<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A2
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1995
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: 0-19450
OAKHURST COMPANY, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
- --------------------------- -------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS
75050
------------------------------------------
(Address of principal executive offices)
(Zip Code)
(214) 660-4499
----------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------
(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
----- -----
As of October 1, 1995, 3,195,235 shares of the Registrant's Common
Stock, $0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
EXPLANATORY NOTE
This Form 10-Q/A2 amends Part One, Items 1 and 7; Part Two, Item 6; and the
Company's accompanying financial data schedule of the Company's Form 10-Q for
the quarterly period ended August 31, 1995 that was filed on October 16, 1995.
This Form 10-Q/A2 reflects an amendment of Oakhurst's bank financing which
occurred on January 8, 1996.
Accordingly, this Form-10-Q/A2 contains a revised Balance Sheet at August 31,
1995, and a revised Financial Data Schedule, both of which reflect a
reclassification of a long-term obligation to a current liability. This From
10Q/A2 also includes revised notes to the financial statements, and
Management's Discussion and Analysis of Financial Condition, with changes to
the Liquidity and Capital Resources section and to the Financing and Line of
Credit Section.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Balance sheets at August 31, 1995 (unaudited)
and February 28, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of operations for the three months ended August 31, 1995
and the thirteen weeks ended August 27, 1994 (unaudited) . . . . . . . . . . . . 5
Statements of operations for the six months ended August 31, 1995
and the twenty-six weeks ended August 27, 1994 (unaudited) . . . . . . . . . . . 6
Statement of stockholders' equity for the six months
ended August 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . 7
Statements of cash flows for the six months ended August 31, 1995
and the twenty-six weeks ended August 27, 1994 (unaudited) . . . . . . . . . . . 8
Notes to financial statements (unaudited) . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<PAGE> 4
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS August 31, February 28,
1995 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 302 $ 314
Trade accounts receivable, less allowance of $487 and
$282, respectively................................... 5,231 5,760
Commissions receivable................................. 224 226
Other receivables...................................... 209 498
Inventories............................................ 9,423 10,400
Deferred tax asset..................................... - 620
Other.................................................. 500 280
------------ ------------
Total current assets......................... 15,889 18,098
------------ ------------
Property and equipment, at cost.......................... 3,034 2,993
Less accumulated depreciation.......................... (876) (921)
------------ ------------
2,158 2,072
------------ ------------
Deferred tax asset....................................... 6,086 5,466
Excess of cost over net assets acquired, net............. 7,401 7,399
Other assets............................................. 268 266
------------ ------------
13,755 13,131
------------ ------------
$ 31,802 $ 33,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of revolving credit agreement....... $ 2,800 $ -
Note payable, related party............................ 287 532
Term loan, current..................................... 1,962 585
Accounts payable....................................... 6,843 8,066
Accrued compensation................................... 475 757
Income taxes payable................................... - 109
Current maturities of long-term obligations............ 46 32
Current maturities of long-term obligations, related
parties.............................................. 740 800
Net obligation of discontinued business segment-
current portion...................................... 536 505
Other.................................................. 584 468
------------ ------------
Total current liabilities.................... 14,273 11,854
------------ ------------
Long-term obligations:
Net obligation of discontinued business segment........ 681 985
Long-term debt......................................... 39 3,237
Long-term debt, related parties........................ 1,960 1,800
Convertible debt, related parties...................... 532 517
Other long-term obligations............................ 111 73
------------ ------------
3,323 6,612
------------ ------------
Commitments and contingencies............................
Stockholders' equity:
Preferred stock, par value $0.01; authorized 1,000,000
shares, none issued.................................. - -
Common stock, par value $0.01 per share; authorized
14,000,000 shares; issued 3,195,235 and 3,189,326
shares, respectively................................ 32 32
Additional paid-in capital............................. 46,515 46,480
Deficit (Reorganized on August 26, 1989)............... (32,340) (31,676)
Treasury stock, at cost, 207 common shares............. (1) (1)
------------ ------------
Total stockholders' equity................... 14,206 14,835
------------ ------------
$ 31,802 $ 33,301
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 5
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Thirteen Weeks
Ended Ended
August 31, August 27,
1995 1994
------------ --------------
<S> <C> <C>
Sales......................................... $ 13,517 $ 9,891
Other income.................................. 151 217
------------ ------------
13,668 10,108
------------ ------------
Cost of goods sold, including occupancy and
buying expenses............................. 10,690 7,424
Operating, selling and administrative
expenses.................................... 2,945 1,991
Provision for doubtful accounts............... 205 -
Amortization of excess of costs over net asset
acquired.................................... 125 35
Interest expense.............................. 182 54
------------ ------------
14,147 9,504
------------ ------------
Income (loss) from continuing operations
before income taxes......................... (479) 604
Income taxes (benefit)........................ (30) 201
------------ ------------
Income (loss) from continuing operations...... (449) 403
Income from discontinued operations (net of
$34 income tax expense)..................... - 66
------------ ------------
Net income (loss) ............................ $ (449) $ 469
