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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-94322
WINFIELD CAPITAL CORP.
Incorporated in the IRS Employer Identification
State of New York Number 13-2704241
------------
237 Mamaroneck Avenue
White Plains, New York 10605
(914) 949-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.
---- ----
Registrant had 5,346,084 shares of common stock outstanding as of June 30, 2002.
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This report consists of 15 pages
Form 10-Q Quarterly Report
INDEX
Page No.
Part I - Financial Information
Item 1. Condensed Statements of Operations -
Three Months ended June 30, 2002
and 2001 3
Condensed Balance Sheets - as of
June 30, 2002 and March 31, 2002 4-5
Condensed Statements of Cash Flows -
Three Months Ended June 30, 2002
and 2001 6
Notes to Condensed Financial Statements 7-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10-12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12-13
Part II - Other Information 14
Exhibit 99.1 - Officer Certification 15
Item 1.
WINFIELD CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
==================================
Three Months Ended
June 30,
2002 2001
------------ ------------
Investment income
Interest from small business concerns $ 16,943 $ 74,799
Interest from invested idle funds 120,543 303,672
Other income 2,225 3,152
------------ ------------
Total investment income 139,711 381,623
------------ ------------
Expenses
Interest 438,955 484,816
Payroll and payroll-related expenses 215,561 199,501
General and administrative expenses 82,933 98,183
Other operating expenses 73,993 127,782
------------ ------------
Total investment expenses 811,442 910,282
------------ ------------
Investment loss - net ( 671,731) ( 528,659)
Realized (loss) gain on investments ( 45,423) 363,253
Change in unrealized depreciation of
investments ( 1,190,975) ( 2,083,520)
------------ ------------
Net (decrease) in shareholders'
equity resulting from operations ($ 1,908,129) ($ 2,248,926)
============ ============
Per share net (decrease) in shareholders'
equity resulting from operations
Basic ($ 0.36) ($ 0.42)
============ ============
Diluted ($ 0.36) ($ 0.42)
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
-3-
WINFIELD CAPITAL CORP.
CONDENSED BALANCE SHEETS
========================
ASSETS
------
June 30, March 31,
2002 2002
----------- ------------
Investments at value
Loans and notes receivable $ 1,174,673 $ 1,176,887
Equity interests in small business
concerns 11,546,873 12,784,997
Assets acquired in liquidation 77,063 167,350
----------- ------------
Total investments 12,798,609 14,129,234
Cash and cash equivalents 4,730,954 4,416,989
Short-term marketable securities 12,331,003 12,753,178
Accrued interest receivable 336,023 341,806
Receivable from escrow account -- 197,369
Furniture and equipment (net of
accumulated depreciation of
$37,616 at June 30, 2002
and $36,195 at March 31, 2002) 17,510 18,931
Other assets 605,503 640,579
----------- ------------
Total assets $30,819,602 $ 32,498,086
=========== ============
-4-
WINFIELD CAPITAL CORP.
CONDENSED BALANCE SHEETS
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, March 31,
2002 2002
----------- ------------
Liabilities
Debentures payable to the U.S. Small
Business Administration $24,650,000 $ 24,650,000
Accrued expenses 592,065 362,420
----------- ------------
Total liabilities 25,242,065 25,012,420
----------- ------------
Commitments and contingencies
Shareholders' equity
Preferred stock - $.001 par value;
Authorized 1,000,000 shares
Issued and outstanding - none
Common stock - $.01 par value;
Authorized - 30,000,000 shares;
Issued and outstanding - 5,346,084 shares
at June 30, 2002 and at March 31, 2002 53,461 53,461
Additional paid-in capital 22,982,698 22,982,698
Accumulated deficit ( 4,744,539) ( 4,027,385)
Unrealized depreciation on investments -
net ( 12,714,083) ( 11,523,108)
----------- -----------
Total shareholders' equity 5,577,537 7,485,666
----------- -----------
Total liabilities and
shareholders' equity $30,819,602 $32,498,086
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
-5-
WINFIELD CAPITAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
==================================
Three Months Ended
June 30,
2002 2001
----------- -----------
Cash flows from operating activities
Net decrease in shareholders'
equity resulting from operations ($ 1,908,129) ($ 2,248,926)
Adjustments to reconcile net decrease
in shareholders' equity
resulting from operations to net cash
(used in) operating activities
Amortization of deferred income -- ( 927)
Change in unrealized depreciation
