UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X ] ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-26828
WINDSOR CAPITAL CORP.
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 58-1921737
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7200 W. CAMINO REAL, SUITE 302, BOCA RATON, FLORIDA 33433
---------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (561) 417-8364
---------------------------
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
------------------- ON WHICH REGISTERED
---------------------
NONE NONE
------ ------
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
NONE
_________________
(TITLE OF CLASS)
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 past 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. [X] Yes [ ] No
<PAGE>
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year are $5,244,082.
The aggregate market value of the common stock held by non-affiliates of
the registrant, computed using a value of $.125 per share, the closing price of
the Common Stock on April 29, 1999, was $653,188 on that date.
The number of shares outstanding of the issuer's common stock, $.001 par
value per share, as of April 29, 1999 is 9,999,053.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The Company is a mall-based specialty retailer which operates six in-line
stores in South Florida malls under the name "Smoker's Gallery." These stores
carry a wide range of tobacco products and accessories, including cigars, pipes
and pipe tobacco, as well as upscale non-tobacco-related gift items
("gentlemen's accessories").
In addition, until June 1998, the Company owned and operated 14 kiosks
under the name "Simply Cigars" in malls located in Connecticut, Illinois,
Maryland, Massachusetts, Michigan and Ohio. These stores sold hand-rolled
premium cigars, cigar-related items and gentlemen's accessories. Most of the
Simply Cigars kiosks proved unprofitable, and in May 1998, the Company decided
to terminate its Simply Cigars operations. 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; however, the prospective buyer failed to close. In November 1998, the
Company filed suit against the prospective buyer 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 I, Item 3 "Legal Proceedings".
The Company commenced operations under the Simply Cigars name in November
1996, operating kiosks through its predecessor Woodfield Enterprises, Inc., a
Florida corporation ("Woodfield"), which was incorporated in July 1996. The
Company was incorporated in Delaware in June 1988; however, the Company had no
operations until December 31, 1997, when Woodfield merged into the Company. On
January 30, 1998, Boynton Tobacconists, Inc., a Florida corporation("Boynton")
which owned and operated one Smoker's Gallery store and owned five subsidiaries
each owning and operating a Smoker's Gallery store, merged into the Company.
Boynton commenced operations in 1981.
The Company's executive offices are located at 7200 W. Camino Real, Suite
302, Boca Raton, Florida 33433. The Company's telephone number is (561)
417-8364, and its fax number is (561) 417-8368.
THE CIGAR MARKET
Until 1993, the cigar industry experienced a long continuing decline in
cigar consumption. This trend reversed with unit sales beginning to grow in
1994, although the rate of growth has declined since 1996. The cigar industry
has experienced a significant downturn in profitability since late 1997. Major
publicly-traded cigar companies have experienced significant decreases in market
value in the last year. In addition, this downturn has caused a shake-out in the
industry under which many smaller manufacturers, as well as some cigar shops and
cigar bars have disappeared.
The Company's Smoker's Gallery stores have been materially adversely
affected by the downturn in the cigar industry. Same store sales declined during
fiscal 1999 by approximately 29%. These and other factors have resulted in the
Board of Directors taking a closer look at the Company's operations and future
plans.
1
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SMOKER'S GALLERY
The Smoker's Gallery chain, which merged into the Company in January 1998,
was founded by Joel A. Wolk (now the Company's Chief Operating Officer) in 1981
and consists of six in-line stores averaging approximately 1,000 square feet
each. The Smoker's Gallery stores are "tobacconist" stores, offering a full line
of tobacco and tobacco-related products, including premium and non-premium
cigars, pipes, pipe tobacco, cigarettes and related accessories. The stores also
carry gentlemen's accessories.
The Smoker's Gallery stores are all located in upscale regional malls in
South Florida. Regional malls draw from a trade area with an average radius of
20 miles and 250,000 consumers. According to industry estimates, each consumer
visits a mall an average of 1.4 times per month.
Regional malls are classified into four categories: AA; A; B; and C. The
Company, however, due to its focus on upscale consumers with substantial
discretionary income, has outlets only in AA and A malls. AA and A malls
generally have around 1,000,000 square feet of gross leasable area, at least
three major department stores, better than average income per household in the
surrounding area, and annual sales in excess of $250 per square foot.
Mall owners frequently do not lease space to multiple vendors of specialty
products with a niche as precise as the Company's product line. Therefore, the
Company's stores benefit from a strong barrier to entry that limits competition
in the malls where those outlets are located.
As of April 30, 1999, the Smoker's Gallery outlets are as follows:
<TABLE>
<CAPTION>
DATE
MARKET MALL NAME RATING DEVELOPER OPEN
- ------ ---------- ------ --------- ----
<S> <C> <C> <C> <C>
South Florida Boynton Beach A DeBartolo 11/85
South Florida Galleria A Keystone 11/81
South Florida Palm Beach Gardens AA Forbes Cohen 11/92
South Florida Sawgrass Mills AA Western Dev. 10/90
South Florida Boca Town Center AA DeBartolo 12/96
South Florida The Falls A Taubman 12/96
</TABLE>
SIMPLY CIGARS
The Simply Cigars kiosks were located in AA and A malls in Connecticut,
Illinois, Maryland, Massachusetts, Michigan and Ohio and consisted of
approximately 100 square feet of display space each and were located either at
center court or in the highway of the mall. As the name suggests, these kiosks
were focused on the sale of premium cigars and related accessories. Each kiosk
stocked approximately 200 boxes of various premium cigar brands and sizes,
together with an assortment of cigar accessories and gentlemen's accessories.
The cigars were sold individually and by the box.
PRODUCTS
The Company sells a wide range of tobacco products and tobacco-related
accessories, as well as a select line of non-tobacco-related gentlemen's
accessories; however, the Company's principal product is premium cigars, which
represented a majority of sales at the Smoker's Gallery stores and the Simply
Cigars kiosks during the fiscal year ended January 31, 1999.
2
<PAGE>
CIGARS
Cigars are produced with three tobacco components: filler, binder and
wrapper. In order to make premium cigars, binder tobacco is hand-wrapped around
filler to create the "bunch," which is placed into a mold. Then, "wrapper"
tobacco is hand-wrapped around the bunch, creating a premium cigar. A premium
cigar uses only long-filler tobacco and binders and wrappers that are composed
solely of tobacco leaf. Long-filler tobacco consists of half tobacco leaves
rolled up, whereas short-filler tobacco consists of smaller pieces of tobacco,
including the portions of long-filler tobacco which are cut and discarded in
producing premium cigars. The quality of a cigar is based on the quality and age
of the tobacco used for the filler, binder and wrapper. Cigars that are not
premium cigars typically use short-filler and may be wholly or partially
manufactured by machine.
The Company has established relationships with wholesalers and
manufacturers of name-brand premium cigars such as Macanudo, Punch, H. Upmann,
Montecristo, Partagas and many others. The Company carries most or all of these
brands at its stores. The stores also sell non-premium cigars.
CIGAR ACCESSORIES
The Company has established relationships with wholesalers and
manufacturers of cigar accessories. These products include humidors for storing
cigars, cigar cutters, lighters, ashtrays, and the like.
PIPES, PIPE TOBACCO AND PIPE ACCESSORIES
The Company sells pipes, pipe tobacco and related accessories, including
tobacco pouches and pipe cleaners at the Smoker's Gallery stores. Through
Smoker's Gallery, the Company has long-established relationships with
wholesalers and manufacturers of these products.
OTHER TOBACCO PRODUCTS
The Smoker's Gallery stores also sell cigarettes and smokeless tobacco
products.
GENTLEMEN'S ACCESSORIES
In order to increase its overall sales and to diversify its product line so
as to guard against possible softness and/or declines in demand for premium
cigars and other tobacco-related products, the Company has introduced a
selection of "gentlemen's accessories" in its stores. These products consist of
high quality yet practical items, well suited for gifts and designed for the
young to middle-age upscale adult male consumer, including writing instruments,
umbrellas, flasks, shaving apparatus, leather goods and porcelain and bronze
figurines.
3
<PAGE>
The following table summarizes the Company's sales by product during the
fiscal year ended January 31, 1999:
%COMPANY %SIMPLY %SMOKER'S
PRODUCTS SALES CIGARS SALES GALLERY SALES
- -------- --------- ------------ --------------
CIGARS 56 55 57
CIGAR
ACCESSORIES 30 43 23
PIPE TOBACCO 1 -- 1
PIPES/PIPE
ACCESSORIES 2 -- 3
OTHER TOBACCO
PRODUCTS 6 -- 9
GENTLEMEN'S
ACCESSORIES 5 2 7
--- --- ---
100% 100% 100%
SEASONALITY
The Company's business is highly seasonal, with sales peaking in the
November-December holiday season, when historically approximately 40% of annual
sales have been generated. Thus, the success of the holiday season will be a
major determinant of the Company's profitability each year.
EXPANSION AND ACQUISITIONS
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. The
Company proceeded to close or sell the unprofitable Simply Cigars kiosk
operations and is presently pursuing either the sale of the entire Smoker's
Galley operations or the sale or prompt closure of any unprofitable Smoker's
Gallery stores.
In order to diversify away from the tobacco industry, the Company is also
pursuing possible acquisitions of non-tobacco companies. There can be no
assurance that any potential acquisitions will be consummated or that, if
consummated, any such acquisitions will prove to be beneficial to the Company.
