(1) RESTATED NOTE 3.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
DEVELOPMENT DEVELOPMENT STAGE
STAGE OPERATIONS
OPERATIONS (INCEPTION)
YEAR ENDED DECEMBER 31, 1997
DECEMBER 31, 1998 (RESTATED NOTE 3)
----------------- -----------------
Cash Flows from Operating Activities:
Net(Loss)
Development Stage Operations $ (2,313,977) $ (2,019,925)
Discontinued Operations (3,833,214) (450,127)
Adjustments to Reconcile Net(Loss) to Net Cash (Required)by Operating Activities: Depreciation and Amortization
Development Stage Operations 32,291 3,226
Discontinued Operations --- 14,924
Changes in Assets and Liabilities:
Prepaid Expenses (39,535) -0-
Loans Receivable (21,042) -0-
Deposits 3,553 (8,780)
Accounts Payable 856,292 604,233
Due to Related Parties 197,294 35,329
Decrease in Commitments and
Contingencies (97,907) ---
Net Assets and Liabilities of
Discontinued Operations (163,814) 68,004
----------------- -----------------
Net Cash (Required) by
Operating Activities (5,380,059) (1,753,126)
----------------- -----------------
Cash Flows from Investing Activities:
Acquisition of Property and Equipment
Development Stage Operations (185,008) (28,780)
Discontinued Operations --- (35,287)
(Acquisition) Write-off of Intangibles
Development Stage Operations (83,936) (913,490)
Discontinued Operations 3,343,750 (3,343,750)
----------------- -----------------
Net Cash Provided(Required)
by Investing Activities 3,074,806 (4,321,307)
----------------- -----------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
DEVELOPMENT DEVELOPMENT STAGE
STAGE OPERATIONS
OPERATIONS (INCEPTION)
YEAR ENDED DECEMBER 31, 1997
DECEMBER 31, 1998 (RESTATED NOTE 3)
----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 3,132,513 5,092,769
Proceeds from Issuance of Notes 99,453 85,000
(Decrease)Increase from Loans (824,991) 897,743
----------------- -----------------
Net Cash Provided by Financing
Activities 2,406,975 6,075,512
----------------- -----------------
Net Increase(Decrease) in Cash
Development Stage Operations 109,842 73
Discontinued Operations (8,120) 1,006
----------------- -----------------
Net Increase in Cash $ 101,722 $ 1,079
================= =================
Supplemental Disclosure of Cash Flow Information (Note 16)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-
This summary of significant accounting policies is presented to assist in understanding these consolidated financial statements. The consolidated financial statements and notes are representations of management who is responsible for their integrity and objectivity. The accounting policies used conform to generally accepted accounting principles and have been consistently applied in the preparation of these consolidated financial statements.
ORGANIZATION
The Company was incorporated in October 1989 as Natural Child Collection, Inc. and changed its name to Natural Child Care, Inc. ("NCC") in January 1991. In September 1993, NCC purchased Winners All Limited ("WAL"). This acquisition was treated as a re-capitalization. The re-capitalization was accounted for as a reverse acquisition, with WAL the surviving successor. On October 27, 1993, the legal name of the Company was changed to Winners All International, Inc. The Company was operationally inactive from August 1, 1995 through January 26, 1997. Pursuant to a January 29, 1997 Board of Directors meeting, resolutions pertaining to discontinue all former operations, retroactive to the year ended July 31, 1995, were ratified. On February 17, 1997, the Company changed its former fiscal year of July 31, to December 31. During 1997, the Company acquired all of the issued and outstanding capital stock of Urecoats International, Inc. ("Urecoats") and Designer Wear, Inc. ("DWI"). On October 8, 1997, DWI acquired all of the issued and outstanding capital stock of ROK International, Inc. ("ROK"). On February 8, 1999, the legal name of the Company was changed to Urecoats Industries Inc. (the "Company").
BUSINESS
Urecoats is engaged in the acquisition, formulation, marketing and distribution of sealant and coating products containing recycled materials in their compositions. The Board of Directors passed a unanimous resolution dated April 14, 1999, in lieu of a Special Meeting pursuant to Notice, to discontinue the Branded Merchandise operations, retroactive for the year ended December 31, 1998. (See Note 3)
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material inter-company items and transactions have been eliminated.
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
-
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted Statement of Financial Accounting Standards No. 107 "Disclosure About Fair Value of Financial Instruments", which requires the disclosure of the fair value of off-and-on balance sheet financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments (none of which are held for trading purposes), approximate the carrying values of such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at historical cost. Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to operations. Additions and betterments, which extend the useful lives of the assets, are capitalized. Upon retirement or disposal of the property and equipment, the cost and accumulated depreciation are eliminated from the accounts, and the resulting gain or loss is reflected in operations.
