<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: SEPTEMBER 30, 1996 Commission File Number: 0-2707
STRUTHERS INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 73-0746455
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1875 CENTURY PARK EAST, SUITE 200, LOS ANGELES, CA 90067
(Address of principal executive office)
(310) 557-1875
(Issuer's telephone number, including area code)
100 WEST 5TH STREET, SUITE 601, TULSA, OK 74103
(Issuer's former address)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
COMMON STOCK $0.10 PAR VALUE 24,722,467
- ---------------------------- ----------
Class Outstanding at
October 31, 1996
Transitional Small Business Disclosure Format (Check one): Yes ; No X
--- ---
<PAGE> 2
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
INDEX
PAGE NO.
--------
PART I. Financial Information
Item 1. Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3-4
Condensed Consolidated Statements of Operations -
Three months ended September 30, 1996 and 1995;
nine months ended September 30, 1996 and 1995;
from inception (June 3, 1993) to September 30, 1996 5
Condensed Consolidated Statement of Stockholders'
Equity - Nine months ended September 30, 1996 6
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 7-9
Notes to Condensed Consolidated Financial Statements -
Nine months ended September 30, 1996 10-15
Item 2. Management's Plan of Operation 16-18
PART II. Other Information 19
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 311,151 $ 330,767
Equity securities 49,183 --
Accounts receivable, trade 229,851 --
Inventory 135,083 438,654
Prepaid expenses and other assets 612,712 656,689
Loans receivable 4,828,848 6,175
------------ ------------
6,166,828 1,432,285
PROPERTY AND EQUIPMENT, net 3,298,908 206,831
OTHER ASSETS
Broadcast licenses 90,984,412 79,048,589
Contract for broadcast equipment build-out 4,600,080 4,600,080
Real estate held for investment 29,122,683 28,431,335
Annuity -- 6,643,427
Property rights 6,000,030 --
Investment in unconsolidated companies 6,149,833 615,973
Investment securities 525,000 --
Other licenses 686,521 232,497
Trust deed receivable 49,151 49,151
Loan receivable from related company 7,920,183 13,850
Intellectual property rights 14,500 --
Trademark - WINCOM -- --
------------ ------------
Total other assets 146,052,393 119,634,902
============ ============
$155,518,129 $121,274,018
============ ============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 3,200,996 $ 1,080,444
Accrued commissions -- 1,328,024
Accrued officer compensation -- 93,742
Payroll taxes 98,331 469,002
Accrued interest 1,110,617 468,814
Other accrued expenses 416,430 --
Loans from related parties 37,676 8,500
Debentures payable 25,370 115,300
Demand loans payable 1,669,964 562,215
Current portion of long-term debt 107,335 --
Contract obligation -- 12,500,000
Accrued settlement expense 3,250,000 --
------------ ------------
Total current liabilities 9,916,719 16,626,041
LONG-TERM OBLIGATIONS
Installment obligations to FCC 16,511,650 16,457,650
Other 508,678 --
PREFERRED STOCK OF SUBSIDIARY
Series A, B, C and D preferred stock of subsidiary 197,428,860 124,790,621
Stock subscription receivable (851,554) --
Shares issued for future obligations (8,868,121) (4,529,639)
Shares issued to entities with a major investment in the
preferred stock (17,693,026) (10,892,992)
------------ ------------
Total preferred stock of subsidiary, net 170,016,159 109,367,990
STOCKHOLDERS' DEFICIT
Common stock 2,472,247 55,342
Additional paid-in capital 160,053 699,690
Stock subscription receivable (140,000) --
Deficit accumulated during the development stage (43,927,377) (21,932,695)
------------ ------------
(41,435,077) (21,177,663)
------------ ------------
$155,518,129 $121,274,018
============ ============
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
THREE MONTHS ENDED NINE MONTHS ENDED (JUNE 3, 1993) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
REVENUES $ 168,068 $ -- $ 175,378 $ 1,000 $ 186,908
----------- ------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE
Compensation and related (355,109) 146,495 477,022 418,798 2,239,960
Management fee 14,600 -- 14,600 -- 624,600
Consulting and contract labor 2,440,271 63,847 8,327,791 189,920 11,355,074
Financing commissions 282,388 463,330 1,595,736 566,693 3,746,675
General operating 1,269,372 512,666 2,903,205 752,397 4,375,275
Bad debt expense (1,009,837) -- -- -- --
Lodging, meals and entertainment 705,582 302,117 1,463,097 618,554 2,502,194
Office occupancy 50,231 42,527 196,834 104,173 587,814
Real estate operations 4,996,571 326,075 5,071,068 331,181 5,491,638
Energy operations 151,164 -- 151,164 -- 151,164
Research and development -- -- -- 161,141 161,141
Reserve on real estate held for
investment -- 8,000,000 -- 8,000,000 8,000,000
