U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the transition period ________________________ to _________________________
Commission File No. 1-9629
WINSTON RESOURCES, INC.
(Name of small business issuer in its charter)
Delaware 13-3134278
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
535 Fifth Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (212) 557-5000
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, $.01 par value American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
On March 20, 1998, (i) the aggregate market value of Common Stock held
by non-affiliates of the registrant was approximately $9,034,566 and (ii) there
were 3,219,620 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(i) Part III, Definitive Proxy Statement of the registrant to be filed
with the Commission on or before April 30, 1998.
-1-
<PAGE>
PART I
Item 1. Business
Winston Resources, Inc., a Delaware corporation (the
"Company"), is the successor to a personnel recruitment and placement service
business founded in 1967. The Company and its subsidiaries (collectively, the
"Company" or the "Winston Companies") together provide a wide range of personnel
supply services to businesses, institutions and governmental agencies, through
their own offices and through offices operated by independent franchisees under
licenses from the Company. The Company also provides recruitment advertising
services to businesses and other institutions.
Through its own offices, the Company recruits and places
employees in entry-to-highlevel permanent salaried positions in the New York
City metropolitan area (consisting of New York City, Nassau, Suffolk and
Westchester Counties, New York and parts of northern New Jersey and southern
Connecticut) and in the Fort Lauderdale area of Florida. Such services are
provided on a contingent fee basis under which the Company collects a fee only
if it successfully places a job candidate with a client. Through its Fisher-Todd
Associates division, the Company also provides services for business and
industry clients across the United States, recruiting upper level executives on
a retainer fee basis and on a contingency fee basis.
The Company also supplies temporary employees with
professional, secretarial, clerical, medical, allied health, nursing, light
industrial, information technology and word processing skills, to business
clients and governmental agencies in the New York City, Long Island and New
Jersey areas, as well as in Florida's Fort Lauderdale area. Temporary employees
perform services at the client's premises under the client's supervision and
direction. For each temporary employee, the client is charged an hourly rate
that includes the employee's direct labor rate, associated labor costs (such as
payroll taxes and insurance) and a mark-up to cover the Company's overhead and
profit.
In addition to services furnished through its own offices, the
Company licenses independent franchisees to provide personnel services under the
trade names and service marks owned by the Company. Franchisees of the Company
provide permanent placement and executive search services under the name "Roth
Young", permanent personnel recruitment and placement services under the names
"Division 10", "Alpha" and "Winston Personnel" and temporary office support
personnel under the names "Division 10 Temps" and "Alpha Temps" in a total of
seventeen cities and towns across the United States.
The Company does not have any client which accounts for more
than ten percent of its net revenues.
-2-
<PAGE>
Permanent Recruitment and Placement Services
The Company provides recruitment and placement services for
entry-level to high-level professional and management positions at all salary
levels on a contingent fee basis.
The Company employs placement counselors who specialize in
recruiting and placing job candidates in particular industries or professions.
The Company provides permanent placement services in all major industries,
however, the Company primarily recruits and places personnel with skills in
accounting, finance, office support, information technology and health care
services and recruits and places executives and professionals with skills in
banking, insurance, publishing, real estate, securities, human resources,
marketing and market research, management services, corporate facilities and
architecture, as well as lawyers and paralegals.
The Company creates and maintains a data-base of qualified job
candidates based on interviewing and screening procedures. Upon receiving a job
order from a client, the Company attempts to match the specifications required
by the client with qualified candidates from its data base and also recruits
additional qualified candidates. It then arranges interviews between the client
and qualified candidates. If the Company successfully places a candidate, it
charges a fee as a percentage of the candidate's estimated annual salary for the
first year of his or her employment. The fees are always paid by the employer.
During the year ended December 31, 1997, the Company placed
applicants in permanent positions with approximately 500 clients. Approximately
fifty percent of the Company's contingent fee permanent placement clients during
that year were repeat customers.
Through its Fisher-Todd Associates (executive search)
division, the Company specializes in recruiting executives to meet specific
requirements of clients on both a contingent and retainer basis. Fisher-Todd
Associates specializes in recruiting candidates for upper level executive
positions, generally at salaries in excess of $65,000 per year. The division
employs recruiting specialists who work closely with each client to define the
requirements of the position and establish candidate specifications. The Company
then contacts appropriate candidates who are identified through extensive
research, networking, data base searches and, where required, advertisements.
Such candidates are screened through interviews and other procedures and those
most qualified are referred to the clients. The Company assists the client in
evaluating each candidate, in determining an appropriate compensation package
and, in some cases, negotiating the final agreement.
Temporary Staffing Services
The Company furnishes to businesses, on a temporary basis, the
services of individuals with accounting, legal and paralegal, banking,
secretarial, clerical, office support, word processing, informational
technology, health care, light industrial and other professional skills.
Temporary staffing assignments usually last from one day to several months, and
often longer. Such assignments are generally made to fill vacancies in a
client's permanent work force or to supplement the client's normal
-3-
<PAGE>
work force to meet peak work loads, handle special projects or provide special
expertise. In all cases, the work is performed at the client's facilities under
the client's supervision and direction. The client is charged an hourly rate
comprised of the direct labor rate of the personnel provided, associated labor
costs (such as payroll taxes and insurance) and a mark-up to cover the Company's
overhead and profit. All employees on temporary assignment to the Company's
clients are on the Company's payroll only during the periods of their
assignments. Clients that hire a temporary employee on a permanent basis pay a
fee to the Company.
By using the Company's temporary staffing services, clients
are able to shift to the Company the cost and inconvenience associated with the
employment of temporary personnel, including advertising, interviewing,
screening, testing, record keeping, payroll taxes and insurance. The Company is
able to absorb such costs more effectively than its clients because its
employees, once recruited, are generally assigned to a succession of temporary
positions with different clients.
The Company screens its temporary personnel through personal
interviews, testing, certificate and licensing verification and other procedures
and maintains continuously updated records on job performance. These procedures
enable it to classify its temporary personnel by preference for job location,
hours of employment and work environment and by suitability for particular types
of assignments. Persons who do temporary work usually are registered with more
than one temporary help firm at any one time.
During 1997, the Company provided the services of temporary
employees to approximately 700 clients each week. The Company estimates that a
majority of the clients to whom it supplied temporary staffing during 1997 were
repeat customers.
