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: May 31, 1997
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 X No
------ ------
As of July 1, 1997, 3,207,053 shares of the Registrant's Common Stock,
$0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets at May 31, 1997 (unaudited)
and February 28, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three month periods ended
May 31, 1997 and May 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Stockholders' Equity for the three months
ended May 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the three month periods ended
May 31, 1997 and May 31, 1996 (unaudited) . . . . . . . . . . . . . . . . . . 6
Notes to consolidated financial statements (unaudited) . . . . . . . . . . . . 7
- 2 -
3
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS MAY 31, FEBRUARY 28,
1997 1997
-------- --------
(Unaudited)
Current assets:
Cash ..................................................................... $ 50 $ 39
Trade accounts receivable, less allowance of $438 and $555,respectively .. 4,505 3,882
Other receivables ........................................................ 630 483
Inventories .............................................................. 5,574 5,687
Net assets held for sale (Note 2) ........................................ -- --
Other .................................................................... 288 370
-------- --------
Total current assets ................................... 11,047 10,461
-------- --------
Property and equipment, at cost ............................................... 2,831 2,839
Less accumulated depreciation ............................................ (1,379) (1,311)
-------- --------
1,452 1,528
-------- --------
Deferred tax asset, less valuation allowance of $51,300 ....................... 1,000 1,000
Excess of cost over net assets acquired, net .................................. 2,420 2,468
Other assets .................................................................. 435 450
-------- --------
3,855 3,918
-------- --------
$ 16,354 $ 15,907
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 6,539 $ 6,106
Accrued compensation ..................................................... 346 394
Current maturities of long-term obligations .............................. 1,783 953
Current maturities of long-term obligations, related parties ............. 88 88
Accrued interest ......................................................... 97 88
Other accrued expenses ................................................... 268 417
-------- --------
Total current liabilities .............................. 9,121 8,046
-------- --------
Long-term obligations:
Long-term debt ........................................................... 5,054 5,344
Long-term debt, related parties .......................................... 264 286
Other long-term obligations .............................................. 79 86
-------- --------
5,397 5,716
-------- --------
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 3,207,053 and 3,201,144 shares, respectively ........... 32 32
Additional paid-in capital ............................................... 46,535 46,529
Deficit (Reorganized on August 26, 1989) ................................. (44,730) (44,415)
Treasury stock, at cost, 207 common shares ............................... (1) (1)
-------- --------
Total stockholders' equity ............................. 1,836 2,145
-------- --------
$ 16,354 $ 15,907
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
4
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1997 1996
----------- -----------
Sales ........................................................... $ 8,291 $ 10,892
Other income .................................................... 19 45
----------- -----------
8,310 10,937
----------- -----------
Cost of goods sold, including occupancy and
buying expenses .............................................. 6,799 8,480
Operating, selling and administrative expenses .................. 1,567 2,574
Provision for doubtful accounts ................................. 19 30
Amortization of excess of cost over net assets acquired ......... 49 112
Interest expense ................................................ 178 204
Loss on assets held for sale - H&H and Puma (see Note 2) ........ 12 --
----------- -----------
8,624 11,400
----------- -----------
Net loss before income taxes .................................... (314) (463)
Income tax expense .............................................. (1) (8)
----------- -----------
Net loss ........................................................ $ (315) $ (471)
=========== ===========
Net loss per share .............................................. $(0.10) $ (0.15)
=========== ===========
Weighted average number of shares outstanding
used in computing per share amount ........................... 3,203,611 3,197,183
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
5
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
-------------------------- PAID-IN EARNINGS ---------------------
SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST
-------------- ---------- ----------- ----------- ----------- ---------
Balances, February 28, 1997 ............. 3,201,144 $ 32 $ 46,529 $ (44,415) 207 $ (1)
Net loss for the period ................. (315)
Stock award ............................. 5,909 * 6
-------------- ---------- ----------- ----------- ----------- ---------
Balances, May 31, 1997 .................. 3,207,053 $ 32 $ 46,535 $ (44,730) 207 $ (1)
============== ========== =========== =========== =========== =========
*Rounds to less than one thousand
The accompanying notes are an integral part of these
consolidated financial statements.
