<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
SEPTEMBER 5, 1996
- ----------------------------------------------------------------
STRUTHERS INDUSTRIES, INC.
- ---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-2707 73-0746455
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
1875 CENTURY PARK EAST, SUITE 200; LOS ANGELES, CALIFORNIA 90067
- -----------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (310) 557-1875
<PAGE> 2
STRUTHERS INDUSTRIES, INC.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
As was indicated on Form 8-K filed by Struthers Industries, Inc. (the
"Company") on September 20, 1996, on which the acquisition by the Company on
September 5, 1996 of one hundred percent of the common stock of WINCOM Corp., a
Delaware corporation ("WINCOM"), was reported, at that time it was impracticable
to provide the financial statements of WINCOM for the period ended June 30,
1996. Such financial statements are now provided herein by this amendment.
(b) PRO FORMA FINANCIAL INFORMATION.
As was also indicated on Form 8-K filed by the Company on September 20,
1996, on which the acquisition by the Company on September 5, 1996 of one
hundred percent of the common stock of WINCOM was reported, at that time it was
impracticable to provide the required pro forma financial information for such
acquisition. Such pro forma financial information is now provided herein by this
amendment.
2
<PAGE> 3
WINCOM CORP.
(PREVIOUSLY WORLD INTEGRATED NETWORK OF COMPANIES, INC.) AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent auditors' report.................................................................................. F-2
Audited Financial statements for the years ended December 31, 1994 and 1995
Balance sheet............................................................................................... F-3
Statements of operations.................................................................................... F-4
Statements of stockholders' equity.......................................................................... F-5
Statements of cash flows.................................................................................... F-6
Notes to financial statements............................................................................... F-8
Unaudited financial statements
Balance sheet at June 30, 1996 (unaudited).................................................................. F-19
Statement of operations for three months ended June 30, 1995 and 1996
(unaudited).............................................................................................. F-20
Statement of changes in stockholders' equity for the period January 1, 1996 through
June 30, 1996 (unaudited)................................................................................ F-21
Statement of cash flows for the six months ended June 30, 1995 and 1996
(unaudited).............................................................................................. F-22
Notes to financial statements............................................................................... F-24
</TABLE>
F-1
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of World Integrated Network of Companies, Inc.
We have audited the accompanying balance sheet of World Integrated
Network of Companies, Inc. and Subsidiaries (a development stage company) as of
December 31, 1995, and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1995 and for the period
from inception (June 9, 1993) to December 31, 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of World Integrated
Network of Companies, Inc. and Subsidiaries as of December 31, 1995, and the
results of its operations and its cash flows for the year ended December 31,
1995 and for the period from inception (June 9, 1993) to 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 17 to the
financial statements, the Company has agreed to merge with a public company in
exchange for approximately ninety-four percent of the public company's common
stock. The majority of the Company's asset acquisitions are contingent upon the
closing of that merger. Should the merger not close, those transactions could be
rescinded, the assets returned to the seller and the Company's stock canceled;
yet the Company could still be subject to significant liabilities. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
17. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
BDO SEIDMAN, LLP
February 9, 1996
except for Notes 17, 18 and 19, which are
as of June 14, 1996
F-2
<PAGE> 5
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS December 31,
1995
-------------
<S> <C>
Current assets
Cash ............................................................................ $ 330,767
Inventory (Note 3) .............................................................. 438,654
Prepaid expenses (Note 2) ....................................................... 656,689
Loans receivable ................................................................ 6,175
-------------
Total current assets .................................................... 1,432,285
-------------
Property and equipment, net (Note 8) .............................................. 206,831
-------------
Other assets
FCC licenses (Note 9) ........................................................... 79,048,589
Contract for IVDS system build out (Note 9) ..................................... 4,600,080
Real estate held for investment (Note 5) ........................................ 28,431,335
Annuities (Note 4) .............................................................. 6,643,427
Investment in unconsolidated related company (Note 7) ........................... 615,973
Other licenses (Note 11) ........................................................ 232,497
Trust deed receivable ........................................................... 49,151
Loans receivable from related company ........................................... 13,850
Intellectual property rights .................................................... --
-------------
Total other assets ...................................................... 119,634,902
-------------
$ 121,274,018
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................................................ $ 1,080,444
Accrued commissions ............................................................. 1,328,024
Accrued officer compensation .................................................... 93,742
Payroll taxes ................................................................... 469,002
Accrued interest ................................................................ 468,814
Loans from related parties ...................................................... 8,500
Debentures payable (Note 12) .................................................... 115,300
Demand loans payable (Note 12) .................................................. 562,215
Contract obligation (Note 14) ................................................... 12,500,000
-------------
Total current liabilities ............................................... 16,626,041
-------------
Long-term liabilities
Installment obligations to FCC (Notes 9 and 13) ................................. 16,457,650
Commitments and contingencies (Notes 15 and 18)
Stockholders' equity (Notes 14 and 18)
Common stock .................................................................... 55,342
Additional paid-in capital ...................................................... 699,690
Preferred stock
Series "A" ................................................................... 10,834,089
Series "B" ................................................................... 19,989,032
Series "C" ................................................................... 93,967,500
Shares issued for future obligations ............................................ (4,529,639)
Shares issued to entities with a major investment in the Company's stock (Note 6) (10,892,992)
Deficit accumulated during development stage .................................... (21,932,695)
-------------
Total stockholders' equity .............................................. 88,190,327
-------------
$ 121,274,018
=============
</TABLE>
See independent auditors' report and notes to financial statements.
F-3
<PAGE> 6
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
Year Ended Year Ended (June 9, 1993) to
December 31, December 31, December 31,
1995 1994 1995
------------ ------------ ----------------
<S> <C> <C> <C>
Revenues ............................................ $ 11,530 -- $ 11,530
------------ ----------- ------------
General and administrative
Compensation and related .......................... 1,314,721 358,765 1,762,938
Management fee .................................... -- -- 610,000
Consulting and contract labor ..................... 2,337,618 564,667 3,027,269
Financing commissions ............................. 2,150,939 -- 2,150,939
General operating ................................. 1,175,144 279,469 1,472,070
Lodging, meals and entertainment .................. 721,029 212,965 1,039,097
Office occupancy .................................. 134,923 211,100 390,980
Real estate operations ............................ 420,570 -- 420,570
Research and development .......................... 161,141 -- 161,141
Reserve on real estate held for investment (Note 5) 8,000,000 -- 8,000,000
------------ ----------- ------------
Total general and administrative .......... 16,416,085 1,626,966 19,035,004
------------ ----------- ------------
Loss from operations ................................ (16,404,555) (1,626,966) (19,023,474)
------------ ----------- ------------
Other income (expense)
Interest income ................................... 143,427 -- 143,427
Other deductions .................................. (23,641) (2,509,339) (2,542,080)
Interest expense .................................. (495,081) (15,487) (510,568)
------------ ----------- ------------
Total other income (expense) .............. (375,295) (2,524,826) (2,909,221)
------------ ----------- ------------
Net loss ............................................ $(16,779,850) $(4,151,792) $(21,932,695)
============ =========== ============
</TABLE>
See independent auditors' report and notes to financial statements.
F-4
<PAGE> 7
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FROM INCEPTION (JUNE 9, 1993) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Preferred Stock
----------------------
Common Stock Paid-In Series "A"
---------------------- ----------------------
Shares Amount Capital Shares Amount
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance at, inception from (June 9,
1993) to December 31, 1995 ......... -- $ -- $ -- -- $ --
Issued common stock for expenses
paid by sole shareholder and
related parties .................... 4,620,000 4,620 605,380 -- --
Net loss from inception (June 9,
1993) to December 31, 1993 ......... -- -- -- -- --
----------- -------- ------------ ------- -----------
Balance at December 31, 1993 ......... 4,620,000 4,620 605,380 -- --
Common stock issued in exchange for:
License ............................ 15,700,000 15,700 (15,700) -- --
Debt ............................... 50,000 50 139,810 -- --
Preferred stock issued in exchange
for:
Debentures ......................... -- -- -- 25,675 428,000
Related party debt ................. -- -- -- 149,970 2,500,000
Sold preferred stock ................. -- -- -- 63,170 1,052,982
Net loss for year ending December
31, 1994 ........................... -- -- -- -- --
----------- -------- ------------ ------- -----------
Balance at, December 31, 1994 ........ 20,370,000 20,370 729,490 238,815 3,980,982
Common stock issued in exchange for:
Services and security .............. 5,222,000 5,222 -- -- --
LNN Communications ................. 29,750,000 29,750 (29,750) -- --
Earl S. Kim ........................ 625,000 625 12,499,375 -- --
Common stock redeemed:
Earl S. Kim ........................ (625,000) (625) (12,499,375) -- --
Sold preferred stock ................. -- -- (50) 182,692 2,927,788
Preferred stock issued in exchange
for:
Investment in entities with a
major investment in the
Company's stock .................. -- -- -- 59,988 1,000,000
Acquisition of assets .............. -- -- -- 39,593 660,015
Payment of expenses ................ -- -- -- 24,746 412,516
Future obligations ................. -- -- -- 111,145 1,852,788
Net loss for year ending December
31, 1995 ........................... -- -- -- -- --
----------- -------- ------------ ------- -----------
Balance at, December 31, 1995 ........ 55,342,000 $ 55,342 $ 699,690 656,979 $10,834,089
=========== ======== ============ ======= ===========
<CAPTION>
Preferred Stock
----------------------
Series "B" Series "C" Other
------------------------ ------------------------
Shares Amount Shares Amount Items
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Balance at, inception from (June 9,
1993) to December 31, 1995 ......... -- $ -- -- $ -- $ --
Issued common stock for expenses
paid by sole shareholder and
related parties .................... -- -- -- -- --
Net loss from inception (June 9,
1993) to December 31, 1993 ......... -- -- -- -- --
--------- ----------- --------- ----------- ------------
Balance at, December 31, 1993 ........ -- -- -- -- --
Common stock issued in exchange for:
License ............................ -- -- -- -- --
Debt ............................... -- -- -- -- --
Preferred stock issued in exchange
for:
Debentures ......................... -- -- -- -- --
Related party debt ................. -- -- -- -- --
Sold preferred stock ................. -- -- -- -- --
Net loss for year ending December
31, 1994 ........................... -- -- -- -- --
--------- ----------- --------- ----------- ------------
Balance at, December 31, 1994 ........ -- -- -- -- --
Common stock issued in exchange for:
Services and security .............. -- -- -- -- --
LNN Communications ................. -- -- -- -- --
Earl S. Kim ........................ -- -- -- -- --
Common stock redeemed:
Earl S. Kim ........................ -- -- -- -- --
Sold preferred stock ................. -- -- 8,409 140,179 --
Preferred stock issued in exchange
for:
Investment in entities with a
major investment in the
Company's stock .................. 263,527 4,392,992 329,934 5,500,000 (10,892,992)
Acquisition of assets .............. 840,479 14,010,773 5,105,752 85,112,869 --
Payment of expenses ................ 11,110 185,205 116,254 1,937,947 --
Future obligations ................. 83,987 1,400,062 76,575 1,276,505 (4,529,639)
Net loss for year ending December
31, 1995 ........................... -- -- -- -- --
--------- ----------- --------- ----------- ------------
Balance at, December 31, 1995 ........ 1,199,103 $19,989,032 5,636,924 $93,967,500 $(15,422,631)
========= =========== ========= =========== ============
<CAPTION>
Accumulated
Deficit Total
----------- -----
<S> <C> <C>
Balance at, inception from (June 9,
1993) to December 31, 1995 ......... $ -- $ --
Issued common stock for expenses
paid by sole shareholder and
related parties .................... -- 610,000
Net loss from inception (June 9,
1993) to December 31, 1993 ......... (1,001,053) (1,001,053)
------------ ------------
Balance at, December 31, 1993 ........ (1,001,053) (391,053)
Common stock issued in exchange for:
License ............................ -- --
Debt ............................... -- 139,860
Preferred stock issued in exchange
for:
Debentures ......................... -- 428,000
Related party debt ................. -- 2,500,000
Sold preferred stock ................. -- 1,052,982
Net loss for year ending December
31, 1994 ........................... (4,151,792) (4,151,792)
------------ ------------
Balance at, December 31, 1994 ........ (5,152,845) (422,003)
Common stock issued in exchange for:
Services and security .............. -- 5,222
LNN Communications ................. -- --
Earl S. Kim ........................ -- 12,500,000
Common stock redeemed:
Earl S. Kim ........................ -- (12,500,000)
Sold preferred stock ................. -- 3,067,918
Preferred stock issued in exchange
for:
Investment in entities with a
major investment in the
Company's stock .................. -- --
Acquisition of assets .............. -- 99,783,657
Payment of expenses ................ -- 2,535,668
Future obligations ................. -- 285
Net loss for year ending December
31, 1995 ........................... (16,779,850) (16,779,850)
------------ ------------
Balance at, December 31, 1995 ........ $(21,932,695) $ 88,190,327
============ ============
</TABLE>
See independent auditors' report and notes to financial statements.
