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 June 30, 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 August 7, 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 - June 30, 1998
(Unaudited) and December 31, 1997 3-4
Condensed Consolidated Statements of Income (unaudited)
- Three and Six Months Ended June 30, 1998 and 1997 5-6
Condensed Consolidated Statements of Cash Flow
(unaudited) - Six Months Ended June 30, 1998 and 1997 7-8
Notes to Condensed Consolidated Financial Statements
(unaudited) 9-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security-Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
WINSTON RESOURCES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
(Unaudited)
Item 1. FINANCIAL STATEMENTS
Assets June 30, 1998 December 31, 1997
-------------- -----------------
Current Assets:
Cash and Cash Equivalents $ 1,643,000 $ 445,000
Accounts receivable, trade, 8,381,000 7,341,000
net
Prepaid expenses and other 292,000 227,000
current assets
Securities held available 511,000 392,000
---------- ----------
for sale
Total current assets 10,827,000 8,405,000
Property and equipment, net 678,000 540,000
Other Assets:
Security deposits and 488,000 506,000
---------- ----------
other assets
Total Assets $11,993,000 $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)
June 30, 1998 December 31, 1997
-------------- -----------------
Current liabilities:
Accounts payable and accrued $ 5,218,000 $ 3,668,000
expenses
Capital lease obligations 17,000 16,000
Income taxes payable 179,000 25,000
------------- ------------
Total current liabilities 5,414,000 3,709,000
Deferred rent 279,000 303,000
Long-term portion of capital
lease obligations 26,000 35,000
------------- ------------
Total liabilities 5,719,000 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 June 30, 1998
and 3,215,120 shares at
December 31, 1997
Additional paid-in capital 4,441,000 4,435,000
Retained Earnings 1,583,000 783,000
Unrealized gain on securities
available-for-sale, net 218,000 154,000
------------- ------------
Total stockholders' equity 6,274,000 5,404,000
------------- ------------
Total liabilities and
stockholders' equity $ 11,993,000 $ 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
June 30
1998 1997
---- ----
Revenue:
Placement fees and related income $ 15,098,000 $11,837,000
------------ -----------
Operating expenses:
Compensation and other benefits 11,804,000 8,824,000
Selling, general and administrative 2,486,000 2,396,000
------------ -----------
14,290,000 11,220,000
Income from operations 808,000 617,000
Interest income, net 16,000 8,000
------------ -----------
Income before provision for income
taxes 824,000 625,000
Provision for income taxes 379,000 282,000
------------ -----------
Net Income $ 445,000 $ 343,000
============ ===========
Basic earnings per share $ 0.14 $ 0.11
============ ===========
Diluted earnings per share $ 0.13 $ 0.10
============ ===========
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Six Months Ended
June 30
1998 1997
---- ----
Revenue:
Placement fees and related income $ 29,506,000 $22,619,000
------------ -----------
Operating expenses:
Compensation and other benefits 23,197,000 16,822,000
Selling, general and administrative 4,857,000 4,769,000
------------ -----------
28,054,000 21,591,000
Income from operations 1,452,000 1,028,000
Interest income, net 30,000 7,000
------------ -----------
Income before provision for income
taxes 1,482,000 1,035,000
Provision for income taxes 682,000 466,000
------------ -----------
Net Income $ 800,000 $ 569,000
============ ===========
Basic earnings per share $ 0.25 $ 0.18
============ ===========
Diluted earnings per share $ 0.23 $ 0.17
============ ===========
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
1998 1997
Cash Flows from operating activities:
Net income $800,000 $569,000
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities
Depreciation and amortization 93,000 68,000
Provision for doubtful receivables - (14,000)
Deferred rent (24,000) (24,000)
Changes in assets and liabilities:
(Increase) in accounts receivable (1,040,000) (989,000)
Decrease (Increase) in prepaid
expenses and other current assets (65,000) (57,000)
(Increase) in security
deposits and other assets (37,000) (58,000)
Increase in accounts payable and 1,704,000 52,000
accrued expenses and income taxes --------- ----------
payable
Net cash provided by (used in) operat-
ing activities 1,431,000 (453,000)
--------- ----------
Cash flows (used in) investing activities:
Purchases of fixed assets (231,000) (149,000)
--------- ---------
Condensed Consolidated Statement of Cash Flows
Continued On Next Page.
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
7
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
1998 1997
---- ----
Cash flows provided by (used in) financing activities:
Proceeds from exercise of
options 6,000 5,000
Repayment of capital leases (8,000) (34,000)
----------- ---------
Net cash (used in)
financing activities (2,000) (29,000)
---------- ----------
Net increase (decrease) in
cash 1,198,000 (631,000)
Cash at beginning of period 445,000 1,068,000
----------- ----------
Cash at end of period $1,643,000 $ 437,000
=========== =========
Supplemental cash flows
information:
Cash paid during the period for:
Interest $ 3,000 $ 12,000
----------- ---------
Income taxes 528,000 667,000
----------- ---------
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
8
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 June 30, 1998, the results of
its operations for the three months and six months ended June 30, 1998 and
1997 and changes in its cash flows for the six months ended June 30, 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 six months ended June 30, 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. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three and six months ended June 30, 1998 and
1997.