Franchise Operations
The Company also has eighteen franchised offices which provide
permanent placement and executive search services under the name "Roth Young",
permanent recruitment and placement services under the names "Division 10",
"Alpha" and "Winston Personnel", and temporary office support personnel under
the names "Division 10 Temps" and "Alpha Temps".
At March 20, 1998, there were fifteen Roth Young, one Division
10, one Division 10 Temps, one Alpha and one Winston franchise in a total of
seventeen cities in the United States.
All franchisees operate their businesses autonomously, subject
to the requirements of their respective franchise agreements. The agreements
provide for monthly payments of royalties to the Company based on the
franchise's cash collections and generally cover a specified term renewable at
the franchisee's option. Each franchisee pays the Company royalties for the
license of the Company's know-how and tradenames. The Company is not currently
actively engaged in the marketing of new franchises and has no current plans to
do so.
Franchisees operating under Roth Young licenses generally
provide permanent placement and executive search services, principally to the
food, drug, hospitality, retail and health care industries, although licensees
are encouraged to expand their services to other industries.
-4-
<PAGE>
The Company believes that its relationship with its
independent franchisees generally is satisfactory.
Recruitment Advertising
The Company's recruitment advertising division places
recruitment advertisements in publications on behalf of the Company, the
Company's clients and other third parties. The Company believes that the
services offered by this division enhances its competitive position in the
temporary staffing and permanent placement markets by broadening the scope of
the services it offers to clients. For the year ended December 31, 1997, the
Company served approximately 200 clients through this division.
Marketing
The Company's marketing efforts for its temporary staffing
services and for most permanent recruitment and placement services are largely
concentrated within the areas contiguous to its offices. The services of the
Company's executive search division are marketed nationally. The Company relies
primarily on telephone and direct visit solicitation to existing and prospective
clients and, to a lesser extent, on direct mail, and advertising.
Recruiting
The Company recruits qualified applicants for permanent
positions and temporary employees primarily through direct recruitment,
referrals from other applicants and newspaper advertising.
Competition
The staffing industry is highly competitive, with clients
generally using more than one company to satisfy their personnel requirements.
In the permanent recruitment and placement market, the Company and its
franchisees compete with numerous local and regional firms and, to a lesser
extent, a small number of national firms. In the temporary staffing industry
there is intense competition from national temporary staffing service firms as
well as from local and regional firms. All of the national and many of the
regional firms have substantially greater resources than the Company.
The principal competitive factors in the personnel services
industry are the availability and quality of permanent job applicants and
temporary staff, the level and integrity of the service provided by individual
offices and, to varying degrees, the prices of such services. The Company
believes that its ability to offer a fully integrated personnel service,
providing temporary help, permanent recruitment and placement services,
executive recruitment and recruitment advertising, enhances its competitive
position in those markets.
-5-
<PAGE>
Regulation
The Company's operations are, in some states, subject to state
laws and regulations which may require employment agencies and/or temporary help
services to be licensed. The principal requirements of such laws and regulations
are satisfactory prior experience and good moral character. The Company has
obtained all necessary licenses and registrations in the states where it
conducts business.
Trademarks and Service Marks
The Company owns a number of trademarks, service marks and
tradenames, including the names, "Winston", "Winston Resources", "Winston
Personnel" (with its logo consisting of a sunburst design and stylized letter
W), "Win-Temps", "Roth Young" and "Division 10", which are registered with the
U.S. Patent and Trademark Office.
Employees
At December 31, 1997, the Company employed approximately 106
permanent employees, including 35 placement counsellors for its permanent
placement services, in its headquarters and branch offices, not including
temporary employees on assignment to clients. The Company is responsible for all
workers' compensation and disability insurance, state and Federal unemployment
taxes, social security taxes, and fringe benefits for its temporary employees.
As a service business, the Company depends to a material degree on its ability
to hire and retain skilled and motivated personnel.
Item 2. Properties
The Company leases a total of approximately 19,000 square feet
in an office building at 535 Fifth Avenue, New York, New York. The lease was
entered into in August 1990 and renegotiated in 1992, 1993 and 1997, and expires
in 2003. The Company also leases office space in Rutherford, Edison and
Parsippany, New Jersey, in Westbury, New York and in Fort Lauderdale, Florida,
under leases expiring between 1997 and 2000.
Item 3. Legal Proceedings
During 1997, the Company settled an action commenced in 1995
by Susan Athwal, a former employee of the Company. The settlement had no
material impact on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended December 31, 1997.
-6-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company is traded principally on the
American Stock Exchange (ticker symbol "WRS"). The following table shows, for
each quarter of the Company's last two fiscal years and through March 20, 1998,
the high and low sales prices of the common stock of the Company as reported on
the American Stock Exchange.
Price Range
High Low
1998
First Quarter $ 6 3/8 $ 4 1/2
1997
First Quarter $ 4 1/4 $ 3 1/8
Second Quarter 4 3 1/8
Third Quarter 6 3/8 3 3/8
Fourth Quarter 6 3/4 5 1/4
1996
First Quarter $ 1 7/16 $ 1 1/8
Second Quarter 6 1/4 1 1/8
Third Quarter 3 5/16 2 3/4
Fourth Quarter 3 5/8 3
The Company had 126 holders of record of its common stock on
March 20, 1998.
The Company has never paid a cash dividend on the Common Stock
and anticipates that for the foreseeable future, earnings will be retained for
use in its business.