on investments 1,190,975 2,083,520
Realized loss (gain) on investments 45,423 ( 363,253)
Depreciation and amortization 1,421 1,525
Amortization of debenture costs 19,553 19,624
Amortization (accretion) of interest on
treasury bills 31,719 ( 23,220)
Changes in assets and liabilities
Due from broker -- 46,599
Accrued interest receivable 5,783 ( 89,626)
Other assets 15,523 20,950
Accrued expenses 229,645 317,304
Income taxes payable -- ( 23,404)
----------- -----------
Net cash (used in) operating activities ( 368,087) ( 259,834)
----------- -----------
Cash flows from investing activities
Purchases of short-term marketable
securities ( 3,334,821) ( 3,189,681)
Proceeds from short-term marketable
securities 3,718,000 2,407,101
Proceeds from sale of investments/return
of capital 316,521 1,103,206
Investments originated ( 47,840) ( 6,450)
Proceeds from collection of loans 30,192 21,171
Purchases of furniture and equipment -- ( 4,124)
----------- -----------
Net cash provided by investing
activities 682,052 331,223
----------- -----------
Increase in cash and cash equivalents 313,965 71,389
Cash and cash equivalents - beginning
of period 4,416,989 1,993,337
----------- -----------
Cash and cash equivalents - end of period $ 4,730,954 $ 2,064,726
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
-6-
WINFIELD CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
Note - 1 Interim Financial Statements
The interim financial statements of Winfield Capital Corp. (the
"Company") have been prepared in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all information and disclosures necessary for a presentation
of the Company's financial position, results of operations and cash
flows in conformity with generally accepted accounting principles in
the United States of America. In the opinion of management, these
financial statements reflect all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for
such periods. The results of operations for any interim period are not
necessarily indicative of the results for the full year. These
financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 2002.
Note - 2 (Loss) per Common Share:
The computation of basic and diluted loss per common share is as
follows:
Three Months Ended
June 30,
------------------------------
2002 2001
----------- ----------
Net (loss) available for common
stock equivalent shares deemed
to have a dilutive effect ($ 1,908,129) ($ 2,248,926)
=========== ===========
(Loss) per common share
Basic ($ 0.36) ($ 0.42)
=========== ===========
Diluted ($ 0.36) ($ 0.42)
=========== ===========
Shares used in computation:
Basic:
Weighted average common shares 5,346,084 5,346,084
=========== ===========
Diluted:
Weighted average common shares 5,346,084 5,346,084
Common stock equivalents A A
----------- ----------
5,346,084 5,346,084
=========== ===========
(A) For the three months ended June 30, 2002 and June 30, 2001 the
effect of exercising the outstanding stock options would have
been anti-dilutive and therefore, the use of common stock
equivalent shares was not considered.
-7-
WINFIELD CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
Note 3 - Income Taxes
In accordance with Subchapter M of the Internal Revenue Code, no
provision for income taxes is necessary with respect to net investment
income and/or net realized short-term capital gains since the Company
has elected to distribute not less than 90% of such income and/or
gains to shareholders. However, to the extent the Company elects to
either retain net realized long-term capital gains or net realized
short-term capital gains, the Company will pay all applicable Federal
income taxes on behalf of its shareholders.
Note 4 - Commitments and Contingencies
The Company is required to be in compliance with the capital
impairment rules, as defined by Regulation 107.1830 of the SBA
Regulations. As of June 30, 2002, the Company had an impairment of its
capital. As such, the SBA could declare the entire indebtedness
including accrued interest immediately due and payable. In addition,
the SBA could avail itself of any remedy available to the SBA to
effect the repayment of the Debentures, including transferring the
Company to the SBA's Office of Liquidation. If the SBA were to require
the Company to immediately pay back the entire indebtedness including
accrued interest, certain private security investments would need to
be disposed of in a forced sale which may result in proceeds less than
their carrying value. As such, this impairment could have a material
adverse effect on the Company's financial position, results of
operations and cash flows. The Company is in discussions with the SBA
to cure this impairment.
