other Current Liabilities 384,852 401,180
------------ ------------
TOTAL CURRENT LIABILITIES 2,215,788 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 at June and March and 5,846,478 outstanding
and 5,847,728 outstanding at June and March. 6,246 6,246
Additional Paid-in Capital 20,054,541 20,054,541
Retained Earnings 9,620,317 8,685,335
------------ ------------
Subtotal 29,681,104 28,746,122
------------ ------------
Treasury Stock, 399,115 and 397,865 shares at cost, respectively (1,723,172) (1,716,141)
Stock Purchase Loans (65,597) (75,244)
Other Comprehensive Income - Available for Sale Investments 13,795 --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 27,906,130 $ 26,954,737
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,121,918 $ 29,321,918
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $8,742,419 $8,206,958
Cost of goods sold 4,957,433 4,452,148
---------- ----------
Gross profit 3,784,986 3,754,810
Operating expenses 2,550,384 2,157,006
---------- ----------
Income from operations 1,234,603 1,597,804
Other income 234,475 140,774
---------- ----------
Income before income taxes 1,469,078 1,738,578
Provision for income tax 534,095 695,430
---------- ----------
Net income $ 934,983 $1,043,148
========== ==========
Net income per share (basic and diluted) $ 0.16 $ 0.17
========== ==========
Weighted average number of shares(1) 5,847,041 6,108,184
========== ==========
</TABLE>
1 The weighted average number of shares restated for the stock dividends
effected in fiscal 2000.
The accompanying notes are an integral part of these consolidated financial
statements.
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HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 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 934,983 934,983
Stock Dividend -- -- -- --
Purchase of Common Stock -- -- -- (7,031) 9,647 -- 2,616
Market Price - Available for Sale
Investments -- -- -- -- -- 13,795 13,795
------ ----------- ---------- ----------- -------- ------- -----------
Balance at June 30, 2000 $6,246 $20,054,541 $9,620,317 $(1,723,172) $(65,597) $13,795 $27,906,130
====== =========== ========== =========== ======== ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Cash Flows from operating activities:
Net Income $ 934,982 $ 1,043,144
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 158,412 73,064
Write off of stock purchase loans 2,616
(Increase) decrease in:
Investments (71,491) 35,617
Accounts receivable (536,915) (939,411)
Inventory 1,281,210 (51,366)
Prepaid expenses and other assets (72,207) (226,622)
Increase (decrease) in:
Accounts payable and due to related party (135,065) 891,350
Accrued expenses and other current liabilities (16,328) 99,405
Income taxes payable 467,497 587,642
----------- -----------
Net cash provided by operating activities 2,012,711 1,519,823
----------- -----------
Cash flows from investing activities:
Purchase of property, equipment and other assets (299,718) (107,213)
Loan to shareholder -- (700,000)
----------- -----------
Net cash (used) in investing activities (299,718) (807,213)
----------- -----------
Cash flows from financing activities:
Purchase of company stock -- (149,716)
----------- -----------
Net cash provided by (used in) financing activities -- (149,716)
----------- -----------
Net (Decrease) Increase in Cash 1,712,993 555,849
Cash -- beginning of period 2,882,393 5,010,009
----------- -----------
Cash -- end of period $ 4,595,386 $ 5,565,859
=========== ===========
Supplemental disclosures:
Income taxes paid $ 95,643 $ 128,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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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, 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 three months ended June 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 June 30,
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------- -----------------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $4,746,364 $3,996,055 $8,742,419 $4,080,020 $4,126,938 $8,206,958
Cost of Goods Sold 2,345,297 2,612,136 4,957,433 1,898,497 2,553,651 4,452,148
---------- ---------- ---------- ---------- ---------- ----------
Gross Profit $2,401,067 $1,383,919 $3,784,986 $2,181,523 $1,573,287 $3,754,810
========== ========== ========== ========== ========== ==========
</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
April 1999 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 June 2000 for the retail store and catalog segments were
$1,182,915 and $2,813,140, respectively. Sales in the quarter ended June 1999
for the retail store and catalog segments were $1,323,593 and $2,803,345,
respectively.
(3) Sale of Ashton Pipe
In May the Company sold the inventory and assets of its Ashton Pipe operation to
a third party to allow Ashton management to concentrate efforts on growing the
Peterson Pipe line. The hand made high end pipe business was a small portion of
the wholesale division. The business achieved less than $300 thousand in sales
last year and contributed a minimal profit.
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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
June 30,
---------------------
2000 1999
------ ------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 56.7 54.3
------ ------
Gross profit 43.3 45.7
Operating expenses 29.2 26.3
------ ------
Income from operations 14.2 19.5
Other income 2.7 1.7
------ ------
Income before income taxes 16.8% 21.2%
====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
NET SALES. Net sales increased approximately $535 thousand or 6.5% to $8.7
million in Fiscal 2001 from $8.2 million in Fiscal 2000. The net sales increase
is a result of a 16.3% or $666 thousand increase in net sales of premium cigars
in the wholesale division partially offset by a 3.2% or $131 thousand decrease
in net sales of the retail divisions. The increase in sales of 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, and the introduction of the Ashton VSG brand of premium cigars. Also
contributing is the increased market penetration by a dedicated sales force,
the addition of the Antillian Cigar (Sosa) brands and the continued demand for
Ashton premium cigars. The decrease in the retail divisions is the result of a
small increase in mail order sales and a decrease 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 $30 thousand or 0.8% from
$3.8 million in Fiscal 2000 to $3.8 million in Fiscal 2001. The increase in
volume contributed $245 thousand to gross profit. Gross profits, as a percentage
of net sales were 43.3% for Fiscal 2001 and 45.7% for Fiscal 2000. This decrease
of 2.4 percentage points is primarily the result of the addition of the
Antillian Sosa brand of premium cigars to the product line which carries a lower
gross margin than the Ashton brand in the wholesale division and special
discount offers in an attempt to boost sales in the retail divisions.
OPERATING EXPENSES. Operating expenses increased $393 thousand or 18.2% from
$2.2 million in the quarter ended June 1999 to $2.6 million in the quarter ended
June 2000. This increase is a result of increased selling expenses for
amortization of the E-Commerce initiative, postage for an advertising mailing
and freight out, additional warehouse and office staff to handle the additional
wholesale business and additional expenses associated with the system
conversion. As a percentage of net sales, operating expenses increased from
26.3% in Fiscal 2000 to 29.2% in Fiscal 2001.
OTHER INCOME. Other income increased $94 thousand due to lower market
fluctuations in the investments and higher interest income.
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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, 2000 of $1,196 thousand consisted primarily of net
income and decreases in inventory and income taxes payable, offset by increases
in accounts receivable and decreases in accounts payable. Net cash provided by
operations for the three months ended June 30, 1999 of $1,520 thousand consisted
primarily of net income and increases in accounts payable and income taxes
payable, offset by increases in accounts receivable and prepaid expenses.
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 June 30, 2000)less 0.25%. At
June 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.
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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
Annual report on form 10-K for the period ended March 31,2000
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, 2000.
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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: August 10, 2000
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