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, 2000
----------------
[ ] 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
------------------------------------------------------- ---------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7200 W. CAMINO REAL, SUITE 302, BOCA RATON, FLORIDA 33433
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (561) 417-8364
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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
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 $3,316,191.
The aggregate market value of the common stock held by non-affiliates
of the registrant, computed using a value of $.16 per share, the closing price
of the Common Stock on April 28, 2000, was $1,259,528 on that date.
The number of shares outstanding of the issuer's common stock, $.001
par value per share, as of April 28, 2000 is 9,999,053.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The Company is a mall-based specialty retailer which operates five
in-line stores in South Florida malls under the name "Smoker's Gallery." Until
April 27, 2000, the Company operated six such stores. The sixth store was closed
on that date as a result of the termination of its lease. 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
significantly in 1994, although the rate of growth began to decline in 1996. The
cigar industry has experienced a significant downturn in profitability since
late 1997 as the rate of sales growth declined and then, in 1999, unit sales
began to decline. Major publicly-traded cigar companies have experienced
significant decreases in market value in the last two years. In addition, this
downturn has caused a shake-out in the industry under which many smaller
manufacturers, as well as many 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 2000 by approximately 21%. These and other factors have resulted in the
Board of Directors taking a careful look at the Company's operations and future
plans.
SMOKER'S GALLERY
The Smoker's Gallery chain, which merged into the Company in January
1998, was founded in 1981 and now consists of five in-line stores averaging
approximately 1,000 square feet each. The sixth store was closed on April 27,
2000, upon expiration of its lease. The Smoker's Gallery stores are
"tobacconist" stores,
<PAGE>
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 28, 2000, the Smoker's Gallery outlets are as follows:
<TABLE>
<CAPTION>
MARKET MALL NAME RATING DEVELOPER DATE 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 The Falls A Taubman 12/96
</TABLE>
On April 27, 2000, the Company closed its store at the Boca Town Center Mall, a
AA mall. That store had been open since December 1996.
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
during the fiscal year ended January 31, 2000.
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.
<PAGE>
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 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,
shaving apparatus, leather goods and porcelain and bronze figurines.
The following table summarizes the Company's Smoker's Gallery stores
sales by product during the fiscal year ended January 31, 2000:
PRODUCT PERCENT
------- OF SALES
--------
CIGARS 53%
CIGAR ACCESSORIES 18%
PIPE TOBACCO 2%
PIPES/PIPE ACCESSORIES 3%
OTHER TOBACCO PRODUCTS 17%
GENTLEMEN'S ACCESSORIES 7%
----
100%
<PAGE>
SEASONALITY
The Company's business is highly seasonal, with sales peaking in the
November-December holiday season, when historically approximately 17% 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 or prompt closure of any
unprofitable Smoker's Gallery retail outlets.
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. The industry remains
firmly dominated by independent retailers, who accounted for a significant
majority 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, the Company faces 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.
<PAGE>
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 28, 2000, the Company had 21 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.
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
and revocable permission for the grant of and right to use only in the State of
Michigan, the "Simply Cigars" trade name.
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 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 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.
ITEM 2. DESCRIPTION OF PROPERTY
All of the Company's five Smoker's Gallery stores are leased with lease
terms expiring between October 2000 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.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
A. WINDSOR CAPITAL CORP. V. TROPICAL REPUBLIC, INC. AND JAMES JOINER
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, 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, 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 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 approximated $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.
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 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
<PAGE>
the Company's former officer and Pendergast's owner. In April 2000, the case was
settled based on the Company's agreement to pay a total of $38,000 to
Pendergast, with the first payment due on or before April 28, 2000, in the
amount of $9,500 and subsequent payments of $9,500 each due on June 1, July 1
and August 1, 2000. Under the settlement agreement, in the event that the
Company fails to make a payment within 30 days of the due date, then Pendergast
may, by submitting an affidavit of default to the court, obtain a judgment
against the Company in the amount of $150,000. The Company has made the first
payment due April 28, 2000.
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 fiscal years 1999 and 2000 and the first quarter of
fiscal year 2001. 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
- -----------------------------------------------------------------
1999
FIRST QUARTER
(Through April 30, 1998) $ 1.875 $ .50
SECOND QUARTER
(Through July 31, 1998) $ .625 $ .25
THIRD QUARTER
(Through October 31, 1998) $ .3125 $ .0625
FOURTH QUARTER $ .625 $ .0625
(through January 31, 1999)
2001
FIRST QUARTER $ .75 $ .125
(through April 30, 1999)
SECOND QUARTER $ .125 $ .09375
(through July 31, 1999)
THIRD QUARTER $ .10 $ .03125
(through October 31, 1999)
FOURTH QUARTER $ .08 $ .03125
(through January 31, 2000)
2001
FIRST QUARTER $ .03125 $ .03125
(through April 28, 2000)
<PAGE>
The Company had 110 shareholders of record as of April 28, 2000;
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.
