<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 0-22954
UC'NWIN SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5601 NORTH POWERLINE RD., FORT LAUDERDALE, FLORIDA, 33309
(Address of principal executive offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (954) 492-9797
- - --------------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- - ------------------- -----------------------------------------
N/A N/A
Securities registered pursuant to Section 12(g) of the
Common Stock
(Title of Class)
----------------------------------------------------------------------
(Title of Class)
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
---- ----
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Rule 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10K.
The aggregate market value of the voting stock held by non-affiliates
of the registrant is $10,000,000 . This figure was arrived at by taking the
average between the "bid" and "ask" price of the Common Stock on March 31, 1996
(a date within sixty days of filing) and multiplying this figure times the
number of issued and outstanding shares held by non-affiliates on said date.
NOTE. If a determination as to whether a particular person or entity is
an affiliate cannot be made without involving unreasonable effort and expense,
the aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumption reasonable under the circumstances,
provided that the assumptions are set forth in this form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
N/A
Yes____ No____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant
classes of common stock, as of the latest practicable date: 25,149,747 shares of
Common Stock as of March 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE.
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security-holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security-holders
for fiscal year ended December 23, 1980).
<PAGE> 3
ITEM 1. BUSINESS.
The Registrant is engaged in the development, manufacture, sale and
marketing of its UC'NWIN System, an in-store interactive informational solutions
software program designed to be furnished to corporations in the US, UK, Europe
and Asia, the system is delivered through interactive kiosks and websites on the
Internet. Corporations use the registrant's software programs and delivery
systems to disseminate catalogs, product information, promotional offers, to
collect and collate consumer research data and provide a direct communications
link with consumers. The software programs are designed to serve as sales
driving, value added vehicles that will build consumer loyalty to manufacturer
and retailer and thus increase overall sales. UC'NWIN's exclusive merchandising
system is believed by management to provide a significant competitive advantage
for participating retailers.
The registrant through its wholly owned U.S. subsidiary, UC'NWIN
Systems, Inc., has licensed the worldwide rights (except for the United States)
to Winners All Ltd., to manufacture or lease the UC'NWIN system. By agreement
dated December, 1994 and as subsequently amended in June, 1995, the registrant
through its wholly owned U.S. subsidiary, UC'NWIN Systems, Inc. and Winners All
Ltd. (a wholly owned subsidiary of Winners All International, Inc.) created WIN
Network, LLC., ("WinNet") a limited liability company, registered under the laws
of the State of New York, to exploit the UC'NWIN system. The registrant and
Winners All Ltd. contributed the tangible and intangible rights to the UC'NWIN
System (other than those sub-licensed to Winners All Asia Pacific) with the
registrant owning 51% of WinNet and Winners All Ltd. owning the remaining 49%.
Reference is made to Item 1, pages 1-14 of Form 10 of the registrant,
as amended, SEC File # 0-22954, for full information concerning the registrant's
entire business history, which is incorporated herein by reference.
RECENT DEVELOPMENTS
The Board of Directors of registrant and the Board of Directors of
Winners All International, Inc., a Delaware corporation the shares of which are
traded on NASD Bulletin Board, ("Winners All") announced an agreement in
principle to combine the two companies on the basis of one share of common stock
of Winners All to be issued to registrant's shareholders for each outstanding
share of common stock of registrant. Winners All (NASD (BB)-"WINA") is the
parent of Winners All Ltd., the licensee of the worldwide rights (except for the
United States) for the registrant's UC'NWIN Systems. The joint announcement
cited a reduction of overhead expenses, combining of research and development
costs and the elimination of inter-company license fees as significant factors
contributing to the decision to combine. The proposed merger did not take place
at that time but negotiations have continued.
Under an agreement made as of December 1, 1994, and as subsequently
amended in June 1995, the registrant's subsidiary, UC'NWIN Systems, Inc. (the
"Subsidiary") and Winners All Ltd. (an Isle of Jersey corporation all the shares
of which are owned by Winners All) formed WIN Network, LLC ("WinNet") a limited
liability company under the laws of the State of New York to minimize operation
costs and maximize the exploitation of the UC'NWIN System. The Subsidiary and
Winners All Ltd. contributed the tangible and intangible rights to the UC'NWIN
System (other than those sub-licensed to Winners All Asia Pacific) the
Subsidiary owns 51% of WinNet with Winners All Ltd. owning the remaining 49%.
Winners All Ltd. has agreed to contribute to WinNet upto $5,000,000 of capital
of which $3,182,000 has been received. These contributions started being funded
in January 1995.
In December 1995, the registrant acquired 5,825,000 shares of common
stock of Winners All, or 41% of the outstanding common stock, these shares of
common stock were acquired by issuing one share of common stock of the
registrant for four shares of common stock of Winners All. At March 31, 1996 the
market price of such stock was $0.09 per share. In January, 1996, the Company
acquired another 825,000 shares of common stock in Winners All International,
Inc. for 206,250 shares of common stock in the Company.
<PAGE> 4
The Joint Venture is governed by a four member executive committee
consisting of three representatives of the Subsidiary who are directors of the
Subsidiary and one representative of Winners All, Ltd. who is a director of
Winners All. A management committee of four (consisting of four members of the
executive committee) shall manage day to day operations. The executive committee
serves at the pleasure of and is accountable to the members of the Joint Venture
(the Subsidiary and Winners All Ltd.) and is elected by the unanimous vote of
the members.
During March 1995, WinNet had commenced the placement of 137 kiosks for
a joint promotion with Shell Oil Company. The promotion included planning and
advertising for multiple household name products on behalf of manufacturers.
WinNet has since received a strong interest from such advertisers for continuing
similar promotional efforts for a fee. WinNet is aggressively pursuing signing
advertising contracts with these manufacturers and other interested parties.
Additionally, WinNet has received significant interest in supplying kiosks and
software programs for a proprietary system and networks under long term lease
contracts. Additional promotional efforts are being negotiated with
multi-national companies in the United Kingdom and Europe for the use of the
UC'NWIN system. Aside from Royalty income of $531,346 and $583,332 for the years
ended December 31, 1994 and 1993 respectively, the registrant has not generated
any other revenues from the UC'NWIN System. Such royalty revenues have ceased
pursuant to the WinNet agreement as above indicated. Also, WinNet has initiated
discussions with financial institutions to secure financing for the
manufacturing of kiosks related to the leasing of proprietary systems and
networks.
WinNet has retained counsel to research the legal implications
surrounding WinNet's purchases of Common Stock in Winners All International,
Inc.
ITEM 2. PROPERTIES
Neither the registrant nor the subsidiary owns any real estate. The
subsidiary presently leases 4,000 square feet of office and warehouse space at
Powerline Business Center, 5601 Powerline Road, Unit 403-404, Fort Lauderdale,
Florida 33309, from which the Subsidiary and WinNet operate. The lease is for
five years, terminating December 1996 at an annual rental of $39,700. An
additional 2,200 square feet at 5601 Powerline Road, Unit 306 is presently
leased as additional warehouse space for a period of two years terminating
February 1997, at an annual rental of $20,000. There are twelve offices and
2,400 square feet of warehouse space at the Powerline Business Center location
in Fort Lauderdale.
ITEM 3. LEGAL PROCEEDINGS
(1) On January 18, 1996 Jerome Schulman ("Schulman"), sued the registrants
wholly owned subsidiary, UC'NWIN Systems, Inc., ("the Company"), as well as Lynx
Development Corporation ("Lynx"), in the United States District for the Southern
District of Florida. The original action was dismissed by the Court sua sponte,
for failure to allege sufficient jurisdictional allegations. Thereafter on
February 20th, 1996, Schulman refiled the action in the same Court. Schulman has
brought a four count Complaint suing the company for fraud in the inducement,
breach of promissory note and civil theft. Schulman has also sued Lynx
separately for breach of guaranty of the promissory note. The Company and Lynx
filed a motion to Dismiss and Motion to Strike which has been fully briefed by
the parties and is pending before the Court. All of Schulman's claims are
premised upon the alleged failure to pay a $200,000 promissory note upon
maturity and failure to provide certain warrants and shares in the Company. No
discovery has yet been conducted but the Company believes there are meritorious
defenses and counter claims arising out of the conduct of Schulman in connection
with his acquisition of Company stock. Also, the Company is exploring a method
by which the claim can be amicably resolved.
(2) On March 22, 1996, Raymond Kalley, as Trustee of the EB Trust and the PB
Trust, ("Plaintiff"), sued UC'NWIN Systems Corporation ("the Company") in the
Southern District Court for the Southern District
<PAGE> 5
of Florida (Miami Division). In this five count Complaint, Plaintiff has sued
the Company for an alleged violation of Section 18 of the Securities Act of 1934
(15U.S.C.78r). Plaintiff alleges that the Company acting singly and in concert,
filed misleading reports under the Securities Exchange Act 1934, including
without limitation, the filing of form 10-K. Plaintiff failed to identify which
form 10-K was allegedly misleading or how Plaintiff has been damaged by this
alleged misleading statement. Although Plaintiff alleges that it purchased stock
in the Company, from another shareholder in a private transaction unbeknown to
the Company, for approximately $1,000,000, Plaintiff does not identify the
damage that it allegedly incurred. The Company believes this lawsuit is without
merit and intends to defend this lawsuit vigorously and expects to file a Motion
to Dismiss Plaintiff's Complaint no later than May 6, 1996.
(3) On April 17, 1995 AG Industries, ("Plaintiff"), sued Winners All
International, Inc., ("Win"), and UC'NWIN Systems, Inc., ("the Company") for a
breach of contract and causes of action for unjust enrichment and breach of
implied contract. AG Industries seeks damages in excess of $400,000. On August
22, 1995 the Company filed a Motion to Dismiss and Alternative Motion for a
Change of Venue. AG Industries has responded and opposed the defendants' motion
but the Court has not yet ruled on it. There has been no discovery and it is too
early to evaluate this case.
