10-K 1 form10k123105v13.txt WINSTED 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------------------------- FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005. |_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM COMMISSION FILE NO. 0-32333 WINSTED HOLDINGS, INC. ------------------------------------------------- (Exact name of issuer as specified in its charter) FLORIDA 65-0972865 --------------------------------- ------------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 100 CRESCENT COURT, SUITE 700 DALLAS, TEXAS 75201 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 459-8245 Securities registered under Section 12(b) of the Exchange Act: NONE Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, NO PAR VALUE PER SHARE ---------------- (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes |X| No |_| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |_| No |X| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of a "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes |_| No |X| State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter: $2,721,640. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of March 31, 2006: 18,442,722 (post reverse-splits). Documents incorporated by reference: None. 2 TABLE OF CONTENTS Item 1. Business.........................................................4 Item 1A. Risk Factors.....................................................7 Item 2. Properties......................................................13 Item 3. Legal Proceedings...............................................13 Item 4. Submission of Matters to a Vote of Security Holders.............13 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities............13 Item 6. Selected Financial Data.........................................14 Item 7. Management's Discussion and Analysis or Plan of Operation.......15 Item 7A. Quantitative and Qualitative Disclosure about Market Risk.......21 Item 8. Financial Statements and Supplementary Data.....................22 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.....................................22 Item 9A. Controls and Procedures.........................................22 Item 10. Directors and Executive Officers of the Registrant..............22 Item 11. Executive Compensation..........................................24 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...................25 Item 13. Certain Relationships and Related Transactions..................26 Item 14. Principal Accountant Fees and Services..........................26 Item 15. Exhibits........................................................27 3 PART I ITEM 1. BUSINESS. Statements in this Form 10-K Annual Report may be "forward-looking statements." Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and probably will, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this Form 10-K Annual Report, including the risks described under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in other documents which we file with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to our financial condition, factors that affect our industry, market and customer acceptance, competition, government regulations and requirements and pricing, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-K Annual Report. COMPANY OVERVIEW Effective November 22, 2004, we became a "business development company" by filing a Form N-54 with the Securities and Exchange Commission and electing to be governed by sections 54 through 65 of the Investment Company Act of 1940, as amended. We will continue to be subject to the periodic reporting requirements of the Exchange Act and the proxy solicitation requirements of Section 14 of the Exchange Act. Our management personnel will continue to report trading in our stock. Effective December 6, 2004, we entered into a stock purchase agreement with Medspa Solutions, Inc., a Nevada corporation ("Medspa Solutions"), to purchase all of the issued and outstanding capital stock of Medspa. Medspa is in the business of skincare services. The total consideration paid by us for the shares of Medspa consisted of 5 shares (post reverse-splits) of our common stock, no par value per share. The 5 shares (post reverse-splits) of our common stock were automatically converted into 1,000,000 shares of our Series B preferred stock, no par value per share, upon the filing of the certificate of designation for the Series B preferred stock with the Secretary of State of Florida on January 12, 2005. As a result of the acquisition, Medspa Solutions became our wholly-owned subsidiary. MedSpa Solutions is in the business of providing high-quality skin care and non-surgical cosmetic procedures in a spa-like environment. MedSpa Solutions offers procedures such as botox, laser hair removal, IPL-skin rejuvenation, microdermabrasion, chemical peels, collagen, and leg vein treatment. More information is available at www.medspasolutions.com/index. With the completion of the MedSpa Solutions acquisition, we plan to enter the rapidly growing market of aesthetic skin care treatments. During the year ended December 31, 2005, the Company purchased 90% of the outstanding common stock of GaeaCare Syndicate Partners, Inc. ("GaeCare")for $3,000 cash. GaeaCare is a proactive environmental products and services corporation that intends to become a leading environmental cleanup, emergency response, and environmental remediation company by the use of new computer systems technology, sensor technology, communications technology, systems concepts and microbial environmental cleanup treatment. At December 31, 2005, the Company determined that the fair value of its investment in GaeaCare was $0. The amount of $3,000 was charged to operations during the year ended December 31, 2005. 