============ ============
Per share amounts:
Income (loss) from continuing operations.... $ (0.14) $ 0.13
Income from discontinued operations......... - 0.02
------------ ------------
Net income (loss) .......................... $ (0.14) $ 0.15
============ ============
Weighted average number of common shares
outstanding used in computing per share
amounts..................................... 3,195,235 3,034,650
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 6
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Twenty-six Weeks
Ended Ended
August 31, August 27,
1995 1994
------------ ----------------
<S> <C> <C>
Sales.............................................. $ 26,542 $ 19,760
Other income....................................... 197 228
------------ ------------
26,739 19,988
------------ ------------
Cost of goods sold, including occupancy and
buying expenses.................................. 20,828 14,876
Operating, selling and administrative expenses..... 5,660 3,883
Provision for doubtful accounts.................... 267 -
Amortization of excess of costs over net assets
acquired......................................... 262 50
Interest expense................................... 377 85
------------ ------------
27,394 18,894
------------ ------------
Income (loss) from continuing operations
before income taxes.............................. (655) 1,094
Income taxes....................................... 9 397
------------ ------------
Income (loss) from continuing operations........... (664) 697
Income from discontinued operations (net of
$34 income tax expense).......................... - 66
------------ ------------
Net income (loss).................................. $ (664) $ 763
============ ============
Per share amounts:
Income (loss) from continuing operations......... $ (0.21) $ 0.24
Income from discontinued operations.............. - 0.02
------------ ------------
Net income (loss)................................ $ (0.21) $ 0.26
============ ============
Weighted average number of common shares
outstanding used in computing per share amounts.. 3,192,832 2,949,777
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 7
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
-------------------- Paid-in Earnings -----------------
shares par value Capital (Deficit) shares cost
--------- --------- ---------- --------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1995.......... 3,189,326 $32 $46,480 ($31,676) 207 ($1)
Net loss for the period.............. (664)
Employee stock awards................ 5,909 * 19
Other................................ 16
--------- --- ------- -------- --- ---
Balances, August 31, 1995............ 3,195,235 $32 $46,515 ($32,340) 207 ($1)
========= === ======= ======== === ===
</TABLE>
* Rounds to less than $1,000
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 8
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Twenty-six Weeks
Ended Ended
August 31, August 27,
1995 1994
---------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations.............. $ (664) $ 697
Adjustments to reconcile income (loss) from continuing
operations to net cash (used in) provided by
operating activities:
Depreciation and amortization.................... 444 138
Deferred tax expense............................. - 362
Loss on retirement of asset...................... 10 -
Employee stock award............................. 19 -
Other changes in operating assets and liabilities:
Accounts receivable.............................. 529 (144)
Inventories...................................... 977 160
Accounts payable................................. (1,223) 188
Other............................................ (175) 277
--------- ---------
Net cash (used in) provided by operating activities of:
Continuing operations................................. (83) 1,678
Discontinued operations............................... (273) (285)
--------- ---------
Net cash (used in) provided by operating activities..... (356) 1,393
--------- ---------
Cash flows from investing activities:
Additions to property and equipment................... (216) (294)
Acquisition of subsidiary, net of cash acquired....... - (3,990)
Net change in the excess of cost over net assets
acquired............................................ (151) -
--------- ---------
Net cash used in investing activities................... (367) (4,284)
--------- ---------
Cash flows from financing activities:
Exercise of warrants................................... - 64
Proceeds from issuance of long-term debt............... - 2,560
Net borrowings under revolving credit agreement........ 1,275 350
Repayment of note payable.............................. (258) (165)
Repayment of distribution payable...................... - (500)
Principal payments on long-term obligations............ (306) (75)
Deferred financing costs............................... - (58)
--------- ---------
Net cash provided by financing activities..... 711 2,176
--------- ---------
Net decrease in cash and cash equivalents.... (12) (715)
Cash and cash equivalents at beginning of period........ 314 1,071
--------- ---------
Cash and cash equivalents at end of period.............. $ 302 $ 356
========= =========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
Six months ended August 31, 1995:
Capital lease obligations of $62 were incurred when the Company entered
into three leases for new computer and warehouse equipment.
Additional long-term debt of $100 was issued with a reduction of $13 to a
current note payable upon finalization of an acquisition in the prior
year.
Twenty six weeks ended August 27, 1994:
Convertible debt of $500, and a note and earn-out payable totaling $1.5
million were issued in connection with the acquisition of a subsidiary.
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE> 9
OAKHURST COMPANY, INC. AND SUBSIDIARIES
SIX MONTHS ENDED AUGUST 31, 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or "the Company") (formerly
Oakhurst Capital, Inc.) was formed as a result of a merger transaction (the
"merger") in fiscal 1992 between Steel City Products, Inc. ("SCPI") and an
Oakhurst subsidiary. The merger resulted in a restructuring of SCPI such that
it became a majority-owned subsidiary of Oakhurst. In accordance with the
merger, Oakhurst owns 10% of the outstanding common stock of SCPI and all of
SCPI's Series A Preferred Stock. The merger was structured such that the
aggregate fair market value of SCPI's common stock and Series A Preferred Stock
owned by Oakhurst would be approximately 90% of the aggregate fair market value
of SCPI. Accordingly, Oakhurst controls approximately 90% of the voting power
of SCPI. The accompanying financial statements reflect this control and
include the accounts of SCPI.