(4) On January 9th, 1996 a former employee, ("the Plaintiff"), filed a Charge of
Discrimination, ("Charge"), against UC'NWIN Systems, Inc. and Win Network LLC.,
("the Company"), with the Equal Employment Opportunity Commission ("EEOC"). The
Plaintiff voluntarily resigned her position with the Company in October 1995 and
waited four months to file her claim. The Company has filed a statement of
position denying the allegations of the Charge. At the present time, the EEOC is
investigating the charge and will ultimately make determinations of "cause" or
"no cause". At this time the Company is unable to predict the likelihood of a
favorable or unfavorable result in this matter.
(5) On July 3rd, 1995 Brian A. Travis, an ex-officer of Win Network LLC and
Winners All International, Inc. files an action against Win Network LLC to
enforce a purported Employment Agreement which he claims was entered into
between Win Network LLC and Mr Travis in which Mr Travis claims he is entitled
to a ten year employment term with damages of $10,000,000. Mr Travis also sued
Winners All International, Inc. as a purported guarantor. Win Network LLC is
comprised of UC'NWIN Systems, Inc., a subsidiary of UC'NWIN Systems Corporation
and Winners All Ltd, a subsidiary of Winners All International, Inc. On March
5th, 1996 both defendants filed a motion to dismiss the Travis action on the
grounds that the purported Employment Agreement violated applicable provisions
of the New York Limited Liability Corporation Law, the Win Network LLC Operating
Agreement and the Winners All International, Inc. by-laws. Defendants motion is
now pending before the Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(N/A)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
(N/A)
ITEM 6. SELECTED FINANCIAL DATA.
<PAGE> 6
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Revenue $178,770 $531,346 $599,440 $0 $0
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Expenses ($5,213,490) ($1,523,709) ($1,540,671) ($1,359,326) $0
- - ------------------------------------------------------------------------------------------------------------------------------
Other Income (Exp) Minority Interest $1,460,799 $1,826,816 $0 $2,545,433 ($21,189)
- - ------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) Operations ($3,573,921) $834,453 ($941,231) $1,186,107 ($21,189)
- - ------------------------------------------------------------------------------------------------------------------------------
(Loss ) From Discontinued $0 $0 ($407,511) ($1,792,544) ($1,207,099)
- - ------------------------------------------------------------------------------------------------------------------------------
Operations
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Net Income (Loss) ($3,573,921) $834,453 ($1,342,742) ($606,437) ($1,228,288)
- - ------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) per Share
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Income (Loss) From continuing (-0.18) 0.04 (-0.05) 0.08 0.00
- - ------------------------------------------------------------------------------------------------------------------------------
Operations
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(Loss) From Discontinued 0.00 0.00 (-0.02) (-0.12) (-0.09)
- - ------------------------------------------------------------------------------------------------------------------------------
Operations
- - ------------------------------------------------------------------------------------------------------------------------------
Net (Loss) Income (-0.18) 0.04 (-0.07) (-0.04) (-0.09)
- - ------------------------------------------------------------------------------------------------------------------------------
Cash Dividends (1) 0 0 0 0 0
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</TABLE>
AS OF DECEMBER 31
<TABLE>
<CAPTION>
BALANCE SHEET DATA 1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Current Assets $388,259 $3,240,980 $1,136,880 $2,755,021 $967,547
- - -----------------------------------------------------------------------------------------------------------------
Fixed Assets Net $1,506,831 $1,195,765 $160,039 $364,855 $123,500
- - -----------------------------------------------------------------------------------------------------------------
Total Assets $3,305,424 $4,740,111 $1,576,409 $3,184,896 $2,355,355
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No dividends have been declared by the registrant to date.
(2) The aforementioned data has been restated to conform with U.S. GAAP since
prior financial data was reported under Canadian GAAP.
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CURRENT OPERATIONS
The registrant's business activity is designing, developing, marketing
and producing hardware and software for a computerized inter-active media
marketing program known as "The UC'NWIN System". It is the intention of
management to lease these systems, or otherwise place systems in locations and
obtain advertising revenues from a wide variety of businesses. In 1992, the
registrant licensed the worldwide rights to manufacture and lease the UC'NWIN
System, exclusive of the United States, to Winners All Ltd. ("WIN") a wholly
owned subsidiary of Winners All International, Inc., which subsequently granted
an exclusive sub-license for certain Pacific Rim countries to Winners All Asia
Pacific. The registrant is continuing to market its UC'NWIN system, although,
with the exception of royalties of $531,346 and $583,332, no leases or
advertising revenues have been received for the year ended 1994 and 1993,
respectively. In 1995 the Company received $178,770 of rental and service
revenues relating to the UC'NWIN System.
In December 1994, WIN and UC'NWIN Systems, Inc., a subsidiary of the
registrant created Win Network, LLC ("WinNet"), a limited liability company to
exploit the UC'NWIN System. WIN and UC'NWIN Systems, Inc. contributed to WinNet
the tangible and intangible rights to the UC'NWIN System (other than those
sub-licensed to Winners All Asia Pacific). WIN owns 49% of WinNet and UC'NWIN
Systems, Inc. owns the remaining 51%. Since its formation, WinNet has lost
$178,246 of which $90,905 has been shown as a loss of WIN. WIN has agreed to
contribute upto $5,000,000 of capital to WinNet, of which $3,182,000 has been
received, contributions started being funded in January 1995.
WIN has ceased paying royalties pursuant to the WinNet arrangement.
During March 1995, WinNet commenced the placement of 137 kiosks for a
joint promotion with shell Oil Company, and during September 1995 WinNet
commenced the placement of 35 kiosks for Ignis Ltd in the United Kingdom
promoting Gallaher Tobacco products. WinNet has since received strong
indications of interest from advertisers for continuing similar promotional
efforts for a fee. WinNet is aggressively pursuing advertising contracts with
these manufacturers and other interested parties. Additionally, the registrant
is developing additional software programs and kiosk delivery systems in the
United States for BellSouth Mobility, in the United Kingdom for Ignis Ltd.
promoting Gallagher Tobacco, and Total Oil (GB) Ltd. and in Asia for Allied
Domeq. WinNet has received income of $178,770 up to December 31, 1995 and is
receiving significant interest from corporations in leasing software programs
and kiosks for proprietary systems and networks under long term contracts i.e.
contracts under which the manufacturer has exclusive rights to the program.
Additional negotiations are being undertaken with multi-national companies in
the United States, United Kingdom, Europe and Asia for the use of the UC'NWIN
System.
Aside from royalty income of $531,346 and $583,332 for the years ended
December 31, 1994 and 1993 respectively, and the $178,770 in 1995 the registrant
has not generated any other revenues from the UC'NWIN System. Such royalty
revenues have ceased pursuant to the WinNet agreement as above indicated.
The registrant recognized a gain on the WinNet arrangement of
$1,739,475 pursuant to Staff Accounting Bulletin No. 68 "Accounting for sales of
stock by a subsidiary", for the increase in the carrying value derived from the
direct sale of equity in a subsidiary, of which Winners All Ltd. contributed
capital of $3,182,075.
Operating expenses, for the year ended December 31, 1995, of $5,213,490
increased by $3,689,781 from the prior year. Operating and administrative
expenses increased to $3,534,208 for the year ended December 31, 1995 from
$1,202,525 for the year ended December 31, 1994 primarily due to
<PAGE> 8
increased professional fees and the increased payroll and related benefit costs
after the formation of the joint venture. Advertising and marketing costs
increased to $512,449 for the year ended December 31, 1995 from $275,789 from
the year ended December 31, 1994. Additionally, the registrant increased the
research and development costs to $102,000 for the year ended December 31, 1995
from $0 for the year ended December 31, 1994 primarily to produce software
programs to be delivered on the World Wide Web and the Internet.
Operating expenses, for the year ended December 31, 1994, of $1,523,709
basically remained the same from the prior year. Operating and Administrative
expenses increased to $1,202,522 for the year ended December 31, 1994 from $
885,829 for the year ended December 31, 1993 primarily due to the increased
payroll and related benefit costs before the formation of the Joint Venture and
the write-down of inventory for $130,000. Professional fees remained the same;
approximately $440,000. The registrant reduced the advertising and marketing
costs to $275,789 for the year ended December 31, 1994 from $448,471 for the
year ended December 31, 1993 due to the decreased use of advertising
consultants. Additionally, the registrant eliminated research and development
costs, primarily due to formation of WinNet.
Operating expenses, for the year ended December 31, 1993, amounted to
$2,336,371. Out of its total operating expenses, the registrant incurred
expenses of $447,002 for professional fees, $843,764 for depreciation and
amortization, $158,307 for research and development, and $448,471 for expenses
involving promotion, introduction, marketing, feasibility analysis, and
advertising costs relating to the marketability of the UC'NWIN Systems.
DISCONTINUED OPERATIONS
Effective January 1992, Management decided to discontinue the
operations of its former business activity of outbound automated telephone
marketing and polling services. All associated costs of disposal have been
reclassified as discontinued operations. During this period, restrictive
legislation had the effect of causing the registrant to discontinue commercial
advertising. During 1991 and 1990 the registrant made several unsuccessful
attempts to sell the machines to overseas purchasers.
FINANCIAL CONDITION AND LIQUIDITY
The registrant's working capital decreased to a $1,617,825 working
capital deficiency, primarily due to the significant losses incurred during
1995. The Company has reduced its staff and overhead significantly in late 1995
and early 1996 to accommodate the limited working capital of the Company.
The registrant's working capital liquidity improved at December 31,
1994 to $2,118,670 as opposed to $671,754 at December 31, 1993, primarily due to
the recognition of a $3,182,750 capital contribution to WinNet by Winners All
Ltd. These monies were received by March 20, 1995. The registrant has since
spent the $3,182,950 for the funding of operations, the promotional (Shell)
roll-out described earlier and the purchase of certain assets including kiosks.