F-5
<PAGE> 8
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
Year Ended Year Ended (June 9, 1993) to
December 31, December 31, December 31,
1995 1994 1995
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $(16,779,850) $(4,151,792) $(21,932,695)
Items not affecting cash:
Depreciation ................................................... 53,166 -- 53,166
Amortization of annuity discount ............................... (143,427) -- (143,427)
Expenditures paid by sole shareholder and related parties ...... -- -- 610,000
Loss on exchange of preferred shares ........................... -- 2,500,000 2,500,000
Expenses paid with issuance of stock ........................... 2,570,557 -- 2,570,557
Reserve on real estate held for investment ..................... 8,000,000 -- 8,000,000
Decrease (increase) in assets:
Prepaid expenses ............................................... 28,341 (135,000) (106,659)
Increase (decrease) in liabilities:
Accounts payable ............................................... 734,263 314,877 1,080,444
Accrued expenses ............................................... 1,890,580 -- 1,890,580
Payroll taxes payable .......................................... 469,002 -- 469,002
------------ ----------- ------------
Net cash used in operating activities ............................... (3,177,368) (1,471,915) (5,009,032)
------------ ----------- ------------
Cash flows from investing activities:
Net cash used for purchase of equipment ........................... (15,000) -- (15,000)
------------ ----------- ------------
Net cash used in investing activities ............................... (15,000) -- (15,000)
------------ ----------- ------------
Cash flows from financing activities:
Repay bank overdraft .............................................. (57,677) -- --
Sale of debentures payable ........................................ -- 465,000 543,300
Proceeds from notes payable ....................................... 562,215 -- 562,215
Net loans from (to) affiliated companies .......................... (13,850) -- (13,850)
Net loans from (to) others ........................................ (35,520) 85,160 342,185
Issuance of preferred stock ....................................... 3,067,967 852,982 3,920,949
------------ ----------- ------------
Net cash from financing activities .................................. 3,523,135 1,403,142 5,354,799
------------ ----------- ------------
Increase (decrease) in cash ......................................... 330,767 (68,773) 330,767
Cash at beginning of year ........................................... -- 11,096 --
------------ ----------- ------------
Cash at December 31, 1995 ........................................... $ 330,767 $ (57,677) $ 330,767
============ =========== ============
Supplemental disclosure of cash flow information:
Interest paid ..................................................... $ 26,268 15,487 $ 41,755
============ =========== ============
Supplemental schedule of noncash investing and financing transactions
Loans paid by issuing preferred stock ............................. $-- $ 200,000 $ 200,000
============ =========== ============
Fixed assets acquired by issuing preferred stock
Cost of assets ................................................. $ 259,997 $-- $ 259,997
Expensed ....................................................... 30,002 -- 30,002
Cash paid ...................................................... (15,000) -- (15,000)
------------ ----------- ------------
Preferred stock issued ............................................ $ 274,999 $-- $ 274,999
============ =========== ============
Common stock issued in exchange for:
Paid-in capital ................................................ $-- $-- $ 59,900
Loans payable .................................................. -- 139,860 139,860
------------ ----------- ------------
Total ..................................................... $-- $ 139,860 $ 199,760
============ =========== ============
</TABLE>
F-6
<PAGE> 9
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
From Inception
Year Ended Year Ended (June 9, 1993) to
December 31, December 31, December 31,
1995 1994 1995
----
<S> <C> <C> <C>
Preferred stock issued in exchange for:
FCC licenses .................................. $ 50,090,939 $ -- $ 50,090,939
Deposits on IVDS system build out ............. 4,600,080 -- 4,600,080
Real estate held for investment ............... 36,431,335 -- 36,431,335
Entities with a major investment in the Company 10,892,992 -- 10,892,992
Annuities ..................................... 6,500,000 -- 6,500,000
Investment in unconsolidated related company .. 615,973 -- 615,973
Property and equipment ........................ 274,999 -- 274,999
Security device ............................... 4,529,355 -- 4,957,355
Inventory ..................................... 438,654 -- 438,654
Prepaid expenses .............................. 550,030 -- 550,030
Other licenses ................................ 232,496 -- 232,496
Trust deed receivable ......................... 49,151 -- 49,151
Debentures .................................... -- 428,000 428,000
------------ --------- ------------
Total ............................................ $115,206,004 $ 428,000 $116,062,004
============ ========= ============
Contract obligation issued for broadcast licenses $ 12,500,000 $-- $ 12,500,000
============ ========= ============
Installment obligations to FCC assumed ........... $ 16,457,650 $-- $ 16,457,650
============ ========= ============
</TABLE>
See independent auditors' report and notes to financial statements.
F-7
<PAGE> 10
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
World Integrated Network of Companies, Inc., was incorporated in the
State of Delaware on June 9, 1993 and until August 4, 1994 was named LMN
Studios, Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and the following wholly-owned subsidiaries:
<TABLE>
<S> <C>
Bayshore Interactive Partners Mager, Inc.
The Bjorklund Corporation P. Kouri Corp
Capital Hills Development Corporation P.A.W. Inc.
Capital Hills Holding Shaker IVDS Partners, Inc.
D. Huebsch Corp. V.W.Y. Thermal, Inc.
Interactive Innovations Corp. WCI Partners, Inc.
L.C.I. Investments, Inc. Westborn Development
LNN Intellectual Properties
</TABLE>
The consolidated subsidiaries hold ownership of real estate and
broadcast licenses pending the close of the proposed merger described in Note
17. They are not actively engaged in business. All significant intercompany
transactions and balances have been eliminated in consolidation.
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.
The Company has acquired most of its assets by issuing its preferred
stock in acquisitions which are contingent upon the close of an agreement
involving the merger of the Company, as described in Note 17. Should that
transaction not close, those transactions could reverse, canceling the preferred
stock and returning the assets.
Media Line of Business
The Company intends to create, develop, finance and produce "new media"
entertainment, home shopping and interactive television programming to be aired
over a new network to bear the call letters "WINCO". "New media" is the business
of providing audio, video and graphical content for cable, broadcast, CD-Rom and
on-line services for entertainment, information, merchandising, advertising and
educational services. The Company is acquiring FCC Low Power Television (LPTV)
and Multiple Multi- Point Distribution Services (MMDS) licenses related to
future programming distribution.
Communications Line of Business
The Company is acquiring FCC Interactive Video and Data Services (IVDS)
licenses to offer services with utility based applications, cable television
applications and direct broadcast satellite applications.
F-8
<PAGE> 11
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Real Estate
The Company has invested in California real estate, as a capital
reserve, with the intent of either disposing of the properties or using the
properties as collateral for investment capital to fund future operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amount of the revenues and expenses during the period.
Actual results could differ from those estimates.
Inventory
Inventory is valued using the first-in, first-out (FIFO), lower of cost
or market method.
Licenses
FCC licenses are amortized using the straight-line method over the
original license term beginning when they are placed in service.
Furniture and Equipment
Furniture and equipment is stated at cost, depreciation is computed
using straight-line methods of depreciation over the estimated useful lives of
the assets which range from three to seven years.
Investments in Unconsolidated Related Companies
The Company records its investment in a real estate limited liability
company at cost, adjusted for the Company's proportionate share of its
undistributed earnings or losses. The Company's investment in Innovative
Marketing Ventures, Inc. and Command Performance Network, Inc. have been
recorded, at cost, as an offset to stockholder's equity because those companies'
major assets are World Interactive Network, Inc. preferred stock.
Intangibles
All intangibles are amortized using the straight-line method and are
continually evaluated by management based upon the estimated discounted cash
flow expected from the intangible to determine if its carrying value will be
realized.
Financial Instruments and Credit Risk
The Company is currently dependent on its ability to raise and maintain
capital. It is entering a media and technology based development stage market
and will be subject to a competitive industry throughout the United States.
In addition, the Company is a party to financial instruments, which
include marketable securities, investment in and loans to/from related
companies, a trust deed, and an annuity in an unrated insurance company. Those
instruments involve, to varying degrees, elements of credit risk. The Company's
exposure to credit loss in the event of nonperformance by the other party to the
financial instrument is represented by the amount recognized on the financial
statement. The Company does not have a policy of requiring collateral to support
financial instruments subject to credit risk.
F-9
<PAGE> 12
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. Deferred income taxes are provided on
timing differences between financial statement and income tax reporting. The
Company's temporary differences are due to capitalization and amortization of
start-up costs, net operating losses and depreciation of fixed assets.
Cash
Consists of demand deposit accounts only.
2. PREPAID EXPENSES
Prepaid expense consists of the following amounts at December 31, 1995:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Printing expense.................................................. $250,000
Rental expense.................................................... 166,667
Officer's and director's insurance................................ 127,500
Consulting retainer............................................... 112,522
-------
$656,689
========
</TABLE>
3. INVENTORY
The Company has acquired certain artwork and commemorative collectors'
edition books to be marketed through the Company's planned home shopping
programming. The artwork was acquired in exchange for issuance of shares of the
Company's Cumulative Convertible Preferred Stock. The summary of the
acquisitions is as follows:
<TABLE>
<CAPTION>
SELLER Type Series Shares Cost
------ ---- ------ ------ ----
<S> <C> <C> <C> <C>
Energex Corporation Salvadore Dali Prints A 3,600 $ 60,012
Len Garon Limited Edition Prints B 12,036 200,640
Shane International Commemorative Books C 10,678 178,002
--------
$438,654
========
</TABLE>
4. ANNUITIES
On March 27, 1995, the Company purchased an Annuity from Keyes
International Insurance for 389,922 shares of the Company's Series "B" 7.5%
Cumulative Convertible Preferred Stock valued at $6,500,000. The annuity is due
and payable on March 28, 2000 at its maturity value of $7,500,000. Management
expects to hold the annuity to maturity and is amortizing the discount over the
life of the contract.
Keyes International Insurance is an offshore insurance company which is
presently unrated. No collateral is provided under the annuity contract.
Management has estimated that the recoverable value of the annuity is equal to
the recorded value. However, it is reasonably possible that the estimated value
may change in the near term. See Subsequent events Note 19.
