<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1995
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to ________________
Commission file number 1-9629
WINSTON RESOURCES, INC.
- - --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3134278
- - ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
535 Fifth Avenue, New York, New York 10017-3662
- - --------------------------------------------------------------------------------
(Address of principal executive offices)
(212) 557-5000
- - --------------------------------------------------------------------------------
(Issuer;s telephone number)
NOT APPLICABLE
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,915,800 shares of Common
Stock, par value $.01 per share, outstanding on May 12, 1995.
This paper copy being submitted pursuant
to Rule 901(d) of Regulation S-T
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WINSTON RESOURCES, INC., AND SUBSIDIARIES
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
-MARCH 31, 1995 (UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
- THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- THREE MONTHS ENDED MARCH 31, 1995 AND 1994 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE> 3
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1995
(Unaudited)
ASSETS
(Note 4)
<TABLE>
<S> <C>
Current assets:
Cash $ 101,000
Accounts and notes receivable, trade, net 5,291,000
Prepaid expenses and other current assets 162,000
----------
Total current assets 5,554,000
Fixed Assets, net 320,000
Other assets:
Long-term portion of notes receivable 173,000
Security deposits and other assets 443,000
Restrictive covenants and other
intangibles, net 934,000
----------
Total $7,424,000
==========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 1
<PAGE> 4
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Accounts payable and accrued expenses $2,586,000
Credit facility debt (Note 4) 659,000
Capital lease obligation 43,000
----------
Total current liabilities 3,288,000
Deferred rent 391,000
Deferred credit - net (Note 2) 1,000
Long-term portion of credit facility debt 500,000
Long-term portion of capital lease obligation 63,000
----------
Total liabilities 4,243,000
Contingencies (Note 5)
Stockholders' equity (Note 3):
Preferred stock - $100 par value; authorized
2,000,000 shares, no shares issued
Common stock, $.01 par value; authorized
10,000,000 shares, issued and outstanding
2,915,800 shares 29,000
Additional paid-in capital 4,393,000
Accumulated deficit (1,241,000)
----------
Total stockholders' equity 3,181,000
----------
Total $7,424,000
==========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 2
<PAGE> 5
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenue:
Placement fees and related income $7,214,000 $5,332,000
---------- ----------
Operating expenses:
Compensation and other benefits 5,267,000 3,821,000
Selling, general and administrative 1,630,000 1,317,000
Amortization of intangibles 38,000 39,000
---------- ----------
6,935,000 5,177,000
---------- ----------
Income from operations 279,000 155,000
---------- ----------
Interest expense, net 57,000 25,000
---------- ----------
Income before provision for income taxes 222,000 130,000
Provision for income taxes 96,000 26,000
---------- ----------
Net income $ 126,000 $ 104,000
========== ==========
Primary and fully diluted net income
per common share $ 0.04 $ 0.03
========== ==========
Weighted average number of common shares
outstanding
Primary 3,150,432 3,158,962
Fully diluted 3,158,739 3,158,962
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE> 6
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 126,000 $ 104,000
Charges and credits to net income not
affecting cash:
Depreciation and amortization 69,000 59,000
Provision for doubtful receivables 25,000 (85,000)
Deferred rent (7,000) 14,000
Deferred income recognized 16,000
Changes in assets and liabilities:
(Increase) in Accounts receivable (435,000) (371,000)
(Increase) in Prepaid expenses and
other current assets (39,000) (15,000)
(Increase) in Security deposits and other assets (91,000) (8,000)
Increase in Accounts payable and accrued expenses 239,000 199,000
--------- ---------
Net cash (used in)
operating activities (113,000) (87,000)
--------- ---------
Cash flows (used in) investing activities:
Purchases of fixed assets (22,000) (11,000)
--------- ---------
Cash flows from financing activities:
Proceeds from (payments on) short term and long-term debt (57,000) 116,000
--------- ---------
Net increase (decrease) in cash (192,000) 18,000
Cash at beginning of period 293,000 217,000
--------- ---------
Cash at end of period $ 101,000 $ 235,000
========= =========
Supplemental cash flows information:
Cash paid during the period for:
Interest $ 60,000 $ 49,000
--------- ---------
Income taxes $ 103,000 $ 9,000
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 4
<PAGE> 7
WINSTON RESOURCES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals and adjustments) necessary to present fairly the
financial position of the company as of March 31, 1995, the results of its
operations for the Three Months ended March 31, 1995 and March 31, 1994 and
in its cash flows for the Three Months ended March 31, 1995 and March 31,
1994. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Operating results
for the Three Months ended March 31, 1995 are not necessarily indicative of
operating results that may be expected for the year ending December 31,
1995. The accompanying consolidated financial statements should be read in
conjunction with the Company's Annual Report to shareholders and Annual
Report in Form 10-KSB for the year ended December 31, 1994.
