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: November 30, 1999
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: 0-19450
OAKHURST COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
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(State of Incorporation) (I.R.S. Employer
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)
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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
--- ---
As of January 10, 2000, 4,943,018 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 CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at November 30, 1999
and February 28, 1999..................................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended November 30, 1999 and November 30, 1998..................... 4
Condensed Consolidated Statements of Operations for the nine month
periods ended November 30, 1999 and November 30, 1998..................... 5
Condensed Consolidated Statements of Cash Flows for the nine month
periods ended November 30, 1999 and November 30, 1998..................... 6
Notes to Condensed Consolidated Financial Statements....................... 7
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS November 30, February 28,
1999 1999
------------ -----------
Current assets:
Cash ........................................................................ $ 65 $ 241
Trade accounts receivable, less allowance of $429 and $388, respectively .... 3,628 3,330
Other receivables ........................................................... 319 158
Inventories ................................................................. 5,386 6,045
Other ....................................................................... 169 159
-------- --------
Total current assets ...................................... 9,567 9,933
-------- --------
Property and equipment, at cost ...................................................... 2,329 2,045
Less accumulated depreciation ............................................... (1,490) (1,344)
-------- --------
839 701
-------- --------
Investments:
Equity ...................................................................... 3,455 1,125
Other ....................................................................... 2,745 1,379
Note receivable ...................................................................... 1,330 1,330
Excess of cost over net assets acquired, net ......................................... 1,935 2,080
Other assets ......................................................................... 296 328
-------- --------
9,761 6,242
-------- --------
$ 20,167 $ 16,876
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable ............................................................ $ 5,631 $ 5,662
Accrued compensation ........................................................ 477 509
Current maturities of long-term obligations ................................. 1,103 218
Current maturities of long-term obligations, related parties ................ 647 88
Accrued interest ............................................................ 527 78
Other accrued expenses ...................................................... 205 399
-------- --------
Total current liabilities ................................. 8,590 6,954
-------- --------
Long-term obligations:
Long-term debt .............................................................. 4,924 4,669
Long-term debt, related parties ............................................. 7,031 3,408
Other long-term obligations ................................................. 381 177
-------- --------
Total long-term obligations ............................... 12,336 8,254
-------- --------
Commitments and contingencies ........................................................ -- --
Stockholders' (deficit) equity:
Preferred stock, par value $0.01; authorized 1,000,000 shares, non issued ... -- --
Common stock, par value $0.01 per share; authorized 14,000,000
shares, issued 4,943,018 .................................................. 49 49
Additional paid-in capital .................................................. 47,204 47,204
Deficit (Reorganized on August 26, 1989) .................................... (48,011) (45,584)
Treasury stock, at cost, 207 common shares .................................. (1) (1)
-------- --------
Total stockholders' (deficit) equity ...................... (759) 1,668
-------- --------
$ 20,167 $ 16,876
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three months Three months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Sales ......................................................... $ 7,324 $ 7,554
Other income .................................................. 47 79
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7,371 7,633
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Cost of goods sold, including occupancy and buying expenses ... 6,035 6,174
Operating, selling and administrative expenses ................ 1,530 1,414
Provision for doubtful accounts ............................... 31 28
Amortization of excess of cost over net assets acquired ....... 49 49
Interest expense .............................................. 400 123
---------- ----------
8,045 7,788
---------- ----------
Loss before loss on equity investment and income taxes ........ (674) (155)
Loss from equity investment ................................... (629) --
Income tax benefit ............................................ -- 3
---------- ----------
Net loss ...................................................... $ (1,303) $ (152)
========== ==========
Basic and diluted net loss per share .......................... $ (0.26) $ (0.05)
========== ==========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts .................. 4,943,018 3,212,962
========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Nine months Nine months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Sales ......................................................... $ 24,496 $ 24,510
Other income .................................................. 232 236
---------- ----------
24,728 24,746
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Cost of goods sold, including occupancy and buying expenses ... 19,931 20,088
