<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 December 31, 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 February 11, 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 December 31, 1999
And March 31, 1999 3
Consolidated Statements of Operations for the
Three Month Period ended December 31, 1999 and 1998 4
Consolidated Statements of Operations for the
Nine Month Period ended December 31, 1999 and 1998 5
Consolidated Statements of Shareholders' Equity for the
Nine Month Period ended December 31, 1999 6
Consolidated Statements of Cash Flows for the
Nine Month Period ended December 31, 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
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<TABLE>
<CAPTION>
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 March 31, 1999
Current assets: (UNAUDITED)
<S> <C> <C>
Cash $ 3,640,251 $ 5,010,009
Investment securities - held to maturity 8,259,655 8,136,060
Accounts receivable (net of allowance for doubtful accounts of $75,000
At December 31, 1999 and March 31, 1999) 2,427,918 1,268,553
Inventory 6,731,027 4,924,864
Deferred income taxes 141,500 141,500
Prepaid expenses and other current assets 784,849 840,324
Income tax receivable 407,863 -
----------- -----------
Total current assets $22,393,063 $20,321,310
----------- -----------
Investment securities - held to maturity 3,905,000 4,042,520
Property and equipment, net 1,840,258 1,481,536
Loan to shareholder 700,000 -
Deferred income taxes 17,600 17,600
Other assets, net 777,609 756,736
----------- -----------
Total assets $29,633,530 $26,619,702
=========== ===========
Current liabilities:
Accounts payable $ 835,634 $ 720,149
Due to related party 1,788,570 860,360
Accrued expenses and other current liabilities 195,206 125,699
Income taxes payable - 99,247
----------- -----------
Total current liabilities $ 2,819,410 $ 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
at December 31, 1999 and 6,123,145 at March 31, 1999, 6,246 6,123
respectively, issued and outstanding
Additional paid-in capital 20,054,541 19,562,067
Retained earnings 8,374,184 5,941,989
----------- -----------
$28,434,971 $25,510,179
Treasury stock, 351,665 and 126,967 shares at cost respectively (1,545,607) (620,688)
Stock purchase loans (75,244) (75,244)
----------- -----------
Total stockholders' equity $26,814,120 $24,814,247
----------- -----------
Total liabilities and stockholders' equity $29,633,530 $26,619,702
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended December 31, 1999 and 1998
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $9,056,023 $9,315,079
Cost of goods sold 5,028,250 4,953,374
--------- ---------
Gross profit 4,027,773 4,361,705
Operating expenses 2,838,413 2,574,108
--------- ---------
Income from operations 1,189,360 1,787,597
Other income 149,946 340,025
------- -------
Income before income taxes 1,339,306 2,127,622
Provision for income tax 458,063 855,409
------- -------
Net income $881,243 $1,272,213
======== ==========
Net income per share (basic and diluted) $0.15 $0.21
===== =====
Weighted average number of shares 5,978,746 6,173,501
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended December 31, 1999 and 1998
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 26,307,784 $ 24,874,319
Cost of goods sold 14,606,565 13,569,424
-------------- --------------
Gross profit 11,701,219 11,304,895
Operating expenses 7,529,285 6,555,035
-------------- --------------
Income from operations 4,171,934 4,749,860
Other income 543,023 751,175
-------------- --------------
Income before income taxes 4,714,957 5,501,035
Provision for income tax
1,790,165 2,137,306
-------------- --------------
Net income $ 2,924,792 $ 3,363,729
=============== ==============
Net income per share (basic and diluted) $ 0.48 $ 0.54
=============== ==============
Weighted average number of shares 6,046,027 6,210,409
=============== ==============
</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 NINE MONTHS ENDED DECEMBER 31, 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 2,924,792 2,924,792
Stock Dividend 123 492,474 (492,597) --
Purchase of Common Stock -- -- -- (924,919) -- (924,919)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 6,246 $ 20,054,541 $ 8,374,184 $ (1,545,607) $ (75,244) $ 26,814,120
============ ============ ============ ============ ============ ============