-7-
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997 1996 1995 1994 1993
Income Statement Data:
(In thousands, except for per share data and number of shares)
Combined sales:
By Company offices $48,986 $39,247 $30,657 $23,822 $17,863
By franchise 2,586 2,957 4,175 6,403 6,128
Total combined sales 51,572 42,204 34,832 30,225 23,991
Net revenue* 49,199 39,390 30,989 24,297 18,282
Income (loss) from operations 2,547 1,585 (401)(1) 865 329
Net income (loss) 1,444 1,138 (432)(1) 636 225
Basic earnings (loss) per common share .45 .37 (.15) .22 .08
Diluted earnings (loss) per share .41 .34 (.15) .20 .07
Weighted average shares - basic 3,191,825 3,065,719 2,917,662 2,913,886 2,907,071
Weighted average shares - diluted 3,488,180 3,323,679 2,917,662 3,152,530 3,045,638
*Represents sales by Company, income from franchises and other income
(1) Includes one-time write off of restrictive covenant costs and related assets associated with franchise operations of
$1.1 million
Year ended December 31,
1997 1996 1995 1994 1993
Balance Sheet Data:
(In thousands, except for per share data)
Working capital $4,696 $3,248 3,028 $2,201 $1,101
Total assets 9,451 8,438 7,146 7,123 5,393
Long-term debt 35 51 606 579 -
Stockholders' equity 5,404 3,862 2,654 3,055 2,419
Stockholders' equity per share 1.68 1.22 .91 1.05 .83
</TABLE>
-8-
<PAGE>
Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Quarter Quarter Quarter
ended ended ended ended
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
Revenue $10,782,000 $11,837,000 $13,434,000 $13,146,000
Operating expenses 10,371,000 11,220,000 12,711,000 12,350,000
Net income (loss) 226,000 343,000 408,000 467,000
Basic earnings (loss) per share 0.07 0.11 0.13 0.15
Diluted earnings (loss) per share 0.07 0.10 0.12 0.13
Quarter Quarter Quarter Quarter
ended ended ended ended
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
Revenue $9,133,000 $9,289,000 $10,669,000 $10,299,000
Operating expenses 8,824,000 8,911,000 10,130,000 9,940,000
Net income (loss) 166,000 201,000 313,000 458,000
Basic earnings (loss) per share 0.06 0.07 0.10 0.14
Diluted earnings (loss) per share 0.05 0.06 0.09 0.14
</TABLE>
-9-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
1997 Compared to 1996
Revenues increased by approximately $9,809,000 or 25% to
$49,199,000 as compared to $39,390,000 in 1996. The increase is primarily due to
the increase in temporary staffing revenues of 31% and permanent placement
revenues of 14%, as compared to the corresponding period in 1996.
Operating expenses increased approximately 23% as compared to 1996.
Compensation and other benefits increased approximately 28% mainly due to
increased compensation and compensation related costs associated with the
increase in revenues. Selling, general and administrative expenses increased 6%
due to additions to the sales force and commissions related to increased
revenues and advertising, and other costs related to maintaining the Company's
branch operations.
Interest expense decreased during 1997 due mainly to the lower
average balance on borrowings under the Company's credit facility when
compared to 1996.
The effective tax rate utilized was 44% for the twelve month period ended
December 31, 1997 as compared to 22% 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 were determined to be
realizable.
Net income for the twelve month period ended December 31, 1997 was
approximately $1,444,000 or $.45 basic earnings per common share and $.41
diluted earnings per common share as compared to a net income of approximately
$1,138,000 or $.37 basic earnings per common share and $.34 diluted earnings per
common share for the prior year. The increase in net income and earnings per
share is primarily due to increased revenues, partially offset by the related
increases in operating expenses and increase in effective tax rate.
1996 Compared to 1995
Revenues increased by approximately $8,401,000 or 27% to $39,390,000 as
compared to $30,989,000 in 1995. The increase is primarily due to the increase
in temporary staffing revenues of 32% and recruitment advertising revenues of
42%, as compared to 1995.
Operating expenses increased approximately 25% as compared to 1995.
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 and commissions related to increased
revenues and advertising and other costs related to maintaining the Company's
branch operations.
-10-
<PAGE>
Interest expense decreased during 1996 due mainly to the lower
average balance on borrowings under its credit facility when compared to 1995.
Net income for the twelve month period ended December 31, 1996 was
approximately $1,138,000 or $.37 basic earnings per common share and $.34
diluted earnings per common share as compared to a net loss of approximately
$432,000 or ($.15) basic and diluted loss per common share for the prior year.
The increase in net income and earnings per share is due to increased revenues,
partially offset by the related increases in operating and interest expenses
and, an income tax benefit as a result of a reduction in the valuation allowance
for a portion of the deferred tax asset that was determined to be realizable.
Additionally in 1995, the Company considered the value of its franchise
intangibles and related assets and determined that an impairment had occurred
with respect to the carrying amounts of those assets. In connection therewith,
during 1995 the Company wrote-off the restrictive covenant costs and related
assets associated with its franchise activities in the amount of $1,122,000.
Liquidity and Capital Resources
Cash used in operating activities was $190,000 in 1997 as a result
of an increase in accounts receivable due to the significant growth in revenues.
In 1996, cash generated from operating activities was $2,242,000. Working
capital on December 31, 1997 was approximately $4,696,000 as compared to
$3,248,000 on December 31, 1996. Cash used in investing and financing activities
in 1997 was $401,000 and $32,000, respectively. The Company has no material
commitments for capital expenditures during 1998.
The Company has a secured credit facility providing for short-term
advances to a maximum of $6,000,000 based on up to 80% of eligible accounts
receivable, as defined.
Management believes that the cash available from the Company's
credit facility and cash from its operations will be sufficient to support
current operations and any currently foreseeable increase in activities.
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 income to increase proportionately as salary and wages
increase.
Impact of Year 2000
The Company has completed a preliminary assessment to determine if
its computer systems will function properly with respect to dates in the year
2000 and thereafter. Based on that assessment the Company believes that its
computer systems are year 2000 compliant.
-11-
<PAGE>
Forward-Looking Statements
This report contains forward-looking statements and information
that is based on management's beliefs and assumptions, as well as information
currently available to management. Such beliefs and assumptions are based on,
among other things, the Company's operating and financial performance over
recent years and its expectations about its business for the current fiscal
year. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such statements are subject to certain
risks, uncertainties and assumptions, including, but not limited to, the
possibility that (a) prevailing economic conditions may significantly
deteriorate, thereby reducing the demand for the Company's services, (b) the
Company might experience a significant deterioration in its collection of
accounts receivable and (c) regulatory or legal changes might affect an
employer's decision to utilize the Company's services, although none of such
risks is anticipated at the present time. Should one or more of these or any
other risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
Item 8. Financial Statements and Supplementary Data
See Item 14 for a list of Winston Resources, Inc. and Subsidiaries
Financial Statements and Schedules filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-12-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by reference
to the material under the caption "ELECTION OF DIRECTORS" in the Company's
definitive Proxy Statement to be filed on or before April 30, 1998 (the "1998
Proxy Statement").
Item 11. Executive Compensation
The information required by this term is incorporated herein by
reference to the material under the caption "EXECUTIVE COMPENSATION" in the 1998
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the material under the caption "ELECTION OF DIRECTORS" in the 1998
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the material under the caption "ELECTION OF DIRECTORS - Certain
Transactions" in the 1998 Proxy Statement.