Operating, selling and administrative expenses ................ 4,756 4,693
Provision for doubtful accounts ............................... 103 92
Amortization of excess of cost over net assets acquired ....... 147 146
Interest expense .............................................. 961 397
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25,898 25,416
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Loss before loss on equity investment and income taxes ........ (1,170) (670)
Loss from equity investment ................................... (1,257) --
Income tax expense ............................................ (1) (3)
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Net loss ...................................................... $ (2,428) $ (673)
========== ==========
Basic and diluted net loss per share .......................... $ (0.49) $ (0.21)
========== ==========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts .................. 4,943,018 3,211,642
========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Nine months Ended Nine months Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Cash flows from operating activities:
Net loss ............................................... $(2,428) $ (673)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................. 432 391
Loss on retirement of assets .................. -- 4
Employee stock awards ......................... -- 5
Loss from equity investment ................... 1,257 --
Other changes in operating assets and liabilities:
Accounts receivable ........................... (298) 650
Inventories ................................... 659 1,443
Accounts payable .............................. (31) (930)
Other ......................................... 76 (57)
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Net cash used in operating activities of:
Continuing operations ......................... (333) 833
Discontinued operations ....................... -- (330)
------- -------
Net cash used in operating activities .................. (333) 503
------- -------
Cash flows from investing activities:
Additions to property and equipment ........... (346) (135)
Increase in investment ........................ (4,953) --
Other ......................................... -- --
------- -------
Net cash used in investing activities .................. (5,299) (135)
------- -------
Cash flows from financing activities:
Net borrowings under
revolving credit agreement ................. 329 32
Borrowings under long-term obligations ........ 5,338 132
Principal payments on long-term obligations ... (136) (162)
Deferred loan costs ........................... (75) --
------- -------
Net cash provided by financing activities .............. 5,456 2
------- -------
Net (decrease) increase in cash ........................ (176) 370
Cash at beginning of period ............................ 241 47
------- -------
Cash at end of period .................................. $ 65 $ 417
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 1999
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or the "Company") was formed as a
result of a merger transaction in fiscal 1992, in which Steel City Products,
Inc. ("SCPI") became a majority-owned subsidiary of Oakhurst. In accordance with
the merger agreement, Oakhurst owns 10% of the outstanding common stock of SCPI
and all of SCPI's Series A Preferred Stock, with the result that the aggregate
fair market value of SCPI's common stock and Series A Preferred Stock owned by
Oakhurst is equal to approximately 90% of the aggregate fair market value of all
the issued and outstanding capital stock of SCPI and represents 90% of the
voting stock of SCPI. The accompanying condensed consolidated financial
statements reflect this control and include the accounts of SCPI.
Oakhurst owns all of the outstanding capital stock of Dowling's Fleet
Service Co., Inc. ("Dowling's") and of Oakhurst Management Corporation ("OMC").
In December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights Recovery & Power LLC ("New Heights") and entered into
an agreement with KTI, Inc. ("KTI") pursuant to which KTI purchased
approximately 1.7 million shares of Oakhurst's common stock at a price of $0.50
per share. Upon New Heights' emerging from bankruptcy in December 1998 OTI
acquired a 50% equity interest in, and became the managing member of, New
Heights which is re-developing an existing waste tire recycling facility in Ford
Heights, Illinois into a fully integrated recycling and waste-to-energy
facility. The evaluation of the impact of adopting fresh-start accounting
following New Heights' emergence from bankruptcy was completed in August, 1999
and summarized financial information has been included in Note 5.
The accompanying condensed consolidated financial statements include
the accounts of subsidiaries in which the Company has a greater than 50%
ownership interest and all intercompany accounts and transactions have been
eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed
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 recommended that these
unaudited condensed consolidated financial statements be read in conjunction
with the audited consolidated financial statements for the fiscal year ended
February 28, 1999 ("fiscal 1999") as filed in the Company's Annual Report on
Form 10-K.
Operating results for the three and nine months ended November 30, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending February 29, 2000.
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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
presently required to be adopted in years (as amended by SFAS No. 137) beginning
after June 15, 2000. Oakhurst does not anticipate that the adoption of SFAS No.
133 will have a significant effect on its financial position or results of
operations.
3. SEGMENT INFORMATION
Until December 1998, Oakhurst operated as a wholesale distributor to
the automotive aftermarket. SCPI, operating under the trade name Steel City
Products, principally sells automotive accessories, primarily to discount retail
chains, hardware and supermarket retailers and to automotive specialty stores.