F-10
<PAGE> 13
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. REAL ESTATE HELD FOR INVESTMENT
Real estate held for investment at December 31, 1995 is all located in
California and is summarized as follows:
<TABLE>
<CAPTION>
NAME DATE LOCATION TYPE COST LIENS
---- ---- -------- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Erhart/Walker 05/26/95 Adelanto Lots $ 175,002 $ 55,000
Pismo Beach 07/22/95 San Luis Lots 1,000,000 190,000
Obispo
Tulare-Willow Springs 08/11/95 Orosi 91 Lots 864,506 147,750
Tulare Krause 08/04/95 Springville Lots 204,208 33,850
Fresno-Katzman/Krause 06/17/95 Kerman High school 2,000,000 221,000
Fresno BIG 06/27/95 Fresno Elementary school 699,980 --
Adelanto-Brooks 06/06/95 Adelanto Lots 379,992 --
San Bernardino-Penner 07/18/95 San Lots 250,009 --
Bernardino
Fresno-Energex 05/24/95 Fresno House 135,010 --
Capital Hills Holding 08/31/95 Kern Lots 6,860,705 125,000
Capital Hills Dev. 08/31/95 Kern Lots 6,860,705 125,000
The Bjorklund Corp. 08/28/95 Riverside House 850,004 --
P. Kouri Corp. 08/31/95 San Lots 1,059,995 70,000
Bernardino
VWY Thermal, Inc. 08/28/95 Los Angeles Various 4,974,995 206,000
L.C.I. Investments 08/31/95 Fresno Lots 2,316,196 130,000
Pudwill Commercial 10/12/95 Santa Maria 4 Office Buildings 2,333,333 1,450,000
Pudwill Lot 10/12/95 Santa Maria Lot 1,399,997 250,000
D. Huebsch Corp. 10/12/95 Rancho Mirage Condo 266,670 --
Karadetian (Deposit) 11/06/95 Belair Lots 100,020 --
Westborn Development 11/10/95 San Marcos Lots 2,600,004 --
Petty Trust 12/27/95 Riverside Lots 1,100,004 --
Reserve on real estate held for
investment (8,000,000)
---------- ----------
$28,431,335 $3,003,600
=========== ==========
</TABLE>
The liens on the real estate acquired remain the obligation of the
seller; therefore, they are not reflected as a liability of the Company.
The Company acquired the real estate by issuing shares of WINCO's
Series "B" and "C" Cumulative Convertible Preferred stock and recorded the
acquisition at the liquidation value of the preferred stock issued. Management
has estimated that the properties can be sold for at least their recorded value.
However, it is reasonably possible estimates of the recorded value may change in
the near term.
In recognition of the potential for continued uncertainty in the
California real estate market the Company has provided for a general reserve of
$8,000,000 against real estate held for investment.
These transactions are subject to reversal if the transaction described
in Note 17 does not close.
F-11
<PAGE> 14
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHARES ISSUED TO ENTITIES WITH A MAJOR INVESTMENT IN THE COMPANY'S STOCK
The Company has acquired stock of two companies by exchanging shares.
As a result of these transactions, those companies have a significant investment
in the Company's stock as one of their major assets, the cost has been reflected
as an offset to the equity section. The transactions involved are as follows:
Innovative Marketing Ventures
The Company acquired 30% of the outstanding stock of Innovative
Marketing Ventures on May 28, 1995 by issuing 200,000 shares of the Company's
Series "B" 7.5% Cumulative Convertible Preferred stock valued at $3,334,000. The
transaction was accounted for as a purchase.
Innovative Marketing Ventures manufactures and distributes water
boards, snow boards, skateboards and related apparel products. Their total
assets as of June 30, 1995 total approximately $4,700,000 and their
stockholder's equity is approximately $4,100,000. Included in their assets and
equity is $3,334,000 World Integrated Network of Companies, Inc. stock, $360,000
is intangibles and $851,000 is an annuity with a 5 year maturity.
Command Performance Network
The Company issued 59,988 shares of its Series "A" preferred stock and
329,934 Shares of its Series "C" preferred shares for a total consideration of
$6,500,000 in connection with a memorandum of understanding dated June 7, 1995.
On November 17, 1995, the Company, revised the memorandum of understanding and
agreed to accept CPN Series "A" preferred shares that will be convertible into
two common shares for each preferred share when either (i) CPN is able to
liquidate all of the preferred stock it has received from the Company or (ii)
CPN redeems for cash its preferred stock for $6.00 per share. In consideration
for this change, CPN was relieved of its obligation to provide the additional
financing.
CPN is also a development stage company and is preparing to produce a
sports information channel for cable television, satellite broadcast and the
internet.
As of July 31, 1995, the assets and stockholders' equity of Command
Performance Network, Inc. were comprised primarily of the World Integrated
Network of Companies, Inc. stock and Command Performance Network, Inc.
subscriptions receivable.
7. INVESTMENT IN UNCONSOLIDATED RELATED COMPANY
The Company acquired 50 percent ownership in a limited liability
company which holds real estate. The other 50 percent member is the manager of
the company. The original cost of the investment was recorded at the liquidation
value of the shares issued to acquire the Company's interest.
8. PROPERTY AND EQUIPMENT
The property and equipment is comprised as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Vehicles ............................................... $259,997
Less accumulated depreciation .......................... 53,166
--------
$206,831
========
</TABLE>
F-12
<PAGE> 15
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. FCC LICENSES
The Company has contracted to acquire FCC licenses in non-cash
transactions primarily in exchange for the Company's Series "C" 7% Cumulative
Convertible Preferred Stock and assumption of installment obligations to the
FCC. A summary of the licenses acquired along with their cost is as follows:
<TABLE>
<CAPTION>
ACQUISITION SHARES DEBT
NAME DATE TYPE NO. ISSUED ASSUMED COST
---- ----------- ---- -- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C>
Eagle 08/31/95 IVDS 15 599,880 $ 2,957,000 $12,957,000
Earl S. Kim 12/29/95 MMDS 3 Contract -- 12,500,000
Obligation
Elleron 07/21/95 IVDS 12 450,240 2,223,000 9,728,501
Shaker Partners 08/31/95 IVDS 9 286,865 2,538,000 7,320,039
Rose Regency 06/09/95 IVDS 9 334,738 1,246,000 6,826,082
Micro-Lite 08/31/95 MMDS 12 359,964 -- 6,000,600
WCI 08/31/95 IVDS 3 214,414 1,545,000 5,119,281
21st Century Interactive 08/17/95 IVDS 7 189,516 1,476,000 4,635,232
Interactive Innovations 08/31/95 IVDS 5 160,551 1,100,000 3,776,385
Interactive Control 08/31/95 IVDS 2 160,268 570,000 3,241,667
IVIDCO 08/17/95 IVDS 4 90,343 565,000 2,071,018
WCA 08/31/95 IVDS 8 103,703 296,250 2,024,979
P.A.W. 08/31/95 IVDS 5 76,036 582,000 1,849,521
Mager Corp., Inc. 08/31/95 IVDS 1 59,785 456,000 1,452,616
21st Century Group 08/31/95 IVDS 5 66,143 268,000 1,370,604
Bay Shore 08/31/95 IVDS 3 45,884 262,000 1,026,886
Georgia Felger 08/31/95 IVDS 4 48,135 133,400 935,810
Emerging Tech. 08/31/95 IVDS 1 34,340 240,000 812,448
------- -------
$16,457,650 $83,648,669
===========
Less portion of purchase price allocated to complete the
minimum FCC required broadcast equipment build out 4,600,080
---------
$79,048,589
===========
</TABLE>
The licenses are subject to certain benchmark requirements established
by the FCC relating to commencing service. Should the required FCC benchmarks
not be met, the license involved could be forfeited.
The Company has recorded the acquisition of the licenses at the
liquidation value of the stock plus the debt assumed. Management has estimated
that the recoverable value of the licenses exceeds their recorded value.
However, it is reasonably possible that the estimated value or the useful life
of the licenses may change in the near term.
Transfer of one of the licenses is dependent upon the completion of the
build out of the equipment required by the FCC, unless a waiver is obtained from
the FCC. The $4,600,080 of the purchase price allocated to broadcast equipment
is the estimated cost to build out high power equipment. The cost of that
equipment could increase by 400 percent should the geographical area require low
power equipment rather than high power.
Subsequent to year-end the Company and Micro-Lite Television revised
the existing agreement to add certain television station licenses and therefore
adjusted the purchase price to $4,567,580.
F-13
<PAGE> 16
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INTELLECTUAL PROPERTY RIGHTS
On April 5, 1994, the Company was granted a non-exclusive right to
utilize certain technology referred to as the "Vault" in connection with its
specialized interactive television programming. The license is for the full
duration of the existence of the licensed technology. The Company issued
15,700,000 shares of common stock to its sole shareholder to acquire the
license.
On June 30, 1995, the Company acquired the underlying intellectual
property rights for the "Vault" technology by issuing 29,750,000 shares of
common stock to its majority stockholder to acquire LNN Intellectual Properties,
Inc.
Generally accepted accounting principles require that the license and
the underlying intellectual property rights, referred to above, be valued at the
lower of predecessor cost (not including research and development costs) or
recoverable value. The shareholder has represented that their cost in the
technology was substantially research and development; therefore, generally
accepted accounting principles require these assets be recorded at zero.
11. OTHER LICENSE
On July 26, 1995, the Company purchased a license from Durand
Communications, Inc. to be the sole and exclusive provider of TV generated
content pertaining to direct response products and sources, including but not
limited to television direct response formats and/or promotions which are to be
reformatted for Internet Dial-Up (On Line) service, via the "MindWire" Network
and grants WINCO the exclusive right to list themselves, through a dedicated
button, on the MindWire Network Navigator. The MindWire Network Navigator is a
utility application used to assist end users in navigating MindWire Servers
which have volunteered to become part of the MindWire Network. The MindWire
Network is a linking of MindWire servers throughout the world via a feature
called WIPLINK and the Internet.
As consideration for the license, the Company agreed to issue 14,997
shares of its Series "C" Cumulative Convertible Preferred stock valued at
$232,497. In addition, the Company will pay a royalty on all promotions
advertised on the WINCO MindWire button. The royalty is expected to average
approximately 5% of the net sales price.
12. DEBENTURES AND DEMAND LOANS PAYABLE
Debentures Payable
During 1994 and 1993 the Company issued 12% participating debentures
due one year from the issue date. During 1994 all except $115,300 of these
debentures were exchanged for Preferred Series "A" shares. The remaining
debentures are due on demand with interest payable monthly.
Demand Loans Payable
The Company has borrowed from various individuals with no stated
interest or payment terms, due on demand.
13. LONG-TERM DEBT -- INSTALLMENT OBLIGATIONS TO FCC
In connection with the acquisition of broadcast licenses, the Company
has agreed to assume related installment obligations to the FCC. The obligations
are payable in quarterly installments of interest only through December 31, 1996
and in equal payments of principal and interest through December 31, 1999.
Interest on the obligations varies per license from 7.125 to 7.71 percent.
F-14
<PAGE> 17
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the principal maturity of long-term debt
during the next five years.
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------- ------
<S> <C>
1997..................................................... $4,295,347
1998..................................................... 5,666,582
1999..................................................... 6,495,721
---------
$16,457,650
===========
</TABLE>
14. COMMON AND PREFERRED STOCK
The Company has authorized common and three series of preferred shares
as follows:
Common Stock
During 1995 the Company increased the number of authorized shares of
common stock from 25,000,000 shares to 75,000,000 shares for the purposes of
carrying out its business plan and to award certain key Officers, Directors and
Consultants equity interests in the Company as partial compensation for services
rendered. Of these shares, 5,222,000 were awarded as compensation totaling
$5,222. The par value is .001.
As of December 31, 1995, the issued and outstanding shares totaled
55,342,000 shares. The Company has held in reserve 19,500,000 shares of common
stock for issuance upon conversion of the Series "A", "B", and "C" preferred
shares.
A certificate for an additional 625,000 shares was issued in December
1995 and was immediately contractually redeemed by the Company in an agreement
to exchange $12,500,000 in market value of restricted common stock upon the
closing of the transaction described in Note 17. The exchange of shares will
result in the $12,500,000 becoming minority interest in the consolidated assets.
Preferred "A" Stock
On April 4, 1994, the Company authorized 900,000 shares of its $16.67
Series "A" Cumulative Convertible Preferred shares. There were 656,979 shares
outstanding at December 31, 1995. Each Series "A" share is convertible into two
common shares. The shares accrue dividends at 10% per year. The Board of
Directors has not authorized payment of accrued dividends.