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, 2000 ("Fiscal 2000") and January 31, 1999 ("Fiscal
1999").
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
----------- -----------
SIMPLY SMOKER'S SIMPLY SMOKER'S
CIGARS GALLERY CIGARS GALLERY
------ ------- ------ -------
<S> <C> <C> <C> <C>
Sales $ - $3,316,191 $ 1,037,175 $4,206,907
Net Income (Loss) $(81,061) $ (594,057 $(1,945,213) $ (142,424)
</TABLE>
<PAGE>
The Company's statement of operations for Fiscal 1999 reflects only
eight months of Simply Cigars' operations, from February 1, 1998, through
September 30, 1998. 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,
2000 1999
----
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of revenues 64.1% 67.1%
--------------------------------------------
Gross profit 35.9% 32.9%
Selling, general and administrative expenses 56.2% 61.8%
Loss on disposition of kiosks 2.2% 12.3%
--------------------------------------------
Operating loss (22.5)% (41.2)%
Other income 2.1% 1.4%
Loss before provision for taxes (20.4)% (39.8)%
Provision for taxes 0.0% 0.0%
--------------------------------------------
Net loss (20.4)% (39.8)%
============================================
</TABLE>
Revenues for Fiscal 2000 decreased 37% to $3,316,191 from $5,244,082 in
Fiscal 1999. The decrease in revenues was due to the decrease in Simply Cigars
revenues of $1,037,075 ($0 for Fiscal 2000, versus $1,037,175 for Fiscal 1999)
along with a decrease in Smoker's Gallery revenues of $890,716 ($3,316,191 for
fiscal 2000 versus $4,206,907 for fiscal 1999).
Gross profit was $1,190,802, or 35.9% of revenues in Fiscal 2000,
compared with $1,724,075, or 32.9% in Fiscal 1999. The increase in gross profit
as a percentage of sales was primarily due to the Company's disposition of the
Simply Cigars kiosk operations, which produced a gross margin during Fiscal 1999
of 30.9%.
Selling, general and administrative expenses decreased 44% in Fiscal
2000 to $1,749,202 from $3,100,341 in Fiscal 1999. The decrease in selling,
general and administrative expenses was due to the decrease in Simply Cigars
selling, general and administrative expenses of $1,471,073 ($81,061 for Fiscal
2000 versus $1,552,134 for Fiscal 1999), offset by an increase in Smoker's
Gallery selling, general and administrative expenses of $307,078 ($1,855,285 for
Fiscal 2000 versus $1,548,207 for Fiscal 1999).
In connection with the Company's sale/closure of the Simply Cigars
kiosk operations, the Company recorded losses on dispositions of kiosks of
$71,200 and $646,822 in Fiscal 2000 and 1999, respectively, which related
primarily to losses or write-offs with respect to the Simply Cigars' property,
equipment and inventory.
The Company's net loss of $675,118 for Fiscal 2000 reflects the Simply
Cigars loss of $81,061 plus the Smoker's Gallery loss of $594,057.
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 Smokers Gallery same store sales declined by 21% during
fiscal 2000 when compared to the fiscal 1999 level. During the November-December
1999 holiday season, the Smoker's Gallery same store sales decreased 28% from
the level for the 1998 holiday season. Since January 2000, the Company has
continued to experience a decline in same store sales. During the two months
ended March 31,
<PAGE>
2000, the Smoker's Gallery sales were down 27% from the same period in 1999. 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 Company
believes that this general decline is due primarily 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 materially adversely
affected by the decline in its same store sales.
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, 2000, the Company had working capital of $100,350;
however, the Company has experienced recurring losses from operations and
generated negative cash flows from operations of $51,241 during Fiscal 2000. 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 2001.
Net cash used in operating activities decreased 93% in Fiscal 2000 to
$51,241 from $784,056 in Fiscal 1999, primarily due to the decrease in the net
loss ($675,118 for Fiscal 2000 versus $2,087,637 for Fiscal 1999) and the
decrease in cash used to reduce accounts payable ($109,691 for Fiscal 2000
versus $583,220 for Fiscal 1999) offset by (i) a decrease in non-cash losses,
i.e. depreciation, amortization and loss on disposition of kiosks, ($187,144 for
Fiscal 2000 versus $785,738 for Fiscal 1999), and (ii) a reduction in
merchandise inventories ($558,053 for Fiscal 2000 versus $1,143,284 for Fiscal
1999).