COMPETITION
The tobacco industry in general, including the cigar industry, is dominated
by a small number of companies which are well known to the public; however, the
retail tobacconist marketplace is fragmented. According to the July - August
1997 issue of the tobacco industry's trade magazine, SMOKESHOP, there were 4,948
tobacco shops in the United States. According to the magazine, the industry
remains firmly dominated by independent retailers, who accounted for over 93% of
all tobacco shops. The remaining stores are split almost equally between
franchises and multi-store "chains," the largest of which is "The Tinder Box."
In addition, due to the recent surge in demand for premium cigars, the Company
faces
4
<PAGE>
substantial competition from non-traditional outlets for premium cigars,
including bars, restaurants, gift shops, drug stores and other retail stores.
GOVERNMENT REGULATION; TOBACCO INDUSTRY RISKS
The tobacco industry in general has been subject to regulation by Federal,
state and local governments, and recent trends have been toward substantially
increased regulation. Such regulations include health warning requirements,
limitations on advertising and prohibition of sales to minors, and laws
restricting smoking in public places and in offices, office buildings and
restaurants and other eating and drinking establishments. Effective January
1998, the State of California, which frequently starts national trends, banned
smoking in all bars and restaurants. In addition, cigars and other tobacco
products are subject to excise taxation at the Federal, state and local level,
and such taxation may increase substantially in the future. Tobacco products are
especially likely to be subject to increases in excise taxation because of the
perceived detrimental effects of tobacco on the health of both smokers and
others who inhale environmental tobacco smoke ("ETS").
While to date government regulation has focused on cigarettes, increasing
governmental attention has been directed in recent months to the cigar industry.
In April 1998, the Chairman of the Federal Trade Commission ("FTC"), citing a
new National Cancer Institute report which documents a high risk of mouth,
throat and lung cancer and other adverse health effects from cigar smoking,
announced his support for legislation regulating cigars on a basis comparable to
that for cigarettes. He specifically proposed health warnings on all cigar
packaging and advertising as well as curbs on marketing efforts that might be
deemed directed toward teenagers. In February 1999, the U.S. Department of
Health and Human Services Inspector General issued a report urging the FTC to
require cigars to carry warning labels similar to those contained on cigarette
packages. This report marks the first time that cigars have specifically been
identified for increased regulatory oversight by a federal health agency. No
assurance can be given that future regulations, tax policies or tobacco
litigation will not have a material adverse effect upon the ability of cigar
companies and tobacconists, including the Company, to generate revenue and
profits. The Company believes that the principal regulatory risks it faces arise
from proposals for (i) increased taxes on cigars, (ii) restrictions on cigar
advertising, (iii) warning labels on cigars, and (iv) restrictions on smoking in
public places, especially bars and restaurants.
During recent decades, the tobacco industry has been the subject of heavy
advertising and public service campaigns against smoking in general. While this
negative publicity has been focused on cigarettes, in recent months the news
media have increasingly emphasized the risks of cigar consumption and cigar ETS
and have suggested that cigars can be as hazardous as cigarettes. This publicity
could ultimately have a material adverse effect on the cigar industry in general
and on the Company in particular. Furthermore, litigation has been commenced in
a number of jurisdictions seeking damages from cigarette companies for damages
resulting from cancer caused by smoking and ETS. Although the Company is unaware
of any such litigation against tobacco retailers or cigar companies and all of
its sales have been made after both the risks of smoking and the addictive
nature of nicotine became generally known, no assurance can be given that the
Company will not be materially adversely affected by such litigation. In
addition, no assurance can be given that the Company will be able to obtain
adequate product liability insurance or, if such insurance is available, that it
will be available on commercially reasonable terms.
EMPLOYEES
At April 29, 1999, the Company had 42 employees. The Company is not and
never has been a party to a collective bargaining agreement. The Company
believes its relationship with its employees is good.
5
<PAGE>
TRADEMARKS
The Company had previously filed federal trademark registration
applications with the U.S. Patent and Trademark Office covering the "Simply
Cigars" name and logo. In connection with the Company's decision to terminate
its Simply Cigars operations, the Company abandoned these applications. In
connection with the August 1998 sale of its three Michigan-based Simply Cigars
kiosks, the Company granted to the purchaser a non-transferable limited right to
use the "Simply Cigars" trade name only in the State of Michigan.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including the exhibits hereto, contains "forward-looking
statements" within the meaning of the federal securities laws. 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 tobacconist industry trends and management's ability to successfully
market and sell its products to retail consumers. This plan assumes, among other
things, that (i) the Company will be able to enhance the profitability of the
Smoker's Gallery stores or, alternatively, promptly close or sell unprofitable
outlets and otherwise reduce its costs, (ii) the Company will be able to
continue its cost-cutting program focused on reducing corporate overhead, and
(iii) the Company will be able to successfully diversify its revenues away from
solely tobacco-related products through business opportunities outside of the
tobacco industry. 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 adversely different from any future results expressed or implied by
such forward-looking statements.
ITEM 2. DESCRIPTION OF PROPERTY
All of the Company's six Smoker's Gallery stores are leased with lease
terms expiring between 1999 and 2007. The rental payments for most facilities
are based on a minimum rental plus a percentage of gross sales in excess of a
stipulated amount. The Company is also generally obligated for the facilities'
operating costs including property taxes, insurance and maintenance. Minimum
monthly lease payments for the Company's stores range from approximately $2,300
to $4,300. The Company's headquarters, located in Boca Raton, Florida, occupies
1,000 square feet of leased space. The Company rents its headquarters facility
under a lease expiring in November 2000 at a rate of approximately $1,900 per
month.
ITEM 3. LEGAL PROCEEDINGS
On September 15, 1998, the Company entered into an Operating Agreement and
an Asset Purchase Agreement (collectively, the "Agreements") with Tropical
Republic, Inc. ("Tropical"), under which the responsibility for the operations
and expenses of the Company's then remaining nine Simply Cigars 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
Agreements. On November 18, 1998, the Company filed suit in Broward County,
Florida,
6
<PAGE>
Circuit Court for breach of the Agreements against 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 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, discovery proceedings have begun only recently 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.
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, which have been re-leased to other tenants. 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.
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 commenced an investigation and discussions with the manufacturer to
determine the Company's potential liability under the claim. The Company's
results of operations, cash flows or its financial position could be materially
adversely affected if all, or a substantial portion of this claim proves valid.
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 for $5,000. 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. In November 1998, the Maryland landlord threatened legal action
against the Company; however, the Company is unaware of the commencement of any
such action and there has been no further legal pressure by the landlord. 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.
7
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market on the
National Association of Securities Dealers ("NASD") OTC Bulletin Board. Its
symbol is "WDSC". Until January 1998, following the merger of Woodfield into the
Company, only sporadic trading of the common stock occurred and no established
trading market existed for the common stock.
The following table sets forth the range of high and low bid quotations for
the common stock for the last quarter of fiscal year 1998, fiscal year 1999, and
the first quarter of fiscal year 2000. These quotations were obtained from the
NASD and reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
FISCAL YEAR HIGH LOW
- ----------- ---- ---
1998
FOURTH QUARTER $ 2.00 $ .875
(January 1998 only)
1999
FIRST QUARTER $ 1.875 $ .50
(through April 30, 1998)
SECOND QUARTER $ .625 $ .25
(through July 31, 1998)
THIRD QUARTER $ .3125 $ .0625
(through October 31, 1998)
FOURTH QUARTER $ .625 $ .0625
(through January 31, 1999)
2000
FIRST QUARTER $ .75 $ .125
(through April 29, 1999)
The Company had 115 shareholders of record as of April 29, 1999; however,
based on information provided by the Company's transfer agent, the Company
believes that the number of beneficial owners of the common stock is greater.
8
<PAGE>
In July 1996, the Company sold 3,000,000 shares of its common stock to its
founders, Gary N. Mansfield, Harold S. Blue, Guy F. Wood and Michael Falk,
Messrs. Mansfield and Wood paid nominal consideration of $.001 per share for
750,000 shares each. Messrs. Blue and Falk paid $100,000 each for 750,000 shares
($.13 per share). Thereafter, the Company sold 1,250,000 shares of common stock
to investors at a price of $.50 per share between November 1996 and March 1997,
and the Company sold an additional 2,450,000 shares of common stock at a price
of $1.00 per share between April and December 1997. The Company also issued to
certain investors who purchased common stock warrants to purchase an aggregate
of 165,000 shares of common stock at an exercise price of $1.00 per share
through November 30, 2001. These warrants were issued at no extra cost to the
investors. In December 1997, the Company issued to Mr. Blue, as compensation for
his services to the Company as Chairman, warrants to purchase 387,500 shares of
common stock on the same terms as the investor warrants. Mr. Blue later
transferred warrants for 275,500 of these shares to other persons.
In January and February 1998, pursuant to a December 1997 call by the
Company, holders of the Company's Class A Warrants exercised 307,500 of such
warrants at a price of $.50 per share, yielding aggregate proceeds of $153,750
to the Company.
The foregoing sales of securities were made pursuant to the exemptions from
registration provided in Section 4(2) of the Act and Regulation D promulgated
thereunder.
The Company has not paid any dividends on its common stock. The Company
intends to retain any earnings for use in its operations and does not anticipate
paying any dividends on the common stock in the foreseeable future. The payment
of dividends is within the discretion of the Company's Board of Directors. Any
future decision with respect to dividends will depend on future earnings, future
capital needs and the Company's operating and financial condition, among other
factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table reflects the contributions of Simply Cigars and
Smoker's Gallery stores to the Company's sales and net loss during the fiscal
years ended January 31, 1999 ("Fiscal 1999") and January 31, 1998 ("Fiscal
1998").