----------- ------------ ------------ ------------ ------------
8,545,233 9,857,057 20,200,517 11,142,857 39,235,535
----------- ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (8,377,165) (9,857,057) (20,025,139) (11,141,857) (39,048,627)
----------- ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest and other income -- 6,795 -- 6,795 143,427
Other deductions 938,353 1,600 (1,219,118) -- (3,761,198)
Interest expense (129,326) (170,950) (750,425) (183,959) (1,260,993)
----------- ------------ ------------ ------------ ------------
809,027 (162,555) (1,969,543) (177,164) (4,878,764)
----------- ------------ ------------ ------------ ------------
NET LOSS $(7,568,138) $(10,019,612) $(21,994,682) $(11,319,021) $(43,927,391)
=========== ============ ============ ============ ============
NET LOSS PER PRIMARY SHARE $ (0.50) $ (0.96) $ (1.71) $ (1.20)
=========== ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 15,254,701 10,437,163 12,882,257 9,441,311
=========== ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN STOCK ACCUMULATED
SHARES AMOUNT CAPITAL SUBSCRIPTION DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT, January 1, 1996 55,342,000 $ 55,342 $ 699,690 $ -- $(21,932,695) $(21,177,663)
Stock sold 125,000 125 -- 125
Payment of expenses 800,000 800 800
Future obligations 1,565,000 1,565 1,565
Issuance of Founder shares 16,200,000 16,200 (16,200)
Net loss (21,994,682) (21,994,682)
Reorganization (49,309,533) 2,398,215 (523,437) (140,000) 1,734,778
----------- ---------- --------- --------- ------------ ------------
BALANCE AT September 30, 1996 24,722,467 $2,472,247 $ 160,053 $(140,000) $(43,927,377) $(41,435,077)
=========== ========== ========= ========= ============ ============
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE> 7
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
NINE MONTHS ENDED (JUNE 3, 1993) TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(21,994,682) $(11,319,021) $(43,927,391)
Items not affecting cash:
Bad debt -- -- --
Depreciation 4,113 -- 57,279
Amortization of annuity discount -- -- (143,427)
Expenditures paid by shareholder and related
parties -- -- 610,000
Loss on exchange of preferred shares -- -- 2,500,000
Expenses paid with issuance of stock 13,513,188 469,872 16,083,745
Reserve on real estate held for investment -- 8,000,000 8,000,000
Gain on sale of marketable securities (45,000) -- (45,000)
Decrease (increase) in assets:
Accounts receivable (51,931) -- (51,931)
Inventories (32,866) -- (32,866)
Prepaid expenses and other assets 463,254 108,000 356,595
Increase (decrease) in liabilities:
Accounts payable 1,747,865 752,616 2,828,309
Accrued expenses 551,187 200,171 2,441,767
Payroll taxes payable (370,673) 49,586 98,329
------------ ------------ ------------
$ (6,215,545) $ (1,738,776) $(11,224,591)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used for purchase of equipment $ (121,208) $ (15,000) $ (136,208)
Acquisition of licenses and property rights (49,525) -- (49,525)
Net cash acquired in reorganization 303,722 -- 303,722
Proceeds from sale of equity securities 10,000 -- 10,000
------------ ------------ ------------
$ 142,989 $ (15,000) $ 127,989
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repay) bank overdraft $ 198,914 $ (57,677) $ 198,914
Sale of debentures payable (36,630) -- 506,670
Proceeds from notes payable 748,749 56,213 1,310,978
Principal repayments (16,651) -- (16,651)
Net loans from (to) affiliated companies (26,620) (71,973) (40,470)
Net loans from (to) others (65,928) (159,897) 276,257
Issuance of preferred stock 5,181,106 2,015,849 9,102,055
Common stock subscription collections 70,000 -- 70,000
------------ ------------ ------------
$ 6,052,940 $ 1,782,515 $ 11,407,753
------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements
7
<PAGE> 8
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
NINE MONTHS ENDED (JUNE 3, 1993) TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH $ (19,616) $ 28,739 $ 311,151
CASH at beginning of period 330,767 -- --
---------- ----------- -----------
CASH at end of period $ 311,151 $ 28,739 $ 311,151
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 108,616 $ 26,268 $ 174,880
========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING TRANSACTIONS:
Loans paid by issuing WINCOM preferred stock $1,075,500 $ -- $ 1,275,500
Fixed assets acquired by issuing WINCOM
preferred stock:
Cost of assets $2,577,774 $ 269,995 $ 2,837,771
Expensed 85,892 -- 115,894
Cash paid (121,208) (15,000) (136,208)
---------- ----------- -----------
$2,542,458 $ 254,995 $ 2,817,457
Common stock of WINCOM issued in exchange for:
Paid-in capital $ 16,200 $ -- $ 76,100
Loans payable -- -- 139,860
---------- ----------- -----------
$ 16,200 $ -- $ 215,960
Contract obligation issued for:
Broadcast licenses $ -- $ -- $12,500,000
