U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) Of The Securities Exchange Act
of 1934: For the quarterly period ended March 31, 1997.
[ ] Transaction report under Section 13 or 15(d) of the Exchange Act for the
transition period from _________ to __________
Commission File Number 1-9629
WINSTON RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3134278
- ------------------------------ ------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
535 Fifth Avenue, New York, New York 10017-3662
- -----------------------------------------------
(Address of Principal Executive Offices)
(212) 557-5000
--------------
(Issuer's telephone number)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 3,181,104 shares of Common
Stock, par value $.01 per share, outstanding on May 9, 1997.
WINSTON RESOURCES, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements of the Registrant
are included:
Condensed Consolidated Balance Sheets - March 31, 1997
(Unaudited) and December 31, 1996 3-4
Condensed Consolidated Statements of Income (unaudited)
- Three Months Ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flow
(unaudited) - Three Months Ended March 31, 1997 and 1996 6-7
Notes to Condensed Consolidated Financial Statements
(unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
2
WINSTON RESOURCES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Item 1. FINANCIAL STATEMENTS
Assets March 31, 1997 December 31, 1996
-------------- -----------------
Current Assets:
Cash and Cash Equivalents $ 318,000 $1,068,000
Accounts receivable, trade,
net 6,403,000 5,855,000
Prepaid expenses and other
current assets 246,000 238,000
Securities held available
for sale 275,000 262,000
---------- ----------
Total current assets 7,242,000 7,423,000
Fixed Assets, net 373,000 311,000
Other Assets:
Security deposits and
other assets 729,000 704,000
---------- ----------
Total $8,344,000 $8,438,000
---------- ----------
---------- ----------
Condensed Consolidated Balance Sheets
Continued On Next Page.
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1997 December 31, 1996
-------------- -----------------
Current liabilities:
Accounts payable and accrued
expenses $3,611,000 $3,603,000
Capital lease obligations 42,000 54,000
Income taxes payable 203,000 518,000
------------ ------------
Total current liabilities 3,856,000 4,175,000
Deferred Rent 338,000 350,000
Long-term portion of capital
lease obligations 48,000 51,000
------------ ------------
Total liabilities 4,242,000 4,576,000
------------ ------------
------------ ------------
Stockholders' equity:
Preferred stock - $100 par
value; authorized 2,000,000
shares, no shares issued
Common stock - $.01 par
value; authorized
10,000,000 shares, issued
and outstanding - 3,180,104
shares at March 31, 1997
and 3,177,104 shares at
December 31, 1996 32,000 32,000
Additional paid-in capital 4,414,000 4,413,000
Accumulated deficit (435,000) (661,000)
Unrealized gain on securities
held available-for-sale, net 91,000 78,000
------------ ------------
Total stockholders' equity 4,102,000 3,862,000
------------ ------------
Total liabilities and
stockholders' equity $ 8,344,000 $ 8,438,000
------------ ------------
------------ ------------
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31
------------------
1997 1996
---- ----
Revenue:
Placement fees and related income $10,782,000 $9,133,000
----------- ----------
Operating expenses:
Compensation and other benefits 7,998,000 6,965,000
Selling, general and administrative 2,373,000 1,859,000
----------- ----------
10,371,000 8,824,000
Income from operations 411,000 309,000
Interest expense, net 1,000 58,000
----------- ----------
Income before provision for income
taxes 410,000 251,000
Provision for income taxes 184,000 85,000
----------- ----------
Net Income $ 226,000 $ 166,000
----------- ----------
----------- ----------
Primary and fully
diluted net income
per common share (Note 2) $ 0.07 $ 0.05
----------- ----------
----------- ----------
Weighted average number of common
shares outstanding 3,436,638 3,112,954
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
-------------------
1997 1996
---- ----
Cash Flows from operating activities:
Net income $226,000 $166,000
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities
Depreciation and amortization 28,000 30,000
Provision for doubtful receivables (14,000) (1,000)
Deferred rent (12,000) (7,000)
Deferred (income) loss recognized -- (21,000)
Changes in assets and liabilities:
(Increase) in accounts receivable (534,000) (314,000)
(Increase) decrease in prepaid
expenses and other current assets (8,000) 84,000
(Increase) decrease in security
deposits and other assets (25,000) 2,000
Increase (decrease) in liabilities (307,000) 98,000
--------- ---------
Net cash provided by (used in) operat-
ing activities (646,000) 37,000
--------- ---------
Cash flows (used in) investing
activities:
Purchases of fixed assets (90,000) (13,000)
--------- ---------
Condensed Consolidated Statement of Cash Flows
Continued On Next Page.