Preferred "B" Stock
On March 23, 1995, the Company authorized 1,200,000 shares of a "B"
series of preferred stock with an annual dividend of 7.5% and liquidation
preference of $16.67. Each share is convertible into one and one-half common
shares. As of December 31, 1995, 1,199,103 shares of the series "B" preferred
stock are issued and outstanding.
Preferred "C" Stock
On June 25, 1995, the Company authorized a "C" series of Cumulative
Convertible Preferred Stock bearing an annual dividend yield of 7% and a
liquidation preference of $16.67. Each share is convertible into two shares of
common stock. As of December 31, 1995, the Company has 6,000,000 shares of its
Series "C" authorized, and 5,636,924 shares issued and outstanding.
F-15
<PAGE> 18
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Conversion Feature
The Series "A", "B" and "C" Cumulative Convertible Preferred Stock
shall be convertible at the option of the holder upon the occurrence of an
initial public offering of common stock underwritten pursuant to a registration
statement filed under the Securities Act of 1933.
Accumulated Preferred Dividends
Total accumulated but undeclared dividends are approximately as
follows:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Series "A"......................................................... $ 890,939
Series "B"......................................................... 1,040,836
Series "C"......................................................... 2,606,512
----------
$4,538,287
==========
</TABLE>
15. LEASING ACTIVITIES AND OBLIGATIONS
The Company has assumed a lease for corporate office space which
expires December 31, 1997. Lease payments of $7,576 are due monthly for the term
of the lease.
The Company has also leased a property in Los Angeles to provide
lodging, meals and entertainment for visitors doing business with the Company as
well as for key Company executives. The lease is for two (2) years and expires
on October 17, 1996. Rent payments are $180,000 per year payable annually in
advance.
The Company has leased equipment and automobiles under operating leases
with lease periods ranging from two to five years. The monthly payments total
$6,060 for the equipment and $5,260 for the automobiles.
Total rent expense for 1995 totaled $393,452 and future minimum lease
payments for the operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
1996.................................................... $223,297
1997.................................................... 211,561
1998.................................................... 99,560
1999.................................................... 72,717
2000.................................................... 70,654
------
$677,789
========
</TABLE>
16. INCOME TAXES
As of December 31, 1995, the net deferred income tax assets arising
because of timing differences from the capitalization and amortization of
start-up costs for tax accounting was approximately $5,000,000. Because it is
more likely than not that the deferred tax asset will not be realized, a
valuation allowance of an equal amount has been used to offset the recognition
in the financial statements.
17. PENDING MERGER -- GOING CONCERN
On May 25, 1995, (as amended) the Company agreed to sell substantially
all of its assets to Struthers Industries, Inc. (Struthers) in exchange for
ninety-five percent of Struthers issued and outstanding common
F-16
<PAGE> 19
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
stock on a fully diluted basis. On June 14, 1996 the agreement was amended to
merge the Company with and into Struthers. The merger has not yet closed and the
Closing is contingent upon a number of matters including settlement of two class
action lawsuits pending against Struthers and three (3) of its directors,
stockholder approval, the limitation on the exercise of appraisal rights, a
.425:1 reverse stock split, regulatory approval and other matters.
Many of the Company's acquisitions of assets are contingent upon
satisfactory consummation of the merger with Struthers. Should the merger not
close those transactions could be rescinded, the assets returned to the seller
and the Company's stock would be canceled.
Because the Company requires the liquidity resulting from the
transaction to continue to meet its current obligations and continue with its
business plan, this contingency creates an uncertainty about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
Management has alternative plans to raise the capital needed to
continue its development stage activities and believes that most of those who
have sold assets contingent upon closing the Struthers transaction would accept
an alternative plan on similar terms.
18. COMMITMENTS AND CONTINGENCIES
Shares Issued for Future Obligations
The Company has issued Series "A", "B" and "C" Cumulative Convertible
Preferred Shares to secure payments of amounts due, as a retainer for future
services or as a guarantee. Those shares are reflected as outstanding with a
corresponding charge to equity until the consideration for the shares is
realized.
The shares issued are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Guarantee Bond -- 59,998 shares of the Company's Cumulative Convertible
Preferred Stock has been issued as collateral for a one million dollar
5-year guarantee bond for Innovative Marketing Ventures................ $1,000,000
Legal Fees -- The Company issued 24,000 shares of the Company's Series
"A" and 6,000 shares of Series "B" Cumulative Convertible Preferred
Stock as security for legal fees due and payable....................... 500,000
Retainers -- The Company issued shares of Series "A", Series "B" and
Series "C" preferred stock and shares of common stock to various
individuals as retainers to guarantee the availability of their
services. As of December 31, 1995, no services have been utilized...... 3,029,355
----------
$4,529,355
==========
</TABLE>
Agreement to Deliver Publicly-Traded Securities
The Company has entered into agreements whereby the Company has agreed
to deliver, subject to federal and state securities laws, publicly-traded common
stock of the post merged company in exchange for services and assets. The
agreements state that the stock will be issued at market value. Specific
delivery dates are provided and range from 45 to 90 days after closing on the
Struthers Agreement referred to above.
The total amount committed as of December 31, 1995 was $475,000 and
through March 15, 1996 increased to approximately $82,494,000. During June 1996
substantially all of these commitments have been rescinded, see Subsequent
events Note 19.
F-17
<PAGE> 20
WORLD INTEGRATED NETWORK OF COMPANIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Redemption of Preferred Shares
The Company has agreements with preferred shareholders holding
3,834,288 shares of Series C preferred stock to exchange each share for two
common shares of publicly traded stock after the closing of the transaction
described in Note 17. If the shares are trading at less than $8.3125 per share,
the Company has agreed to issue additional shares to result in a value of
$16.625 per preferred share exchanged. The redemption would result in a
decrease in stockholders' equity and an increase in the minority interest in
consolidated assets.
NOTE 19. SUBSEQUENT EVENTS.
Subsequent to year-end the Company entered into agreements to acquire
approximately $60,292,000 in assets. These assets were acquired through the
issuance of preferred stock or by agreements to issue future publicly traded
securities (see Note 18). During June 1996 substantially all agreements to issue
future publicly traded securities have been rescinded and were subsequently
replaced with the issuance of 5% Series "D" Cumulative Preferred Convertible
Stock. The total value of the Series "D" Cumulative Preferred Stock issued was
approximately $44,600,000.
On January 31, 1996, the Company issued 149,970 shares of Series "C"
Cumulative Convertible Preferred Stock to EON Corporation for the acquisition of
equipment. In addition the Company entered into an agreement with EON
Corporation whereby the Company has the rights to utilize up to 50 percent of
the IVDS spectrum currently controlled by EON Corporation for certain
applications. In exchange, EON Corporation is also granted rights to 50 percent
of the bandwidth spectrum covered by the Company's IVDS licenses.
On February 1, 1996, the Company issued 44,991 shares of Series "C"
Cumulative Convertible Preferred Stock to Low Power TV, Inc. ("LPTV") to lease
air time; in addition the Company has committed to provide LPTV with $750,000 of
equipment.
On May 1, 1996, WINCO entered into an agreement to purchase MMDS
licenses from Mr. Earl S. Kim in exchange for WINCO Preferred Stock valued at
$37,500,000.
During May of 1996, the Company returned the Annuity of $6,643,427 to
Keyes International Insurance in exchange for the return of the 389,922 shares
of Series "B" 7.5% Cumulative Convertible Preferred Stock.
F-18
<PAGE> 21
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
------------ ------------
(UNAUDITED) (Audited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ 330,767
Inventory -- 438,654
Prepaid expenses 1,173,589 656,689
Loans receivable 164,371 6,175
------------ ------------
Total current assets 1,337,960 1,432,285
------------ ------------
PROPERTY AND EQUIPMENT, net (Note 7) 2,536,586 206,831
------------ ------------
OTHER ASSETS
Broadcast licenses (Note 8) 90,209,351 79,048,589
Contract for broadcast equipment build out (Note 8) 4,600,080 4,600,080
Real estate held for investment (Note 4) 28,987,673 28,431,335
Property rights (Note 2) 12,000,030 6,643,427
Investment in unconsolidated companies (Note 6) 8,141,532 615,973
Other licenses (Note 10) 262,497 232,497
Trust deed receivable 49,151 49,151
Loans receivable from related company (Note 3) 8,065,152 13,850
Trademark - WINCOM 14,500 --
Intellectual property rights (Note 9) -- --
------------ ------------
Total other assets 152,329,966 119,634,902
------------ ------------
$156,204,512 $121,274,018
============ ============
</TABLE>
F-19
<PAGE> 22
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, December 31,
1996 1995
------------- -------------
(UNAUDITED) (Audited)
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,267,474 $ 1,080,444
Accrued commissions -- 1,328,024
Accrued officer compensation -- 93,742
Payroll taxes 90,630 469,002
Accrued interest 1,065,404 468,814
Loans from related parties -- 8,500
Debentures payable (Note 11) 115,300 115,300
Demand loans payable (Note 11) 1,742,947 562,215
Contract obligation (Note 12) -- 12,500,000
Bank overdraft 151,937 --
------------- -------------
Total current liabilities 4,433,692 16,626,041
------------- -------------
LONG-TERM LIABILITIES
Installment obligations to FCC (Notes 8 and 12) 16,511,650 16,457,650
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 16)
------------- -------------
STOCKHOLDERS' EQUITY (Notes 13 and 16)
Common stock 73,236 55,342
Additional paid-in capital 687,486 699,690
Preferred stock
Series "A" 13,471,172 10,834,089
Series "B" 19,942,359 19,989,032
Series "C" 99,432,949 93,967,500
Series "D" 56,498,418 --
Stock subscriptions receivable (135,010) --
Shares issued for future obligations (Note 16) (7,609,179) (4,529,639)
Shares issued to entities with a major investment in the
Company's stock (Notes 3 and 4) (10,743,022) (10,892,992)
Deficit accumulated during development stage (36,359,239) (21,932,695)
------------- -------------
Total stockholders' equity 135,259,170 88,190,327
------------- -------------
$ 156,204,512 $ 121,274,018
============= =============
</TABLE>
See accountants' report on reviewed financial statements and notes to financial
statement.
F-20
<PAGE> 23
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Six From Inception
Months Ended Months Ended (June 9, 1993) to
June 30, June 30, June 30,
1996 1995 1996
------------- ------------ -----------------
<S> <C> <C> <C>
REVENUES $ 7,310 $ 1,000 $ 18,840
------------ ----------- ------------
GENERAL AND ADMINISTRATIVE
Compensation and related 832,131 272,303 2,595,069
Management fee -- -- 610,000
Consulting and contract labor 5,887,520 126,073 8,914,789
Financing commissions 1,313,348 103,363 3,464,287
General operating 1,633,833 239,731 3,105,903
Bad debt expense 1,009,837 -- 1,009,837
Lodging, meals and entertainment 757,515 316,437 1,796,612
Office occupancy 146,603 61,646 537,583
Real estate operations 74,497 5,106 495,067
Research and development -- 161,141 161,141
Reserve on real estate held for
investment (Note 5) -- -- 8,000,000
------------ ----------- ------------
Total general and administrative 11,655,284 1,285,800 30,690,288
------------ ----------- ------------
LOSS FROM OPERATIONS (11,647,974) (1,284,800) (30,671,448)
------------ ----------- ------------
OTHER INCOME (EXPENSE)
Interest income -- -- 143,227
Other deductions (2,157,471) (1,600) (4,699,551)
Interest expense (621,099) (13,009) (1,131,667)
------------ ----------- ------------
Total other income (expense) (2,778,570) (14,609) (5,687,791)
------------ ----------- ------------
NET LOSS $(14,426,544) $(1,299,409) $(36,359,239)
============ =========== ============
</TABLE>
See accountants' report on reviewed financial statements and notes to financial
statements.
