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 OCTOBER 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.
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 58-1921737
- ------------------------------- --------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
7200 W. CAMINO REAL, SUITE 302
BOCA RATON, FLORIDA 33433
- ----------------------------- --------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (561) 417-8364
5008 N. FEDERAL HIGHWAY, LIGHTHOUSE POINT, FL 33064
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(Former address, if changed since last report)
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 NOVEMBER 30, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WINDSOR CAPITAL CORP.
CONDENSED BALANCE SHEET
OCTOBER 31, 1998
(UNAUDITED)
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 71,248
Receivables 27,770
Merchandise inventories 1,640,665
Prepaid expenses and other current assets 23,778
-------------
Total current assets 1,763,461
Property and equipment, net 271,905
Other assets:
Deposits 14,103
Other 11,000
-------------
$ 2,060,469
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 510,034
Accrued salaries, bonuses and employee benefits 35,750
Other accrued expenses 69,396
--------------
Total current liabilities 615,180
--------------
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 (2,351,731)
-------------
Total stockholders' equity 1,445,289
-------------
$ 2,060,469
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 938,247 $ 1,623,667 $ 3,834,452 $ 3,603,999
Costs of goods sold 581,178 872,395 2,386,286 1,915,125
---------------- ---------------- --------------- ----------------
Gross profit 357,069 751,272 1,448,166 1,688,874
Selling, general and
administrative expenses 657,346 811,407 2,702,538 1,920,721
Loss on disposition of kiosks 357,713 - 357,713 -
---------------- ---------------- ---------------- ----------------
Operating loss (657,990) (60,135) (1,612,085) (231,847)
Other income 18,621 16,562 57,675 24,733
---------------- ---------------- ---------------- ----------------
Net loss $ (639,369) $ (43,573) $ (1,554,410) $ (207,114)
================ =============== ================ ================
Income (loss) per common
share, basic and diluted $ (.06) $ (.01) $ (.16) $ (.03)
================ =============== ================ ================
Weighted average common
shares outstanding 9,999,053 6,295,213 9,936,137 6,182,072
================ =============== ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
OCTOBER 31,
1998 1997
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,554,410) $ (207,114)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 134,440 51,646
Loss on disposition of kiosks 357,713 -
Non-cash professional fees - 25,000
Change in assets and liabilities:
Receivables (24,498) 18,618
Merchandise inventories 814,486 (615,696)
Prepaid expenses and other current liabilities 16,427 (14,876)
Deposits and other assets (18,822) (31,253)
Accounts payable (499,302) 735,338
Accrued salaries, bonuses and employee benefits 14,306 (6,442)
Other accrued expenses (58,772) (1,984)
------------- -----------------
Net cash used in operating activities (818,432) (46,763)
------------- -----------------
Cash flows from investing activities:
Proceeds from disposition of kiosks 38,851 -
Capital expenditures - (243,773)
------------- -----------------
Net cash provided by (used in) investing activities 38,851 (243,773)
------------- -----------------
Cash flows from financing activities:
Repayment of borrowings under line of credit - (56,401)
Distributions to shareholder - (112,000)
Proceeds from the sale of common stock 130,750 300,000
Borrowings from shareholder - 50,000
------------- -----------------
Net cash provided by financing activities 130,750 181,599
------------- -----------------
Net decrease in cash and cash equivalents (648,831) (108,937)
Cash and cash equivalents at beginning of period 720,079 127,323
------------- -----------------
Cash and cash equivalents at end of period $ 71,248 $ 18,386
============= =================
</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. 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 nine
months ended October 31, 1997 reflect the operations of Simply Cigars for the
nine months ended October 31, 1997, and the operations of Smoker's Gallery for
the six months ended October 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 nine months ended October 31, 1998, the Company operated 14
kiosks under the name Simply Cigars. In early June 1998, the Company closed two
kiosks and in late August 1998, the Company sold three kiosks. On September 15,
1998, the Company entered into an Operating Agreement and an Asset Purchase
Agreement with Tropical Republic, Inc. ("Tropical"), under which the
responsibility for the operations and expenses of the remaining nine kiosks was
turned over to Tropical at various dates during September 1998, with the sale of
the kiosks to Tropical at an aggregate price of $130,000 scheduled to close in
October 1998. Tropical failed to close on the sale and failed to pay a
substantial portion of the operating expenses owed the Company under the
Operating Agreement. See Part II, Item 1 "Legal Proceedings" and Item 5 "Other
Information". During the nine months ended October 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.