Real estate 1,183,000 -- 1,183,000
---------- ----------- -----------
$1,183,000 $ -- $13,683,000
Installment obligations to FCC assumed $ 54,000 $16,457,650 $16,511,650
Demand loans assumed for real estate 1,600,000 -- 1,600,000
Note receivable for real estate, inventory and
prepaid expense 7,959,595 -- 7,959,595
</TABLE>
See notes to condensed consolidated financial statements
8
<PAGE> 9
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
NINE MONTHS ENDED (JUNE 3, 1993) TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING TRANSACTIONS: (Continued)
Preferred stock of WINCOM issued in exchange for:
Broadcast licenses $11,856,798 $ 50,060,733 $ 61,947,737
Deposits on broadcast equipment build out -- 4,600,080 4,600,080
Real estate held for investment 5,208,000 29,231,311 41,639,335
Entities with a major investment in the Company 7,050,004 11,607,992 17,942,996
Annuities (6,500,000) 5,785,000 --
Property rights 12,000,030 -- 12,000,030
Investment in unconsolidated related company -- -- 615,973
Accrued commissions 1,328,024 -- 1,328,024
Security device 4,406,711 4,317,578 9,364,066
Property and equipment -- 254,995 --
Inventory 165,033 238,014 603,687
Payment of contract obligation 13,683,000 -- 13,683,000
Prepaid expenses 321,146 400,000 871,176
Other licenses 444,024 232,497 676,520
Trust deed receivable -- 49,151 49,151
Loans receivable 472,562 -- 472,562
Debentures 53,300 -- 481,300
----------- ---------- ------------
$50,488,632 $106,777,351 $166,275,637
=========== ============ ============
Assets acquired and liabilities assumed in
reorganization:
Accounts receivable - trade $ 179,454 $ -- $ 179,454
Stock subscription receivable 70,000 -- 70,000
Marketable securities 104,183 -- 104,183
Inventory 102,217 -- 102,217
Prepaid expenses and other assets 105,357 -- 105,357
Loans receivable 4,093,602 -- 4,093,602
Property and equipment, net 690,988 -- 690,988
Investment securities 525,000 -- 525,000
Advances to WINCOM 29,996 -- 29,996
Accounts payable (173,773) -- (173,773)
Accrued expenses (413,304) -- (413,304)
Long-term debt (632,664) -- (632,664)
Accrued settlement expense (3,250,000) -- (3,250,000)
Equity in net assets acquired (1,734,778) -- (1,734,778)
----------- ---------- ------------
Cash received in reorganization $ 303,722 $ -- $ 303,722
=========== ========== ============
</TABLE>
See notes to condensed consolidated financial statements
9
<PAGE> 10
STRUTHERS INDUSTRIES, INC.
(A MAJORITY OWNED SUBSIDIARY OF WINCO CORP.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Struthers Industries, Inc. ("Struthers" or the "Company") was
incorporated in the State of Delaware on February 2, 1965. On September
5, 1996, Struthers entered into an Agreement and Plan of Reorganization
by and among Struthers, WINCOM Corp. ("WINCOM") and WINCO Corp.
("WINCO") wherein Struthers agreed to issue to WINCO One Hundred
Thirty-Eight Million Four Hundred Ninety Thousand Eight Hundred
Fifty-Six (138,490,856) shares of its common stock in exchange for one
hundred percent (100%) of the issued and outstanding shares of common
stock of WINCOM (the "Agreement"). At the closing, Struthers issued
Thirteen Million (13,000,000) shares of common stock to WINCO, which
leaves a balance of One Hundred Twenty-Five Million Four Hundred Ninety
Thousand Eight Hundred Fifty-Six (125,490,856) shares of its common
stock to be issued to WINCO. (All of the above common share amounts are
prior to the .425 for one reverse split to be effected by Struthers
upon the filing of its Restated Certificate of Incorporation).
It is intended that the Restated Certificate of Incorporation will
include the following changes:
- The par value of the common stock will be reduced from $0.10
per share to $0.01 per share;
- The common stock will be reverse split with .425 shares
exchanged for each share currently issued and outstanding;
- The name of the Company will be changed to WINCOM Corp.;
- The authorized shares of common stock will increase from
Twenty-Five Million (25,000,000) to Ninety-Eight Million
(98,000,000).
After receipt of the Restated Certificate of Incorporation, the Company
will issue the remaining One Hundred Twenty-Five Million Four Hundred
Ninety Thousand Eight Hundred Fifty-Six (125,490,856) shares to WINCO,
which after the reverse split will result in the issuance of
Fifty-Three Million Three Hundred Thirty-Three Thousand Six Hundred
Thirteen (53,333,613) shares of common stock, at which time WINCO will
own approximately 92% of the issued and outstanding common stock of the
Company.
PRINCIPLES OF CONSOLIDATION
The reorganization discussed above is being accounted for as a reverse
merger, wherein the operations of WINCOM become the historical
operations of the combined companies with the continuing operations of
Struthers being included only after the completion of the acquisition.
