<PAGE> 1
UNITED STATES
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
For the quarterly period ended: May 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-2572
STEEL CITY PRODUCTS, INC
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(Exact name of registrant as specified in its charter)
DELAWARE 55-0437067
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(State of Incorporation) (I.R.S. Employer
Identification No.)
3513 CONCORD PIKE, SUITE 3527, WILMINGTON, DELAWARE
19803
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(Address of principal executive offices)
(Zip Code)
(302) 478-9170
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year,
if changed since last report)
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
At July 1, 1998, 3,238,061 shares of the Registrant's Common Stock,
$0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
STEEL CITY PRODUCTS, INC.
<TABLE>
<S> <C>
Balance Sheets at May 31, 1998 (unaudited)
and February 28, 1997 .............................................. 3
Statements of Operations for the three month periods ended
May 31, 1998 and May 31, 1997 (unaudited) .......................... 4
Statement of Stockholders' Equity for the three months
ended May 31, 1998 (unaudited) ..................................... 5
Statements of Cash Flows for the three month periods ended
May 31, 1998 and May 31, 1997 (unaudited)........................... 6
Notes to Financial Statements (unaudited) ............................ 7
</TABLE>
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STEEL CITY PRODUCTS, INC.
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1998 1998
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(Unaudited)
<S> <C> <C>
Current assets:
Cash ........................................................................ $ 2 $ 1
Trade accounts receivable, less allowance of $331 and $355, respectively .... 2,881 2,698
Notes receivable - Oakhurst Company, Inc..................................... 300 293
Inventories ................................................................. 2,925 3,666
Other ....................................................................... 43 50
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Total current assets ...................................... 6,151 6,708
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Property and equipment, at cost .................................................. 968 951
Less accumulated depreciation ............................................... (635) (618)
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333 333
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Notes receivable - Oakhurst Company, Inc., long-term portion ..................... 646 723
Advances to Oakhurst Company, Inc................................................. 6,842 5,706
Other assets ..................................................................... 717 666
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8,205 7,095
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$ 14,689 $ 14,136
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 3,563 $ 3,926
Accrued compensation ........................................................ 347 380
Current maturities of long-term obligations ................................. 540 543
Due to affiliate ............................................................ 511 462
Other ....................................................................... 120 150
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Total current liabilities ................................. 5,081 5,461
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Long-term obligations:
Long-term debt .............................................................. 2,978 2,070
Other long-term obligations ................................................. 58 62
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3,036 2,132
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Commitments and contingencies ....................................................
Stockholders' equity:
Preferred stock, par value $0.01 per share; authorized
5,000,000 shares, issued 1,938,526 shares;
liquidation preference $10,135 ........................................... 19 19
Common stock, par value $0.01 per share; authorized
5,000,000 shares; issued 3,238,061 shares ................................ 32 32
Additional paid-in capital .................................................. 43,824 43,824
Deficit (Reorganized on August 26, 1989) .................................... (37,302) (37,331)
Treasury stock, at cost, 207 common shares .................................. (1) (1)
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Total stockholders' equity ................................ 6,572 6,543
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$ 14,689 $ 14,136
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1998 1997
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<S> <C> <C>
Sales ..................................................... $ 4,855 $ 5,151
Other income .............................................. 110 102
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4,965 5,253
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Cost of goods sold, including occupancy and
buying expenses ........................................ 3,943 4,178
Operating, selling and administrative expenses ............ 964 953
Provision for doubtful accounts ........................... (5) 13
Interest expense .......................................... 81 111
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4,983 5,255
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Net loss before undistributed earnings of
investment in affiliate and income tax expense ......... (18) (2)
Undistributed earnings of investment in affiliate ......... 52 47
Income tax expense ........................................ (5) --
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Net income ................................................ 29 45
Effect of Series A Preferred Stock dividends .............. (253) (253)
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Net loss attributable to common stockholders .............. $ (224) $ (208)
============ ============
Basic and diluted net loss per share attributable to common
stockholders after preferred stock dividends ........... $ (0.07) $ (0.06)
============ ============
Weighted average number of shares outstanding used in
computing basic and diluted per share amounts .......... 3,238,061 3,238,061
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 1998
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