Its customers are based primarily in the Northeastern United States. Dowling's
is a wholesale distributor of automotive radiators and related parts mostly
serving radiator repair shops in the New York, Connecticut, New Jersey, and
Greater Philadelphia, Pennsylvania markets. OTI was formed in December 1998 and
holds investments principally in the recycling and waste-to-energy business.
Each entity is managed by its own decision makers and is comprised of unique
customers, suppliers and employees. The Company's operations are thereby
organized into the three management segments included in the following table (in
thousands):
=================================================================================================================
Three months ended November 30, 1999 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
Net sales $ 4,696 $ 2,628 -- $ 7,324
======= ======= ====== ======= =======
--
Operating profit (loss) $ 193 $ (124) $ (48) $ (295) $ (274)
Segment assets $ 6,245 $ 4,372 $7,612 $ 1,938 $20,167
======= ======= ====== ======= =======
=================================================================================================================
Three months ended November 30, 1998 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
Net sales $ 4,188 $ 3,366 -- -- $7,554
======= ======= ====== ======= =======
--
Operating profit (loss) $ 64 $ 202 -- $ (298) $ (32)
Segment assets (a) $ 5,519 $ 4,545 -- $ 2,333 $12,397
======= ======= ====== ======= =======
=================================================================================================================
Nine months ended November 30, 1999 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
Net sales $15,649 $ 8,847 -- -- $24,496
======= ======= ====== ======= =======
--
Operating profit (loss) $ 881 $ (109) $(129) $ (852) $ (209)
Segment assets $ 6,245 $ 4,372 $7,612 $ 1,938 $20,167
======= ======= ====== ======= =======
=================================================================================================================
Nine months ended November 30, 1998 CONSOLIDATED
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
------- --------- ------ --------- ------------
Net sales $13,893 $10,617 -- -- $ 24,510
======= ======= ====== ======= =======
--
Operating profit (loss) $ 412 $ 318 -- $ (1,003) $ (273)
Segment assets (a) $ 5,519 $ 4,545 -- $2,333 $12,397
======= ======= ====== ======= =======
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(a) In fiscal 1999, SCPI elected to change its method of inventory valuation
from the last-in, first-out method (LIFO) to the first-in, first-out method
(FIFO). Segment assets for the three and nine months ended November 30, 1998
have been restated as if the change had taken place at the beginning of such
period.
4. CHANGE IN ACCOUNTING PRINCIPLE
In the fourth quarter of fiscal 1999, SCPI elected to change its method
of inventory valuation from the last-in, first-out, (LIFO) method to the
first-in, first-out (FIFO) method. As no change in the LIFO reserve was made
during the first three quarters of fiscal 1999, there was no effect on the
November 30, 1998 three and nine month condensed consolidated statement of
operations or cash flows.
5. SUMMARY FINANCIAL INFORMATION
In December 1998, OTI acquired a 50% equity interest in, and became the
managing member of, New Heights. The valuation of the impact of adopting
fresh-start accounting upon New Heights' emergence from bankruptcy in December
1998 was completed in August 1999. Accordingly, summarized financial information
is provided herein for New Heights for the fiscal year to date (in thousands):
November 30, 1999
-----------------
Current assets ...................... $ 140
Non-current assets .................. 28,121
Current liabilities ................. 1,800
Non-current liabilities ............. 1,943
Net equity .......................... 24,518
Nine months Ended
November 30, 1999
-----------------
Total revenues(a) ................... $ 404
Gross profit (b) .................... 404
Net loss ............................ (2,514)
(a) New Heights began operations in July 1999.
(b) Revenue through November 1999 represents tipping fees received on waste
tires; there have been no costs associated with such fees; thus gross profit is
equal to revenues.