Accordingly, the condensed consolidated financial statements include
the accounts of WINCOM and its wholly-owned subsidiaries from
inception, June 9, 1993, and include the accounts of Struthers and the
subsidiaries which it wholly owned prior to the reorganization from
September 5, 1996.
The consolidated financial statements of WINCOM include the following
wholly-owned subsidiaries which hold ownership of real estate and
broadcast licenses pending the completion of the reorganization
discussed above and are not actively engaged in business:
10
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<TABLE>
<S> <C>
Bayshore Interactive Partners P. Kouri Corp.
Capital Hills Development Corporation P.A.W. Inc.
Capital Hills Holding Pacific Inter-Neighborhood Network, Inc.
Central Inter-Neighborhood, Inc. Shaker IVDS Partners, Inc.
Interactive Innovations Corp. South Central Inter-Neighborhood Network, Inc.
L.C.I. Investments, Inc. South Eastern Inter-Neighborhood Network, Inc.
LNN Intellectual Properties South Western Inter-Neighborhood Network, Inc.
Mager, Inc. Midwestern Inter-Neighborhood Network, Inc.
Toma Kouri Corp. North Central Inter-Neighborhood Network, Inc.
V.W.Y. Thermal, Inc. North Eastern Inter-Neighborhood Network, Inc.
WCI Partners, Inc. Westborn Development
</TABLE>
The consolidated financial statements of Struthers before the
organization included the following wholly-owned subsidiaries:
<TABLE>
<S> <C>
Peacock Aerospace, Inc. Kinder Gas Processing Corporation
Liberal Hull Company
</TABLE>
Struthers and WINCOM are collectively referred to herein as the
"Company".
The condensed financial statements included in this report have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission for interim reporting and include
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation.
These financial statements have not been audited. The condensed
consolidated balance sheet at December 31, 1995 included in this report
has been derived from the audited consolidated balance sheet.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes that
the disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto for
the year ended December 31, 1995 which are included in the Struthers
Form 8-K/A and dated September 5, 1996 and the financial statements and
notes thereto included in the Annual Report of Struthers on Form
10-KSB, as amended by Form 10-KSB/A for the year ended December 31,
1995. The financial data for the interim periods presented may not
necessarily reflect the results to be anticipated for the complete
year. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current
presentation.
NATURE OF OPERATIONS
The Company is currently in the development stage of operations
concentrating its efforts on raising capital, product research and
development, marketing its services, seeking acquisitions, and
acquiring the necessary assets to begin business operations. WINCOM
acquired most of its assets by issuing its preferred stock in
acquisitions which are contingent upon the completion of the
reorganization agreement discussed above.
B. STOCK OPTIONS AND WARRANTS
During 1995, the Company established its 1995-1996 stock option plan
which reserved 2,500,000 common shares for certain employees, directors
and consultants to purchase the
11
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Company's common stock. During 1995, options to acquire 2,335,000
shares were granted and exercised. As of September 30, 1996 there
continues to remain available options to acquire 165,000 shares of the
Company's common stock under this plan which are available for grant
until December 31, 1996.
During August 1996, the Company established its 1996-1997 stock option
plan which reserved 2,000,000 common shares for certain employees,
directors and consultants to purchase the Company's common stock. As of
September 30, 1996 no options to acquire shares of the Company's common
stock under this plan have been granted. The options are available for
grant until December 31, 1998.
As of January 1, 1996, there were warrants outstanding to acquire
140,000 shares of the Company's common stock at $1.75 per share. During
the nine months ended September 30, 1996, warrants were exercised for
cash to acquire 95,000 shares. There remains one warrant to acquire
45,000 shares of the Company's common stock outstanding at September
30, 1996 which expires December 1, 1996.
As of September 30, 1996, there were stock subscription receivables in
the amount of $140,000 which is recorded as a reduction in
stockholders' equity.
C. INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes".
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and operating loss and tax credit carryforwards. SFAS No. 109
requires that a valuation allowance be established to reduce deferred
tax assets to the amount that is more likely than not to be realized.
D. COMMITMENTS, CONTINGENCIES AND SETTLEMENTS
During 1994, two actions were filed against the Company and certain of
its current and former directors. The claimants' actions were treated
as class actions and alleged that the Company and the named individuals
violated Sections 10(b), 10(b)-5 and 20(a) of the Securities and
Exchange Act of 1934 and rules and regulations thereunder by
perpetrating a fraud on the market by causing false and misleading
statements concerning the Company to be made to the investing public.
On or about July 15, 1995, the Company and the other parties in these
actions reached an agreement in principle to settle both actions. The
parties executed a memorandum of understanding which incorporated all
the terms of the settlements in the respective lawsuits. On or about
April 16, 1996, the parties slightly modified the terms of the proposed
settlement (but not the total settlement amount) which now call for
total payments by February 15, 1997 of $1.9 million plus interest by
the Company. As of November 1, 1996, the Company had paid a total of
$500,000 into the settlement fund. The total amount of the settlement
will increase to $3.75 million plus interest when the remaining shares
issuable to WINCO under the Agreement are issued. The Company accrued
the entire amount of $3,750,000 as a settlement expense in 1995.
