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, 2004
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -----------------------
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-6-2 of the Exchange Act).
Yes [ ] No [X]
Registrant had 5,346,084 shares of common stock outstanding as of June 30, 2004.
- --------------------------------------------------------------------------------
This report consists of 20 pages
Winfield Capital Corp.
Form 10-Q Quarterly Report
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Condensed Statements of Operations -
Three Months ended June 30, 2004 and 2003 3
Condensed Balance Sheets - as of
June 30, 2004 and March 31, 2004 4-5
Condensed Statements of Cash Flows -
Three Months Ended June 30, 2004 and 2003 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 13
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 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
Signature 16
Exhibit 31.1 - Section 302 17
Exhibit 31.2 - Section 302 18
Exhibit 32.1 - Section 906 19
Exhibit 32.2 - Section 906 20
Item 1.
WINFIELD CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
==================================
(unaudited)
Three Months Ended
June 30,
------------------------
2004 2003
---------- ----------
Investment income
Interest from small business concerns $ 362,791 $ 343,177
Interest from invested idle funds 10,476 23,325
Other income -- 2,625
---------- ----------
Total investment income 373,267 369,127
---------- ----------
Expenses
Interest 361,448 438,955
Payroll and payroll-related expenses 141,077 152,430
General and administrative expenses 65,073 94,560
Other operating expenses 100,783 83,308
---------- ----------
Total investment expenses 668,381 769,253
---------- ----------
Investment loss - net (295,114) (400,126)
Realized gain on investments 314,213 91,037
Change in unrealized depreciation of
investments (566,599) 485,847
---------- ----------
Net (decrease) increase in shareholders'
equity resulting from operations ($ 547,500) $ 176,758
========== ==========
Per share net (decrease) increase in
shareholders equity resulting from operations
Basic ($ 0.10) $ 0.03
========== ==========
Diluted ($ 0.10) $ 0.03
========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
-3-
WINFIELD CAPITAL CORP.
CONDENSED BALANCE SHEETS
========================
ASSETS
------
June 30, March 31,
2004 2004
------------ ------------
(unaudited)
Investments at value:
Loans and notes receivable $ 8,647,927 $ 8,483,825
Equity interests in small business
concerns 7,843,631 9,817,227
------------ ------------
Total investments 16,491,558 18,301,052
Cash and cash equivalents 6,940,942 5,473,063
Due from broker 202,441 --
Accrued interest receivable 62,066 62,070
Furniture and equipment (net of
accumulated depreciation of
$48,528 at June 30, 2004
and $47,316 at March 31, 2004) 9,876 11,088
Other assets 43,215 71,406
------------ ------------
Total assets $ 23,750,098 $ 23,918,679
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
-4-
WINFIELD CAPITAL CORP.
CONDENSED BALANCE SHEETS
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
June 30, March 31,
2004 2004
------------ ------------
(unaudited)
Liabilities
Debentures payable to the U.S. Small
Business Administration $ 19,536,660 $ 19,536,660
Deferred income 95,127 101,922
Accrued expenses 2,038,067 1,652,353
------------ ------------
Total liabilities 21,669,854 21,290,935
------------ ------------
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, 2004 and
at March 31, 2004 53,461 53,461
Additional paid-in capital 18,391,954 18,391,954
Accumulated deficit (2,883,454) (2,902,553)
Unrealized depreciation on investments -
Net (13,481,717) (12,915,118)
------------ ------------
Total shareholders' equity 2,080,244 2,627,744
------------ ------------
Total liabilities and
shareholders' equity $ 23,750,098 $ 23,918,679
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
-5-
WINFIELD CAPITAL CORP.
CONDENSED STATEMENTS OF CASH FLOWS
==================================
(unaudited)
Three Months Ended
----------------------------
June 30, June 30,
2004 2003
------------ ------------
Cash flows from operating activities
Net (decrease) increase in shareholders'
equity resulting from operations ($ 547,500) $ 176,758
Adjustments to reconcile net (decrease)
increase in shareholders' equity
resulting from operations to net cash
provided by (used in) operating activities:
Amortization of deferred income (6,795) (6,795)
Change in unrealized depreciation
on investments 566,599 (485,847)
Realized gain on investments (314,213) (91,037)
Depreciation and amortization 1,212 1,277
Accretion of interest to face value
of notes (109,661) (93,180)
Changes in assets and liabilities
Accrued interest receivable 4 (162,244)
Other assets 28,191 44,259
Accrued expenses 385,714 402,787
------------ ------------
Net cash provided by (used in) operating
activities 3,551 (214,022)
------------ ------------
Cash flows from investing activities
Proceeds from short-term marketable
securities -- 1,300,000
Proceeds from sale of investments/return
of capital 1,518,769 --
Investments originated (54,949) --
Proceeds from collection of loans 508 321,293
------------ ------------
Net cash provided by investing
activities 1,464,328 1,621,293
------------ ------------
Increase in cash and cash equivalents 1,467,879 1,407,271
Cash and cash equivalents - beginning
of period 5,473,063 4,396,206
------------ ------------
Cash and cash equivalents - end of period $ 6,940,942 $ 5,803,477
============ ============
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, 2004.