The registrant is actively pursuing various financing alternatives to fund
operations and future expansion efforts, including additional funding pursuant
to Winners All Ltd.'s agreement to fund the operations of WinNet and discussions
with financial institutions to secure financing for the manufacturing of kiosks
related to the sale or lease of proprietary systems.
The registrant has continued merger negotiations with Winners All
International, Inc. parent company of Winners All, Ltd. Winners All
International, Inc.'s shares are traded on NASD (BB) under symbol "WINA".
Although negotiations are continuing, no assurances can be given that such
negotiations will result in a merger. Such a merger would minimize corporate
overhead, administrative expenses and better utilize the working capital
resources of the two companies for the promotion and development of the UC'NWIN
System. The Company has acquired a 46% interest in Winners All International,
Inc.
<PAGE> 9
At December 31, 1995 the cash position of the registrant increased to
$14,304 from ($3,772).The change in cash is attributable to cash provided by
operating activities of $178,770 and cash provided by financing activities of
$2,000,000 including increase in debt.
At December 31, 1994 the cash position of the registrant decreased to
($3,772) from $48,879. The change in cash is attributable to cash expended by
operating activities of $2,017,649, cash provided by financing activities of
$681,558 including increase in debt of $596,955 sales of equity of $84,603 and
cash provided by investing activities of $1,283,490. The foregoing takes into
account an increase of minority interest of $1,583,918, sale of investments of
$800,569 and acquisition of capital assets of $1,100,997.
At December 31, 1993 the cash position of the Company decreased to
$48,879 from $1,100,071. The change in cash is attributable to cash provided by
operating activities of $122,323, cash expended of $124,087 in financing
activities including retirement of related party obligations of $257,710, sales
of equity of $133,623 and cash expended of $894,033 in investing activities. The
foregoing takes into account the acquisition of short-term investment of
$300,509, acquisition of capital assets of $93,464, and the election by the
registrant to exercise its stock option and acquire 400,000 shares of Winners
All, Ltd. for $500,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The required financial statements of the Registrant are set forth immediately
following the signature page to this registration statement. See "Item 14 -
Exibits, Financial Statement, Schedules, and Reports on Form 8-K" for index to
the financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On January 12, 1996, the registrant having emigrated from Canada and
become a Delaware corporation retained Mazars And Company, Certified Public
Accountants, of 140 East 45th Street, New York to audit the financial statements
of the registrant for the year ended December 31, 1995 and assist management and
legal counsel in preparing the Form 10-K and the Management Discussion and
Analysis.. Prior audits of the financial statements of the registrant had been
completed by Iscove Gold & Glatt, Chartered Accountants, of 45 Clair Avenue
West, Suite 200, Toronto, Oantario, Canada. At no time have their been any
disagreements with Iscove Gold & Glatt on accounting or financial matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table and the notes thereto state the names and
municipalities of residence of all directors and Executive Officers of the
registrant, the respective offices of each, the term of office and period during
which he served:
<TABLE>
<CAPTION>
NAME (1)(2)(3) OFFICE TERM DIRECTOR SINCE
- - -------------- ------ ---- --------------
<S> <C> <C> <C>
*Ivan Thornley-Hall Director, Until next March 10, 1983
Toronto, Ontario, Canada Vice President Annual Meeting
and Chief of Shareholders
Financial Officer
*John Neilson (4) President, Until next May 12, 1995
Fort Lauderdale Director, Chief Annual Meeting
Florida, U.S.A Executive Officer of Shareholders
and President of
wholly-owned
subsidiary.
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Lord Charles Director Until next December 21, 1994
Spencer Churchill (5) Annual Meeting
London, England of Shareholders
Eugene Tuma (6) Director Until next December 21, 1995
Allison Park Annual Meeting
Philadelphia, U.S.A. of Shareholders
</TABLE>
* Members of Audit Committee
NOTES:
(1) On March 31, 1993 Ira Rubin and Shirley Pascoe resigned as officer and
director and director of registrant, respectively.
(2) Leopold Cohen, a former officer and director died in August, 1994.
(3) Ian Medad resigned as an officer and director of registrant in August, 1994
(4) John Neilson succeeded the late Theodore Ruderman, who passed away April 20,
1995.
(5) Lord Charles Spencer Churchill succeeded the late Leopold Cohen as a
director of the registrant.
(6) Eugene Tuma was elected to the board of directors December 21, 1995.
LORD CHURCHILL, a member of the House of Lords, has been affiliated
with Forte PLC of London, England, one of the world's largest hotel chains,
since 1982 and is presently Vice-President of Sales and Marketing. EUGENE TUMA,
is the President and Chief Executive Officer of Eugene Tuma & Associates, Inc.
management consultants.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation awarded to, earned by
or paid to the Company's Chief Executive Officer and its other Executive
Officers during the fiscal years ended December 31, 1995, 1994 and 1993.
<PAGE> 11
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION & LONG TERM COMPENSATION
<TABLE>
<CAPTION>
NAME AND YEAR SALARY ($) BONUS ($) SATION ($) AWARDS ($) STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION OPTIONS SECURITY COMPEN-
PAYOUTS ($) SATION
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JOHN NEILSON 1995 72,000 0 0 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------
President of the
- - ------------------------------------------------------------------------------------------------------------------------
subsidiary from
- - ------------------------------------------------------------------------------------------------------------------------
May 12, 1995 and
- - ------------------------------------------------------------------------------------------------------------------------
President of the
- - ------------------------------------------------------------------------------------------------------------------------
Company from Dec-
- - ------------------------------------------------------------------------------------------------------------------------
ember 1, 1995 to date
- - ------------------------------------------------------------------------------------------------------------------------
IVAN THORNLEY-HALL 1995 Note (5) 0 0 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------
President until May 1, 1994 Note (5) 0 0 0 50,000 0 0
- - ------------------------------------------------------------------------------------------------------------------------
1993, Vice-President 1993 Note (5) 0 0 0 25,000 0 0
- - ------------------------------------------------------------------------------------------------------------------------
until August 18, 1994,
- - ------------------------------------------------------------------------------------------------------------------------
President until Dec-
- - ------------------------------------------------------------------------------------------------------------------------
ember 1, 1995 and
- - ------------------------------------------------------------------------------------------------------------------------
Vice-President and
- - ------------------------------------------------------------------------------------------------------------------------
Secretary thereafter
- - ------------------------------------------------------------------------------------------------------------------------
IAN MEDAD (1) (2) 1994 42,907 0 15,200 0 250,000 0 25,000
- - ------------------------------------------------------------------------------------------------------------------------
C.E.O. President of 1993 42,000 0 13,545 0 250,000 0 0
- - ------------------------------------------------------------------------------------------------------------------------
Company, Vice-
- - ------------------------------------------------------------------------------------------------------------------------
President of the
- - ------------------------------------------------------------------------------------------------------------------------
Subsidiary from May 1
- - ------------------------------------------------------------------------------------------------------------------------
1993 to August 18,
- - ------------------------------------------------------------------------------------------------------------------------
1994 Vice-President
- - ------------------------------------------------------------------------------------------------------------------------
of Company from
- - ------------------------------------------------------------------------------------------------------------------------
the April 15, 1992
- - ------------------------------------------------------------------------------------------------------------------------
LEOPOLD COHEN (3) (4) 1994 0 0 0 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------
Chairman of the 1993 Note (3) Note (4) Note (3) 0 0 0 Note (4)
- - ------------------------------------------------------------------------------------------------------------------------
Company and
- - ------------------------------------------------------------------------------------------------------------------------
President of the
- - ------------------------------------------------------------------------------------------------------------------------
Subsidiary from March
- - ------------------------------------------------------------------------------------------------------------------------
23, 1993
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company entered into a four year consulting agreement with Olam Company
Limited of Toronto, Ontario, Canada dated the 1st of May, 1993, pursuant to
which Olam furnished the services of Ian Medad as Chief Executive Officer of the
Company. Olam earned consulting fees from the Company at the rate of $6,000 (US)
per month plus expenses. Mr. Medad resigned August 18, 1994 and received $25,000
(U.S.) in severance compensation.
(2) The Subsidiary provided a furnished apartment and a leased automobile. The
aggregate value of such compensation in 1993 was $13,545 (U.S.) and in 1994 was
$15,200 (U.S.)
(3)(a) Pursuant to an agreement dated November 8, 1991 as amended, between the
Company, the late Leopold Cohen and Charles Bernhaut as Vendors, and the
Subsidiary, the Subsidiary acquired from the Vendors all of their right, title
and interest as inventors of the UC'NWIN System for a consideration of $123,500
(U.S.) cash and the issuance of 3,000,000 shares of the Company, 2,000,000
shares to Mr. Cohen and 1,000,000 to Mr. Bernhaut, upon satisfaction of certain
earnings requirements by the Subsidiary. The earnings requirements were duly
satisfied, the cash payment was completed on October 1,
<PAGE> 12
1992 and the 3,000,000 shares were duly issued to Messrs. Cohen and Bernhaut in
1993 in the numbers above indicated.
(b) In addition to the foregoing, the agreement provided that Messrs. Cohen and
Bernhaut should be employed by the Subsidiary on a "bonus and non-salaried
position" for a period of ten years from the date of the UC'NWIN Agreement, and
in the event that pre-tax profits as therein defined attributable to the UC'NWIN
System equal or exceed $1,000,000 in any one or more years, Messrs. Cohen and
Bernhaut collectively should receive annual bonuses equaling ten percent (10%)
of the aggregate of such pre-tax profits. In pursuance of such provisions the
sum of $249,000 U.S. was accrued in 1992 and duly paid in equal shares to
Messrs. Cohen and Bernhaut.
