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, 1998.
[ ] 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: 3,220,620 shares of Common
Stock, par value $.01 per share, outstanding on May 8, 1998.
1
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, 1998
(Unaudited) and December 31, 1997 3-4
Condensed Consolidated Statements of Income (unaudited)
- Three Months Ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flow
(unaudited) - Three Months Ended March 31, 1998 and 1997 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, 1998 December 31, 1997
-------------- -----------------
Current Assets:
Cash and Cash Equivalents $ 971,000 $ 445,000
Accounts receivable, trade, 8,147,000 7,341,000
net
Prepaid expenses and other 174,000 227,000
current assets
Securities held available 502,000 392,000
---------- ----------
for sale
Total current assets 9,794,000 8,405,000
Fixed Assets, net 565,000 540,000
Other Assets:
Security deposits and 524,000 506,000
---------- ----------
other assets
Total Assets $10,883,000 $9,451,000
=========== ==========
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, 1998 December 31, 1997
-------------- -----------------
Current liabilities:
Accounts payable and accrued $ 4,363,000 $ 3,668,000
expenses
Capital lease obligations 17,000 16,000
Income taxes payable 306,000 25,000
------------- ------------
Total current liabilities 4,686,000 3,709,000
Deferred rent 291,000 303,000
Long-term portion of capital
lease obligations 31,000 35,000
------------- ------------
Total liabilities 5,008,000 4,047,000
============= ============
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 - 3,220,620 32,000 32,000
shares at March 31, 1998
and 3,180,104 shares at
December 31, 1997
Additional paid-in capital 4,441,000 4,435,000
Retained Earnings 1,138,000 783,000
Unrealized gain on securities
held available-for-sale, net 264,000 154,000
------------- ------------
Total stockholders' equity 5,875,000 5,404,000
------------- ------------
Total liabilities and
stockholders' equity $ 10,883,000 $ 9,451,000
============= ============
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31
1998 1997
---- ----
Revenue:
Placement fees and related income $ 14,409,000 $10,782,000
------------ -----------
Operating expenses:
Compensation and other benefits 11,393,000 7,998,000
Selling, general and administrative 2,372,000 2,373,000
------------ -----------
13,765,000 10,371,000
Income from operations 644,000 411,000
Interest (income) expense (14,000) 1,000
------------ -----------
Income before provision for income
taxes 658,000 410,000
Provision for income taxes 303,000 184,000
------------ -----------
Net Income $ 355,000 $ 226,000
============ ===========
Basic earnings per share $ 0.11 $ 0.07
============ ===========
Diluted earnings per share $ 0.10 $ 0.07
============ ===========
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
1998 1997
Cash Flows from operating activities:
Net income $355,000 $226,000
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities
Depreciation and amortization 44,000 28,000
Provision for doubtful receivables - (14,000)
Deferred rent (12,000) (12,000)
Changes in assets and liabilities:
(Increase) in accounts receivable (805,000) (534,000)
Decrease (Increase) in prepaid
expenses and other current assets 53,000 (8,000)
(Increase) in security
deposits and other assets (18,000) (25,000)
Increase (decrease) in liabilities 976,000 (307,000)
--------- ----------
Net cash provided by (used in) operat-
ing activities 593,000 (646,000)
--------- ----------
Cash flows (used in) investing activities:
Purchases of fixed assets (70,000) (90,000)
--------- ---------
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
1998 1997
---- ----
Cash flows provided by (used in) financing activities:
Proceeds from exercise of
options 6,000 1,000
Repayment of capital leases (3,000) (15,000)
----------- ---------
Net cash provided by (used in)
financing activities 3,000 (14,000)
---------- ----------
Net increase (decrease) in
cash 526,000 (750,000)
Cash at beginning of period 445,000 1,068,000
----------- ---------
Cash at end of period $ 971,000 $ 318,000
=========== =========
Supplemental cash flows
information:
Cash paid during the period for:
Interest $ 1,000 $ 7,000
----------- ---------
Income taxes 22,000 521,000
-----------
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, 1998, the results of its
operations for the three months ended March 31, 1998 and 1997
and changes in its cash flows for the three months ended March
31, 1998 and 1997. 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, 1998 are
not necessarily indicative of operating results that may be
expected for the year ending December 31, 1998. The accompanying
condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
2. In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share. Statement 128 replaced
the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented,
and where appropriate, restated to conform to the Statement 128
requirements.
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1998 and 1997.
1998 1997
----------------------------------------------
Numerator:
Net income $355,000 $226,000
----------------------------------------------
Denominator
Denominator for basic earnings per
share- weighted-average shares 3,217,965 3,177,638
Effect of dilutive securities:
Stock options 326,431 258,994
----------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 3,544,396 3,436,632
----------------------------------------------
Basic earnings per share $.11 $.07
==============================================
Diluted earnings per share $.10 $.07
==============================================
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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, 1998 compared to the
Three Months ended March 31, 1997.
Revenues
Revenues increased by approximately $3,627,000 or 34%. The increase in the
quarter ended March 31 1998 is primarily due to the increase in temporary
staffing and placement fees revenues of 48% and 10%, respectively as compared to
the corresponding period in 1997.
Operating Expenses
Operating expenses increased approximately 33% in the quarter ended March 31,
1998 as compared to the corresponding period in 1997. Compensation and other
benefits increased approximately 42% mainly due to increased compensation and
compensation related costs associated with the increase in revenues. Selling,
general and administrative expenses remained level as compared to the
corresponding period in 1997.
Net interest expense decreased during 1998 due mainly to a lack of borrowings
under the Company's credit facility when compared to 1997.
Operating Results
Net income for the three month period ended March 31, 1998 was approximately
$355,000 or $.11 per common share and $.10 diluted earnings per common share as
compared to net income of approximately $226,000 or $.07 basic earnings per
common share and $.07 diluted earnings per common share in the quarter ended
March 31, 1997. The results reflect increased revenues partially being offset by
the increase in operating expenses.
9
Liquidity and Capital Resources
Working capital at March 31, 1998 was approximately $5,108,000 as compared to
$4,696,000 at December 31, 1997. Cash provided in operating activities during
the three months ended March 31, 1998 was $593,000 primarily a result of an
increase in accounts receivable which was partially offset by an increase in
liabilities and a cash payment of income taxes. The increase in accounts
receivable was due to increased revenues. The Company has no material
commitments for capital expenditures during 1998. Cash used in investing
activities, purchase of fixed assets and financing activities, primarily
repayment of capital lease obligations amounted to $70,000 and $3,000,
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 salaries and wages increase.
Company Outlook
The current fiscal year is off to a strong start and, based on all present
indicationns, 1998 should be another strong year for the Company, with growth in
line with 1997's results. The foregoing statement, as well any other
forward-looking statements and information contained in this report, is based on
management's beliefs and assumptions, as well as information currently available
to management. Such beliefs and assumptions are based on, among other things,
the Company's operating and financial performance over recent years and its
expectations about its business for the current fiscal year. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Such statements are subject to certain risks, uncertainties
and assumptions, including, but not limited to, the possibility that (a)
prevailing economic conditions may significantly deteriorate, thereby reducing
the demand for the Company's services, (b) the Company might experience a
significant deterioration in its collection of accounts receivable and (c)
regulatory or legal changes might affect an employer's decision to utilize the
Company's services, although none of these risks is anticipated at the present
time. Should one or more of these or any other risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may vary materially from those anticipated, estimated or expected.
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 12, 1998
12