SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission File No. 33-26828
WINDSOR CAPITAL CORP.
---------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 58-1921737
------------------------------- ------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
7200 W. Camino Real, Suite 302
Boca Raton, Florida 33433
------------------------------------ --------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (561) 417-8364
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO_____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 9,999,053 shares of common
stock, $.001 par value per share were outstanding as of September 13, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WINDSOR CAPITAL CORP.
CONDENSED BALANCE SHEET
July 31, 2000
(Unaudited)
ASSETS
Current assets
Receivables $ 5,405
Merchandise inventories 196,296
-----------
Total current assets 201,701
Property and equipment, net 25,151
Other assets:
Deposits 8,798
-----------
$ 235,650
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Bank overdraft $ 5,605
Accounts payable 282,955
Accrued salaries, bonuses and employee benefits 5,775
Other accrued expenses 61,760
-----------
Total current liabilities 356,095
-----------
Stockholders' equity (deficiency):
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding --
Common stock, $0.001 par value; 25,000,000 shares
authorized; 9,999,053 shares issued and outstanding 9,999
Additional paid in capital 3,788,421
Stock subscription receivable (1,400)
Accumulated deficit (3,917,465)
-----------
Total stockholders' equity (deficiency) (120,445)
-----------
$ 235,650
===========
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 31, 2000 July 31, 1999 July 31, 2000 July 31, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 375,004 $ 797,781 $ 1,012,879 $ 1,668,624
Costs of goods sold 245,542 497,482 652,140 1,054,535
----------- ----------- ----------- -----------
Gross profit 129,462 300,299 360,739 614,089
Selling, general and
administrative expenses 290,092 461,446 651,996 943,237
Loss on abandonment
of stores 9,552 -- 80,546 --
----------- ----------- ----------- -----------
Operating loss (170,182) (161,147) (371,803) (329,148)
Other income -- 18,992 14,414 37,527
----------- ----------- ----------- -----------
Net loss $ (170,182) $ (142,155) $ (357,389) $ (291,621)
=========== =========== =========== ===========
Loss per common share,
basic and diluted $ (.02) $ (.01) $ (.04) $ (.03)
=========== =========== =========== ===========
Weighted average common
shares outstanding 9,999,053 9,999,053 9,999,053 9,999,053
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
WINDSOR CAPITAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
July 31,
2000 1999
--------- ---------
Cash flows from operating activities:
Net loss $(357,389) $(291,621)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 22,099 36,000
Loss on abandonment of stores 80,546 --
Change in assets and liabilities:
Receivables 23,053 15,108
Merchandise inventories 277,157 264,124
Prepaid expenses and other current assets 703 (20,727)
Deposits and other assets -- (2,036)
Accounts payable (33,470) (48,279)
Accrued salaries, bonuses and employee benefits (9,872) (5,313)
Other accrued expenses (60,061) (30,376)
--------- ---------
Net cash used in operating activities (57,234) (83,120)
--------- ---------
Cash flows from financing activities:
Bank overdraft 5,605 --
--------- ---------
Net cash provided by financing activities 5,605 --
--------- ---------
Net decrease in cash and cash equivalents (51,629) (83,120)
Cash and cash equivalents at beginning of period 51,629 102,870
--------- ---------
Cash and cash equivalents at end of period $ -- $ 19,750
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WINDSOR CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Presentation
The Company is a mall-based specialty retailer which operates three
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"). Until April 27, 2000, the Company operated six such
stores. On April 27, 2000, one store was closed as a result of the termination
of its lease. In addition, due to adverse business conditions, the Company
ceased operations at two other unprofitable stores on May 28, and July 4, 2000,
respectively, and abandoned its property and equipment at those locations to the
respective landlords. See Part II, Item 5 "Other Information".
In addition, until June 1998, the Company owned and operated 14 kiosks
under the name "Simply Cigars" in malls located in Connecticut, Illinois,
Maryland, Massachusetts, Michigan and Ohio. These stores sold hand-rolled
premium cigars, cigar-related items and gentlemen's accessories. Most of the
Simply Cigars kiosks proved unprofitable, and in May 1998, the Company decided
to terminate its Simply Cigars operations. In early June 1998, the Company
closed two kiosks, and in August 1998, the Company sold three other kiosks. In
September 1998, the Company entered into an agreement to sell its remaining nine
kiosks; however, the prospective buyer failed to close. In November 1998, the
Company filed suit against the prospective buyer and, due to the lack of
alternatives, surrendered eight of the remaining nine kiosks to the respective
landlords in order to limit its liability for ongoing lease expenses as well as
to avoid additional operating losses. The final kiosk, which was not subject to
an ongoing lease, was sold. See Part II, Item 1 "Legal Proceedings".