Oakhurst acquired all of the outstanding capital stock of H&H
Distributors d/b/a Harry Survis, ("H&H") in January 1994; accordingly, the
accompanying financial statements include the accounts of H&H.
Oakhurst acquired all of the outstanding capital stock of Dowling's
Fleet Service Co., Inc. ("Dowling's") and of Puma Products, Inc. ("Puma") in
August 1994 and October 1994, respectively; accordingly, the accompanying
consolidated financial statements include the accounts of these subsidiaries
for the respective periods of ownership.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
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 consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the fiscal year ended February
28, 1995 ("fiscal 1995") as filed in the Company's Annual Report on Form 10-K.
2. PROVISION FOR DOUBTFUL ACCOUNTS
During the second quarter of the current fiscal year, management
curtailed the level of credit allowed to Jamesway Corporation ("Jamesway"), one
of SCPI's largest customers, after becoming aware that Jamesway was
experiencing new financial difficulties. Although Jamesway had emerged from
bankruptcy as recently as January 1995, on October 6, 1995 it announced that it
is again considering filing for bankruptcy protection. Pending a further
announcement by Jamesway, SCPI suspended shipments to this customer in October
1995, and Oakhurst's consolidated second quarter results included a provision
of $150,000 in relation to the balances due from Jamesway.
3. LONG-TERM DEBT AND LINE OF CREDIT
In August 1994, Oakhurst entered into a two year revolving credit
agreement (the "Credit Agreement") that, until its amendment, carried a
floating interest rate of prime plus 1% and provided for maximum borrowings of
$3 million. Borrowings may be limited by the borrowing base, as defined in the
Credit Agreement, which is calculated according to the level of Oakhurst's
subsidiaries' accounts receivable.
In August 1994, SCPI obtained a four year term loan in the amount of
$2,560,000 (the "Term Loan"), in connection with Oakhurst's acquisition of
Dowling's. The Term Loan is secured by a mortgage on SCPI's real estate, is
guaranteed by Oakhurst and its subsidiaries, supported by a pledge of the
capital stock of Oakhurst's subsidiaries. The Term Loan provides for monthly
repayments beginning in September 1994 and bears interest at a fixed rate of
9.25%.
The Term Loan and the Credit Agreement are cross-collateralized, and
contain various financial covenants. At the end of the current year second
quarter, August 31, 1995, SCPI and Oakhurst were in the process of finalizing
replacement convenants with the bank to reflect the Puma acquisition that was
completed in the latter part of fiscal 1995, and received waivers in respect of
those covenants as to which the companies were not in compliance at the end of
the second quarter.
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<PAGE> 10
The Credit Agreement was amended during the current year
third quarter to provide for maximum borrowings of $4 million, subject to the
borrowing base, and to eliminate all of the financial covenants, except
for certain amended subsidiary and consolidated net worth convenants. The Term
Loan was also amended to reflect such revised convenants. Borrowings under the
amended Oakhurst Credit Agreement bear interest at prime plus 1.5%, and are
secured by the accounts receivable, inventory and capital stock of Oakhurst's
subsidiaries.
At the end of the current year third quarter, November 30, 1995,
Oakhurst did not meet the consolidated net worth convenant, as amended, and
requested a modification of such convenant. The modification was granted by
the bank on January 3, 1996, in exchange for Oakhurst's and SCPI's agreement to
accelerate the maturity date of the Term Loan to July 31, 1996, and to increase
the interest rates on the Oakhurst Credit Agreement and the Term Loan by 1% and
1.25%, respectively, effective February 28, 1996. Accordingly, the Term Loan
has been presented as a current liability until replacement financing is
finalized.
In December 1995, Oakhurst initiated negotiations with several lenders to
obtain replacement financing and on January 8, 1996 accepted a letter of intent
from an institutional lender which is expected to provide a significant
increase in the level of financing available to Oakhurst and its subsidiaries
based upon essentially similar collateral as provided under the existing bank
financing. Management expects that Oakhurst and SCPI will secure a commitment
on and close such refinancing before February 29, 1996.
4. ARBITRATION
On July 26, 1995 the Company initiated an arbitration proceeding with
the American Arbitration Association in connection with the August 1994
acquisition by the Company of Dowling's. The Company is seeking rescission of
the acquisition, or in the alternative, damages and indemnification in excess
of $1.6 million. The proceeding is based, among other things, on the Company's
belief that the seller breached certain provisions of the purchase and sale
agreement covering the acquisition by furnishing to the Company financial
information that was materially inaccurate. If the Company is successful in
obtaining a rescission of the purchase, the Company would receive back the
portion of the purchase price paid and other consideration given at the
closing, and would be relieved of the obligation to pay the balance of the
purchase price (approximately $1 million) over the three-year period following
the closing. In the event of a rescission of the acquisition, the Company
believes that in the near term it might earn less as a result of the repayment
of the debt that was incurred to make the acquisition and the investment of any
cash re-paid that is in excess of that debt than it might otherwise have
earned from the continued ownership of the Dowling's business.