The Company has secured the payment of the balance of $3.25 million
through the issuance of two million shares of authorized but unissued
common stock into trust for the benefit of the class members, which
shares will be registered by the Company in an
12
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anticipated public offering in late 1996 or early 1997. In addition,
the Company has executed two consent judgments to be held by
Plaintiffs' counsel pending the receipt of the full settlement. One
judgment in the amount of $1.4 million could have been filed of record
and executed upon in the event that the Company did not enter into the
transaction with WINCOM by September 1, 1996. The remaining judgment of
$1.85 million may be executed upon if the Company fails to make the
total amount of the settlement payments due. In any event, the total
sum to be collected on behalf of the plaintiffs shall not exceed the
sum of $3.75 million plus interest. The definitive settlement agreement
incorporating the terms of the memorandum of understanding was executed
by the parties and filed with the United States District Court for the
Northern District of Oklahoma (the "Court") on June 27, 1996. The Court
entered its preliminary approval of the settlement on June 28, 1996. On
October 21, 1996, the Court held a hearing on the settlement, at which
time it approved the terms of the settlement by entering its order of
Final Judgment and Order of Dismissal. The Court also dismissed the
pending actions with prejudice in such order.
In a meeting with representatives of the Company on July 30, 1996, the
Securities and Exchange Commission ("SEC") informed the Company that it
had opened an informal inquiry in connection with certain past
statements, projections and claims concerning the assets, business
prospects and future operating results of WINCOM and the future market
value, prices and trading in the Company's Common Stock which were not
accompanied by disclosures of certain material facts concerning those
matters or of material risks concerning WINCOM's business. No
adversarial proceedings have been commenced by the SEC. The Company is
cooperating with the staff of the SEC in its inquiry.
The SEC did not review the Company's Amendment No. 1 to its Proxy
Statement which was filed June 14, 1996. Specifically, by letter dated
June 26, 1996, the staff of the SEC advised the Company that it would
not be in a position to comment further on the revised preliminary
proxy statement of Struthers until it received information it had
requested concerning the projections or similar claims made by the
President of WINCOM and a financial analyst during a certain
teleconference ("Teleconference"), statements made in the May 1 letter
to WINCOM's shareholders, and in other communications to the public.
During the Teleconference, various projections and other claims were
made by or on behalf of WINCOM or the Company and statements were made,
which in some instances, were inconsistent with information in the
amended preliminary proxy statement which was later filed with the SEC.
Because the statements made during the Teleconference did not include
all material facts regarding the values of WINCOM's assets, its
corresponding liabilities or the risks of WINCOM's potential risks and
rewards, investors should not rely upon the material facts presented.
Similarly, all predictions of price performance and other claims made
during the Teleconference were based, in part, upon the speaker's
perception of market conditions and related industries in general.
There can be no assurance of future market value, prices or trading in
the Company's Common Stock.
Additionally, due to the inexperience of WINCOM's president with
respect to securities matters, certain statements in the May 1 letter
relating to SEC's review of the proxy statement of the Company were
incorrect, including the following statements: that the comments of the
SEC staff were "cursory" in nature; that the SEC staff had "completed"
its review and would give a "green light" to the proxy material; and
that the staff's comments would be responded to by May 10, 1996. The
SEC staff's comments were substantive and extensive and its review was
not then completed and neither the SEC nor its staff is authorized to
approve disclosure documents. Moreover, due to the restructuring of the
proposed transaction with WINCOM, Struthers did not respond to the SEC
staff's comments by May 10, 1996. Additionally, subsequent statements,
including those in a press release dated July 31, 1996, and the
Company's quarterly report on Form 10-QSB for the quarter ended June
30, 1996, concerning the status of the Company's preliminary proxy
material or
13
<PAGE> 14
the proposed transaction between WINCOM and the Company did not
disclose the SEC's inquiry about the statements in the May 1 letter,
the Teleconference or other communications.
Past statements, projections and claims concerning the assets, business
prospects and future operating results of WINCOM and the future market
value, prices and trading in the Company's Common Stock not accompanied
by disclosure of certain material facts concerning those matters or of
material risks concerning WINCOM's business, should not be relied upon.
Investors who relied upon such statements, projections and claims in
connection with transactions in the common stock of the Company may
have claims under the federal securities laws and other remedies, if
they suffered damage as a result. Although the Company believes that it
has defenses to any such claims, if asserted, there can be no assurance
that such defenses would be successful. Accordingly, the potential
liability created by any such claims could materially adversely impact
the operations and financial position of the Company and thus could
constitute additional material risks to investors in the Company's
Common Stock.
E. SUBSIDIARY PREFERRED STOCK
WINCOM has authorized four series of its preferred stock.