(c) The above agreement has since been superseded by the Replacement Agreement
dated May 25, 1994 which provides that in each of the ten annual fiscal years of
the Subsidiary after the date of the new agreement, upon which the Subsidiary or
its affiliates to successors as defined, earned net profits cumulatively of
$10,000,000, the Subsidiary shall pay a 5% bonus to Messrs. Cohen and Bernhaut
from the net profits for the fiscal year. Each bonus is subject to a $150,000
limit in any one fiscal year. Net profits are defined as annual pre-tax profits
plus bonuses paid or payable to all executives and/or directors for the
respective years. The foregoing rights are stated to be assignable in the event
of death or incapacity of either Messrs. Cohen or Bernhaut. Leopold Cohen died
on August 24, 1994, and his rights have devolved upon his heirs.
(4) Leopold Cohen and Robert Grindell were the owners of 65% of the outstanding
shares of S.R.Information Solutions Inc., a private software company, which
performed software services for the Subsidiary. In November, 1992, the
Subsidiary purchased from Leopold Cohen and Robert Grindell (a) their 65%
outstanding shareholder interests and (b) notes payable to Leopold Cohen in the
aggregate amount of $157,700 U.S. for a purchase price consisting of (i) the sum
of $2 cash and (ii) the promissory note of the Subsidiary in favor of Mr. Cohen
in the amount of $157,700, which was duly paid in 1993.
(5) Ivan Thornley-Hall, President of the Company until May, 1993, Vice-President
until August 18, 1994, President until December 1, 1995, and thereafter
Vice-President and Secretary, has received no cash remuneration in his capacity
as officer or director, but as Counsel renders legal accounts for fees and
disbursements. Legal accounts for fees rendered for the years 1995, 1994 and
1993 were as follows:
1995 $ 68,261 (Cdn.)
1994 $ 92,180 (Cdn.)
1993 $108,426 (Cdn.)
AGGREGATE OPTIONS EXERCISED IN FISCAL YEARS 1993, 1994 AND 1995 AND FISCAL YEAR
END OPTION.
The following table sets forth information with respect to each
exercise of stock options during the fiscal years ended December 31, 1995, 1994
and 1993 respectively by the named executive officers and employees of the
Company and the Subsidiary, the option values and the dates on exercise, the
number of shares covered by both exercisable and unexercisable options as of
each fiscal year end. There was no activity in 1995.
<PAGE> 13
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL YEAR END MONEY OPTIONS AT FISCAL YEAR-END
- - ------------------------------------------------------------------------------------------------------------------------------------
NAME SHARES VALUE EXERCISABLE NON EXERCISABLE NON
ACQUIRED ON REALIZED EXERCISABLE EXERCISABLE
EXERCISE NOTE (1)
- - ------------------------------------------------------------------------------------------------------------------------------------
1993
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ian Medad 50,000 $245,000 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Ivan Thornley-Hall 0 0 50,000 0 Note (2) 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Ivan Thornley-Hall 25,000 $4,099 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Ira Rubin 35,000 $199,500 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Sylvia Blackwell 10,000 $57,000 0 0 0 0
- - ------------------------------------------------------------------------------------------------------------------------------------
Ian Medad 0 0 250,000 0 0 $398,000
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Value is based on market value of the common stock at exercise date (for
value realized) minus the option exercise price.
(2) Fiscal year-end quoted value of $227,500 was $10,000 less than aggregate
exercise price.
The following table sets forth information as at December 31, 1993, 1994 and
1995 concerning individual grants of stock options made during the fiscal years
to the named executive officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE OR ASSUMED ANNUAL
- - ------------------------------------------------------------------------------------------------------------------------------------
RATE OF STOCK APPRECIATION
- - ------------------------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF BASE PRICE EXERCISE OR 5% 10% GRANT DATE
- - ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES TOTAL OPTIONS ($/X'S) EXPIRATION PRESENT
- - ------------------------------------------------------------------------------------------------------------------------------------
OPTIONS/SAR'S SAR'S GRANTED DATE VALUE
- - ------------------------------------------------------------------------------------------------------------------------------------
GRANTED ($) UNDERLYING IN
- - ------------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR (%)
- - ------------------------------------------------------------------------------------------------------------------------------------
1994
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan Thornley-Hall 50,000 100% $4.75 (Cdn.) June 17 / 96 0 Note (4) $4.75 (Cdn.)
- - ------------------------------------------------------------------------------------------------------------------------------------
President
- - ------------------------------------------------------------------------------------------------------------------------------------
Ian Medad (2) 200,000 88.90% $5.01 (Cdn.) Oct 21 / 95 0
- - ------------------------------------------------------------------------------------------------------------------------------------
C.E.O Company
- - ------------------------------------------------------------------------------------------------------------------------------------
Ivan Thornley-Hall 25,000 11.10% $4.75 (Cdn.) June 4 / 96 0 $4.75 (Cdn.)(3)
- - ------------------------------------------------------------------------------------------------------------------------------------
V.P. Company
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Market Price on date of grant was $4.75 per share. Fiscal year-end-value of
$227,500 was $10,000 less than the aggregate exercise price for all shares
subject to options.
(2) Mr. Medad resigned August 18, 1994 and his above option was cancelled.
(3) Exercised in full. (See "Aggregate Options Exercised in Fiscal Years 1993
and 1994 and Fiscal Year-End Option")
(4) No present potential realized value. Present market value $.75 U.S.
<PAGE> 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 31, 1996
with respect to persons who are of record or are known by the Company to be
beneficial owners of more than 5% of its outstanding shares of common stock, and
by directors and all officers and directors as a group. As of March 31, 1996
there were 25,149,747 shares of common stock outstanding.
<TABLE>
<CAPTION>
TITLE & CLASS: NAME & ADDRESS OF AMOUNT & NATURE PERCENT OF
- - -------------- ----------------- --------------- ----------
THE BENEFICIAL OF BENEFICIAL CLASS:
-------------- ------------- ------
HOLDER: OWNERSHIP:
------- ----------
<S> <C> <C> <C>
Common Stock Trustees Of The Theodore 1,350,000 5.61%
Ruderman Trust
190 Testiny Avenue
Bridgeport, CT 06606
Common Stock Ivan Thornley-Hall 10,300 0.04%
555 Richmond Street, Suite 905
Toronto, Ontario, Canada MV5 3B1
Common Stock Eugene Tuma 100,000 0.42%
3 Wagner Road, Allison Park,
PA 15101
Common Stock Harvey Krauss 2,400,000 9.97%
605 Third Avenue
New York, NY 10158-0125
AND
Thomas M. Clark
California Federal Tower
2400 East Commercial Boulevard
Suite 820, Ft Lauderdale, Florida 33308
Trustees of the Breen Trust, Embassy Trust,
Fairway Trust, and The Ann R. Jonas Trust (1) (2)
Common Stock International Explorers Ltd 1,600,000 6.65%
c/o Hunter & Hunter
Huntlaw Building, Georgetown
Grand Cayman Island, BWI
Common Stock Officers & Directors as a group 110,300 0.46%
(4 persons)
Common Stock Lauder International Ltd 1,281,250 5.32%
P.O.Box 884
Grand Cayman Islands, BWI
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
Trust Beneficiaries Relationship to Number Of Percent of Class
- - ---------------------------------------------------------------------------------------------------------------------------------
Management Shares
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Breen Trust Shirley Pascoe & None 600,000 2.49%
Ellen Sue Goldberg
- - ---------------------------------------------------------------------------------------------------------------------------------
Embassy Trust Jane Von Szamwold None 600,000 2.49%
- - ---------------------------------------------------------------------------------------------------------------------------------
Fairway Trust Elizabeth Manus Note (1) 600,000 2.49%
- - ---------------------------------------------------------------------------------------------------------------------------------
The Ann R. Jonas Trust Ann R. Jonas None 600,000 2.49%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total: 2,400,000 9.96%
- - ---------------------------------------------------------------------------------------------------------------------------------
Common Stock Officers & Directors As 110,300 0.46%
- - ---------------------------------------------------------------------------------------------------------------------------------
A Group of (4 Persons)
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Messrs. Krauss and Clark are not related to management and do not own any
stock beneficially. The beneficiaries of the four trusts are individuals, none
of whom are related to any officers or directors of the Company, or its
subsidiary, excepting as follows, and none of whose entitlements exceed 5% of
the common stock outstanding. Sam Weiss, a member of the Executive Committee of
the Joint Venture is the son of Elizabeth Manus, a beneficiary under the Fairway
Trust. Reference is made to "Certain Relationships and Related Transactions"
herein and to form 10 of registrant filed under SEC Registration Number 0-22954
for historical information surrounding the trusts, the family relationships of
beneficiaries and former management which is incorporated herein by reference.
(2) The inter-family relationships of the beneficiaries are as follows:
(a) Shirley Pascoe is the sister of Allen Manus; she is also a former director
of the registrant.
(b) Ellen Sue Goldberg is the daughter of Shirley Pascoe and niece of Allen
Manus.
(c) Jane Von Szamwold is the daughter of Allen Manus.
(d) Elizabeth Manus, also known as Elizabeth Weiss, is the wife of Allen Manus.
(e) Ann R. Jonas is the adult daughter of Jane Von Szamwold and the
granddaughter of Allen Manus.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to agreement dated November 8, 1991, as amended by amending
agreement dated August 14, 1992, between the late Leopold Cohen, a director and
Chairman of the Corporation until his death on August 24, 1994 and Charles
Bernhaut as Vendors, the Corporation and the Subsidiary, Impact Telemedia, Inc.,
(now UC'NWIN Systems, Inc.) as Purchaser (the "UC'NWIN Agreement) the Subsidiary
acquired from the Vendors all of their right, title and interest as inventors of
the UC'NWIN System for a consideration of $123,500 (US) cash and the issuance of
3,000,000 shares of the Corporation to be issued to the Vendors, 2,000,000 to Mr
Cohen and 1,000,000 shares to Mr. Bernhaut, upon satisfaction of certain
earnings requirements by the Subsidiary, namely, 1,500,000 shares to be issued
upon the receipt by the UC'NWIN Division of the Subsidiary of $500,000 (US) in
net earnings before taxes prior to February 5, 1994, and thereafter the
additional 1,500,000 shares issuable upon receipt by the Subsidiary of net
earnings of $0.24 per share for each of the $1,500,000 shares. The earnings
requirements were duly satisfied, the cash payment was completed on October 1,
1992 and the 3,000,000 shares were duly issued to Messrs. Cohen and Bernhaut in
1993. At the date of execution of the UC'NWIN Agreement Mr. Cohen was not a
director of the Corporation or the Subsidiary, having been first elected on
March 23, 1993.
