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 APRIL 30, 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: 9,822,713 SHARES OF COMMON
STOCK, $.001 PAR VALUE PER SHARE WERE OUTSTANDING AS OF JUNE 11, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WINDSOR CAPITAL CORP.
CONDENSED BALANCE SHEET
APRIL 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
Current assets
<S> <C>
Cash and cash equivalents $ 339,169
Receivables 512
Merchandise inventories 2,297,071
Prepaid expenses and other current assets 8,945
-----------------
Total current assets 2,645,697
Property and equipment, net 730,001
Other assets:
Deposits 14,641
Other 40,267
-----------------
$ 3,430,606
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 716,650
Accrued salaries, bonuses and employee benefits 55,443
Other accrued expenses 39,402
-----------------
Total current liabilities 811,495
-----------------
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; 9,822,713 shares issued and outstanding 9,823
Additional paid in capital 3,788,597
Stock subscription receivable (1,400)
Accumulated deficit (1,177,909)
-----------------
Total stockholders' equity 2,619,111
-----------------
$ 3,430,606
=================
</TABLE>
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 ENDED
APRIL 30,
1998 1997
-------------------------------------------------
<S> <C> <C>
Sales $ 1,519,538 $ 249,652
Costs of goods sold 843,105 129,449
-------------------------------------------------
Gross profit 676,433 120,203
Selling, general and administrative expenses 1,079,155 310,985
-------------------------------------------------
Operating loss (402,722) (190,782)
Other income 22,134 -
-------------------------------------------------
Net loss $ (380,588) $ (190,782)
=================================================
Loss per common share, basic and diluted $ (.04) $ (.03)
=================================================
Weighted average common
shares outstanding 9,808,044 6,012,348
=================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
1998 1997
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (380,588) $ (190,782)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 49,341 13,206
Non-cash professional fees - 25,000
Change in assets and liabilities:
Receivables 2,760 4,607
Merchandise inventories 158,080 (66,870)
Prepaid expenses and other current liabilities 31,260 5,664
Deposits and other assets (25,060) (1,798)
Accounts payable (292,686) 126,080
Accrued salaries, bonuses and employee benefits 33,999 (6,442)
Other accrued expenses (88,766) 271
-----------------------------------------
Net cash used in operating activities (511,660) (91,064)
-----------------------------------------
Cash flows from investing activities:
Capital expenditures - (106,093)
-----------------------------------------
Net cash used in investing activities - (106,093)
-----------------------------------------
Cash flows from financing activities:
Proceeds from the sale of common stock 130,750 100,000
-----------------------------------------
Net cash provided by financing activities 130,750 100,000
-----------------------------------------
Net decrease in cash and cash equivalents (380,910) (97,157)
Cash and cash equivalents at beginning of period 720,079 107,581
-----------------------------------------
Cash and cash equivalents at end of period $ 339,169 $ 10,424
=========================================
</TABLE>
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. Additional shares of the Company's common stock, up to
a maximum of 176,340 may be 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 quarter
ended April 30, 1997 reflect the operations of Simply Cigars only as the results
of operations and cash flows of Smoker's Gallery for the quarter 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 quarter ended April 30, 1998, the Company operated 14 kiosks
under the name Simply Cigars, whereas during the quarter ended April 30, 1997,
only six kiosks were operated throughout the entire quarter, with another two
kiosks commencing operations in April 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>
QUARTER ENDED APRIL 30,
1998 1997
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of revenues 55.5% 51.9%
------------------------------------------
Gross profit 44.5% 48.1%
Selling, general and administrative expenses 71.0% 124.5%
------------------------------------------
Operating loss (26.5)% (76.4)%
Other income 1.5% 0%
------------------------------------------
Net loss (25.0)% (76.4)%
==========================================
</TABLE>
For the three months ended April 30, 1998 and 1997, the Company
reported net losses of $380,588 and $190,782, respectively. Revenue for the
three months ended April 30, 1998 and 1997 amounted to $1,519,538 and $249,652,
respectively. The increase in revenue was due to the inclusion of Smoker's
Gallery revenues of $1,079,681 for the quarter ended April 30, 1998, in addition
to an increase in Simply Cigars' revenue of $190,205 ($439,857 for the quarter
ended April 30, 1998, versus $249,652 for the quarter ended April 30, 1997).