-13-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1,2 The information required by this subsection of this Item is
presented in the index to the Financial Statements on Page F-1
(a)3 Exhibits
Exhibit No. Description
*3.1.1 Restated Certificate of Incorporation of the Company, as filed
with the Secretary of State of Delaware on April 6, 1987
[Registration Statement No. 33-14913, Exhibit 3.1]
*3.1.2 Agreement and Plan of Merger dated as of April 15, 1987,
between Winston Resources, Inc. (New York) and the Company, as
filed with the Secretary of State of Delaware on April 20,
1987 [Registration Statement No. 33-14813, Exhibit 3.2]
*3.1.3 Certificate of Amendment of Restated Certificate of
Incorporation of the Company, as filed with the Secretary of
State of Delaware on June 11, 1993 [Form 10-KSB (1993)]
*3.1.4 Composite Copy of Restated Certificate of Incorporation of the
Company, as amended [Form 10-K (1987), Exhibit 3.3]
*3.2 By-laws of the Company, as amended June 11, 1993 [Form 10-KSB
(1993)]
* 9 Stockholders' Voting Agreement, dated June 8, 1987, among
Seymour Kugler, Alec Peters and Melvin Winograd [Registration
Statement No. 33-14913, Exhibit 9]
10.1 Amended and Restated Employment Agreement, dated January 1
1997, between the Company and Seymour Kugler
*10.2 Supplemental Excess Profit Sharing Plan, dated December 12,
1984 Registration Statement No. 33-14913, Exhibit 10.3]
*10.3 Incentive Program of the Company [Registration Statement on
Form S-8 No. 33-37476, Exhibit 4]
- --------------------
* Incorporated by reference and not filed herewith.
-14-
<PAGE>
Exhibit No. Description
*10.4 Winston Resources, Inc. 1996 Stock Plan [1996 Proxy Statement,
Exhibit A]
*10.5 Agreement of Lease, dated as of August 8, 1990 (the "Lease"),
between Nineteen New York Properties Limited Partnership,
and the Company, as tenant [Form 10-K (1990), Exhibit 10.11]
*10.6 First Amendment of Lease dated as of March 1, 1992, between
Nineteen New York Properties Limited Partnership and the
Company [Form 10-KSB (1992), Exhibit 10.6]
*10.7 Second Amendment of Lease dated as of January 29, 1993, between
Nineteen New York Properties Limited Partnership and the
Company [Form 10-KSB (1992), Exhibit 10.7]
*10.8 Third Amendment of Lease dated as of February 19, 1993, between
Nineteen New York Properties Limited artnership nd the Company
[Form 10-KSB (1992), Exhibit 10.8]
10.9 Fifth Amendment of Lease dated as of March 14, 1997 between 535
Fifth Avenue LLC (the successor in interest to Nineteen New
York Properties Limited Partnership) and the Company,as tenant
10.10 Secured Line of Credit Agreement dated November 4, 1996 between
Winston Resources, Inc. and The Bank of New York
10.11 Promissory Note dated November 26, 1996 made by Winston
Resources, Inc. in favor of The Bank of New York
10.12 Security Agreement dated as of November 26, 1996 by and among
Winston Resources, Inc., WIN-PAY, Inc., Winston Professional
Staffing, Inc., Winston Cosmopolitan, Inc., Roth Young Personnel
Services, Inc., Winston Personnel of Boca Raton, Inc., Winston
Personnel Inc. of New Jersey, Winston Staffing Services, Inc.
and The Bank of New York
10.13 Extension by The Bank of New York of term of Line of Credit
through October 30, 1998
- --------------------
* Incorporated by reference and not filed herewith.
-15-
<PAGE>
Exhibit No. Description
22 Subsidiaries of the Company:
Delta 10, Inc.
(a New Jersey corporation)
Winston Personnel of Boca Raton, Inc.
(a Florida corporation)
Winston Personnel, Inc. of New Jersey
(a New Jersey corporation)
Winston Professional Staffing, Inc.
(a New Jersey corporation)
Winston Staffing Services, Inc.
(a New York corporation)
WIN-PAY, Inc.
(a New York corporation)
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Richard A. Eisner & Company, LLP, independent
auditors
27, 27.1 Financial Data Schedules
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarters ended December 31, 1997 or March 31,
1998.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 20, 1998
WINSTON RESOURCES, INC.
By: /s/ Seymour Kugler
Seymour Kugler, Chairman of
the Board and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
Signature
/s/ Seymour Kugler Chairman of the Board and March 20, 1998
Seymour Kugler President; Principal Executive
Officer; Director
/s/ Jesse Ulezalka Chief Financial Officer March 20, 1998
Jesse Ulezalka
/s/ Reuben W. Abrams Director March 20, 1998
Reuben W. Abrams
/s/ Martin Fischer Director March 20, 1998
Martin Fischer
/s/ Alan E. Wolf Director March 20, 1998
Alan E. Wolf
/s/ Martin Wolfson Director March 20, 1998
Martin Wolfson
/s/ Gregg Kugler Director March 20, 1998
Gregg Kugler
/s/ Martin J. Simon Director March 20, 1998
Martin J. Simon
-17-
<PAGE>
Form 10-K--Item 14 (a) (1) and (2)
Winston Resources, Inc. and Subsidiaries
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Winston Resources, Inc. and
Subsidiaries are included in Item 8:
Report of Independent Auditors--Ernst & Young LLP F-2
Report of Independent Auditors--Richard A. Eisner & Company, LLP F-3
Consolidated Balance Sheets--December 31, 1997 and 1996 F-4
Consolidated Statements of Operations--Years Ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity--Years Ended
December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows--Years Ended
December 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
The following consolidated financial statement schedule of Winston Resources,
Inc. and Subsidiaries is included in Item 14(a)(2):
Schedule II - Valuation and Qualifying Accounts F-19
All other schedules for which provision is made in the applicable regulation of
the securities and exchange commission are not required under the related
instruction or are inapplicable and, therefore, have been omitted.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Winston Resources, Inc. and Subsidiaries
We have audited the balance sheets of Winston Resources, Inc.
and Subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. Our audits also included the financial statement
schedule for the years ended December 31, 1997 and 1996 listed in the index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Winston Resources Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein for 1996 and 1997.
