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, 1999.
[ ] 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: 3,233,521 shares of Common
Stock, par value $.01 per share, outstanding on May 7, 1999.
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, 1999
(unaudited) and December 31, 1998 3-4
Condensed Consolidated Statements of Income
(unaudited) - Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
(unaudited) - Three Months Ended March 31, 1999 and 1998 6-7
Notes to Condensed Consolidated Financial Statements
(unaudited) 8-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security-Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
WINSTON RESOURCES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
(Unaudited)
Assets March 31, 1999 December 31, 1998
Current Assets:
Cash and Cash Equivalents $ 2,526,000 $ 2,047,000
Accounts receivable, trade, net 8,512,000 9,036,000
Prepaid expenses and other
current assets 209,000 118,000
Securities available for sale 432,000 455,000
Total current assets 11,679,000 11,656,000
Property and equipment, net 649,000 649,000
Other Assets:
Security deposits and
other assets 625,000 614,000
Total Assets $12,953,000 $12,919,000
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, 1999 December 31, 1998
Current liabilities:
Accounts payable and accrued
expenses $ 5,045,000 $ 5,342,000
Capital lease obligations 19,000 18,000
Total current liabilities 5,064,000 5,360,000
Deferred rent 242,000 255,000
Long-term portion of capital
lease obligations 12,000 17,000
Total liabilities 5,318,000 5,632,000
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 - 3,228,521 32,000 32,000
shares at March 31, 1999
and 3,228,121 shares at
December 31, 1998
Additional paid-in capital 4,456,000 4,456,000
Retained earnings 2,972,000 2,612,000
Unrealized gain on securities
available-for-sale, net 175,000 187,000
Total stockholders' equity 7,635,000 7,287,000
Total liabilities and
stockholders' equity $ 12,953,000 $ 12,919,000
SEE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31
1999 1998
Revenue:
Placement fees and related income $14,806,000 $14,409,000
Operating expenses:
Compensation and other benefits 11,816,000 11,393,000
Selling, general and administrative 2,321,000 2,372,000
14,137,000 13,765,000
Income from operations 669,000 644,000
Interest expense (income), net 2,000 (14,000)
Income before provision for income taxes 669,000 658,000
Provision for income taxes 307,000 303,000
Net income $ 360,000 $ 355,000
Basic earnings per share $ 0.11 $ 0.11
Diluted earnings per share $ 0.11 $ 0.10
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
1999 1998
Cash Flows from operating activities:
Net income $360,000 $355,000
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 45,000 44,000
Deferred rent (13,000) (12,000)
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 524,000 (805,000)
(Increase) Decrease in prepaid
expenses and other current assets (91,000) 53,000
(Increase) in security deposits and
other assets (11,000) (18,000)
(Decrease) Increase in accounts payable and
accrued expenses and income taxes payable (288,000) 976,000
Net cash provided by operating activities 526,000 593,000
Cash flows (used in) investing
activities:
Purchases of property and equipment (44,000) (70,000)
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
1999 1998
Cash flows (used in) provided by financing
activities:
Proceeds from exercise of options 1,000 6,000
Repayment of capital leases (4,000) (3,000)
Net cash (used in) provided by financing activities (3,000) 3,000
Net increase in cash 479,000 526,000
Cash at beginning of period 2,047,000 445,000
Cash at end of period $2,526,000 $ 971,000
Supplemental cash flows information:
Cash paid during the period for:
Interest $ 7,000 $ 1,000
Income taxes 293,000 22,000
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, 1999 the
results of its operations for the three months ended March 31, 1999 and
1998 and changes in its cash flows for the three months ended March,
31, 1999 and 1998. 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, 1999
are not necessarily indicative of operating results that may be
expected for the year ending December 31, 1999. 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, 1998.
2. Comprehensive Income
Total comprehensive income was $348,000 and $414,000 for the three
months ended March 31, 1999 and 1998.
3. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1999 and 1998.