Note 5 - The Nasdaq Stock Market, Inc. (the "Nasdaq") Letters
On June 17, 2002, the Company received notice from the Nasdaq Stock
Market, Inc. ("Nasdaq") that for the preceding 30 consecutive trading
days, the Company's common stock had not maintained the minimum Market
Value of Publicly Held Shares of $5,000,000 as required for continued
inclusion by Marketplace Rule 4450(a)(2) (the "Rule") on the Nasdaq
National Market. Therefore, in accordance with Marketplace Rule
4450(e)(1), subject to appeal, the Company has 90 calendar days, or
until September 16, 2002, to regain compliance. If compliance with the
Rule cannot be demonstrated by September 16, 2002, the Company's
securities will be delisted from the Nasdaq National Market. If the
Company's securities are delisted, the Company will seek to list its
securities on the Nasdaq SmallCap Market, which the Company had
previously listed on prior to listing on the Nasdaq National Market.
The Company cannot predict what effect, if any, such delisting would
have on the trading of its securities.
-8-
WINFIELD CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
Note 5 - The Nasdaq Letters Continued
On July 23, 2002, the Company received notice from Nasdaq that for the
preceding 10 consecutive trading days, the Company's common stock had
not closed at the minimum $1.00 per share as required for continued
inclusion by Marketplace Rule 4450 (a) (5) ( the "Rule") on the Nasdaq
National Market. Therefore, in accordance with Marketplace Rule 4450
(e) (2), subject to appeal, the Company has 90 calendar days, or until
October 21, 2002, to regain compliance. If compliance with the Rule
cannot be demonstrated by October 21, 2002, the Company's securities
will be delisted from the Nasdaq National Market. If the Company's
securities are delisted, the Company will seek to list its securities
on the Nasdaq SmallCap Market, which the Company had previously listed
on prior to listing on the Nasdaq National Market. The Company cannot
predict what effect, if any, such delisting would have on the trading
of its securities.
-9-
Item 2.
WINFIELD CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Results of Operations
Three Months Ended June 30, 2002 and June 30, 2001
Investment Income
Investment income decreased by $241,912 to $139,711 for the three month period
ended June 30, 2002 from $381,623 for the same period ended June 30, 2001. This
primarily reflected a decrease in earnings from temporarily invested funds of
$183,129 as a result of a decrease in interest rates and a decrease in the idle
funds that were invested. Interest from small business concerns decreased by
$57,856, due mainly to the financial difficulties of a portfolio company that
generated quarterly interest of $60,000 in 2001 and $0 in 2002.
Interest Expense
Interest expense decreased from $484,816 for the three months ended June 30,
2001 to $438,955 for the same period ended June 30, 2002 due to a repayment of
$900,000 to the Small Business Administration (the "SBA").
Operating Expenses
The Company's operating expenses decreased from $425,466 for the three months
ended June 30, 2001 to $372,487 for the three months ended June 30, 2002.
Payroll and payroll-related expenses increased by $16,059 due to salary
increases and a matching 401(k) expense (the 401 (k) Plan was first implemented
in October, 2001). Professional fees decreased by $36,471 due to a decrease in
legal fees. There were miscellaneous net decreases of $32,567.
Realized (Loss) Gain on Disposition of Investments
The Company realized a $45,423 loss on the sale of its entire equity position in
one portfolio company in fiscal 2003. In fiscal 2002, the Company realized a
$363,253 gain on the sale of a portion of its equity position in two portfolio
companies.
-10-
WINFIELD CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Changes in Unrealized Depreciation of Investments
There was an increase in unrealized depreciation of investments (excluding
short-term marketable securities) of $1,183,698 for the three months ended June
30, 2002 compared to an increase in unrealized depreciation of $2,070,407
(excluding short-term marketable securities) for the three months ended June 30,
2001, principally related to the decline in market price of seven
publicly-traded portfolio securities in fiscal 2003 and six publicly-traded
portfolio securities in 2002.
Liquidity and Capital Resources
The Company is required to be in compliance with the capital impairment rules,
as defined by Regulation 107.1830 of the SBA Regulations. As of June 30, 2002,
the Company had an impairment of its capital. As such, the SBA could declare the
entire indebtedness including accrued interest immediately due and payable. In
addition, the SBA could avail itself of any remedy available to the SBA to
effect the repayment of the Debentures, including transferring the Company to
the SBA's Office of Liquidation. If the SBA were to require the Company to
immediately pay back the entire indebtedness including accrued interest, certain
private security investments would need to be disposed of in a forced sale which
may result in proceeds less than their carrying value. As such, this impairment
could have a material adverse effect on the Company's financial position,
results of operations and cash flows. The Company is in discussions with the SBA
to cure this impairment.
