SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission File No. 33-26828
WINDSOR CAPITAL CORP.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 59-2754843
- -------------------------------- -----------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
5008 N. FEDERAL HIGHWAY
LIGHTHOUSE POINT, FLORIDA 33064
- ---------------------------------------- --------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (954) 429-0035
Check whether the issuer (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 [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 9,999,053 SHARES OF COMMON
STOCK, $.001 PAR VALUE PER SHARE WERE OUTSTANDING AS OF AUGUST 31, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WINDSOR CAPITAL CORP.
CONDENSED BALANCE SHEET
JULY 31, 1998
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 142,555
Receivables 4,401
Merchandise inventories 1,870,579
Prepaid expenses and other current assets 20,683
-----------
Total current assets 2,038,218
Property and equipment, net 688,911
Other assets:
Deposits 34,103
Other 16,467
-----------
$ 2,777,699
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 588,912
Accrued salaries, bonuses and employee benefits 56,030
Other accrued expenses 48,099
-----------
Total current liabilities 693,041
-----------
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding --
Common stock, $0.001 par value; 25,000,000 shares
authorized; 9,999,053 shares issued and outstanding 9,999
Additional paid in capital 3,788,421
Stock subscription receivable (1,400)
Accumulated deficit (1,712,362)
-----------
Total stockholders' equity 2,084,658
-----------
$ 2,777,699
===========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JULY 31, 1998 JULY 31, 1997 JULY 31, 1998 JULY 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 1,376,667 $ 1,730,680 $ 2,896,205 $ 1,980,332
Costs of goods sold 962,003 913,281 1,805,108 1,042,730
----------- ----------- ----------- -----------
Gross profit 414,664 817,399 1,091,097 937,602
Selling, general and
administrative expenses 966,037 798,329 2,045,192 1,109,314
----------- ----------- ----------- -----------
Operating income (loss) (551,373) 19,070 (954,095) (171,712)
Other income 16,920 8,171 39,054 8,171
----------- ----------- ----------- -----------
Net income (loss) $ (534,453) $ 27,241 $ (915,041) $ (163,541)
=========== =========== =========== ===========
Income (loss) per common
share, basic and diluted $ (.05) $ .004 $ (.09) $ (.03)
=========== =========== =========== ===========
Weighted average common
shares outstanding 9,997,136 6,233,121 9,904,157 6,124,564
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JULY 31,
1998 1997
------------ ------------
Cash flows from operating activities:
Net loss $(915,041) $(163,541)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 90,431 31,082
Non-cash professional fees -- 25,000
Change in assets and liabilities:
Receivables (1,129) 6,592
Merchandise inventories 584,572 (254,052)
Prepaid expenses and other current liabilities 19,522 (16,947)
Deposits and other assets (20,722) 1,108
Accounts payable (420,424) 171,391
Accrued salaries, bonuses and employee benefits 34,586 (6,442)
Other accrued expenses (80,069) (22,822)
--------- ---------
Net cash used in operating activities (708,274) (228,631)
--------- ---------
Cash flows from investing activities:
Capital expenditures -- (231,571)
--------- ---------
Net cash used in investing activities -- (231,571)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit -- 22,842
Distributions to shareholder -- (12,000)
Proceeds from the sale of common stock 130,750 250,000
Repayments of note payable to shareholder -- (66,000)
Bank overdraft -- 138,037
--------- ---------
Net cash provided by financing activities 130,750 332,879
--------- ---------
Net decrease in cash and cash equivalents (577,524) (127,323)
Cash and cash equivalents at beginning of period 720,079 127,323
--------- ---------
Cash and cash equivalents at end of period $ 142,555 $ --
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WINDSOR CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
On December 31, 1997, Woodfield Enterprises, Inc., a Florida corporation
("Woodfield"), merged with and into Windsor Capital Corp. (the "Company").
Pursuant to the merger, 6,700,000 shares of the Company's common stock, par
value $0.001 per share, were issued to the former shareholders of Woodfield in a
private transaction pursuant to Section 4(2) of the Securities Act of 1933, as
amended. Prior to the merger, the Company had 5,525,000 shares of common stock
outstanding and effectuated a recapitalization, which included a sale by the
Company's majority shareholder, International Asset Management Group, Inc.