ERNST & YOUNG LLP
New York, New York
February 27, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Winston Resources, Inc.
New York, New York
We have audited the consolidated statements of operations,
stockholders' equity and cash flows of Winston Resources, Inc. and subsidiaries
for the year ended December 31, 1995. Our audit also included the financial
statement schedule for the year ended December 31, 1995 listed in the index at
Item 14(a). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the presentation of pro forma
net (loss), pro forma net (loss) per share and information relating to the fair
value of stock options as discussed in Note 9 to the financial statements for
the year ended December 31, 1995 which was not required to be disclosed in
accordance with Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation."
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
enumerated above present fairly, in all material respects, the results of
operations and cash flows of Winston Resources Inc. and subsidiaries for the
year ended December 31, 1995 in conformity with generally accepted accounting
principles as then constituted. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein for 1995.
Richard A. Eisner & Company, LLP
New York, New York
March 11, 1996
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31
1997 1996
Assets
Current assets:
Cash and cash equivalents $ 445,000 $1,068,000
Accounts receivable--trade, less allowances for
doubtful accounts of 100,000 and $109,000 7,341,000 5,855,000
Prepaid expenses and other current assets 227,000 238,000
Securities available-for-sale 392,000 262,000
Total current assets 8,405,000 7,423,000
Property and equipment, net 540,000 311,000
Deferred income taxes 185,000 460,000
Security deposits and other assets 321,000 244,000
Total assets $ 9,451,000 $8,438,000
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 3,668,000 $3,603,000
Capital lease obligations 16,000 54,000
Income taxes payable 25,000 518,000
Total current liabilities 3,709,000 4,175,000
Deferred rent 303,000 350,000
Long-term portion of capital lease obligations 35,000 51,000
Total liabilities 4,047,000 4,576,000
Commitments and contingencies
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
3,215,120 shares (3,177,104 in 1996) 32,000 32,000
Additional paid-in capital 4,435,000 4,413,000
Retained earnings (accumulated deficit) 783,000 (661,000)
Unrealized gain on securities available-for-sale, net 154,000 78,000
Total stockholders' equity 5,404,000 3,862,000
Total liabilities and stockholders' equity $ 9,451,000 $8,438,000
See accompanying notes.
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended December 31
1997 1996 1995
Revenue:
Placement fees and related income $49,199,000 $39,390,000 $30,989,000
Operating expenses:
Compensation and other benefits 37,735,000 29,414,000 23,204,000
Selling, general and administrative 8,917,000 8,391,000 6,925,000
Amortization of intangibles - - 139,000
46,652,000 37,805,000 30,268,000
Write-off of restrictive covenant
costs and related assets associated
with franchise activities - - 1,122,000
Income (loss) from operations 2,547,000 1,585,000 (401,000)
Interest expense (36,000) (187,000) (248,000)
Interest and other income 69,000 52,000 217,000
33,000 (135,000) (31,000)
Income (loss) before provision for
income taxes 2,580,000 1,450,000 (432,000)
Provision for income taxes 1,136,000 312,000 -
Net income (loss) $1,444,000 $ 1,138,000 $ (432,000)
Basic earnings (loss) per share $.45 $.37 (.15)
Diluted earnings (loss) per share $.41 $.34 $(.15)
See accompanying notes.
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Retained Unrealized
$.01 Par Value Additional Earnings Gain on
Number Paid-in (Accumulated Securities
of Shares Amount Capital Deficit) for Sale Total
Balance--December 31, 1994 2,915,800 $29,000 $4,393,000 $(1,367,000) $ - $3,055,000
Exercise of common stock options 5,033 - 3,000 - - 3,000
Net loss - - - (432,000) - (432,000)
Unrealized gain on securities
available-for-sale, net - - - - 28,000 28,000
Balance--December 31, 1995 2,920,833 29,000 4,396,000 (1,799,000) 28,000 2,654,000
Exercise of common stock options 273,060 3,000 115,000 - - 118,000
Net income - - - 1,138,000 - 1,138,000
Retirement of treasury stock (16,789) - (98,000) - - (98,000)
Unrealized gain on securities
available-for-sale, net - - - - 50,000 50,000
Balance--December 31, 1996 3,177,104 32,000 4,413,000 (661,000) 78,000 3,862,000
Exercise of common stock options 38,016 - 22,000 - - 22,000
Net income - - - 1,444,000 - 1,444,000
Unrealized gain on securities
available-for-sale, net - - - - 76,000 76,000
Balance--December 31, 1997 3,215,120 $ 32,000 $ 4,435,000 $ 783,000 $154,000 $5,404,000
</TABLE>
See accompanying notes.
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
1997 1996 1995
Cash flows from operating activities
Net income (loss) $ 1,444,000 $1,138,000 $ (432,000)
Adjustments to reconcile net income
(loss) to net cash (used in)\
provided by operating activities:
Depreciation and amortization 172,000 129,000 269,000
Deferred rent (47,000) (29,000) (19,000)
Deferred loss recognized - - 60,000
Write-off of restrictive covenant
costs and related assets - - 1,122,000
Receipt of marketable securities - - (163,000)
Deferred tax expense (benefit) 224,000 (349,000) (111,000)
Changes in assets and liabilities:
Accounts receivable (1,486,000) (39,000) (1,180,000)
Prepaid expenses and other
current assets 11,000 66,000 (154,000)
Other assets (80,000) (38,000) 276,000
Accounts payable, accrued expenses
and income taxes payable (428,000) 1,364,000 299,000
Net cash (used in) provided by
operating activities (190,000) 2,242,000 (33,000)
Cash flows from investing activities
Purchases of property and equipment (401,000) (87,000) (70,000)
Cash flows from financing activities
Repayment on credit facility debt - (1,182,000) (23,000)
Proceeds from exercise of options 22,000 20,000 3,000
Repayment of capital leases (54,000) (69,000) (26,000)
Net cash used in financing activities (32,000) (1,231,000) (46,000)
Net (decrease) increase in cash and
cash equivalents (623,000) 924,000 (149,000)
Cash and cash equivalents--beginning
of year 1,068,000 144,000 293,000
Cash and cash equivalents--end of
year $ 445,000 $1,068,000 $ 144,000
Supplemental disclosures of cash
flow information
Cash payments for interest $ 36,000 $ 176,000 $ 255,000
Cash payments for income taxes 1,405,000 128,000 219,000
Supplemental disclosures of noncash
investing and financing activities
Capitalization of equipment pursuant
to lease obligations - - 83,000
Retirement of treasury stock - 98,000 -
See accompanying notes.
