<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 June 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: 3,184,097 shares of Common
Stock, par value $.01 per share, outstanding on August 8, 1997.
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
INDEX
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Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements of the Registrant
are included:
Condensed Consolidated Balance Sheets - June 30, 1997
(Unaudited) and December 31, 1996 3-4
Condensed Consolidated Statements of Income (unaudited)
- Three and Six Months Ended June 30, 1997 and 1996 5-6
Condensed Consolidated Statements of Cash Flow
(unaudited) - Six Months Ended June 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 14
Item 6. Exhibits and Reports on Form 8-K 14
2
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
------------------------
PART I - FINANCIAL INFORMATION
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CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
------------------------
Item 1. FINANCIAL STATEMENTS
Assets June 30, 1997 December 31, 1996
------------- -----------------
Current Assets:
Cash and Cash Equivalents $ 437,000 $1,068,000
Accounts receivable, trade,
net 6,858,000 5,855,000
Prepaid expenses and other
current assets 295,000 238,000
Securities held available
for sale 310,000 262,000
---------- ----------
Total current assets 7,900,000 7,423,000
Fixed Assets, net 392,000 311,000
Other Assets:
Security deposits and
other assets 762,000 704,000
---------- ----------
Total $9,054,000 $8,438,000
========== ==========
Condensed Consolidated Balance Sheets
Continued On Next Page.
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
-----------------------
June 30, 1997 December 31, 1996
------------- -----------------
Current liabilities:
Accounts payable and accrued
expenses $3,855,000 $3,603,000
Capital lease obligations 27,000 54,000
Income taxes payable 317,000 518,000
----------- ------------
Total current liabilities 4,199,000 4,175,000
Deferred Rent 326,000 350,000
Long-term portion of capital
lease obligations 44,000 51,000
----------- ------------
Total liabilities 4,569,000 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 - 3,183,097
shares at June 30, 1997
and 3,177,104 shares at
December 31, 1996 32,000 32,000
Additional paid-in capital 4,419,000 4,413,000
Accumulated deficit (92,000) (661,000)
Unrealized gain on securities
held available-for-sale, net 126,000 78,000
----------- ------------
Total stockholders' equity 4,485,000 3,862,000
----------- ------------
Total liabilities and
stockholders' equity $ 9,054,000 $ 8,438,000
=========== ===========
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
-----------------------
Three Months Ended
June 30
------------------
1997 1996
---- ----
Revenue:
Placement fees and related income $11,837,000 $9,289,000
----------- ----------
Operating expenses:
Compensation and other benefits 8,824,000 6,923,000
Selling, general and administrative 2,396,000 1,988,000
----------- ----------
11,220,000 8,911,000
Income from operations 617,000 378,000
Interest income 17,000 15,000
Interest expense (9,000) (59,000)
----------- ----------
Income before provision for income
taxes 625,000 334,000
Provision for income taxes 282,000 133,000
----------- ----------
Net Income $ 343,000 $ 201,000
=========== ==========
Primary and fully
diluted net income
per common share (Note 2) $ 0.10 $ 0.06
=========== ==========
Weighted average number of common
shares outstanding 3,440,190 3,262,421
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
-----------------------
Six Months Ended
June 30
----------------
1997 1996
---- ----
Revenue:
Placement fees and related income $22,619,000 $18,422,000
----------- -----------
Operating expenses:
Compensation and other benefits 16,822,000 13,888,000
Selling, general and administrative 4,769,000 3,847,000
----------- -----------
21,591,000 17,735,000
Income from operations 1,028,000 687,000
Interest income 30,000 27,000
Interest expense (23,000) (129,000)
----------- -----------
Income before provision for income
taxes 1,035,000 585,000
Provision for income taxes 466,000 218,000
----------- -----------
Net Income $ 569,000 $ 367,000
=========== ===========
Primary and fully
diluted net income
per common share (Note 2) $ 0.17 $ 0.11
=========== ===========
Weighted average number of common
shares outstanding 3,435,418 3,176,901
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------------------
Six Months Ended
June 30
----------------
1997 1996
---- ----
Cash Flows from operating activities:
Net income $569,000 $367,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation and amortization 68,000 60,000
Provision for doubtful receivables (14,000) (3,000)
Deferred rent (24,000) (14,000)
Deferred (income) loss recognized -- (9,000)
Changes in assets and liabilities:
(Increase) in accounts receivable (989,000) (510,000)
(Increase) decrease in prepaid
expenses and other current assets (57,000) 140,000
(Increase) in security
deposits and other assets (58,000) (6,000)
Increase in liabilities 52,000 369,000
--------- ---------
Net cash (used in) provided by operating
activities (453,000) 394,000
--------- ---------
Cash flows (used in) investing
activities:
Purchases of fixed assets (149,000) (41,000)
--------- ---------
Condensed Consolidated Statement of Cash Flows
Continued On Next Page.