2. The deferred credit resulting from the sale of certain assets of the
Company's wholly-owned subsidiary, E.G. Todd Associates, Inc., to E.G. Todd
Physician Search, Inc., consists of the following:
<TABLE>
<CAPTION>
March 31, 1995
--------------
<S> <C>
Potential deferred gain $1,289,000
Potential deferred
interest income 14,000
----------
$1,303,000
Less: Note receivable
from purchaser $1,149,000
Advances to purchaser 153,000
----------
Deferred credit, net $ 1,000
----------
</TABLE>
Page 5
<PAGE> 8
Winston Resources, Inc., and Subsidiaries
Notes to Consolidated Financial Statements
Three Months ended March 31, 1995
3. On January 3, 1995 options to acquire 90,000 shares were granted under the
Company's Incentive Program at exercise prices ranging from $1.50 to $1.65
per share. On January 6, 1995, options to acquire 6,000 shares were granted
under the Company's Incentive Program at an exercise price of $1.375 per
share. At March 31, 1995, options to purchase 520,000 shares are outstanding
and options to purchase 50,700 shares are available for grant.
4. The Company's secured credit facility, as amended on May 1, 1995, provides
for advances of $500,000 repayable on April 16, 1997 and additional
short-term advances to a maximum of $2,000,000, both based on up to 80% of
eligible accounts receivable. At March 31, 1995 the Company was paying
interest on advances at a rate of 12.50%, which was 3 1/2% above the
finance company's reference rate. The credit facility is collateralized by
substantially all the assets of the Company.
5. Litigation
In the opinion of management, after consultation with counsel, there are no
matters pending whose ultimate resolution would have a material adverse
effect on the Company's financial position.
6. Income per share is computed using the weighted average number of common
shares outstanding and common stock equivalents, assuming the exercise of
stock options, are included in the calculation of net income per share when
there is a dilutive effect.
Page 6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations for the Three Months ended March 31, 1995
compared to the Three Months ended March 31, 1994.
Revenues increased by approximately $1,882,000 or 35% in the Quarter ended
March 31, 1995 as compared to the 1994 First Quarter. This increase is
primarily due to the increase in temporary help revenues as compared to the
corresponding period in 1994.
Operating Expenses
Operating expenses increased approximately 34% in the Quarter ended March 31,
1995 as compared to the corresponding period in 1994. The increase is mainly
due to increased compensation and related costs associated with the increase in
revenues.
Operating Results
Net income for the Quarter ended March 31, 1995 was approximately $126,000 or
$.04 per common share as compared to net income of approximately $104,000 or
$.03 per common share in the prior year's First Quarter. The improvement in
operating results is primarily due to increased temporary and permanent
placement revenues and ongoing monitoring of operating expenses.
Liquidity and Capital Resources
Working capital at March 31, 1995 was approximately $2,266,000 as compared to
$2,201,000 at December 31, 1994. This increase is due mainly to improvements in
revenues, operating results and increased receivables.
The Company has no material commitments for capital expenditures during 1995.
Management believes that the Company's credit facility, working capital and
internally generated funds are sufficient to support current operations and any
increase in activity.
Inflation
To date, the impact of inflation and changing prices on the Company's business
has been minimal. The Company charges its customers fixed percentages of the
salaries and wages of permanent and temporary employees, which causes its fee to
increase proportionately as salary and wages increase.
Page 7
<PAGE> 10
PART II - OTHER INFORMATION
Exhibits and Reports on Form 8K
(a) Exhibits:
10(a) Agreement between Winston Resources, Inc., and Finova
Capital Corporation dated April 10, 1995.
10(b) Agreement between Winston Resources, Inc., and Finvoa
Capital Corporation dated April 24, 1995.
27 Financial Data Schedules for the quarter ended March 31,
1995.
(b) Reports on Form 8K:
None
No reports on Form 8K were filed by the Company during the quarter ended March
31, 1995.
Page 8
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WINSTON RESOURCES, INC.
Date May 18, 1995 By /s/ Seymour Kugler
-------------- -------------------------------
Seymour Kugler
Chairman of the Board
and President
Date May 18, 1995 By /s/ David Frankel
-------------- -------------------------------
David Frankel
Principal Financial Officer
Page 9
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EXHIBIT INDEX
10(a) Agreement between Winston Resources, Inc., and Finova
Capital Corporation dated April 10, 1995.
10(b) Agreement between Winston Resources, Inc., and Finvoa
Capital Corporation dated April 24, 1995.
27 Financial Data Schedules for the quarter ended March 31,
1995.
<PAGE> 1
[WINSTON RESOURCES, INC. LETTERHEAD]
April 10, 1995
Mr. Philip Cotumaccio
Vice President
Finova Capital Corp.
111 West 40th Street
New York, N.Y. 10018
Re: Winston Resources, Inc., with
Finova Capital Corp.