4 As of December 31, 2005, the Company has purchased 2% of the issued and outstanding capital stock of Nu Image Medspa, Inc., a Nevada corporation ("Nu Image"). The Company has purchased 2,576,000 shares of Nu Image for cash payments of $270,300 from the Company's chief executive officer, who continues to own the remaining 98% of Nu Image Medspa. Nu Image is in the business of franchising medical spa facilities, which provide skincare services. At December 31, 2005, the Company determined that the fairvalue of Nu Image was $0, and charged the amounts of $270,300 to operations during the year ended December 31, 2005. CURRENT BUSINESS PLAN Our current purpose is to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to us by persons or firms who or which desire to seek the perceived advantages of a corporation which is registered under the Exchange Act. We do not restrict our search to any specific business, industry or geographical location and we may participate in a business venture of virtually any kind or nature. We may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service or for other corporate purposes. We may acquire assets and establish wholly owned subsidiaries in various businesses or acquire existing businesses as subsidiaries. As part of our investigation of potential merger candidates, our officers and directors will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check references of management and key personnel and take other reasonable investigative measures, to the extent of our financial resources and management expertise. The manner in which we participate in an opportunity will depend on the nature of the opportunity, the respective needs and desires of us and other parties, the management of the opportunity, our relative negotiation strength and that of the other management. We intend to concentrate on identifying preliminary prospective business opportunities that may be brought to our attention through present associations of our officers and directors, or by our shareholders. In analyzing prospective business opportunities, we will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operations, if any; prospects for the future; nature of present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact our proposed activities; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services or trades; name identification; and other relevant factors. Our officers and directors will meet personally with management and key personnel of the business opportunity as part of their investigation. We will not acquire or merge with any company for which audited financial statements cannot be obtained within a reasonable period of time after closing of the proposed transaction, as required by the Exchange Act. We will not restrict our search to any specific kind of firms, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or which is in essentially any stage of its corporate life. It is impossible to predict at this time the status of any business in which we may become engaged, in that such business may need to seek additional capital, may desire to have its shares publicly traded or may seek other perceived advantages which we may offer. 5 REVERSE SPLITS The Board of Directors approved the following reserve splits of the Company's common stock: Effective Date Reverse split ratio -------------- ------------------- August 17, 2003 1 for 250 August 16, 2004 1 for 250 November 29, 2004 1 for 1,000 March 7, 2005 1 for 1,000 June 23, 2005 1 for 1,500 January 26, 2006 1 for 1,250 All of these reverse splits of the Company's common stock are reflected in the Company's financial statements at December 31, 2005. The cumulative effect of these reverse splits at December 31, 2005 is the result of the multiplication of each stock split ratio, or 250 x 250 x 1,000 x 1,000 x 1,000 x 1,500 x 1,250. The product of this equation equals the number of shares of common stock at August 16, 2003 that would be worth 1 share of common stock at December 31, 2005. This large dilution factor renders all items based in shares or per share amounts essentially not comparable over different accounting periods. Many of the share amounts in prior periods, when adjusted for the cumulative effects of the reverse splits, are a small fraction of one share. Per share amounts which yield less than one share of common stock when adjusted for the effects of the reverse splits are indicated by the symbol *, or by the phrase "less than one share". Similarly, some items measured in per share amounts, such as earnings per share, are too large to have any significant meaning to the reader of the financial statements. All share and per share amounts presented in our financial statements which are part of this Annual Report on Form 10-K have been restated retroactively to reflect these reverse splits. However, all share and per share amounts have not been restated retroactively to reflect the reverse splits in the narrative portion of this Annual Report on Form 10-K. Consequently, the retroactive restatement may cause some apparent inconsistencies between the narrative portion of this Annual Report on Form 10-K and other filings with the Securities and Exchange Commission on one hand, and the financial statements and accompanying notes forming part of this Annual Report on Form 10-K on the other hand. KEY PERSONNEL Our future financial success depends to a large degree upon the efforts of Mark Ellis, our officer and one of our directors. Mr. Ellis has played major roles in developing and executing our business strategy. The loss of Mr. Ellis could have an adverse effect on our business and our chances for profitable operations. While we intend to employ additional management