F-21
<PAGE> 24
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FROM INCEPTION (JUNE 9, 1993) TO JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Paid-In Series "A"
------------------------ ----------
Shares Amount Capital Shares
---------- -------- ------------ -------
<S> <C> <C> <C> <C>
BALANCE AT, inception from (June 9, 1993)
to December 31, 1995 -- $ -- $ -- --
Issued common stock for expenses paid by
sole shareholder and related parties 4,620,000 4,620 605,380 --
Net loss from inception (June 9, 1993) to
December 31, 1993 -- -- -- --
---------- -------- ------------ -------
BALANCE AT, December 31, 1993 4,620,000 4,620 605,380 --
Common stock issued in exchange for:
License 15,700,000 15,700 (15,700) --
Debt 50,000 50 139,810 --
Preferred stock issued in exchange for:
Debentures -- -- -- 25,675
Related party debt -- -- -- 149,970
Sold preferred stock -- -- -- 63,170
Net loss for year -- -- -- --
---------- -------- ------------ -------
BALANCE AT, December 31, 1994 20,370,000 20,370 729,490 238,815
Common stock issued in exchange for:
Services and security 5,222,000 5,222 -- --
LNN Communications 29,750,000 29,750 (29,750) --
Earl S. Kim 625,000 625 12,499,375 --
Common stock redeemed:
Earl S. Kim (625,000) (625) (12,499,375) --
Sold preferred stock -- -- (50) 182,692
Preferred stock issued in exchange for:
Investment in entities with a major
investment in the Company's stock -- -- -- 59,988
Acquisition of assets -- -- -- 39,593
Payment of expenses -- -- -- 24,746
Future obligations -- -- -- 111,145
Net loss for year -- -- -- --
---------- -------- ------------ -------
BALANCE AT, December 31, 1995 55,342,000 $ 55,342 $ 699,690 656,979
========== ======== ============ =======
<CAPTION>
Preferred Stock
---------------------------------------
Series "A" Series "B" Series "C"
----------- ------------------------- ---------
Amount Shares Amount Shares
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE AT, inception from (June 9, 1993)
to December 31, 1995 $ -- -- $ -- --
Issued common stock for expenses paid by
sole shareholder and related parties -- -- -- --
Net loss from inception (June 9, 1993) to
December 31, 1993 -- -- -- --
----------- --------- ----------- ---------
BALANCE AT, December 31, 1993 -- -- -- --
Common stock issued in exchange for:
License -- -- -- --
Debt -- -- -- --
Preferred stock issued in exchange for:
Debentures 428,000 -- -- --
Related party debt 2,500,000 -- -- --
Sold preferred stock 1,052,982 -- -- --
Net loss for year -- -- -- --
----------- --------- ----------- ---------
BALANCE AT, December 31, 1994 3,980,982 -- -- --
Common stock issued in exchange for:
Services and security -- -- -- --
LNN Communications -- -- -- --
Earl S. Kim -- -- -- --
Common stock redeemed:
Earl S. Kim -- -- -- --
Sold preferred stock 2,927,788 -- -- 8,409
Preferred stock issued in exchange for:
Investment in entities with a major
investment in the Company's stock 1,000,000 263,527 4,392,992 329,934
Acquisition of assets 660,015 840,479 14,010,773 5,105,752
Payment of expenses 412,516 11,110 185,205 116,254
Future obligations 1,852,788 83,987 1,400,062 76,575
Net loss for year -- -- -- --
----------- --------- ----------- ---------
BALANCE AT, December 31, 1995 $10,834,089 1,199,103 $19,989,032 5,636,924
=========== ========= =========== =========
<CAPTION>
Preferred Stock
---------------
Series "C"
----------- Other Accumulated
Amount Items Deficit Total
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE AT, inception from (June 9, 1993)
to December 31, 1995 $ -- $ -- $ -- $ --
Issued common stock for expenses paid by
sole shareholder and related parties -- -- -- 610,000
Net loss from inception (June 9, 1993) to
December 31, 1993 -- -- (1,001,053) (1,001,053)
----------- ------------ ------------ ------------
BALANCE AT, December 31, 1993 -- -- (1,001,053) (391,053)
Common stock issued in exchange for:
License -- -- -- --
Debt -- -- -- 139,860
Preferred stock issued in exchange for:
Debentures -- -- -- 428,000
Related party debt -- -- -- 2,500,000
Sold preferred stock -- -- -- 1,052,982
Net loss for year -- -- (4,151,792) (4,151,792)
----------- ------------ ------------ ------------
BALANCE AT, December 31, 1994 -- -- (5,152,845) (422,003)
Common stock issued in exchange for:
Services and security -- -- -- 5,222
LNN Communications -- -- -- --
Earl S. Kim -- -- -- 12,500,000
Common stock redeemed:
Earl S. Kim -- -- -- (12,500,000)
Sold preferred stock 140,179 -- -- 3,067,918
Preferred stock issued in exchange for:
Investment in entities with a major
investment in the Company's stock 5,500,000 (10,892,992) -- --
Acquisition of assets 85,112,869 -- -- 99,783,657
Payment of expenses 1,937,947 -- -- 2,535,668
Future obligations 1,276,505 (4,529,639) -- (285)
Net loss for year -- -- (16,779,850) (16,779,850)
----------- ------------ ------------ ------------
BALANCE AT, December 31, 1995 $93,967,500 $(15,422,631) $(21,932,695) $ 88,190,327
=========== ============ ============ ============
</TABLE>
See accountants' report on reviewed financial statements and notes to financial
statements.
F-22
<PAGE> 25
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FROM INCEPTION (JUNE 9, 1993) TO JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Series "A"
---------------------- Paid-In ----------
Shares Amount Capital Shares
---------- ------- --------- -------
<S> <C> <C> <C> <C>
BALANCE AT, December 31, 1995 55,342,000 $55,342 $ 699,690 656,979
Sold stock 129,000 129 3,996 193,042
Preferred issued (cancelled) in exchange for:
Investment in entities with a major invest-
ment in the Company's stock -- -- -- --
Void purchase of investments with
stock -- -- -- (59,988)
Acquisition of assets -- -- -- 1,500
Payment of expenses 100,000 100 -- 3,240
Future obligations 1,465,000 1,465 -- 22,689
Preferred "D" issued to shareholders as
incentive (Note 13) -- -- -- --
Issuance of Founder shares 16,200,000 16,200 (16,200) --
Net loss -- -- -- --
---------- ------- --------- -------
BALANCE AT, June 30, 1996 73,236,000 $73,236 $ 687,486 817,462
========== ======= ========= =======
<CAPTION>
Preferred Stock
------------------------------------------
Series "A" Series "B" Series "C"
------------ --------------------------- ---------
Amount Shares Amount Shares
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
BALANCE AT, December 31, 1995 $ 10,834,089 1,199,103 $ 19,989,032 5,636,924
Sold stock 3,179,840 -- -- --
Preferred issued (cancelled) in exchange for:
Investment in entities with a major invest-
ment in the Company's stock -- 578,884 9,649,997 --
Void purchase of investments with
stock (1,000,000) (585,483) (9,760,009) --
Acquisition of assets 25,005 -- -- 66,605
Payment of expenses 54,011 800 13,336 238,956
Future obligations 378,227 2,999 49,993 22,499
Preferred "D" issued to shareholders as
incentive (Note 13) -- -- -- --
Issuance of Founder shares -- -- -- --
Net loss -- -- -- --
------------ --------- ------------ ---------
BALANCE AT, June 30, 1996 $ 13,471,172 1,196,303 $ 19,942,359 5,964,984
============ ========= ============ =========
<CAPTION>
Preferred Stock
-----------------------------------------
Series "C" Series "D"
----------- -------------------------
Amount Shares Amount
----------- --------- -----------
<S> <C> <C> <C>
BALANCE AT, December 31, 1995 $93,967,500 -- $ --
Sold stock -- -- --
Preferred issued (cancelled) in exchange for:
Investment in entities with a major invest-
ment in the Company's stock -- -- --
Void purchase of investments with
stock -- -- --
Acquisition of assets 1,106,989 1,175,993 49,391,682
Payment of expenses 3,983,402 45,275 1,901,550
Future obligations 375,058 123,933 5,205,186
Preferred "D" issued to shareholders as
incentive (Note 13) -- 11,875 --
Issuance of Founder shares -- -- --
Net loss -- -- --
----------- --------- -----------
BALANCE AT, June 30, 1996 $99,432,949 1,357,076 $56,498,418
=========== ========= ===========
<CAPTION>
Other Accumulated
Items Deficit Total
------------ ------------ -------------
<S> <C> <C> <C>
BALANCE AT, December 31, 1995 $(15,422,631) $(21,932,695) $ 88,190,327
Sold stock -- -- 3,183,965
Preferred issued (cancelled) in exchange for:
Investment in entities with a major invest-
ment in the Company's stock -- -- 9,649,997
Void purchase of investments with
stock -- -- (10,760,009)
Acquisition of assets -- -- 50,523,676
Payment of expenses -- -- 5,952,409
Future obligations (6,009,929) -- --
Preferred "D" issued to shareholders as
incentive (Note 13) -- -- --
Issuance of Founder shares -- (14,426,544) (14,426,544)
Net loss -- -- --
------------ ------------ -------------
BALANCE AT, June 30, 1996 $(21,432,560) $(36,359,239) $ 132,313,821
============ ============ =============
</TABLE>
F-23
<PAGE> 26
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Six From Inception
Months Ended Months Ended (June 9, 1993) to
June 30, June 30, June 30,
1996 1995 1996
------------ --------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,426,544) $(440,849) $(36,359,239)
Items not affecting cash:
Bad debt 1,009,837 -- 1,009,837
Depreciation -- -- 53,166
Amortization of annuity discount -- -- (143,427)
Expenditures paid by sole shareholder
and related parties -- -- 610,000
Loss on exchange of preferred shares -- -- 2,500,000
Expenses paid with issuance of stock 8,662,579 -- 11,233,122
Reserve on real estate held for investment -- -- 8,000,000
Decrease (increase) in assets:
Prepaid expenses 241,024 -- 134,365
Increase (decrease) in liabilities:
Accounts payable 187,029 116,957 1,267,473
Accrued expenses 100,164 -- 1,990,744
Payroll taxes payable 24,310 21,450 493,312
------------ --------- ------------
Net cash used in operating activities (4,201,601) (302,442) (9,210,647)
------------ --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used for purchase of equipment (45,761) -- (60,761)
Acquisition of licenses and property rights (44,500) -- (44,500)
Investment in unconsolidated related company (25,559) -- (25,559)
------------ --------- ------------
Net cash used in investing activities (115,820) -- (130,820)
------------ --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repay) bank overdraft 151,937 (57,677) 151,937
Sale of debentures payable -- -- 543,300
Proceeds from notes payable 665,720 63,870 1,227,949
Net loans from (to) affiliated companies (91,707) -- (105,557)
Net loans from (to) others (878,971) (36,400) (536,786)
Issuance of preferred stock 4,139,675 332,649 8,060,624
------------ --------- ------------
Net cash from financing activities 3,986,654 302,442 9,341,467
------------ --------- ------------
</TABLE>
F-24
<PAGE> 27
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Six From Inception
Months Ended Months Ended (June 9, 1993) to
June 30, June 30, June 30,
1996 1995 1996
----------- ------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH (330,767) -- --
CASH at beginning of period 330,767 -- --
----------- ------- -----------
CASH at end of period $ -- $ -- $ --
============ ======= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ 66,264
=========== ======= ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING TRANSACTIONS:
Loans paid by issuing preferred stock $ 910,000 $ -- $ 1,110,000
=========== ======= ===========
Fixed assets acquired by issuing preferred stock
Cost of assets $ 2,502,327 $ -- $ 2,762,324
Expensed 85,892 -- 115,894
Cash paid (45,761) -- (60,761)
----------- ------- -----------
Preferred stock issued $ 2,542,458 $ -- $ 2,817,457
=========== ======= ===========
Common stock issued in exchange for:
Paid-in capital $ 16,200 $ -- $ 76,100
Loans payable -- -- 139,860
----------- ------- -----------
Total $ 16,200 $ -- $ 215,960
=========== ======= ===========
</TABLE>
F-25
<PAGE> 28
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Six From Inception
Months Ended Months Ended (June 9, 1993) to
June 30, June 30, June 30,
1996 1995 1996
------------ --------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING TRANSACTIONS: (Continued)
<S> <C> <C> <C>
Preferred stock issued in exchange for:
Broadcast licenses $ 11,106,762 $ -- $ 90,209,351
Deposits on broadcast equipment build out -- -- 4,600,080
Real estate held for investment 5,072,990 36,431,335
Entities with a major investment in
the Company (650,000) 1,365,000 10,892,992
Annuities (6,500,000) 5,785,000 6,500,000
Property rights 12,000,030 -- 12,000,030
Investment in unconsolidated related
company 7,500,000 -- 615,973
Accrued commissions 1,328,024 -- 1,328,024
Property and equipment 3,148,869 -- 2,817,457
Inventory 165,033 -- 603,687
Payment of contract obligations 13,683,000 -- 13,683,000
Prepaid expenses 765,150 150,000 550,030
Other licenses -- -- 232,496
Trust deed receivable -- -- 49,151
Loans receivable 656,562 -- 656,562
Debentures -- -- 428,000
------------ ----------- ------------
Total $ 54,126,420 $ 7,300,000 $102,129,956
============ =========== ============
Contract obligation issued for:
Broadcast licenses $ 21,453,000 $ -- $ 33,953,000
Real estate 1,183,000 -- 1,183,000
------------ ----------- ------------
Total 22,636,000 -- 35,136,000
============ =========== ============
Installment obligations to FCC assumed $ 54,000 $ -- $ 16,511,650
============ =========== ============
</TABLE>
See accountants' report on reviewed financial statements and notes to financial
statements.