Dear Mr. Cotumaccio:
Reference is made to the security agreement (Accounts Receivable) by and between
Winston and Finova Capital Corp., dated April 16, 1992, together with all
documents related thereto and security interests granted thereunder (the
"Financing"). Winston hereby confirms that as of December 31, 1994 it is
obligated to Finova Capital Corp., under the Financing in the amount of
$1,270,259.30 (the "Obligations").
Winston has requested and Finova has agreed that $500,000 of the Obligations
shall be and hereby is reclassified as a long term loan which shall become due
on April 16, 1997, or in Finova's sole and absolute discretion, upon Finova's
demand that Winston is in default in any of the agreements provided for in the
Financing (the "Long Term Loan"). The Long Term Loan shall be subject to all of
the terms and conditions and security interest provided for in the Financing. In
addition, the Long Term Loan shall accrue interest at the same rate of interest
provided for in the Financing which shall be payable monthly. Finova is hereby
authorized to charge Winston's account for all interest due or becoming due
under the Long Term Loan.
In the event of any default under the Financing or under the Long Term Loan, all
obligations of Winston owing to Finova shall immediately become due and payable
without notice and interest both under the Financing and long Term Loan shall
accrue thereafter at the default rate provided for in the Financing.
<PAGE> 2
Mr. Philip Cotumaccio
Finova Capital Corp.
April 10, 1995
Page Two
It is specifically understood and agreed that the Long Term Loan shall be
subject to all terms and conditions of the Financing.
Very truly yours,
WINSTON RESOURCES, INC.
By: /s/ Seymour Kugler
----------------------
Seymour Kugler
President
Agreed and Accepted:
FINOVA CAPITAL CORP.
By: /s/ Philip Cotumaccio
----------------------
Philip Cotumaccio
Vice President
<PAGE> 1
[FINOVA CAPITAL CORPORATION LETTERHEAD]
April 24, 1995
Winston Resources, Inc.
535 Fifth Avenue
New York, N.Y. 10017-3663
Gentlemen:
Notwithstanding anything to the contrary in the Security Agreements-Accounts
Receivable dated April 16, 1992 between FINOVA Capital Corporation formerly
Ambassador Factors Division Fleet Factors Corp. and Winston Resources, Inc.,
("Contract") we hereby agree to the following effective May 1, 1995:
1. The base interest rate as stated in paragraph 6 of the Security
Agreement-Accounts Receivable (A/R Agreement) shall be decreased to 3 1/4% per
annum over the Citibank, N.A. prime rate ("Prime"). In the event that your
average outstanding balance is over $1,500,000 for two consecutive months, the
base interest rate shall be decreased to 2 3/4% over prime. In the event the
average loan balance is less than $1,500,000 for two consecutive months than the
base interest rate shall be increased to 3 1/4%. These rates will remain in
effect as long as Winston Resources, Inc. continues to show earnings on a
quarterly basis. In the event that there is an operating loss the interest rate
will be increased to 4% per annum over the Prime rate effective the first month
following the quarterly loss. The working days allowed to permit bank clearance
and collections pursuant to paragraph 6 of the A/R Agreement shall be reduced to
three (3) working days.
2. The Contract shall be extended until April 6, 1997.
3. The Line of Credit is increased up to $2,500,000 in accordance with and
pursuant to the terms of the Security Agreements.
All other terms and conditions contained in the Contract as originally written
shall remain in full force and effect.
This amendment supersedes and replaces all prior amendments except for paragraph
2 of the Amendment letter dated 5/13/94 and the Amendment letter dated 12/14/93
to the "A/R Agreement" which shall continue to be in effect.
Please sign a copy of this letter to indicate your agreement to the above and
retain a copy for your records.
Very truly yours,
PC:af
/s/ Philip Cotumaccio
FINOVA Capital Corporation
AGREED and ACCEPTED: Philip Cotumaccio
Vice President
By: /s/ Seymour Kugler
--------------------------
President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 101,000
<SECURITIES> 0
<RECEIVABLES> 5,573,000
<ALLOWANCES> 282,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,554,000
<PP&E> 2,256,000
<DEPRECIATION> 1,936,000
<TOTAL-ASSETS> 7,424,000
<CURRENT-LIABILITIES> 3,288,000
<BONDS> 0
<COMMON> 29,000
0
0
<OTHER-SE> 3,152,000
<TOTAL-LIABILITY-AND-EQUITY> 7,424,000
<SALES> 7,214,000
<TOTAL-REVENUES> 7,214,000
<CGS> 0
<TOTAL-COSTS> 5,267,000
<OTHER-EXPENSES> 1,668,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,000
<INCOME-PRETAX> 222,000
<INCOME-TAX> 96,000
<INCOME-CONTINUING> 126,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,000
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