and marketing personnel in order to minimize the critical dependency upon any one person, there can be no assurance that we will be successful in attracting and retaining the persons needed. If we do not succeed in retaining and motivating our current employees and attracting new high quality employees, our business could be adversely affected. We do not maintain key man life insurance on the life of Mr. Ellis. OUR FINANCIAL RESULTS MAY BE AFFECTED BY FACTORS OUTSIDE OF OUR CONTROL Our future operating results may vary significantly from quarter to quarter due to a variety of factors, many of which are outside our control. Our anticipated expense levels are based, in part, on our estimates of future revenues and may vary from our projections. We may be unable to adjust spending rapidly enough to compensate for any unexpected revenues shortfall. Accordingly, any significant shortfall in revenues in relation to our planned expenditures would materially adversely affect our business, operating results, and financial condition. We cannot predict with certainty our revenues and operating results. Further, we believe that period-to-period comparisons of our operating results are not necessarily a meaningful indication of future performance. CORPORATE OFFICES Our executive office is located at 100 Crescent Court, Suite 700, Dallas, Texas 75201, telephone number (214) 459-8245.. CHANGES IN OUR CORPORATE STRUCTURE Effective January 12, 2005, we filed a certificate of designation for the Series B preferred stock with the Secretary of State of Florida. 50,000,000 shares have been designated as Series B preferred stock. Each share of the Series B preferred stock is convertible into 10 shares of our common stock on all matters submitted to a vote of the holders of the common stock, including, without limitation, the election of directors, a holder of shares of the Series B preferred stock shall be entitled to the number of votes on such matters equal to the number of shares of the Series 6 B preferred stock held by such holder multiplied by the number of shares of the common stock each such share of the Series B preferred stock shall then be convertible. Effective March 7, 2005, we changed our name to "Winsted Holdings, Inc." and implemented a 1-1,000 reverse split of our issued and outstanding common shares. In addition, we have signed a Letter of Intent to merge with Nu Image MedSpa, Inc. CHANGE OF CONTROL On February 24, 2003, we entered into a share purchase agreement with Mark Ellis and Jeffrey Black providing for the purchase by Mr. Ellis from Mr. Black of 271,000,000 shares of our common stock, no par value, for a total purchase price of $20,000. As a result of this transaction, Mr. Ellis acquired at 71.99 percent beneficial ownership in us. On February 27, 2003, Mark Ellis was elected as our chief executive officer and sole director. Simultaneous with Mr. Ellis' election as our officer and director, Jeffrey Black and Jonathan Miller resigned as our officers and directors. We are looking to merge or acquire an interest in business opportunities. Effective November 22, 2004, we became a "business development company," as described more fully in "Company Overview," supra. EMPLOYEES We have 3 full-time employees and no part-time employees as of December 31, 2005. As we grow, we will need to attract an unknown number of additional qualified employees. Although we have experienced no work stoppages and believe our relationships with our employees are good, we could be unsuccessful in attracting and retaining the persons needed. None of our employees are currently represented by a labor union. We expect to have a ready source of available labor to support our growth. ITEM 1A. RISK FACTORS. NEED FOR ONGOING FINANCING. We will need additional capital to continue our operations and will endeavor to raise funds through the sale of equity shares and revenues from operations. There can be no assurance that we will generate revenues from operations or obtain sufficient capital on acceptable terms, if at all. Failure to obtain such capital or generate such operating revenues would have an adverse impact on our financial position and results of operations and ability to continue as a going concern. Our operating and capital requirements during the next fiscal year and thereafter will vary based on a number of factors, including the level of sales and marketing activities for our services and products. There can be no assurance that additional private or public financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations. If we raise additional funds by issuing equity securities, existing stockholders may experience a dilution in their ownership. In addition, as a condition to giving additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. 7 BUSINESS CONCENTRATION. While we consider our relationships with our customers to be satisfactory, given the concentration of our sales to a few key customers, our continued relationships may be subject to the policies and practices of the customers. We continue to concentrate our efforts on expanding our customer base in order to reduce our reliance on our current customers. During the year ended December 31, 2005, 100% of our revenue was obtained from one customer. INFLATION. In our opinion, inflation has not had a material effect on our financial condition or results of our operations. TRENDS, RISKS AND UNCERTAINTIES. We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS. We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business and our products. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could adversely affect us. POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside our control, including the demand for our services, seasonal trends in purchasing, the amount and timing of capital expenditures; price competition or pricing changes in the industry; technical difficulties or system downtime; general economic conditions, and economic conditions specific to our industry. Our quarterly results may also be significantly impacted by the impact of the accounting treatment of acquisitions, financing transactions or other matters. Particularly at our early stage of development, occurrences such as accounting treatment can have a material impact on the results for any quarter. Due to the foregoing factors, among others, it is likely that our operating results will fall below our expectations or those of investors in some future quarter. LACK OF INDEPENDENT DIRECTORS. We cannot guarantee that our board of directors will have a majority of independent directors in the future. In the absence of a majority of independent directors, our executive officers, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between us and our stockholders generally and the controlling officers, stockholders or directors. LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS. Our officers and directors are required to exercise good faith and high integrity in our management affairs. Our articles of incorporation provide, however, that our officers and directors shall have no liability to our stockholders for losses sustained or liabilities incurred which arise from any transaction in their respective managerial capacities unless they violated their duty of loyalty, did not act in good faith, engaged in intentional misconduct or knowingly violated the law, approved an improper dividend or stock repurchase, or derived an improper benefit from the transaction. Our articles and bylaws also provide for the indemnification by us of the officers and directors against any losses or liabilities they may incur as a result of the manner in which they operate our business or conduct the internal affairs, provided that in connection with these activities they act in good faith and in a manner that they reasonably believe to be in, or not opposed to, our best interests, and their conduct does not constitute gross negligence, misconduct or breach of fiduciary obligations. 8 MANAGEMENT OF POTENTIAL GROWTH. We may experience rapid growth which will place a significant strain on our managerial, operational, and financial systems resources. To accommodate our current size and manage growth, we must continue to implement and improve our financial strength and our operational systems, and expand, train and manage our sales and distribution base. There is no guarantee that we will be able to effectively manage the expansion of our operations, or that our facilities, systems, procedures or controls will be adequate to support our expanded operations. Our inability to effectively manage our future growth would have a material adverse effect on us. WE PAY NO DIVIDENDS. We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any earnings for funding growth however these plans may change depending upon capital raising requirements. 9 RISKS RELATING TO OUR BUSINESS WE ARE NOT LIKELY TO SUCCEED UNLESS WE CAN OVERCOME THE MANY OBSTACLES WE FACE. As an investor, you should be aware of the difficulties, delays and expenses we encounter, many of which are beyond our control, including unanticipated market trends, employment costs, and administrative expenses. We cannot assure our investors that our proposed business plans as described in this report will materialize or prove successful, or that we will ever be able to finalize development of our products or services or operate profitably. If we cannot operate profitably, you could lose your entire investment. As a result of the nature of our business, initially we expect to sustain substantial operating expenses without generating significant revenues. OUR AUDITORS HAVE STATED WE MAY NOT BE ABLE TO STAY IN BUSINESS. Our auditors have issued a going concern opinion, which means that there is doubt that we can continue as an ongoing business for the next 12 months. Unless we can raise additional capital, we may not be able to achieve our objectives and may have to suspend or cease operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." OUR ACQUISITION STRATEGY INVOLVES A NUMBER OF RISKS. We intend to pursue growth through the opportunistic acquisition of companies or assets that will enable us to expand our service lines to provide more cost-effective customer solutions. We routinely review potential acquisitions. This strategy involves certain risks, including difficulties in the integration of operations and systems, the diversion of our management's attention from other business concerns, and the potential loss of key employees of acquired companies. We may not be able to successfully acquire, and/or integrate acquired businesses into our operations. RISKS RELATING TO OUR STOCK WE MAY NEED TO RAISE ADDITIONAL CAPITAL. IF WE ARE UNABLE TO RAISE NECESSARY ADDITIONAL CAPITAL, OUR BUSINESS MAY FAIL OR OUR OPERATING RESULTS AND OUR STOCK PRICE MAY BE MATERIALLY ADVERSELY AFFECTED. Due to the lack of revenue and expenses, we need to secure adequate funding. If we are unable to obtain adequate funding, we may not be able to successfully develop and market our products and services and our business will most likely fail. We do not have commitments for additional financing. To secure additional financing, we may need to borrow money or sell more securities, which may reduce the value of our outstanding securities. Under these circumstances, we may be unable to secure additional financing on favorable terms or at all. Selling additional stock, either privately or publicly, would dilute the equity interests