SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission File No. 33-26828
WINDSOR CAPITAL CORP.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 58-1921737
- -------------------------------- ----------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
7200 W. CAMINO REAL, SUITE 302
BOCA RATON, FLORIDA 33433
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (561) 417-8364
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 9,999,053 SHARES OF COMMON
STOCK, $.001 PAR VALUE PER SHARE WERE OUTSTANDING AS OF DECEMBER 13, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WINDSOR CAPITAL CORP.
CONDENSED BALANCE SHEET
OCTOBER 31, 1999
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 32,288
Receivables 40,457
Merchandise inventories 656,279
Prepaid expenses and other current assets 10,235
-----------
Total current assets 739,259
Property and equipment, net 251,868
Other assets:
Deposits 17,870
-----------
$ 1,008,997
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 392,175
Accrued salaries, bonuses and employee benefits 30,365
Other accrued expenses 136,509
-----------
Total current liabilities 559,049
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Stockholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding --
Common stock, $0.001 par value; 25,000,000 shares
authorized; 9,999,053 shares issued and outstanding 9,999
Additional paid in capital 3,788,421
Stock subscription receivable (1,400)
Accumulated deficit (3,347,072)
-----------
Total stockholders' equity 449,948
-----------
$ 1,008,997
===========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1999 OCTOBER 31, 1998
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $ 659,863 $ 938,247 $ 2,328,487 $ 3,834,452
Costs of goods sold 437,334 581,178 1,491,869 2,386,286
-----------------------------------------------------------------------------
Gross profit 222,529 357,069 836,618 1,448,166
Selling, general and
administrative expenses 406,563 657,346 1,346,041 2,702,538
Loss on disposition of kiosks -- 357,713 -- 357,713
-----------------------------------------------------------------------------
Operating loss (184,034) (657,990) (509,423) (1,612,085)
Other income 13,540 18,621 51,061 57,675
-----------------------------------------------------------------------------
Net loss $ (170,494) $ (639,369) $ (462,114) $(1,554,410)
=============================================================================
Income (loss) per common
share, basic and diluted $ (.02) $ (.06) $ (.05) $ (.16)
=============================================================================
Weighted average common
shares outstanding 9,999,053 9,999,053 9,999,053 9,936,137
=============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
-----------------------------
1999 1998
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (462,114) $(1,554,410)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 54,000 134,440
Loss on disposition of kiosks -- 357,713
Change in assets and liabilities:
Receivables 8,461 (24,498)
Merchandise inventories 375,227 814,486
Prepaid expenses and other current liabilities (6,735) 16,427
Deposits and other assets (2,036) (18,822)
Accounts payable (33,941) (499,302)
Accrued salaries, bonuses and employee benefits 11,135 14,306
Other accrued expenses (14,579) (58,772)
-----------------------------
Net cash used in operating activities (70,582) (818,432)
-----------------------------
Cash flows from investing activities:
Proceeds from disposition of kiosks -- 38,851
-----------------------------
Net cash provided by investing activities -- 38,851
-----------------------------
Cash flows from financing activities:
Proceeds from the sale of common stock -- 130,750
-----------------------------
Net cash provided by financing activities -- 130,750
-----------------------------
Net decrease in cash and cash equivalents (70,582) (648,831)
Cash and cash equivalents at beginning of period 102,870 720,079
-----------------------------
Cash and cash equivalents at end of period $ 32,288 $ 71,248
=============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WINDSOR CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
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 II, Item 1 "Legal Proceedings".
The interim financial information included herein is unaudited. In the
opinion of management, such unaudited information reflects all adjustments,
consisting only of normal recurring accruals and other adjustments as disclosed
herein, necessary for a fair presentation of the unaudited information.
Results of interim periods are not necessarily indicative of results
expected for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from sales of products is generally recognized upon delivery to
customers. The Company has established programs which, under certain
conditions, enable customers to return products. The Company
establishes liabilities for estimated returns and allowances at the
time of delivery to customers.
4
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost or market. Cost
is determined using the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation on property and
equipment is provided on the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged to
expense as incurred; improvements and betterments are capitalized. Upon
the retirement or sale of property and equipment, the accounts are
relieved of the cost and accumulated depreciation, and any resulting
gains or losses are recognized.
