<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934: FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
[ ] TRANSACTION 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 registrant as specified in its charter)
DELAWARE 13-3134278
- --------------------------------- ----------------------------------------
(State or other jurisdiction (I.R.S. Employer
of 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)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT 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 .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 3,212,120 shares of Common
Stock, par value $.01 per share, outstanding on November 7, 1997.
<PAGE>
WINSTON RESOURCES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
the Following Financial Statements of the Registrant
Are Included:
Condensed Consolidated Balance Sheets - September 30, 1997
(Unaudited) and December 31, 1996 3-4
Condensed Consolidated Statements of Income (Unaudited)
- Three and Nine Months Ended September 30, 1997 and 1996 5-6
Condensed Consolidated Statements of Cash Flow (Unaudited)
- Nine Months Ended September 30, 1997 and 1996 7-8
Notes to Condensed Consolidated Financial Statements
(Unaudited) 9
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations 10-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security-holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Page 2
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
-----------------------
ASSETS SEPTEMBER 30, DECEMBER 31,
------------- ------------
1997 1996
----- -----
Current Assets:
Cash and Cash Equivalents $ 401,000 $1,068,000
Accounts Receivable, Trade, Net 7,920,000 5,855,000
Prepaid Expenses and Other Current
Assets 149,000 238,000
Securities Held Available for Sale 344,000 262,000
---------- ----------
Total Current Assets 8,814,000 7,423,000
Fixed Assets, Net 445,000 311,000
Other Assets:
Security Deposits and Other Assets 738,000 704,000
---------- ----------
Total $9,997,000 $8,438,000
========== ==========
CONDENSED CONSOLIDATED BALANCE SHEETS
CONTINUED ON NEXT PAGE.
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Page 3
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
-----------------------
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1997 1996
----- -----
Current Liabilities:
Accounts Payable and Accrued Expenses $4,239,000 $3,603,000
Capital Lease Obligations 16,000 54,000
Income Taxes Payable 450,000 518,000
---------- ---------
Total Current Liabilities 4,705,000 4,175,000
Deferred Rent 315,000 350,000
Long-term Portion of Capital
Lease Obligations 39,000 51,000
---------- ---------
Total Liabilities 5,059,000 4,576,000
========== ==========
Stockholders' Equity:
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 - 3,212,120 Shares at
September 30, 1997 and 3,177,104 Shares
at December 31, 1996 32,000 32,000
Additional Paid-in Capital 4,430,000 4,413,000
Retained Earnings - (Accumulated Deficit) 316,000 (661,000)
Unrealized Gain on Securities Held
Available-for-sale, Net 160,000 78,000
---------- ---------
Total Stockholders' Equity 4,938,000 3,862,000
---------- ---------
Total Liabilities and Stockholders' Equity $9,997,000 $8,438,000
========== ==========
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Page 4
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
-------------------------
THREE MONTHS ENDED
SEPTEMBER 30
-------------------------
1997 1996
----- -----
Revenue:
Placement Fees and Related Income $13,434,000 $10,669,000
----------- -----------
Operating Expenses:
Compensation and Other Benefits 10,469,000 7,823,000
Selling, General and Administrative
2,242,000 2,307,000
----------- -----------
12,711,000 10,130,000
Income from Operations 723,000 539,000
Interest Income 25,000 16,000
Interest Expense (6,000) (33,000)
----------- -----------
Income Before Provision for Income Taxes 742,000 522,000
Provision for Income Taxes
334,000 209,000
----------- -----------
Net Income $ 408,000 $ 313,000
=========== ===========
Primary and Fully Diluted Net Income per
Common Share (Note 2) $ 0.12 $ 0.09
=========== ===========
Weighted Average Number of Common Shares
Outstanding 3,492,262 3,397,737
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Page 5
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
----------------------
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1997 1996
----- -----
Revenue:
Placement Fees and Related Income $36,053,000 $29,091,000
----------- -----------
Operating Expenses:
Compensation and Other Benefits 27,290,000 21,711,000
Selling, General and Administrative
7,011,000 6,154,000
----------- -----------
34,301,000 27,865,000
----------- -----------
Income from Operations 1,752,000 1,226,000
Interest Income 55,000 42,000