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
7
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
-----------------------
Six Months Ended
June 30
----------------
1997 1996
---- ----
Cash flows (used in) financing activities:
Proceeds from (payments on)
short term and long-term
debt -- (364,000)
Proceeds from exercise of
options 5,000 10,000
Repayment of capital leases (34,000) (33,000)
---------- --------
Net cash (used in) financing
activities (29,000) (387,000)
---------- --------
Net (decrease) in cash (631,000) (34,000)
Cash at beginning of period 1,068,000 144,000
---------- --------
Cash at end of period $ 437,000 $110,000
========== ========
Supplemental cash flows
information:
Cash paid during the period
for:
Interest $ 12,000 $ 49,000
---------- --------
Income taxes 667,000 18,000
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SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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 June 30, 1997, the results of
its operations for the six and three months ended June 30, 1997 and 1996
and changes in its cash flows for the six months ended June 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 six and three months ended June 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
six and three months ended June 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.
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 JUNE 30, 1997 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1996.
REVENUES
Revenues increased by approximately $2,548,000 or 27%. The increase in the
quarter ended June 30, 1997 is primarily due to the increase in temporary
staffing and placement fee revenues of 28% and 33%, respectively as compared to
the corresponding period in 1996.
OPERATING EXPENSES
Operating expenses increased approximately 26% in the quarter ended June 30,
1997 as compared to the corresponding period in 1996. Compensation and other
benefits increased approximately 27% mainly due to increased compensation and
compensation related costs associated with the increase in revenues. Selling,
general and administrative expenses increased 21% due to additions to the sales
force, commissions related to increased revenues, advertising, professional fees
and other costs related to maintaining the Company's branch operations.
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 June 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 June 30, 1997 was approximately
$343,000 or $.10 per common share as compared to net income of approximately
$201,000 or $.06 per common share in the quarter ended June 30, 1996. The
results reflect increased revenues partially being offset by the increase in
operating expenses.
10
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RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1996.
REVENUES
Revenues increased by approximately $4,197,000 or 23%. The increase for the six
months ended June 30, 1997 is primarily due to the increase in temporary
staffing and placement fee revenues of 22% and 26% respectively as compared to
the corresponding period in 1996.
OPERATING EXPENSES
Operating expenses increased approximately 22% in the six months ended June 30,
1997 as compared to the corresponding period in 1996. Compensation and other
benefits increased approximately 21% mainly due to increased compensation and
compensation related costs associated with the increase in revenues. Selling,
general and administrative expenses increased 24% due to additions to the sales
force, commissions and related to increased revenues, 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 six months ended June 30, 1997
as compared to 37% 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 six month period ended June 30, 1997 was approximately
$569,000 or $.17 per common share as compared to net income of approximately
$367,000 or $.11 per common share in the quarter ended June 30, 1996. The
results reflect increased revenues partially being offset by the increase in
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1997 was approximately $3,701,000 as compared to
$3,248,000 at December 31, 1996. Cash used in operating activities during the
six months ended June 30, 1997 was $453,000 primarily resulting from a cash
payment of income taxes and 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,
11
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amounted to $149,000 and $29,000, 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.
12
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
-----------------------
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
Pursuant to a settlement agreement dated June 17, 1997 between the Company
and Susan Athwal, the litigation by Ms. Athwal against the Company and its
Chairman in the United States District Court, Southern District of New York, was
settled without the Company admitting fault or liability and in compromise of
plaintiff's claims. The terms of the settlement are confidential and will not
have a material adverse effect on the Company. The claims against the Chairman
were discontinued.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's Annual Meeting of Stockholders was held on May 22, 1997 (the
"Meeting"). At the Meeting, the Company's stockholders voted upon and approved
the election of one director and the ratification of Ernst & Young, LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1997.
The holders of the Company's Common Stock voted on all matters submitted
for a vote at the Meeting. The number of votes cast for, against or withheld,
as well as the number of abstentions, as to each such matter is set forth below:
13
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Election of Directors
- ---------------------
For Withheld
--- --------
Reuben Abrams 2,936,867 9,000
For Against Abstain
--- ------- -------
Ratification of 2,942,967 1,500 1,400
Appointment of Auditors
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
27. Financial Data Schedules
(b) REPORTS:
None
14
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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: August 12, 1997
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 437,000
<SECURITIES> 310,000
<RECEIVABLES> 6,953,000
<ALLOWANCES> 95,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,900,000
<PP&E> 938,000
<DEPRECIATION> 546,000
<TOTAL-ASSETS> 9,054,000
<CURRENT-LIABILITIES> 4,199,000
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> 4,453,000
<TOTAL-LIABILITY-AND-EQUITY> 9,054,000
<SALES> 22,619,000
<TOTAL-REVENUES> 22,619,000
<CGS> 0
<TOTAL-COSTS> 16,822,000
<OTHER-EXPENSES> 4,769,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,000
<INCOME-PRETAX> 1,035,000
<INCOME-TAX> 466,000
<INCOME-CONTINUING> 569,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 569,000
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