of our stockholders. If we borrow more money, we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility. If we are unable to obtain adequate financing, we may have to curtail business operations which would have a material negative effect on operating results and most likely result in a lower stock price. OUR COMMON STOCK HAS EXPERIENCED IN THE PAST, AND IS EXPECTED TO EXPERIENCE IN THE FUTURE, SIGNIFICANT PRICE AND VOLUME VOLATILITY, WHICH SUBSTANTIALLY INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PRICE THAT YOU PAY FOR THE SHARES. Because of the limited trading market for our common stock, and because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so. During 2004 and 2005, our common stock was sold and purchased at prices that ranged from a high of $1.80to a low of $0.0009 per share. These prices have not been adjusted for the cumulative effects of the six reverse splits which the Company has undergone from August 2003 through January 2006. The inability to sell your shares in a rapidly declining market may substantially increase your risk of loss because of such illiquidity because the price for our common stock may suffer greater declines due to its price volatility. 10 The price of our common stock that will prevail in the market after this offering may be higher or lower than the price you pay. Certain factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to, the following: o Variations in our quarterly operating results; o The development of a market in general for our products and services; o Changes in market valuations of similar companies; o Announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; o Loss of a major customer or failure to complete significant transactions; o Additions or departures of key personnel; and o Fluctuations in stock market price and volume. Additionally, in recent years the stock market in general, and the OTC Bulletin Board and technology stocks in particular, have experienced extreme price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance. Over the past few months, there have been periods of significant increases in trading volume of our common stock during which the price of our stock has both increased and decreased. The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this report does not necessarily portend what the trading price of our common stock might be in the future. In the past, class action litigation has often been brought against companies following periods of volatility in the market price of the common stock of those companies. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock. OUR DIRECTORS HAVE THE RIGHT TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK AND ADDITIONAL SHARES OF OUR COMMON STOCK. Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series. We have no intention of issuing preferred stock at the present time. Any issuance of preferred stock could adversely affect the rights of holders of our common stock. Should we issue additional shares of our common stock at a later time, each investor's ownership interest in Winsted Holdings, Inc. would be proportionally reduced. No investor will have any preemptive right to acquire additional shares of our common stock, or any of our other securities. THE ISSUANCE OF SHARES UPON THE EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS. The issuance of shares upon the exercise of warrants may result in substantial dilution to the interests of other stockholders since the selling stockholders may ultimately convert and sell the full amount issuable on conversion. There is no upper limit on the number of shares that may be issued which will have the effect of further 11 diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering. IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN THE SECONDARY MARKET. Companies trading on the OTC Bulletin Board, such as Winsted Holdings, Inc., must be reporting issuers under Section 12 of the Exchange Act, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK. The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. Inasmuch as that the current bid and ask price of common stock is less than $5.00 per share, our shares are classified as "penny stock" under the rules of the SEC. For any transaction involving a penny stock, unless exempt, the rules require: o That a broker or dealer approve a person's account for transactions in penny stocks; and o The broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: o Obtain financial information and investment experience objectives of the person; and o Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form: o Sets forth the basis on which the broker or dealer made the suitability determination; and o That the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. 12 ITEM 2. PROPERTIES. We lease 1,100 square feet of office space at 100 Crescent Court, Suite 700, Dallas, Texas 75201. Our Crescent Court lease is month to month at a price of $950 per month. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock is quoted on the OTC Bulletin Board under the symbol "WNSH.OB." These quotations reflect inter-dealer prices, without mark-up, mark-down or commission, and may not represent actual transactions. CALENDAR YEAR 2004 HIGH LOW ----------------------------------------- First Quarter $ 0.01 $ 0.01 Second Quarter 0.10 0.0006 Third Quarter 0.06 0.0009 Fourth Quarter 0.45 0.0006 CALENDAR YEAR 2005 High Low ----------------------------------------- First Quarter $ 0.10 0.0009 Second Quarter 1.80 0.0009 Third Quarter 0.018 0.0009 Fourth Quarter 0.001 0.0009 The above closing prices have NOT been adjusted for the effect of the 5 reverse splits which were effected from August 16, 2004 through January 26, 2006. Also, on certain days the price of the Company's common stock was below $0.001, which is the lowest price quoted by the NASD OTC BB. At these dates, the Company has deemed the price of its stock to be $0.0009 per share. At December 31, 2005, we had 2,408,957 (post reverse-splits) shares of our common stock outstanding. Our shares of common stock are held by approximately 419 stockholders of record. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. SECTION 15(G) OF THE EXCHANGE ACT The shares of our common stock are covered by Section 15(g) of the Exchange Act, and Rules 15g-1 through 15g-6 promulgated thereunder, which impose additional sales practice requirements on broker-dealers who sell our securities to persons other than established customers and accredited investors. Rule 15g-2 declares unlawful any broker-dealer transactions in "penny stocks" unless the broker-dealer has first provided to the customer a standardized disclosure document. 13 Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a "penny stock" transaction unless the broker-dealer first discloses and subsequently confirms to the customer the current quotation prices or similar market information concerning the penny stock in question. Rule 15g-4 prohibits broker-dealers from completing "penny stock" transactions for a customer unless the broker-dealer first discloses to the customer the amount of compensation or other remuneration received as a result of the penny stock transaction. Rule 15g-5 requires that a broker-dealer executing a "penny stock" transaction, other than one exempt under Rule 15g-1, disclose to its customer, at the time of or prior to the transaction, information about the sales person's compensation. Our common stock may be subject to the foregoing rules. The application of the "penny stock" rules may affect our stockholders' ability to sell their shares because some broker-dealers may not be willing to make a market in our common stock because of the burdens imposed upon them by the "penny stock" rules. The following table provides information about purchases by us and our affiliated purchasers during the quarter ended December 31, 2005 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:

ITEM 6. SELECTED FINANCIAL DATA.

14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. FORWARD-LOOKING INFORMATION During the calendar year 2004, we were a telecommunications provider specializing in website design, web hosting and VOIP catering to small to medium size businesses. With prospects within the industry diminishing, management had elected for us to become a Business Development Company (a "BDC") in late 2004. Effective November 22, 2004, we became a "business development company" or "BDC" by filing a Form N-54 with the Securities and Exchange Commission and electing to be governed by Sections 54 through 65 of the Investment Company Act of 1940. We will continue to be subject to the periodic reporting requirements of the Exchange Act and the proxy solicitation requirements of Section 14 of the Exchange Act. Our management personnel will continue to report trading in our stock. With a name change that was effective in March of 2005, we became Winsted Holdings, Inc. Our current plan is to seek, investigate and, if such investigation warrants, acquire an interest in business opportunities presented to us by persons or firms who or which desire to seek the perceived advantages of a corporation which is registered under the Exchange Act. We do not restrict our search to any specific business, industry or geographical location and we may participate in a business venture of virtually any kind or nature. We may seek a business opportunity with entities which have recently commenced operations, or which wish to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets, to develop a new product or service or for other corporate purposes. We may acquire assets and establish wholly owned subsidiaries in various businesses or acquire existing businesses as subsidiaries or as investments. In late 2004, we entered the business of non-surgical aesthetic skin care procedures and services. During the year ended December 31, 2005, we added a second business to our portfolio in this same industry. Over the coming months, we plan to outline our changing portfolio holdings and our plans for the long-term Medspa expansion. We plan to operate as a franchisor of our network of Nu Image MedSpa facilities. We will collect an initial Franchise fee from each Franchisee and ongoing royalties from operational Franchisees. We plan to sell franchise units primarily in California, Nevada, Texas, New York and Arizona. We also plan to expand to other states as the demand arises. We will market our Franchise network primarily through franchised-based Internet marketing sites, Franchise Trade Magazines and Journals and Medical Journals and Magazines, as well as other mediums. We will provide initial assistance to our franchisees, which will include various franchisee training programs, operational support and consulting. RESULTS OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 2005 COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 2004 REVENUE During the twelve months ended December 31, 2005, we had revenue of $300,000, an increase of $276,309 or 1166% compared to revenue of $23,691 for the twelve months ended December 31, 2004. During the year ended December 31, 2005, the Company recorded revenue of $300,000 from a consulting contract with a portfolio company. The Company expects consulting revenue to increase in the coming twelve months as we add to our portfolio of companies. SALES, GENERAL AND ADMINISTRATIVE EXPENSES Sales, general and administrative expenses were $3,363,235 for the twelve months ended December 31, 2005, a decrease