Pending resolution of the arbitration, Oakhurst has exercised its
right of set-off, as defined in the Dowling's purchase agreement, against a
principal payment due of $350,000 on a related-party note payable issued in
connection with the Dowling's acquisition.
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<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's analysis of the significant factors that
have influenced the Company's financial position and results of operations
during the periods included in the accompanying consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's corporate structure permits Oakhurst Company, Inc.
("Oakhurst" or "the Company") (formerly Oakhurst Capital, Inc.) to file a
consolidated tax return so that both Oakhurst and Steel City Products, Inc.
("SCPI") may utilize the tax benefits (including approximately $148 million of
net operating loss carryforwards at December 31, 1994) attributable to SCPI.
SCPI is to concentrate on its historical line of business, while future growth
and expansion opportunities are to be pursued by Oakhurst or its other
subsidiaries. Through Oakhurst's ownership of SCPI, primarily in the form of
preferred stock, Oakhurst will retain substantially all the value of SCPI, and
will receive substantially all of the benefit of SCPI's operations through
dividends on such preferred stock. Oakhurst's ownership of SCPI is designed to
facilitate the preservation and utilization of the tax benefits.
In fiscal 1995, following Oakhurst's adoption of a program of
diversification and expansion, it acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's"), a New York-headquartered
distributor of automotive radiators and related products, and of Puma Products,
Inc. ("Puma"), a Texas-based distributor of after- market products to the light
truck and van conversion industry. In connection with these acquisitions,
Oakhurst paid approximately $5.2 million in cash, and issued stock, convertible
debt, and notes and earn-outs payable of approximately $5 million in the
aggregate.
The notes payable outstanding include a two-year Dowling's note
payable of $700,000 that bears interest at prime and is due in two annual
installments beginning in August 1995, a two-year Puma note payable of $600,000
that bears interest at prime plus 1% and is due in two annual installments
beginning in October 1995 and a short-term Puma note payable with a current
balance of approximately $287,000 that bears interest at prime plus 1% and is
due in monthly installments of $100,000 through November 1995. Oakhurst has
exercised its right of set-off, as defined in the Dowling's purchase agreement,
against the first principal payment of $350,000 on the Dowling's note that was
due in August 1995, pending resolution of an arbitration proceeding (see
"Liquidity and Capital Resources - Significant Events - Arbitration").
The earn-out payments are due beginning in fiscal 1996, over two to
three years for Dowling's and over three to five years for Puma, and are
currently estimated at approximately $1.4 million, the current portion of which
is estimated at $90,000.
The convertible debt of $500,000 was issued to certain executives of
Dowling's, accrues interest at 6% and is convertible at the executives' option
into 120,346 shares of Oakhurst common stock on August 1, 1997.
These acquisitions, together with the acquisition of H&H Distributors,
d/b/a Harry Survis Auto Center ("H&H") that was completed in fiscal 1994, were
designed to enlarge Oakhurst's profit potential without over-leveraging the
Company or diluting the equity position of its shareholders. H&H, Dowling's
and Puma have been historically profitable and, despite a loss by Dowling's in
the first half of the current year (see "Results of Operations - Significant
Trends" below) are expected to continue to be so in the future. Although the
acquisitions resulted in a significant use of available cash and in the
issuance of long-term and short-term debt, the earnings potential of these new
subsidiaries is expected to enhance Oakhurst's liquidity and financial position
in the future.
Further acquisitions may be limited by the Company's available cash,
by its borrowing ability and by limitations on the amount of stock which the
Company may issue without jeopardizing the tax loss benefits.
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<PAGE> 12
TERM LOAN AND LINE OF CREDIT
In August 1994, SCPI obtained a four year term loan that was issued in
connection with Oakhurst's acquisition of Dowling's, in the amount of
$2,560,000 (the "Term Loan"), that is secured by a mortgage on SCPI's real
estate, guaranteed by Oakhurst and its subsidiaries, and supported by a pledge
of the capital stock of Oakhurst's subsidiaries. The Term Loan provides for
monthly repayments beginning in September 1994 and bears interest at a fixed
rate of 9.25%.
In August 1994, Oakhurst entered into a two year revolving credit
agreement (the "Credit Agreement") that, until its amendment, provided for
maximum borrowings of $3 million and carried an interest rate of prime plus 1%.
Borrowings may be limited by the borrowing base, as defined in the Credit
Agreement, which is calculated according to the level of Oakhurst's
subsidiaries' accounts receivable. At current and expected levels of accounts
receivable, any such limitation is not expected to reduce the borrowing base
below the maximum. The Credit Agreement permits Oakhurst to make advances from
time to time to each of its subsidiaries. At August 31, 1995, the amount
outstanding under the Credit Agreement was $2,800,000.