FISCAL 1999 FISCAL 1998
----------- -----------
SIMPLY SMOKER'S SIMPLY SMOKER'S
CIGARS GALLERY CIGARS GALLERY
------ -------- ------ --------
Sales $ 1,037,175 $ 4,206,907 $ 2,289,806 $ 4,355,328
Net Income (Loss) $(1,945,213) $ (142,424) $ (656,836) $ 563,987
The Company's statement of operations for Fiscal 1998, reflects only nine
months of Smoker's Gallery operations, from May 1, 1997, through January 31,
1998. Further, during Fiscal 1998, only six Simply Cigars kiosks were operating
during the entire period. The Company opened eight additional Simply Cigars
kiosks in Fiscal 1998, four of which were opened before the November-December
1997 holiday season; the other four were opened in November and December 1997
(two in each month).
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<PAGE>
In early June 1998, the Company closed two kiosks and in August 1998, the
Company sold three other kiosks. In September 1998, the Company closed its
remaining nine kiosks.
The following table sets forth certain items expressed in percentages of
revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1999 1998
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of revenues 67.1% 58.1%
------ -------
Gross profit 32.9% 41.9%
Selling, general and administrative expenses 61.8% 43.4%
Loss on disposition of kiosks 12.3% 0.0%
------ -------
Operating loss (41.2)% (1.5)%
Other income 1.4% 0.4%
------ -------
Loss before provision for taxes (39.8)% (1.1)%
Provision for taxes 0.0% (0.3)%
------ -------
Net loss (39.8)% (1.4)%
======= =======
</TABLE>
Revenues for Fiscal 1999 decreased 21% to $5,244,082 from $6,645,134 in
Fiscal 1998. The decrease in revenues was due to the decrease in Simply Cigars
revenues of $1,252,631 ($1,037,175 for Fiscal 1999, versus $2,289,806 for Fiscal
1998) along with a decrease in Smoker's Gallery revenues of $148,421 ($4,206,907
for the 12 months ended January 31, 1999 versus $4,355,328 for the 9 month
period ended April 30, 1998).
Gross profit was $1,724,075, or 32.9% of revenues in Fiscal 1999, compared
with $2,781,511, or 41.9% in Fiscal 1998. The decrease in gross profit as a
percentage of sales was primarily due to the decline in same store sales which
resulted in increased promotional discounts and other price reductions being
offered to customers during the year. In addition, in connection with the
Company's disposition of the Simply Cigars kiosks, an inventory reserve in the
amount of approximately $195,000 was recorded through cost of revenues during
Fiscal 1999.
Selling, general and administrative expenses increased 12% in Fiscal 1999
to $3,100,341 from $2,761,785 in Fiscal 1998. The increase in selling, general
and administrative expenses was due to the increase in Smoker's Gallery selling,
general and administrative expenses of $523,133 ($1,548,207 for Fiscal 1999
versus $1,025,074 for the 9 months ended January 31, 1998) offset by a decrease
in Simply Cigars selling, general and administrative expenses of $184,577
($1,552,134 for Fiscal 1999 versus $1,736,711 for Fiscal 1998).
In connection with the Company's sale/closure of the Simply Cigars kiosk
operations, the Company recorded a loss on disposition of kiosks of $646,822 in
Fiscal 1999, which related primarily to losses or write-offs with respect to the
Simply Cigars' property, equipment and inventory.
The Company's net loss of $2,087,637 for Fiscal 1999 reflects the Simply
Cigars loss of $1,945,213 plus the Smoker's Gallery loss of $142,424.
The Company's net loss of $92,849 for Fiscal 1998 reflects the Simply
Cigars loss of $656,836 mostly offset by Smokers Gallery's net income of
$563,987. During Fiscal 1998, Boynton Tobacconists, Inc. ("Boynton"), the former
operator of Smoker's Gallery, was a Subchapter S corporation, and substantially
all of its net income was paid to Wolk as a distribution. This distribution was
not deducted for purposes of calculating the Company's net loss.
10
<PAGE>
During the November-December 1998 holiday season, the Company's Smoker's
Gallery same store sales decreased 27% from the level for the 1997 holiday
season. Since January 1999, the Company has continued to experience a decline in
same store sales. During the two months ended March 31, 1999, the Company's
Smoker's Gallery sales were down 23% from the same period in 1998. The Company
believes that this decline in sales 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. Unless the decline in the Company's same store sales is soon
reversed, the Company will be materially adversely affected.
The Company believes that the keys to its achieving profitability include,
among other things, (i) the enhancement of the profitability of the Smoker's
Gallery stores or, alternatively, the prompt closure or sale of unprofitable
stores, (ii) the continuation of a cost-cutting program focused on reducing
corporate overhead, and (iii) the diversification of its revenues away from
solely tobacco-related products through business opportunities outside of the
tobacco industry. There can be no assurance that the Company will be able to
fulfill this plan or achieve profitability, especially given the adverse trends
in same store sales described above.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company had working capital of $590,360; however,
the Company has experienced recurring losses from operations and generated
negative cash flows from operations of $784,056 during Fiscal 1999. In addition,
as further discussed in Part I, Item 3 "Legal Proceedings", the Company is
subject to certain contingencies which, if not favorably resolved, could have a
significant negative impact on its future cash flows. The Company is seeking to
reduce operating expenses through reductions in corporate overhead and increase
sales volume through increased promotional discounts. In addition, the Company
is considering seeking sources of funds through additional capital contributions
or through additional financing. The Company is also pursuing either the sale of
its Smoker's Gallery retail outlets or the prompt closure of any unprofitable
Smoker's Gallery retail outlets. Finally, as discussed in Part I, Item 3 "Legal
Proceedings", the Company has attempted to mitigate the potential financial
impact of any contingencies which may not be favorably resolved.
In the absence of achieving profitable operations, obtaining additional
debt or equity financing, or concluding successful negotiations for the sale or
closure of some or all of its Smoker's Gallery retail outlets, the Company may
not have sufficient funds to continue operations in Fiscal 2000.
Net cash used in operating activities increased 1,029% in Fiscal 1999 to
$784,056 from $69,419 in Fiscal 1998, primarily due to the increase in the net
loss ($2,087,637 for Fiscal 1999 versus $92,849 for Fiscal 1998) and the
increase in cash used to reduce accounts payable (cash used by operating
activities of $583,220 for Fiscal 1999 versus cash provided by operating
activities of $357,754 for Fiscal 1998) offset by (i) an increase in non-cash
losses, i.e. depreciation, amortization and loss on disposition of kiosks,
($785,738 for Fiscal 1999 versus $121,513 for Fiscal 1998), and (ii) a reduction
in merchandise inventories (cash provided by operating activities of $1,143,284
during Fiscal 1999 versus cash used by operating activities of $551,502 during
Fiscal 1998).
Net cash provided by investing activities amounted to $36,097 in Fiscal
1999. Such amount resulted from the proceeds received from the sale of the three
Michigan-based Simply Cigar kiosks ($38,851) offset by capital expenditures of
$2,754. Cash used in investing activities amounted to $357,813 in Fiscal 1998
and related to the capital expenditures required to expand Simply Cigars'
operations.
11
<PAGE>
Net cash provided by financing activities decreased 87% in Fiscal 1999 to
$130,750 from $990,858 in Fiscal 1998. This decrease is due to a decrease in
proceeds from the sale of common stock ($130,750 for Fiscal 1999 versus
$2,364,153 for Fiscal 1998), offset by the fact that during Fiscal 1998, net
repayments of amounts borrowed amounted to $1,294,812 and a distribution in the
amount of $565,000 was paid to Wolk.
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.
ITEM 7. FINANCIAL STATEMENTS
The Company's Financial Statements are included herein beginning on
Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
12
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION(S)
- ---- --- -----------
Eugene R. Terry 60 Chairman, Chief Executive Officer
and Director
Joel A. Wolk 47 Chief Operating Officer
Karl E. Duell 42 Vice President, Secretary, Treasurer
and Chief Financial Officer
Harold S. Blue 38 Director
Alan Cornell 53 Director
Neil Litten 60 Director
EUGENE TERRY
Mr. Terry became a Director of the Company in October 1997 and became Chief
Executive Officer in June 1998. He is a pharmacist and in 1971, founded Home
Nutritional Support, Inc. ("HNSI"), one of the first companies established in
the home infusion industry. In 1984, HNSI was sold to Healthdyne, Inc. HNSI was
later sold to the W.R. Grace Group. From 1975 to 1984, Mr. Terry was also
founder and Chief Executive Officer of Paramedical Specialties, Inc., a
respiratory and durable medical equipment company, which was also sold to
Healthdyne, Inc. From 1962 to 1985, Mr. Terry was a principal of Terry Drug
Company, an upscale retail drugstore chain in Northern New Jersey. From 1970 to
1978, Mr. Terry was President of Pharmaceutical Specialties, a Christmas mail
order catalog company serving pharmacies nationwide. Mr. Terry has been a
director of ProxyMed, Inc. (Nasdaq: PILL), a healthcare information technology
company based in Ft. Lauderdale, Florida ("ProxyMed"), since August 1995.
Currently, Mr. Terry is also a principal in T/C Solutions, a management
consulting venture capital company.