PREFERRED "A" STOCK - Its $16.67 Series "A" Cumulative Convertible
Preferred Stock is convertible into two common shares and accrues
dividends at 10% per year. The Board of Directors has not authorized
payment of accrued dividends.
PREFERRED "B" STOCK - Its $16.67 Series "B" Convertible Preferred Stock
is convertible into one and one-half common shares and has an annual
dividend of 7.5%.
PREFERRED "C" STOCK - Its $16.67 Series "C" Convertible Preferred Stock
is convertible into two common shares and has an annual dividend of 7%.
PREFERRED "D" STOCK - Its $42.00 Series "D" Cumulative Convertible
Preferred Stock is convertible into one and one-half common shares,
with the restriction that the stock may not be converted for two years
following the date of issuance, or until the Company's common stock has
been trading at a price of $50 per share or more for nine consecutive
days, which ever occurs first. The shares accrue dividends at 5% per
year. The Board of Directors has not authorized payment of accrued
dividends.
14
<PAGE> 15
The following table summarizes the WINCOM Preferred Stock
transactions since January 1, 1996:
<TABLE>
<CAPTION>
SHARES AMOUNT
<S> <C> <C>
PREFERRED "A" STOCK
Balance January 1, 1996 656,979 $ 10,834,089
Stock sold 302,386 5,036,629
Void purchase of investments with stock (59,988) (1,000,000)
Acquisition of assets 1,500 25,005
Payment of expenses 4,740 79,016
Future obligations (9,930) (165,532)
--------- ------------
895,687 $ 14,809,207
=========
PREFERRED "B" STOCK
Balance January 1, 1996 1,199,103 $ 19,989,032
Investment in entities with a major investment
in WINCOM stock 578,884 9,649,997
Void purchase of investments with stock (585,483) (9,760,009)
Acquisition of assets 3,600 60,022
Payment of expenses 800 13,336
Future obligations 2,999 49,993
--------- ------------
1,199,903 $ 20,002,371
=========
PREFERRED "C" STOCK
Balance January 1, 1996 5,636,924 $ 93,967,500
Void purchase of investments with stock (2,400) (40,008)
Acquisition of assets 66,605 1,106,989
Payment of expenses 235,956 3,933,392
Future obligations 51,363 616,173
--------- ------------
5,988,448 $ 99,584,046
=========
PREFERRED "D" STOCK
Balance January 1, 1996 -- $ --
Forbearance 41,322 1,735,524
Payment of debt 24,775 1,040,528
Acquisition of assets 1,198,613 50,341,722
Payment of expenses 74,995 3,149,790
Future obligations 161,075 6,765,672
Issued as incentive to shareholders 21,755 --
--------- ------------
1,522,535 $ 63,033,236
=========
Balance September 30, 1996 $197,428,860
============
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
It is currently contemplated that the principal office of the Company
will be moved to WINCOM's existing principal office in Los Angeles. The
Company is now being operated by its Board of Directors: Sean P.
O'Keefe, Co-Chairman and President of WINCOM and President of
Struthers, a Director of WINCO, Raoul L. Carroll, Director and
Chief Operating Officer of WINCOM, James L. DeWalt, Director and Chief
Financial Officer of WINCOM and G. David Gordon, Secretary of
Struthers and former Acting President of Struthers. It is anticipated
that Raoul L. Carroll will be named Co-Chairman of the Company, and
Jarius L. DeWalt will be named Executive Vice President and Chief
Financial Officer of the Company at a Directors' Meeting scheduled for
November 21, 1996. Additionally, the Company is interviewing various
industry telecommunications professionals to complete the management
team. When these decisions are made, Mr. O'Keefe will step down as
President in favor of the new president to be hired and take the
position of Co-Chairman and Secretary. Mr. Gordon will step down as
both Secretary and Director when both new officers are hired.
The new management team currently intends to implement the revised
WINCOM Business Plan, which the Company adopted in connection with the
Agreement, which focuses on developing Interactive Video and Data
Service ("IVDS") systems. Management will also continue to supervise
the Company's remaining energy-related operations. However, it is
currently contemplated that these operations will be reduced and
ultimately liquidated so that the Company can focus on the
implementation of the WINCOM Business Plan.
Pursuant to the WINCOM Business Plan, the Company will seek to develop
and deploy commercial applications for IVDS systems pursuant to IVDS
licenses to be acquired pursuant to the IVDS acquisition agreements and
various letters of intent. The Company's immediate emphasis will be on
processing all of the required FCC transfer documentation to vest the
licenses currently under contract in the Company, and to finalize the
closing of the IVDS acquisition agreements and the transactions
contemplated thereby. WINCOM and the Company may seek waivers of FCC
rules to permit the assumption by the Company of various installment
payments currently associated with the licenses. There can be no
assurance that the FCC will grant these waivers. In addition, current
FCC regulations requires IVDS licensees to have IVDS systems in place
by certain benchmark dates in order to avoid forfeiture of the
licenses. Historically, the FCC has granted waivers of such
requirements in connection with start-up technologies such as IVDS.