<PAGE> 16
In addition to the foregoing arrangement, the UC'NWIN Agreement
provides that Messrs. Cohen and Bernhaut shall be employed by the Subsidiary on
a "bonus and non-salaried position" for a period of ten years from the date of
the UC'NWIN Agreement and that in the event that pre-tax net profits as therein
defined attributable to the UC'NWIN System, equal or exceed $1,000,000 (US) in
any one or more such years, Messrs. Cohen and Bernhaut collectively shall
receive annual bonuses equalling 10% in the aggregate of such pre-tax profits.
The foregoing rights are assignable in the event of death or incapacity of
either Messrs. Cohen and Bernhaut. In pursuance of the foregoing provision, the
sum of $249,000 (US) was accrued in 1992 and duly paid to Mr. Cohen in 1993. Mr.
Cohen paid half that sum to Charles Bernhaut, the co-developer of the UC'NWIN
System.
By agreement dated May 25, 1994, between the Corporation, the
Subsidiary and Messrs. Cohen and Bernhaut, the UC'NWIN Agreement has been
declared terminated, to be replaced by a new agreement, (the "Replacement
Agreement") which provides, among other things, that in each of the first ten
annual fiscal years after the date of the new agreement, upon which the
Subsidiary will pay a 5% bonus to Messrs. Cohen and Bernhaut from the net
profits for the fiscal year. Each bonus is subject to a $150,000 limit in any
one fiscal year. Net profits are defined as annual pre-tax profits plus bonuses
paid or payable to all executives and or directors for the respective year.
Reference is made elsewhere herein to "Business - Recent Developments"
for information regarding the Joint Venture Agreement between registrant's
subsidiary UC'NWIN Systems, Inc. and Winners All's subsidiary Winners All, Ltd.
During the latter part of 1994, and again in 1995, a major shareholder
of the registrant (a trust beneficiary), contacted Allen Manus who, on behalf of
the shareholder, consulted with the registrant to ascertain, among other things,
the state of operations and on-going funding, new developments in the
registrant's business, the exit from Canada and the status of payment of
obligations to and on behalf of registrant by the Joint Venture. On December 16,
1981, a permanent injunction was entered against Allen Manus (U.S. District
Court, Southern District of New York, FED.SEC.L.REP. Dec. 16, 1981) for
violations of the securities laws. Although Allen Manus is not an officer,
director or shareholder of the Company, historically, he has been involved with
the Company as disclosed herein. As of the date of this filing, Mr. Manus is not
involved, either directly or indirectly with the operations of the Company. See
"Security Ownership of Certain Beneficial Owners and Management" herein, and
Form 10 of Registrant for further information concerning the history of
registrant and the family relationships of Allen Manus to the registrant and its
shareholders, which is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES, AND REPORTS ON FORM 8K.
(a) FINANCIAL STATEMENTS:
(i) Report of Independant Accountants
(ii) Consolidated Balance Sheets for the years ended, 1993, 1994
and 1995.
(iii) Consolidated Statements of Loss and Deficit for years ended
1992, 1993, 1994 and 1995.
(iv) Consolidated Statements of Changes in Financial Position for
the years ended 1992, 1993, 1994 and 1995.
<PAGE> 17
(b) EXHIBITS:
1 Hereby incorporated by Reference to the Filing of the
definitive proxy material of the Registrant on August 11,
1995.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant had duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UC'NWIN Systems Corporation
By: \s\ John Neilson
----------------------
John Neilson
Director, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
. \s\ John Neilson . Director, President and June 4, 1996
- - --------------------------------------------------- Chief Executive Officer
John Neilson Secretary
. \s\ Ivan Thornley-Hall . Director, Vice President June 4, 1996
- - ---------------------------------------------------- and Chief Financial Officer
Ivan Thornley-Hall
. \s\ Eugene Tuma . Director June 4, 1996
- - ---------------------------------------------------
Eugene Tuma
</TABLE>
<PAGE> 19
FORM 10K - ITEM 8
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT - Mazars and Company, LLP 1-2
INDEPENDENT AUDITORS' REPORT - Iscove, Gold & Glatt 3
CONSOLIDATED BALANCE SHEET 4-5
CONSOLIDATED STATEMENT OF OPERATIONS 6-7
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 8
CONSOLIDATED STATEMENT OF CASH FLOWS 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10-25
</TABLE>
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable, and therefore have been omitted.
<PAGE> 20
LETTERHEAD OF MAZARS AND COMPANY LLP
INDEPENDENT AUDITORS' REPORT
Board of Directors
UC'NWIN Systems Corporation
(formerly known as UC'NWIN Systems, Ltd.)
Fort Lauderdale, FL.
We have audited the accompanying consolidated balance sheet of UC'NWIN Systems
Corporation (formerly known as UC'NWIN Systems Ltd.), (a development stage
company) as of December 31, 1995, and the related consolidated statements of
stockholder's equity (deficit), operations, and cash flows for the year ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the statement of
operations or cash flows for the period January 1, 1992 (reorganization) to
December 31, 1994, which has been included in cumulative operations from
January 1, 1992 (reorganization) to December 31, 1995, although we have audited
the combination of such amounts. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for UC'NWIN Systems Corporation is based solely
on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The Company has recorded the investment in Winners All International, Inc.,
which represents 41% of the public entity on the cost method (see Note 6), which
should be recorded on the equity method in order to be in conformity with
generally accepted accounting principles. Based on the July 31, 1995 financial
statements of Winners All International, Inc., the investment in Winners All
International, Inc., would be reduced by approximately $475,000 if the equity
method were used to account for such investment after excluding the related
investment in Win Network LLC which may have a significantly lower value.
In our opinion, except for the effect of not recording the investment in Winners
All International, Inc. on the equity basis as discussed in the preceding
paragraph, the consolidated financial statements
1
<PAGE> 21
referred to above present fairly, in all material respects, the financial
position of UC'NWIN Systems Corporation as of December 31, 1995, and the results
of its operations and its cash flows for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has defaulted on debt payments, has a negative
working capital of $1.6 million, and suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
As described in Note 20, the Company has been named in a number of lawsuits,
many of which are potentially material. The ultimate outcome of the Company's
aforementioned lawsuits can not be reasonably determined at the present time.
Certified Public Accountants
February 14, 1996 and
March 22, 1996 as to Note 20
2
<PAGE> 22
LETTERHEAD OF ISCOVE GOLD & GLATT
AUDITORS' REPORT
To the Shareholders of
UC'NWIN SYSTEMS CORPORATION
We have audited the consolidated balance sheets OF UC'NWIN SYSTEMS CORPORATION
(FORMERLY KNOWN AS UC'NWIN SYSTEMS LTD.) as at December 31, 1994 and the
consolidated statements of shareholders' equity, income and deficit and changes
in financial position for the years ended December 31, 1994 and 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1994
and the results of its operations and the changes in its financial position for
the years ended December 31, 1994 and 1993 in accordance with Canadian generally
accepted accounting principles.