6
<PAGE>
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.
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 NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 61.9% 53.7% 62.2% 53.1%
------------- ------------- -------------- -------------
Gross profit 38.1% 46.3% 37.8% 46.9%
Selling, general and administrative expenses 70.1% 50.0% 70.5% 53.3%
Loss on disposition of kiosks 38.1% 0.0% 9.3% 0.0%
------------- ------------- -------------- -------------
Operating loss (70.1)% (3.7)% (42.0)% (6.4)%
Other income 2.0% 1.0% 1.5% .7%
------------- ------------- -------------- -------------
Net loss (68.1)% (2.7)% (40.5)% (5.7)%
============= ============== ============== =============
</TABLE>
7
<PAGE>
For the quarter ended October 31, 1998, the Company's same store sales
were down 34% from the same period in 1997, reflecting a 41% decline at Simply
Cigars and a 34% decline at Smoker's Gallery. For the nine months ended October
31, 1998, the Company's same store sales were down 31% from the same period in
1997, reflecting a 32% decline at Simply Cigars and a 31% 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 demand for
premium cigars. The Company has been materially adversely affected by the
decline in its same store sales.
For the three and nine months ended October 31, 1998, the Company
reported net losses of $639,369 and $1,554,410, respectively. For the three and
nine months ended October 31, 1997, the Company reported net losses of $43,573
and $207,114, respectively. Revenue for the three months ended October 31, 1998
and 1997 amounted to $938,247 and $1,623,667, respectively. The decrease in
revenue was due to the decline in same stores sales, and the disposition of the
Company's kiosks in fiscal 1999. Revenue for the nine months ended October 31,
1998 and 1997 amounted to $3,834,452 and $3,603,999, respectively. The increase
in revenue was due to the inclusion of Smoker's Gallery first quarter revenues
of $1,079,681 in 1998, offset by the decline in same store sales and the
disposition of the Company's kiosks in fiscal 1999.
Gross profit for the three months ended October 31, 1998 and 1997
amounted to $357,069 (38.1% of sales) and $751,272 (46.3% 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. Gross profit for the nine months
ended October 31, 1998 and 1997 amounted to $1,448,166 (37.7% of sales) and
$1,688,874 (46.9% of sales), respectively. This decrease is also attributable to
the increased promotional discounts and other price reductions being offered to
customers. 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 nine months ended October 31, 1998. The decrease in gross profit as a
percentage of sales for the nine months ended October 31, 1998, was also due to
the inclusion of Smoker's Gallery sales for the entire nine month period ended
October 31, 1998 versus only six months for 1997, as Smoker's Gallery has a
lower gross margin than Simply Cigars.
Total selling, general and administrative expenses ("SG&A"), decreased
from $811,407 for the three months ended October 31, 1997 to $657,346 for the
three months ended October 31, 1998, a 19% decrease. This decrease is due mainly
to the disposition of the Simply Cigars' kiosk operations including a decrease
in rent expense of approximately $50,000 and a decrease in salaries and wages of
approximately $39,000. In addition, Smoker's Gallery legal and accounting
expense decreased approximately $39,000 during the period. Total selling,
general and administrative expenses ("SG&A"), increased from $1,920,721 for the
nine months ended October 31, 1997 to $2,702,538 for the nine months ended
October 31, 1998, a 41% 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 during the first six months of the
period, including an increase in rent expense of approximately $140,000 and an
increase in salaries and wages of approximately $530,000, offset by the decrease
in SG&A for the three months ended October 31, 1998.
8
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1998, the Company had working capital of $1,148,281;
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 1,650% in the nine
months ended October 31, 1998 to $818,432 from $46,763 for the nine months ended
October 31, 1997. This increase is due mainly to the increase in Simply Cigars'
net loss for the nine months ended October 31, 1998 versus 1997, exclusive of
the non-cash loss on disposition of kiosks recorded in the nine months ended
October 31, 1998.