1999 1998
----------------------------------------------
Numerator:
Net income $360,000 $355,000
----------------------------------------------
Denominator
Denominator for basic earnings per
share- weighted-average shares 3,228,330 3,217,965
Effect of dilutive securities:
Stock options 195,967 326,431
----------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted-average
shares and assumed conversions 3,424,297 3,544,396
----------------------------------------------
Basic earnings per share $.11 $.11
==============================================
Diluted earnings per share $.11 $.10
==============================================
8
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Notes To Condensed Consolidated Financial Statements
4. Segment Information
The company derives all of its revenues from businesses located in the
United States and classifies its business into two fundamental areas:
placement services and recruitment advertising. Placement services
consist of the placement of temporary and permanent employees.
Recruitment advertising consists of the placement of recruitment
advertising on behalf of the Company, clients and other third parties.
The Company evaluates performance based on the segments' profit or
loss.
Year ended March 31, 1999
Placement Recruitment
Services Advertising Total
---------------------------------------------------------------
Placement fees and related income 13,368,000 1,676,000 15,044,000
Inter-segment placement fees
and related income 16,000 221,000 238,000
Interest expense 7,000 -- 7,000
Depreciation and amortization 42,000 3,000 45,000
Income Tax expense 313,000 (6,000) 307,000
Segment profit 374,000 (14,000) 360,000
Segment assets 12,141,000 812,000 12,953,000
Expenditures to long-lived assets 25,000 19,000 44,000
Year ended March 31, 1998
Placement Recruitment
Services Advertising Total
---------------------------------------------------------------
Placement fees and related income 12,936,000 1,692,000 14,628,000
Inter-segment placement fees
and related income 12,000 207,000 219,000
Interest expense 2,000 -- 2,000
Depreciation and amortization 41,000 3,000 44,000
Income Tax expense 303,000 -- 303,000
Segment profit 355,000 -- 355,000
Segment assets 10,063,000 820,000 10,883,000
Expenditures to long-lived assets 64,000 6,000 70,000
9
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, 1999 compared to the
Three Months ended March 31, 1998.
Revenues
Revenues increased by approximately $ 397,000 or 3%. The increase in the quarter
ended March 31, 1999 is primarily due to the increase in temporary staffing
revenues as compared to the corresponding period in 1998.
Operating Expenses
Operating expenses increased approximately 3% in the quarter ended March 31,
1999 as compared to the corresponding period in 1998. Compensation and other
benefits increased approximately 4% mainly due to increased compensation and
compensation related costs associated with the increase in revenues. Selling,
general and administrative expenses decreased slightly as compared to the
corresponding period in 1998.
Interest expense net of interest income increased slightly in 1999. There were
no borrowings under the Company's credit facility in 1999 and 1998.
Operating Results
Net income for the three month period ended March 31, 1999 was approximately
$360,000 or $.11 basic earnings per common share and $.11 diluted earnings per
common share as compared to net income of approximately $355,000 or $.11 basic
earnings per common share and $.10 diluted earnings per common share in the
quarter ended March 31, 1998. The results reflect increased revenues being
partially offset by the increase in operating expenses.
10
WINSTON RESOURCES, INC. AND SUBSIDIARIES
Liquidity and Capital Resources
Cash provided by operating activities was $526,000 in 1999. In addition to net
income, cash flow from operating activities was affected by a decrease in
accounts receivable offset by increases in prepaid expenses and other current
assets, and decreased accounts payable and accrued expenses. In 1998, cash
provided by operating activities was $593,000. Working capital on March 31, 1999
was approximately $6,615,000 as compared to $6,296,000 on December 31, 1998.
Cash used in investing activities was $44,000 due to the purchase of property
and equipment and financing activities used cash of $3,000 (exercise of options
offset by the repayment of capital lease obligations) in 1999. The Company has
no material commitments for capital expenditures during 1999.
The Company has a secured credit facility providing for short-term advances to a
maximum of $6,000,000 based on up to 80% of eligible accounts receivable, as
defined, under which no amounts are outstanding.
Management believes that the Company's facility and cash from its operations
will be 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.
Forward-Looking Statements
This report contains forward-looking statements and information that 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 such risks are 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.
11
Year 2000 Issues
The Company has assessed its computer information systems and has taken
necessary steps to ensure its systems are 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 the cost of
testing such compliance, which was completed at December 31, 1998, was not
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 has implemented 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 was implemented in the first quarter of 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.
12
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
13
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 7, 1999
14