The interim financial information included herein is unaudited. In the
opinion of management, such unaudited information reflects all adjustments,
consisting only of normal recurring accruals and other adjustments as disclosed
herein, necessary for a fair presentation of the unaudited information.
Results of interim periods are not necessarily indicative of results
expected for the full year.
2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue from sales of products is generally recognized upon delivery to
customers. The Company has established programs which, under certain conditions,
enable customers to return products. The Company establishes liabilities for
estimated returns and allowances at the time of delivery to customers
4
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost
is determined using the average cost method.
Property and Equipment
Property and equipment is stated at cost. Depreciation on property and
equipment is provided on the straight-line method over the estimated useful
lives of the assets. Maintenance and repairs are charged to expense as incurred;
improvements and betterments are capitalized. Upon the retirement or sale of
property and equipment, the accounts are relieved of the cost and accumulated
depreciation, and any resulting gains or losses are recognized.
Income Taxes
The Company provides for income taxes pursuant to the provisions of
SFAS No. 109, "Accounting for Income Taxes". Deferred income taxes are
determined based upon differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Deferred
tax assets are also established for future tax benefits of loss and credit
carryforwards. Valuation allowances are established for deferred tax assets when
it is more likely than not that such amounts will not be realized.
3. Going Concern Consideration
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has experienced recurring
losses from operations, generated negative cash flows from operations of $57,234
during the six month period ended July 31, 2000, and at July 31, 2000, the
Company's liabilities exceeded its assets by $120,445. In addition, as further
discussed in Note 4, the Company is subject to certain contingencies which, if
not favorably resolved, could have a significant negative impact on its future
cash flows. The Company continues to seek to reduce operating expenses through
reductions in corporate overhead and increase sales volume through 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 remaining Smoker's Gallery
retail stores or the prompt closure of any remaining unprofitable Smoker's
Gallery retail stores. Finally, as also discussed in Note 4, the Company has
attempted to mitigate the potential financial impact of any contingencies which
may not be favorably resolved.
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 remaining Smoker's Gallery retail outlets, the
Company may not have sufficient funds to continue operations in Fiscal 2001.
5
<PAGE>
4. Contingencies
On September 15, 1998, the Company entered into an Operating Agreement
and an Asset Purchase Agreement (collectively, the "Agreements") with Tropical
Republic, Inc. ("Tropical"), under which the responsibility for the operations
and expenses of the Company's then remaining nine 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.
6
<PAGE>
4. Contingencies (continued)
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
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. The Company made all payments due under the
settlement agreement.
On May 10, 2000, the Florida Department of Revenue ("FDR") concluded a
sales tax audit of the Smoker's Gallery Sawgrass Mall store for the period
September 1, 1994 to August 31, 1999. The FDR asserted that, as a result of the
audit, the Company owes approximately $31,300 in back taxes, interest and
penalties. The Company believes that most, if not all, of the FDR assessment is
improper because it is principally based on out-of-state and gift certificate
sales, for which no sales tax should be due. The Company is engaged in
negotiations with the FDR in an attempt to successfully settle the pending
assessment. If a prompt settlement cannot be reached, the Company intends to
vigorously dispute the assessment and file an administrative appeal. There can
be no assurance, however, that a favorable settlement will be reached or that
any appeal will be successful.
On June 30, 2000, the Company received a letter from attorneys
representing The Falls Shopping Center Associates LLC (the "Falls Mall"), the
landlord of the unprofitable store whose operations the Company ceased on May
28, 2000, requesting payment of approximately $584,500 for alleged damages in
the form of rent and other charges through the end of the lease term (December
31, 2006). The lease was held in the name of the Company's now-defunct
subsidiary, The Falls Tobacconist, Inc.; however, the Company guaranteed the
lease. The Company believes that it properly and timely rescinded the guarantee.
Further, the Company believes that it is entitled to avoid at least a portion of
any future lease liability to the Falls Mall by asserting a credit equal to the
fair market rental value of the premises, including the store fixtures.
Nonetheless, there can be no assurance that the Company will not be materially
adversely affected if litigation is brought by the Falls Mall.
On July 19, 2000, the Company's subsidiary, Galleria Tobacconists, Inc.
("GTI"), received a notice of default from Keystone-Florida Property Holdings
Corp. ("Keystone"), the landlord of the unprofitable Galleria Mall store whose
operations the Company ceased on July 4, 2000, requesting immediate payment of
approximately $11,900 for unpaid rent as well as continued payment of monthly
rent through the end of the lease term (January 31, 2007). Keystone has not made
any claim against the Company (which did not guarantee the lease) and GTI has no
material assets. The Company believes that GTI will be able to avoid at least a
portion of any future lease liability to Keystone by asserting a credit equal to
the fair market rental value of the premises, including the store fixtures.