Net cash provided by investing activities amounted to $38,851 for the
nine months ended October 31, 1998, which related to the sale of the Company's
three Michigan-based Simply Cigars kiosks. Net cash used in investing activities
amounted to $243,773 for the nine months ended October 31, 1997 which related
principally to the cost of opening new kiosks. No capital expenditures were
incurred during the nine months ended October 31, 1998.
Net cash provided by financing activities decreased 28% in the nine
months ended October 31, 1998 to $130,750 from $181,599 for the nine months
ended October 31, 1997. This decrease is due primarily to the decrease in the
distribution to shareholder of $112,000 and the fact that during the nine months
ended October 31, 1998, 261,500 Class A warrants were exercised at a price of
$.50, whereas during the nine months ended October 31, 1997, 300,000 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 was no longer feasible.
Most of the Simply Cigars kiosks proved unprofitable, and the Company decided to
terminate its Simply Cigars operations. The Smoker's Gallery stores continue to
be marginally profitable, although their profitability has declined
significantly in fiscal 1999.
The Company's new business plan includes the following components: (i)
prompt closure or sale of all remaining Simply Cigars kiosks, (ii) a
cost-cutting program focused on reducing corporate overhead, principally through
the elimination of certain management positions, (iii) focus on enhancing the
profitability of the Smoker's Gallery stores, and (iv) exploration of business
opportunities outside of the tobacco industry.
9
<PAGE>
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
September 1998, the Company entered into an agreement to sell its remaining nine
kiosks to Tropical for $130,000; however, Tropical failed to close, and in early
November 1998, the Company filed suit against Tropical and, due to the lack of
alternatives, surrendered eight of the remaining nine kiosks to the respective
landlords in order to limit its liability for ongoing lease expenses as well as
to avoid additional operating losses. The final kiosk, which was not subject to
an ongoing lease was sold. See Part II, Item 1 "Legal Proceedings" and 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. In
connection with this new business plan, the Company recorded a loss on
disposition of kiosks of $357,713 during the three months ended October 31,
1998.
IMPACT OF THE YEAR 2000
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date "00" as the Year 1900 rather than the Year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including, among other things, a temporary inability
to process transactions.
The Company uses commercial software that is upgradeable to a
commercially available version that is Year 2000 compliant. In order to minimize
any effects on operations, the Company plans to replace or upgrade any software
that is not Year 2000 compliant. The total costs associated with required
modifications to become Year 2000 compliant are not expected to be material to
the Company's financial position, results of operations or cash flows. The
estimated total cost to replace or upgrade accounting software is not expected
to exceed $500.
The Company relies on third parties, particularly on third party
suppliers for its inventory. The Company expects to initiate efforts to evaluate
the status of these suppliers' efforts with respect to their own Year 2000
compliance programs and to determine alternatives and contingency plan
requirements. Failure of third party suppliers to deliver inventory to the
Company's stores could adversely affect store sales.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Company believes that, with the replacement or upgrade
of any software that is not Year 2000 compliant, the possibility of significant
interruptions of normal operations should be minimized.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
a. WINDSOR CAPITAL CORP. V. TROPICAL REPUBLIC, INC., AND JAMES JOINER
On November 18, 1998, the Company filed suit in Broward County,
Florida, Circuit Court for breach of the Operating Agreement and the
Asset Purchase Agreement (collectively, the "Agreements") against
Tropical Republic, Inc. ("Tropical") and its principal James Joiner
("Joiner"), who personally guaranteed Tropical's obligations under the
Agreements. In its complaint, the Company seeks damages in excess of
$165,716: (i) $120,000 for the balance owed on the purchase price after
crediting Tropical's $10,000 deposit; (ii) $45,716 for unpaid operating
expenses accrued by Tropical during its operation of the kiosks through
October 31, 1998; and (iii) an unspecified amount for potential
liability to landlords under lease agreements which extend past October
31, 1998.
Tropical and Joiner have answered the Complaint and denied liability
based on alleged misrepresentations by the Company concerning the
Simply Cigars business. In addition, the defendants have filed a
counterclaim for rescission of the Agreements and unspecified damages.