THREE MONTHS
1998 1997
----------------------------------------------
Numerator:
Net income $445,000 $343,000
----------------------------------------------
Denominator
Denominator for basic earnings per
share- weighted-average shares 3,220,620 3,182,132
Effect of dilutive securities:
Stock options 336,067 258,058
----------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 3,556,687 3,440,190
----------------------------------------------
Basic earnings per share $.14 $.11
==============================================
Diluted earnings per share $.13 $.10
==============================================
9
SIX MONTHS
1998 1997
----------------------------------------------
Numerator:
Net income $800,000 $569,000
----------------------------------------------
Denominator
Denominator for basic earnings per
share-weighted-average shares 3,219,301 3,179,897
Effect of dilutive securities:
Stock options 328,855 255,520
----------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 3,548,156 3,435,417
----------------------------------------------
Basic earnings per share $.25 $.18
==============================================
Diluted earnings per share $.23 $.17
==============================================
3. Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the
adoption of this statement had no impact on the Company's net income or
stockholders' equity. Statement 130 requires unrealized gains on
securities-available- for-sale, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income. During the six months ended June 30, 1998 and 1997, total
comprehensive income amounted to $864,000, and $595,000, respectively.
During the three months ended June 30, 1998 and 1997, total comprehensive
income amounted to $504,000, and $350,000, respectively.
10
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 June 30, 1998
compared to the Three Months ended June 30, 1997.
Revenues
Revenues increased by approximately $ 3,261,000 or 28%. The increase in the
quarter ended June 30 1998 is primarily due to the increase in temporary
staffing and placement fees revenues of 36% and 3%, respectively as compared to
the corresponding period in 1997.
Operating Expenses
Operating expenses increased approximately 27% in the quarter ended June 30,
1998 as compared to the corresponding period in 1997. Compensation and other
benefits increased approximately 33% mainly due to increased compensation and
compensation related costs associated with the increase in revenues. Selling,
general and administrative expenses increased slightly as compared to the
corresponding period in 1997.
Interest income net of interest expense increased in 1998 due mainly to reduced
borrowings under the Company's credit facility when compared to 1997.
Operating Results
Net income for the three month period ended June 30, 1998 was approximately
$445,000 or $.14 basic earnings per common share and $.13 diluted earnings per
common share as compared to net income of approximately $226,000 or $.11 basic
earnings per common share and $.10 diluted earnings per common share in the
quarter ended June 30, 1997. The results reflect increased revenues partially
being offset by the increase in operating expenses.
11
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations for the Six Months ended June 30, 1998
compared to the Three Months ended June 30, 1997.
Revenues
Revenues increased by approximately $ 6,887,000 or 30%. The increase in the six
months ended June 30 1998 is primarily due to the increase in temporary staffing
and placement fees revenues of 42% and 9%, respectively as compared to the
corresponding period in 1997.
Operating Expenses
Operating expenses increased approximately 30% in the six months ended June 30,
1998 as compared to the corresponding period in 1997. Compensation and other
benefits increased approximately 38% mainly due to increased compensation and
compensation related costs associated with the increase in revenues. Selling,
general and administrative expenses increased slightly as compared to the
corresponding period in 1997.
Interest income net of interest expense increased in 1998 due mainly to reduced
borrowings under the Company's credit facility when compared to 1997.
Operating Results
Net income for the six month period ended June 30, 1998 was approximately
$800,000 or $.25 basic earnings per common share and $.23 diluted earnings per
common share as compared to net income of approximately $569,000 or $.18 basic
earnings per common share and $.17 diluted earnings per common share in the
quarter ended June 30, 1997. The results reflect increased revenues partially
being offset by the increase in operating expenses.
12
Liquidity and Capital Resources
Working capital at June 30, 1998 was approximately $5,413,000 as compared to
$4,696,000 at December 31, 1997. Current assets continued to increase primarily
due to increases in accounts receivable resulting from increased revenue.
Current liabilities also increased due to an increase in liabilities associated
with increased revenue and the timing of the payment of other liabilities. Cash
provided by operating activities during the six months ended June 30, 1998 was
$1,431,000. Cash used in investing activities (purchase of fixed assets) and
financing activities (primarily repayment of capital lease obligations) amounted
to $231,000 and $8,000, respectively. The Company has no material commitments
for capital expenditures during 1998. 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
indications, 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.
13
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
The Company's Annual Meeting of Stockholders was held on May 20, 1998 (the
"Meeting"). At the Meeting, the Company's stockholders voted upon and approved
the election of five directors, approved the amendment to the Company's 1996
Stock Plan and the ratification of Ernst & Young, LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1998.
The holders of the Company's Common Stock voted on all matters submitted
for a vote at the Meeting. The number of notes cast for, against or withheld, as
well as the number of abstentions, as to each such matter is set forth below:
Election of Directors
For Withheld
Norton Sperling 3,012,881 15,300
Todd Kugler 3,012,881 15,300
Martin Wolfson 3,012,881 15,300
Martin A. Fischer 3,012,881 15,300
Martin J. Simon 3,012,881 15,300
For Against Abstain
Approval of Amendment to the
Company's 1996 Stock Plan 2,179,482 351,176 2,700
Ratification of
Appointment of Auditors 3,022,631 3,600 1,950
14
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) Reports:
None
15
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: August 10, 1998
12