6. BORROWINGS
In October 1999 certain shareholders of Sterling exercised their right
to sell a second tranche of equity to OTI. The second equity purchase of
approximately $1.36 million was financed through the issuance of notes, of which
$559,000 is due to an officer and director of Oakhurst. These notes are payable
by OTI one year after issuance and bear interest at the rate of 14%, payable
quarterly in arrears.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), a holding
company, was formed as part of a merger transaction in fiscal 1992 in which
Steel City Products, Inc. ("SCPI") became a special, limited purpose,
majority-owned subsidiary of Oakhurst. Management believes that the corporate
structure resulting from the merger transaction will facilitate capital
formation by Oakhurst while permitting Oakhurst and its subsidiaries to file
consolidated tax returns so that both may utilize the tax benefits (including
approximately $154 million of net operating loss carry-forwards) attributable
principally to SCPI. Through Oakhurst's ownership of SCPI, primarily in the form
of preferred stock, Oakhurst retains the value of SCPI, and receives
substantially all of the benefit of SCPI's operations through dividends on such
preferred stock. Oakhurst's ownership of SCPI facilitates the preservation and
utilization of SCPI's net operating loss carry-forwards.
Until the formation of its wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in December 1998, Oakhurst was involved primarily in
the distribution of products to the automotive after-market. Its largest
business, which is conducted by SCPI under the trade name "Steel City Products",
is the distribution of automotive parts and accessories and of non-food pet
supplies to independent retailers from a facility in McKeesport, Pennsylvania.
Oakhurst's subsidiary, Dowling's Fleet Service Co., Inc. ("Dowling's") is a New
York-headquartered distributor of automotive radiators and related products.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst Technology,
Inc. ("OTI") in order to take advantage of a restructuring opportunity, at New
Heights Recovery & Power, LLC ("New Heights"), as discussed below. At the same
time, Oakhurst entered into an agreement with KTI, Inc. ("KTI") that provided
for the purchase by KTI of approximately 1.7 million shares of Oakhurst's common
stock at a price of $0.50 per share. In conjunction with the private placement
of stock, KTI committed to lend Oakhurst up to $11.5 million, and in certain
circumstances up to $17 million, under a loan agreement principally to fund the
New Heights project. KTI is an integrated waste management company with specific
experience in the turnaround of co-generation facilities. In December 1998 OTI
acquired a 50% equity interest in, and became the managing member of New Heights
which is re-developing an existing waste tire recycling facility in Ford
Heights, Illinois into a fully integrated recycling and waste-to-energy
facility. In December 1999, KTI was acquired by Casella Waste Systems, Inc., a
publicly-traded, Vermont based, non-hazardous solid waste services company.
At November 30, 1999 OTI, through its loan agreement with KTI, has
invested approximately $5.0 million in the New Heights project, mostly related
to capital commitments as required by the Business Plan. Phase I of the New
Heights business plan was completed on time in September 1999. The New Heights
facility began limited operations in July 1999 after receiving the appropriate
permitting, and has recently started to produce crumb rubber. Phase II of the
business plan includes the permitting and start-up of waste to energy
operations. New Heights anticipates receiving a permit for energy generation in
January 2000. It is expected that the facility will continue to expand its crumb
rubber operations and begin energy generation during 2000.
In addition to the recycling business, in January 1999 OTI made a
minority investment in Sterling Construction Company, ("Sterling") a profitable,
privately-held Texas-based pipe laying and road building contractor that is
expected to participate in the significant increase in infrastructure spending
in Texas, and may offer synergies with New Heights by using crumb rubber from
recycled tires in "rubberized asphalt".
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The equity interest in Sterling of approximately 7% was increased to
approximately 12% in October, 1999 when certain shareholders of Sterling
exercised their right to sell a second tranche of equity to OTI. The second
equity purchase of approximately $1.36 million was financed through the issuance
of notes, of which $559,000 is due to an officer and director of Oakhurst. These
notes are payable by OTI one year after issuance and bear interest at the rate
of 14%, payable quarterly in arrears.
Activities of New Heights are reported on the equity method of
accounting. The investment in Sterling is reported on the cost method of
accounting. OTI also has a $1.35 million note receivable from Sterling, which is
convertible into shares of common stock of Sterling, at any time at the option
of OTI, or upon the closing of a defined public offering of Sterling. Assuming
conversion of the note, OTI would own between approximately 16% and 17% of
Sterling, including the equity which was acquired in October 1999.