INCOME TAXES
The Company provides for income taxes pursuant to the provisions of
SFAS No. 109, "Accounting for Income Taxes". Deferred income taxes are
determined based upon differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected
to reverse. Deferred tax assets are also established for future tax
benefits of loss and credit carryforwards. Valuation allowances are
established for deferred tax assets when it is more likely than not
that such amounts will not be realized.
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
$70,582 during the nine month period ended October 31, 1999. In addition, as
further discussed in Note 4, 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 also discussed in Note 4, the Company has attempted to
mitigate the potential financial impact of any contingencies which may not be
favorably resolved.
5
<PAGE>
3. GOING CONCERN CONSIDERATION (CONTINUED)
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 2001.
4. CONTINGENCIES
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.
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. 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 no further communications have been
received from the landlord. The Company
6
<PAGE>
4. CONTINGENCIES (CONTINUED)
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.
On February 24, 1999, J.C. Pendergast, Inc. ("Pendergast"), filed suit
against the Company in the United States District Court for the Eastern District
of Wisconsin, alleging breach of contract based on a May 1997 purchase order,
signed by a former officer of the Company, for $738,850 worth of kiosks. In
August 1998, the Company had previously received a letter from attorneys
representing Pendergast requesting payment of approximately $180,000 for work
allegedly performed under the purchase order. The Company has answered the
Complaint and asserted as affirmative defenses that (i) the purchase order was
never intended by the parties to reflect a binding contract, and (ii) the
purchase order was never authorized by the Company's Board of Directors and
Pendergast was aware of the lack of authorization due to the close personal
friendship between the Company's former officer and Pendergast's owner. However,
discovery has just commenced, and there can be no assurance that an adverse
judgment will not be entered against the Company. The Company's results of
operations or cash flows in a particular quarterly or annual period, or its
financial position could be materially affected if an adverse judgment is
entered against the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Except for historical information contained herein, certain matters set
forth in this Form 10-QSB are "forward looking", within the meaning of the
federal securities laws, and involve a number of risks and uncertainties that
could cause future results to differ materially from these statements and
trends. These forward-looking statements include, among others, statements
relating to the Company's business plan, which is based upon the Company's
interpretation and analysis of cigar industry trends and management's ability to
successfully market and sell its products to retail consumers. This plan
assumes, among other things, that (i) 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 different from any future results
expressed or implied by such forward-looking statements.
7
<PAGE>
The Company's statements of operations and cash flows for the nine
months ended October 31, 1999 reflect the operations of Smoker's Gallery only,
whereas the Company's statements of operations and cash flows for the nine
months ended October 31, 1998 reflect the operations of both Smoker's Gallery
and Simply Cigars. During the nine months ended October 31, 1998, the Company
operated 14 kiosks under the name Simply Cigars. In early June 1998, the Company
closed two kiosks and in late August 1998, the Company sold three kiosks.
RESULTS OF OPERATIONS
The following table sets forth certain items expressed in percentages of
revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 66.3% 61.9% 64.1% 62.2%
------------------------------------------------------------------------------
Gross profit 33.7% 38.1% 35.9% 37.8%
Selling, general and administrative expenses 61.6% 70.1% 57.9% 70.5%
Loss on disposition of kiosks 0.0% 38.1% 0.0% 9.3%
------------------------------------------------------------------------------
Operating loss (27.9)% (70.1)% (22.0)% (42.0)%
Other income 2.1% 2.0% 2.2% 1.5%
------------------------------------------------------------------------------
Net loss (25.8)% (68.1)% (19.8)% (40.5)%
==============================================================================
</TABLE>
For the quarter ended October 31, 1999, the Company's same store sales
were down 15% from the same period in 1998. For the nine months ended October
31, 1999, the Company's same store sales were down 17% from the same period in
1998. The Company believes that these declines are due to a general decline in
same store sales experienced throughout the retail tobacconist industry. The
cause of this general decline is uncertain; however, the Company believes that
the decline is due in large part to the greatly increased number of retail
outlets competing for premium cigar sales as well as a decline in the demand for
premium cigars. The Company has been adversely affected by the decline in its
same store sales.
For the three and nine months ended October 31, 1999, the Company
reported net losses of $170,494 and $462,114, respectively. For the three and
nine months ended October 31, 1998, the Company reported net losses of $639,369
and $1,554,410, respectively. Revenue for the three months ended October 31,
1999 and 1998 amounted to $659,863 and $938,247, respectively. The decrease in
revenue was due to the decline in same store sales and the disposition of the
Company's kiosks in fiscal 1999. Revenue for the nine months ended October 31,
1999 and 1998 amounted to $2,328,487 and $3,834,452, respectively. The decrease
in revenue was also due to the decline in same store sales and the disposition
of the Company's kiosks in fiscal 1999.