Note - 2 (Loss) Earnings per Common Share:
The computation of basic and diluted (loss) income per common
share is as follows:
Three Months Ended
June 30,
----------------------------
2004 2003
------------ ------------
Net (loss) income available for
common stock equivalent shares
deemed to have a dilutive effect ($ 547,500) $ 176,758
============ ============
(Loss) income per common share
Basic ($ 0.10) $ 0.03
============ ============
Diluted ($ 0.10) $ 0.03
============ ============
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, 2004 and June 30,
2003, 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
According to the U.S. Small Business Administration (the
"SBA") Regulations, the Company is required to be in
compliance with the capital impairment rules, as defined by
regulation 107.1830 of the SBA Regulations. The Company was
notified by the SBA on April 30, 2003 that the Company was no
longer in compliance with the SBA's capital impairment
requirements and that the SBA had accelerated the maturity
date of the Company's debentures. The aggregate principal,
interest and fees due under the debentures totaled
approximately $25.6 million as of April 30, 2003, including
interest and fees due through the next semi-annual payment
date. As a result of subsequent repayments by the Company, the
aggregate principal, interest and fees due under the
debentures totaled approximately $21.5 million as of June 30,
2004, including interest and fees due through the next
semi-annual payment date. The SBA has transferred Winfield
Capital's account to liquidation status where any new
investments and material expenses are subject to prior SBA
approval. Based on discussions and meetings that the Company
has had with the SBA to date, the SBA will not afford the
Company the flexibility of a self-managed liquidation to repay
its indebtedness. As a result, the Company anticipates that it
will be required to repay all or substantially all of the
principal and interest owing to the SBA on a schedule
acceptable to the SBA. No definitive agreement has been
reached with the SBA and the SBA maintains the ability to
pursue any remedies they deem appropriate under the law or the
instruments evidencing the Company's indebtedness, including,
without limitation, initiating proceedings for the appointment
of the SBA or its designee as receiver. If the SBA were to
require the Company to immediately pay back the entire
indebtedness including accrued interest, certain private
security investments may need to be disposed of in a forced
sale which may result in proceeds
-8-
WINFIELD CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
Note - 4 Commitments and Contingencies (Continued)
less than their carrying value at June 30, 2004. As such, this
impairment could have a material adverse effect on the
Company's financial position, results of operations and cash
flows which raises substantial doubt about the Company's
ability to continue as a going concern. The Company continues
to explore various strategic alternatives, including a third
party equity infusion, although there can be no assurance that
it will be successful in its ability to consummate or
implement these or any other strategic alternatives.
Note - 5 The Nasdaq Stock Market, Inc.
On April 11, 2003, the Company received notice from the Nasdaq
Stock Market, Inc. that effective April 15, 2003 the Company's
securities were delisted from the Nasdaq Smallcap Market. The
Company's securities are quoted on the OTC Bulletin Board
effective April 15, 2003 with the assigned symbol "WCAP".
Note - 6 Stock-Based Employee Compensation Plan
At June 30, 2004, the Company had one stock-based employee
compensation plan. The Company accounts for the plan under the
recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the
underlying common stock on the date of the grant. For the
three months ended June 30, 2004 and 2003, there would be no
effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation, as no options were granted
nor vested during those periods.
Note - 7 Subsequent Events
In July 2004, the Company sold its entire loan and equity
position in J.L. French Automotive Castings, Inc. for
$6,498,374 plus accrued interest at the settlement date for a
realized gain of approximately $547,000. In July 2004, the
Company also sold a portion of its equity position in Open
Solutions, Inc. for a realized gain of approximately $254,000.
-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, 2004 and June 30, 2003
- --------------------------------------------------
Investment Income
- -----------------
Investment income increased by $4,140 to $373,267 for the three month period
ended June 30, 2004 from $369,127 for the same period ended June 30, 2003. This
primarily reflected an increase in interest from small business concerns of
$19,614 as a result of the Company's increased investments in loans. Interest
from idle funds decreased by $12,849 as a result of a decrease in idle funds
that were invested. Other income decreased by $2,625.
Interest Expense
- ----------------
Interest expense decreased by $77,507 to $361,448 for the three month period
ended June 30, 2004 from $438,955 for the same period ended June 20, 2003 as a
result of the repayment of debentures to the U.S. Small Business Administration.
Operating Expenses
- ------------------
The Company's operating expenses decreased from $330,298 for the three months
ended June 30, 2003 to $306,933 for the three months ended June 30, 2004.
Payroll and payroll related expenses decreased by $11,353 due to the elimination
of a clerical position. Directors fees decreased by $20,750, insurance expense
decreased by $26,423 and stock record costs decreased by $7,136, offset by an
increase in professional fees of $45,432. There were miscellaneous net decreases
of $3,135.