Chartered Accountants
Toronto, Ontario
March 20, 1995
3
<PAGE> 23
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 14,304 $ --
Accounts receivable 11,025 --
Subscription receivable 318,750 3,182,075
Prepaid expenses 41,531 36,405
Due from employees 2,649 --
Loan receivable -- 22,500
---------- ----------
Total current assets 388,259 3,240,980
Furniture and Equipment-net 167,047 162,635
Kiosks-net 1,339,784 1,033,130
Investment in Winners All International, Inc. 1,101,775 --
Intangible assets-net 307,375 303,366
Deposits 1,184 --
---------- ----------
$3,305,424 $4,740,111
========== ==========
</TABLE>
See Notes to consolidated financial statements
4
<PAGE> 24
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Payroll taxes payable and penalties $ 209,534 $ --
Accounts payable 865,489 521,583
Accrued expenses 200,439 3,772
Notes payable 300,000 28,400
Due to shareholders 243,965 --
Loans payable-related party 186,657 568,555
------------ ------------
Total current liabilities 2,006,084 1,122,310
Minority interest -- 1,583,918
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common shares, $.01 par value, 60,000,000
shares authorized 24,930,497 and
20,074,247 shares issued and outstanding,
respectively 249,305 200,742
Additional paid-in capital 14,257,308 11,466,493
Accumulated deficit (13,207,273) (9,633,352)
------------ ------------
Total stockholders' equity 1,299,340 2,033,883
$ 3,305,424 $ 4,740,111
============ ============
</TABLE>
See Notes to consolidated financial statements
5
<PAGE> 25
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Jan. 1, 1992
(reorganization)
to Dec. 31, Years ending December 31,
-------------------------
1995 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Services and rents $ 178,770 $ 178,770 $ -- $ --
Royalties 1,114,678 -- 531,346 583,332
Other 16,108 -- -- 16,108
------------ ------------ ------------ ------------
1,309,556 178,770 531,346 599,440
------------ ------------ ------------ ------------
Expenses:
Operating and administrative 5,622,561 3,534,208 1,202,525 885,829
Write-down of kiosk 475,000 475,000 -- --
Advertising and marketing 1,236,709 512,449 275,789 448,471
Research and development 260,307 102,000 -- 158,307
Depreciation and amortization 683,292 589,833 45,395 48,064
------------ ------------ ------------ ------------
8,277,869 5,213,490 1,523,709 1,540,671
------------ ------------ ------------ ------------
Other income (expenses)
Proceeds from sale of
worldwide rights 2,660,000 -- -- --
Increase in WinNet equity 1,739,475 -- 1,739,475 --
Write-off of excess cost over
net assets acquired (88,700) -- -- --
Minority interest 1,671,259 1,583,918 87,341 --
Interest and dividend income 13,009 -- -- --
Interest expense (123,119) (123,119) -- --
------------ ------------ ------------ ------------
5,871,924 1,460,799 1,826,816
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before taxes (1,096,389) (3,573,921) 834,453 (941,231)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Income (loss) from continuing operations -- (3,573,921) 834,453 (941,231)
Loss on discontinued operations
(less applicable income tax benefit of
$-0-) -- -- -- (407,511)
------------ ------------ ------------ ------------
Net income (loss) $ (1,096,389) $ (3,573,921) $ 834,453 $ (1,342,742)
------------ ------------ ------------ ------------
Weighted average common shares
outstanding 20,074,247 20,040,497 18,166,747
------------ ------------ ------------
</TABLE>
See Notes to consolidated financial statements
6
<PAGE> 26
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
(CONT'D.)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income (loss) per common share
Continuing operations $ (.18) $ .04 $ (.05)
Discontinued operations -- -- (.02)
-------- -------- --------
Net income (loss) per share $ (.18) $ .04 $ (.07)
-------- -------- --------
</TABLE>
See Notes to consolidated financial statements
7
<PAGE> 27
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Common stock
$.01 par value Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 16,326,747 $ 163,267 $ 11,099,242 $ (9,128,607) $ 2,133,902
New shares issued 3,680,000 36,800 149,700 -- 186,500
Net loss -- -- -- (1,342,742) (1,342,742)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1993 20,006,747 200,067 11,382,565 (10,471,349) 1,111,283
New shares issued 67,500 675 83,928 -- 84,603
Net income -- -- -- 834,453 834,453
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 20,074,247 200,742 11,466,493 (9,633,352) 2,033,883
Conversion of indebtedness 2,762,500 27,625 1,353,625 -- 1,381,250
Common stock subscribed 637,500 6,375 312,375 -- 318,750
Contributed capital -- -- 50,103 -- 50,103
Acquisition of Winners All
International stock 1,456,250 14,563 1,074,712 -- 1,089,275
Net Loss -- -- -- (3,573,921) (3,573,921)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 24,930,497 $ 249,305 $ 14,257,308 $(13,207,273) $ 1,299,340
============ ============ ============ ============ ============
</TABLE>
See Notes to consolidated financial statements
8
<PAGE> 28
UC'N WIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
JAN. 1, 1992
(reorganization) Years ending December 31,
to Dec. 31, 1995 1995 1994 1993
---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
DEVELOPMENT STAGE OPERATIONS:
Net income (loss) $(4,082,210) $(3,573,921) $ 834,453 $(1,342,742)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 683,292 589,833 45,395 48,064
Write down of net assets - discontinued operations 300,000 -- -- 300,000
Write down of kiosks 475,000 475,000 -- --
Change in assets and liabilities:
(Increase) decrease in loan receivable -- 22,500 -- (22,500)
(Increase) decrease in accounts receivable-trade 1,257,995 (11,025) -- 1,269,020
(Increase) decrease in accounts receivable-employees (2,649) (2,649) -- --
(Increase) decrease in inventory 85,930 -- 193,123 (107,193)
(Increase) decrease in investment -- -- 800,569 (800,569)
(Increase) decrease in other current assets (36,405) -- 35,404 (71,809)
Decrease (increase) in prepaid expenses (5,126) (5,126) -- --
Increase (decrease) in notes payable 300,000 271,600 28,400 --
Increase (decrease) in accounts payable 336,959 343,906 56,475 (63,422)
Increase (decrease) in accrued expenses 200,439 196,667 3,772 --
Increase (decrease) in payroll taxes payable 209,534 209,534 -- --
Increase (decrease) in loan payable - related party (71,053) (381,898) 568,555 (257,710)
----------- ----------- ----------- -----------
Total adjustments 3,733,916 1,708,342 1,731,693 293,881
----------- ----------- ----------- -----------
NET CASH FLOWS PROVIDED (USED) BY OPERATING
ACTIVITIES (348,294) (1,865,579) 2,566,146 (1,048,861)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACITVITIES:
(Increase) in fixed assets (2,478,911) (1,345,621) (1,034,825) (98,465)
(Increase) decrease in deposits (1,184) (1,184) -- --
(Increase) in intagible assets (138,422) (34,287) (66,646) (37,489)
(Increase) in investment in Winners All Int'l, Inc. (1,101,775) (1,101,775) -- --
----------- ----------- ----------- -----------
NET CASH FLOWS (USED) PROVIDED BY INVESTING ACTIVITIES (3,720,292) (2,482,867) (1,101,471) (135,954)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in subsciptions receivable (318,750) 2,863,325 (3,182,075) --
Increase (decrease) in due to shareholders 243,965 243,965 -- --
Increase (decrease) in minority interest -- (1,583,918) 1,583,918 --
Preferential distribution (4,155,000) -- -- (4,155,000)
Increase in common stock 7,212,604 2,839,378 84,603 4,288,623
----------- ----------- ----------- -----------
NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITES 2,982,819 4,362,750 (1,513,554) 133,623
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH $(1,085,767) $ 14,304 $ (48,879) $(1,051,192)
=========== ----------- ----------- -----------
CASH AT BEGINNING OF PERIOD -- 48,879 1,100,071
----------- ----------- -----------
CASH AT END OF PERIOD $ 14,304 $ -- $ 48,879
=========== =========== ===========
</TABLE>
See Notes to consolidated financial statements
9
<PAGE> 29
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
ORGANIZATION AND NATURE OF BUSINESS
UC'NWIN Systems Corporation (the "Company") formerly known as
UC'NWIN Systems Ltd. was a publicly held Canadian corporation
which reincorporated as a Delaware corporation on December 11,
1995 in the United States.
The Company's principal business activity is designing,
developing, marketing and producing hardware and software for
a computerized inter-active media marketing program known as
"The UC'NWIN System". The Company is currently marketing the
UC'NWIN System in the United States and the United Kingdom.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's financial statements have been presented on the
basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business.
The Company has incurred significant losses in the last three
years, has a negative working capital of $1.6 million, and
recently defaulted on repayments of debt. Accordingly, the
Company's continued existence is dependent upon the Company
developing sales and resolving its liquidity problem.
Management is actively pursuing equity and/or debt financing.
This includes, among other things, the exercise of common
stock warrants outstanding as described in Note 6, or a rights
offering with the existing common stockholders and warrant
holders.
Principles of Consolidation
The consolidated financial statements as of December 31, 1995
include the financial statements of the Company, UC'NWIN
Systems, Inc. and Win Network, LLC, a 51%-owned subsidiary
(see Note 4). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Furniture and Equipment
Machinery and equipment are recorded at historical cost.
Depreciation of machinery and equipment is provided on the
straight-line method over the estimated useful lives of the
related assets.
10
<PAGE> 30
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Kiosks
Depreciation of fully operational UC'NWIN Systems, also known
as operating kiosks, begins upon the commencement date of the
kiosks being placed in service, using the straight-line method
over 36 months. The Company placed in service the UC'NWIN
Systems in March 1995 and accordingly commenced depreciating
such assets.
Intangible Assets
The legal costs incurred in obtaining patents are being
amortized over their statutory lives (17 years) on a straight
line basis.
Purchased computer software is stated at historical cost.
Amortization is computed using the straight-line method based
on the estimated life of the related product (generally 3
years).
Reclassification
Certain prior year amounts have been reclassified to conform
to the current year's presentation.
Income Taxes
The Company has adopted Statement of Financial Accounting
Standards No. 109 which requires the recognition of deferred
tax assets and deferred tax liabilities based on the
differences in carrying value of fixed assets, goodwill,
warranty and bad debt allowance for financial and income tax
reporting purposes.
As of December 31, 1995, the Company had unused net operating
loss carryforwards, of approximately $11,700,000 available to
offset future taxable income, which if not used, will expire
commencing in the year 1998 through 2010. The recognition of
the $1,739,475 increase in equity from WinNet is not a taxable
event, therefore an income tax provision is not required for
the year ended December 31, 1994. The Company is not current
with its corporate income tax filings
11
<PAGE> 31
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
For 1995, due to the significant losses incurred by the
Company and the likelihood that deferred tax assets, arising
from temporary differences, will not reverse in the
foreseeable future, management has decided not to record a
deferred tax asset of $3,700,000 and related valuation account
of $3,700,000.
Recapitalization
The Company reorganized itself form a Canadian Corporation to
a Delaware Corporation, accordingly the financial statements
reflect the retroactive application of such reorganization.
NOTE 2: CONVERSION FROM CANADIAN GAAP TO UNITED STATES GAAP
The financial statements of the Company were reported
utilizing Canadian generally accepted accounting principles
"Canadian GAAP" through September 30, 1995, since the Company
was based in Canada. Since the Company exited Canada in
November 1995, the Company has amended its prior financial
statements prepared on a Canadian GAAP included herein to a
United States generally accepted accounting principles basis.
The fundamental difference in accounting between the two
countries relates to the acquisition of computer software and
development technology (and the related amortization of such
software) acquired through the issuance of common stock. Under
U.S. GAAP the computer software had a historical cost
estimated at $10,000. A reconciliation of the adjustment is as
follows:
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
----------- -----------
<S> <C> <C>
Total assets previously reported under
Canadian GAAP $ 7,084,057 $ 4,716,055
Less software costs (2,343,946) (3,139,646)
----------- -----------
Adjusted total assets reported under
US GAAP $ 4,740,111 $ 1,576,409
=========== ===========
Stockholders' equity previously
reported under Canadian GAAP $ 4,377,829 $ 4,250,929
Less adjustment (2,343,946) (3,139,646)
----------- -----------
Adjusted stockholders' equity
reported under US GAAP $ 2,033,883 $ 1,111,283
=========== ===========
</TABLE>
12
<PAGE> 32
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 2: CONVERSION FROM CANADIAN GAAP TO UNITED STATES GAAP (CONT'D.)