of $55,657,261 compared to sales, general, and administrative expenses of $59,020,496 during the twelve months ended December 31, 2004. The decrease is due primarily to the issuance of convertible preferred 15 stock valued at $56,092,000 to the Company's President and CEO during the twelve months ended December 31, 2004. This high valuation was the result of a preferred stock distribution soon after a 1-1000 reverse stock split. We expect to continue to utilize stock compensation in the coming twelve months in order to conserve the Company's cash; however, we anticipate that the level of non-cash compensation will decrease substantially. Other components of sales, general, and administrative expense for the twelve months ended December 31, 2005 compared to the twelve months ended December 31, 2004 include the following: administrative salaries decreased by $75,287 to $43,809, from $119,096 in the previous period; legal and accounting decreased by $10,080 to $127,920, from $138,000 in the previous period; consulting fees decreased by $245,106 to $1,492,327, from $1,737,433 in the previous period; public relations expense decreased by $42,270 to $0, from $42,270 in the previous period; rent expense decreased by $23,662 to $13,653, from $37,315 in the previous period; officer compensation decreased by $55,666,001 to $1,118,334, from $56,784,335 in the previous period; travel, meals, and entertainment expense decreased by $13,573 to $12,964, from $26,537 in the previous period; and write-off of subscriptions receivable increased by $154,530 to $154,530 from $0 in the prior period. Also during the year ended December 31, 2005, the Company charged the amount of $27,440 to operations for the amount of a reserve taken against a loan to an affiliate, compared to $0 for the prior year. IMPAIRMENT OF GOODWILL During the year ended December 31, 2005, the Company charged to operations the amount of $0 as an impairment of goodwill, a decrease of $3,428,001 compared to $3,428,001 of goodwill written-off during the year ended December 31, 2004. During the current year, the Company operated as a business development company, and there is no goodwill created in its investment transactions. Any charges to operations relating to the valuation of portfolio companies will be in the form of impairment of investments, not as impairment of goodwill. DEPRECIATION AND AMORTIZATION During the twelve months ended December 31, 2005, the Company recorded depreciation and amortization expense in the amount of $188,893, an increase of $2,121 compared to depreciation and amortization of $186,772 during the twelve months ended December 31, 2004. The increase is due to an increase in depreciable assets in the current period. IMPAIRMENT OF INVESTMENTS During the year ended December 31, 2005, the Company recorded a charge of $273,300 representing impairment to the value of its portfolio investments, an increase of $273,300 compared to $0 in the prior year. During the current year, the Company operated as a business development company, and charges relating to the valuation of its portfolio investments were charged to Impairment of Investments. During the prior period, any charges to related to the fair value of companies in which Winsted had made investments were made against Goodwill; accordingly, in prior periods any such charges appear as Impairment of Goodwill. During the coming twelve months, the Company expects to continue making investments in portfolio companies, and will also continue to value these investments conservatively, which may result in further charges to operations. As the Company is now a business development company, there is no goodwill created in these transactions, and the charges to operations will be in the form of impairment of investments, not as impairment of goodwill. INVESTMENT EXPENSE During the twelve months ended December 31, 2005, the Company recorded $0 investment expense, compared to investment expense in the amount of $6,000 during the prior year. 16 INTEREST INCOME (EXPENSE) During the twelve months ended December 31, 2005, the Company recorded interest expense in the amount of $12,872 compared to interest expense of $12,988 during the twelve months ended December 31, 2004, a decrease of $116 or 1%. The decrease is due to a decrease in the amount of notes payable. GAIN ON SETTLEMENT During the twelve months ended December 31, 2005, the Company recorded $0 gain on settlement of liabilities compared to $39,123 for the prior year. NET LOSS For the reasons stated above, the Company had a net loss of $3,538,300 for the year ended December 31, 2005, compared to a net loss of $62,591,443 for the year ended December 31, 2004, a decrease of $59,380,910 or 95%. TWELVE MONTHS ENDED DECEMBER 31, 2004 COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 2003 REVENUE During the twelve months ended December 31, 2004, we generated minimal revenue via our acquisition of the assets and customer base of The Site Doctors, which we completed on April 30, 2004. We had no revenue during the twelve months ended December 31, 2003. SALES, GENERAL AND ADMINISTRATIVE EXPENSES Sales, general and administrative expenses were $59,020,496 for the twelve months ended December 31, 2004, an increase of $56,177,984 compared to sales, general, and administrative expenses of $2,842,512 during the twelve months ended December 31, 2003. The increase is due primarily to the issuance of convertible preferred stock valued at $56,092,000 to the Company's President and CEO. This high valuation was the result of a preferred stock distribution soon after a 1-1000 reverse stock split. Other components of sales, general, and administrative expense for the twelve months ended December 31, 2004 compared to the twelve