However, there is no assurance that the FCC will provide any of such
waivers if WINCOM is unable to meet these benchmark build-out
requirements.
The Company plans to establish its national IVDS network utilizing
strategic alliances to provide data transmission services for the
utility industry focusing initially on the top three IVDS utility data
transmission services: 1) utility metering, 2) electrical grid control
(supply/demand side management) and HVAC/home appliance control (smart
home). The planned infrastructure for these services will allow one
hundred percent market coverage in each licensed market built-out by
the Company, which is necessary to attract the utility as customers.
The Company has begun exploratory discussions with both utility
strategic partners and non-utility potential financial partners in
order to undertake a more rapid penetration of the various
IVDS-licensed MSAs. In working with two potential strategic utility
partners, the Company is developing at least two Alpha test sites and
is finalizing its cost estimates for a comprehensive build-out of the
national system. Current estimates for the total cost of building the
infrastructure for the first 8000 homes is approximately $5.7 million.
The Company will require significant amounts of capital for research
and development of its proprietary national wireless communications
network and related products and services, investments in the
installation and testing of such network, related sales and marketing
and general and administrative expenses. Historically, WINCOM has
satisfied its liquidity requirements primarily through external
financings, including private placements of equity
16
<PAGE> 17
and debt securities and interest income derived from the investment of
the proceeds of its financing activities.
Deployments of the Company's IVDS wireless communications networks will
require substantial additional capital. In addition, funds will be
required for further enhancements to the system software, firmware,
hardware and other equipment to increase the speed, capacity and
functionality of the system, to enhance system productivity over time
and to expand the scope of utility and other network information
services that may be offered by the Company's IVDS system. The Company
currently estimates that total funds required for capital expenditures
relating to the build-out of its IVDS communications network over the
next 12 months will be approximately $35 to $50 million. However, the
actual funds to be required will depend on the number of contracts the
Company receives in each regional MSA and the corresponding number of
homes in each MSA. The timing of cash needs will be dependent in large
part on the speed with which various regulatory approvals are obtained
for the various components of the Company's businesses. The Company has
a best efforts commitment for an equity offering of approximately $35
million subject to certain conditions, including required due diligence
activities. However, there can be no assurance that the Company can
complete such offering successfully. Additional sources of capital may
include project or conventional bank financing, public and private
offerings of debt and equity securities and cash generated from
operating activities which will provide financing for the installation
of the WINCOM networks under its proposed strategic alliance with
Quantum Controls Systems LLC, (Ameritech, Inc.'s Energy Management
Group) additional strategic alliances and traditional project
financing. There can be no assurance that the Company will be
successful in obtaining any such borrowing or consummating any such
offering.
The Company believes these financing sources, if successfully obtained,
together with existing cash, cash equivalents and anticipated interest
income and other revenue, will be sufficient to meet its cash
requirements for at least the next 12 months. Thereafter, the Company
and WINCOM expects that it will require substantial additional capital.
The extent of additional financing will depend on the success of the
Company's business. Although the Company is currently unable to predict
the amount of expenditures to be made after 1997 with respect to the
IVDS network, it expects that cash used for the construction and
installation of licensed MSA infrastructures and networks and for the
purchase of property and equipment will increase substantially as and
when the Company obtains service agreements with utilities, and that
the Company will require significant amounts of additional capital from
external sources. The Company expects to incur significant operating
losses and to generate increasingly negative net cash flow during the
next several years while it develops and installs its national IVDS
network communications systems. There can be no assurance that
additional financing will be available to the Company or, if available,
that it can be obtained on terms acceptable to the Company. Future
financing may be dilutive to existing stockholders of the Company.
Failure to obtain such financing could result in the delay or
abandonment of some or all of the Company's development and expansion
plans and expenditures, which could limit the ability of the Company to
meet its future debt service requirements and could have a material
adverse effort on the Company's business and on the value of the
Company's Common Stock.
In order to finance the extensive build-out, the Company is exploring
the viability of selling minority interests in one or more or all of
the eight regional IVDS operating companies that are anticipated
eventually to hold the various licenses in each region, and/or the
formation of various strategic partnerships, particularly for various
national applications such as home security and utility meter reading.
Although the Company has had a number of discussions with potential
strategic partners, no assurances can be given that such discussions
will result in any such partnership. The Company currently expects that
a substantial portion of its future financing will be at the subsidiary
level on a project basis. The Company expects to obtain third party
financing for the construction of IVDS wireless networks based on the
17
<PAGE> 18
projected cash flow expected to be generated from such projects, after
WINCOM has entered into a long-term services contract with a utility.
The Company expects that the recurring revenue stream from this type of
long-term services contract will support the amortization of debt
incurred for the project involved. As a result, the Company does not
anticipate deriving any significant cash from operations for several
years.
When economically feasible, the Company intends to pursue the
commercial exploitation of the IVDS licenses, particularly focusing on
the various utility industry applications (meter reading, peak demand
control and energy monitoring). To date, the Company has no binding
commitments for the commercial utilization of any IVDS systems, and
there can be no assurance that the Company will obtain any such
commitments.
