UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 [ ] No [X]
As of July 20, 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at May 31, 2000 and February 29, 2000............................ 3
Condensed Consolidated Statements of Operations for the three month periods ended
May 31, 2000 and May 31, 1999 ....................................................................... 4
Condensed Consolidated Statements of Cash Flows for the three month periods ended
May 31, 2000 and May 31, 1999 ....................................................................... 5
Notes to Condensed Consolidated Financial Statements .................................................. 6
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
May 31, February 29,
2000 2000
-------- ------------
ASSETS
Current assets:
Cash ............................................................. $ 308 $ 152
Trade accounts receivable, less allowance of
$313 and $367, respectively .................................... 3,387 3,446
Other receivables ................................................ 260 244
Inventories ...................................................... 6,163 6,803
Other ............................................................ 123 135
-------- --------
Total current assets ......................................... 10,241 10,780
-------- --------
Property and equipment, at cost ...................................... 2,334 2,322
Less accumulated depreciation .................................... (1,587) (1,515)
-------- --------
747 807
-------- --------
Investments:
Equity ........................................................... 6,645 5,336
Other ............................................................ 2,745 2,745
Note receivable ...................................................... 1,330 1,330
Excess of cost over net assets acquired, net ......................... 154 156
Other assets ......................................................... 420 279
-------- --------
11,294 9,846
-------- --------
$ 22,282 $ 21,433
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable ................................................. $ 6,948 $ 7,259
Accrued compensation ............................................. 320 503
Current maturities of long-term obligations ...................... 2,620 2,743
Current maturities of long-term obligations, related parties ..... 12,250 88
Accrued interest ................................................. 1,276 838
Other accrued expenses ........................................... 371 359
-------- --------
Total current liabilities .................................... 23,785 11,790
-------- --------
Long-term obligations:
Long-term debt ................................................... 3,227 3,172
Long-term debt, related parties .................................. -- 10,076
Other long-term obligations ...................................... 165 180
-------- --------
Total long-term obligations .................................. 3,392 13,428
-------- --------
Commitments and contingencies ........................................ -- --
Stockholders' deficiency:
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) ......................... (52,147) (51,037)
Treasury stock, at cost, 207 common shares ....................... (1) (1)
-------- --------
Total stockholders' deficiency ............................... (4,895) (3,785)
-------- --------
$ 22,282 $ 21,433
======== ========
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
May 31, 2000 May 31, 1999
----------- -----------
Sales ......................................................... $ 5,745 $ 5,625
Other income .................................................. 44 32
----------- -----------
5,789 5,657
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Cost of goods sold, including occupancy and buying expenses ... 4,502 4,456
Operating, selling and administrative expenses ................ 1,099 1,074
Provision for doubtful accounts ............................... 13 22
Interest expense .............................................. 572 201
----------- -----------
6,186 5,753
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Loss before loss on equity investment and income taxes ........ (397) (96)
Loss from equity investment ................................... (711) (246)
Income tax expense ............................................ (2) (2)
----------- -----------
Loss from continuing operations ............................... (1,110) (344)
Loss from discontinued operations ............................. -- (209)
----------- -----------
Net loss ...................................................... $ (1,110) $ (553)
=========== ===========
Basic and diluted net loss per share
Continuing operations ..................................... $ (0.22) $ (0.07)
Discontinued operations ................................... -- (0.04)
----------- -----------
Net loss per share ........................................ $ (0.22) $ (0.11)
=========== ===========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts ....................... 4,943,018 4,943,018
=========== ===========
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)
Three months Three months
Ended Ended
May 31, 2000 May 31, 1999
------------ ------------
Cash flows from operating activities:
Loss from continuing operations ......................... $(1,110) $ (344)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization .................. 34 50
Loss from equity investment .................... 711 246
Other changes in operating assets and liabilities:
Accounts receivable ............................ 26 (198)
Inventories .................................... 352 (265)
Accounts payable ............................... (372) 1,430
Other .......................................... 271 (335)
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Net cash (used in) provided by operating activities of:
Continuing operations .......................... (88) 584
Discontinued operations ........................ 151 (105)
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Net cash provided by operating activities ............... 63 479
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Cash flows from investing activities:
Additions to property and equipment ............ (12) (3)
Increase in investment ......................... (2,020) (140)
Other .......................................... -- --
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Net cash used in investing activities ................... (2,032) (143)
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Cash flows from financing activities:
Net borrowings (repayments) under
revolving credit agreement .................. 55 (348)
Borrowings under long-term obligations ......... 2,108 140
Principal payments on long-term obligations .... (38) (39)
Deferred loan costs ............................ -- (75)
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Net cash provided by (used in) financing activities ..... 2,125 (322)
------- -------
Net increase in cash .................................... 156 14
Cash at beginning of period ............................. 152 241
------- -------
Cash at end of period ................................... $ 308 $ 255
======= =======
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
THREE MONTHS ENDED MAY 31, 2000
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, and as a result, it owns 90% of the
voting stock of SCPI. The accompanying condensed consolidated financial
statements reflect this control and include the accounts of SCPI.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's") a distributor of automotive
radiators. After experiencing operating losses at Dowling's, Oakhurst's Board of
Directors decided to dispose of this subsidiary in fiscal 2000. In June 2000,
the Company entered into an agreement to sell Dowling's by way of merger for
consideration equivalent to the amount of revolver debt expected to be owed by
Dowling's at the merger closing. Closing is subject to, among other things, the
acquirer obtaining the necessary replacement financing within 120 days. The
results of Dowling's have been presented as discontinued operations in the
statements of operations and cash flows for the period ended May 31, 2000.