JOEL A. WOLK
Mr. Wolk has worked in the retail tobacco industry since 1973, when he and
his father opened a Tinder Box franchise in the Staten Island Mall in New York.
Later, the Wolk family sold the Tinder Box store and Mr. Wolk opened and later
sold Smoker's Gallery stores in Binghampton, New York, and Phoenix, Arizona. In
1981, Mr. Wolk relocated to Boca Raton, Florida, where he opened the current
Smoker's Gallery chain, with the first store located at the Galleria Mall in
Fort Lauderdale. The chain grew to six stores by 1996. From 1993 to 1996, Mr.
Wolk served as a director of the Retail Tobacco Dealers of America. Mr. Wolk
became Chief Operating Officer of the Company on January 30, 1998, when the
Smoker's Gallery chain was acquired in the merger by Boynton into the Company.
13
<PAGE>
KARL E. DUELL
Mr. Duell has served as Vice President and Chief Financial Officer of the
Company since January 1998. Mr. Duell has over 18 years experience working with
national, regional and local independent public accounting firms, most recently
having served as a senior manager with Ernst & Young L.L.P. from November 1996
to December 1997. Prior to that, he was a manager with Coopers & Lybrand L.L.P.,
a predecessor of the Company's independent public accountants, from November
1992 to October 1996. Mr. Duell is a Certified Public Accountant and holds a
B.B.A. degree from Niagara University.
HAROLD S. BLUE
Mr. Blue, a co-founder of the Company, served as the Company's Chairman
from July 1996 until March 1998 and continues as a Director. He is currently
employed by ProxyMed as its Chairman and Chief Executive Officer. He has held
those positions since January 1993. In January 1991, Mr. Blue founded and then
served as Chief Executive Officer and Chairman of Health Services of Miami
Lakes, Inc., a multi-office provider of primary and specialty care services to
managed care patients. In December 1994, Mr. Blue sold that company to InPhyNet,
Inc., a publicly traded (Nasdaq National Market) physician practice management
company. Prior to founding Health Services, Mr. Blue was the founder of Best
Generics, Inc. in 1984. Best Generics was later sold to pharmaceutical
manufacturer Ivax Corporation, a publicly traded (AMEX) firm, in August 1988.
Mr. Blue served on the Board of Directors of Ivax for two years, and then served
as a consultant to Ivax for an additional three-year period. Mr. Blue served as
President and Chief Executive Officer of Budget Drugs, Inc., an independent
chain of retail pharmacies from 1979 to 1992. He currently serves as a director
of iMall, Inc. (OTC: IIML), which operates what it believes to be the largest
independent mall on the Internet, and Accumed, Inc. (Nasdaq: ACMIC), a
healthcare medical device company.
ALAN CORNELL
Mr. Cornell became a Director of the Company in January 1999. He began his
career in 1972 at Loew-Cornell, Inc., a family art and craft business, based in
Teaneck, New Jersey. He has been a principal of Loew-Cornell, Inc., since 1972,
and currently serves as President. Mr. Cornell also currently serves as
President of Jane Cornell, Inc., an importer of cosmetic items, based in
Teaneck, New Jersey. Mr. Cornell also served on the Board of Directors of the
Hobby Industry Association of America from 1991 to 1992. Mr. Cornell is a
graduate of the New York University School of Commerce.
NEIL LITTEN, D.O.
Dr. Litten became a Director of the Company in January 1999. Dr. Litten is
Board Certified in Family Medicine and has been practicing in New Jersey for the
past 33 years. In addition to his family practice, in 1984, Dr. Litten developed
a successful rehabilitation center, which continues today. In 1989, Dr. Litten
also developed an MRI Center and incorporated 25 other physicians into the
group. In addition, Dr. Litten has also been involved in nursing centers and
real estate development over the last 20 years.
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid since commencement of
the Company's operations to the Company's current and former Chief Executive
Officer and the only other executive officer of the Company with annual
compensation over $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- -----------------------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SECURITIES UNDERLYING OPTIONS
- -------------------- ---- ------ ----- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Eugene R. Terry 1999 $ 39,462 - - 300,000
Chief Executive Officer 1998 $ - - - -
Gary N. Mansfield 1999 $ - - - -
Chief Executive Officer 1998 $ 19,231 - - 200,000
Joel A. Wolk 1999 $123,077 - - -
Chief Operating Officer 1998 $ - - $565,000 (1) 100,000
</TABLE>
- ----------------
(1) Subchapter S shareholder distribution from Boynton.
In January 1998, the Company entered into three-year employment agreements
with Messrs. Mansfield, Wolk and Duell. These agreements provide for annual
salaries of $120,000, $125,000 and $70,000, respectively. In connection with his
June 1998 resignation as Director and Chief Executive Officer, Mr. Mansfield's
contract was terminated. The agreements also provide for customary employee
benefits and standard confidentiality and non-competition covenants. Upon a
termination "without cause," Mr. Duell is entitled to two months' salary. Upon a
termination "without cause," Mr. Wolk is entitled to payment of his salary
through the end of the three-year term.
The Company has not paid any directors' fees and does not intend to pay any
directors' fees through the end of the fiscal year ended January 31, 2000.
The following table provides information on stock option grants during
Fiscal 1999 to each of the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SHARES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) IN FY ($/SH) DATE
- ---- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Eugene R. Terry 300,000 48.9% $.0975 1/20/04
</TABLE>
15
<PAGE>
The following table sets forth certain information concerning
unexercised options held by each of the named executive officers:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Number of Value of Value of
Securities Securities Unexercised Unexercised
Shares Value Underlying Underlying In-the-Money In-the-Money
Acquired on Realized Options/SARs Options/SARs Options/SARs Options/SARs
Name Exercise (#) ($) at FY-End (#) at FY-End (#) at FY-End (#) at FY-End (#)
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Eugene R. Terry - - 100,000 200,000 $ 9,750 $ 19,500
Gary N. Mansfield - - 200,000 - - -
Joel A. Wolk - - 100,000 - - -
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's common stock as of April 29, 1999, with respect to
(i) each person known to the Company to be the beneficial owner of more than 5%
of the Company's common stock, (ii) each director, (iii) each executive officer
named in the Executive Compensation Table, and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES OF THE COMPANY'S
COMMON STOCK BENEFICIALLY OWNED
NAME AND ADDRESS
OF BENEFICIAL OWNER(1) NUMBER PERCENT
- ---------------------- ------ -------
<S> <C> <C>
Harold S. Blue 828,667(2) 7.7%
Eugene R. Terry 225,000(3) 2.2%
Joel A. Wolk 2,046,553(4) 17.0%
Karl E. Duell 55,000(5) *
Alan Cornell 41,667(6) *
Neil Litten 71,667(7) *
Gary N. Mansfield 902,000(8) 8.3%
Guy F. Wood 770,000 7.2%
16
<PAGE>
Michael Falk
830 Third Avenue
New York, NY 10017 776,250(9) 7.2%
J.F. Shea Co.
655 Brea Canyon Road
Walnut, CA 71789 750,000 7.0%
Directors and executive officers
as a group 3,268,554(10) 24.6%
</TABLE>
- ----------
*Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date set forth above through the
exercise of any option, warrant or right. Shares of the Company's
common stock subject to any options, warrants or rights that are
currently exercisable or exercisable within 60 days are deemed
outstanding for purposes of computing the percentage ownership of the
person holding such options, warrants or rights, but are not deemed
outstanding for purposes of computing the percentage ownership of any
other person.
(2) Includes 128,667 shares issuable upon the exercise of currently
exercisable options and warrants.
(3) Includes 125,000 shares issuable upon the exercise of currently
exercisable options and warrants.
(4) Includes 100,000 shares issuable upon the exercise of currently
exercisable options.
(5) Includes 55,000 shares issuable upon the exercise of currently
exercisable options.
(6) Includes 16,667 shares issuable upon the exercise of currently
exercisable options.
(7) Includes 21,667 shares issuable upon the exercise of currently
exercisable options and warrants.
(8) Includes 100,000 shares issuable upon the exercise of currently
exercisable options.
(9) Includes 26,250 shares issuable upon the exercise of currently
exercisable warrants.
(10) Includes 447,000 shares issuable upon the exercise of currently
exercisable options and warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1996, Mr. Blue loaned $70,000 to the Company. This loan
was repaid in December 1996 without interest. In September 1997, Mr. Blue loaned
$50,000 to the Company. This loan was repaid in November 1997 without interest.
17
<PAGE>
ITEM 13. EXHIBIT LIST AND REPORTS ON FORM 8-K
(A) Exhibits
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation, as amended (incorporated by reference to
Exhibit 3.1 of the Company's Form 10-KSB for the transition period
from October 1, 1997, to January 31, 1998).
3.2 Bylaws. (incorporated by reference to Exhibit 3.2 of the Company's
Form 10-KSB for the transition period from October 1, 1997, to
January 31, 1998).
10.1 Agreement and Plan of Merger among the Company, Woodfield Enterprise Inc.
and International Asset Management Group, Inc., dated December 18, 1997
(incorporated by reference to Exhibit 2.1 of the Company's Form 8-K,
reporting an event dated December 31, 1997).
10.2 Agreement and Plan of Merger between the Company and Boynton
Tobacconists, Inc., dated January 29, 1998 (incorporated by reference to
Exhibit 2.1 of the Company's Form 8-K, reporting an event dated January
30, 1998).
