10-Q 1 e10-q.txt FORM 10-Q HOLT'S CIGAR HOLDINGS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the three months ended June 30, 2000 Commission file number 0-23403 HOLT'S CIGAR HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0350003 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 12270 TOWNSEND ROAD, PHILADELPHIA, PA 19154 (Address, including zip code, of registrant's principal executive offices) (215) 676-8778 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding of each of the Issuer's classes of common stock as of the latest practicable date. Class: Common Outstanding at August 10, 2000: 6,245,593 4 2 HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q

2 3 \ HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements. 3 4 HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended June 30, 2000 and 1999

1 The weighted average number of shares restated for the stock dividends effected in fiscal 2000. The accompanying notes are an integral part of these consolidated financial statements. 4 5 HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements. 5 6 HOLT'S CIGAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999

The accompanying notes are an integral part of these consolidated financial statements. 6 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The consolidated financial statements included herein include the accounts of Holt's Cigar Holdings, Inc. and its wholly owned subsidiaries ("the Company"). The Company is engaged in the wholesale and retail sale of premium cigars and cigar-related accessories. These financial statements have been prepared by management without audit but in accordance with generally accepted accounting principals applicable to interim financial statements. These financial statements should be read in conjunction with the more complete disclosures contained in the audited combined financial statements and notes thereto for the year ended March 31, 2000 contained in the Company's Annual Report on Form 10-K. The accompanying financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. In the opinion of management, all such adjustments are of a normal and recurring nature. The results of operations for the three months ended June 30, 2000 and 1999 are not necessarily indicative of the operating results to be expected for a full year. (2) Management Estimates The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amounts of expenses during the reported period and related disclosures. (3) Segment Information The Company has two reportable segments, wholesale and retail. Management evaluates the segments based on net sales and gross profit. Three Months Ended June 30,

The Company is currently in the process of splitting the retail segment into two segments, the traditional retail store business and the catalog business. Management currently analyzes these segments only at the sales level. Prior to April 1999 the Company' s reporting systems were not designed to separately report these two segments and management analyzed them as one. Sales in the quarter ended June 2000 for the retail store and catalog segments were $1,182,915 and $2,813,140, respectively. Sales in the quarter ended June 1999 for the retail store and catalog segments were $1,323,593 and $2,803,345, respectively. (3) Sale of Ashton Pipe In May the Company sold the inventory and assets of its Ashton Pipe operation to a third party to allow Ashton management to concentrate efforts on growing the Peterson Pipe line. The hand made high end pipe business was a small portion of the wholesale division. The business achieved less than $300 thousand in sales last year and contributed a minimal profit. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis contains certain forward-looking statements. These forward-looking statements do not constitute historical facts and involve risks and uncertainties. Actual results could differ materially from those referred to in the forward-looking statements due to a number of factors. For information concerning factors that could cause actual results to differ materially from the information contained herein, reference is made to the information in the Company's Annual Report on Form 10-K for the year ended March 31, 2000 as filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS The following table sets forth, as a percentage of net sales, certain items in the Company's statement of operations for the periods indicated:

THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 NET SALES. Net sales increased approximately $535 thousand or 6.5% to $8.7 million in Fiscal 2001 from $8.2 million in Fiscal 2000. The net sales increase is a result of a 16.3% or $666 thousand increase in net sales of premium cigars in the wholesale division partially offset by a 3.2% or $131 thousand decrease in net sales of the retail divisions. The increase in sales of premium cigars in the wholesale division is the result of the increasing strength of the Ashton brand, increased availability of premium cigars from the Company's suppliers, and the introduction of the Ashton VSG brand of premium cigars. Also contributing is the increased market penetration by a dedicated sales force, the addition of the Antillian Cigar (Sosa) brands and the continued demand for Ashton premium cigars. The decrease in the retail divisions is the result of a small increase in mail order sales and a decrease in retail traffic caused by the general downward trend in retail cigar sales and local retail competition at the flagship store in downtown Philadelphia. GROSS PROFIT. Gross profit increased approximately $30 thousand or 0.8% from $3.8 million in Fiscal 2000 to $3.8 million in Fiscal 2001. The increase in volume contributed $245 thousand to gross profit. Gross profits, as a percentage of net sales were 43.3% for Fiscal 2001 and 45.7% for Fiscal 2000. This decrease of 2.4 percentage points is primarily the result of the addition of the Antillian Sosa brand of premium cigars to the product line which carries a lower gross margin than the Ashton brand in the wholesale division and special discount offers in an attempt to boost sales in the retail divisions. OPERATING EXPENSES. Operating expenses increased $393 thousand or 18.2% from $2.2 million in the quarter ended June 1999 to $2.6 million in the quarter ended June 2000. This increase is a result of increased selling expenses for amortization of the E-Commerce initiative, postage for an advertising mailing and freight out, additional warehouse and office staff to handle the additional wholesale business and additional expenses associated with the system conversion. As a percentage of net sales, operating expenses increased from 26.3% in Fiscal 2000 to 29.2% in Fiscal 2001. OTHER INCOME. Other income increased $94 thousand due to lower market fluctuations in the investments and higher interest income. 8 9 LIQUIDITY AND CAPITAL RESERVES The Company has historically financed its business through a combination of cash generated from operations and bank debt. Net cash provided by operations for the three months ended June 30, 2000 of $1,196 thousand consisted primarily of net income and decreases in inventory and income taxes payable, offset by increases in accounts receivable and decreases in accounts payable. Net cash provided by operations for the three months ended June 30, 1999 of $1,520 thousand consisted primarily of net income and increases in accounts payable and income taxes payable, offset by increases in accounts receivable and prepaid expenses. The Company has a $4,000,000 line of credit with a Bank with borrowings thereunder accruing at the bank's prime rate (9% at June 30, 2000)less 0.25%. At June 30, 2000, the Company had no borrowings under the line of credit. The Company believes that cash generated by its operating activities, available investment portfolio and available bank borrowings will be sufficient to fund its operations and expansion programs for the foreseeable future. IMPACT OF INFLATION The Company does not believe that inflation has had a material impact on its net sales or results of operations. 9 10 Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27.1 Financial Data Schedule 99.1 Financial Statements and accompanying Notes incorporated by reference from the Company's Registration Statement on Form S-1 (Registration No. 333-36263) pursuant to Rule 12b-23(a)(3) 99.2 Risk factors incorporated by reference from the Company's Annual report on form 10-K for the period ended March 31,2000 pursuant to Rule 12b-23(a)(3) b. The Company did not file any reports on File 8-K during the three months ended June 30, 2000. 10 11 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. HOLT'S CIGAR HOLDINGS, INC. /S/ ROBERT G. LEVIN ------------------- ROBERT G. LEVIN, PRESIDENT AND CHAIRMAN /S/ KEITH A. GOORSKY -------------------- KEITH A. GOORSKY, CHIEF FINANCIAL OFFICER Date: August 10, 2000 11

HOLTS CIGAR HOLDINGS INC 10-Q