Expected losses at Dowling's through the merger closing date were accrued in the
Company's financial statements for the fiscal year ended February 29, 2000.
Through SCPI and Dowling's, Oakhurst's principal business in recent
years has been the distribution of products to the automotive after-market. The
remaining automotive distribution business is conducted by SCPI under the trade
name "Steel City Products" and involves the distribution of automotive parts and
accessories and non-food pet supplies from a facility in McKeesport,
Pennsylvania.
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 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 29, 2000 ("fiscal 2000") as filed in the Company's Annual Report on
Form 10-K.
Operating results for the three months ended May 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending February 28, 2001.
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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. SALE OF SUBSIDIARY
In fiscal 2000, Oakhurst's Board of Directors decided to dispose of
Dowling's. In June 2000, the Company entered into an agreement to sell Dowling's
through a merger with an importer of radiators for consideration equivalent to
the amount expected to be owed at the merger closing by Dowling's under the
revolving credit agreement. The merger closing is subject to, among other
things, the acquirer obtaining necessary replacement financing within 120 days,
and the revolver has been extended for such period. In addition, prior to the
merger closing the acquirer will advance Dowling's up to $500,000 in working
capital loans, has agreed to defer payment by Dowling's of approximately
$250,000 in amounts owed for prior merchandise shipments to Dowling's, and will
make further shipments of merchandise to Dowling's on customary terms, all in
return for a subordinated security interest in all of Dowling's assets and a
pledge of the stock of Dowling's owned by Oakhurst.
The assets and liabilities of Dowling's included in the consolidated
balance sheet at May 31, 2000 consisted of the following:
Assets:
Cash ...................................... $ 200
Trade accounts receivable ................. 919
Other receivables ......................... 223
Inventories ............................... 1,719
Property and equipment, net ............... 376
Other assets .............................. 423
Liabilities:
Accounts payable .......................... $2,436
Accrued compensation ...................... 79
Current portion of long-term debt ......... 1,756
Other current liabilities ................. 49
4. SEGMENT INFORMATION
The Company has revised its previously provided segment information to
report two segments, rather than one, for SCPI. The Company's operating segments
are SCPI Auto, SCPI Pet, Dowling's and OTI. SCPI, operating under the trade name
Steel City Products, principally sells automotive accessories and non-food pet
products, primarily to discount retail chains, hardware, drug and supermarket
retailers and to automotive specialty stores. Its customers are based primarily
in the Northeastern United States. 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. Maarten Hemsley, the Chief Financial Officer
of the Company, reviews the operating profitability of each segment and its
working capital needs to allocate financial resources. In fiscal 2000, the Board
of Directors of Oakhurst decided to dispose of Dowling's, a wholesale
distributor of automotive radiators and related products mostly serving radiator
shops in the Northeast. Thus, results for Dowling's have been presented in the
tables below as discontinued operations. The Company's operations are organized
into the four operating segments included in the following table (in thousands):
- 7 -
Three months ended May 31, 2000 SCPI SCPI CONSOLIDATED
SEGMENTS AUTO PET DOWLING'S OTI CORPORATE TOTAL
------- ------- ------- ------- ------- ------------
Net sales ........................... $ 5,117 $ 628 -- -- $ 5,745
======= ======= ======= ======= =======
Operating profit (loss) ............. $ 313 $ 75 $ (64) $ (149) $ 175
Segment assets ...................... $ 7,046 $ 305 $ 3,860 $10,791 $ 280 $22,282
===========================================================================================================================
Three months ended May 31, 1999 SCPI SCPI CONSOLIDATED
SEGMENTS AUTO PET DOWLING'S OTI CORPORATE TOTAL
------- ------- --------- ------- --------- ------------