The Term Loan and the Credit Agreement are cross-collateralized, and
contain various financial covenants. At the end of the second quarter, August
31, 1995, SCPI and Oakhurst were in the process of finalizing replacement
covenants with the bank, to reflect the Puma acquisition that was completed in
the latter part of fiscal 1995, and received waivers in respect of those
covenants as to which the companies were not in compliance at the end of the
second quarter.
The Credit Agreement was amended during the third quarter of the
current fiscal year to provide for maximum borrowings of $4 million, subject to
the borrowing base, and to eliminate of all of the financial covenants except
for certain amended subsidiary and consolidated net worth requirements. The
Term Loan was also amended to reflect such revised covenants. Borrowings under
the amended Credit Agreement bear interest at prime plus 1.5%, and are secured
by the accounts receivable, inventory and capital stock of Oakhurst's
subsidiaries.
At the end of the third quarter of the current fiscal year,
November 30, 1995, Oakhurst did not meet the consolidated net worth covenant,
as amended, and requested a modification of such covenant. The modification was
granted by the bank on January 3, 1996 in exchange for Oakhurst's and SCPI's
agreement to accelerate the maturity date of the Term Loan to July 31, 1996,
and to increase the interest rates on borrowings under the Credit Agreement and
the Term Loan by 1% and 1.25%, respectively, effective February 28, 1996.
Accordingly, the Term Loan has been presented as a current liability until
replacement financing is finalized.
In December 1995, Oakhurst initiated negotiations with several lenders
to obtain replacement financing and on January 8, 1996 accepted a letter of
intent from an institutional lender which is expected to provide a significant
increase in the level of financing available to Oakhurst and its subsidiaries
based upon essentially similar collateral as provided under the existing bank
financing.
Each of Oakhurst's subsidiaries encounters periodic fluctuations in
its working capital requirements, resulting principally from the need to
increase inventory to anticipate seasonal changes in demand, and also from
changes in the levels of accounts receivable and accounts payable. Management
believes that the Credit Agreement is currently adequate for the seasonal needs
of its businesses and that Oakhurst and SCPI will secure a letter of
commitment on and close the proposed refinancing before February 29, 1996 to
replace the existing bank financing.
SIGNIFICANT EVENTS
Arbitration
On July 26, 1995 the Company initiated an arbitration proceeding with
the American Arbitration Association in connection with the August 1994
acquisition by the Company of Dowling's. The Company is seeking rescission of
the acquisition, or in the alternative, damages and indemnification in excess
of $1.6 million. The proceeding is based, among other things, on the Company's
belief that the seller breached certain provisions of the purchase and sale
agreement covering the acquisition by furnishing to the Company financial
information that was materially inaccurate. If the Company is successful in
obtaining a rescission of the purchase, the Company would receive back the
portion of the purchase price paid and other consideration given at the
closing, and would be relieved of the obligation to pay the balance of the
purchase price (approximately $1 million) over the three-year period following
the closing. In the event of a rescission of the acquisition, the Company
believes that in the near term it might earn less as a result of the repayment
of the debt that was incurred to make the acquisition and the investment of any
cash re-paid that is in excess of that debt than it might otherwise have
earned from the continued ownership of the Dowling's business.
- 12 -
<PAGE> 13
Major Customers
During the second quarter of the current fiscal year, management
curtailed the level of credit allowed to Jamesway Corporation ("Jamesway"), one
of SCPI's largest customers, after becoming aware that Jamesway was
experiencing new financial difficulties. Although Jamesway had emerged from
bankruptcy as recently as January 1995, on October 6, 1995 it announced that it
is again considering filing for bankruptcy protection. Pending a further
announcement by Jamesway, SCPI suspended shipments to this customer in October
1995, and included a provision of $150,000 in its second quarter results, in
relation to the balance due from Jamesway. The non-collection of this
receivable will not have a significant immediate effect on SCPI's working
capital, but if, as expected, Jamesway closes all its stores, SCPI would suffer
a significant reduction in its sales levels until replacement business could be
developed. In the seven-month period of March through September 1995, SCPI's
sales to Jamesway were about $4 million. Although SCPI recently added two new
large customers (NHD and Ames), the level of sales to such customers is
currently not sufficient to offset the loss of the Jamesway business.
In expectation of the loss of Jamesway's business, in October 1995
SCPI took steps to reduce its inventory levels and to eliminate certain
operating costs and overheads.
THE CREDITOR NOTES
The creditor notes that were issued by SCPI in connection with the
Retail Acquisition Corp. bankruptcy, (the "Creditor Notes") are payable in six
equal annual installments through July 1998, subject to a prepayment provision
whereby if defined cash flow exceeds $900,000, $1,000,000 and $1,100,000 in
each of fiscal 1995, 1996 and 1997, respectively, holders of the Creditor Notes
may tender for prepayment a portion thereof in the amount of the excess defined
cash flow, but not to exceed approximately $400,000 per annum. SCPI did not
meet the prepayment threshold in fiscal 1995. The Creditor Notes have been
discounted using an imputed interest rate of 7.5% and are included in the net
obligation of the discontinued business segment.