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
----------- -----------
<S> <C> <C>
Net income (loss) previously reported
under Canadian GAAP $ 42,753 $(2,138,442)
Less adjustment 791,700 795,700
----------- -----------
Net income (loss) reported
under US GAAP $ 834,453 $(1,342,742)
=========== ===========
</TABLE>
NOTE 3: DEVELOPMENT STAGE OPERATIONS
UC'NWIN Systems Corporation is a development stage company.
Effective January 1, 1992, the Company reorganized operations
into a new business of redesigning, developing, marketing, and
producing hardware and software for a computerized
inter-active media marketing program known as the "UC'NWIN
System".
In December 1992, the Company licensed the worldwide marketing
rights, exclusive of the United States, of the UC'NWIN System
to Winner's All Ltd.
Aside from royalty income and the non-recurring sale of
worldwide rights, the Company has not generated any
significant current revenue from the UC'NWIN System.
NOTE 4: ESTABLISHMENT OF WIN NETWORK, LLC
In December 1994 and as subsequently amended in June 1995, the
Company and Winner's All Ltd. created Win Network, LLC
("WinNet"), a limited liability company to exploit the UC'NWIN
System. The Company and Winner's All Ltd. contributed the
tangible and intangible rights to the UC'NWIN System (other
than those sub-licensed to Winners All Asia Pacific). The
Company owns 51% of WinNet with Winners All Ltd. owning the
remaining 49%. Since its formation, WinNet has lost $3,800,000
of which $2,050,000 has been shown as a loss on the Company. A
portion of the current years' loss recorded on the Company's
books $197,918 represents losses attributed to the minority
interest in excess of capital, pursuant to Accounting Research
Bulletin No. 51 such losses should have be
13
<PAGE> 33
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 4: ESTABLISHMENT OF WIN NETWORK, LLC (CONT'D.)
charged against the Company, since there is no obligation of
the minority interest to make good on such losses. Winner's
All Ltd. had agreed to contribute to WinNet an amount
necessary to achieve profitability presently estimated to be
an amount not less than $5,000,000 of capital. Such
contributions started being funded in January 1995. The
Company has ceased receiving royalties due under the license
agreement as a result of the WinNet arrangement.
Pursuant to Staff Accounting Bulletin No. 68 "Accounting for
sales of stock by a subsidiary", the increase in the carrying
value derived from the direct sale of equity in a subsidiary
shall be reflected as a gain in the consolidated financial
statements of the parent company. As a result of Winners All
Ltd. capital contribution of $3,182,075 to WinNet during 1994,
the Company recognized a $1,739,475 gain on the transaction.
See Note 20, regarding WinNet litigation.
14
<PAGE> 34
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
Summarized financial data for Win Network, LLC is as follows:
BALANCE SHEET
Assets
<TABLE>
<CAPTION>
12/31/95 12/31/94
<S> <C> <C>
Current Assets $ 60,041 $ 3,182,095
Due from Affiliates 673,447 --
Equipment & Kiosks 1,164,911 124,538
----------- -----------
$ 1,898,399 $ 3,306,633
=========== ===========
Liabilities and Partners' Equity
Current liabilities $ 616,462 $ 10,000
Due to Affiliates 1,697,669 64,145
Partners' Equity (415,732) 3,232,488
----------- -----------
$ 1,898,399 $ 3,306,633
=========== ===========
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended One month
12/31/95 ended 12/31/94
<S> <C> <C>
Revenues
Sales $ 168,270 $ --
Expenses
Advertising and marketing 528,660 --
General and administrative 2,901,887 178,246
Depreciation 357,546 --
----------- -----------
3,788,093 178,246
Other expense
Interest expense 15,372 --
----------- -----------
Income (loss) form continuing
operations before taxes (3,635,195) (178,246)
Income tax expense 1,205 --
----------- -----------
Net income (loss) $(3,636,400) $ (178,246)
=========== ===========
</TABLE>
15
<PAGE> 35
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 5: SUBSCRIPTION RECEIVABLE.
The receivable recorded at December 31, 1994 of $3,182,075 was
received through March 31, 1995 as a result of the Win
Network, LLC Agreement (see Note 4).
The subscription receivable recorded at December 31, 1995 of
$318,750 represented cash received through the sale of common
stock prior to February 14, 1996 (see Note 14), which has
since been expended to fund operations.
NOTE 6: INVESTMENT IN WINNERS ALL INTERNATIONAL, INC.
Investment in Winners All International, Inc. ("WAI")
comprises 5,825,000 shares of common stock in WAI or 41% of
the outstanding common stock in the publicly held company.
These shares of common stock were acquired by issuing one
share of common stock in the Company for 4 shares of common
stock in WAI or 1,456,250 shares of common stock in the
Company. Such shares acquired were recorded at $.19 per share.
The market price of such stock has declined to $.09 per share
or a decrease in value of $500,000 as of February 15, 1996.
The investment in Winners All International, Inc. represents
41% of a public entity. The Winners All International, Inc.
stock is traded on the NASDAQ Bulletin Board where stock have
traditionally traded under a dollar and have wide variations
in price due to the limited market conditions.
In January 1996, the Company acquired another 825,000 shares
of common stock in WAI for 206,250 shares of common stock in
the Company.
Summarized financial data on Winners All International, Inc.
for the year ended July 31, 1995 (unaudited) is as follows:
BALANCE SHEET
<TABLE>
<S> <C>
Current assets $ 52,017
Investment in Win Network, LLC 1,817,413
License 1,791,931
Other assets 342,452
----------
$4,003,813
==========
Current liabilities $ 426,522
Stockholders' Equity 3,577,291
----------
$4,003,813
==========
</TABLE>
16
<PAGE> 36
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 6: INVESTMENT IN WINNERS ALL INTERNATIONAL, INC. (CONT'D)
STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
Sales $ -
Expenses 1,585,508
Share of Win Network, LLC loss 1,470,751
----------
Net loss $3,056,259
==========
</TABLE>
NOTE 7: FURNITURE AND EQUIPMENT
A summary of furniture and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Vehicles $ 36,010 $ 27,010
Furniture and office equipment 226,717 186,542
--------- --------
262,727 213,552
Accumulated depreciation (95,680) (50,917)
--------- --------
$ 167,047 $162,635
========= ========
</TABLE>
NOTE 8: KIOSKS
Kiosks consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Completed kiosks $ 1,498,485 $ 537,792
Kiosk parts 388,287 495,338
----------- ----------
1,886,772 1,033,130
Accumulated depreciation (546,988) -
----------- ----------
$ 1,339,784 $1,033,130
=========== ==========
</TABLE>
17
<PAGE> 37
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 9: INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
<S> <C> <C>
Patent costs $ 382,050 $ 292,166
Computer software development costs 68,249 67,846
Computer software technology 10,000 10,000
----------- ----------
404,299 370,012
Accumulated Amortization (96,924) (66,646)
----------- ----------
$ 307,375 $ 303,366
=========== ==========
</TABLE>
NOTE 10: ACCOUNTS PAYABLE
Included in accounts payable are two trade payables in the
amount of $140,000, which were converted to interest bearing
notes payable due in installments through October 1996. The
notes bear interest at 6% per annum. The Company has defaulted
on the payment of these notes.
NOTE 11: ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ----------
<S> <C> <C>
Accrued salaries $ 25,895 $ --
Accrued interest 31,554 --
Accrued sundry expenses 142,990 3,772
---------- ----------
$ 200,439 $ 3,772
========== ==========
</TABLE>
NOTE 12 PAYROLL TAXES PAYABLE
The Company has made minimal payments of payroll taxes during
the period July 1995 through March 1996 and is delinquent for
payroll taxes at December 31, 1995. The Company is currently
negotiating a work-out plan for the payment of such delinquent
payroll taxes.
18
<PAGE> 38
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 13: LOANS PAYABLE -RELATED PARTY
Loans payable - related party represents advances from an
affiliate WAI or its subsidiaries which are not
interest-bearing and due on demand. The Company has a
significant ownership interest in WAI (see Note 6).
NOTE 14: NOTES PAYABLE
In August 1995, two individuals loaned the Company $300,000.
Such loans are interest bearing at 10% per annum and due in
sixty days. These loans were convertible into common shares
and warrants of the Company at a share price to be determined
by the market value on the day of conversion. The Company has
since defaulted on the payment of such loans. In January 1996,
one of the individuals initiated a lawsuit for the repayment
of such funds.
NOTE 15: DUE TO SHAREHOLDERS
Due to shareholders are unsecured, bear no interest and are
due on demand. An interest cost has been imputed resulting in
a charge to expense of $50,103. Such interest expense was
recorded as a contribution to capital.
NOTE 16: STOCKHOLDERS' EQUITY
On December 11, 1995, the Company reorganized and
recapitalized itself as a Delaware corporation having
authorized 60,000,000 shares of common stock at $.01 par
value. The financial statements reflect the retroactive
application of such recapitalization.
During 1995, the Company:
a) Issued 1,456,250 shares of common stock for the
purchase of 5,825,000 shares of common stock in WAI.
b) Issued 3,400,000 shares of common stock and 3,400,000
warrants to purchase 3,400,000 shares of common stock
at $1.50 per warrant expiring January 31, 1999 in
connection with the conversion of indebtedness of
$1,381,250 and the sale of common stock for $318,750.
19
<PAGE> 39
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 16: STOCKHOLDERS' EQUITY (CONT'D)
During 1994, the Company:
a) Stock options for 50,000 shares were exercised for a
cash consideration of $18,315.
b) The Company issued 17,500 shares for services rendered
in the amount of $66,288.
c) By agreement dated August 1993, stock options for
600,000 shares were granted at the lower of $6.00
Canadian per share of $5.00 U.S. per share subject to
regulatory approval. These options expired
September 30, 1995.
d) Stock options for 50,000 shares at $4.75 Canadian were
granted during the year and are outstanding at year
end. The options expire June 17, 1996.