There can be no assurance that the Company will not be materially adversely
affected if litigation is brought by Keystone against the Company.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Except for historical information contained herein, certain matters set
forth in this Form 10-QSB are "forward looking", within the meaning of the
federal securities laws, and involve a number of risks and uncertainties that
could cause future results to differ materially from these statements and
trends. These forward-looking statements include, among others, statements
relating to the Company's business plan, which is based upon the Company's
interpretation and analysis of cigar industry trends and management's ability to
successfully market and sell its products to retail consumers. This plan
assumes, among other things, that (i) the Company will be able to enhance the
profitability of the remaining 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.
Results of Operations
The following table sets forth certain items expressed in percentages of
revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
July 31, 2000 July 31, 1999 July 31, 2000 July 31, 1999
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 65.5% 62.4% 64.4% 63.2%
------- ------- ------- -------
Gross profit 34.5% 37.6% 35.6% 36.8%
Selling, general and
administrative expenses 77.3% 57.8% 64.4% 56.5%
Loss on abandonment
of stores 2.6% 0.0% 7.9% 0.0%
------- ------- ------- -------
Operating income (loss) (45.4)% (20.2)% (36.7)% (19.7)%
Other income 0.0% 2.4% 1.4% 2.2%
------- ------- ------- -------
Net income (loss) (45.4)% (17.8)% (35.3)% (17.5)%
======= ======= ======= =======
</TABLE>
8
<PAGE>
For the quarter ended July 31, 2000, the Company's same store sales
were down 21% from the same period in 1999. For the six months ended July 31,
2000, the Company's same store sales were down 26% 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.
For the three and six months ended July 31, 2000, the Company reported
net losses of $170,182 and $357,389, respectively. For the three and six months
ended July 31, 1999, the Company reported net losses of $142,155 and $291,621,
respectively. Revenue for the three months ended July 31, 2000 and 1999 amounted
to $375,004 and $797,781, respectively. Revenue for the six months ended July
31, 2000 and 1999 amounted to $1,012,879 and $1,668,624, respectively. The
decrease in revenue was due to the decline in Smoker's Gallery same stores
sales, and the closure of three of the Company's Smoker's Gallery stores in
fiscal 2001.
Gross profit for the three months ended July 31, 2000 and 1999 amounted
to $129,462 (34.5% of sales) and $300,299 (37.6% of sales), respectively. Gross
profit for the six months ended July 31, 2000 and 1999 amounted to $360,739
(35.6% of sales) and $614,089 (36.8% of sales), respectively. These decreases
are attributable to increased promotional discounts and other price reductions
being offered to customers.
Total selling, general and administrative expenses decreased from
$461,446 for the three months ended July 31, 1999 to $290,092 for the three
months ended July 31, 2000, a 37% decrease. This decrease is due mainly to
reductions in corporate overhead and related store expenses, including a
decrease in salaries and wages of approximately $110,000 and rent expense of
approximately $21,000. Total selling, general and administrative expenses
decreased from $943,237 for the six months ended July 31, 1999 to $651,996 for
the six months ended July 31, 2000, a 31% decrease. This decrease is also due
mainly to reductions in corporate overhead and related store expenses, including
a decrease in salaries and wages of approximately $161,000 and rent expense of
approximately $27,000.
Financial Condition, Liquidity and Capital Resources
At July 31, 2000, the Company had a working capital deficiency of
$154,394 and has experienced recurring losses from operations and generated
negative cash flows from operations of $57,234 during the six months ended July
31, 2000. In addition, as further discussed in Part II, Item 1 "Legal
Proceedings", the Company is subject to certain contingencies which, if not
favorably resolved, could have a significant negative impact on its future cash
flows. The Company continues to seek to reduce operating expenses through
reductions in corporate overhead and increase sales volume through 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 remaining Smoker's Gallery
retail stores or the prompt closure of any remaining unprofitable Smoker's
Gallery retail stores. Finally, as also discussed in Part II, Item 5 "Other
Information", the Company has attempted to mitigate the potential financial
impact of any contingencies which may not be favorably resolved.
9
<PAGE>
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 remaining Smoker's Gallery retail stores, the
Company may not have sufficient funds to continue operations in Fiscal 2001.
Net cash used in operating activities decreased 31% in the six months
ended July 31, 2000 to $57,234 from $83,120 for the six months ended July 31,
1999. This decrease is due primarily to (i) an increase in non-cash losses, i.e.
loss on abandonment of stores, ($80,546 for the six months ended July 31, 2000
vs. $0 for the six months ended July 31, 1999), and (ii) a reduction in prepaid
expenses and other current assets (cash provided by operating activities of $703
during the six months ended July 31, 2000 versus cash used in operating
activities of $20,727 during the six months ended July 31, 1999), offset by (i)
an increase in the net loss ($357,389 for the six months ended July 31, 2000
versus $291,621 for the six months ended July 31, 1999) and (ii) the increase in
cash used to reduce other accrued expenses ($60,061 for the six months ended
July 31, 2000 versus $30,376 for the six months ended July 31, 1999).