The Company believes that its claims are meritorious and the
defendants' defenses and counterclaims are without merit; however, no
discovery has been taken and there can be no assurance that the Company
will prevail in this litigation or that, if it obtains a judgment, it
will be able to collect the judgment.
b. COMPUTEREASE ASSOCIATES, INC. V. WINDSOR CAPITAL CORP.
On September 28, 1998, Computerease Associates, Inc. ("Computerease"),
filed suit against the Company in Palm Beach County, Florida, Circuit
Court alleging breach of an assignment of lease agreement entered into
by the Company and Computerease pursuant to which the Company was to
assume Computerease's obligations under the subject lease of office
premises for a term of 20 months beginning April 25, 1998, at a monthly
rental of $3,600. The Company has answered the Complaint and asserted
as affirmative defenses that (i) the agreement was timely terminated by
the Company on April 25, 1998, and (ii) that any amounts payable under
the agreement are offset by the fair market value of the rented
premises. No discovery has been taken in this case, and there can be no
assurance that an adverse judgment will not be entered against the
Company.
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.
11
<PAGE>
ITEM 5. OTHER INFORMATION
As a result of Tropical's breach of the Agreements and the
unprofitability of the Simply Cigars business, the Company had no
realistic alternative but to surrender eight of its nine remaining
kiosks to the respective landlords as of November 1, 1998, in order to
limit its liability for ongoing lease expenses as well as to pay
accrued rent through October 31, 1998, which Tropical had agreed but
failed to pay. The final kiosk, which was not subject to an ongoing
lease was sold. By surrendering these kiosks, the Company obtained
releases from future lease liability for all kiosk locations except for
the kiosks located at the Montgomery and Annapolis, Maryland malls.
Such future lease liability approximates $376,425 as of November 1,
1998: 27 months at $5,300 per month with respect to Montgomery; and 51
months at $4,575 per month with respect to Annapolis. The Maryland
landlord has threatened legal action against the Company; however, the
Company is unaware of the commencement of any such action. The Company
believes that it will be able to avoid at least a substantial portion
of any future lease liability to the Maryland landlord by asserting a
credit equal to the fair market rental value of the premises including
the kiosks. Further, under the Agreements with Tropical and Joiner, the
Company believes that Tropical and Joiner are fully responsible for any
liability of the Company to the Maryland landlords; however, there can
be no assurance that the Company will not be materially adversely
affected if litigation is brought by the Maryland landlord.
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.
In December 1998, the Company was informed by the landlord of the Town
Center Mall in Boca Raton, Florida, where the highest-volume Smoker's
Gallery store is located, that the landlord had elected, pursuant to
the terms of the lease, to terminate the lease effective in 90 days,
i.e., early March 1999. During the first nine months of fiscal 1999,
the Town Center store generated approximately 21% of the total sales
of the six-store Smoker's Gallery chain. The Company is negotiating
with the landlord in an attempt to obtain suitable space for relocation
in the mall; however, there can be no assurance that such negotiations
will be successful or that, if successful, the new store at the mall
will be as profitable as the existing store. The Company may be
materially adversely affected by the Town Center lease termination.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
27. Financial Data Schedule for the quarterly period ended
October 31, 1998.
B) REPORTS ON FORM 8-K
During the quarter ended October 31, 1998, no Form 8-K reports
were filed by the Company.
12
<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: December 15, 1998 by:/s/ KARL E. DUELL
--------------------------------------
Chief Financial Officer
13
<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 OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> $71,248
<SECURITIES> 0
<RECEIVABLES> $27,770
<ALLOWANCES> 0
<INVENTORY> $1,640,665
<CURRENT-ASSETS> $1,763,461
<PP&E> $583,599
<DEPRECIATION> $(311,694)
<TOTAL-ASSETS> $2,060,469
<CURRENT-LIABILITIES> $615,180
<BONDS> 0
0
0
<COMMON> $9,999
<OTHER-SE> $1,435,290
<TOTAL-LIABILITY-AND-EQUITY> $2,060,469
<SALES> $3,834,452
<TOTAL-REVENUES> $3,834,452
<CGS> $2,386,286
<TOTAL-COSTS> $2,386,286
<OTHER-EXPENSES> $3,002,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $(1,554,410)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,554,410)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