Net sales ........................... $ 5,063 $ 562 -- -- $ 5,625
======= ======= ======= ======= =======
Operating profit (loss) ............. $ 245 $ 74 $ (45) $ (169) $ 105
Loss from discontinued operations ... $ (209) $ (209)
Segment assets ...................... $ 6,806 $ 335 $ 4,219 $ 3,783 $ 2,326 $17,469
===========================================================================================================================
5. SUMMARY FINANCIAL INFORMATION
Summarized financial information is provided herein for New Heights for
the fiscal year to date (in thousands):
May 31, 2000
------------
Current assets ............................ $ 2,482
Non-current assets ........................ 38,881
Current liabilities ....................... 4,652
Non-current liabilities ................... 8,220
Net equity ................................ 28,491
Three months ended
May 31, 2000
------------------
Total revenues ................... $ 570
Net loss ......................... (1,420)
- 8 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The corporate structure resulting from the 1991 merger, whereby Steel
City Products Inc. ("SCPI") became a special, limited purpose, majority-owned
subsidiary of Oakhurst Company, Inc. ("Oakhurst") was designed to facilitate
capital formation by Oakhurst while permitting Oakhurst and SCPI to file
consolidated tax returns so that both may utilize existing tax benefits,
including approximately $158 million of net operating loss carry-forwards and
capital losses. 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 principal business historically has been the distribution of
products to the automotive after-market. Its largest business, and its one
remaining automotive distributor following the disposal of Dowling's (see below)
is conducted by SCPI under the trade name "Steel City Products", and involves
the distribution of automotive parts and accessories and non-food pet supplies
from a facility in McKeesport, Pennsylvania.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's, a New York-headquartered distributor of automotive radiators and
related products, for an aggregate purchase price of approximately $4.7 million,
all of which has been paid except for two notes payable to an executive and a
former executive of Dowling's with an aggregate balance remaining at May 31,
2000 of $88,000. In March 1996, Dowling's acquired all of the outstanding
capital stock of G&O, a radiator distributor based in Philadelphia,
Pennsylvania.
Due to operating losses at Dowling's of approximately $400,000 in fiscal
2000, the Board of Directors decided to dispose of the business. In June 2000,
the Company entered into an agreement to sell Dowling's through a merger with an
importer of radiators for consideration equivalent to the amount expected to be
owed at the merger closing by Dowling's under the revolving debt agreement. The
merger closing is subject to, among other things, the acquirer obtaining
necessary replacement financing within 120 days, and the portion of the revolver
applicable to Dowling's has been extended for such period. In addition, prior to
the merger closing the acquirer will advance Dowling's up to $500,000 in working
capital loans, has agreed to defer payment by Dowling's of approximately
$250,000 in amounts owed for prior merchandise shipments to Dowling's, and will
make further shipments of merchandise to Dowling's on customary terms, all in
return for a subordinated security interest in all of Dowling's assets and a
pledge of the stock of Dowling's owned by Oakhurst. Until the merger closing the
acquirer may appoint a majority of the directors of Dowling's, and the business
will be managed by the Dowling's Board.
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 the restructuring opportunity at New
Heights, as discussed below. Also in December 1998, Oakhurst entered into an
agreement with KTI, Inc. ("KTI"), a publicly-traded waste-to-energy and
recycling company that merged into Casella Waste Systems, Inc. in December 1999,
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 for gross proceeds of
$865,000 (the "Equity Proceeds"). In conjunction with the private placement of
stock, KTI committed to lend Oakhurst up to $11.5 million under a loan agreement
(the "KTI Loan"), as discussed further below. In December 1998 OTI initially
acquired a 50% equity interest in, and became the managing member of, New
Heights Recovery & Power, LLC ("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.