<PAGE>
1. Principal Business Activity and Summary of Significant Accounting Policies
Business Activity
Winston Resources, Inc. and Subsidiaries (the "Company") provide a wide
variety of temporary staffing specialties, permanent placement services,
executive search recruitment, and recruitment advertising to the business
community.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Winston Resources, Inc. and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
Permanent placement revenue is recognized when a candidate is accepted for
employment. Provisions are made for estimated losses in realization (principally
due to applicants not remaining in employment for the guaranteed period).
Temporary placement revenue is recognized when the temporary personnel provide
the services. Nonrefundable retainer revenue is recognized according to the
terms of the search contract.
Cash and Cash Equivalents/ Credit Concentration
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Approximately 91% and 98%
of cash and cash equivalents at December 31, 1997 and 1996, respectively, was on
deposit at one financial institution.
Depreciation and Amortization
Depreciation and amortization of property and equipment and intangible assets
are provided on the straight-line and declining balance methods over the
estimated useful lives of the assets.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
Advertising Costs
The Company expenses advertising costs upon the first showing of the
advertisements. Advertising expenses for the years ended December 31, 1997, 1996
and 1995 totaled approximately $871,000, $711,000 and $548,000, respectively.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
Securities that could potentially dilute basic earnings per share in the future
in the computation of diluted earnings er share are indicated in Note 9. Such
potential common shares, if included, will be anti-dilutive for 1995.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Securities Available-for-Sale
Investments, which consist of common stocks, are stated at fair value as
determined by quoted market price. The Company has classified its securities as
investments available-for-sale pursuant to Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, any unrealized gain or loss on the investments, net of
deferred taxes thereon, is recorded as a separate component of equity.
<PAGE>
2. Write-off of Franchise Intangibles and Related Assets
Management periodically evaluates the carrying amount of its long-term assets by
estimating the future cash flows against the carrying value of these assets. In
connection therewith, during the fourth quarter of 1995, the Company wrote-off
all intangible assets associated with the purchase of franchises and certain
related assets (approximately $1,122,000).
3. Property and Equipment
Property and equipment consisted of the following:
December 31 Estimated
1997 1996 Useful Life
Furniture, fixtures and equipment $ 804,000 $857,000 3 to 7 years
Leasehold improvements 349,000 309,000 Life of lease
1,153,000 1,166,000
Less accumulated depreciation 613,000 855,000
$ 540,000 $311,000
Included in property and equipment at December 31, 1997 are assets recorded
under capital leases with a cost of approximately $216,000 and accumulated
amortization of approximately $176,000. Amortization of assets recorded under
capital leases is included with depreciation expense.
4. Financing Arrangements
a. Credit Facility
The Company has a secured credit facility providing for short-term advances
to a maximum of $6,000,000, based on up to 80% of eligible accounts
receivable, as defined. The Company pays interest on advances at the bank's
alternate base rate, as defined, or at LIBOR plus 2.5% (8.5% at December
31, 1997). The credit facility is collateralized by the accounts receivable
of the Company and expires on October 31, 1998. Maximum borrowings under
this facility amounted to $250,000 for the year ended December 31, 1997 and
there were no borrowings at December 31, 1997.
<PAGE>
4. Financing Arrangements (continued)
b. Capital Lease Obligations
The Company has leased telephone equipment, software and computer equipment
under capital leases which are included in property and equipment (see Note
3). The following is a schedule of the future minimum lease payments
together with the present value of the minimum lease payments as of
December 31, 1997:
Year ending December 31:
1998 $ 21,000
1999 21,000
2000 17,000
Total 59,000
Less amount representing interest (effective rate 11%) 8,000
Present value of the minimum lease payments 51,000
Less current portion of capital lease obligations 16,000
$ 35,000
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31
1997 1996
Accounts payable--trade $ 686,000 $1,011,000
Accrued compensation and payroll taxes 1,750,000 1,457,000
Accrued commissions 904,000 833,000
Other accrued expenses 328,000 302,000
Total $ 3,668,000 $3,603,000
<PAGE>
6. Income Taxes
The provisions for income taxes consists of:
Year ended December 31
1997 1996 1995
Current:
Federal $720,000 $ 535,000 $ 79,000
State and local 192,000 126,000 32,000
Deferred 224,000 (349,000) (111,000)
$ 1,136,000 $ 312,000 $ -
A reconciliation of the federal statutory tax rate to the actual effective rate
is as follows:
Year ended December 31
1997 1996 1995
Statutory rate 34.0% 34.0% (34.0)%
State and local income taxes,
net of federal benefit 4.3 4.8 5.6
Change in valuation allowance 1.8 (17.1) 16.4
Permanent differences 2.4 1.8 12.0
Other 1.5 (2.0) -
44.0% 21.5% 0.0%
<PAGE>
6. Income Taxes (continued)
The deferred income taxes are comprised of the following:
December 31
1997 1996
Assets
Provision for doubtful accounts $ 40,000 $ 44,000
Intangible assets written off 224,000 279,000
Accrued rent 121,000 140,000
Net operating losses for state and local
tax purposes 127,000 122,000
Other - 55,000
Deferred tax asset 512,000 640,000
Liabilities
Unrealized gain on securities (156,000) (105,000)
Other (44,000) -
Deferred tax liability (200,000) (105,000)
312,000 535,000
Valuation allowance (127,000) (75,000)
$ 185,000 $460,000
The valuation allowance increased (decreased) by $52,000, ($333,000) and
$29,000, respectively, during the years ended December 31, 1997, 1996 and 1995.
7. Commitments and Contingencies
Operating Leases
The Company leases office space under noncancelable operating leases which
expire at various dates through 2003. These leases are subject to escalations
for increases in real estate taxes and other expenses.
<PAGE>
7. Commitments and Contingencies (continued)
The aggregate future minimum lease payments required under these leases are as
follows:
Year ending December 31:
1998 $ 753,000
1999 762,000
2000 770,000
2001 721,000
2002 688,000
Thereafter 398,000
Total $4,092,000
Rental expense under operating leases including escalation charges for the years
ended December 31, 1997, 1996 and 1995 approximated $726,000, $700,000 and
$676,000, respectively.
