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 September 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: 3,221,287 shares of Common
Stock, par value $.01 per share, outstanding on November 6, 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 - September 30, 1998
(Unaudited) and December 31, 1997 3-4
Condensed Consolidated Statements of Income (unaudited)
- Three and Nine Months Ended September 30, 1998 and 1997 5-6
Condensed Consolidated Statements of Cash Flow
(unaudited) - Nine Months Ended September 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 11-14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security-Holders 15
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 September 30, 1998 December 31, 1997
-------------- -----------------
Current Assets:
Cash and Cash Equivalents $ 1,392,000 $ 445,000
Accounts receivable, trade, 8,576,000 7,341,000
net
Prepaid expenses and other 248,000 227,000
current assets
Securities held available 468,000 392,000
---------- ----------
for sale
Total current assets 10,684,000 8,405,000
Property and equipment, net 675,000 540,000
Other Assets:
Security deposits and 522,000 506,000
---------- ----------
other assets
Total Assets $11,881,000 $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)
September 30, 1998 December 31, 1997
-------------- -----------------
Current liabilities:
Accounts payable and accrued $ 4,863,000 $ 3,693,000
expenses
Capital lease obligations 18,000 16,000
------------- ------------
Total current liabilities 4,881,000 3,709,000
Deferred rent 267,000 303,000
Long-term portion of capital
lease obligations 22,000 35,000
------------- ------------
Total liabilities 5,170,000 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 - 3,221,287 32,000 32,000
shares at September 30, 1998
and 3,215,120 shares at
December 31, 1997
Additional paid-in capital 4,443,000 4,435,000
Retained Earnings 2,041,000 783,000
Unrealized gain on securities
available-for-sale, net 195,000 154,000
------------- ------------
Total stockholders' equity 6,711,000 5,404,000
------------- ------------
Total liabilities and
stockholders' equity $ 11,881,000 $ 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
September 30
1998 1997
---- ----
Revenue:
Placement fees and related income $ 14,823,000 $13,434,000
------------ -----------
Operating expenses:
Compensation and other benefits 11,653,000 10,469,000
Selling, general and administrative 2,339,000 2,242,000
------------ -----------
13,992,000 12,711,000
Income from operations 831,000 723,000
Interest income, net 18,000 19,000
------------ -----------
Income before provision for income
taxes 849,000 742,000
Provision for income taxes 391,000 334,000
------------ -----------
Net Income $ 458,000 $ 408,000
============ ===========
Basic earnings per share $ 0.14 $ 0.13
============ ===========
Diluted earnings per share $ 0.13 $ 0.12
============ ===========
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Nine Months Ended
September 30
1998 1997
---- ----
Revenue:
Placement fees and related income $ 44,329,000 $36,053,000
------------ -----------
Operating expenses:
Compensation and other benefits 34,850,000 27,290,000
Selling, general and administrative 7,197,000 7,011,000
------------ -----------
42,047,000 34,301,000
Income from operations 2,282,000 1,752,000
Interest income, net 48,000 25,000
------------ -----------
Income before provision for income
taxes 2,330,000 1,777,000
Provision for income taxes 1,072,000 800,000
------------ -----------
Net Income $ 1,258,000 $ 977,000
============ ===========
Basic earnings per share $ 0.39 $ 0.31
============ ===========
Diluted earnings per share $ 0.36 $ 0.28
============ ===========
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
6
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
1998 1997
Cash Flows from operating activities:
Net income $1,258,000 $977,000
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities
Depreciation and amortization 150,000 112,000
Provision for doubtful receivables - (3,000)
Deferred rent (36,000) (35,000)
Changes in assets and liabilities:
(Increase) in accounts receivable (1,235,000) (2,062,000)
(Increase) Decrease in prepaid
expenses and other current assets (21,000) 89,000
(Increase) in security
deposits and other assets (51,000) (34,000)
Increase in accounts payable and 1,170,000 568,000
accrued expenses and income taxes --------- ----------
payable
Net cash provided by (used in) operat-
ing activities 1,235,000 (388,000)
--------- ----------
Cash flows (used in) investing activities:
Purchases of Property and equipment (285,000) (246,000)
--------- ---------
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)
Nine Months Ended
September 30
1998 1997
---- ----
Cash flows provided by (used in) financing activities:
Proceeds from exercise of
options 8,000 17,000
Repayment of capital leases (11,000) (50,000)
----------- ---------
Net cash (used in)
financing activities (3,000) (33,000)
---------- ----------
Net increase (decrease) in
cash 947,000 (667,000)
Cash at beginning of period 445,000 1,068,000
----------- ----------
Cash at end of period $1,392,000 $ 401,000
=========== =========
Supplemental cash flows
information:
Cash paid during the period for:
Interest $ 4,000 $ 16,000
----------- ---------
Income taxes 1,171,000 867,000
----------- ---------
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 September 30, 1998, the results
of its operations for the three months and nine months ended September 30,
1998 and 1997 and changes in its cash flows for the nine months ended
September 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 nine months ended September 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 nine months ended September 30, 1998
and 1997.