F-26
<PAGE> 29
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
WINCOM Corp. was incorporated in the State of Delaware on June 9, 1993 and
until August 7, 1996 was named World Integrated Network of Companies, Inc.
Prior to May 6, 1996, the Company was named World Interactive Network and
prior to August 4, 1994, the Company was named LMN Studios, Inc.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and the following wholly-owned subsidiaries:
<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. Toma Kouri Corp.
Midwestern Inter-Neighborhood Network, Inc. V.W.Y. Thermal, Inc.
North Central Inter-Neighborhood Network, Inc. WCI Partners, Inc.
North Eastern Inter-Neighborhood Network, Inc. Westborn Development
</TABLE>
The consolidated subsidiaries hold ownership of real estate and broadcast
licenses pending the close of the proposed sale described in Note 15. They
are not actively engaged in business. All significant intercompany
transactions and balances have been eliminated in consolidation. The
interim amounts are not necessarily indicative of the results of
operations for a full fiscal year.
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.
The Company has acquired most of its assets by issuing its preferred stock
in acquisitions which are contingent upon the close of an agreement
involving the merger of the Company, as described in Note 15. Should that
transaction not close, those transactions could reverse, canceling the
preferred stock and returning the assets. See Note 17.
F-27
<PAGE> 30
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
COMMUNICATIONS LINE OF BUSINESS
The Company is acquiring FCC Interactive Video and Data Services (IVDS)
licenses to offer services with utility based applications, cable
television applications and direct broadcast satellite applications.
MEDIA LINE OF BUSINESS
The Company intends to create, develop, finance and produce "new media"
entertainment, home shopping and interactive television programming to be
aired over a new network to bear the call letters "WINCO". "New media" is
the business of providing audio, video and graphical content for cable,
broadcast, CD-Rom and on-line services for entertainment, information,
merchandising, advertising and educational services. The Company is
acquiring FCC Low Power Television (LPTV) and Multiple Multi-Point
Distribution Services (MMDS) licenses related to future programming
distribution.
REAL ESTATE
The Company has invested in California real estate, as a capital reserve,
with the intent of either disposing of the properties or using the
properties as collateral for investment capital to fund future operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amount of the revenues and expenses
during the period. Actual results could differ from those estimates.
INVENTORY
Inventory is valued using the first-in, first-out (FIFO), lower of cost or
market method.
F-28
<PAGE> 31
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LICENSES
FCC licenses are amortized using the straight-line method over the
original license term beginning when they are placed in service.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost, depreciation is computed using
straight-line methods of depreciation over the estimated useful lives of
the assets which range from three to seven years.
INVESTMENTS IN UNCONSOLIDATED COMPANIES
The Company recorded investment in a real estate limited liability company
at cost, adjusted for the Company's proportionate share of its
undistributed earnings or losses (equity method). The Company's investment
in Innovative Marketing Ventures, Inc. and Command Performance Network,
Inc. have been recorded, at cost, as an offset to stockholder's equity
because those companies' major assets are WINCOM Corp. preferred stock.
INTANGIBLES
All intangibles are amortized using the straight-line method and are
continually evaluated by management based upon the estimated discounted
cash flow expected from the intangible to determine if its carrying value
will be realized.
FINANCIAL INSTRUMENTS AND CREDIT RISK
The Company is currently dependent on its ability to raise and maintain
capital. It is entering a media and technology based development stage
market and will be subject to a competitive industry throughout the United
States.
In addition, the Company is a party to financial instruments, which
include investment in and loans to/from related companies and a trust
deed. Those instruments involve, to varying degrees, elements of credit
risk. The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument is represented by the
amount recognized on the financial statements. The Company does not have a
policy of requiring collateral to support financial instruments subject to
credit risk.
F-29
<PAGE> 32
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. Deferred income taxes are provided
on timing differences between financial statement and income tax
reporting. The Company's temporary differences are due to capitalization
and amortization of start-up costs, net operating losses and depreciation
of fixed assets.
CASH
Cash consists of demand deposit accounts only.
INTERIM FINANCIAL INFORMATION
The interim financial statements for six-month periods ended June 30,
1996, and June 30, 1995, are unaudited. In the opinion of management, such
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair representation of the results of the
interim periods. The results of operations for the six-month period ended
June 30, 1996 are not necessarily indicative of the results for the entire
year.
2. PROPERTY RIGHTS
On March 5, 1996, the Company agreed to purchase from Maestro Holding
Corporation all the rights, title and interest in all the recordings,
discs, tapes and catalogues belonging to Maestro. The purchase price,
equaling $12,000,030, was originally by agreement to be paid in Struthers
common stock. As of May 31, 1996, Maestro agreed to take WINCOM Series "D"
cumulative preferred stock (see Note 17).
F-30
<PAGE> 33
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
3. NOTE RECEIVABLE
On May 31, 1996, the Company sold to its majority stockholder, Winco
Corporation, a Delaware corporation, real estate, two subsidiary
corporations, automobiles, equipment, inventory and rights to certain
other assets. As consideration, the Company received a note in the amount
of $7,959,595. The note bears interest at ten percent (10%) per annum with
the principal and all accrued interest due and payable on or before June
1, 1999. Winco Corporation has pledged 397,980 shares of their Struthers
common stock as security on the note and has granted WINCOM a secured
interest in the assets transferred.
Additionally, Winco Corporation assumed responsibility for the following
leases:
A. Residential property at 621 Stone Canyon, Los Angeles, California
B. Office space at 1825 Century Park East, Suite 930, Los Angeles,
California
C. All automobile leases.
F-31
<PAGE> 34
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE HELD FOR INVESTMENT
Real estate held for investment at June 30, 1996 is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
Name Date Location Type Liens Cost Cost
---- ---- -------- ---- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Erhart/Walker 05/26/95 Adelanto Lots $ 30,000 $ 175,002 $ 175,002
Tulare-Willow
Springs 08/11/95 Orosi 91 Lots 147,750 864,506 864,506
Tulare Krause 08/04/95 Springville Lots 33,850 204,208 204,208
Fresno-Katzman/
Krause 06/17/95 Kerman High school (ab) 221,000 2,000,000 2,000,000
Fresno BIG 06/27/95 Fresno Elementary (ab) -- 699,981 699,980
Adelanto-Brooks 06/06/95 Adelanto Lots -- 379,992 379,992
Penner 07/18/95 San Bernardino Lots -- 250,009 250,009
Capital Hills
Holding 08/31/95 Kern Lots 125,000 6,860,705 6,860,705
Capital Hills Dev. 08/31/95 Kern Lots 125,000 6,860,705 6,860,705
P. Kouri Corp. 08/31/95 San Bernardino Lots 70,000 1,059,995 1,059,995
L.C.I. Investments 08/31/95 Fresno Lots 130,000 2,316,196 2,316,196
Pudwill Commercial 10/12/95 Santa Monica 4 Office Bldgs. 1,450,000 3,683,333 2,333,333
Pudwill Lot 10/12/95 Santa Maria Lot 250,000 1,649,997 1,399,997
Karadetian
(Deposit) 11/06/95 Belair Lots -- 100,020 100,020
Westborn
Development 11/10/95 Santa Marcos Lots -- 2,600,004 2,600,004
Petty Trust 12/27/95 Riverside Lots -- 1,100,004 1,100,004
3HB International 05/31/96 Cleveland Commercial 88,000 5,000,016 5,000,016
Toma/Kouri Corp. 01/04/96 Loma Linda Land 0 1,183,000 1,183,000
---------- ----------- -----------
$2,670,600 $36,987,673 $35,387,672
Reserved Real
Estate held for
investment -- (8,000,000) (8,000,000)
---------- ----------- -----------
$2,670,600 $28,987,673 $27,387,672
========== =========== ===========
</TABLE>
F-32
<PAGE> 35
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
4. REAL ESTATE HELD FOR INVESTMENT (Continued)
The liens on the real estate acquired remain the obligation of the seller;
therefore, they are not reflected as a liability of the Company.
The Company acquired the real estate by issuing shares of WINCOM's Series
"B", "C" and "D". Cumulative Convertible Preferred Stock and recorded the
acquisition at the liquidation value of the preferred stock issued.
Management has estimated that the properties can be sold for at least
their recorded value.
However, it is reasonably possible estimates of the recorded value may
change in the near term.
In recognition of the potential for continued uncertainty in the
California real estate market the Company has provided for a general
reserve of $8,000,000 against real estate held for investment.
These transactions are subject to reversal if the transaction described in
Note 15 does not close, also see Note 17.
5. SHARES ISSUED TO ENTITIES WITH A MAJOR INVESTMENT IN THE COMPANY'S STOCK
The Company has acquired stock of two companies by exchanging shares. As a
result of these transactions, those companies have a significant
investment in the Company's stock as one of their major assets, the cost
has been reflected as an offset to the equity section. The transactions
are as follows:
INNOVATIVE MARKETING VENTURES
The Company acquired 28% of the outstanding stock of Innovative Marketing
Ventures on May 28, 1995 by issuing 200,000 shares of the Company's Series
"B" 7.5% Cumulative Convertible Preferred Stock valued at $3,334,000. The
transaction was accounted for on the cost basis.
Innovative Marketing Ventures manufactures and distributes water boards,
snow boards, skateboards and related apparel products. Their total assets
as of June 30, 1995 total approximately $4,700,000 and their stockholder's
equity is approximately $4,100,000. Included in their assets and equity is
$3,334,000 World Network of Companies, Inc. stock, $360,000 is
intangibles.
F-33
<PAGE> 36
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
5. SHARES ISSUED TO ENTITIES WITH A MAJOR INVESTMENT IN THE COMPANY'S STOCK
(Continued)
COMMAND PERFORMANCE NETWORK (CPN)
The Company issued 59,988 shares of its Series "A" Cumulative Convertible
Preferred Stock and 329,934 shares of its Series "C" Cumulative
Convertible Preferred Stock for a total consideration of $6,500,000 in
connection with a memorandum of understanding dated June 7, 1995.