("IAMG") to Woodfield of 4,480,000 shares and 5,000,000 warrants, which were
canceled by Woodfield in accordance with the terms and conditions of the
Agreement and Plan of Merger among the Company, IAMG and Woodfield dated
December 18, 1997 (the "Merger Agreement"). Upon completion of the merger, the
Company had 7,745,000 shares of common stock outstanding, of which 6,700,000
were held by the former Woodfield shareholders.
On December 31, 1997, resignations were tendered by the executive officers
and all but one of the directors (Mr. Hershel Krasnow) of the Company, and
designees of Woodfield were elected to the Board of Directors and as executive
officers of the Company in accordance with the terms and conditions of the
Merger Agreement.
The series of transactions described above resulted in the Woodfield
shareholders controlling the Company's Board of Directors and having
approximately 87% ownership of the Company. Accordingly, the merger has been
accounted for as a capital transaction, which is equivalent to the issuance of
stock by Woodfield for the Company's net monetary assets of approximately
$615,000, accompanied by a recapitalization of Woodfield. In addition, the
historical results of Woodfield became the operating results of the Company.
On January 30, 1998, pursuant to an Agreement and Plan of Merger (the
"Boynton Merger Agreement"), the Company acquired all of the business and assets
of Boynton Tobacconists, Inc., a privately-held Florida corporation ("Boynton"),
and assumed all of Boynton's liabilities. Pursuant to the merger, 1,770,213
shares (valued by the parties at $2.6 million, or $1.46875 per share, based on
the contemporaneous market value of the Company's common stock) of the Company's
common stock, par value $0.001 per share, were issued to the former shareholder
of Boynton in a private transaction pursuant to Section 4(2) of the Securities
Act of 1933, as amended. On May 1, 1998, 176,340 additional shares of the
Company's common stock were issued to the selling shareholder based on a final
valuation of certain assets and liabilities of Boynton as of January 30, 1998.
4
<PAGE>
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The acquired business involves the operation of a chain of six specialty
retail outlets in South Florida under the name "Smoker's Gallery." These outlets
specialize in the sale of cigars, pipes and related products and accessories. In
connection with the merger, the selling shareholder and his wife entered into
three-year employment agreements with the Company, pursuant to which they will
serve, on a full time basis, as the Company's Chief Operating Officer -
Tobacconist Division and Director of Operations - Tobacconist Division,
respectively.
The merger with Boynton was accounted for as a pooling of interests.
The interim financial information included herein is unaudited. In the
opinion of management, such unaudited information reflects all adjustments,
consisting only of normal recurring accruals and other adjustments as disclosed
herein, necessary for a fair presentation of the unaudited information.
Results of interim periods are not necessarily indicative of results
expected for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from sales of products is generally recognized upon delivery to
customers. The Company has established programs which, under certain
conditions, enable customers to return products. The Company establishes
liabilities for estimated returns and allowances at the time of delivery to
customers.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or market. Cost is
determined using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation on property and
equipment is provided on the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to expense as
incurred; improvements and betterments are capitalized. Upon the retirement
or sale of property and equipment, the accounts are relieved of the cost
and accumulated depreciation, and any resulting gains or losses are
recognized.
5
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company provides for income taxes pursuant to the provisions of SFAS
No. 109, "Accounting for Income Taxes". Deferred income taxes are
determined based upon differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are also established for future tax benefits of loss
and credit carryforwards. Valuation allowances are established for deferred
tax assets when it is more likely than not that such amounts will not be
realized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company's statements of operations and cash flows for the six months
ended July 31, 1997 reflect the operations of Simply Cigars for the six months
ended July 31, 1997, and the operations of Smoker's Gallery for the three months
ended July 31, 1997, as the results of operations and cash flows of Smoker's
Gallery for the three months ended April 30, 1997 were previously reflected in
the Company's Fiscal 1997 results due to a change in the Company's fiscal year
end.
During the six months ended July 31, 1998, the Company operated 14 kiosks
under the name Simply Cigars. In early June 1998, the Company closed two kiosks.
During the six months ended July 31, 1997, only six kiosks were operated
throughout the entire period, with another two kiosks commencing operations in
April 1997, another kiosk commencing operations in June 1997, and another kiosk
commencing operations in July 1997.