- 9 -
Through May 31, 2000, OTI has invested approximately $6.6 million in the
New Heights project, reflecting the capital commitments and funding of start-up
losses required by the first two phases of the Business Plan. In July 1999,
after receiving the appropriate permits the New Heights facility began waste
tire operations involving the collection of waste tires and their processing
into crumb rubber and related by- products. Phase I of the Business Plan was
completed in September 1999. Phase II of the Business Plan includes the
permitting and start-up of waste to energy operations. The necessary permits
were received in February 2000, a power supply agreement was entered into with a
local utility for the summer of 2000, and in early July the New Heights
generator began commercial production of power from burning waste tires.
In addition to New Heights, in January 1999 OTI made a minority
investment totaling approximately $2.7 million 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 and highway spending in Texas.
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 cost of the
second equity tranche was approximately $1.36 million and was financed through
the issuance of notes, of which an aggregate of $559,000 is due to two officers
and directors of Oakhurst. Of the notes, which are secured by the second equity
tranche, $800,000 is re-payable by OTI in October 2000, and $559,000 is due in
April 2001. The notes bear interest at the rate of 14%.
Recognizing its investment in Sterling and increases in the estimated
capital costs and start-up losses at New Heights, in July 2000 Oakhurst, OTI and
KTI completed a modification of the KTI Loan (the "KTI Loan Modification")
pursuant to which OTI's obligation to fund the first two phases and certain
Phase Three expenditures of the New Heights Business Plan was limited to $9
million and KTI agreed to fund $3 million for such purposes directly to New
Heights. Accordingly, OTI's equity interest in such investments in New Heights
was decreased from 50% to 37.5%, with the reduction of 12.5% being acquired by
KTI in return for its $3 million direct investment in New Heights. In addition,
OTI's obligation to fund certain start-up losses at New Heights will be limited
to 75% of such losses, funded through advances under the KTI Loan, with the
balance to be funded directly by KTI. Furthermore, the KTI Loan Modification
provides for any further capital expenditures to be financed through New
Heights' internally generated cash and/or through financing raised by New
Heights. To the extent that such funding is insufficient, the parties to the KTI
Loan Modification have agreed to negotiate the terms on which they will each
make future investments.
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 subordinated 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 purchased in October
1999.
For its fiscal year ended September 1999 Sterling's revenues were $64
million and Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") was $8.5 million. For the eight months ended May 2000 Sterling's
results reflected revenues of $50.0 million and EBITDA of $6.5 million.
SALE OF SUBSIDIARY
In June 2000, Oakhurst entered into an agreement to sell Dowling's, a
wholesale distributor of automotive radiators and related parts, through a
merger with an importer of radiators, for consideration
- 10 -
equivalent to the amount expected to be owed at the merger closing by Dowling's
under the revolving credit agreement (see Note 3 to the Condensed Consolidated
Financial Statements). The Company recorded a loss on the disposal of Dowling's
of approximately $2.0 million, of which $1.7 million related to the write-off of
the excess of cost over net assets acquired associated with the acquisition of
Dowling's in fiscal 1995 and $300,000 resulted from expected operating losses
from March 1, 2000 through the anticipated merger closing date.
In the first quarter of the prior fiscal year, Dowling's reported an
operating loss of approximately $209,000.
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 May 31, 2000, Oakhurst's debt primarily consisted of (i) a balance of
$11.6 million outstanding under the KTI Loan, (ii) a revolving credit facility
with an institutional lender (the "Revolver") of $4.8 million, of which $1.5
million related to Dowling's and (iii) notes payable aggregating $1.4 million
issued in connection with the purchase of the second tranche of equity in
Sterling.
Oakhurst and SCPI have available financing under the Revolver, subject
to a borrowing base that is calculated according to defined levels of the
automotive distribution subsidiaries' accounts receivable and inventories. In
July 2000 Oakhurst and SCPI entered into an agreement with the institutional
lender to identify SCPI as the Borrower (cross-collateralized by Oakhurst), to
provide for a three year term and reduce the total Revolver to $4.0 million,
subject to a borrowing base. Management believes that the Revolver will provide
adequate funding for SCPI's working capital, debt service and capital
expenditure requirements, including seasonal fluctuations for at least the next
twelve months.