For its fiscal year ended September 1999 Sterling reported revenues of
$64 million and Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") of $8.5 million.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash derived from the operations of its subsidiaries,
Oakhurst's liquidity and financing requirements are determined principally by
the working capital needed to support each subsidiary's level of business,
together with the need for capital expenditures and the cash required to repay
debt. The automotive distribution subsidiaries' working capital needs vary
primarily with the amount of inventory carried, which can change seasonally, the
size and timeliness of payment of receivables from customers, especially at the
SCPI subsidiary which from time to time grants extended payment terms for
seasonal inventory build-ups, and the amount of credit extended by suppliers.
At November 30, 1999, Oakhurst's debt primarily consisted of (i) a
balance of $7.0 million outstanding under the KTI Loan, (ii) a credit facility
with an institutional lender (the "Credit Facility"), pursuant to which
approximately $4.9 million was borrowed under a revolving credit facility (the
"Revolver"), (iii) notes payable aggregating $1.4 million issued in connection
with the purchase of the second tranche of equity in Sterling, (iv) notes
payable with outstanding principal balances aggregating approximately $144,000
that were issued in connection with the settlement of certain contingent
liabilities related to SCPI's former retail division, (v) notes payable of
$132,000 that were issued in connection with the fiscal 1995 acquisition of
Dowling's (the "DFS Notes"), (vi) notes payable aggregating $97,000 for the
purchase of vehicles at Dowling's, and (vii) a Subordinated Loan of $79,000.
Oakhurst and its subsidiaries, except OTI, have available financing
under the Revolver up to a maximum of $7 million, subject to a borrowing base
that is calculated according to defined levels of the automotive distribution
subsidiaries' accounts receivable and inventories. At November 30, 1999, the
aggregate borrowing base under the Revolver was $5.1 million. In March 1999 the
Revolver was extended to April 2000 and was amended to (i) increase certain
borrowing rate percentages at SCPI, (ii) increase the interest rate to Citibank
N.A. base rate plus 2% and (iii) amend the financial covenants to include a
minimum level of EBITDA. The Revolver 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 the Company's working capital
requirements for at least the next twelve months, including seasonal
fluctuations, assuming no material deterioration in current sales levels or
gross profit margin. At November 30, 1999, Oakhurst was in compliance with the
financial covenants as defined under the Revolver.
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Management believes that the KTI Loan will provide adequate financing
for the capital expenditures and start-up costs committed pursuant to the New
Heights Business Plan.
YEAR 2000
The Year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
use of computer programs which have been written using two digits, rather than
four, to define the applicable year of business transactions.
The Company spent approximately $230,000 on the Year 2000 issue,
including approximately $10,000 for a software upgrade at Dowling's and
approximately $220,000 for the purchase of a new system at SCPI. In addition to
achieving Year 2000 compliance, SCPI's new system provides other important
operating benefits as compared with its former system.
To date, the Company has experienced no interruptions in service
regarding Year 2000 issues.
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
At November 30, 1999, there had been no material changes in the
Company's financial condition from February 28, 1999, as discussed in Item 7 of
the Company's Annual Report on Form 10-K for fiscal 1999.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Operations include the consolidated results of SCPI, which through its
operating division, Steel City Products, headquartered in McKeesport,
Pennsylvania, distributes automotive parts and accessories and non-food pet
supplies; Dowling's, a distributor of automotive radiators and related parts
headquartered in Mt. Vernon, New York; together with OTI and the administrative
costs of SCPI and Oakhurst.
THREE MONTHS ENDED NOVEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED NOVEMBER
30, 1998
Consolidated sales in the current year third quarter were below prior
year by $230,000.
Sales by SCPI increased by approximately $508,000 compared with the
third quarter of the prior year. Sales to existing automotive customers
increased by approximately $267,000, due primarily to the addition of new stores
through an acquisition by one major customer. Sales to new automotive customers
totaled $201,000 for the quarter. Sales of non-food pet products totaled
$547,000, an increase of $40,000 compared with the third quarter of the prior
year, due primarily to increased sales to existing customers.
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Sales at Dowling's decreased by $738,000 compared with the third
quarter of the prior year due in part to increased competition by customers who
are buying product directly from manufacturers, as well as fewer radiator
failures which has contributed to a general slowness in the radiator replacement
industry.