- 5 -
6
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MAY 31, MAY 31,
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss ............................................... $ (315) $ (471)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization ...................... 172 281
Loss on retirement of assets ....................... 3 5
Stock awards ....................................... 6 7
Other changes in operating assets and liabilities:
Accounts receivable ................................ (623) (947)
Inventories ........................................ 113 512
Accounts payable ................................... 433 583
Other .............................................. (302) (232)
----------- -----------
Net cash (used in) provided by operating activities of:
Continuing operations .................................. (513) (262)
Discontinued retail operations ......................... 10 17
----------- -----------
Net cash used in operating activities ..................... (503) (245)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment .................... -- (70)
Acquisition of a subsidiary, net of cash acquired ...... -- (79)
----------- -----------
Net cash used in investing activities ..................... -- (149)
----------- -----------
Cash flows from financing activities:
Net borrowings under revolving credit agreement ........ 735 1,154
Proceeds from issuance of long-term debt ............... -- 1,500
Repayment of note payable .............................. (105) --
Principal payments on long-term obligations ............ (116) (1,878)
Deferred loan costs .................................... -- (197)
----------- -----------
Net cash provided by financing activities ................. 514 579
----------- -----------
Net increase in cash ...................................... 11 185
Cash at beginning of period ............................... 39 318
----------- -----------
Cash at end of period ..................................... $ 50 $ 503
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
- 6 -
7
OAKHURST COMPANY, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MAY 31, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or the "Company") 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 owns all of the outstanding capital stock of Dowling's Fleet
Service Co., Inc. ("Dowling's"), and of Oakhurst Management Corporation
("OMC"). The accompanying consolidated financial statements include the
accounts of these subsidiaries, and all significant intercompany accounts and
transactions have been eliminated in consolidation (see Note 2).
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, 1997 ("fiscal 1997") as filed in the Company's Annual Report on Form 10-K.
2. NET ASSETS HELD FOR SALE
In June 1997, Oakhurst entered into an agreement to sell the capital
stock of Puma Products, Inc., and in July 1997, Oakhurst entered into an
agreement to sell the capital stock of H&H Distributors, Inc., d/b/a Harry
Survis Auto Centers ("H&H"). Accordingly, the results for the fourth quarter
of fiscal 1997 included a charge related to the disposal of such subsidiaries
representing the write-off of the net assets of the subsidiaries and of the
related excess of costs over net assets acquired.
Effective as of May 31, 1997, the former owner of Puma, a director of
Oakhurst, acquired the capital stock of Puma in exchange for his repayment of
the revolving debt attributable to Puma of approximately $400,000, the
cancellation of a note payable and an earn-out to him aggregating $1.2 million,
the forgiveness of Oakhurst's intercompany debts to Puma, and the payment by
Oakhurst of $50,000. The agreement contains mutual releases and provides for a
payment to Oakhurst in the event of a re-sale of Puma's stock within one year,
equal to 12.5% of the excess of any such sales price (including debt assumed by
an acquirer) over $1 million. The buyer of Puma also acquired all of the
assets relating to SCPI's Wing-Tech division for the net book value at May 31,
1997 of approximately $170,000. As a result of the sale of Puma, Oakhurst was
relieved of contingent liabilities in respect of Puma's lease and employment
agreement obligations aggregating approximately $500,000.
- 7 -
8
Effective as of July 14, 1997, a Vice-President of H&H acquired the
capital stock of H&H in exchange for H&H's forgiveness of Oakhurst's
intercompany debt to H&H and the retention by Oakhurst of certain insurance
claims related to H&H. As a result of the sale of H&H, Oakhurst was relieved
of contingent liabilities in respect of H&H's lease and employment obligations
aggregating approximately $900,000.
During the period ended May 31, 1997, there was an additional charge
of $12,000 to Oakhurst's results of operations related to the net funding of
the operations of these two subsidiaries prior to their disposal.
- 8 -
9
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 July 1991, 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 $150 million of net operating loss carryforwards and $4 million
of capital losses) attributable primarily 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
carryforwards.
Oakhurst, through its subsidiaries, is primarily a distributor 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 to independent retailers from
a facility in Pittsburgh, Pennsylvania. Dowling's Fleet Service Co., Inc.
("Dowling's") is a New York-headquartered distributor of automotive radiators
and related products.