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6
WINSTON RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
------------------
1997 1996
---- ----
Cash flows provided by (used
in) financing activities:
Proceeds from (payments on)
short term and long-term
debt -- 189,000
Proceeds from exercise of
options 1,000 1,000
Repayment of capital leases (15,000) (18,000)
---------- --------
Net cash provided by (used in)
financing activities (14,000) 172,000
---------- --------
Net increase (decrease) in
cash (750,000) 196,000
Cash at beginning of period 1,068,000 144,000
---------- --------
Cash at end of period $ 318,000 $340,000
---------- --------
---------- --------
Supplemental cash flows
information:
Cash paid during the period
for:
Interest $ 7,000 $ 69,000
---------- --------
Income taxes 521,000 32,000
---------- --------
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
7
WINSTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only
of normal recurring accruals and adjustments) necessary to present fairly
the financial position of the Company as of March 31, 1997, the results of
its operations for the three months ended March 31, 1997 and 1996 and
changes in its cash flows for the three months ended March 31, 1997 and
1996. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Operating results
for the three months ended March 31, 1997 are not necessarily indicative of
operating results that may be expected for the year ending December 31,
1997. The accompanying condensed consolidated financial statements should
be read in conjunction with the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
2. Net income per share is computed using the weighted average number of
common shares outstanding. Common stock equivalents assuming the exercise
of stock options, are included in the calculation of net income per share
when there is a dilutive effect.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact
is expected to result in no increase in primary earnings per share for the
first quarter ended March 31, 1997 and an increase for the quarter ended
March 31, 1996 of $.01 per share. The impact of Statement No. 128 on the
calculation of fully diluted earnings per share for these quarters is not
expected to be material.
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WINSTON RESOURCES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1996.
REVENUES
Revenues increased by approximately $1,649,000 or 18%. The increase in the
quarter ended March 31 1997 is primarily due to the increase in temporary
staffing and placement fees revenues of 15% and 17%, respectively as compared to
the corresponding period in 1996.
OPERATING EXPENSES
Operating expenses increased approximately 18% in the quarter ended March 31,
1997 as compared to the corresponding period in 1996. Compensation and other
benefits increased approximately 15% mainly due to increased compensation and
compensation related costs associated with the increase in revenues. Selling,
general and administrative expenses increased 28% due to additions to the sales
force, commissions related to increased revenues, advertising, professional fees
and other costs related to maintaining the Company's branch operations.
Net interest expense decreased during 1997 due mainly to a lack of borrowings
under the Company's credit facility when compared to 1996.
The effective tax rate utilized was 45% for the three months ended March 31,
1997 as compared to 34% in the corresponding period in 1996. The lower prior
year rate was attributable to an income tax benefit as a result of a reduction
in the valuation allowance for certain deferred tax assets that became
realizable.
OPERATING RESULTS
Net income for the three month period ended March 31, 1997 was approximately
$226,000 or $.07 per common share as compared to net income of approximately
$166,000 or $.05 per common share in the quarter ended March 31, 1996. The
results reflect increased revenues partially being offset by the increase in
operating expenses.
9
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1997 was approximately $3,386,000 as compared to
$3,248,000 at December 31, 1996. Cash used in operating activities during the
three months ended March 31, 1997 was $646,000 primarily a result of a cash
payment of income taxes and an increase in accounts receivable. The increase in
accounts receivable was due to increased revenues. The Company has no material
commitments for capital expenditures during 1997. Cash used in investing
activities, purchase of fixed assets and financing activities, primarily
repayment of capital lease obligations amounted to $90,000 and $14,000,
respectively. Management believes that the Company's $6,000,000 credit
facility, working capital and internally generated funds are sufficient to
support current operations and any currently foreseeable increase in activity.
INFLATION
To date, the impact of inflation and changing prices on the Company's business
has been minimal. The Company charges its customers percentages of the salaries
and wages of permanent and temporary employees, which causes its fee income to
increase proportionately as salary and wages increase.
10
WINSTON RESOURCES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
27. Financial Data Schedule
(b) REPORTS:
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINSTON RESOURCES,INC.
By: /s/ Seymour Kugler
--------------------------------
Seymour Kugler
Chairman of the Board
and President
By: /s/ Jesse Ulezalka
--------------------------------
Jesse Ulezalka
Chief Financial Officer
Dated: May 13, 1997
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