<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
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)
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
OPERATING DATA 1995 1994 1993 1992 1991
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $ 178,770 $ 531,346 $ 599,440 $ 0 $ 0
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
Net Income (Loss) $(3,573,921) $ 834,453 $(1,342,742) $ (606,437) $(1,228,288)
Earnings (Loss) per Share
Income (Loss) From continuing (0.18) 0.04 (0.05) 0.08 0.00
Operations
(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
</TABLE>
AS OF DECEMBER 31
<TABLE>
<CAPTION>
BALANCE SHEET DATA 1995 1994 1993 1992 1991
- ------------------ --------- ---------- ---------- ---------- ----------
<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 $2,230,712 $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.
<PAGE> 8
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 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
<PAGE> 9
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.
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>
NAME (1)(2)(3) OFFICE TERM DIRECTOR SINCE
- ------------------------- --------------------- --------------- -----------------
<S> <C> <C> <C>
*Ivan Thornley-Hall Director, Vice Until next March 10, 1983
Toronto, Ontario, Canada President and Chief Annual Meeting
Financial Officer of Shareholders
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
*John Neilson (4) Director, President Until next May 12, 1995
Fort Lauderdale and Chief Executive Annual Meeting
Florida, U.S.A. Officer and President of Shareholders
of wholly-owned
subsidiary.
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>
UNDERLYING ALL OTHER
NAME AND STOCK SECURITY COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION ($) AWARDS ($) OPTIONS PAYOUTS ($) 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 todate
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
<PAGE> 12
1, 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
Unexercised Options at Fiscal Value of Unexercised in-the-
Year End money options at Fiscal Year-End
------------------------------------------------------------ --------------------------------
SHARES VALUE
ACQUIRED ON REALIZED EXERCISABLE NON NON
NAME EXERCISE NOTE (1) 1993 EXERCISABLE EXERCISABLE EXERCISABLE
---- ----------- -------- ----------- ----------- ----------- -----------
<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
1994
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 $10,000 less than aggregate
exercise price.
The following table sets forth information as at December 31, 1993, 1994 and
1995 concerning individual grants of stock options made during the fiscal years
to the named executive officers.
<TABLE>
<CAPTION>
Individual Grants
------------------------------ Potential Realizable Value or Assumed Annual
PERCENT OF Rate Of Stock Appreciation
NUMBER OF TOTAL OPTIONS -----------------------------------------------------
SECURITIES SAR'S GRANTED BASE PRICE EXERCISE OR GRANT DATE
OPTIONS/SAR'S UNDERLYING IN ($/X'S) EXPIRATION PRESENT
NAME GRANTED ($) FISCAL YEAR (%) 1994 DATE 5% 10% VALUE
---- ------------- --------------- ---------- ----------- -- -- ----------
<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
1993
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 MANAGE-
-MENT.
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.
TITLE & CLASS: NAME & ADDRESS OF AMOUNT & NATURE PERCENT OF
<TABLE>
<CAPTION>
NAME & ADDRESS OF AMOUNT & NATURE
THE BENEFICIAL OF BENEFICIAL PERCENT OF
TITLE & CLASS: HOLDER: OWNERSHIP: CLASS:
- ------------- ------ --------- ------
<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>
RELATIONSHIP TO NUMBER OF
TRUST BENEFICIARIES MANAGEMENT SHARES PERCENT OF CLASS
----- ------------- --------------- --------- ----------------
<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:
NONE
- ----------------------------
(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 July 8, 1996
- ------------------------------------------------------ Chief Executive Officer
John Neilson
. \s\ Ivan Thornley-Hall . Director, Vice President and July 8, 1996
- ------------------------------------------------------ Chief Financial Officer
Ivan Thornley-Hall
. \s\ Eugene Tuma . Director July 8, 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
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
December 31, 1995. 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.
<PAGE> 21
In our opinion, the consolidated financial statements 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.
/s/ MAZARS AND COMPANY LLP
Certified Public Accountants
February 15, 1996 and
March 22, 1996 as to Note 20
2
<PAGE> 22
(LOGO) ISCOVE GOLD & GLATT
CHARTERED ACCOUNTANTS
45 ST. CLAIR AVE. WEST
SUITE 200
TORONTO, ONTARIO
M4V 1K6
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.
/s/ ISCOVE GOLD & GLATT
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. 27,063 -
Intangible assets-net 307,375 303,366
Deposits 1,184 -
---------- ----------
$2,230,712 $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 13,182,596 11,466,493
Accumulated deficit (13,207,273) ( 9,633,352)
------------ -------------
Total stockholders' equity 224,628 2,033,883
$ 2,230,712 $ 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) Years ending December 31,
to Dec. 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 - - 14,563
Net Loss - - - ( 3,573,921) (3,573,921)
---------- -------- ------------ ------------- -----------
Balance, December 31, 1995 24,930,497 $249,305 $ 13,182,596 $ (13,207,273) $ 224,628
========== ======== ============ ============= ===========
</TABLE>
See Notes to consolidated financial statements
8
<PAGE> 28
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.
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:
<TABLE>
<CAPTION>
BALANCE SHEET
Assets
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
========== ==========
STATEMENT OF OPERATIONS
Year ended One month
12/31/95 ended 12/31/94
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, including the
50,000 shares acquired in early 1995, have been were recorded at
$27,063. Such value recorded has been computed utilizing the equity
method after considering intercompany transactions and a valuation
allowance on the license. The market price of such stock at February
15, 1996 was $.09 per share.
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
Sales $ -
Expenses 1,585,508
Share of Win Network, LLC loss 1,470,751
----------
Net loss $3,056,259
==========
NOTE 7: FURNITURE AND EQUIPMENT
A summary of furniture and equipment is as follows:
December 31,
1995 1994
---- ----
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
======== ========
NOTE 8: KIOSKS
Kiosks consist of the following:
December 31,
1995 1994
---- ----
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
========== ==========
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:
December 31,
1995 1994
---- ----
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
======== ========
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:
December 31,
1995 1994
---- ----
Accrued salaries $ 25,895 $ -
Accrued interest 31,554 -
Accrued sundry expenses 142,990 3,772
------- -----
$200,439 $ 3,772
======= =====
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