At June 30, 2002, the Company had cash and cash equivalents and short-term
marketable securities totaling $17,061,957. The Company believes that its cash
and its short-term investments, along with its ability to sell certain of its
publicly-traded portfolio investments will be adequate to meet both the
investment opportunities that the Company anticipates and its working capital
needs through June 30, 2003. However, if the SBA declares the entire
indebtedness including accrued interest immediately due and payable, certain
public and private security investments may need to be disposed of in a forced
sale which may result in proceeds less than their current fair value; as such,
by selling its public and private security investments, the Company may not
generate sufficient cash flows to repay the SBA Debentures as well as fund
operations in the ordinary course of business through June 30, 2003.
-11-
WINFIELD CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
Forward-Looking Statements
This report and accompanying notes to the financial statements may contain
forward-looking statements. For this purpose, any statements contained in this
report and accompanying notes to the financial statements that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "could," "would,"
"should", "expect," "believe," "anticipate," "estimate," or "continue" or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
Reporting on Disposition of Investments
From time to time, in the ordinary course of business, the Company may liquidate
all or a portion of its portfolio investments. In this regard, the Company may
sell a portion of a single investment or sell portions of various investments it
has made. The Company's policy is to publicly report the results of such
transactions in its Form 10-K and Form 10-Q Reports filed with the Securities
and Exchange Commission under the Securities Exchange Act and as otherwise
required by applicable regulations and laws.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
The Company's earnings and cash flows are subject to fluctuations due to changes
in interest rates primarily from its investment of available cash balances in
bank money market funds with portfolios of investment grade corporate and U.S.
government securities, in individual bank certificates of deposit and U.S.
treasuries. Under its current policies, the Company does not use interest rate
derivative instruments to manage exposure to interest rate changes.
A portion of the Company's investment portfolio consists of fixed-rate debt
securities. Since these debt securities usually have relatively high fixed rates
of interest, minor changes in market yields of publicly-traded debt securities
have little or no effect on the values of debt securities in the Company's
portfolio and no effect on interest income. On the other hand, significant
changes in the market yields of publicly-traded debt securities may have a
material effect on the values of debt securities in the Company's portfolio. The
Company's investments in debt securities are generally held to maturity and
their fair values are determined on the basis of the terms of the debt security
and the financial condition of the issuer. As of June 30, 2002, the Company had
no publicly-traded debt securities in its portfolio.
-12-
WINFIELD CAPITAL CORP.
QUANTITIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CONTINUED
===========================================================
A portion of the Company's investment portfolio consists of debt and equity
securities of private companies. The Company anticipates little or no effect on
the value of these investments from modest changes in public market equity
valuations. Should significant changes in market valuations of comparable
publicly-owned companies occur, there may be a corresponding effect on
valuations of private companies, which would affect the value and the amount and
timing of proceeds eventually realized from these investments. A portion of the
Company's investment portfolio also consists of restricted common stocks and
warrants to purchase common stocks of publicly-owned companies. The fair values
of these restricted securities are influenced by the nature of applicable resale
restrictions, the underlying earnings and financial condition of the issuer, and
the market valuations of comparable publicly-owned companies. A portion of the
Company's investment portfolio also consists of unrestricted, freely marketable
common stocks of publicly-owned companies. These freely marketable investments
are directly exposed to equity price fluctuations, in that a change in an
issuer's public market equity price would result in an identical change in the
fair value of the Company's investment in such security. The Company may utilize
put and call option contracts to attempt to minimize the market risk of its
investments in publicly-owned companies. As of June 30, 2002, the Company had no
option contracts outstanding as part of its portfolio.
-13-
WINFIELD CAPITAL CORP.
PART II - OTHER INFORMATION
===========================
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibit Index
The following Exhibit is filed as part of this Quarterly Report
on Form 10-Q.
Exhibit No. Description
----------- -----------
99.1 Certification Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
b. Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of the
Registrant's fiscal year ending March 31, 2003.
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.
WINFIELD CAPITAL CORP.
(Registrant)
By: /S/ R. SCOT PERLIN
----------------------------
R. Scot Perlin
Chief Financial Officer
Dated: August 13, 2002