Pursuant to one of the Company's leases, rent expense charged to operations
differs from rent paid because of the effect of free rent periods and scheduled
rent increases. Accordingly, the Company has recorded deferred rent payable of
$303,000 and $350,000 at December 31, 1997 and 1996, respectively. Rent expense
is calculated by allocating total rental payments, including those attributable
to scheduled rent increases, on a straight-line basis, over the lease term.
The Company has been released from a portion of its rent obligation on certain
premises which it had been subleasing through 2003 but, in the event of default
by the sublessee, it would remain liable for the balance of the rent obligation,
which at December 31, 1997 aggregated $531,000.
Executive Employment Agreement
An employment agreement with the chief executive officer expiring in August 2002
provides for an annual salary of approximately $446,000 plus incentive bonuses
based on pre-tax income. In addition, the officer is entitled, under certain
circumstances, to termination benefits.
<PAGE>
8. Retirement Plan
The Company has a defined contribution plan under section 401(k) of the Internal
Revenue Code ("IRC") which provides that eligible employees may make
contributions, subject to IRC limitations. The Company may choose to make
contributions to the Plan in an amount determined by the Company at its
discretion. No contributions were made for the years ended December 31, 1997 and
1995. The Company made a contribution to the Plan of $25,000 for the year ended
December 31, 1996.
9. Stock Option Plans
During 1996, the stockholders of the Company approved the 1996 Stock Plan (the
"Plan") authorizing a committee of the Board of Directors to issue to officers,
directors, key employees and consultants stock options (both incentive stock
options ("ISOs") which qualify under Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code") and nonqualified options), restricted stock and
directors options. Up to 400,000 shares are issuable under the Plan.
In May 1990, the stockholders of the Company approved an Incentive Program (the
"Program") authorizing the issuance to officers, directors, key employees, and
certain consultants of stock options (both incentive stock options ("ISOs")
which qualify under the Code and nonqualified options), stock appreciation
rights ("SARS") (in tandem with stock options or free-standing), restricted
stock and directors' options issuable pursuant to a formula. Up to 575,000
shares are issuable under the Program either as outright grants or upon exercise
of options or SARS awarded thereunder.
Directors of the Company who are not employees are eligible to participate
solely in the nondiscretionary directors' option portion of the Program. All
administrative powers of the Committee with respect to directors' options may be
exercised, at the discretion of the Board of Directors, by an Alternate
Committee comprised of persons not eligible to receive directors' options, one
of whom must be a director. Moreover, in no event, may the number of shares
subject to directors' options issuable to any qualified director in any year
exceed 25,000.
<PAGE>
9. Stock Option Plans (continued)
The selection of participants from among employees and officers and the
determination of the type and amount of awards (except as to the directors'
options) is entirely within the discretion of the Option Committee of the Board
of Directors (the "Committee"). There is no limit on the number or amount of
awards which may be granted to any one person under the Program, except that the
fair market value (determined as of the date of grant) of shares with respect to
which ISOs are first exercisable in any one year as to any participant may not
exceed $100,000.
All options granted have 5 or 10 year terms and vest and become fully
exercisable at the end of 3 years of continued employment.
Restricted stock may be awarded under the Program either at no cost to the
recipient or for such cost as specified by the grant. Unless waived in whole or
in part by the Committee, once a holder of record of restricted stock ceases to
be an employee, officer or director of the Company, all shares of restricted
stock then held and still subject to restriction will be forfeited by such
holder and reacquired by the Company.
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share has been
determined as if the company had accounted for its stock options under the fair
value method estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1997, 1996 and 1995,
respectively: risk-free interest rates of 5.6% in 1997, 5.9% to 6.0% in 1996 and
5.6% to 5.7% in 1995; volatility factors of the expected market price of the
Company's common stock of .72, .75 and .71. The weighted-average expected life
of the options are 3 years. Dividends are not expected in the future.
<PAGE>
9. Stock Option Plans (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1997 1996 1995
Pro forma net income (loss) $1,363,000 $979,000 $ (456,000)
Pro forma basic income (loss)
per share $.43 $.32 $(.16)
Pro forma diluted income (loss)
per share $.40 $.30 $(.16)
<PAGE>
9. Stock Option Plans (continued)
Stock option activity is summarized as follows:
Weighted-
Average
Exercise
Shares Price
Balance at January 1, 1995 424,000 $ .83
Granted 99,350 $ 1.54
Exercised (5,033) $ .51
Balance at December 31, 1995 (299,211
exercisable at option prices $.375 to $2.20) 518,317 $ .97
Granted 304,500 $ 2.14
Exercised (273,060) $ .43
Cancelled (5,107) $ .43
Balance at December 31, 1996 (137,759
exercisable at option prices $.4375 to $2.20) 544,650 $ 1.90
Granted 113,500 5.34
Exercised (38,016) $ .58
Cancelled (2,124) $ .85
Balance at December 31, 1997 (272,938 exercisable
at option prices $.4375 to $5.775) 618,010 $ 2.62
The weighted average fair value of options granted during 1997, 1996 and 1995 is
$2.03, $1.07 and $.74, respectively. The exercise prices for options outstanding
as of December 31, 1997 ranged from $.4375 to $5.775. The weighted average
remaining contractual life of those options is 6.9 years.
At December 31, 1997, 32,850 options are available for grant.
<PAGE>
10. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 1997, 1996 and 1995.
1997 1996 1995
Numerator:
Net income $ 1,444,000 $ 1,138,000 $ (432,000)
Denominator:
Denominator for basic earnings
per share-weighted-average shares 3,191,825 3,065,719 2,917,662
Effect of dilutive securities:
Stock options 296,355 257,960 -
Denominator for diluted earnings
per share-adjusted weighted-average
shares and assumed conversions 3,488,180 3,323,679 2,917,662
Basic earnings (loss) per share $.45 $.37 $(.15)
Diluted earnings (loss) per share $.41 $.34 $(.15)
<PAGE>
Column C Column D
Column A Column B Additions Deductions Column E
Balance at Charged to Balance at
the beginning costs and end of
of the period expenses Deductions period
Year ended December 31, 1997:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $109,000 $41,000 $50,000(1) $100,000
Year ended December 31, 1996:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $82,000 $125,000 $98,000(1) $109,000
Year ended December 31, 1995:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $133,000 $70,000 $121,000 $82,000
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
Exhibit 10.13
THE BANK OF NEW YORK
New York's First Bank-Founded 1784 by Alexander Hamilton
October 31, 1997
Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017
Attention: Sy Kaye
Chief Executive Officer
Gentlemen/Ladies:
The Bank of New York (the "Bank") is pleased to confirm that it has
extended the availability of the $6,000,00 secured line of credit that the Bank
holds available to Winston Resources, Inc.