10.3 Employment Agreement between the Company and Gary N. Mansfield.*
(incorporated by reference to Exhibit 10.3 of the Company's Form 10-KSB
for the transition period from October 1, 1997, to January 31, 1998).
10.4 Employment Agreement between the Company and Joel A. Wolk.*
(incorporated by reference to Exhibit 10.4 of the Company's Form 10-KSB
for the transition period from October 1, 1997, to January 31, 1998).
10.5 Employment Agreement between the Company and Karl E. Duell.*
(incorporated by reference to Exhibit 10.5 of the Company's Form 10-KSB
for the transition period from October 1, 1997, to January 31, 1998).
10.6 Operating Agreement among the Company, Tropical Republic, Inc., and
James Joiner dated September 16, 1998.
10.7 Asset Purchase Agreement among the Company, Tropical Republic, Inc., and
James Joiner dated September 16, 1998.
27 Financial Data Schedule.
- ----------
* Denotes employment agreement or compensatory plan.
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the year ended January 31,
1999.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.
No annual report or proxy material has been sent to security holders, nor
are such materials anticipated to be sent.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 30, 1998
WINDSOR CAPITAL CORP.
By: /s/ EUGENE R. TERRY
---------------------------------
Eugene R. Terry
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ EUGENE R. TERRY Chief Executive Officer April 30, 1998
- ------------------------ (principal executive officer)
Eugene R. Terry and Director
/s/ KARL E. DUELL Vice President and Chief April 30, 1998
- ------------------------ Financial Officer (principal
Karl E. Duell financial and accounting
officer)
/s/ HAROLD S. BLUE Director April 30, 1998
- ------------------------
Harold S. Blue
/s/ ALAN CORNELL Director April 30, 1998
- ------------------------
Alan Cornell
/s/ NEIL LITTEN Director April 30, 1998
- ------------------------
Neil Litten
<PAGE>
WINDSOR CAPITAL CORP.
FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
TABLE OF CONTENTS
Report of Independent Certified Public Accountants................F-2
Financial Statements:
Balance Sheet.....................................................F-3
Statements of Operations..........................................F-4
Statements of Stockholders' Equity................................F-5
Statements of Cash Flows..........................................F-6
Notes to Financial Statements.....................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Windsor Capital Corp.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Windsor Capital Corp. (the "Company") at
January 31, 1999, and the results of its operations and its cash flows for each
of the two years in the period ended January 31, 1999, in conformity with
generally accepted accounting principles. 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and generated negative cash flows from operations of $784,056 during the year
ended January 31, 1999. In addition, as discussed in Note 6, the Company is
subject to certain contingencies, which if not favorably resolved, could have a
significant negative impact on its future cash flows. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PRICEWATERHOUSECOOPERS L.L.P.
April 13, 1999
Miami, Florida
F-2
<PAGE>
WINDSOR CAPITAL CORP.
BALANCE SHEET
JANUARY 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 102,870
Receivables 48,918
Merchandise inventories 1,031,506
Prepaid expenses and other current assets 3,500
--------------------
Total current assets 1,186,794
Property and equipment, net 305,868
Other assets:
Deposits 15,834
====================
Total assets $ 1,508,496
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 426,116
Accrued salaries and employee benefits 19,230
Other accrued expenses 151,088
--------------------
Total current liabilities 596,434
--------------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; no
shares issued or outstanding -
Common stock, $0.001 par value; 20,000,000 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 (2,884,958)
--------------------
Total stockholders' equity 912,062
====================
Total liabilities and stockholders' equity $ 1,508,496
====================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
WINDSOR CAPITAL CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------------------------------------
<S> <C> <C>
Revenues $ 5,244,082 $ 6,645,134
Cost of revenues 3,520,007 3,863,623
----------------------------------------
Gross profit 1,724,075 2,781,511
Operating expenses:
Selling, general and administrative expenses 3,100,341 2,761,785
Loss on disposition of kiosks 646,822 -
Depreciation and amortization 138,916 121,513
----------------------------------------
Total operating expenses 3,886,079 2,883,298
----------------------------------------
Operating loss (2,162,004) (101,787)
----------------------------------------
Other income (expense):
Lottery income 68,509 60,985
Interest 5,858 (29,047)
----------------------------------------
74,367 31,938
----------------------------------------
Loss before provision for income taxes (2,087,637) (69,849)
Provision for income taxes - 23,000
----------------------------------------
Net loss $ (2,087,637) $ (92,849)
========================================
Loss per common share, basic and diluted $ (.21) $ (.01)
=========================================
Weighted average common shares outstanding 9,951,995 6,636,094
=========================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
WINDSOR CAPITAL CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON SUBSCRIPTION PAID IN ACCUMULATED
STOCK STOCK RECEIVABLE CAPITAL DEFICIT TOTAL
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1997 $ - $ 5,970 $ (1,400) $ 786,030 $ (139,472) $ 651,128
Issuance of common stock - 3,591 - 2,872,079 - 2,875,670
Distributions - - - - (565,000) (565,000)
Net loss - - - - (92,849) (92,849)
---------------------------------------------------------------------------------------------------
Balance at January 31, 1998 - 9,561 (1,400) 3,658,109 (797,321) 2,868,949
Issuance of common stock - 438 - 130,312 - 130,750
Net loss - - - - (2,087,637) (2,087,637)
---------------------------------------------------------------------------------------------------
Balance at January 31, 1999 $ - $ 9,999 $ (1,400) $ 3,788,421 $ (2,884,958) $ 912,062
===================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-5
<PAGE>
WINDSOR CAPITAL CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,087,637) $ (92,849)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 138,916 121,513
Loss on disposition of kiosks 646,822 -
Non-cash professional fees - 25,000
Deferred income taxes - 23,000
Changes in operating assets and liabilities:
Accounts receivable (45,646) 11,129
Merchandise inventories 1,143,284 (551,502)
Prepaid expenses and other current assets 36,705 (26,750)
Deposits and other assets 14,014 (17,970)
Accounts payable (583,220) 357,754
Accrued salaries and employee benefits (2,214) 15,002
Other accrued expenses (45,080) 66,254
------------------------------------
Net cash used in operating activities (784,056) (69,419)
------------------------------------
INVESTING ACTIVITIES
Capital expenditures (2,754) (357,813)
Proceeds from sale of property and equipment 38,851 -
------------------------------------
Net cash provided by (used in) investing activities 36,097 (357,813)
------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings - 300,000
Repayment of amounts borrowed - (1,594,812)
Distributions - (565,000)
Cash acquired in capital transaction, net - 486,517
Proceeds from sale of common stock, net 130,750 2,364,153
------------------------------------
Net cash provided by financing activities 130,750 990,858
------------------------------------
Net increase (decrease) in cash and cash equivalents (617,209) 563,626
Cash and cash equivalents at beginning of period 720,079 156,453
====================================
Cash and cash equivalents at end of period $ 102,870 $ 720,079
====================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ - $ 29,047
====================================
Property acquired through incurring other accrued expenses $ 68,000 $ -
====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements
January 31, 1999 and 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
On December 31, 1997, Woodfield Enterprises, Inc., a Florida corporation
specialty retailer of premium cigars and accessories which operates in regional
malls primarily in the Midwest and Northeast United States ("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 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 was
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
$486,000, after the recapitalization. In addition, the historical results of
Woodfield became the operating results of the Company. In connection with the
merger, the Company changed its calendar year end to a fiscal year ending
January 31.
F-7
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
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.
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 and
therefore, the 1998 financial statements have been presented as if the merger
took place at the beginning of such period.
Boynton had a fiscal year ending April 30, and, accordingly, Boynton's statement
of operations for the nine month period ended January 31, 1998 has been combined
with the Company's statement of operations for the fiscal year ended January 31,
1998.
F-8
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Separate results of operations for the periods prior to the merger with Boynton
are as follows:
PERIOD
ENDED
JANUARY 31
1998
----------------------
Net sales:
Registrant $ 2,289,806
Boynton 4,355,328
----------------------
Combined $ 6,645,134
======================
Net income (loss):
Registrant $ (656,836)
Boynton 563,987
----------------------
Combined $ (92,849)
======================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. At times, the Company maintains
cash in its corporate accounts in amounts which exceed federally insured limits.
The Company places its cash in high quality credit institutions and has not
experienced any losses in such accounts.
F-9
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MANAGEMENT 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 and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from sales of products is generally recognized upon delivery to
customers. The Company has established programs, which, under specific
conditions, enable customers to return products. The Company establishes
liabilities for estimated returns and allowances at the time of delivery to
customers.
MERCHANDISE INVENTORIES
Inventory is stated at the lower of cost or market, with cost determined using
the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at cost
less accumulated depreciation. Depreciation and amortization are provided on the
straight-line basis over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the lesser of their estimated useful
life or the life of the lease. The range of estimated lives for financial
reporting purposes are as follows: leasehold improvements 5 to 10 years and
equipment and other 3 to 7 years. Maintenance and repairs are expensed as
incurred. Expenditures for significant renewals or betterments are capitalized.
Gains or losses on dispositions are reflected in current operations.
F-10
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the future tax
benefits of loss and credit carryovers. Valuation allowances are established for
deferred tax assets when it is more likely than not that such amounts will not
be realized.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expense was
approximately $37,100 and $68,700 for the years ended January 31, 1999 and 1998,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "REPORTING COMPREHENSIVE INCOME". SFAS No. 130 establishes standards for
reporting and display of comprehensive income. The purpose of reporting
comprehensive income is to present a measure of all changes in equity that
result from recognized transactions and other economic events of the period
other than the transactions with owners in their capacity as owners. SFAS No.