Gross profits were $1.3 million, or 17.6% of sales, in the current year
period compared with $1.4 million, or 18.3% of sales, in the prior year period.
Gross profits increased at SCPI by 2.1%, due to the higher sales volume and
changes in product mix. Offsetting this increase was a decrease in Dowling's
gross profits of 3.2% which was mostly attributable to the decrease in sales
volume.
Operating, selling and administrative expenses increased by $117,000.
At SCPI, expenses increased by $18,000 primarily due to higher commissions paid
this year on the increased sales volume. At Dowling's, expenses increased by
$41,000 due to higher sales and administrative salaries, and higher computer and
telephone expenses. Corporate expenses were below prior year levels by $24,000
due to staffing reductions, lower insurance, travel and office expenses. These
savings were offset by the addition of OTI in the current year, which had
overhead expenses of $73,000, mostly related to salaries.
Interest expense increased by $297,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan, which increased by $1.2
million to fund OTI's capital and start-up expenditure commitments at New
Heights.
There was a loss from affiliates of approximately $629,000 related to
OTI's equity investment in New Heights, which represents OTI's share of start-up
activities at the New Heights facility.
NINE MONTHS ENDED NOVEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED NOVEMBER 30,
1998
Consolidated sales in the current year period were essentially the same
as the first nine months of the prior year.
Sales by SCPI increased by approximately $1.8 million compared with the
first nine months of the prior year. Sales to existing automotive customers
increased by approximately $888,000, due primarily to the addition of new stores
through an acquisition by one major customer. Sales to new automotive customers
totaled $632,000 for the year to date. Sales of non-food pet products totaled
$1.5 million, an increase of $235,000 compared with the first nine months of the
prior year, due primarily to increased sales to existing customers.
Sales at Dowling's decreased by $1.8 million compared with the first
nine months of the prior year due to increased competition as customers have
begun to buy product directly from manufacturers, combined with general slowness
throughout Dowling's markets caused by a reduction in the overall number of
radiator failures industry-wide.
Gross profits were $4.5 million, or 18.6% of sales in the current year
period compared with $4.4 million, or 18.0% of sales, in the prior year period.
The increase in gross profit resulted from the higher sales volume and better
margins at SCPI.
Operating, selling and administrative expenses increased by $58,000 for
the nine months due to higher commissions of $59,000 at SCPI , offset by
reductions of $30,000 due to staffing changes at Dowling's and lower expenses,
principally salaries ($100,000), insurance and other administrative expenses
($79,000) at the corporate level. These savings were offset in part by $208,000
of expenses incurred by OTI in its first year of operations.
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14
Interest expense increased by $579,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan, draws on which began in
January 1999 to fund OTI's capital and start-up expenditure commitments at New
Heights.
There was a loss from affiliates of approximately $1.2 million related
to OTI's equity investment in New Heights, which represents OTI's share of
start-up activities at the New Heights facility.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Oakhurst 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 or speculation in derivative financial instruments.
Oakhurst's primary market risk exposure is related to interest rate risk. The
Company 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 outstanding 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
X 10.1 Amendment to Stock Purchase and Investment Agreement
dated October 18, 1999
X 10.2 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Robert M. Davies
X 10.3 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Menai Capital, LLC.
X 10.4 Stock Pledge Agreement dated October 18, 1999
27. Financial Data Schedule (EDGAR transmission only).
----------------
X Management contract or compensatory plan or arrangement
(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.
OAKHURST COMPANY, INC.
Date: January 10, 2000 By: /s/ Robert M. Davies
---------------------------------
Mr. Robert M. Davies
Chief Executive Officer
Date: January 10, 2000 By: /s/ Maarten D. Hemsley
---------------------------------
Mr. Maarten D. Hemsley
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
X 10.1 Amendment to Stock Purchase and Investment Agreement
dated October 18, 1999
X 10.2 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Robert M. Davies
X 10.3 Promissory Note dated October 18, 1999 from Oakhurst
Technology, Inc. to Menai Capital, LLC.
X 10.4 Stock Pledge Agreement dated October 18, 1999
27. Financial Data Schedule (EDGAR transmission only).
--------------
X Management contract or compensatory plan or arrangement