THREE MONTHS
1998 1997
----------------------------------------------
Numerator:
Net income $458,000 $408,000
----------------------------------------------
Denominator
Denominator for basic earnings per
share- weighted-average shares 3,220,805 3,193,691
Effect of dilutive securities:
Stock options 306,809 298,571
----------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 3,527,614 3,492,262
----------------------------------------------
Basic earnings per share $.14 $.13
==============================================
Diluted earnings per share $.13 $.12
==============================================
9
SIX MONTHS
1998 1997
----------------------------------------------
Numerator:
Net income $1,258,000 $977,000
----------------------------------------------
Denominator
Denominator for basic earnings per
share-weighted-average shares 3,219,807 3,184,545
Effect of dilutive securities:
Stock options 321,274 277,780
----------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 3,541,081 3,462,325
----------------------------------------------
Basic earnings per share $.39 $.31
==============================================
Diluted earnings per share $.36 $.28
==============================================
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 nine months ended September 30, 1998 and 1997, total
comprehensive income amounted to $1,299,000, and $1,022,000, respectively.
During the three months ended September 30, 1998 and 1997, total
comprehensive income amounted to $435,000, and $427,000, 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 September 30, 1998 compared to
the Three Months ended September 30, 1997.
Revenues
Revenues increased by approximately $ 1,389,000 or 10%. The increase in the
quarter ended September 30 1998 is primarily due to the increase in temporary
staffing revenues as compared to the corresponding period in 1997.
Operating Expenses
Operating expenses increased approximately 10% in the quarter ended September
30, 1998 as compared to the corresponding period in 1997. Compensation and other
benefits increased approximately 11% 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 no
borrowings under the Company's credit facility when compared to 1997.
Operating Results
Net income for the three month period ended September 30, 1998 was approximately
$458,000 or $.14 basic earnings per common share and $.13 diluted earnings per
common share as compared to net income of approximately $408,000 or $.13 basic
earnings per common share and $.12 diluted earnings per common share in the
quarter ended September 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 Nine Months ended September 30, 1998 compared to
the Nine Months ended September 30, 1997.
Revenues
Revenues increased by approximately $ 8,276,000 or 23%. The increase in the nine
months ended September 30 1998 is primarily due to the increase in temporary
staffing revenues as compared to the corresponding period in 1997.
Operating Expenses
Operating expenses increased approximately 23% in the nine months ended
September 30, 1998 as compared to the corresponding period in 1997. Compensation
and other benefits increased approximately 28% 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 no
borrowings under the Company's credit facility when compared to 1997.
Operating Results
Net income for the nine month period ended September 30, 1998 was approximately
$1,258,000 or $.39 basic earnings per common share and $.36 diluted earnings per
common share as compared to net income of approximately $977,000 or $.31 basic
earnings per common share and $.28 diluted earnings per common share in the nine
months ended September 30, 1997. The results reflect increased revenues
partially being offset by the increase in operating expenses.
12
Liquidity and Capital Resources
Working capital at September 30, 1998 was approximately $5,803,000 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 nine months ended
September 30, 1998 was $1,235,000. Cash used in investing activities (purchase
of fixed assets) and financing activities (proceeds from exercise of options and
repayment of capital lease obligations) amounted to $285,000 and $3,000,
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 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' beliefs and assumptions, as well as information currently available
to management. Such beliefs and assumptions are based on, among other things,
the Company' 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' 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' 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
Year 2000 Issues
The Company is in the process of assessing its computer information systems and
has begun to take necessary steps to determine what work will be required, if
any, to have its systems Year 2000 compliant. The Company's computer systems
consultants have represented to the Company in writing that, as presently
configured, the Company's systems are Year 2000 compliant. No special costs were
incurred in order to make the systems compliant, and it is anticipated that the
cost of testing such compliance, which is scheduled to be completed prior to
December 31, 1998, will not be material.
The Company also is in the process of determining the extent to which it may be
vulnerable to any failures by its service providers to resolve their own Year
2000 issues. The Company has initiated formal communications with such providers
and, at this time, has received formal written responses from a number of such
providers indicating that their systems are Year 2000 compliant. The Company is
continuing to collect such responses and will be developing such contingency
plans as it believes are warranted, based on such responses. At this time, the
Company is unable to estimate the extent of any adverse impact from failure by
these service providers with regard to Year 2000 compliance, and the nature by
which their problems might materially affect the Company's business, financial
condition or results of operations.
The Company is currently implementing a contingency plan involving creation of a
back-up computer capability as a result of which all of its systems and files
will be redundant so that if its principal offices in New York City become
inaccessible, its operations may be conducted from other Company offices located
in New Jersey. Such contingency plan should be implemented in early 1999.
Failure by the Company to eliminate Year 2000 problems within its computer
systems could result in a possible failure or miscalculations, causing
disruption of operations. Under a worst case scenario, such problems would be
addressed by manually processing data and transactions. However, this would
cause delays and additional costs to the administrative process. Further
contingency plans are being developed to address this issue.
Based upon the current information, the Company does not anticipate that, in the
aggregate, costs associated with the Year 2000 issue will have a material
financial impact. However there can be no assurances that, despite the steps
taken by the Company to insure that it and its customers and vendors are Year
2000 compliant, there will not be interruptions or other limitations of systems
functionality or that the Company will not incur significant costs to avoid such
interruptions or limitations. The Company's expectations about future costs
associated with the Year 2000 issue are subject to uncertainties that could
cause actual results to have a greater financial impact than currently
anticipated. Factors that could influence the amount and timing of future costs
include unanticipated vendor delays, technical difficulties, the impact of tests
of vendors' and customers' systems and similar events. If, despite the Company's
efforts under its Year 2000 planning, there are Year 2000-related failures that
create substantial disruptions to the Company's business, the adverse impact on
the business could be material.
14
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
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: November 6, 1998
16