130 requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The adoption of
this pronouncement did not have a material effect on the Company's financial
position or results of operations.
F-11
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 1997, the FASB also issued SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION". SFAS No. 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. Once operating segments have been
determined, SFAS No. 131 provides for a two-tier test for determining those
operating segments that would need to be disclosed for external reporting
purposes. In addition to providing the required disclosure for reportable
segments, SFAS No. 131 also requires disclosure of certain "second level"
information by geographic area and for production/services. SFAS No. 131 also
makes a number of changes to existing disclosure requirements. The adoption of
this pronouncement did not affect the Company's financial statement disclosures.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's cash, receivables and trade accounts
payable approximate their fair value.
3. GOING CONCERN CONSIDERATION
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has experienced recurring losses
from operations and generated negative cash flows from operations of $784,056
during the year ended January 31, 1999. In addition, as further discussed in
Note 6, the Company is subject to certain contingencies which, if not favorably
resolved, could have a significant negative impact on its future cash flows.
Management is seeking to reduce operating expenses through reductions in
corporate overhead and increase sales volume through increased promotional
discounts. In addition, management is considering seeking sources of funds
through additional capital contributions or through additional financing.
Management is also pursuing either the sale of its Smoker's Gallery retail
F-12
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
3. GOING CONCERN CONSIDERATION (CONTINUED)
outlets or the prompt closure of any unprofitable Smoker's Gallery retail
outlets. Finally, as discussed in Note 6, management has attempted to mitigate
the potential financial impact of any contingencies which may not be favorably
resolved.
In the absence of achieving profitable operations, obtaining additional debt or
equity financing, concluding successful negotiations for the sale or closure of
its Smoker's Gallery retail outlets, or favorably resolving the potential
contingencies discussed in Note 6, the Company may not have sufficient funds to
continue operations in fiscal 2000. The accompanying financial statements do not
include any adjustments that might result from the possible inability of the
Company to continue as a going concern.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JANUARY 31
1999 1998
------------------------------------
Leasehold improvements $ 274,786 $ 309,909
Equipment and other 326,729 787,139
------------------------------------
601,515 1,097,048
Less accumulated depreciation
and amortization (295,647) (317,706)
------------------------------------
$ 305,868 $ 779,342
====================================
5. INCOME TAXES
The Company recorded an income tax provision in the amount of $23,000 for the
year ended January 31, 1998. The 1998 provision for income tax relates to the
elimination of Boynton's deferred tax asset upon its election to be treated as
an "S" corporation effective May 1, 1997.
F-13
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
In connection with the Company's merger with Boynton on January 30, 1998,
Boynton's "S" corporation status terminated. As a result of Boynton's conversion
from a non-taxable entity to a taxable entity, a deferred tax asset of
approximately $30,000 was recognized, however, a full valuation allowance was
established against such deferred tax asset.
Based on the weight of available evidence, the Company has established a full
valuation allowance to offset net deferred tax assets of approximately
$1,070,000 and $323,500 at January 31, 1999 and 1998, respectively. These net
deferred tax assets relate, principally, to the tax effect of net operating loss
carryforwards. Realization of deferred tax assets is dependent upon sufficient
future taxable income during the period that temporary differences and
carryforwards are expected to be available to reduce taxable income. Management
does not believe that it is more likely than not that the deferred tax asset
will be realized.
The net operating loss carryforwards, which amount to approximately $2,891,000
and $791,000 as of January 31, 1999 and 1998, begin to expire in 2011.
6. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases retail facilities in regional malls and its corporate
headquarters facility under noncancalable operating leases with remaining terms
in excess of one year. All of the leases expire within the next ten years and
have various renewal and escalation clauses. The rental payments for most
facilities are based on a minimum rental plus a percentage of the gross sales in
excess of a stipulated amount. The Company is generally obligated for facilities
operating costs including property taxes, insurance and maintenance. Future
minimum annual lease payments pursuant to these operating leases existing as of
January 31, 1999 are:
2000 $ 228,000
2001 215,000
2002 153,000
2003 137,000
2004 140,000
=================
$ 873,000
=================
F-14
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Included in the statements of operations for the years ended January 31, 1999
and 1998 was approximately $600,000 and $620,800, respectively, for minimum
lease payments. Additional lease expenses included in the statements of
operations for the years ended January 31, 1999 and 1998 was approximately
$264,000 and $238,000, respectively. The minimum and additional lease expense
related to the above described operating leases and are recorded as selling,
general and administrative expenses.
CONTINGENCIES
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.
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, cash flows or its financial position could be materially
affected if all, or a substantial portion of this claim proves valid.
On September 15, 1998, the Company entered into an Operating Agreement and an
Asset Purchase Agreement (collectively, the "Agreements") with Tropical
Republic, Inc. ("Tropical"), under which the responsibility for the operations
and expenses of the Company's then 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.
F-15
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Tropical failed to close on the sale and failed to pay a substantial portion of
the operating expenses owed the Company under the Agreements. On November 18,
1998, the Company filed suit in Broward County, Florida, Circuit Court for
breach of the Agreements against 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 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, discovery has just commenced 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.
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.
F-16
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 early March 1999. During 1999, the Town Center
store generated approximately 22% 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, the 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.
7. STOCKHOLDERS' EQUITY
In connection with the issuance of common stock during the period July 15, 1996
(date of inception) to December 31, 1997, Woodfield issued warrants to purchase
165,000 shares of common stock at an exercise price of $1.00 per share,
exercisable through November 30, 2001.
In connection with the issuance of common stock during November and December of
1997, Woodfield issued warrants to purchase 387,500 shares of common stock at an
exercise price of $1.00 per share, exercisable through November 30, 2001.
Prior to the merger with Woodfield, the Company issued Class A warrants to
purchase 500,000 shares of common stock and one Class B warrant at an exercise
price of $.50 per share, exercisable through February 15, 1998. During the
period ended January 31, 1998, 46,000 Class A warrants were exercised. Prior to
their expiration date, an additional 261,500 Class A warrants were exercised.
Class B warrants issued in connection with the exercise of Class A warrants
entitle the holder to purchase one share of common stock at an exercise price of
$1.00 per share and were exercisable through May 15, 1998. No Class B warrants
were exercised prior to their expiration.
F-17
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
During the year ended January 31, 1998, the Company granted options as
incentives to certain employees. The following table summarizes information
relative to such options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------------------------------------
<S> <C> <C>
Outstanding at January 31, 1997 - $ -
Granted at exercise prices ranging from $.94 to $1.63 315,000 1.16
---------------------------------------
Outstanding at January 31, 1998 315,000 1.16
Granted - -
=======================================
Outstanding at January 31, 1999 315,000 $ 1.16
=======================================
Exercisable at January 31, 1999 305,000 $ 1.16
=======================================
Weighted-average fair value of options granted $ .28
=====================
</TABLE>
During fiscal 1999, the Company's Board of Directors approved the Windsor
Capital Corp. 1998 Stock Option Plan (the "1998 Plan") covering the Company's
employees, officers and directors. The 1998 Plan provides for the granting of up
to 1,500,000 awards of any combination of incentive stock options or
non-qualified options. The terms of the options (limited to 10 years), vesting
schedule and exercise price are at the discretion of the Company's Board of
Directors. However, in no event will the exercise price per share of any option
be less than the fair market value, as defined, of the Company's common stock on
the date such option is granted.
F-18
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information relative to options granted under the
1998 Plan:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------------------------------------
<S> <C> <C>
Outstanding at January 31, 1998 - $ -
Granted at exercise prices ranging from $.06 to $.10 613,334 .09
======================================
Outstanding at January 31, 1999 613,334 $ .09
======================================
Exercisable at January 31, 1999 233,335 $ .08
======================================
Weighted-average fair value of options granted $ .09
====================
</TABLE>
The Registrant has elected 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 Registrant's 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 is required by
SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", and has been determined
as if the Registrant had accounted for its stock options under the fair value
method required by SFAS No. 123. The fair value for these options was estimated
at the date of grants using the Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rate of 4.56%;
expected volatility of 334%; expected dividend yield of 0%; and expected option
life of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options. Because the Company's stock options have
characteristics significantly different from those traded options, and because
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 stock options.
F-19
<PAGE>
Windsor Capital Corp.
Notes to Financial Statements (continued)
7. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------
<S> <C> <C>
Pro forma net loss $ ( 2,109,358) $ (177,016)
=================================================
Pro forma loss per share - basic and diluted $ (.21) $ (.03)
=================================================
</TABLE>
The weighted-average remaining contractual life of options is 4.9 years.
8. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 1999, the Company recorded a charge of
approximately $420,000 related to its evaluation of the adequacy of recorded
provisions for inventory shrinkage and obsolescence. This change in the
estimated provisions for inventory shrinkage and obsolescence had the effect of
increasing the net loss for fiscal 1999 by $.04 per share.
F-20
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.6 Operating Agreement among the Company, Tropical Republic, Inc.,
and James Joiner dated September 16, 1998.
10.7 Asset Purchase Agreement among the Company, Tropical Republic,
Inc., and James Joiner dated September 16, 1998.
27 Financial Data Schedule.
EXHIBIT 10.6
OPERATING AGREEMENT
BETWEEN
TROPICAL REPUBLIC, INC.