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.
Net cash provided by financing activities amounted to $130,750 in
Fiscal 1999. Such amount resulted from the exercise in Fiscal 1999 of 261,500
Class A warrants at a price of $.50.
IMPACT OF THE YEAR 2000
The Company used commercial software that was upgradeable to a
commercially available version that was Year 2000 compliant. The total costs
associated with required modifications to become Year 2000 compliant were not
material to the Company's financial position, results of operations or cash
flows.
The Company relies on third parties, particularly on third party
suppliers for its inventory. The Company has not experienced, nor does it
anticipate failure of third party suppliers to deliver inventory to the
Company's stores could adversely affect store sales.
<PAGE>
The failure to correct a yet unknown 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. The Company will
continue to monitor its mission-critical computer applications and those of its
third party suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Eugene R. Terry 61 Director
Alan Cornell 54 Chairman, Chief Executive Officer, Secretary, Treasurer
Neil Litten 61 Director
</TABLE>
EUGENE TERRY
Mr. Terry became a Director of the Company in October 1997 and served
as Chief Executive Officer June 1998 until November 1999. He is a pharmacist and
the founder and Chairman of Bloodline, Inc., a New Jersey-based company engaged
in the blood services business, which he founded in 1980. In 1971, Mr. Terry
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.
ALAN CORNELL
Mr. Cornell became a Director of the Company in January 1999 and Chief
Executive Officer in February 2000. 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
<PAGE>
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 to thrive 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.
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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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 2000 $ 28,846 - - -
Chief Executive Officer 1999 $ 39,462 - - 300,000
1998 $ - - - -
Gary N. Mansfield 2000 $ - - - -
Chief Executive Officer 1999 $ - - - 200,000
1998 $ 19,231 - - -
Joel A. Wolk 2000 $ 115,385
Chief Operating Officer 1999 $ 123,077 - - -
1998 $ - - $565,000 (1) 100,000
Karl E. Duell 2000 $20,769(2) - - -
Chief Executive Officer 1999 $ - - - -
1998 $ - - - -
</TABLE>
(1) Subchapter S shareholder distribution from Boynton.
(2) Mr. Duell served as chief executive officer of the Company from November 17,
1999, until February 22, 2000. He served as chief financial officer of the
Company from January 1, 1998, until February 22, 2000. The compensation
reflected here is for the period when he served as chief executive officer.
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, 2001.
The following table provides information on stock option grants
during Fiscal 2000 to each of the named executive officers.
<PAGE>
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 ($/Sh) Date
- ---- ------------ -----
<S> <C> <C> <C> <C>
None N/A N/A N/A N/A
</TABLE>
The following table sets forth certain information concerning
unexercised options held by each of the named executive officers:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Number of Value of Value of
Securities Securities Unexercised Unexercised
Shares Value Underlying Underlying In-the-Money In-the-Money
Acquired on Realized Options/SARs Options/SARs Options/SARs Options/SARs
Name Exercise (#) ($) 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 - - 200,000 100,000 $ 12,500 $ -
Gary N. Mansfield - - 200,000 - - -
Joel A. Wolk - - 100,000 - - -
Karl E. Duell - - 60,000 55,000 $ 4,875 -
</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 28, 2000, 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.
SHARES OF THE COMPANY'S
COMMON STOCK BENEFICIALLY OWNED
NAME AND ADDRESS
OF BENEFICIAL OWNER(1) NUMBER PERCENT
- ---------------------- ------ -------
Harold S. Blue 828,667(2) 8.2%
Eugene R. Terry 325,000(3) 3.2%
Joel A. Wolk 2,046,553(4) 20.3%
<PAGE>
Alan Cornell 58,333(5) *
Neil Litten 88,333(6) *
Gary N. Mansfield 902,000(7) 8.9%
Michael Falk
830 Third Avenue
New York, NY 10017 776,250(8) 7.7%
J.F. Shea Co.
655 Brea Canyon Road
Walnut, CA 71789 750,000 7.0%
Directors and executive officers
as a group 471,666(9) 4.6%
- ----------
*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 225,000 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 33,333 shares issuable upon the exercise of currently
exercisable options.