</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 NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows from operating activities:
Net Income $ 2,924,792 $ 3,363,729
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 233,193 208,477
(Increase) decrease in:
Investments 13,925 (362,375)
Accounts receivable (1,159,365) (709,480)
Inventory (1,806,163) (1,388,679)
Prepaid expenses and other assets 34,602 (203,083)
Increase (decrease) in:
Accounts payable and due to related party 1,043,696 440,440
Accrued expenses and other current liabilities 69,507 (67,169)
Income taxes payable (507,110) 522,207
----------- -----------
Net cash provided by operating activities 847,077 1,804,067
----------- -----------
Cash flows from investing activities:
Purchase of company stock (924,919) (481,978)
Purchase of property, equipment and other assets (591,916) (204,711)
Loan to Shareholder (700,000) --
----------- -----------
Net cash (used) in investing activities (2,216,835) (686,689)
----------- -----------
Net (Decrease) Increase in Cash (1,369,758) 1,117,378
Cash -- beginning of period 5,010,009 4,074,276
----------- -----------
Cash -- end of period $ 3,640,251 $ 5,191,654
=========== ===========
Supplemental disclosures:
Income taxes paid $ 1,968,547 $ 2,045,268
=========== ===========
</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 nine months ended December 31, 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, President, 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.
Three Months Ended December 31,
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------- ----------------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
--------- ------ ------------ --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 4,643,755 $ 4,412,268 $ 9,056,023 $ 4,478,643 $ 4,836,436 $ 9,315,079
Cost of Goods Sold 2,344,518 2,683,732 5,028,250 2,530,963 2,422,411 4,953,374
----------- ----------- ----------- ----------- ----------- -----------
Gross Profit $ 2,299,237 $ 1 ,728,536 $ 4,027,773 $ 1,947,680 $ 2,414,025 $ 4,361,705
=========== ============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1999 1998
---------------------------------------------- ----------------------------------------------
WHOLESALE RETAIL CONSOLIDATED WHOLESALE RETAIL CONSOLIDATED
--------- ------ ------------ --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 13,797,049 $ 12,510,735 $ 26,307,784 $ 11,502,224 $ 13,372,095 $ 24,874,319
Cost of Goods Sold 7,400,559 7,206,006 14,606,565 6,367,517 7,201,907 13,569,424
------------ ------------ ------------ ------------ ------------ ------------
Gross Profit $ 6,396,490 $ 5,304,729 $ 11,701,219 $ 5,134,707 $ 6,170,188 $ 11,304,895
=========== =========== ============ =========== =========== ============
</TABLE>
8
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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, 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 Nine Months Ended
December 31 December 31
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 55.5 53.2 55.5 54.6
----- ----- ----- -----
Gross profit 44.5 46.8 44.5 45.4
Operating expenses 31.3 27.6 28.6 26.4
----- ----- ----- -----
Income from operations 13.2 19.2 15.9 19.0
Other income 1.6 3.6 2.0 3.0
----- ----- ----- -----
Income before income taxes 14.8% 22.8% 17.9% 22.0%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1998
NET SALES. Net sales decreased approximately $259 thousand or 2.8% to $9.1
million in Fiscal 2000 from $9.3 million in Fiscal 1999. The net sales decrease
is a result of a 3.7% or $165 thousand increase in net sales of premium cigars
in the wholesale division offset by an 8.8% or $424 thousand 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, 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 premium cigars. The
decrease in the retail divisions is the result of lower mail order sales and a
decrease in retail traffic caused by increased local retail competition at the
flagship store in downtown Philadelphia.
GROSS PROFIT. Gross profit decreased approximately $334 thousand or 7.7% from
$4.3 million in Fiscal 1999 to $4.0 million in Fiscal 2000. Lower volume
accounted for $121 thousand of the decrease in gross profit. Gross profit, as a
percentage of net sales were 44.5% for Fiscal 2000 and 46.8% for Fiscal 1999.