During 1993:
a) Stock options for 45,000 shares were exercised for a
cash consideration of $22,500.
b) Debentures of $300,000, which were issued during 1992,
were converted at $0.50 per share to 600,000 shares.
c) The Company issued 10,000 shares for services rendered
in the amount of $25,000.
d) The Company issued 3,000,000 shares per a contractual
obligation.
e) Stock options for 25,000 shares were exercised in the
amount of $86,123 by settlement of a debt to an officer
and director.
NOTE 17: LICENSING OF WORLDWIDE RIGHTS
The Company pursuant to a December 1992 agreement, granted to
Winners All Ltd. the worldwide (exclusive of the United
States) licensing rights "the License" to use the technology
for manufacturing and marketing of the UC'NWIN System for
$2,660,000. Winners All Ltd. subsequently sub-licensed a
portion of the License with respect to certain Asian
countries. After the first three years of the agreement,
provided that Winner's All Ltd. (licensee) is in compliance
with all terms and conditions, the contract will automatically
renew from year to year.
20
<PAGE> 40
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 17: LICENSING OF WORLDWIDE RIGHTS (CONT'D.)
Winner's All Ltd. is obligated to pay as a royalty the greater
of $145,833 or 7% of the gross revenue received, quarterly for
the years 1994 and 1995. Commencing January 1, 1996, Winner's
All Ltd. is obligated to pay royalties, quarterly, on the
greater of 7% of gross revenues, including any sublicencee
revenues received or $1,750,000 per annum, until the
expiration of the license agreement on September 29, 2009.
Winners All Ltd. has ceased paying royalties due under the
license agreement as a result of the WinNet arrangement.
NOTE 18: COMMITMENTS AND CONTINGENCIES
a) Future minimum rental payments including operating
payments, such as common area maintenance, real estate
taxes, etc. are as follows:
<TABLE>
<S> <C>
1996 $ 41,700
1997 $ 43,800
1998 $ 45,900
</TABLE>
The Company's rent expense for the year ended December
31, 1995, 1994 and 1993 was $126,620, $39,563 and
$18,743, respectively.
b) In November 1991, the Company entered into a ten year
employment contract with Leopold Cohen, the late
chairman of UC'NWIN Systems, Inc., and an unrelated
third party. On May 25, 1994, the contract was
terminated mutually and replaced with a new ten year
agreement, which provides that in each of the ten
annual fiscal years after the date of the new agreement
in which the Company has earned net profits
cumulatively of $10,000,000, the Company will pay a 5%
bonus to each of the aforementioned individuals from
the net profits for the fiscal year.
Each bonus is subject to a $150,000 limit in any one
fiscal year. Net profits are defined as annual pre-tax
profits plus bonuses paid or payable to all executives
and/or directors for the respective year. The contract
is assignable and inures to their heirs and
beneficiaries.
21
<PAGE> 41
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 18: COMMITMENTS AND CONTINGENCIES (CONT'D.)
c) Pursuant to a June 1992 assignment of technology
agreement, the Company will pay a royalty to an
unrelated third party of $125 per UC'NWIN System sold
or leased in the United States during a period of sixty
months commencing January 1, 1993, with minimum monthly
payments of $375 up to a maximum of $125,000. On May
31, 1995, the Company entered into an agreement to
terminate the technology agreement for a payment of
$9,250 payable June 15, 1995 in full satisfaction of
all further payment obligations of the Company under
the technology agreement.
d) In August 1993, the Company engaged GSTI Corp. to
provide consulting services with regard to the
marketing and selling of the UC'NWIN System. GSTI Corp.
will introduce potential lessees and assist in drafting
the related lease agreements. In consideration for such
services, the Company will pay;
1) For each machine leased by referral of GSTI
Corp., an amount equal to the greater of 10% of
the lease rent paid during the year or $600;
2) 4% of the total lease rentals from referral
customers;
3) 2% of the total lease rentals from referral
customers when such customers have entered into
an agreement to have their products promoted by
the UC'NWIN System.
4) If during the period of January 1, 1995 to
December 31, 1999 the Company has not leased
UC'NWIN Systems Kiosks to referred customers by
GSTI Corp. in the minimum amount of $2,000 in
1995, $4,000 in 1996 and $6,000 for each year
thereafter until 1999, the Company will pay 2% of
the revenues from non-referred customers to meet
the minimum amount of UC'NWIN System Kiosks
leased.
5) 4% of any other revenues derived from customers
referred to the Company other than lease rentals.
Payments due under this agreement are payable 10 days
after each quarter end.
22
<PAGE> 42
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 18: COMMITMENTS AND CONTINGENCIES (CONT'D.)
Additionally, the agreement provides for the parent Company
UC'NWIN Systems, Ltd. to grant to GSTI Corp. 600,000 stock
options exercisable at $5.00 U.S. or $6.00 Canadian expiring
on September 30, 1995, subject to regulatory approval. Such
regulatory approval has been denied.
This agreement expires on December 31, 1996, which at the
option of GSTI Corp. and provided GSTI Corp. has not breached
in any material respect the provisions of the agreement, may
be automatically renewed for successive one-year terms through
December 31, 1999. The Company may terminate the agreement
should GSTI Corp. fail to secure any leasing agreements for a
period of twelve consecutive months.
NOTE 19: DISCONTINUED OPERATIONS
During 1992, UC'NWIN Systems, Inc. decided to reorganize its
operations and discontinue the operations of its former
business activity of outbound automated telephone marketing
and polling services, which resulted in the write down of the
machinery and equipment to the net residual value of $300,000.
All associated costs of disposal have been reclassified as
discontinued operations. During 1993, UC'NWIN Systems, Inc.
wrote off all of the remaining net assets of the discontinued
operations.
NOTE 20: LITIGATION
a) On March 22, 1996, Raymond Kalley, as Trustee of the
EB Trust and PB Trust, ("Plaintiff"), sued the
following in the Southern District of Florida (Miami
Division): UC'NWIN Systems Corporation ("the
Company"), a consultant to the Company, a beneficiary
to the EB Trust, and to the PB Trust, and Winners All
International, Inc. an affiliate. In this five count
Complaint, Plaintiff has sued the Company for an
alleged violation of Section 18 of the Securities Act
of 1934. Plaintiff alleges that the Company acting
singly and in concert, filed misleading reports under
the Securities Exchange Act 1934, including without
limitation, the filing of form 10-K. Plaintiff failed
to identify which form 10-K was allegedly misleading
or how Plaintiff has been damaged by this alleged
misleading statement. Although Plaintiff alleges that
it purchased stock in the Company, from another
shareholder in a private transaction unbeknown to
23
<PAGE> 43
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 20: LITIGATION (CONT'D.)
the Company, for approximately $1,000,000. Plaintiff
does not identify the damage that it allegedly
incurred. The Company believes this lawsuit is
without merit and intends to defend this lawsuit
vigorously and expects to file a Motion to Dismiss
Plaintiff's Complaint. The ultimate outcome cannot be
determined at the present time.
b) On April 17, 1995, AG Industries sued Winners All
International, Inc. and UC'NWIN Systems, Inc. for a
breach of contract and causes of action for unjust
enrichment and breach of implied contract. AG
Industries seeks damages in excess of $400,000. On
August 22, 1995 the Company filed a Motion to Dismiss
and Alternative Motion for a Change of Venue. AG
Industries has responded and opposed the defendants'
motion but the Court has not yet ruled on it. There
has been no discovery and it is too early to evaluate
this case.
c) On January 9th, 1996, a former employee filed a
Charge of Discrimination, ("Charge"), against UC'NWIN
Systems, Inc. and Win Network, LLC, ("the Company"),
with the Equal Employment Opportunity Commission
("EEOC"). The Plaintiff voluntarily resigned her
position with the Company in October 1995 and waited
four months to file her claim. The Company has filed
a statement of position denying the allegations of
the Charge. At the present time, the EEOC is
investigating the charge and will ultimately make
determinations of "cause" or "no cause". At this
time, the Company is unable to predict the likelihood
of a favorable or unfavorable result in this matter.
d) Notes payable default litigation - See Note 13.
e) An action, Brian A. Travis v. Win Network, LLC and
Winners All International, Inc., (an ex-officer of
Win Network, LLC and Winners All International,
Inc.), on or about July 3, 1995. In this action, Mr.
Travis seeks to enforce a purported Employment
Agreement which he claims was entered into between
Win Network, LLC and Mr. Travis in which Mr. Travis
claims he is entitled to a ten-year employment term
and damages of $10,000,000. Mr. Travis also sues
Winners All International, Inc. as a purported
guarantor to the agreement. Win Network, LLC is
comprised of UC'NWIN Systems, Inc. and Winners All
Ltd., a subsidiary of Winners All International, Inc.
24
<PAGE> 44
UC'NWIN SYSTEMS CORPORATION
(FORMERLY UC'NWIN SYSTEMS, LTD)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
NOTE 20: LITIGATION (CONT'D.)
On March 5, 1996, both defendants filed a motion to
dismiss the Travis action on the ground that the
purported Employment Agreement violated applicable
provisions of the New York Limited Liability
Corporation Law, the Win Network, LLC Operating
Agreement and the Winners All International, Inc.
by-laws. Defendants motion is now pending before the
Court.
25
<PAGE> 45
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 14,304
<SECURITIES> 0
<RECEIVABLES> 11,025
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 388,259
<PP&E> 2,149,499
<DEPRECIATION> 642,668
<TOTAL-ASSETS> 3,305,424
<CURRENT-LIABILITIES> 2,006,084
<BONDS> 0
0
0
<COMMON> 249,305
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,305,424
<SALES> 0
<TOTAL-REVENUES> 178,770
<CGS> 0
<TOTAL-COSTS> 5,213,490
<OTHER-EXPENSES> (1,460,799)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,573,921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,573,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,573,921)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