AND
WINDSOR CAPITAL CORP
DATED: SEPTEMBER 16, 1998
Tropical Republic, Inc., a Florida Corporation controlled by James
Joiner as trustee ("Buyer"), James Joiner ("Guarantor"), and Windsor Capital
Corp. ("Seller"), a Delaware Corporation have entered into an agreement (the
"Sale Agreement") for the sale and purchase of the Seller's operating division
known as "Simply Cigars" (the "Division"). Specifically, the following locations
are to be sold on or before October 15, 1998 (the "Closing Date"), pursuant to
the Sale Agreement, and pursuant to this Agreement, Buyer will assume
responsibility for operations of the locations as indicated:
LOCATION OPERATIONS ASSUMPTION
--------
DATE
----
1. Crystal Mall - Waterford, Connecticut September 16, 1998
2. Stratford Square Mall - Bloomingdale, Illinois September 23, 1998
3. Woodfield Mall - Schaumberg, Illinois September 24, 1998
4. Montgomery Mall - Bethesda, Maryland September 18, 1998
5. Cambridgeside Galleria - Cambridge, Mass. September 17, 1998
6. Northshore Mall - Peabody, Mass. September 17, 1998
7. Tuttle Crossing Mall - Dublin, Ohio September 25, 1998
8. Emerald Square Mall - Attleborough, Mass. September 16, 1998
9. Annapolis Mall - Annapolis, Maryland September 18, 1998
<PAGE>
A. The Buyer will assume all responsibility and liability for the
following during the period from the operations assumption date at each
location until the closing date, the ("Operating Period").
1. Hiring, training and payment of salaries and related expenses
of all operating personnel.
2. Payment of all rent due to landlords from the date of the
assumption of operations at each individual location.
3. Supplying of all inventory and merchandise for sale at each
location.
4. Payment of all taxes collected and or due to all
appropriate taxing authorities in each location. Copies of
each report and proof of payment will be simultaneously
provided to the Seller. At the Seller's option, Seller may
prepare the reports and submit them as due.
5. Payment of all other operating expenses of the Division.
B. The Buyer shall retain as compensation the proceeds of all sales during
the Operating Period.
C. The Buyer and Seller shall proceed as expeditiously as possible to the
consummation of the purchase and sale pursuant to the Sale Agreement
which provides for customary terms and provisions and a price of
$260,000, of which $44,000 shall be paid in cash, with a $130,000
credit against the purchase price being allowed by the Seller for the
Buyer's assumption of the Seller's lease liabilities at the specified
locations. The balance of the purchase price shall be paid pursuant to
a $86,000, 8% promissory note providing for payment of $43,000 plus
interest on March 31, 2000. The Buyer shall place a $10,000 deposit
against the purchase price, which shall be credited to Buyer at
the closing or, if the closing fails to occur for any reason other than
a breach of contract by the Seller, then the Seller shall retain the
deposit. In the event of such a breach it will be returned to the
Buyer.
D. This Operating Agreement is being entered into by the Buyer to induce
the Seller to enter into the Sale Agreement. The Seller is entering
into this Agreement to induce the Buyer into the assumption of all
operating expenses of the listed locations.
E. The Buyer agrees to operate in accordance with applicable legal
requirements (including but not limited to lease provisions) at the
individual locations and to indemnify and hold harmless the Seller from
and against any liability, loss, claim or obligation (including, but
not limited to reasonable attorney fees and expenses incurred during
the Operating Period).
F. The Seller agrees to assist the Buyer, at the Buyer's expense, in the
qualification of the Buyer's company(ies) at each location.
G. This agreement shall terminate upon the earlier of (i) closing of the
contemplated purchase and sale of the Division (the "Sale"), in which
case the Buyer shall own the Division or (ii) termination of the Sale
Agreement, in which case Buyer shall immediately return to Seller
-2-
<PAGE>
possession and control of the Division locations and assets; provided,
however, that termination of this Agreement shall not affect the
parties' obligations and liabilities accrued or based on events
occurring prior to such termination.
H. Guarantor hereby irrevocably and unconditionally personally guarantees
payment and performance by Buyer of all of its obligations hereunder.
I. In the event of litigation arising under this Agreement, the prevailing
party shall be entitled to recover from the nonprevailing party its
reasonable attorneys fees and expenses incurred in connection with such
litigation at all levels, including before the filing of suit.
GUARANTOR
/S/ JAMES JOINER DATE 9/15/98
----------------
SELLER
/S/ EUGENE TERRY DATE 9/15/98
-----------------
BUYER
/S/ JAMES JOINER DATE 9/15/98
----------------
-3-
EXHIBIT 10.7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of September 16, 1998, by and between Windsor Capital Corp., a Delaware
corporation ("Seller"), Tropical Republic, Inc., a Florida corporation (" Buyer
"), and James Joiner ("Guarantor").
W I T N E S S E T H:
In consideration of the mutual covenants, conditions and agreements
herein contained, the parties do hereby agree as follows:
1. ASSETS TO BE PURCHASED. The Seller agrees to sell and the Buyer
agrees to buy, upon the terms and conditions hereinafter set forth, the
following described assets (the "Assets"):
All contract rights, furniture, fixtures, transferable licenses, files,
equipment, trade names, customer lists and goodwill of the going
business known as "Simply Cigars", operating at the locations (the
"Locations") described on Exhibit "A" attached hereto (the "Business").
Notwithstanding the foregoing, the Assets shall not include any bank accounts,
cash, inventory, deposits (lease, utility or otherwise) or accounts receivable
of the Business, which shall be retained by Seller.
2. PURCHASE PRICE. The Purchase Price for the sale, conveyance and
delivery of the Assets (the "Sale") shall be $260,000, of which $130,000 is
represented by Buyer's assumption of Seller's lease obligations at the
Locations. The Purchase Price shall be paid by Buyer pursuant to a $10,000
nonrefundable deposit (the "Deposit") payable immediately upon execution of this
Agreement, which shall be credited to Buyer at the closing of the Sale (the
"Closing"), a further cash payment of $34,000 due at Closing, and an $86,000
promissory note (the "Note") bearing interest at 8% per year requiring payments
of $43,000 plus accrued interest on March 31, 1999, and March
<PAGE>
31, 2000, which shall be executed and delivered by Buyer at the Closing, and
which shall be unconditionally and personally guaranteed by Guarantor. The Note
shall be secured as provided in paragraph 3 below. At Closing, Buyer shall pay
all documentary stamp taxes due on the Note.
3. SECURITY DOCUMENTS. At Closing, the Note will be secured by the
following described documents:
A. Security Agreement (the "Security Agreement").
B. Collateral Assignment of Premises Leases (the "Collateral
Assignment").
C. Uniform Commercial Code Financing Statement (the "UCC-1").
D. Personal Guaranty executed by the Guarantor (the "Guaranty").
The aforementioned documents (the "Security Documents") provide certain
collateral and security for the payment of the Note to Seller when and as due.
The Security Documents and all related documents described or contemplated
therein as determined to be appropriate by counsel for Seller shall encumber the
Assets being transferred pursuant hereto and the Business' other assets during
such time as any amounts remain outstanding under the Note. The Security
Documents shall prohibit the transfer of such assets by Buyer during the term
thereof and shall not be assumable by any third party. The Security Documents
shall contain such other additional terms and provisions as shall be reasonably
required by counsel for Seller.
4. CONVEYANCE OF ASSETS. At the Closing, Seller shall deliver to Buyer
all such bills of sale, endorsements, assignments, acknowledgments, certificates
and other good and sufficient instruments of transfer as shall be effective to
vest in Buyer good title to the Assets to the reasonable satisfaction of counsel
for Buyer. The furniture, fixtures and equipment included in the Assets sold
-2-
<PAGE>
to Buyer hereunder (collectively, the "Equipment") is being sold on an "AS IS,
WHERE IS" basis. Seller has made no representations or warranties concerning the
condition or quality of such Equipment, and Buyer is relying solely on its own
inspection of the Equipment.
5. LIABILITIES; OPERATING AGREEMENT. Except as otherwise provided
herein, it is agreed between the parties that Buyer is not assuming any
liabilities or obligations, actual or contingent, of Seller or the Business
which exist at the time of the Closing; provided, however, that Buyer shall
assume all of Seller's obligations accruing after the Closing under the leases
described on Exhibit "B" attached hereto (the "Lease Obligations"). Guarantor
and Buyer shall use their best efforts to cause the relevant landlords to
release Seller from the Lease Obligations. Pursuant to the Operating Agreement
executed by Buyer and Seller simultaneous with execution of this Agreement,
Buyer is assuming control and all operating expenses of the Business prior to
Closing, with the control and operating expenses of each Location being assumed
by Buyer on the date set forth for such Location on Exhibit "A." Such date, for
each Location, shall be referred to hereafter as its "Transfer Date." For each
Location, all accounts payable and other liabilities as shall accrue before the
Transfer Date shall belong to, and be the responsibility of, Seller. The parties
acknowledge that certain adjustments must be made between them subsequent to the
Transfer Date for items of income and expense which will have accrued as of the
Transfer Date but will not be able to be reduced to a liquidated sum by the
Transfer Date. The parties agree to adjust such items of income and expense in
good faith at the Closing. Seller hereby indemnifies and agrees to hold harmless
Buyer for, from, against, and in respect of (a) any claim, debt, liability or
other obligation arising against Buyer after the relevant Transfer Date relating
to matters accrued prior to the Transfer Date; and (b) any and all
-3-
<PAGE>
acts, suits, proceedings, judgments, liens, costs and expenses, including
reasonable attorneys' fees incident to any of the foregoing.