--------------------- --------------------- PAID-IN EARNINGS ---------------------
SHARES PAR VALUE SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1998 ...... 1,938,526 $ 19 3,238,061 $ 32 $ 43,824 $ (37,331) 207 $ (1)
Net income for the period ........ 29
--------- --------- --------- --------- --------- --------- --------- ---------
Balances, May 31, 1998 ........... 1,938,526 $ 19 3,238,061 $ 32 $ 43,824 $ (37,302) 207 $ (1)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 6
STEEL CITY PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 29 $ 45
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization ............................... 27 50
Undistributed earnings of investment in affiliate ........... (52) (47)
Other changes in operating assets and liabilities:
Accounts receivable ......................................... (183) (668)
Inventories ................................................. 741 286
Accounts payable ............................................ (363) 301
Other ....................................................... (1) (126)
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Net cash provided by (used in) operating activities of:
Continuing operations ................................................ 198 (159)
Discontinued operations .............................................. 6 10
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Net cash provided by (used in) operating activities ....................... 204 (149)
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Cash flows from investing activities:
Advances to Oakhurst Company, Inc. ................................... (1,136) (602)
Collection of note receivable, Oakhurst Company, Inc. ................ 70 67
Additions to property and equipment .................................. (17) --
Other ................................................................ (1) --
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Net cash used in investing activities ..................................... (1,084) (535)
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Cash flows from financing activities:
Net borrowings under revolving credit agreement ...................... 908 753
Principal payments on long-term obligations .......................... (7) (69)
Deferred loan costs .................................................. (20) --
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Net cash provided by financing activities ................................. 881 684
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Net increase in cash ...................................................... 1 --
Cash at beginning of period ............................................... 1 2
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Cash at end of period ..................................................... $ 2 $ 2
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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STEEL CITY PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 1998
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position, results of operations and cash flows for the interim periods
presented. All adjustments made are of a normal recurring nature.
While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is suggested that these
unaudited financial statements be read in conjunction with the audited financial
statements for the fiscal year ended February 28, 1998 ("fiscal 1998") as filed
in the Company's Annual Report on Form 10-K.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
comprehensive income and its components. SFAS No. 130 also requires that the
cumulative balance of these items of other comprehensive income be reported
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company has adopted SFAS No.
130 in the first quarter ended May 31, 1998 (unaudited) and the adoption did not
have a material impact on the Company's disclosures in its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes standards
for the way public companies report selected information about operating
segments in both quarterly and annual financial statements to their
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. This statement is
not required to be applied to interim financial statements in the initial year
of its application. The Company has not yet determined the effects, if any, that
SFAS No. 131 will have on the disclosures in its financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Steel City Products, Inc. ("SCPI") is a special, limited purpose,
majority-owned subsidiary of Oakhurst Company, Inc. ("Oakhurst"). SCPI is
expected to concentrate on its historical line of business, while any future
growth and expansion opportunities are expected to be pursued by one or more
subsidiaries of Oakhurst. Through Oakhurst's ownership of SCPI, primarily in the
form of preferred stock, Oakhurst retains substantially all the value of SCPI,
and receives substantially all of the benefit of operations through dividends on
the preferred stock. Oakhurst's ownership of SCPI is designed to facilitate the
preservation and utilization of SCPI's and Oakhurst's net operating tax loss
carry-forwards which amount to approximately $154 million.
In addition to cash derived from operations, SCPI's liquidity and
financing requirements are determined principally by the working capital needed
to support its level of business, together with the need for capital
expenditures and the cash required to repay its debt. SCPI also receives cash
payments pursuant to a note receivable from Oakhurst, and from time to time,
repayments of advances to Oakhurst. SCPI's working capital needs fluctuate
primarily due to the amounts of inventory it carries which can change
seasonally, the size and timeliness of payment of receivables from its customers
to which from time to time SCPI grants extended payment terms for their seasonal
inventory builds, and the amount of credit extended to SCPI by its suppliers.
SCPI participates in a cash concentration system together with all the
subsidiaries of Oakhurst. Available cash that is transferred to Oakhurst is
reflected as an addition to the advances to Oakhurst.
At May 31, 1998, SCPI's debt primarily consisted of notes payable with
outstanding principal balances aggregating approximately $522,000 that were
issued in connection with the settlement of certain contingent liabilities
related to SCPI's former retail division. SCPI also has revolving debt of
approximately $3 million which is offset entirely by advances receivable from
Oakhurst that bear interest at the same rate as the revolving debt.