In the current year first quarter, Oakhurst also owned H&H
Distributors, Inc., d/b/a Harry Survis Auto Centers ("H&H"), a Pittsburgh-based
company that distributes and installs automotive accessories, including
stereos, alarms and cellular phones; and Puma Products, Inc. ("Puma"), a Texas
based distributor of after-market products to the light truck and van
conversion industry. In fiscal 1997, H&H and Puma incurred aggregate operating
losses of approximately $500,000, and as a result, in June 1997, Oakhurst sold
Puma to its former owner, and effective July 14, 1997, Oakhurst sold H&H to a
Vice-President of H&H. Results of operations for the first quarter of fiscal
1998 reflect only the net funding of these two subsidiaries through disposal.
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. Each subsidiary's 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, 1997, Oakhurst's debt primarily consisted of (i) a credit
facility with an institutional lender (the "Credit Facility"), which included a
SCPI term loan with a balance of approximately $1.2 million, and borrowings of
approximately $4.6 million under a revolving credit facility (the "Revolver"),
(ii) debt in connection with Oakhurst's acquisition of Dowling's and Dowling's
acquisition of G&O Sales Company ("G&O"), and (iii) notes payable with
outstanding principal balances aggregating approximately $806,000 that were
issued in connection with the settlement of certain contingent liabilities
related to SCPI's former retail division.
Oakhurst and its subsidiaries have available financing under the
Revolver up to a maximum of $7 million, subject to defined levels of the
subsidiaries' accounts receivable and inventories. Management believes that
the Revolver will provide adequate funding for the Company's foreseeable
working capital requirements, including seasonal fluctuations.
- 9 -
10
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 May 31, 1997, there had been no material changes in the Company's
financial condition from February 28, 1997, as discussed in Item 7 of the
Company's Annual Report on Form 10-K for fiscal 1997.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
As previously discussed, Puma was sold effective May 31, 1997, and H&H
was sold effective July 14, 1997. Accordingly, the net funding of the
operations of these two subsidiaries in the current year first quarter
($12,000) has been reflected as a loss on assets held for sale. In the prior
year first quarter, these two subsidiaries incurred aggregate operating losses
of approximately $40,000.
THREE MONTHS ENDED MAY 31, 1997 COMPARED WITH THREE MONTHS ENDED MAY 31, 1996
Consolidated sales for the current year first quarter decreased by
approximately $2.6 million, or by 23.9% when compared with the prior year.
The decrease was caused by the disposals of Puma and H&H, which together had
sales of $2.6 million in the prior year first quarter. Sales for the remaining
subsidiaries were at essentially the same levels as in the prior year.
Although sales are expected to decrease for the remainder of fiscal
1998 when compared with the prior year because of the subsidiary disposals, net
operating results are expected to reflect a comparative improvement since Puma
and H&H incurred aggregate operating losses of approximately $500,000 in the
prior year.
Gross profits were $1.5 million, or 18% of sales, in the current year
first quarter compared with $2.4 million, or 22.1% of sales, in the prior year
period, with the decrease in profits again resulting from disposals of Puma and
H&H. Gross profits attributable to Puma and H&H were approximately $930,000 in
the prior year.
Operating, selling and administrative expenses decreased by $1 million
when compared to the prior year. The disposals of Puma and H&H resulted in
lower expenses of approximately $950,000. The remaining reductions are
attributable to savings in corporate overhead expenses.
The amortization of the excess of cost over net assets acquired
decreased by $63,000 in the current year first quarter, due to the disposals of
Puma and H&H.
- 10 -
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. Stock Purchase and Sale Agreement between James Stein,
H&H Distributors, Inc. and Oakhurst Company, Inc.,
dated as of July 14, 1997
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
- 11 -
12
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: July 14, 1997 By: /s/ Robert M. Davies
---------------------------------
Mr. Robert M. Davies
Chief Executive Officer
Date: July 14, 1997 By: /s/ Mark Auerbach
---------------------------------
Mr. Mark Auerbach
Chief Financial Officer
- 12 -
13
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10 Stock Purchase and Sale Agreement between James Stein,
H&H Distributors, Inc. and Oakhurst Company, Inc.,
dated as of July 14, 1997.
27 Financial Data Schedule