Notwithstanding the foregoing, the aggregate outstanding principal
amount of all advances under this line of credit shall not exceed the lesser of
$6,000,00 or an amount equal to the sum of the following:
1. 80% of each account receivable of the Company (including
the Company's Winston Advertising Agency division) or any of Winston
Personnel of Boca Raton, Inc., WIN-PAY, Inc., Winston Personnel Inc. of
new Jersey, Winston Professional Staffing, Inc., Winston Staffing
Services, Inc., Winston Cosmopolitan, Inc., Winston Franchise Corp. and
Roth Young Personnel Services, Inc. (collectively, the "Subsidiaries")
(i) which was generated in connection with the placement of temporary
employees or in connection with advertising, (ii) in respect of which
the Bank has a perfected first priority security interest and (iii) in
respect of which no amount is unpaid for more than 90 days (or in the
case of an account receivable, the relevant account debtor on which is
a hospital, 120 days) past the date of the related invoices; plus
2. 50% of each account receivable of the Company or any of the Subsidiaries
(i) which was generated in connection with the placement of permanent employees,
A(ii) in respect of which the Bank has a perfected first priority security
interest and (iii) in respect of which no amount is unpaid for more than 90 days
past the date of the related invoice; provided, however, that upon the Bank's
completion of an audit of the collateral for this line of credit, and if the
Bank is satisfied with the results of this audit, the percentages in paragraphs
1 and 2 above would be changed to 85% and 60%, respectively.
<PAGE>
Advances under this line of credit shall be evidenced by, shall be
payable as provided in, and shall bear interest at the rate specified in, the
Promissory Note dated November 26, 1996 made by the Company to the order of the
Bank in the principal amount of $6,000,000.
All obligations of the Company to the Bank with respect to this line of
credit shall be jointly and severally guaranteed by the Subsidiaries pursuant to
the Guaranty Agreement dated November 26, 1996 between the Subsidiaries and the
Bank. All obligations of the Company and the Subsidiaries to the Bank with
respect to this line of credit shall be secured pursuant to the Security
Agreement dated november 26, 1996 among the Company, the Subsidiaries and the
Bank which grants the Bank a first and prior security interest in all accounts
receivable of the Company and the Subsidiaries.
For so long as this line of credit is held available or the Company has
any obligations outstanding under this line of credit, there shall be delivered
to the Bank the following, each in form and content satisfactory to the Bank:
a. Within 5 business days after the filing thereof, copies of all
documents, including financial statements, filed by the
Company or any of the Subsidiaries with the Securities and
Exchange Commission;
b. Within 15 days after the end of each month, a borrowing base
certificate and an aging schedule of the accounts receivable
of the Company and the Subsidiaries, in each case as of the
end of such month; and
c. Such other information as the Bank may reasonable request from
time to time.
As you know lines of credit are cancellable at any time by either party
and, in addition, any advance under this line of credit is subject to the Bank's
satisfaction, at the time of such advance, with the condition (financial and
otherwise), business, prospects, properties, assets, ownership, management and
operations of each of the Company and each of the Subsidiaries and with the
collateral for this line of credit. Unless cancelled earlier as provided in the
first sentence of this paragraph, this line of credit shall be held available
until October 30, 1998.
Very truly yours,
THE BANK OF NEW YORK
By: /s/ Sanjay S. Shirali
Sanjay S. Shirali
Vice President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 333-34393) pertaining to the 1996 Stock Plan of Winston
Resources, Inc. of our report dated February 27, 1998, with respect to the
consolidated financial statements and schedule of Winston Resources, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1997
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
March 25, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 333-34393) of Winston Resources, Inc. (the "Company") to be
filed on or about March 25, 1998 with respect to shares of Common Stock of the
Company issuable pursuant to its 1996 Stock Plan, of our report dated March 11,
1996 on the financial statements for the year ended December 31, 1995 (which
report indicates that we did not audit the presentation of pro forma net loss,
pro forma net loss per share and information relating to the fair value of stock
options as presented in Note 9 to the financial statements) included in the
Annual Report on Form 10-K of the Company for the year ended December 31, 1997.
Richard A. Eisner & Company, LLP
New York, New York
March 25, 1998
F-3
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT - 27
WINSTON RESOURCES, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1997
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 445,000
<SECURITIES> 392,000
<RECEIVABLES> 7,441,000
<ALLOWANCES> 100,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,405,000
<PP&E> 1,153,000
<DEPRECIATION> 613,000
<TOTAL-ASSETS> 9,451,000
<CURRENT-LIABILITIES> 3,709,000
<BONDS> 0
0
0
<COMMON> 32,000
<OTHER-SE> 5,372,000
<TOTAL-LIABILITY-AND-EQUITY> 9,451,000
<SALES> 49,199,000
<TOTAL-REVENUES> 49,199,000
<CGS> 0
<TOTAL-COSTS> 37,735,000
<OTHER-EXPENSES> 8,917,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,000
<INCOME-PRETAX> 2,580,000
<INCOME-TAX> 1,136,000
<INCOME-CONTINUING> 1,444,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,444,000
<EPS-PRIMARY> .45
<EPS-DILUTED> .41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT - 27.1
WINSTON RESOURCES, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1996
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,068,000
<SECURITIES> 262,000
<RECEIVABLES> 5,964,000
<ALLOWANCES> 109,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,423,000
<PP&E> 1,166,000
<DEPRECIATION> 855,000
<TOTAL-ASSETS> 8,438,000
<CURRENT-LIABILITIES> 4,175,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> 3,829,000
<TOTAL-LIABILITY-AND-EQUITY> 8,438,000
<SALES> 39,390,000
<TOTAL-REVENUES> 39,390,000
<CGS> 0
<TOTAL-COSTS> 29,414,000
<OTHER-EXPENSES> 8,391,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,000
<INCOME-PRETAX> 1,450,000
<INCOME-TAX> 312,000
<INCOME-CONTINUING> 1,138,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,138,000
<EPS-PRIMARY> .37
<EPS-DILUTED> .34
</TABLE>