Except for historical information contained herein, certain matters set
forth in this Form 10-QSB are forward looking and involve a number of risks and
uncertainties that could cause future results to differ materially from these
statements and trends. These forward-looking statements include, among others,
statements relating to the Company's business plan, which is based upon the
Company's interpretation and analysis of cigar industry trends and management's
ability to successfully market and sell its products to retail consumers. This
plan assumes, among other things, that (i) strong demand for premium cigars and
accessories will continue and the Company will be able to substantially increase
its market share, (ii) the Company will be able to promptly close or sell
unprofitable outlets and otherwise reduce its costs, and (iii) the Company will
be able to successfully diversify its revenues away from solely tobacco-related
products. Many known and unknown risks, uncertainties and other factors,
including general economic conditions, government regulations and taxation
relating to the tobacco industry, changes in public perceptions of the risks and
benefits of tobacco use, and risk factors detailed from time to time in the
Company's Securities and Exchange Commission filings, may cause these
forward-looking statements to be incorrect, and may cause actual results to be
materially different from any future results expressed or implied by such
forward-looking statements.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items expressed in percentages of
revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JULY 31, 1997 JULY 31, 1998 JULY 31, 1997 JULY 31, 1998
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 69.9% 52.8% 62.3% 52.7%
----- ----- ----- -----
Gross profit 30.1% 47.2% 37.7% 47.3%
Selling, general and administrative expenses 70.1% 46.1% 70.6% 56.0%
----- ----- ----- -----
Operating income (loss) (40.0)% 1.1% (32.9)% (8.7)%
Other income 1.2% .5% 1.3% .4%
----- ----- ----- -----
Net income (loss) (38.8)% 1.6% (31.6)% (8.3)%
===== ===== ===== =====
</TABLE>
For the quarter ended July 31, 1998, the Company's same store sales were
down 29% from the same period in 1997, reflecting a 35% decline at Simply Cigars
and a 27% decline at Smoker's Gallery. For the six months ended July 31, 1998,
the Company's same store sales were down 30% from the same period in 1997,
reflecting a 29% decline at Simply Cigars and a 30% decline at Smoker's Gallery.
The Company believes that these declines are due to a general decline in same
store sales experienced throughout the retail tobacconist industry. The cause of
this general decline is uncertain; however, the Company believes that the
decline is due in large part to the greatly increased number of retail outlets
competing for premium cigar sales as well as a decline in the rate of growth of
demand for premium cigars. The Company has been adversely affected by the
decline in its same store sales.
For the three and six months ended July 31, 1998, the Company reported net
losses of $534,453 and $915,041, respectively. For the three and six months
ended July 31, 1997, the Company reported net income of $27,241 and a net loss
of $163,541, respectively. Revenue for the three months ended July 31, 1998 and
1997 amounted to $1,376,667 and $1,730,680, respectively. The decrease in
revenue was due to the decline in same stores sales. Revenue for the six months
ended July 31, 1998 and 1997 amounted to $2,896,205 and $1,980,332,
respectively. The increase in revenue was due to the inclusion of Smoker's
Gallery first quarter revenues of $1,079,681 in 1998, and an increase in Simply
Cigars revenue of $194,683, offset by the decline in same store sales.
7
<PAGE>
Gross profit for the three months ended July 31, 1998 and 1997 amounted to
$414,664 (30.1% of sales) and $817,399 (47.2% of sales), respectively. This
decrease is attributable to the decline in same store sales which resulted in
increased promotional discounts and other price reductions being offered to
customers during the quarter. In addition, in connection with the Company's new
business plan described below, an inventory reserve in the amount of $100,000
was recorded during the three months ended July 31, 1998. Gross profit for the
six months ended July 31, 1998 and 1997 amounted to $1,091,097 (37.7% of sales)
and $937,602 (47.3% of sales), respectively. This decrease is also attributable
to the increased promotional discounts and other price reductions being offered
to customers, as well as the inventory reserve recorded in the second quarter of
fiscal 1999. The decrease in gross profit as a percentage of sales for the six
months ended July 31, 1998, was also due to the inclusion of Smoker's Gallery
sales for the entire six month period ended July 31, 1998 versus only three
months for 1997, as Smoker's Gallery has a lower gross margin than Simply
Cigars.