Oakhurst and its subsidiaries, including SCPI, have available financing
under a revolving credit facility (the "Revolver") from an institutional lender
up to a maximum of $7 million, subject to a borrowing base that is calculated
according to defined levels of the subsidiaries' accounts receivable and
inventories. At May 31, 1998, the borrowing base under the Revolver was $5.5
million. In fiscal 1998, the Revolver was extended to April 1999, and provides
for subsequent renewal terms of one year each upon payment of a renewal fee of
0.5% of the entire line, unless earlier terminated as provided for in the
agreement. Management believes that the Revolver will provide adequate funding
for SCPI's working capital requirements for at least the next twelve months,
assuming no material deterioration in current sales levels or gross profit
margins.
From time to time the information provided by the Company or statements
made by its employees may contain so-called "forward looking" information that
involves risks and uncertainties. In particular, statements contained in this
Item 2 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are not historical facts (including, but not
limited to statements concerning anticipated sales, profit levels, customers and
cash flows) are forward looking statements. The Company's actual future results
may differ significantly from those stated in any forward looking statements.
Factors that may cause such differences include, but are not limited to the
factors discussed above as well as the accuracy of the Company's internal
estimates of revenue and operating expense levels. Each of these factors
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<PAGE> 9
and others are discussed from time to time in the Company's Securities and
Exchange Commission filings.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of May 31, 1998, there had been no material changes in the Company's
financial condition from February 28, 1998, discussed in Item 7 of the Company's
Annual Report on Form 10-K for fiscal 1998.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Operations include the results of SCPI's operating division, Steel City
Products, a distributor of automotive parts and accessories and of non-food pet
supplies based in Pittsburgh, Pennsylvania.
THREE MONTHS ENDED MAY 31, 1998 COMPARED WITH THREE MONTHS ENDED MAY 31, 1997
Sales in the first quarter of the current year decreased by $296,000
compared to the prior year. Sales to existing automotive customers decreased by
approximately $580,000, primarily as a result of competitive pressures
encountered by certain of SCPI's customers, and because some customers have
changed their buying practices to obtain certain product lines direct from the
manufacturer. The prior year first quarter also included sales of approximately
$117,000 relating to the "Wing-tech" division that was sold in such quarter.
Partially offsetting these decreases were sales to new automotive customers of
approximately $210,000.
Sales of non-food pet supplies were $407,000 in the current year,
compared with $218,000 in the prior year. The increase in sales of $189,000
resulted from expanded sales to existing pet supply customers, together with
sales of $90,000 to new pet supply customers recently added.
Gross profits decreased by $61,000 in the first quarter compared with
the first quarter of the prior year, due primarily to the net decrease in sales.
Operating, selling and administrative increased by $11,000 when
compared to the prior year first quarter. Lower expenses of approximately
$30,000 resulting from the sale of the Wing-tech division were offset by higher
selling expenses which primarily related to higher broker's commissions that are
paid in connection with the pet supply business.
There was an decrease in the provision for doubtful accounts of $18,000
in the current year. The prior year provision reflected the bankruptcy of a
customer.
Interest expense decreased by $30,000, due to SCPI's repayment of a
term loan in December 1997.
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<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (EDGAR transmission only)
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
STEEL CITY PRODUCTS, INC.
Date: July 10, 1998 By: /s/ Bernard H. Frank
-------------------------------
Bernard H. Frank
Chief Executive Officer
Date: July 10, 1998 By: /s/ Mark Auerbach
-------------------------------
Mark Auerbach
Chief Financial Officer
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<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<S> <C>
27. Financial Data Schedule (EDGAR transmission only)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 3,212
<ALLOWANCES> 331
<INVENTORY> 2,925
<CURRENT-ASSETS> 6,151
<PP&E> 968
<DEPRECIATION> 635
<TOTAL-ASSETS> 14,689
<CURRENT-LIABILITIES> 5,081
<BONDS> 3,036
0
19
<COMMON> 32
<OTHER-SE> 6,521
<TOTAL-LIABILITY-AND-EQUITY> 14,689
<SALES> 4,855
<TOTAL-REVENUES> 4,965
<CGS> 3,943
<TOTAL-COSTS> 3,943
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (5)
<INTEREST-EXPENSE> 81
<INCOME-PRETAX> (18)
<INCOME-TAX> 0
<INCOME-CONTINUING> 29
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (224)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