8
<PAGE>
Gross profit for the three months ended October 31, 1999 and 1998
amounted to $222,529 (33.7% of sales) and $357,069 (38.1% of sales),
respectively. This decrease is attributable to the decline in same store sales
which resulted in increased promotional discounts and other price reductions
being offered to customers during the quarter. Gross profit for the nine months
ended October 31, 1999 and 1998 amounted to $836,618 (35.9% of sales) and
$1,448,166 (37.8% of sales), respectively. This decrease is also attributable to
the increased promotional discounts and other price reductions being offered to
customers, offset by an inventory reserve in the amount of $100,000 which was
recorded during the nine months ended October 31, 1998.
Total selling, general and administrative expenses ("SG&A"), decreased
from $657,346 for the three months ended October 31, 1998 to $406,563 for the
three months ended October 31, 1999, a 38% decrease. This decrease is due mainly
to the Company's cost-cutting program focused on reducing corporate overhead and
the disposition of the Simply Cigars' kiosk operations which resulted in a
decrease in rent expense of approximately $81,000 and a decrease in salaries and
wages of approximately $77,000. Total selling, general and administrative
expenses decreased from $2,702,538 for the nine months ended October 31, 1998 to
$1,346,041 for the nine months ended October 31, 1999, a 50% decrease. This
decrease is also due mainly to the Company's cost-cutting program focused on
reducing corporate overhead and the disposition of the Simply Cigars' kiosk
operations which resulted in a decrease in rent expense of approximately
$406,000 and a decrease in salaries and wages of approximately $382,000.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1999, the Company had working capital of
$180,210; however, the Company has experienced recurring losses from operations
and generated negative cash flows from operations of $70,582 during the nine
months ended October 31, 1999. In addition, as further discussed in Part II,
Item 1 "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 II, Item 5 "Other Information", 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 2001.
Net cash used in operating activities decreased 91% in the nine months
ended October 31, 1999 to $70,582 from $818,432 for the nine months ended
October 31, 1998. This decrease is due primarily due to the decrease in the net
loss ($462,114 for the nine months ended October 31, 1999 versus $1,554,410 for
the nine months ended October 31, 1998) and the decrease in cash used to reduce
accounts payable ($33,941 for the nine months ended October 31, 1999 versus
$499,302 for the nine months ended October
9
<PAGE>
31, 1998) offset by a decrease in the reduction of merchandise inventories (cash
provided by operating activities of $375,227 during the nine months ended
October 31,1999 versus $814,486 during the nine months ended October 31, 1998).
Net cash provided by investing activities amounted to $38,851 for the
nine months ended October 31, 1998, which related to the sale of the Company's
three Michigan-based Simply Cigars kiosks.
Net cash provided by financing activities decreased 100% in the nine
months ended October 31, 1999 to $0 from $130,750 for the nine months ended
October 31, 1998. During the nine months ended October 31, 1998, 261,500 Class A
warrants were exercised at a price of $.50, whereas during the nine months ended
October 31, 1999 no shares of common stock were issued.
IMPACT OF THE YEAR 2000
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date "00" as the Year 1900 rather than the Year
2000. This could result in a system failure or miscalculation causing
disruptions of operations, including, among other things, a temporary inability
to process transactions.
The Company uses commercial software that is upgradeable to a
commercially available version that is Year 2000 compliant. In order to minimize
any effects on operations, the Company plans to replace or upgrade any software
that is not Year 2000 compliant. The total costs associated with required
modifications to become Year 2000 compliant are not expected to be material to
the Company's financial position, results of operations or cash flows. The
estimated total cost to replace or upgrade accounting software is not expected
to exceed $500.
