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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
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 (I.R.S. Employer
Incorporation) Identification No.)
2751 CENTERVILLE ROAD, SUITE 3131, WILMINGTON, DELAWARE
19808
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(Address of principal executive offices)
(Zip Code)
(817) 416-0717
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(Registrant's telephone number, including area code)
3513 CONCORD PIKE, SUITE 3527, WILMINGTON, DELAWARE
19803
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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 No X
--- ---
At July 1, 2000, 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED FINANCIAL STATEMENTS
STEEL CITY PRODUCTS, INC.
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Condensed Balance Sheets at May 31, 2000
and February 29, 2000 ............................................ 3
Condensed Statements of Operations for the three month periods ended
May 31, 2000 and May 31, 1999 .................................... 4
Condensed Statements of Cash Flows for the three month periods ended
May 31, 2000 and May 31, 1999 .................................... 5
Notes to Condensed Financial Statements ............................ 6
</TABLE>
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STEEL CITY PRODUCTS, INC.
CONDENSED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
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ASSETS MAY 31, FEBRUARY 29,
2000 2000
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Current assets:
Cash ......................................................................... $ 4 $ 7
Trade accounts receivable, less allowance of $169 and $213, respectively ..... 2,423 2,478
Inventories .................................................................. 4,445 4,795
Other ........................................................................ 103 81
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Total current assets ......................................... 6,975 7,361
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Property and equipment, at cost ..................................................... 1,169 1,160
Less accumulated depreciation ................................................ (809) (782)
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360 378
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Other assets ........................................................................ 168 171
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168 171
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$ 7,503 $ 7,910
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable ............................................................. $ 4,493 $ 4,869
Accrued compensation ......................................................... 242 374
Current maturities of long-term obligations .................................. 198 209
Other ........................................................................ 74 132
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Total current liabilities .................................... 5,007 5,584
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Long-term obligations:
Long-term debt ............................................................... 3,227 3,172
Other long-term obligations .................................................. 165 180
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3,392 3,352
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Commitments and contingencies ....................................................... -- --
Stockholders' deficiency:
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 $0.01 per share; authorized
5,000,000 shares; issued 3,238,061 shares .................................. 32 32
Additional paid-in capital ................................................... 43,824 43,824
Deficit (Reorganized on August 26, 1989) ..................................... (36,317) (36,570)
Advances to Oakhurst Company, Inc. ........................................... (8,453) (8,330)
Treasury stock, at cost, 207 common shares ................................... (1) (1)
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Total stockholders' deficiency ............................... (896) (1,026)
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$ 7,503 $ 7,910
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</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
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STEEL CITY PRODUCTS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
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THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
2000 1999
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Sales ..................................................... $ 5,745 $ 5,625
Other income .............................................. 108 94
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5,853 5,719
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Cost of goods sold, including occupancy and
buying expenses ....................................... 4,502 4,456
Operating, selling and administrative expenses ............ 982 1,003
Provision for doubtful accounts ........................... 13 21
Interest expense .......................................... 101 78
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5,598 5,558
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Net income before undistributed earnings of
investment in affiliate and income tax expense ........ 255 161
Undistributed earnings of investment in affiliate ......... -- 55
Income tax expense ........................................ (2) (2)
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Net income ................................................ 253 214
Effect of Series A Preferred Stock dividends .............. (253) (255)
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Net loss attributable to common stockholders .............. $ -- $ (41)
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Basic and diluted net loss per share attributable to common
stockholders after preferred stock dividends .......... $ -- $ (0.01)
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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
condensed financial statements.
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STEEL CITY PRODUCTS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
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THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
2000 1999
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Cash flows from operating activities:
Net income ......................................................... $ 253 $ 214
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization .................................... 33 40
Undistributed earnings of investment in affiliate ................ -- (55)
Other changes in operating assets and liabilities:
Accounts receivable .............................................. 55 (240)
Inventories ...................................................... 350 (264)
Accounts payable ................................................. (376) 867
Other ............................................................ (226) (69)
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Net cash provided by operating activities ............................ 89 493
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Cash flows from investing activities:
Additions to property and equipment .............................. (9) (1)
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Net cash used in investing activities ................................ (9) (1)
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Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreement ..... 55 (348)
Principal payments on long-term obligations ...................... (15) (17)
Net increase in advances to Oakhurst ............................. (123) (78)
Deferred loan costs .............................................. -- (49)
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Net cash used in financing activities ................................ (83) (492)
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Net decrease in cash ................................................. (3) --
Cash at beginning of period .......................................... 7 2
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Cash at end of period ................................................ $ 4 $ 2
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</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
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STEEL CITY PRODUCTS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2000
1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
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 condensed financial statements be read in conjunction with the audited
financial statements for the fiscal year ended February 29, 2000 ("fiscal 2000")
as filed in the Company's Annual Report on Form 10-K.
Operating results for the three months ended May 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
February 28, 2001.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is required
to be adopted in years beginning after June 15, 2000. The Company does not
anticipate that the adoption of SFAS No. 133 will have a significant effect on
its financial position or results of operations.
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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 distribution 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 $158 million.
LIQUIDITY AND CAPITAL RESOURCES
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'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 with Oakhurst. Available cash
that is transferred to Oakhurst is reflected as an addition to advances made to
Oakhurst.
At May 31, 2000, SCPI's debt consisted primarily of revolving debt of
approximately $3.2 million. The revolving debt agreement has a term of three
years, expiring in May 2003 and provides for a maximum facility of $4.0 million,
subject to a borrowing base.
Management believes that the revolving debt 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
margin.
FORWARD LOOKING STATEMENTS
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 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, 2000, there had been no material changes in the Company's
financial condition from February 29, 2000, discussed in Item 7 of the Company's
Annual Report on Form 10-K for fiscal 2000.
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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, headquartered in McKeesport, Pennsylvania.
THREE MONTHS ENDED MAY 31, 2000 COMPARED WITH THREE MONTHS ENDED MAY 31, 1999
Sales in the first quarter of the current year increased by $120,000
compared with the first quarter of the prior year. Sales to existing automotive
customers decreased by $254,000 due primarily to the loss of a customer in the
fourth quarter of fiscal 2000. Some of the loss in sales to this customer was
offset by increased sales to other existing customers which have expanded their
product offerings or which have acquired additional locations. Sales to new
customers totaled approximately $300,000 in the first quarter.
Sales of non-food pet products totaled $628,000, an increase of $66,000
compared with the first quarter of the prior year, due primarily to increased
sales to existing customers.
Gross profits increased by $74,000 in the first quarter of the current year
compared with the first quarter of the prior year, due to the higher sales
volume combined with higher margins earned on certain product offerings.
Operating, selling and administrative expenses reflected a decrease of
$21,000 in the first quarter compared with the prior year due to lower corporate
expenses and lower commitment fees on the revolving debt.
Interest expense increased by $23,000 due to higher borrowing levels in the
current year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
SCPI is exposed to certain market risks from transactions that are entered
into during the normal course of business. The Company's policies do not permit
active trading of, or speculation in, derivative financial instruments. The
Company's primary market risk exposure relates to interest rate risk. SCPI
manages its interest rate risk by attempting to balance its exposure between
fixed and variable rates while attempting to minimize its interest costs.
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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
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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 19, 2000 By: /s/ Bernard H. Frank
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Bernard H. Frank
Chief Executive Officer
Date: July 19, 2000 By: /s/ Maarten D. Hemsley
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Maarten D. Hemsley
Chief Financial Officer
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INDEX TO EXHIBITS
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EXHIBIT NO. EXHIBIT DESCRIPTION
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27 Financial Data Schedule
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