Total selling, general and administrative expenses ("SG&A"), increased from
$798,329 for the three months ended July 31, 1997 to $966,037 for the three
months ended July 31, 1998, a 21% increase. This increase is due mainly to the
expansion of the Simply Cigars' operations including an increase in rent expense
of approximately $47,000 and an increase in salaries and wages of approximately
$143,000. Total selling, general and administrative expenses ("SG&A"), increased
from $1,109,314 for the six months ended July 31, 1997 to $2,045,192 for the six
months ended July 31, 1998, a 84% increase. This increase is due mainly to the
inclusion of Smoker's Gallery SG&A of $364,493 for the first quarter of 1998 and
the expansion of the Simply Cigars' operations including an increase in rent
expense of approximately $140,000 and an increase in salaries and wages of
approximately $530,000.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1998, the Company had working capital of $1,345,177; however,
this working capital will decline rapidly unless the Company is able to either
reverse its substantial operating losses and achieve positive cash flows from
operations or obtain additional debt or equity financing. There can be no
assurance that the Company will be able to obtain necessary funding from
internal or external sources.
Net cash used in operating activities increased 209% in the six months
ended July 31, 1998 to $708,274 from $228,631 for the six months ended July 31,
1997. This increase is due mainly to the increase in Simply Cigars' net loss for
the six months ended July 31, 1998 versus 1997.
Net cash used in investing activities amounted to $231,571 for the six
months ended July 31, 1997 which related principally to the cost of opening new
kiosks. No capital expenditures were incurred during the six months ended July
31, 1998.
Net cash provided by financing activities decreased 61% in the six months
ended July 31, 1998 to $130,750 from $332,879 for the six months ended July 31,
1997. This decrease is due to the decrease in the bank overdraft of $138,037,
and the fact that during the six months ended July 31, 1998, 261,500 Class A
warrants were exercised at a price of $.50, whereas during the six months ended
July 31, 1997, 250,000 shares of common stock were issued at a price of $1.00.
8
<PAGE>
In May 1998, the Company determined that, due to adverse market conditions
in the retail tobacconist industry, in particular those relating to premium
cigars, its previously considered expansion plan is no longer feasible. Most of
the Simply Cigars kiosks have proven unprofitable, and the Company is no longer
optimistic about the probability of success of its Simply Cigars operations. The
Smoker's Gallery stores continue to be profitable, although their profitability
has declined significantly in recent months.
The Company's new business plan includes the following components: (i)
prompt closure or sale of unprofitable kiosks, (ii) possible sale of profitable
kiosks, (iii) a cost-cutting program focused on reducing corporate overhead,
principally through the elimination of certain management positions, (iv) focus
on enhancing the profitability of the Smoker's Gallery stores, and (v)
exploration of business opportunities outside of the tobacco industry.
Pursuant to its new business plan, in early June 1998, the Company closed
two kiosks and in August 1998, the Company sold three other kiosks. In addition,
the Company is in various stages of negotiations for the sale of its remaining
nine kiosks. There can be no assurance that the Company's new business plan will
achieve its goal of attaining positive cash flow and profitability.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
In August 1998, the Company received a letter from attorneys
representing the manufacturer of the Simply Cigars kiosks requesting
payment of approximately $180,000 for work allegedly performed by the
manufacturer for the Company under a May 1997 purchase order, which was
signed by a former officer of the Company. Management has commenced an
investigation and discussions with the manufacturer to determine the
Company's potential liability under the claim. The Company's results of
operations or cash flows in a particular quarterly or annual period, or
its financial position could be materially affected if all, or a
substantial portion of this claim proves valid.
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27. Financial Data Schedule for the quarterly period ended July 31,
1998.
b) REPORTS ON FORM 8-K
During the quarter ended July 31, 1998, no Form 8-K reports were
filed by the Company.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WINDSOR CAPITAL CORP.
---------------------
(Registrant)
Date: September 14, 1998 BY:/s/ KARL E. DUELL
--------------------
Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE THREE MONTHS ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 142,555
<SECURITIES> 0
<RECEIVABLES> 4,401
<ALLOWANCES> 0
<INVENTORY> 1,870,579
<CURRENT-ASSETS> 2,038,218
<PP&E> 1,094,090
<DEPRECIATION> (405,179)
<TOTAL-ASSETS> 2,777,699
<CURRENT-LIABILITIES> 693,041
<BONDS> 0
0
0
<COMMON> 9,999
<OTHER-SE> 2,074,659
<TOTAL-LIABILITY-AND-EQUITY> 2,777,699
<SALES> 2,896,205
<TOTAL-REVENUES> 2,896,205
<CGS> 1,805,108
<TOTAL-COSTS> 1,805,108
<OTHER-EXPENSES> 2,045,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (915,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (915,041)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