Interest Expense (30,000) (161,000)
----------- -----------
Income Before Provision for Income Taxes 1,777,000 1,107,000
Provision for Income Taxes
800,000 427,000
----------- -----------
Net Income $ 977,000 $ 680,000
=========== ===========
Primary and Fully Diluted Net Income per
Common Share (Note 2) $ 0.28 $ 0.20
=========== ===========
Weighted Average Number of Common Shares
Outstanding 3,462,325 3,290,434
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Page 6
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------------------
Nine Months Ended
September 30
-------------------------
1997 1996
----- -----
Cash Flows from operating activities:
Net income $ 977,000 $ 680,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 112,000 94,000
Provision for doubtful receivables (3,000) 32,000
Deferred rent (35,000) (22,000)
Deferred loss recognized
- - - 7,000
Changes in assets and liabilities:
(Increase) in accounts receivable (2,062,000) (1,042,000)
Decrease in prepaid expenses and other
current assets 89,000 26,000
(Increase) in security deposits and
other assets (34,000) 45,000
Increase in liabilities
568,000 954,000
----------- -----------
Net Cash (Used In) Provided by Operating
Activities (388,000) 774,000
----------- -----------
Cash Flows (Used In) Investing Activities:
Purchases of Fixed Assets (246,000) (64,000)
----------- -----------
Condensed Consolidated Statement of Cash Flows
Continued On Next Page.
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Page 7
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------------------
Nine Months Ended
September 30
-------------------------
1997 1996
----- -----
Cash flows (used in) financing activities:
Proceeds from (payments on)
short term and long-term debt - - - (656,000)
Proceeds from exercise of
options 17,000 10,000
Repayment of capital leases (50,000) (55,000)
----------- -----------
Net cash (used in) financing
activities (33,000) (701,000)
Net (decrease) increase in cash (667,000) 9,000
Cash at beginning of period 1,068,000 144,000
----------- -----------
CASH AT END OF PERIOD $ 401,000 $ 153,000
=========== ===========
Supplemental Cash Flows
Information:
Cash Paid During the Period For:
Interest $ 16,000 $ 154,000
----------- -----------
Income Taxes 867,000 92,000
----------- -----------
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Page 8
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
1. In the opinion of management, the accompanying unaudited condensed
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 September 30, 1997, the results
of its operations for the nine and three months ended September 30, 1997
and 1996 and changes in its cash flows for the nine months ended September
30, 1997 and 1996. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions for Form 10-Q and Article 10 of Regulation S-X and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Operating results
for the nine and three months ended September 30, 1997 are not necessarily
indicative of operating results that may be expected for the year ending
December 31, 1997. The accompanying condensed consolidated financial
statements should be read in conjunction with the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996.
2. Net income per share is computed using the weighted average number of
common shares outstanding. 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.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact
is expected to result in an increase in primary earnings per share for the
nine months ended September 30, 1997 and 1996 of $.03 and $.02
respectively, and an increase in primary earnings per share for the three
months ended September 30, 1997 and 1996 of $.01 per share. The impact of
Statement No. 128 on the calculation of fully diluted earnings per share
for these quarters is not expected to be material.
Page 9
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES
Revenues increased by approximately $2,765,000 or 26%. The increase
in the quarter ended September 30, 1997 is primarily due to the
increase in temporary staffing and placement fee revenues of 34% and
11%, respectively as compared to the corresponding period in 1996.
OPERATING EXPENSES
Operating expenses increased approximately 25% in the quarter ended
September 30, 1997 as compared to the corresponding period in 1996.
Compensation and other benefits increased approximately 34% mainly due
to increased compensation and compensation related costs associated
with the increase in revenues. Selling, general and administrative
expenses decreased 3% due to decreases in advertising, professional
fees and other costs related to maintaining the Company's branch
operations offset by additions to the sales force and commissions
related to increased revenues.