TAX LOSS CARRYFORWARDS
At December 31, 1994, SCPI had net operating loss carryforwards (the
"Tax Benefits") of approximately $148 million, which expire in the years 2001
through 2005. A change in control of SCPI or Oakhurst exceeding 50% in any
consecutive three-year testing period may lead to the loss of the majority of
the Tax Benefits. In order to reduce the likelihood of such a change of
control occurring, SCPI's and Oakhurst's Certificates of Incorporation include
restrictions on the registration of transfers of stock resulting in, or
increasing, individual holdings exceeding 4.5% of each company's common stock.
Since the regulations governing the Tax Benefits are highly complex
and may be changed from time to time, and since SCPI's and Oakhurst's attempts
to reduce the likelihood of a change of control occurring may not be
successful, management is unable to determine the likelihood of the continued
availability of the Tax Benefits. However, management believes that the Tax
Benefits are currently available in full and intends to take all appropriate
steps to help ensure that they remain available. Should the Tax Benefits
become unavailable to SCPI or Oakhurst, most future income of SCPI and any
consolidated affiliate would not be shielded from federal taxation, thus
reducing funds otherwise available for corporate purposes. In these
circumstances, Oakhurst would be required to record a significant reduction in
the book value of its deferred tax asset.
The operations of SCPI, while historically profitable, have not
enabled SCPI to take full advantage of the Tax Benefits. Managements of SCPI
and Oakhurst have been actively exploring growth and acquisition opportunities
in order to increase its profit base and during fiscal 1994 and 1995, Oakhurst
made three such acquisitions. Pursuant to a tax sharing agreement with SCPI,
Oakhurst will pay SCPI 20% of any tax savings realized as a result of the use
by Oakhurst of SCPI's tax loss carryforwards.
- 13 -
<PAGE> 14
RESULTS OF OPERATIONS
Operations in fiscal 1996 include the results of SCPI, H&H, Dowling's,
Puma, and the administrative costs of Oakhurst; operations in fiscal 1995
include SCPI and H&H, together with the results of Dowling's for the one-month
period of ownership, and the administrative costs of Oakhurst. In the current
year three-month and six-month periods, there were one and two fewer days than
in the prior year periods, respectively; the effect of this on results of
operations was not material.
SIGNIFICANT TRENDS
SCPI Subsidiary
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive ressures facing regional mass
merchandisers and the growing influence of automotive specialty chains. These
have led to fluctuations in the level of business that Steel City Products
enjoys with individual customers. In recent years, SCPI has lost some
significant customers and has suffered reductions in business as certain
customers have closed stores in the face of competition, have been forced into
bankruptcy, or have reduced their automotive merchandise selection.
Furthermore, some customers have changed their buying practices to acquire
certain merchandise direct from manufacturers rather than through distributors
such as SCPI.
In July 1993, SCPI's two then-largest customers filed for bankruptcy
protection. One of these customers closed all its stores in December 1993; the
other, Jamesway Corporation ("Jamesway") reorganized and emerged from Chapter
11 in January 1995. Jamesway continued to be one of SCPI's largest customers
throughout this period, but in October 1995, Jamesway announced that it is
again considering filing for bankruptcy protection. If, as expected, Jamesway
closes all its stores, SCPI will suffer a significant reduction in its sales
levels until replacement business can be developed. In the seven-month period
of March through September 1995, SCPI's sales to Jamesway were about $4
million.
In its efforts to offset these trends, SCPI strengthened its sales
team to help identify new customers and better serve existing customers,
expanded its product offerings to certain customers and enlarged the territory
that it serves. In the current year, SCPI has begun offering "hard parts" such
as brake rotors. During the second quarter of fiscal 1996, SCPI added two new
large customers (NHD and Ames), but the level of sales to such customers is
currently not sufficient to offset the loss of the Jamesway business.
Dowling's Subsidiary
During the first half of the current year, Dowling's was faced with
intense competitive pressures in one of its markets. Management's efforts to
overcome this competition succeeded in returning sales levels in the second
quarter to within 7% of prior year levels that Dowling's had achieved before
its acquisition by Oakhurst, and sales for August and September exceeded prior
year levels. This situation also placed pressure on Dowling's gross margins
through the first half, but management expects an improvement in gross margins
in the second half, although it does not expect that Dowling's will realize its
full profit potential in fiscal 1996 as a result of the first half situation.
Puma Subsidiary
Beginning in the first quarter of fiscal 1996, the strong retail
demand for light trucks and sport utility vehicles had an adverse impact on
sales by Puma, because vehicle manufacturers sought to satisfy dealer demand at
the expense of converters, which represent an important segment of Puma's
customers. During the second quarter, Puma's sales continued at slightly lower
levels than in the prior year. In reaction to this situation, and in
furtherance of Oakhurst's plans to develop the long-term potential of Puma,
management opened a second facility (in Elkhart, Indiana, center of the vehicle
conversion industry) during the second quarter of fiscal 1996, continued to
strengthen its management team, especially its sales department, and has
enlarged its product offering and introduced an extensive catalog. However, it
is too soon to say when Puma's
- 14 -
<PAGE> 15
sales trends will return to their historical growth patterns, and management
expects that Puma's profits in fiscal 1996 will be significantly lower than its
long-term potential.