The Company relies on third parties, particularly on third party
suppliers for its inventory. The Company expects to initiate efforts to evaluate
the status of these suppliers' efforts with respect to their own Year 2000
compliance programs and to determine alternatives and contingency plan
requirements. Failure of third party suppliers to deliver inventory to the
Company's stores could adversely affect store sales.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Company believes that, with the replacement or upgrade
of any software that is not Year 2000 compliant, the possibility of significant
interruptions of normal operations should be minimized.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
a. WINDSOR CAPITAL CORP. V. TROPICAL REPUBLIC, INC., AND JAMES JOINER
On November 18, 1998, the Company filed suit in Broward County,
Florida, Circuit Court for breach of the Operating Agreement and the
Asset Purchase Agreement (collectively, the "Agreements") against
Tropical Republic, Inc. ("Tropical") and its principal James Joiner
("Joiner"), who personally guaranteed Tropical's obligations under the
Agreements. In its complaint, the Company seeks damages in excess of
$165,716: (i) $120,000 for the balance owed on the purchase price after
crediting Tropical's $10,000 deposit; (ii) $45,716 for unpaid operating
expenses accrued by Tropical during its operation of the kiosks through
October 31, 1998; and (iii) an unspecified amount for potential
liability to landlords under lease agreements which extend past October
31, 1998.
Tropical and Joiner have answered the Complaint and denied liability
based on alleged misrepresentations by the Company concerning 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.
b. J.C. PENDERGAST, INC. V. WINDSOR CAPITAL CORP.
On February 24, 1999, J.C. Pendergast, Inc. ("Pendergast"), filed suit
against the Company in the United States District Court for the Eastern
District of Wisconsin, alleging breach of contract based on a May 1997
purchase order, signed by a former officer of the Company, for $738,850
worth of kiosks. In August 1998, the Company had previously received a
letter from attorneys representing Pendergast requesting payment of
approximately $180,000 for work allegedly performed under the purchase
order. The Company has answered the Complaint and asserted as
affirmative defenses that (i) the purchase order was never intended by
the parties to reflect a binding contract, and (ii) that the purchase
order was never authorized by the Company's Board of Directors and
Pendergast was aware of the lack of authorization due to the close
personal friendship between the Company's former officer and
Pendergast's owner. Discovery has just commenced in this case, and
there can be no assurance that an adverse judgment will not be entered
against the Company. The Company's results of operations or cash flows
in a particular quarterly or annual period, or its financial position
could be materially affected if an adverse judgment is entered against
the Company.
11
<PAGE>
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
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. 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 no further communications have been received from 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.
On November 15, 1999, Joel A. Wolk and Gail D. Wolk resigned from their
positions as the Company's Chief Operating Officer and Director of
Operations - Tobacconist Division, respectively, pursuant to a
termination agreement with the Company. Under the termination
agreement, (i) the employment agreements between the Company and Mr.
and Mrs. Wolk, providing for annual salaries of $125,000 and $75,000,
respectively, through January 30, 2001, were terminated; (ii) the
Company agreed to pay Mr. and Mrs. Wolk's salaries through December 31,
1999; and (iii) Mr. and Mrs. Wolk agreed to a non-competition covenant
through December 31, 2000, covering a five mile radius from each store.
In the short term, the Company intends to utilize existing personnel to
perform the functions formerly performed by Mr. and Mrs. Wolk; however,
the Company may bring in new personnel and/or make further changes in
existing personnel.
On November 17, 1999, Eugene R. Terry resigned as the Company's Chief
Executive Officer and that position was assumed by Karl E. Duell, the
Company's Chief Financial Officer.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
27. Financial Data Schedule for the quarterly period ended
October 31, 1999.
B) REPORTS ON FORM 8-K
During the quarter ended October 31, 1999, a Form 8-K report
was filed by the Company with the Securities and Exchange
Commission on September 13, 1999 reporting the resignation of
the Company's independent accountants.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WINDSOR CAPITAL CORP.
(Registrant)
Date: December 13, 1999 BY: /s/ KARL E. DUELL
------------------------------
Chief Executive Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
27. Financial Data Schedule for the quarterly period ended
October 31, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE THREE MONTHS ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 32,288
<SECURITIES> 0
<RECEIVABLES> 40,457
<ALLOWANCES> 0
<INVENTORY> 656,279
<CURRENT-ASSETS> 739,259
<PP&E> 601,515
<DEPRECIATION> (349,647)
<TOTAL-ASSETS> 1,008,997
<CURRENT-LIABILITIES> 559,049
<BONDS> 0
0
0
<COMMON> 9,999
<OTHER-SE> 439,949
<TOTAL-LIABILITY-AND-EQUITY> 1,008,997
<SALES> 2,328,487
<TOTAL-REVENUES> 2,328,487
<CGS> 1,491,869
<TOTAL-COSTS> 1,491,869
<OTHER-EXPENSES> 1,346,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (462,114)
<INCOME-TAX> 0
<INCOME-CONTINUING> (462,114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (462,114)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