INTANGIBLE ASSETS
Intangible assets, which primarily consist of the cost of acquired businesses in excess of the fair value of tangible assets and liabilities acquired (Goodwill) and capitalized patent application costs, are amortized, commencing in the year of significant revenue recognition, by the straight-line method over estimated useful lives of 40 years, and 10 years, respectively.
Pursuant to Statement of Accounting Standards 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets to be Disposed of", long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever there is an indication that the carrying amount of the asset may not be recoverable. Recoverability of these assets are determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount including associated intangible assets of such operation. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Measurement of an impairment loss is based on the fair value of the underlying asset. Fair value is principally determined by discounted cash flows, depending upon the nature of the assets.
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
-
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to both future and present products are charged to operations as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires the establishment of a deferred tax asset or liability for the recognition of future deductions or taxable amounts, and operating loss and tax credit carry-forwards. Deferred tax expense or benefit is recognized as a result of the change in the deferred asset or liability during the year. If necessary, the Company will establish a valuation allowance to reduce any deferred tax asset to an amount which will more likely than not be realized.
OPTIONS
Options have been recorded at fair market value on the date of grant and exercised in the applicable period.
NET EARNINGS PER COMMON SHARE
The Company accounts for earnings per share in accordance with Statement of Financial Accounting Standard 128 ("SFAS 128") "Earnings Per Share". Basic earnings per share is based upon the net earnings applicable to common shares after preferred dividend requirements and upon the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the effect of the assumed conversions of convertible securities and exercise of stock options only in the periods in which such effect would have been dilutive.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which considers continuation of the Company as a going concern.
Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. As shown in the consolidated financial statements, the Company has suffered recurring losses resulting in an accumulated deficit of $13,379,285 from discontinued operations and $4,333,902 from development stage operations. The Company must also obtain a significant amount of capital for the future development of its product line.
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2 - GOING CONCERN CONTINUED
Management believes that in order to maximize resources the discontinuance of Branded Merchandise Products operations was necessary in restructuring the Company towards future profitable activities. The Company plans to raise significant capital through the issuance of additional shares of stock, the outcome of which cannot be determined at this time. These factors raise substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might result from these uncertainties.
NOTE 3 - DISCONTINUED OPERATIONS
As a result of pending litigation (Note 12), recurring losses and limited resources, the Board of Directors passed a unanimous resolution, in lieu of a Special Meeting pursuant to Notice, dated April 14, 1999, to discontinue the activities of DWI and ROK, retroactive for the year ended December 31, 1998. (See Note 3) DWI and ROK were engaged in the acquisition of license agreements for the design, contract manufacturing, sale, and worldwide distribution of Branded Merchandise products.
Operations related to Branded Merchandise products have been reflected in Loss from Discontinued Operations, including the write-off of intangibles of $3,359,856 (Goodwill, Trademark Agreements and Deferred Charges), for the year ended December 31, 1998. Operations for the year ended December 31, 1997 have been restated to conform with the current year's presentation.
On July 1, 1997, the Company, pursuant to an Acquisition Agreement dated March 27, 1997, exchanged 5,376,000 shares of its unregistered, restricted common stock, to acquire 100% of the issued and outstanding stock of DWI, of which 33% was owned by former or current officers of the Company. The acquisition was accounted for as a purchase and was included in consolidated operations of the Company as discontinued operation from that date through December 31, 1997.
On October 8, 1997, DWI exchanged 1,200,000 shares of the Company's restricted common stock and cash of $143,652, to acquire 100% of the issued and outstanding stock of ROK. The acquisition was accounted for as a purchase and was included in the consolidated operations of DWI as discontinued operations from that date through December 31, 1997.
In accordance with Accounting Principle Board Opinion #16, the unaudited pro forma consolidated results of operations of the Company are as follows:
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 3 - DISCONTINUED OPERATIONS CONTINUED
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
"PRO FORMA"
(UNAUDITED)
YEAR ENDED
DECEMBER 31, 1997
(RESTATED NOTE 3)
-----------------
Revenues $ 70,631
-----------------
Costs and Expenses $ 3,034,998
-----------------
Net (Loss) from Discontinued Operations $ (2,964,367)
-----------------
Net (Loss) per Common Share $ (0.133)
-----------------
Weighted Average Shares Outstanding 22,339,736
----------------- |