THREE MONTHS ENDED AUGUST 31, 1995 COMPARED WITH THIRTEEN WEEKS ENDED AUGUST
27, 1994
Compared with the prior year, sales increased by $3.6 million, or
36.7%. Increased sales of $4.1 million resulted from the acquisitions by
Oakhurst during fiscal 1995 of Dowling's ($2.3 million) and of Puma ($1.8
million). Sales by existing businesses decreased by $440,000.
Sales attributable to SCPI decreased by about $250,000. There were
decreases in sales aggregating $1.8 million; $1.5 million of the decrease
resulted from lower sales to customers that are facing increasing competitive
pressures, have downsized or eliminated their automotive departments, or have
filed bankruptcy, and $350,000 of the sales decrease was attributable to two
customers that have changed their source of supply. These decreases were
largely offset by increases in sales of $1.6 million, of which new customers
added since the prior year accounted for $1 million. Sales to Jamesway
represented an increase of $220,000 over the prior year second quarter, but
sales to this customer were suspended in October 1995.
Notwithstanding the opening of a second location in September 1994,
sales attributable to H&H decreased by about $190,000. About one-half of the
decrease is attributed to reduced equipment sales and commission revenues
associated with H&H's cellular phone business as a result of aggressive
competition combined with a slightly reduced commission structure related to
cellular activations. The balance of the reduction results from lower sales
of car accessories.
Consolidated gross profits were $2.8 million (20.9% of sales),
compared with $2.5 million (25% of sales) last year. The increase in gross
profits resulted from the acquisitions, partially offset by gross profit
reductions from the existing business as a result of the decrease in sales,
combined with a slightly lower gross margin earned by SCPI and H&H of
approximately 1% and 0.5%, respectively. The reduction in consolidated gross
margin percentage is attributable primarily to Dowling's; its margins were
lower than those it achieved in the prior year due to aggressive competition.
Additionally, both Dowling's and Puma's gross margins were lower than those
earned by the Company's existing businesses in the prior year second quarter.
Operating, selling and administrative expenses increased by $954,000.
Approximately $735,000 is attributable to the two businesses acquired since the
first quarter last year; the remaining increase primarily reflects corporate
overheads necessitated by the larger company, together with higher selling
costs attributable to SCPI.
There was an increase in the provision for doubtful accounts of
$205,000 when compared with the prior year second quarter. The increase was
primarily related to the announcement in October 1995 by Jamesway (a large SCPI
customer) that it may file for bankruptcy protection.
Compared with the second quarter of the prior year, amortization of
the excess of costs over net assets acquired ("goodwill") increased by $90,000,
as a result of the acquisitions of Dowling's and Puma.
Interest expense increased by $128,000 principally as a result of the
debt incurred in connection with the acquisitions and higher working capital
borrowings.
In summary, there was a loss before taxes of $479,000 in the second
quarter this year, compared with income before taxes of $604,000 in the prior
year. Operating profits contributed by SCPI and H&H were $605,000 lower than
last year, due to the effect of reduced sales together with the large addition
by SCPI to its provision for doubtful accounts. Dowling's operating profit was
lower by $130,000 than in the prior year second quarter. Accordingly, despite
an additional Puma profit contribution, the results of the newly-acquired
companies were not sufficient to offset the increases in goodwill, interest and
overhead expenses which resulted from the acquisitions, combined with the
significant reduction in profit contribution by existing businesses.
- 15 -
<PAGE> 16
SIX MONTHS ENDED AUGUST 31, 1995 COMPARED WITH TWENTY-SIX WEEKS ENDED AUGUST
27, 1994
Compared with the prior year, sales increased by $6.8 million, or
34.3%. Increased sales of about $8 million resulted from the acquisitions by
Oakhurst during fiscal 1995 of Dowling's ($4.4 million) and of Puma ($3.6
million); sales by existing businesses decreased by $1.2 million.
Sales attributable to SCPI decreased by about $900,000. Sales
increases aggregating $2.1 resulted primarily from the addition of several new
customers, together with higher sales to several customers (including Jamesway,
but sales to this customer, which represented 12.6% of consolidated sales in
the first half of the current year, were suspended in October 1995). These
sales increases were offset by decreases of $3 million, with over half of the
reduction attributed to SCPI's small customer base and to reduced sales in the
Northeast market, resulting from intense competitive pressures being faced by
those customers, along with reduced sales of spring product lines due a rainy
spring season in the Northeast. The remainder of the decrease resulted from
lower sales to customers that have downsized or eliminated their automotive
departments, have filed bankruptcy, or that have changed their source of
supply.
Sales attributable to H&H decreased by about $380,000, despite the
opening of a second location in September 1994. Approximately $215,000 of the
decrease is attributed to reduced equipment sales and commission revenues
associated with H&H's cellular phone business as a result of aggressive
competition in the current year, combined with a slightly reduced commission
structure related to cellular activations. The balance of the reduction is
largely due to lower sales of car accessories.