On November 17, 1995, the Company agreed to accept CPN Series "A"
preferred shares that are convertible into two common shares for each
preferred share when either (i) CPN is able to liquidate all of the
preferred stock it has received from the Company or (ii) the Company
redeems for cash its preferred stock for $6.00 per share. In consideration
for this change, the Company was relieved of its obligation to provide any
additional financing.
CPN is also a development stage company and is preparing to produce a
sports information channel for cable television, satellite broadcast and
the internet.
As of July 31, 1995, the assets and stockholders' equity of Command
Performance Network, Inc. were comprised primarily of the World
Interactive Network, Inc. stock and Command Performance Network, Inc.
subscriptions receivable.
6. INVESTMENT IN UNCONSOLIDATED COMPANIES
The Company acquired 50 percent ownership in a limited liability company
which holds real estate. The other 50 percent owner is the manager of the
company. The original cost of the investment was recorded at the
liquidation value of the shares issued to acquire the Company's interest.
During June of 1996, the Company acquired a 50 percent ownership interest
in RTT, Inc. The Company issued 449,910 shares of Series "B" Cumulative
Convertible Preferred Stock for consideration of $7,500,000. The original
cost of the investment was recorded at the liquidation value of the shares
issued to acquire the Company's interest.
F-34
<PAGE> 37
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
7. PROPERTY AND EQUIPMENT
The property and equipment is comprised as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- --------
Amount Amount
---------- --------
<S> <C> <C>
Vehicles $ -- $259,997
Broadcast equipment 2,533,412 --
Software 5,500 --
---------- --------
2,538,912 259,997
Less accumulated depreciation 2,326 53,166
---------- --------
$2,536,586 $206,831
========== ========
</TABLE>
F-35
<PAGE> 38
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
8. BROADCAST LICENSES
The Company has acquired broadcast licenses in non-cash transactions
primarily in exchange for the World Integrated Network of Companies,
Inc.'s Series "C" & "D" Cumulative Convertible Preferred Stock and
assumption of installment obligations to the FCC. A summary of the
licenses acquired along with their cost is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Acquisition Shares Debt 1996 1995
------------ -------
Name Date Type No. Issued Assumed Cost Cost
---- ----------- ---- --- ------ ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Eagle 08/31/95 IVDS 15 599,880 $2,957,000 $ 12,957,000 $ 12,957,000
Earl S. Kim 12/29/95 MMDS 3 297,619 -- 12,500,000 12,500,000
Elleron 07/21/95 IVDS 12 450,240 2,223,000 9,728,501 9,728,501
Shaker Partners 08/31/95 IVDS 9 286,865 2,538,000 7,320,039 7,320,039
Rose Regency 06/09/95 IVDS 9 334,738 1,246,000 6,826,082 6,826,082
Micro-Lite 08/31/95 MMDS 12 359,964 -- 4,150,830 6,000,600
WCI 08/31/95 IVDS 3 214,414 1,545,000 5,119,281 5,119,281
21st Century Inter-
active 08/17/95 IVDS 7 189,516 1,476,000 4,635,232 4,635,232
Interactive Innova-
tions 08/31/95 IVDS 5 160,551 1,100,000 3,776,385 3,776,385
Interactive Control 08/31/95 IVDS 2 160,268 570,000 3,241,667 3,241,667
IVIDCO 08/17/95 IVDS 4 90,343 565,000 2,071,018 2,071,018
I.V.D.S. Co. 02/01/96 IVDS 1 713,737 - 11,898,000 -
WCA 08/31/95 IVDS 8 103,703 296,250 2,024,979 2,024,979
P.A.W. 08/31/95 IVDS 5 76,036 582,000 1,849,521 1,849,521
Mager Corp., Inc. 08/31/95 IVDS 1 59,785 456,000 1,452,616 1,452,616
21st Century Group 08/31/95 IVDS 5 66,143 268,000 1,370,604 1,370,604
Bay Shore 08/31/95 IVDS 3 45,884 262,000 1,026,886 1,026,886
Georgia Felger 08/31/95 IVDS 4 48,135 133,400 935,810 935,810
Emerging Tech. 08/31/95 IVDS 1 34,340 240,000 812,448 812,448
20th Century 05/31/96 IVDS 1 7,346 54,000 362,532 --
Low Power T.V. 02/16/96 TV 30 44,991 -- 750,000 --
------------ ------------ ------------
$ 16,511,400 $ 94,809,431 $ 83,648,669
------------ ------------ ------------
Less portion of purchase price allocated to complete the
minimum FCC required broadcast equipment build out -- 4,600,080 4,600,080
------------ ------------ ------------
$ 16,511,400 $ 90,209,351 $ 79,048,589
============ ============ ============
</TABLE>
F-36
<PAGE> 39
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
8. BROADCAST LICENSES (CONTINUED)
The licenses are subject to certain benchmark requirements established by
the FCC relating to commencing service. Should the required FCC benchmarks
not be met, the license involved could be forfeited. In addition, the
original licenses were granted at a discounted price to qualified buyers.
When the licenses are transferred to the Company the FCC may disallow this
discount. If the discount is not approved by the FCC the Company will owe
an additional $3,915,750. Also, the transfer of ownership of the licenses
is subject to FCC approval.
The Company has recorded the acquisition of the licenses at the
liquidation value of the stock plus the debt assumed. Management has
estimated that the recoverable value of the licenses exceeds their
recorded value. However, it is reasonably possible that the estimated
value or the useful life of the licenses may change in the near term.
Transfer of one of the licenses is dependent upon the completion of the
build out of the equipment required by the FCC, unless a waiver is
obtained from the FCC. The $4,600,080 of the purchase price allocated to
broadcast equipment is the estimated cost to build out high power
equipment. The cost of that equipment could increase by 400 percent should
the geographical area require low power equipment rather than high power.
Subsequent to year-end the Company and Micro-Lite Television revised the
existing agreement to exchange certain television station licenses and
therefore adjusted the purchase price to $4,150,830.
9. INTELLECTUAL PROPERTY RIGHTS
On April 5, 1994, the Company was granted a non-exclusive right to utilize
certain technology referred to as the "Vault" in connection with its
specialized interactive television programming. The license is for the
full duration of the existence of the licensed technology. The Company
issued 5,990,000 shares of common stock to its then sole shareholder to
acquire the license.
On June 30, 1995, the Company acquired the underlying intellectual
property rights for the "Vault" technology by issuing 29,750,000 shares of
common stock to its majority stockholder to acquire LNN Intellectual
Properties, Inc.
Generally accepted accounting principles require that the license and the
underlying intellectual property rights, referred to above, be valued at
the lower of predecessor cost (not including research and development
costs) or recoverable value. The shareholder has represented that its cost
in the technology was substantially research and development; therefore,
generally accepted accounting principles require these assets be recorded
at zero.
F-37
<PAGE> 40
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
10. OTHER LICENSE
On July 26, 1995, the Company purchased a license from Durand
Communications, Inc. to be the sole and exclusive provider of TV generated
content pertaining to direct response products and sources, including but
not limited to television direct response formats and/or promotions which
are to be reformatted for Internet Dial-Up (On Line) service, via the
"MindWire" Network which license grants WIN-TV the exclusive right to list
itself, through a dedicated "WIN" button, on the MindWire Network
Navigator. The MindWire Network Navigator is a utility application used to
assist end users in navigating MindWire Servers which have volunteered to
become part of the MindWire Network. The MindWire Network is a linking of
MindWire servers throughout the world via a feature called WIPLINK and the
Internet.
As consideration for the license, the Company agreed to issue 14,997
shares of its Series "C" Cumulative Convertible Preferred Stock valued at
$232,497. In addition, the Company will pay a royalty on all promotions
advertised on the WIN-TV MindWire. The royalty is approximately 5% of the
net sales price.
11. DEBENTURES AND DEMAND LOANS PAYABLE
DEBENTURES PAYABLE
During 1994 and 1993 the Company issued 12% participating debentures due
one year from the issue date. During 1994 all except $115,300 of these
debentures were exchanged for Preferred Series "A" shares. The remaining
debentures are due on demand with interest payable monthly.
DEMAND LOANS PAYABLE
Demand loans payable at June 30, 1996 consist of $144,095 that the Company
has borrowed from various individuals with no stated interest or payment
terms, due on demand, and $1,598,852 of debt outstanding which bears
interest at varying rates between 10% to 12% is due within the next twelve
months and is secured by Pudwill Real estate.
12. LONG-TERM DEBT - INSTALLMENT OBLIGATIONS TO FCC
In connection with the acquisition of broadcast licenses, the Company has
agreed to assume related installment obligations to the FCC. The
obligations are payable in quarterly installments of interest only through
December 31, 1996 and in equal payments of principal and interest through
December 31, 1999. Interest on the obligations varies per license from
7.125 to 7.71 percent.
F-38
<PAGE> 41
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
12. LONG-TERM DEBT - INSTALLMENT OBLIGATIONS TO FCC (CONTINUED)
The following is a summary of the principal maturity of long-term debt
during the next five years.
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 $ 4,309,070
1998 5,686,019
1999 6,516,561
--------------
$ 16,511,650
==============
</TABLE>
Upon transfer of the licenses, the FCC may accelerate the required
payments on this debt.
13. STOCKHOLDERS' EQUITY
The Company has authorized common and four series of preferred shares as
follows:
COMMON STOCK
During 1995 the Company increased the number of authorized shares of
common stock from 25,000,000 shares to 75,000,000 shares for the purposes
of carrying out its business plan and to award certain key Officers,
Directors and Consultants equity interests in the Company as partial
compensation for services rendered. Of these shares, 5,222,000 were
awarded as compensation totaling $5,222. The par value is .001.
As of December 31, 1995, the issued and outstanding shares totaled
55,342,000 shares. At June 30, 1996 the total outstanding was 73,236,000.
PREFERRED "A" STOCK
On April 4, 1994, the Company authorized 900,000 shares of its $16.67
Series "A" Cumulative Convertible Preferred Stock. There were 656,979
shares issued and outstanding at December 31, 1995 and 817,462 outstanding
at June 30, 1996. Each Series "A" share is convertible into two common
shares. The shares accrue dividends at 10% per year. The Board of
Directors has not authorized payment of accrued dividends.
F-39
<PAGE> 42
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
13. STOCKHOLDERS' EQUITY (CONTINUED)
PREFERRED "B" STOCK
On March 23, 1995, the Company authorized 1,200,000 shares of its "B"
series of preferred stock with an annual dividend of 7.5% and liquidation
preference of $16.67. Each share is convertible into one and one-half
common shares. As of December 31, 1995 and June 30, 1996, 1,199,103 and
1,196,303 shares respectively, of the Series "B" Preferred Stock were
issued and outstanding.
PREFERRED "C" STOCK
On June 25, 1995, the Company authorized a "C" series of Cumulative
Convertible Preferred Stock bearing an annual dividend yield of 7% and a
liquidation preference of $16.67. Each share is convertible into two
shares of common stock. As of December 31, 1995, the Company had 6,000,000
shares of its Series "C" authorized, and 5,636,924 shares issued, and
outstanding. At June 30, 1996 there were 5,964,984 shares outstanding.
CONVERSION FEATURE
The Series "A", "B", "C" and "D" Cumulative Convertible Preferred Stock
shall be convertible at the option of the holder upon the occurrence of an
initial public offering of common stock underwritten pursuant to a
registration statement filed under the Securities Act of 1933.
PREFERRED "D" STOCK
On June 11, 1996, the Company authorized 2,380,952 shares of its $42
Series "D" Cumulative Convertible Preferred Stock. There were 1,357,076
shares issued and outstanding at June 30, 1996. Each Series "D" share 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. At June 30, 1996, the
Company issued 11,875 shares of Preferred "D" Stock to various investors
as an inducement to purchase Preferred "A" stock. The shares of Preferred
"D" Stock issued were recorded at a zero value.