Net cash provided by financing activities increased to $5,605 in the
six months ended July 31, 2000 as a result of the Company's bank overdraft at
July 31, 2000.
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 that could adversely affect store sales.
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.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. 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.
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
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. The Company made all payments due under the
settlement agreement.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
11
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
As a result of Tropical's breach of the Agreements and the
unprofitability of the Simply Cigars business, the Company had no realistic
alternative but to surrender eight of its nine remaining kiosks to the
respective landlords as of November 1, 1998, in order to limit its liability for
ongoing lease expenses as well as to pay accrued rent through October 31, 1998,
which Tropical had agreed but failed to pay. The final kiosk, which was not
subject to an ongoing lease was sold. By surrendering these kiosks, the Company
obtained releases from future lease liability for all kiosk locations except for
the kiosks located at the Montgomery and Annapolis, Maryland malls. Such future
lease liability approximates $376,425 as of November 1, 1998: 27 months at
$5,300 per month with respect to Montgomery; and 51 months at $4,575 per month
with respect to Annapolis. In November 1998, the Maryland landlord threatened
legal action against the Company; however, the Company is unaware of the
commencement of any such action, and no further communications have been
received from the landlord. The Company believes that it will be able to avoid
at least a substantial portion of any future lease liability to the Maryland
landlord by asserting a credit equal to the fair market rental value of the
premises including the kiosks. Further, under the Agreements with Tropical and
Joiner, the Company believes that Tropical and Joiner are fully responsible for
any liability of the Company to the Maryland landlords; however, there can be no
assurance that the Company will not be materially adversely affected if
litigation is brought by the Maryland landlord.
On May 10, 2000, the Florida Department of Revenue ("FDR") concluded a
sales tax audit of the Smoker's Gallery Sawgrass Mall store for the period
September 1, 1994 to August 31, 1999. The FDR asserted that, as a result of the
audit, the Company owes approximately $31,300 in back taxes, interest and
penalties. The Company believes that most, if not all, of the FDR assessment is
improper because it is principally based on out-of-state and gift certificate
sales, for which no sales tax should be due. The Company is engaged in
negotiations with the FDR in an attempt to successfully settle the pending
assessment. If a prompt settlement cannot be reached, the Company intends to
vigorously dispute the assessment and file an administrative appeal. There can
be no assurance, however, that a favorable settlement will be reached or that
any appeal will be successful.
On June 30, 2000, the Company received a letter from attorneys
representing The Falls Shopping Center Associates LLC (the "Falls Mall"), the
landlord of the unprofitable store whose operations the Company ceased on May
28, 2000, requesting payment of approximately $584,500 for alleged damages in
the form of rent and other charges through the end of the lease term (December
31, 2006). The lease was held in the name of the Company's now-defunct
subsidiary, The Falls Tobacconist, Inc.; however, the Company guaranteed the
lease. The Company believes that it properly and timely rescinded the guarantee.
Further, the Company believes that it is entitled to avoid at least a portion of
any future lease liability to the Falls Mall by asserting a credit equal to the
fair market rental value of the premises, including the store fixtures.
Nonetheless, there can be no assurance that the Company will not be materially
adversely affected if litigation is brought by the Falls Mall.
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On July 19, 2000, the Company's subsidiary, Galleria Tobacconists, Inc.
("GTI"), received a notice of default from Keystone-Florida Property Holdings
Corp. ("Keystone"), the landlord of the unprofitable Galleria Mall store whose
operations the Company ceased on July 4, 2000, requesting immediate payment of
approximately $11,900 for unpaid rent as well as continued payment of monthly
rent through the end of the lease term (January 31, 2007). Keystone has not made
any claim against the Company (which did not guarantee the lease) and GTI has no
material assets. The Company believes that GTI will be able to avoid at least a
portion of any future lease liability to Keystone by asserting a credit equal to
the fair market rental value of the premises, including the store fixtures.
There can be no assurance that the Company will not be materially adversely
affected if litigation is brought by Keystone against the Company.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27. Financial Data Schedule for the quarterly period
ended July 31, 2000.
b) Reports on Form 8-K
During the quarter ended July 31, 2000, no Form 8-K reports
were filed by the Company.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Windsor Capital Corp.
------------------------
(Registrant)
Date: September 14, 2000 by:/s/ Alan Cornell
------------------------
Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT DESCRIPTION
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27 Financial Data Schedule