Also in July 2000, an agreement was entered into with the institutional
lender for an extension until October 28, 2000 of the $2.75 million Revolver
applicable to Dowling's, and, assuming the closing of the merger, for the waiver
by the lender of a financial covenant default as at February 29, 2000. It is
expected that the acquirer of Dowling's will obtain replacement financing prior
to October 28, 2000, so that upon the closing of the merger amounts outstanding
from Dowling's under the Revolver will be repaid. Management believes that
continued funding to Dowling's under the Revolver, together with the acquirer's
commitment to make working capital loans to Dowling's, to defer payment of
certain amounts to it by Dowling's and to ship merchandise, together with a
reduction in debt and extension of terms made by another Dowling's supplier,
will be sufficient to enable Dowling's to operate until the merger closing,
which management believes is likely to occur. In the event closing does not
occur, management would expect to liquidate Dowling's.
At May 31, 2000, a working capital deficit of $13.5 million resulted
principally from the reclassification of the KTI Loan as a current obligation of
the Company, reflecting its April 30, 2001 maturity date. KTI owns 35% of the
Company's common stock. With the completion in July 2000 of the 18 month
turnaround of New Heights and the finalization of the KTI Loan Modification,
management believes that the KTI Loan will provide adequate financing for any
financial commitments to New Heights. With the commencement of power generation
operations at New Heights, management of New Heights is expected to seek third
party debt financing on the New Heights facility which is currently
substantially debt free. Any refinancing of the facility will allow Oakhurst to
proportionally repay the KTI Loan.
- 11 -
Management believes that future operations of New Heights will provide
sufficient funds to repay the KTI Loan and facility-level debt and that, if such
operations are successful, the value of OTI's equity interest in New Heights
could be significant. However, such success cannot as yet be assured.
CASH FLOWS
Net cash provided by operating activities for the three months ended
May 31, 2000 and May 31, 1999 was $63,000 and $479,000, respectively. The
decrease was due primarily to a reduction in payables in the current year.
For the three months ended May 31, 2000 cash used in investing
activities was $2.0 million, and increase of $1.9 million compared with the
prior year due to the increase in investment in New Heights.
The Company's financing activities provided cash of $2.1 million for the
three months ended May 31, 2000, principally from the issuance of long-term debt
to complete the upgrade to the New Heights facility. There was a slight increase
in borrowings under the revolving credit agreement for the three months ended
May 31, 2000. In the prior year, a reduction in the revolving loan agreement of
$348,000 was offset by increases in accounts payable.
MATERIAL CHANGES IN FINANCIAL CONDITION
Except as described above, at May 31, 2000, there had been no material
changes in the Company's financial condition since February 29, 2000, as
discussed in Item 7 of the Company's Annual Report on Form 10-K for fiscal 2000.
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, OTI and the administrative costs of SCPI and Oakhurst.
THREE MONTHS ENDED MAY 31, 2000 COMPARED WITH THREE MONTHS ENDED MAY 31, 1999
Automotive Segment
Sales in the first quarter of the current year increased by $54,000
compared with the first quarter of the prior year. Sales to existing automotive
customers decreased by $246,000 due primarily to the loss of a customer in the
fourth quarter of fiscal 2000. Some of the loss in sales to this customer was
offset by increased sales to other existing customers which have expanded their
product offerings or which have acquired additional locations. Sales to new
customers totaled approximately $300,000 in the first quarter.
Gross profits increased $53,000 due to higher sales volume and higher
margins earned on certain products.
The automotive segment reported an operating profit of $313,000 in the
current year, compared with a profit of $245,000 in the prior year, due
primarily to higher sales and better margins.
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Pet supply segment
Sales of non-food pet products totaled $628,000, an increase of $66,000
compared with the first quarter of the prior year, due primarily to increased
sales to existing customers.
Gross profits increased by $20,000 in the first quarter of the current
year compared with the first quarter of the prior year, due to the higher sales
volume.
The pet supply segment reported an operating profits of $75,000,
essentially equal to the prior year, as the higher sales volume was offset by
higher expenses, primarily commissions paid.
OTI
There was a loss from affiliates of approximately $711,000 compared with
a loss of $246,000 in the prior year, related to OTI's equity investment in New
Heights, which represents OTI's share of start-up activities at the New Heights
facility.
Interest expense increased by $371,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan.
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
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: November 9, 2001 By: /s/ Joseph Harper
---------------------------------
Mr. Joseph Harper
President
Date: November 9, 2001 By: /s/ Maarten D. Hemsley
---------------------------------
Mr. Maarten D. Hemsley
Chief Financial Officer
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