Net interest expense decreased during 1997 due mainly to a lack of
borrowings under the Company's credit facility when compared to 1996.
The effective tax rate utilized was 45% for the three months ended
September 30, 1997 as compared to 40% in the corresponding period in
1996. The lower prior year rate was attributable to an income tax
benefit resulting from a reduction in the valuation allowance for
certain deferred tax assets that became realizable.
OPERATING RESULTS
Net income for the three month period ended September 30, 1997 was
approximately $408,000 or $.12 per common share as compared to net
income of approximately $313,000 or $.09 per common share in the
quarter ended September 30, 1996. The results reflect increased
revenues partially being offset by the increase in operating expenses.
Page 10
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RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES
Revenues increased by approximately $6,962,000 or 24%. The increase
for the nine months ended June 30, 1997 is primarily due to the
increase in temporary staffing and placement fee revenues of 26% and
20% respectively as compared to the corresponding period in 1996.
OPERATING EXPENSES
Operating expenses increased approximately 23% in the nine months
ended September 30, 1997 as compared to the corresponding period in
1996. Compensation and other benefits increased approximately 26%
mainly due to increased compensation and compensation related costs
associated with the increase in revenues. Selling, general and
administrative expenses increased 14% due to additions to the sales
force and commissions related to increased revenues and advertising,
professional fees and other costs related to maintaining the Company's
branch operations.
Net interest expense decreased during 1997 due mainly to lack of
borrowings under the Company's credit facility when compared to 1996.
The effective tax rate utilized was 45% for the nine months ended
September 30, 1997 as compared to 39% in the corresponding period in
1996. The lower prior year rate was attributable to an income tax
benefit as a result of a reduction in the valuation allowance for
certain deferred tax assets that became realizable.
OPERATING RESULTS
Net income for the nine month period ended September 30, 1997 was
approximately $977,000 or $.28 per common share as compared to net
income of approximately $680,000 or $.20 per common share in the nine
months ended September 30, 1996. The results reflect increased
revenues partially being offset by the increase in operating expenses.
Page 11
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1997 was approximately $4,109,000 as
compared to $3,248,000 at December 31, 1996. Cash used in operating
activities during the nine months ended September 30, 1997 was
$388,000 primarily resulting from a cash payment of income taxes and
the investment in working capital to support the growth in revenues as
evidenced by an increase in accounts receivable. The Company has no
material commitments for capital expenditures during 1997. Cash used
in investing activities, purchase of fixed assets and financing
activities, primarily repayment of capital lease obligations, amounted
to $246,000 and $33,000, respectively. Management believes that the
Company's $6,000,000 credit facility, working capital and internally
generated funds are sufficient to support current operations and any
currently foreseeable 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
percentages of the salaries and wages of permanent and temporary
employees, which causes its fee income to increase proportionately as
salary and wages increase.
Page 12
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports:
None
Page 13
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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.
By: /S/ SEYMOUR KUGLER
--------------------------------
Seymour Kugler
Chairman of the Board
and President
By: /S/ JESSE ULEZALKA
--------------------------------
Jesse Ulezalka
Chief Financial Officer
Dated: November 11, 1997
Page 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 401,000
<SECURITIES> 344,000
<RECEIVABLES> 8,026,000
<ALLOWANCES> 106,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,814,000
<PP&E> 999,000
<DEPRECIATION> 554,000
<TOTAL-ASSETS> 9,997,000
<CURRENT-LIABILITIES> 4,705,000
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> 4,906,000
<TOTAL-LIABILITY-AND-EQUITY> 9,997,000
<SALES> 36,053,000
<TOTAL-REVENUES> 36,053,000
<CGS> 0
<TOTAL-COSTS> 27,290,000
<OTHER-EXPENSES> 7,011,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,000
<INCOME-PRETAX> 1,777,000
<INCOME-TAX> 800,000
<INCOME-CONTINUING> 977,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 977,000
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