This decrease of 2.3 percentage points is primarily the result of inventory
balancing sales at low margins, special discount offers in an attempt to boost
sales in the retail divisions and the addition of the Antillian Sosa brand of
premium cigars to the product line which carries a lower gross margin than the
Ashton brand.
OPERATING EXPENSES. Operating expenses increased $315 thousand or 12.5% from
$2.5 million in Fiscal 1999 to $2.8 million in Fiscal 2000. As a percentage of
net sales, operating expenses increased from 27.1% in Fiscal 1999 to 31.3% in
Fiscal 2000. This increase is primarily a result of increased selling expenses
associated with an increase in the national sales force, additional warehouse
and office staff to handle the additional wholesale business and additional
administrative staff.
OTHER INCOME. Other income decreased by $190 thousand due to lower interest
income from investments.
9
<PAGE> 10
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998
NET SALES. Net sales increased approximately $1.4 million or 5.8% from $24.9
million in Fiscal 1999 to $26.3 million in Fiscal 2000. Net sales increased
primarily as a result of a $2.3 million or 20% increase in net sales of premium
cigars in the wholesale division offset by a $861 thousand or 6.4% reduction in
the retail divisions. Mail order posted a 1.7% decline in sales and the retail
stores sales declined 15.5% from the comparable period. The increases in the
wholesale line were the result of increased availability of premium cigars from
the Company's suppliers, the introduction of the Ashton VSG line 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.
GROSS PROFIT. Gross profit increased approximately $400 thousand or 3.5% from
$11.3 million in Fiscal 1999 to $11.7 million in Fiscal 2000. Gross profit, as a
percentage of net sales is 44.5% for Fiscal 2000 and 45.4% 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 and the
inventory balancing sales made in the third quarter.
OPERATING EXPENSES. Operating expenses increased approximately $974 thousand or
14.9% from $6.5 million in Fiscal 1999 to $7.5 million in Fiscal 2000. As a
percentage of net sales, operating expenses increased from 26.4% in Fiscal 1999
to 28.6% 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 and strengthen the brand.
OTHER INCOME. Other income decreased by approximately $208 thousand from lower
interest income from investments.
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
nine months ended December 31,1999 of $847 thousand consisted primarily of net
income and increases in accounts payable, offset by increases in accounts
receivable, inventory and income taxes payable. Net cash provided by operations
for the nine months ended December 31,1998 of $1,804 thousand consisted
primarily of net income and increases in accounts payable and income taxes
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. At December 31, 1999, 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.
YEAR 2000
The Company completed its implementation of its plan for the so-called "Y2K
Problem", during 1999. The Company experienced no Y2K problems. The total cost
of implementing the Company's plan was less than $100,000.
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 December 31, 1999.
11
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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: FEBRUARY 10, 2000
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,640,251
<SECURITIES> 12,164,655
<RECEIVABLES> 8,334,655
<ALLOWANCES> 75,000
<INVENTORY> 2,427,918
<CURRENT-ASSETS> 22,393,063
<PP&E> 2,533,723
<DEPRECIATION> (693,465)
<TOTAL-ASSETS> 29,633,530
<CURRENT-LIABILITIES> 2,819,410
<BONDS> 0
0
0
<COMMON> 6,246
<OTHER-SE> 26,807,874
<TOTAL-LIABILITY-AND-EQUITY> 29,633,530
<SALES> 7,299,619
<TOTAL-REVENUES> 9,056,023
<CGS> 5,028,250
<TOTAL-COSTS> 2,838,413
<OTHER-EXPENSES> (149,946)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,339,306
<INCOME-TAX> 458,063
<INCOME-CONTINUING> 881,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 881,243
<EPS-BASIC> $0.15
<EPS-DILUTED> $0.15
</TABLE>