(6) Includes 38,333 shares issuable upon the exercise of currently
exercisable options and warrants.
(7) Includes 100,000 shares issuable upon the exercise of currently
exercisable options.
(8) Includes 26,250 shares issuable upon the exercise of currently
exercisable warrants.
(9) Includes 296,666 shares issuable upon the exercise of currently
exercisable options and warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
<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 th Company's Form 8-K, reporting an event dated
January 30, 1998).
10.3 Operating Agreement among the Company, Tropical Republic Inc., and
James Joiner dated September 16, 1998 (incorporated by reference to
Exhibit 10.6 of the Company's Form 10-KSB for the fiscal year ended
January 31, 1999).
10.4 Asset Purchase Agreement among the Company, Tropical Republic, Inc.,
and James Joiner dated September 16, 1998 (incorporated by reference to
Exhibit 10.7 of the Company's Form 10-KSB for the fiscal year ended
January 31, 1999).
10.5 Termination Agreement dated November 14, 1999, among the Company,
Joel A. Wolk and Gail Wolk.
27 Financial Data Schedule
- ----------
(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. On January
6, 2000, a Form 8-K report was filed by the Company with the Securities and
Exchange Commission reporting the engagement of the Company's new independent
accountants.
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.
<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, 2000
WINDSOR CAPITAL CORP.
BY: /S/ ALAN CORNELL
----------------------------------
Alan Cornell
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/S/ ALAN CORNELL Chief Executive Officer (principal executive, April 30, 2000
- --------------------------------- financial and accounting officer) and Director
Alan Cornell
/S/ EUGENE TERRY Director April 30, 2000
- ---------------------------------
Eugene Terry
/S/ NEIL LITTEN Director April 30, 2000
- ---------------------------------
Neil Litten
</TABLE>
<PAGE>
C O N T E N T S
Page
- ----------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Balance Sheet F-4
Statements of Operations F-5
Statements of Changes in Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8 - F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Board of Directors and Shareholders
Windsor Capital Corp.
Boca Raton, Florida
We have audited the accompanying balance sheet of Windsor Capital Corp. as of
January 31, 2000, and the related statements of operations, changes in
stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Windsor Capital Corp. at
January 31, 2000, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
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 during the years ended January
31, 2000 and 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.
KAUFMAN, ROSSIN & CO.
Miami, Florida
March 27, 2000, except as to Note 6,
which is dated April 24, 2000
F-2
<PAGE>
REPORT OF DEPENDENT 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 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 3l, 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 uncertainly.
/s/ PRICEWATERHOUSECOOPERS L.L.P.
PRICEWATERHOUSECOOPERS L.L.P.
April 13, 1999
Miami, Florida
F-3
<PAGE>
WINDSOR CAPITAL CORP.
- -------------------------------------------------------------------------------
BALANCE SHEET
JANUARY 31, 2000
===============================================================================
ASSETS
===============================================================================
CURRENT ASSETS
Cash and cash equivalents $ 51,629
Receivables 28,458
Merchandise inventories 473,453
Prepaid expenses and other current assets 703
- -------------------------------------------------------------------------------
Total current assets 554,243
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $401,647 (Note 4) 118,724
DEPOSITS 17,870
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 690,837
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
===============================================================================
CURRENT LIABILITIES
Accounts payable $ 316,425
Accrued salaries and employee benefits 15,647
Other accrued expenses (Note 6) 121,821
- -------------------------------------------------------------------------------
Total current liabilities 453,893
- -------------------------------------------------------------------------------
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; 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 (3,560,076)
- -------------------------------------------------------------------------------
Total stockholders' equity 236,944
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 690,837
===============================================================================
See accompanying notes.
F-4
<PAGE>
WINDSOR CAPITAL CORP.
STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 2000 AND 1999
===============================================================================
2000 1999
================================================================================
REVENUES $3,316,191 $5,244,082
COST OF REVENUES 2,125,389 3,520,007
- -------------------------------------------------------------------------------
GROSS PROFIT 1,190,802 1,724,075
- -------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative expenses 1,749,202 3,100,341
Loss on disposition of kiosks 71,200 646,822
Depreciation and amortization 115,944 138,916
- -------------------------------------------------------------------------------
Total operating expenses 1,936,346 3,886,079
- -------------------------------------------------------------------------------
OPERATING LOSS (745,544) (2,162,004)
- -------------------------------------------------------------------------------
OTHER INCOME
Lottery income 70,426 68,509
Interest -- 5,858
- -------------------------------------------------------------------------------
Total other income 70,426 74,367
- -------------------------------------------------------------------------------
NET LOSS $(675,118) $(2,087,637)
===============================================================================
Loss per common share, basic and diluted $ (.07) $ (.21)
===============================================================================
Weighted average common shares outstanding 9,999,053 9,951,995
===============================================================================
See accompanying notes.
