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, 2003
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 Number
State of New York 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, 2003.
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This report consists of 20 pages
Form 10-Q Quarterly Report
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Statements of Operations -
Three Months ended June 30, 2003
and 2002 3
Condensed Balance Sheets - as of
June 30, 2003 and March 31, 2003 4-5
Condensed Statements of Cash Flows -
Three Months Ended June 30, 2003
and 2002 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
Item 4. Controls and Procedures 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Exhibit 31.1 - Section 302 Officer Certification 15-16
Exhibit 31.2 - Section 302 Officer Certification 17-18
Exhibit 32.1 - Section 906 Officer Certification 19
Exhibit 32.2 - Section 906 Officer Certification 20
Item 1.
WINFIELD CAPITAL CORP.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
2003 2002
----------- -----------
Investment income
Interest from small business concerns $ 343,177 $ 16,943
Interest from invested idle funds 23,325 120,543
Other income 2,625 2,225
----------- -----------
Total investment income 369,127 139,711
----------- -----------
Expenses
Interest 438,955 438,955
Payroll and payroll-related expenses 152,430 215,561
General and administrative expenses 94,560 82,933
Other operating expenses 83,308 73,993
----------- -----------
Total investment expenses 769,253 811,442
----------- -----------
Investment loss - net (400,126) (671,731)
Realized gain (loss) on investments 91,037 (45,423)
Change in unrealized depreciation of
investments 485,847 (1,190,975)
----------- -----------
Net increase (decrease) in shareholders'
equity resulting from operations $ 176,758 ($1,908,129)
=========== ===========
Per share net increase (decrease) in
shareholders equity resulting from operations
Basic $ 0.03 ($ 0.36)
=========== ===========
Diluted $ 0.03 ($ 0.36)
=========== ===========
The accompanying notes are an integral part of these condensed
financial statements.
-3-
WINFIELD CAPITAL CORP.
CONDENSED BALANCE SHEETS
ASSETS
June 30, March 31,
2003 2003
----------- -----------
Investments at value:
Loans and notes receivable $ 8,160,200 $ 8,371,521
Equity interests in small business
concerns $10,787,562 10,220,109
----------- -----------
Total investments 18,947,762 18,591,630
Cash and cash equivalents 5,803,477 4,396,206
Short-term marketable securities 2,146,865 3,454,226
Accrued interest receivable 247,520 85,276
Furniture and equipment (net of
accumulated depreciation of
$43,157 at June 30, 2003
and $41,880 at March 31, 2003) 11,969 13,246
Other assets 71,411 115,670
----------- -----------
Total assets $27,229,004 $26,656,254
=========== ===========
-4-
WINFIELD CAPITAL CORP.
CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, March 31,
2003 2003
------------ ------------
Liabilities
Debentures payable to the U.S. Small
Business Administration $ 24,650,000 $ 24,650,000
Deferred income 122,307 129,102
Accrued expenses 788,844 386,057
------------ ------------
Total liabilities 25,561,151 25,165,159
------------ ------------
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, 2003 and
at March 31, 2003 53,461 53,461
Additional paid-in capital 19,709,170 19,709,170
Accumulated deficit (4,402,827) (4,093,738)
Unrealized depreciation on investments -
net (13,691,951) (14,177,798)
------------ ------------
Total shareholders' equity 1,667,853 1,491,095
------------ ------------
Total liabilities and
shareholders' equity $ 27,229,004 $ 26,656,254
============ ============
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,
2003 2002
----------- -----------
Cash flows from operating activities
Net increase (decrease) in shareholders'
equity resulting from operations $ 176,758 ($1,908,129)
Adjustments to reconcile net increase
(decrease) in shareholders' equity
resulting from operations to net cash
(used in) operating activities
Amortization of deferred income (6,795) --
Change in unrealized depreciation
on investments (485,847) 1,190,975
Realized (gain) loss on investments (91,037) 45,423
Depreciation and amortization 1,277 1,421
Amortization of debenture costs -- 19,553
Amortization (accretion) of interest to
face value of notes and treasury bills (93,180) 31,719
Changes in assets and liabilities
Accrued interest receivable (162,244) 5,783
Other assets 44,259 15,523
Accrued expenses 402,787 229,645
----------- -----------
Net cash (used in) operating activities (214,022) (368,087)
----------- -----------
Cash flows from investing activities
Purchases of short-term marketable
securities -- (3,334,821)
Proceeds from short-term marketable
securities 1,300,000 3,718,000
Proceeds from sale of investments/return
of capital -- 316,521
Investments originated -- (47,840)
Proceeds from collection of loans 321,293 30,192
----------- -----------
Net cash provided by investing
activities 1,621,293 682,052
----------- -----------
Increase in cash and cash equivalents 1,407,271 313,965
Cash and cash equivalents - beginning
of period 4,396,206 4,416,989
----------- -----------
Cash and cash equivalents - end of period $ 5,803,477 $ 4,730,954
=========== ===========
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, 2003.