F-40
<PAGE> 43
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
ACCUMULATED PREFERRED DIVIDENDS
Total accumulated but undeclared dividends are approximately as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Series "A" $ 929,773 $ 890,939
Series "B" 677,587 1,040,836
Series "C" 5,787,055 2,606,512
---------- ----------
$7,394,415 $4,538,287
========== ==========
</TABLE>
14. INCOME TAXES
As of December 31, 1995 and June 30, 1996, the net deferred income tax
asset arising because of timing difference from the capitalization and
amortization of start-up costs for tax accounting and due to the net
operating loss carryforward was approximately $12,250,000. Because it is
more likely than not that the deferred tax asset will not be realized, a
valuation allowance of an equal amount has been used to offset the
recognition in the financial statements.
The Tax Reform Act of 1986 contains provisions which limit the federal net
operating loss carryforwards available that can be used in any given year
in the event of certain occurrences, which include significant ownership
changes. The plans discussed in Note 15 could significantly limit the use
of the net operating loss carryforward.
15. AGREEMENT TO SELL - GOING CONCERN
On May 25, 1995 (as amended in May 1996 and September 1996), the Company
agreed to a merger with Struthers Industries, Inc. (Struthers) in exchange
for approximately ninety-two percent of Struthers' issued and outstanding
common stock on a fully diluted basis. See subsequent event note 17 for
details of the sale.
F-41
<PAGE> 44
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
15. AGREEMENT TO SELL - GOING CONCERN (CONTINUED)
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. At June 30, 1996 the Company has
negative working capital of approximately $4,000,000 and accumulated
losses of approximately $36,359,000 these conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
Management has alternative plans to raise the capital needed to continue
its development stage activities, however, there is no assurance that
these plans will be successful. In addition, the Company has received
$6,000,000 which is being held in escrow pending when certain conditions
are met. When these conditions are ment, the $6,000,000 will be available
to fund the operations of the Company.
16. COMMITMENTS AND CONTINGENCIES
SHARES ISSUED FOR FUTURE OBLIGATIONS
The Company has issued Series "A", "B", "C" and "D" Cumulative Convertible
Preferred Shares to secure payments of amounts due, as a retainer for
future services or as a guarantee. Those shares are reflected as
outstanding with a corresponding charge to equity until the consideration
for the shares is realized. The shares issued are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
<S> <C> <C>
Guarantee Bond - Shares of the Company's Cumulative Convertible Preferred
Stock had been issued as collateral for a one million dollar 5-year
guarantee bond for Innovative Marketing Ventures $ -- $ 1,000,000
Legal Fees - The Company issued shares of the Company's Series "A" and
shares of Series "B" Cumulative Convertible Preferred Stock as security
for legal fees due and payable 500,125 500,000
Retainers - The Company issued shares of Series "A", Series "B" and Series
"C" preferred stock and shares of common stock to various individuals as
retainers to guarantee the availability of their services. As of June 30,
1996, no services have been utilized 7,109,054 3,029,639
------------ -------------
$ 7,609,179 $ 4,529,639
============ =============
</TABLE>
F-42
<PAGE> 45
WINCOM CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
AGREEMENT TO DELIVER PUBLICLY TRADED SECURITIES
The Company entered into agreements to acquire approximately $60,292,000
in assets. These assets were acquired through the issuance of preferred
stock or by agreements to issue future publicly traded securities. During
June 1996, substantially all agreements to issue future publicly traded
securities were rescinded and were replaced with the issuance of Series
"D" Cumulative Preferred Stock.
REDEMPTION OF PREFERRED SHARES
The Company has agreements with certain preferred stockholders holding
3,834,288 shares of Series "C" Cumulative Convertible Preferred Stock to
exchange each share for two common shares of publicly traded stock after
the closing of the transaction described in Note 15. If the shares are
trading at less than $8.3125 per share, the Company has agreed to issue
additional shares to result in a value of $16.625 per preferred share
exchanged. The redemption would result in a decrease in stockholders'
equity and an increase in the minority interest in consolidated assets.
17. SUBSEQUENT EVENTS
STRUTHERS MERGER
On September 6, 1996, Struthers acquired 100 percent of the issued and
outstanding common stock of the Company, from its sole stockholder WINCO
Corp., in return for 92% of Struthers outstanding common stock. The
completion of this sale satisfies the terms of the contingent asset
purchases described in Notes 4, 8 and 15.
PROPERTY RIGHTS
On July 23, 1996 the Company sold $6,000,000 worth of its rights, title
and interest in the recordings, discs, tapes and catalogs, purchased from
Maestro Holding Corporation. As consideration, the buyer, New Visual
Entertainment, Inc. a Utah Corporation, issued to the Company $6,000,000
worth of its preferred stock, having a liquidation value of $30 per share.
The issuance shall be under a two-year certificate with a 3-to-1
conversion rate. Additionally, the Company will receive a 2.5% royalty,
from the gross profits of New Visual Entertainment's business activity
related to this transaction.
F-43
<PAGE> 46
SUMMARY CONSOLIDATED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma balance sheet presents the
consolidated financial position of Struthers at June 30, 1996, assuming that
the reverse acquisition of WINCOM and the sale of Rose International Ltd. had
occurred as of June 30, 1996. The accompanying unaudited pro forma statement of
operations give effect to the acquisition as if the acquisition took place on
January 1, 1995.
The following unaudited consolidated pro forma financial data should be
read in conjunction with the separate historical financial statements and notes
thereto of Struthers and WINCOM. The following unaudited consolidated pro forma
financial data is presented for information purposes only and is not
necessarily indicative of the results of future operations of the entity or the
financial results that would have been achieved had the acquisition been
consummated on the dates presented.
F-44
<PAGE> 47
STRUTHERS INDUSTRIES, INC.
PROFORMA FINANCIAL INFORMATION
June 30, 1996
<TABLE>
<CAPTION>
Sale of Proforma Proforma
BALANCE SHEET Struthers Wincom Rose Intl. Adjustments Combined
---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash 582,981 295,415 287,566
Equity securities 104,183 104,183
Receivables, net 1,555,029 1,074,908 4,000,000(2) 4,480,121
Inventories 1,810,403 1,695,417 114,986
Loans receivable 164,371 164,371
Other assets 149,880 1,173,589 36,544 1,286,925
---------- ----------- --------- ---------- -----------
Total Current Assets 4,202,476 1,337,960 3,102,284 4,000,000 6,438,152
Property and equipment, net 7,050,315 2,536,586 6,316,632 3,270,269
Broadcast licenses 90,209,351 90,209,351
Deposits on broadcast equipment buildout 4,600,080 4,600,080
Real estate held for investment 28,987,673 28,987,673
Property rights 12,000,030 12,000,030
Investment in unconsolidated related company 8,141,532 8,141,532
Goodwill 2,357,825 2,357,825 0
Loans receivable from related parties 8,065,152 8,065,152
Other 834,796 326,148 309,796 851,148
---------- ----------- --------- ---------- -----------
Total Assets 14,445,412 156,204,512 12,086,537 4,000,000 162,563,387
========== =========== ========= ========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued liabilities 1,301,468 2,423,508 726,616 2,998,360
Accrued settlement 3,250,000 3,250,000
Debentures payable 115,300 115,300
Demand loans payable 1,742,947 1,742,947
Bank overdraft 151,937 151,937
Current portion of long-term debt 199,729 100,567 99,162
---------- ----------- --------- ---------- -----------
Total Current Liabilities 4,751,197 4,433,692 827,183 8,357,706
Long term obligations 710,276 16,511,650 168,302 17,053,624
Minority interest 241,669 241,669
Commitment and contingencies
Stockholders Equity
Common stock and
Additional paid in capital 37,143,604 760,722 (35,132,543)(1) 2,771,783
Preferred stock 189,344,898 189,344,898
Stock subscription receivable (210,000) (135,010) (345,010)
Shares issued for future obligations (7,609,179) (7,609,179)
Shares issued to entities with a major
Investment in the Company's stock (10,743,022) (10,743,022)
Foreign currency translation adjustment (36,502) (36,502) 0
Accumulated deficit (28,154,832) (36,359,239) (45,913) 28,200,745 (1) (36,267,413)
---------- ----------- --------- ---------- -----------
Total Stockholders Equity 8,742,270 135,259,170 (82,415) (6,931,798) 137,152,057
Total Liabilities and Stockholders Equity 14,445,412 156,204,512 1,154,739 (6,931,798) 162,563,387
========== =========== ========= ========== ===========
</TABLE>
F-45
<PAGE> 48
<TABLE>
<CAPTION>
Six months ended June 30, 1996
Sale of Proforma Proforma
STATEMENT OF OPERATIONS Struthers Wincom Rose Intl. Adjustments Combined
--------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues 4,139,790 7,310 3,445,951 701,149
Cost of Sales 3,295,265 2,554,466 740,799
--------- ---------- --------- ---------- -----------
Gross profit 844,525 7,310 891,485 1,743,320
Selling, General and Administrative 1,226,426 11,655,284 594,398 12,287,312
Interest 132,559 27,051 105,508
Settlement expense 0
Write-down on certain assets
Loss on sale of assets 73,700 (6,931,798)(2) (6,858,098)
Equity in joint venture losses 71,847 71,847 0
Loss (gain) on equity securities (174,428) (167,172) (7,256)
Other income (153,479) 2,778,570 (5,011) (150,000)(3) 2,480,102
--------- ---------- --------- ---------- -----------
1,176,625 14,433,854 521,113 (7,081,798) 8,007,568
Loss from continuing operations before
income tax expense and minority interest (332,100) (14,426,544) 370,372 7,081,798 (6,264,248)
Income tax expense (benefit) (811,000) (811,000) 0
--------- ---------- --------- ---------- -----------
478,900 (14,426,544) 1,181,372 7,081,798 (6,264,248)
Minority interest (39,669) (39,669) 0
--------- ---------- --------- ---------- -----------
Income (Loss) from continuing operations 439,231 (14,426,544) 1,141,703 7,081,798 (12,845,610)
========= =========== ========= ========== ===========
Year ended December 31, 1995
STATEMENT OF OPERATIONS
Revenues 1,623,694 11,530 1,635,224
Cost of Sales 1,563,933 1,563,933
---------- ----------- --------- --------- -----------
Gross profit 59,761 11,530 71,291
Selling, General and Administrative 1,527,432 8,416,085 9,943,517
Interest 61,117 61,117
Settlement expense 3,750,000 3,750,000
Write-down on certain assets 1,019,634 8,000,000
Loss on sale of assets (6,931,798)(2) (6,931,798)
Equity in joint venture losses 0
Loss (gain) on equity securities 28,391 28,391
Other income (166,130) (300,000)(3) (466,130)
---------- ----------- --------- ---------- -----------
6,220,444 16,416,085 (7,231,798) 6,385,097
Loss from continuing operations before
income tax expense and minority interest (6,160,683) (16,404,555) 7,231,798 (6,313,806)
Income tax expense (benefit) 1,208,000 1,208,000
---------- ----------- --------- ---------- -----------
(7,368,683) (16,404,555) 7,231,798 (7,521,806)
Minority interest 0 0
---------- ----------- --------- --------- -----------
Loss from continuing operations (7,368,683) (16,404,555) 0 7,231,798 (23,773,238)
========== =========== ========= ========== ===========
</TABLE>
Notes:
F-46
<PAGE> 49
1. Adjustment to reflect the acquisition of WINCOM with WINCOM as the acquirer
(reverse acquisition).
2. Assumes the sale of Rose International Ltd at the June 30 balance sheet date
for a note receivable of $4,000,000.
3. Assumes that the note receivable of $4,000,000 bears interest at 7.5% per
annum.
F-47
<PAGE> 50
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRUTHERS INDUSTRIES INC.
By: /s/ Sean P. O'Keefe
-----------------------------
Sean P. O'Keefe, President
Date: November 13, 1996