F-5
<PAGE>
WINDSOR CAPITAL CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2000 AND 1999
<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, 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
Net loss - - - - (675,118) (675,118)
- ------------------------------------------------------------------------------------------------------------------------
Balance at January 31, 2000 $ - $ 9,999 $ (1,400) $ 3,788,421 $ (3,560,076) $ 236,944
========================================================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
WINDSOR CAPITAL CORP.
STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
=============================================================================================================
2000 1999
=============================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (675,118) $ (2,087,637)
- -------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 115,944 138,916
Loss on disposition of kiosks 71,200 646,822
Changes in operating assets and liabilities:
Accounts receivable 20,460 (45,646)
Merchandise inventories 558,053 1,143,284
Prepaid expenses and other current assets 2,797 36,705
Deposits and other assets (2,036) 14,014
Accounts payable (109,691) (583,220)
Accrued salaries and employee benefits (3,583) (2,214)
Other accrued expenses (29,267) (45,080)
- -------------------------------------------------------------------------------------------------------------
Total adjustments 623,877 1,303,581
- -------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (51,241) (784,056)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (2,754)
Proceeds from sale of property and equipment - 38,851
- -------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities - 36,097
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock, net - 130,750
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities - 130,750
- -------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (51,241) (617,209)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 102,870 720,079
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 51,629 $ 102,870
=============================================================================================================
Supplemental cash flow information:
- -------------------------------------------------------------------------------------------------------------
Property acquired through incurring other accrued expenses $ - $ 68,000
=============================================================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
WINDSOR CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 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.
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.
F-8
<PAGE>
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BUSINESS DESCRIPTION AND ACTIVITY
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.
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.
USE OF 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
(replacement cost), with cost determined using the average
cost method.
F-9
<PAGE>
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
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.
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 $13,900 and $37,100 for
the years ended January 31, 2000 and 1999, respectively.
SEGMENT REPORTING
During 1998, the Company adopted Financial Accounting
Standards Board ("FASB") statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information". The
Company has considered its operations and has determined that
it operates in a single operating segment for purposes of
presenting financial information and evaluating performance.
As such, the accompanying financial statements present
information in a format that is consistent with the financial
information used by management for internal use.
COMPREHENSIVE INCOME
The items affecting comprehensive income are not material to
the financial statements and, accordingly, are not presented
herein.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's cash, receivables and
trade accounts payable approximate their fair value.
F-10
<PAGE>
- --------------------------------------------------------------------------------
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
EARNINGS PER SHARE
The Company applies Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FS 128). Net loss per
share excludes dilution and is computed by dividing net income
by the weighted average number of common shares outstanding
during the reported periods.
YEAR 2000 UNCERTAINTIES
Although the Company has not identified or incurred any
computer system or program problems, there is still a
possibility that at some time during the Year 2000 their
computer systems and programs, as well as equipment that uses
embedded computer chips, may be unable to distinguish between
the years 1900 and 2000. This may create system errors and
failures resulting in the disruption of normal business
operations. Although it is unlikely, there may be some third
parties, such as governmental agencies, utilities,
telecommunication companies, vendors and customers that at
times may not be able to continue business with the Company
due to their own Year 2000 problems.
- --------------------------------------------------------------------------------
NOTE 3. GOING CONCERN CONSIDERATIONS
- --------------------------------------------------------------------------------
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. The
Company has experienced losses from operations of $745,544 and
$2,162,004 and generated negative cash flows from operations
of $51,241 and $784,056 during the years ended January 31,
2000 and 1999, respectively. 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
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, and favorably resolving the potential
contingencies discussed in Note 6, the Company may not have
sufficient funds to continue operations in fiscal 2001. 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.
F-11
<PAGE>
- --------------------------------------------------------------------------------
NOTE 4. PROPERTY AND EQUIPMENT
- --------------------------------------------------------------------------------
Property and equipment consists of the following at January
31, 2000:
Leasehold improvements $ 274,786
Equipment and other 245,585
-------------------------------------------------------------
520,371
Less accumulated depreciation and amortization (401,647)
-------------------------------------------------------------
$ 118,724
==============================================================
Depreciation of property and equipment for the years ended
January 31, 2000 and 1999 amounted to $115,944 and $138,916,
respectively.