Realized Gain on Disposition of Investments
- -------------------------------------------
The Company realized a $314,213 net gain on the sale of its entire equity
position in one portfolio company and a portion of its equity position in
another portfolio company in the first quarter of fiscal 2005. In the first
quarter of fiscal 2004, the Company realized a $91,037 gain on the sale of its
entire equity position in one portfolio company.
-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 $566,599 principally related
to the decrease in fair value of four portfolio companies for the three months
ended June 30, 2004 compared to a decrease in unrealized depreciation of
investments of $485,847 (or $484,963 excluding short-term marketable securities)
for the three months ended June 30, 2003, principally related to the increase in
fair value of three portfolio companies.
Liquidity and Capital Resources
- -------------------------------
At June 30, 2004, the Company held cash and cash equivalents totaling
$6,940,942.
According to the U.S. Small Business Administration (the "SBA") Regulations, the
Company is required to be in compliance with the capital impairment rules, as
defined by regulation 107.1830 of the SBA Regulations. The Company was notified
by the SBA on April 30, 2003 that the Company was no longer in compliance with
the SBA's capital impairment requirements and that the SBA had accelerated the
maturity date of the Company's debentures. The aggregate principal, interest and
fees due under the debentures totaled approximately $25.6 million as of April
30, 2003, including interest and fees due through the next semi-annual payment
date. As a result of subsequent repayments by the Company, the aggregate
principal, interest and fees due under the debentures totaled approximately
$21.5 million as of June 30, 2004, including interest and fees due through the
next semi-annual payment date. The SBA has transferred Winfield Capital's
account to liquidation status where any new investments and material expenses
are subject to prior SBA approval. Based on discussions and meetings that the
Company has had with the SBA to date, the SBA will not afford the Company the
flexibility of a self-managed liquidation to repay its indebtedness. As a
result, the Company anticipates that it will be required to repay all or
substantially all of the principal and interest owing to the SBA on a schedule
acceptable to the SBA. No definitive agreement has been reached with the SBA and
the SBA maintains the ability to pursue any remedies they deem appropriate under
the law or the instruments evidencing the Company's indebtedness, including,
without limitation, initiating proceedings for the appointment of the SBA or its
designee as receiver. If the SBA were to require the Company to immediately pay
back the entire indebtedness including accrued interest, certain private
security investments may need to be disposed of in a forced sale which may
result in proceeds less than their carrying value at June 30, 2004. As such,
this impairment could have a material adverse effect on the Company's financial
position, results of operations and cash
-11-
WINFIELD CAPITAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================
flows which raises substantial doubt about the Company's ability to continue as
a going concern. The Company continues to explore various strategic
alternatives, including a third party equity infusion, although there can be no
assurance that it will be successful in its ability to consummate or implement
these or any other strategic alternatives.
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," "continue," "provided,"
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. The
Company operates in a changing environment in which new factors can emerge from
time to time. It is not possible for management to predict all of these risks,
nor can it assess the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in
forward-looking statements. All forward-looking statements are subject to risks
and uncertainties, including without limitation those identified in the
Company's Annual Report on Form 10-K, which could cause actual results to differ
from those projected. The Company disclaims any obligation to update any
forward-looking statements.
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.
-12-
WINFIELD CAPITAL CORP.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
==========================================================
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, 2004, the Company had
no publicly-traded debt securities in its portfolio.
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, 2004, the Company had no
option contracts outstanding as part of its portfolio.
-13-
WINFIELD CAPITAL CORP.
CONTROLS AND PROCEDURES
=======================
Item 4.
Controls and Procedures
- -----------------------
(a) Evaluation of Disclosure Controls and Procedures
------------------------------------------------
As of the end of the period covered by this Quarterly Report on Form
10-Q, the Company evaluated, under the supervision of its chief
executive officer and chief financial officer, the effectiveness of the
design and operation of its "disclosure controls and procedures" (as
defined in the Securities Exchange Act of 1934, Rules 13a-15(e) and
15d-15(e)). Based on that evaluation, the Company's management,
including its chief executive officer and chief financial officer, has
concluded that as of the date of the evaluation its disclosure controls
and procedures are effective to ensure that all material information
required to be filed in this report has been made known to them.
(b) Changes in Internal Controls over Financial Reporting
-----------------------------------------------------
There have been no changes in the Company's internal controls over
financial reporting that occurred during the first quarter of the
fiscal year ending March 31, 2005 that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls
over financial reporting.
-14-
WINFIELD CAPITAL CORP.
PART II - OTHER INFORMATION
===========================
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
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
--------
Exhibit 31.1 Rule 13a-14(a)/15d-14(a)Certification of
Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a)/15d-14(a)Certification of
Chief Financial Officer
Exhibit 32.1 Section 1350 Certification of Chief
Executive Officer
Exhibit 32.2 Section 1350 Certification of Chief
Financial Officer
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, 2005.
-15-
WINFIELD CAPITAL CORP.
PART II - OTHER INFORMATION CONTINUED
=====================================
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 12, 2004
-16-