The final prong of the Company's plan of operations is to evaluate a
range of strategic alternatives, including industry acquisitions,
strategic alliances, joint ventures and long-term distribution and
licensing agreements with other industry participants to further the
implementation of the WINCOM Business Plan. The Company expects that a
significant portion of the proposed acquisitions and alliances will
complement the technology and IVDS components of the WINCOM Business
Plan. Additionally, "fill-in" acquisitions and strategic alliances will
be sought to enhance the national footprint of the Company's IVDS
business by acquiring access to additional markets.
The Company currently uses a number of contractual services for
strategic staffing functions. Although a significant percentage of
technical expertise will continue to be provided through these
contractual relations, it is anticipated that the Company will need to
staff up significantly over current levels. The Los Angeles office is
anticipated to have approximately 15 full time employees over the next
12 months. Therefore, staffing will depend on the speed with which IVDS
systems in individual markets become operational. Given the significant
federal regulation for the Company's key businesses, the Washington
D.C. office is anticipated to have three employees initially, but may
grow as the IVDS business increases its revenues. It is anticipated
that the office in New York will have five employees initially to
oversee financial and capital market matters and shareholder
relations. The Company anticipates building a regional marketing
staff for the IVDS services of from 8 to 24 persons during the twelve
months following the execution of the Agreement on September 5, 1996
(depending on the timing of IVDS licenses transfers) and the Company's
ability to profitably ramp-up test market sales for key IVDS services
such as advanced utility automation.
While the management of both WINCOM and the Company believe that the
reorganization, together with the implementation of the WINCOM Business
Plan, presents a viable approach for the Company, there are numerous
factors, including competition, financing, technology and others, which
may impede the implementation of the WINCOM Business Plan and the
ultimate success of the Company following the reorganization. As a
consequence of these factors, management may be required to modify the
WINCOM Business Plan as it is being implemented. There can be no
assurance that the objectives of the WINCOM Business Plan will be
realized or that the reorganization and the implementation of the
WINCOM Business Plan will ultimately result in revenue or profits for
the Company.
The statements contained under the heading "Management's Plan of
Operations" are forward looking and based on current expectations. The
business of the Company following the closing, and especially whether
the components of the WINCOM Business Plan will be implemented
successfully and on schedule, is subject to the many risks and
uncertainties, discussed above. These factors could cause the actual
results of the Company to differ materially from current expectations.
18
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in the notes to the condensed consolidated
financial statements, the Company and the other parties in all
material pending actions have reached an agreement to settle
such actions, which agreement was approved by the United
States District Court for the Northern District of Oklahoma on
October 21, 1996. See Note D above.
ITEM 5. OTHER INFORMATION
As discussed in the notes to the condensed financial
statements, on September 5, 1996 Struthers, WINCOM and WINCO
executed an Agreement and Plan of Reorganization which
transfers 100% ownership of WINCOM to Struthers in exchange
for Struthers' common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit No. 27 (Financial Data Schedule)
(b) Reports on Form 8-K - (i) The Company filed Form 8-K dated
August 29, 1996, wherein it reported the sale of all of its
ownership of the common stock of Rose International Ltd. The
Form 8-K included pro forma financial statements as of June
30, 1996 and for the six months then ended, as well as, the
year ended December 31, 1995. (ii) The Company filed Form 8-K
dated September 5, 1996 which was later supplemented with Form
8-K/A to report the Agreement and Plan of Reorganization which
is discussed in the notes to the condensed consolidated
financial statements. The audited financial statements of
WINCOM as of December 31, 1995 and for the years then ended
and the unaudited financial statements of WINCOM as of June
30, 1996 and the six months then ended together with the pro
forma statements giving effect to the reorganization are
included in the Form 8-K/A.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STRUTHERS INDUSTRIES, INC.
Date: November 19, 1996 By: /s/ Sean P. O'Keefe
----------------- -----------------------
Sean P. O'Keefe
President and
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (a)
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTH PERIOD THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (b) FORM 10-QSB FOR
THE QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 311,151
<SECURITIES> 49,183
<RECEIVABLES> 249,851
<ALLOWANCES> 20,000
<INVENTORY> 135,083
<CURRENT-ASSETS> 6,166,828
<PP&E> 3,571,441
<DEPRECIATION> 272,533
<TOTAL-ASSETS> 155,518,129
<CURRENT-LIABILITIES> 9,916,719
<BONDS> 0
0
0
<COMMON> 2,472,247
<OTHER-SE> (43,907,324)
<TOTAL-LIABILITY-AND-EQUITY> 155,518,129
<SALES> 175,378
<TOTAL-REVENUES> 175,378
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 20,200,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 750,425
<INCOME-PRETAX> (21,994,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,994,682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,994,682)
<EPS-PRIMARY> (1.71)
<EPS-DILUTED> (1.71)
</TABLE>