- --------------------------------------------------------------------------------
NOTE 5. INCOME TAXES
- --------------------------------------------------------------------------------
Based on the weight of available evidence, the Company has
established a full valuation allowance to offset net deferred
tax assets of approximately $1,321,000 at January 31, 2000.
This net deferred tax asset relates, principally, to the tax
effect of net operating loss carryforwards. Realization of the
deferred tax asset 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 $3,569,000 as of January 31, 2000, begin to
expire in 2011.
The difference between the income tax benefit and the amount
computed by applying the federal statutory income tax rates to
the net loss are computed as follows:
Tax benefit at U.S. statutory rates $ (214,000)
State tax benefit (37,000)
Change in valuation allowance 251,000
--------------------------------------------------------------
Income tax benefit $ -
==============================================================
F-12
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
LEASE COMMITMENTS
The Company leases retail facilities in regional malls and its
corporate headquarters facility under non-cancelable operating
leases with remaining terms in excess of one year. All of the
leases expire within the next seven 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, 2000 are:
2001 $ 253,000
2002 173,000
2003 137,000
2004 140,000
2005 140,000
Thereafter 260,000
--------------------------------------------------------------
$ 1,103,000
==============================================================
Included in the statements of operations for the years ended
January 31, 2000 and 1999 was approximately $292,000 and
$600,000, respectively, for minimum lease payments. Additional
lease expenses included in the statements of operations for
the years ended January 31, 2000 and 1999 were approximately
$140,000 and $264,000, respectively. The minimum and
additional lease expense related to the above described
operating leases are recorded as selling, general and
administrative expenses.
CONTINGENCIES
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. In April 2000, the Company and Pendergast
reached a settlement agreement whereby the Company would pay
Pendergast $38,000 over four equal monthly installments of
$9,500, with the first payment due on or before April 28,
2000. The full $38,000 is reflected in other accrued expenses.
Under the settlement agreement in the event that the Company
fails to make a payment within 30 days of the due date, then
the Company would be liable to pay Pendergast and additional
$150,000.
F-13
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
- --------------------------------------------------------------------------------
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 as follows: (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 to pay, but failed to do so.
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.
F-14
<PAGE>
- --------------------------------------------------------------------------------
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
- --------------------------------------------------------------------------------
In February 2000, 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 April 30, 2000. During 2000, the
Town Center store generated approximately 23% of the total
sales of the six-store Smoker's Gallery chain. The Company may
be materially adversely affected by the Town Center lease
termination.
- --------------------------------------------------------------------------------
NOTE 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.
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
Shares Exercise 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 in fiscal 1999 - -
------------------------------------------------------------------------------------------
Outstanding at January 31, 1999 315,000 1.16
Granted in fiscal 2000 - -
------------------------------------------------------------------------------------------
Outstanding at January 31, 2000 315,000 $ 1.16
==========================================================================================
Exercisable at January 31, 2000 310,000 $ 1.16
==========================================================================================
Weighted-average fair value of options granted $ .28
==========================================================================================
</TABLE>
F-15
<PAGE>
- --------------------------------------------------------------------------------
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------------------------------------------------
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.
The following table summarizes information relative to options
granted under the 1998 Plan:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise 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
Granted in fiscal 2000 - -
------------------------------------------------------------------------------------------------------
Outstanding at January 31, 2000 613,334 $ .09
======================================================================================================
Exercisable at January 31, 2000 383,333 $ .09
======================================================================================================
Weighted - average fair value of options granted $ .09
======================================================================================================
</TABLE>
The Company 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 Company '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 Company 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 4.9
years.
F-16
<PAGE>
- --------------------------------------------------------------------------------
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
- --------------------------------------------------------------------------------
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.
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>
2000 1999
------------------------------------------------------------------------------------
<S> <C> <C>
Pro forma net loss $ (687,422) $ (2,109,358)
====================================================================================
Pro forma loss per share - basic and diluted $ (.07) $ (.21)
====================================================================================
</TABLE>
The weighted-average remaining contractual life of options is
3.9 years.
- --------------------------------------------------------------------------------
NOTE 8. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
- --------------------------------------------------------------------------------
In the fourth quarter of fiscal year 2000, the Company
wrote-off approximately $71,000 of property and equipment
associated with its Simply Cigars kiosk operations (See Note
6).
F-17
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.5 Termination Agreement dated November 14, 1999, among the Company,
Joel A. Wolk and Gail Wolk.