Gross profit for the three months ended April 30, 1998 and 1997
amounted to $676,433 (44.5% of sales) and $120,203 (48.1% of sales),
respectively. This increase is due mainly to the inclusion of Smoker's Gallery
gross profit of $470,283 for the quarter ended April 30, 1998. The decrease in
gross profit as a percentage of sales was also due to the inclusion of Smoker's
Gallery sales in the quarter ended April 30, 1998, as Smoker's Gallery has a
lower gross margin than Simply Cigars.
Total selling, general and administrative expenses ("SG&A"), increased
from $310,985 for the three months ended April 30, 1997 to $1,079,155 for the
three months ended April 30, 1998, a 247% increase. This increase is due mainly
to the inclusion of Smoker's Gallery SG&A of $364,493 for the quarter ended
April 30, 1998, and the expansion of the Simply Cigars' operations including an
increase in rent expense of approximately $92,000 and an increase in salaries
and wages of approximately $272,000.
7
<PAGE>
During the quarter ended April 30, 1998, the Company's same store sales
were down 30% from the same period in 1997, reflecting a 20% decline at Simply
Cigars and a 31% decline at Smoker's Gallery. The Company believes that this
decline is 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1998, the Company had working capital of $1,834,202;
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 462% in the quarter
ended April 30, 1998 to $511,660 from $91,064 for the quarter ended April 30,
1997. This increase is due mainly to the inclusion of Smoker's Gallery cash used
in operating activities of approximately $82,000 for the quarter ended April 30,
1998, and the increase in Simply Cigars' net loss for the quarter ended April
30, 1998 versus 1997.
Net cash used in investing activities amounted to $106,093 for the
quarter ended April 30, 1997 which related principally to the cost of opening
new kiosks. No capital expenditures were incurred during the quarter ended April
30, 1998.
Net cash provided by financing activities increased 31% in the quarter
ended April 30, 1998 to $130,750 from $100,000 for the quarter ended April 30,
1997. During the quarter ended April 30, 1998, 261,500 Class A warrants were
exercised at a price of $.50. During the quarter ended April 30, 1997, 100,000
shares of common stock were issued at a price of $1.00.
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 Cigar
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.
8
<PAGE>
Pursuant to its new business plan, in early June 1998, the Company
closed two kiosks. In addition, the Company has eliminated certain management
positions. See "Item 5. Other Information." 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
On June 1, 1998, Gary N. Mansfield resigned from his position as the
Company's Chief Executive Officer. He remains as a director. Mr. Mansfield's
duties have been assumed on an interim basis by Eugene R. Terry, Chairman of the
Company's Board of Directors, and Karl E. Duell, the Company's Chief Financial
Officer. Further, Guy F. Wood, the Company's President has resigned effective
August 1, 1998. In the short term, the Company intends to utilize existing
management personnel to perform the functions formerly performed by Messrs.
Mansfield and Wood; however, the Company may bring in new management and/or make
further changes in existing management.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
27. Financial Data Schedule for the quarterly period ended
April 30, 1998.
b) REPORTS ON FORM 8-K
During the quarter ended April 30, 1998, Form 8-K reports were
filed by the Company with the Securities and Exchange
Commission on February 13, 1998 reporting (i) an event dated
January 30, 1998, (the merger of Boyton Tobacconists, Inc.,
into the Company) and (ii) an event dated December 31, 1997,
(the financial statements of Woodfield Enterprises, Inc.).
9
<PAGE>
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: June 15, 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 APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 339,169
<SECURITIES> 0
<RECEIVABLES> 512
<ALLOWANCES> 0
<INVENTORY> 2,297,071
<CURRENT-ASSETS> 2,645,697
<PP&E> 1,094,090
<DEPRECIATION> (364,089)
<TOTAL-ASSETS> 3,430,606
<CURRENT-LIABILITIES> 811,495
<BONDS> 0
0
0
<COMMON> 9,823
<OTHER-SE> 3,787,197
<TOTAL-LIABILITY-AND-EQUITY> 3,430,606
<SALES> 1,519,538
<TOTAL-REVENUES> 1,519,538
<CGS> 843,105
<TOTAL-COSTS> 843,105
<OTHER-EXPENSES> 1,079,155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (380,588)
<INCOME-TAX> 0
<INCOME-CONTINUING> (380,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (380,588)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