Note - 2 Earnings (Loss) per Common Share:
The computation of basic and diluted income (loss) per common share
is as follows:
Three Months Ended
June 30,
---------------------------
2003 2002
----------- -----------
Net income (loss) available for
common stock equivalent shares
deemed to have a dilutive effect $ 176,758 ($1,908,129)
=========== ===========
Income (loss) per common share
Basic $ 0.03 ($ 0.36)
=========== ===========
Diluted $ 0.03 ($ 0.36)
=========== ===========
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, 2003 and June 30, 2002 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
On April 30, 2003, the SBA notified the Company that it is no longer
in compliance with the SBA's capital impairment rules, as defined by
regulation 107.1830 of the SBA Regulations. Based on this
non-compliance, the SBA has accelerated the maturity date of the
Company's debentures to a single demand note including accrued
interest. Interest payments are no longer due on a semiannual basis,
but interest continues to accrue. In addition, the SBA has
transferred the Company to the SBA's Office of Liquidation where any
new investments and material expenses are subject to prior SBA
approval. The SBA has the right to institute proceedings for the
appointment of the SBA or its designee as receiver.
These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management has submitted a plan to the
SBA providing for the liquidation of the Company over a three-year
period; however, to date, the SBA has not indicated whether it will
approve of the proposed plan. In addition, the Company continues to
pursue alternatives to cure its impairment under the SBA regulations
such as raising additional financing. The financial statements do
not include any adjustments relating to the recoverability of the
carrying amount of the recorded assets or the amount of liabilities
that might result from the outcome of these uncertainties. The
Company cannot be certain that additional equity financing will be
available when required or, if available, that it can secure it on
terms satisfactory to the Company. As such, no assurance can be made
that the Company 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".
-8-
WINFIELD CAPITAL CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note - 6 Stock-Based Employee Compensation Plan
At June 30, 2003, 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, 2003 and 2002, 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.
On April 22, 2003, the FASB determined that stock-based compensation
should be recognized as a cost in the financial statements and that
such cost be measured according to the fair value of the stock
options. The FASB has not as yet determined the methodology for
calculating fair value and plans to issue an exposure draft letter
this year that could become effective in 2004. The Company will
continue to monitor communications on this subject from the FASB in
order to determine the impact on the Company's financial statements.
-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, 2003 and June 30, 2002
Investment Income
Investment income increased by $229,416 to $369,127 for the three month period
ended June 30, 2003 from $139,711 for the same period ended June 30, 2002. This
primarily reflected an increase in interest from small business concerns of
$326,234 as a result of the Company's increased investments in loans. Interest
from idle funds decreased by $97,218 as a result of a decrease in interest rates
and a decrease in idle funds that were invested.
Interest Expense
Interest expense was $438,955 for the three months ended June 30, 2003.
Operating Expenses
The Company's operating expenses decreased from $372,487 for the three months
ended June 30, 2002 to $330,298 for the three months ended June 30, 2003.
Payroll and payroll-related expenses decreased by $63,131 due to the resignation
of an executive officer effective December 31, 2002, professional fees increased
by $17,065 and insurance expense increased by $14,060. There were miscellaneous
net decreases of $10,183.
Realized Gain (Loss) on Disposition of Investments
The Company realized a $91,037 gain on the sale of its entire position in one
portfolio company in the first quarter of fiscal 2004. In the first quarter of
fiscal 2003, the Company realized a $45,423 loss on the sales 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 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 compared to an increase in unrealized depreciation of $1,190,975
(or $1,183,698 excluding short-term marketable securities) for the three months
ended June 30, 2002, principally related to the increase in fair value of three
portfolio securities in the first quarter of fiscal 2004 and the decline in
market price of seven portfolio securities in the first quarter of fiscal 2003.
Liquidity and Capital Resources
At June 30, 2003, the Company held cash and short-term marketable securities
totaling $7,950,342.
According to 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 has been notified by the SBA that the Company is no
longer in compliance with the SBA's capital impairment requirements and that the
SBA has accelerated the maturity date of Winfield Capital's debentures. The
aggregate principal, interest and fees due under the debentures totaled
approximately $25.6 million as of June 30, 2003, 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. Although it has not done so as of
the date of this filing, and may not do so, the SBA has the right to institute
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, 2003. 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. Management has submitted a plan to the SBA
providing for the liquidation of the Company over a three-year period; however,
to date, the SBA has not indicated whether it will approve of the proposed plan.
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.
-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," "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.
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, 2003, the Company had
no publicly-traded debt securities in its portfolio.
-12-
WINFIELD CAPITAL CORP.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CONTINUED & CONTROLS AND PROCEDURES
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, 2003, the Company had no
option contracts outstanding as part of its portfolio.
Item 4.
Controls and Procedures
a. Evaluation of Disclosure Controls and Procedures
Based on their evaluation of the Company's disclosure controls and
procedures conducted within 90 days of the date of filing this report on
Form 10-Q, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) promulgated under
the Securities Exchange Act of 1934) are effective to ensure that
information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities Exchange Commission rules and forms.
b. Changes in Internal Controls
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to
the date of their evaluation. There were no deficiencies or material
weaknesses, and therefore, there were no corrective actions taken.
-13-
WINFIELD CAPITAL CORP.
PART II - OTHER INFORMATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibit Index
The following Exhibits are filed as part of this Quarterly
Report on Form 10-Q.
Exhibit No. Description
----------- -----------
31.1 and 31.2 Section 302 Certification
32.1 and 32.2 Certifications 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, 2004.
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, 2003
-14-