27 Financial Data Schedule
EXHIBIT 10.5
TERMINATION AGREEMENT
AGREEMENT entered into as of the 14th day of November, 1999, between
Windsor Capital Corp., a Delaware corporation ("Employer") and Joel A. Wolk ("J.
Wolk") and Gail Wolk ("G. Wolk") (J. Wolk and G. Wolk are each referred to
herein as an "Employee" and are collectively referred to herein as "Employees").
WHEREAS, Employer employs J. Wolk as its Chief Operating Officer -
Tobacconist Division and G. Wolk as its Director of Operations - Tobacconist
Division pursuant to an employment agreement with each Employee dated as of
January 30, 1998 (each an "Employment Agreement;" collectively, the "Employment
Agreements"); and
WHEREAS, Employer and Employees have agreed to terminate their
employment relationships and the Employment Agreements as of this date pursuant
to the terms and conditions hereof.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree that the foregoing recitals are
true and correct and further agree as follows:
1. Employees' employment is hereby terminated, and Employees hereby
resign as employees and officers of Employer and all of its subsidiaries as of
the date hereof. All agreements and contracts relating to such employment and
Employees' compensation and benefits, including, but not limited to, the
Employment Agreements, between Employer and each Employee are hereby terminated
without any further liability or obligation of the parties to each other
thereunder except as set forth in this Agreement, subject to payment in full of
all amounts due to Employees pursuant to Section 2. Subject to payment in full
of all amounts due to Employees pursuant to Section 2, each Employee hereby
releases Employer and its subsidiaries and their respective officers, directors,
employees, agents and representatives from any and all claims, demands and
liabilities whatsoever, whether actual or contingent, existing as of the date
hereof, including, but not limited to, any and all liability to each Employee
arising out of or in connection with such Employee's employment or the merger
and related agreements dated as of January 30, 1998, among Employer, Boynton
Tobacconists, Inc., and Employees (collectively, the "Merger"); provided,
however, that such release shall not cover any liability arising under this
Agreement and shall not affect J. Wolk's rights in his capacity as a shareholder
of the Company. All obligations of Employer (if any) in connection with or
arising under the Merger are hereby terminated and released.
2. Employees' salaries, which are set in the Employment Agreements at
$125,000 per year for J. Wolk and $75,000 per year for G. Wolk, have been paid
<PAGE>
through October 31, 1999. On or before November 19, 1999, Employees shall be
paid their full salaries for the period from November 1-14, 1999. As a severance
benefit, Employer shall pay J. Wolk the sum of $16,827 and G. Wolk the sum of
$10,096 ("Severance Pay"), one-half of which shall be paid to each Employee from
November 15, 1999, through December 31, 1999, in equal biweekly installments at
Employer's normal payroll intervals. On January 3, 2000, Employer shall pay to
J. Wolk and to G. Wolk the other half of the Severance Pay.
3. The non-competition covenants of each Employee set forth in Section
7 of his or her Employment Agreement shall continue in effect through December
31, 1999. Thereafter, each Employee agrees that he or she will not, directly or
indirectly, engage, assist or participate, whether as a director, officer,
executive, agent, manager, consultant, partner, owner or independent contractor
or other participant, in any retail tobacconist business which operates through
the Internet or within a five- mile radius of any store currently being operated
by Employer or any of its subsidiaries (each a "Company Store"); provided,
however, that this non-competition covenant shall apply only through June 30,
2000, with respect to Internet activities and only through December 31, 2000,
with respect to other activities. In the event that a Company Store is closed,
then the foregoing non-competition covenant shall be terminated with respect to
the five-mile radius of that store. In addition, from the date of this Agreement
through December 31, 2000, neither Employee shall directly or indirectly solicit
the employment of or a contractual arrangement with or employ or enter into any
contractual arrangement with any employee of a Company Store. To the extent that
a Company Store is closed, this covenant shall no longer apply with respect to
the employees or customers of that store. Employer may assign its rights under
this paragraph 3 to purchasers of Company Stores.
4. Immediately upon the execution of this Agreement, the Employer will
pay to J. Wolk $1,991 in reimbursement for insurance monies.
5. Employer shall reimburse Employees for their reasonable business
expenses incurred in connection with Employer's business through the date of
this Agreement in accordance with Employer's past practice.
6. Employer hereby assigns to J. Wolk all of its right, title and
interest in and to a refund of approximately $7,233 representing an overpayment
of certain taxes by Boynton Tobacconists, Inc. Immediately upon receipt of the
refund check, Employer shall pay to J. Wolk the amount of such check.