Consolidated gross profits were $5.7 million (21.5% of sales),
compared with $4.9 million (24.7% of sales) last year. The increase in gross
profits resulted from the acquisitions. The reduction in gross margin
percentage is principally attributable to Dowling's, which was affected by
increased competition this year, so that its gross margins were lower than
those rates earned by the Company in the prior year.
Excluding the two acquisitions, gross profits on existing businesses
decreased by about $472,000, due to lower sales combined with a slight decrease
in gross margins.
Operating, selling and administrative expenses increased by $1.8
million. Approximately $1.5 million is attributable to the two businesses
acquired in the prior year; the balance of the increase primarily reflects
corporate overheads necessitated by the larger company.
There was an increase in the provision for doubtful accounts of
$267,000 when compared with the prior year, primarily attributable to SCPI; the
provision was increased by $150,000 in connection with the balances due from
Jamesway (one of SCPI's largest customers) at the end of the second quarter,
and by $107,000 for the bankruptcies of three of SCPI's small customers that
occurred during the current year.
Amortization of the excess of costs over net assets acquired
("goodwill") increased by $212,000 compared with the prior year, as a result of
the acquisitions of Dowling's and Puma.
Interest expense increased by $292,000 principally as a result of the
debt incurred in connection with the acquisitions and higher levels of working
capital borrowings.
In summary, there was a loss before taxes of $655,000 this year
compared with income before taxes of $1.1 million in the prior year. Operating
profits contributed by SCPI and H&H were about $975,000 lower than last year,
due primarily to the effect of reduced sales together with the large addition
by SCPI to its provision for doubtful accounts. Dowling's incurred a loss in
the current year, due to increased competition, adding approximately $255,000
to the profit variance. Accordingly, despite a profit contribution by Puma,
the results of the newly-acquired companies were not sufficient to offset the
increases in goodwill, interest and in overhead expense which resulted from the
acquisitions, combined with the significant reduction in profit contribution by
existing businesses.
- 16 -
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 26, 1995 the Company initiated an arbitration proceeding with
the American Arbitration Association in connection with the August 1994
acquisition by the Company of Dowling's. The Company is seeking rescission of
the acquisition, or in the alternative, damages and indemnification in excess
of $1.6 million. The proceeding is based, among other things, on the Company's
belief that the seller breached certain provisions of the purchase and sale
agreement covering the acquisition by furnishing to the Company financial
information that was materially inaccurate. If the Company is successful in
obtaining a rescission of the purchase, the Company would receive back the
portion of the purchase price paid and other consideration given at the
closing, and would be relieved of the obligation to pay the balance of the
purchase price (approximately $1 million) over the three-year period following
the closing. In the event of a rescission of the acquisition, the Company
believes that in the near term it might earn less as a result of the repayment
of the debt that was incurred to make the acquisition and the investment of any
cash re-paid that is in excess of that debt than it might otherwise have
earned from the continued ownership of the Dowling's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 10, 1995 the Company held its Annual Meeting of
Stockholders. The matters considered at the meeting consisted of the
following:
The election of three Class III directors to serve for a term of three
years and until their successors are elected and qualified. The
results of the voting were as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
---------------------------- --------- --------------
<S> <C> <C>
Maarten D. Hemsley 1,885,045 121,495
Joel S. Lever 2,000,026 6,514
Anthony N. Puma 2,006,042 6,498
</TABLE>
To consider the approval of an amendment to the Company's certificate
of incorporation to change its name to "Oakhurst Company, Inc."
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
1,996,175 5,088 5,277
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Restated and Amended Certificate of Incorporation, filed
on August 23, 1995 (filed as an exhibit to Form 10Q for
the period ended August 31, 1995).
27. Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
- 17 -
<PAGE> 18
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.
OAKHURST COMPANY, INC.
Date: January 10, 1996 By: /s/ Mark Auerbach
---------------------------------
Mark Auerbach
Chief Executive Officer
Chief Financial Officer
- 18 -
<PAGE> 19
Exhibit Index
Exhibit
Number Description
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> AUG-31-1995
<CASH> 302
<SECURITIES> 0
<RECEIVABLES> 5,718
<ALLOWANCES> 487
<INVENTORY> 9,423
<CURRENT-ASSETS> 15,889
<PP&E> 3,034
<DEPRECIATION> 876
<TOTAL-ASSETS> 31,802
<CURRENT-LIABILITIES> 14,273
<BONDS> 4,675
<COMMON> 32
0
0
<OTHER-SE> 14,174
<TOTAL-LIABILITY-AND-EQUITY> 31,802
<SALES> 26,542
<TOTAL-REVENUES> 26,739
<CGS> 20,828
<TOTAL-COSTS> 20,828
<OTHER-EXPENSES> 5,660
<LOSS-PROVISION> 267
<INTEREST-EXPENSE> 377
<INCOME-PRETAX> (655)
<INCOME-TAX> 9
<INCOME-CONTINUING> (664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (664)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