6. REPRESENTATIONS BY SELLER. The Seller makes the following
representations and warranties to Buyer and Guarantor, all of which shall
survive the Closing:
A. Seller is a corporation duly organized and existing in good
standing under the laws of the State of Delaware. The Board of
Directors of Seller has approved the Sale and authorized the
officers executing this Agreement to do so.
B. This Agreement and all other agreements, documents and
instruments executed by the Seller pursuant hereto are and
will be the legal, valid and binding obligations of the Seller
enforceable in accordance with their terms.
B. Seller is the owner of, and has good and marketable title to,
the Assets, free and clear of all liens, claims and
encumbrances, except as otherwise reflected in this Agreement.
D. Seller has entered into no contract materially restricting the
Assets.
E. There are no existing, pending or, to the knowledge of Seller,
threatened judgments, liens, actions, suits, arbitrations,
administrative proceedings or other litigation and there is no
existing factual basis known to Seller which, now or with the
passage of time, may result in any such judgment, lien,
action, suit, arbitration, administrative proceeding or other
litigation, which could materially adversely affect the
Assets, the legality or validity of this Agreement or the
transactions contemplated hereby.
7. REPRESENTATIONS BY BUYER AND GUARANTOR. The Buyer and Guarantor make
the following representations and warranties to the Seller, all of which shall
survive the Closing:
A. TRI is a corporation duly organized and existing in good
standing under the laws of the State of Florida. The Board of
Directors of Buyer has approved the Sale and authorized the
officers of Buyer executing this Agreement to do so.
-4-
<PAGE>
B. This Agreement and all other agreements, documents and
instruments executed by the Buyer pursuant hereto are and will
be the legal, valid and binding obligations of the Buyer
enforceable in accordance with their terms.
C. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not
constitute a violation of, and are not, and will not be, a
default under or conflict with the terms of any contract,
lease, indenture, agreement, order, judgment or decree to
which Buyer is a party or by which it is bound or to which any
of its assets are subject and do not, and will not, violate or
constitute a default under any statute, rule, regulation,
order or ordinance of any governmental, judicial or arbitral
body.
D. There is no suit, action or legal, administrative, arbitration
or other proceeding of any nature pending, or, to the
knowledge of Buyer, threatened, against Buyer which might
affect the legality or validity of this Agreement or the
transactions contemplated hereby, and there is no factual
basis known to Buyer for any such suit, action or proceeding.
8. WAIVER OF UCC BULK TRANSFER COMPLIANCE. Buyer acknowledges and
agrees that Seller will not comply with the provisions of any bulk transfer laws
of any jurisdiction in connection with the Sale and the transactions
contemplated by this Agreement.
9. CLOSING. The Closing of the Sale shall take place at 10:00 A.M. on
October 15, 1998, unless extended under the terms of this Agreement, at the
offices of Seller, 5008 North Federal Highway, Lighthouse Point, Florida 33064.
Each of the parties will execute and deliver at the Closing, or as soon
thereafter as reasonably practicable, all instruments reasonably required to
carry out the terms of this Agreement, including bills of sale, endorsements,
assignments, the Note, the Security Documents, and other good and sufficient
instruments to effectively transfer to Buyer full title to the Assets and to
secure the lien of Seller therein. The parties shall provide the customary and
necessary corporate resolutions and approvals, properly executed, authorizing
this
-5-
<PAGE>
transaction. Possession of the Assets shall be delivered to Buyer with respect
to each Location on its Transfer Date.
10. PRORATIONS. The parties agree that, at the Closing, all rents,
insurance policies, utilities, and any and all items of income and expense of a
proratable nature for each Location, shall be prorated as of the close of
business on the applicable Transfer Date, and a schedule of same shall be
included in the Closing Statement.
11. FURTHER ASSURANCES. The parties agree that at any time, and from
time to time after the Closing, at the request of the other party and without
further consideration, each party will take such action and execute, acknowledge
and deliver such documents as may be reasonably required to consummate the
transactions contemplated hereby.
12. CONDUCT OF BUSINESS PRIOR TO CLOSING. Seller agrees that,
subsequent to the execution of this Agreement and prior to each applicable
Transfer Date, except as otherwise consented to by Buyer in writing, it will
operate the Business at each Location in accordance with the following:
A. ORDINARY COURSE. The Business shall be operated only in the
ordinary course consistent with past practice. Seller will not
violate the terms of any contracts or other obligations of the
Business.
B. CHANGES IN COMPENSATION. No increase will be made in the
compensation or benefits payable or to become payable to any
employee or agent of the Business, except as may be approved
by Buyer in writing.
C. PRESERVATION OF ORGANIZATION. Seller will use its best efforts
to preserve the organization of the Business intact and will
make no material changes therein.
-6-
<PAGE>
D. MAINTENANCE. Seller will maintain the tangible Assets in
substantially their present condition, subject to normal wear
and tear or replacement.
13. REMEDIES. If either party fails in any material respect to perform
any of its obligations under this Agreement, the other party shall be entitled
to all remedies at law and in equity, including the appointment of a receiver
and specific performance. In the event that the Sale fails to close by October
15, 1998, for any reason other than a breach of this Agreement by Seller, then
Seller may, at its option, terminate this Agreement and retain the Deposit as
liquidated damages, whereupon neither party shall have any further liability to
the other.
14. LITIGATION. In the event of litigation arising out of this
Agreement, the prevailing party shall be entitled to recover from the
non-prevailing party its reasonable costs and attorneys' fees in connection
therewith at all levels including, but not limited to, fees and costs incurred
prior to the institution of litigation.
15. NON-WAIVER. The failure of either party to require the performance
of any term of this Agreement, or the waiver by either party of any breach of
this Agreement, shall not prevent a subsequent enforcement of such term or be
deemed a waiver of any subsequent breach.
16. NOTICES. All notices or communications given under the provisions
of this Agreement shall be in writing and shall be deemed given when delivered
by hand or by facsimile or three days after being mailed by certified mail,
return receipt requested, to the following addresses:
Seller: Windsor Capital Corp.
Attention: Eugene Terry, Chief Executive Officer
5008 North Federal Highway
Lighthouse Point, Florida 33064
(954) 429-0035
Fax: (954) 429-0914
-7-
<PAGE>
Buyer/Guarantor:
Tropical Republic, Inc.
Attention: James Joiner, General Manager
3313 Northeast 33 Street
Fort Lauderdale, Florida 33308
Fax: (954) 565-0027
17. BROKER. Seller and Buyer each represent that neither has had any
discussions or negotiations with any broker concerning the subject matter of
this Agreement. Each party agrees to indemnify the other party from and against
any claims for any brokerage commissions or fees relating to the transactions
contemplated hereby and all costs, expenses and liabilities in connection
therewith including, without limitation, reasonable attorneys' fees and
expenses, in the event of breach by the indemnifying party of the foregoing
representations.
18. ASSIGNMENT. Buyer may not assign any of its duties or obligations
under this Agreement without the prior written consent of the Seller. Seller may
assign this Agreement, or any portion thereof, at its option.
19. BENEFIT. This Agreement shall be binding upon the respective
parties, their successors, heirs, personal representatives, nominees or assigns.
All words used herein in the singular number shall extend to and include the
plural number, and all words used herein in the plural number shall extend to
and include the singular number, when the context or facts require same. All
words used herein in any gender shall extend to and include all genders. Any
pronoun will be taken to refer to the person or persons intended, regardless of
number or gender.
20. CONSTRUCTION. This Agreement shall be construed without regard to
any presumption or other rule of law requiring construction against the party
causing this Agreement to be drafted.
-8-
<PAGE>
21. APPLICABLE LAW. This Agreement shall be governed, interpreted and
enforced in accordance with the laws of the State of Florida. In the event of
litigation arising out of this Agreement, venue shall lie in the Circuit Court
of Broward County, Florida, or the U.S. District Court for the Southern District
of Florida.
22. SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
23. BINDING AGREEMENT. This Agreement and the Operating Agreement
constitute the entire and complete agreement between the parties and supersede
all prior correspondence, discussions, agreements and understandings between the
parties relating to the transactions contemplated hereby. Neither this Agreement
nor any term or provision hereof may be changed, waived, discharged or
terminated except by an instrument in writing signed by both parties.
24. CAPTIONS. Paragraph headings shall not be deemed to be a part of
the provisions of a paragraph or to have any effect upon the construction
thereof. Rather, the same are inserted for purposes of reference only.
25. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall have the effect of being an original Agreement.
26. NONCOMPETITION. Each party agrees that it will not, directly or
indirectly, operate a retail tobacconist outlet in any mall where the other
party is operating an outlet as of the Closing Date, for so long as the other
party continues to operate such existing outlet; provided,
-9-
<PAGE>
however, that the foregoing restriction shall not apply to the Sawgrass Mills
Mall in Broward County, Florida.
IN WITNESS WHEREOF, the parties have set their hands and seals as of
the day and year first above written.
WINDSOR CAPITAL CORP. a Delaware corporation
By: /S/ EUGENE TERRY
--------------------------------------
TROPICAL REPUBLIC, INC.,
a Florida corporation
By: /s/ JAMES JOINER
--------------------------------------
James Joiner, General Manager
/s/ JAMES JOINER
--------------------------------------
James Joiner, Guarantor
-10-
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