7. Employer and its subsidiaries hereby release each Employee from any
and all claims, demands and liabilities whatsoever, whether actual or
contingent, existing as of the date hereof, including, but not limited to, any
and all liability of each Employee to Employer and/or its subsidiaries arising
from or in connection with the Merger or his or her employment by Employer or
such subsidiaries; provided, however, that such release shall not cover any
liability arising under this Agreement or from willful misconduct by either
Employee unknown to the Company as of the date of this Agreement. All
<PAGE>
obligations of the Employees (if any) in connection with or arising under the
Merger are hereby terminated and released.
8. Each Employee represents that he or she has returned to Employer all
of Employer's property in his or her possession, custody or control, including,
but not limited to, all customer lists, documents and computer-stored
information and all copies thereof, and all keys, communication and other
equipment and credit cards.
9. Each Employee agrees that he or she will not, directly or
indirectly, divulge, communicate or use to the detriment of Employer or for the
benefit of himself, herself or any other person or persons, or misuse in any
way, any confidential information, including, but not limited to, customer
lists, pertaining to Employer or any of its subsidiaries.
10. Notwithstanding any provision of this Agreement to the contrary,
(i) Employer shall indemnify and hold harmless each Employee with respect to
third-party claims in accordance with Employer's Certificate of Incorporation
and By-Laws, and (ii) Employer shall indemnify and hold harmless each Employee
with respect to all personal guarantees signed by him or her in connection with
leases of property for use by Employer or its subsidiaries, including, but not
limited to, the lease of computer equipment and software from Equipment Leasing
Corp. All indemnification obligations hereunder shall include the obligation to
pay the reasonable attorney's fees and expenses incurred by the indemnified
party in defending a claim subject to indemnification. Employer represents and
warrants to Employees that J. Wolk is insured pursuant to the Company's current
officers and directors liability insurance policy.
11. Each party agrees to refrain from directly or indirectly making any
statements to third parties designed to (i) disparage or otherwise impugn the
reputation or character of another party based on any matter occurring or
existing on or before the date hereof or (ii) disparage or otherwise impugn the
business or financial condition of another party. J. Wolk agrees to cooperate in
good faith with Employer and provide through January 3, 2000, such telephonic
assistance as Employer may reasonably request in connection with transition
issues and any litigation or governmental audits or inquiries which have arisen
or may arise involving matters as to which Employees have material knowledge.
12. The Company shall not issue any press release regarding the
transactions set forth in this Agreement without providing to Employees an
opportunity, upon reasonable advance notice, to review and comment upon the
draft press release.
13. Prior to signing this Agreement, each Employee has carefully read
and understood this Agreement and has either carefully reviewed this Agreement
with his or her attorney or voluntarily waived his right to such review with his
attorney.
<PAGE>
14. This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter hereof.
15. This Agreement shall be construed and enforced in accordance with
the laws of the State of Florida.
16. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective heirs, successors and assigns.
17. All references in this Agreement to "Employer" shall be deemed to
include any and all of Employer's direct or indirect subsidiaries to the extent
the context may require.
18. Whenever (i) the singular or plural number or (ii) the masculine,
feminine or neuter gender is used herein, it shall equally include the others
and shall apply jointly and severally, where the context so requires.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EMPLOYER:
WINDSOR CAPITAL CORP.
BY: /S/EUGENE TERRY
-----------------------------------
EUGENE TERRY, CHIEF EXECUTIVE OFFICER
EMPLOYEES:
/S/ JOEL A. WOLK
--------------------------------------
JOEL A. WOLK
/S/ GAIL WOLK
--------------------------------------
GAIL WOLK
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-KSB FOR THE YEAR ENDED JANUARY 31, 2000, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 51,629
<SECURITIES> 0
<RECEIVABLES> 28,458
<ALLOWANCES> 0
<INVENTORY> 473,453
<CURRENT-ASSETS> 554,243
<PP&E> 520,371
<DEPRECIATION> (401,647)
<TOTAL-ASSETS> 690,837
<CURRENT-LIABILITIES> 453,893
<BONDS> 0
0
0
<COMMON> 9,999
<OTHER-SE> 226,945
<TOTAL-LIABILITY-AND-EQUITY> 690,837
<SALES> 3,316,191
<TOTAL-REVENUES> 3,316,191
<CGS> 2,125,389
<TOTAL-COSTS> 1,936,346
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (675,118)
<INCOME-TAX> 0
<INCOME-CONTINUING> (675,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (675,118)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