months ended December 31, 2003 include the following: Depreciation expense increased by $186,772, from $0 in the previous period; administrative salaries increased by $91,012 to $95,548, from $4,536 in the previous period; legal and accounting increased by $81,853 to $138,000, from $56,147 in the previous period; consulting fees increased by $77,293 to $144,200, from $66,907 in the previous period; public relations increased by $31,871 to $42,270, from $10,399 in the previous period; rent expense increased by $25,370 to $37,315, from $11,945 in the previous period; officer salary increased by $25,368 to $692,355, from $666,967 in the previous period; and entertainment expense increased by $17,700 from $0 in the previous period. IMPAIRMENT OF GOODWILL During the twelve months ended December 31, 2004, the Company charged to operations the amount of $3,428,001 as an impairment to goodwill, which consisted of the intangible portion of the following: $3,400,000 related to Medspa Solutions, Inc.; and $28,001 related to The Site Doctors. This was an increase of $2,953,498 or 622% compared to impairment of goodwill in the amount of $474,053 during the three months ended December 31, 2003, which consisted of 100% of the following This amount consisted of the intangible portion of the following investments: $300,000 related to C2C Exchange, Inc.; and $174,503 related to UBC, Inc. During the coming twelve months, the Company expects to continue making investments in portfolio companies, and will also continue to value these investments conservatively, which may result in further charges to operations. As the Company is now a business development company, there is no goodwill created in these 17 transactions, and the charges to operations will be in the form of impairment of investments, not as impairment of goodwill. DEPRECIATION AND AMORTIZATION During the twelve months ended December 31, 2004, the Company recorded depreciation and amortization expense in the amount of $186,772 compared to $0 during the twelve months ended December 31, 2003, an increase of $186,772. The Company acquired its first depreciable assets on December 31, 2003. INVESTMENT EXPENSE During the twelve months ended December 31, 2004, the Company recorded investment expense in the amount of $6,000 representing the cost of a potential investment which was abandoned. The amount of investment expense during the year ended December 31, 2003 was $0. INTEREST INCOME (EXPENSE) During the twelve months ended December 31, 2004, the Company recorded interest expense in the amount of $12,988 compared to interest expense of $21,056 during the twelve months ended December 31, 2003, a decrease of $8,068 or 38%. The decrease is due to a decrease in the amount of notes payable. GAIN ON SETTLEMENT During the twelve months ended December 31, 2004, the Company recorded a gain on settlement of liabilities in the amount of $39,123, compared to a gain on settlement of liabilities of $29,462 for the year ended December 31, 2003. This represents an increase of $9,661 or approximately 33%. NET LOSS For the reasons stated above, the Company had a net loss of $62,591,443 for the year ended December 31, 2004, compared to a net loss of $3,308,609 for the year ended December 31, 2003, an increase of $59,282,834 or 1792%. LIQUIDITY AND CAPITAL RESOURCES Our revenue is currently insufficient to cover our costs and expenses. During the twelve months ended December 31, 2005, we incurred a loss of $3,538,300. At December 31, 2005, we have negative working capital of $620,430, and our accumulated deficit is $70,401,034. For the year ended December 31, 2005, we generated a net cash flow deficit from operating activities of $622,345, consisting primarily of year to date losses of $3,538,300, adjusted for non cash expenses of $188,893 for depreciation, $14,500 for bad debt reserve, $27,440 for loan reserve, $167,030 for write-off of subscriptions receivable, $273,300 for impairment of investment in portfolio companies, and $1,922,604 for non-cash compensation. Cash used in investing activities totaled $347,740 consisting of $273,300 for the acquisition of portfolio companies and $74,440 for cash advances to portfolio companies. Cash provided by financing activities totaled $944,044 consisting of $63,974 proceeds from exercised stock options, and $880,070 from the sale of common stock. During 2005, the net amount of $472,334, or approximately 50% of the funds provided by the Company's financing activities, were paid directly to the Company's Chief Executive Officer and Director as compensation. A total of $205,000 was accrued for withholding taxes payable on this amount, and gross cash compensation to the Company's Chief Executive Officer was $677,334. 18 By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition. A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through additional equity and/or debt financing. We do not anticipate enough positive internal operating cash flow until such time as we can generate substantial additional revenues from direct sales of our product, which may take the next few years to fully realize. In the event we cannot obtain the necessary capital to pursue our strategic plan, we may have to cease or significantly curtail our operations. This would materially impact our ability to generate revenues. Our near term cash requirements are anticipated to be offset through the receipt of funds from private placement offerings and loans obtained through private sources. Since inception, we have financed cash flow requirements through debt financing. As we expand operational activities, we may continue to experience net negative cash flows from operations, pending receipt of sales revenues, and will be required to obtain additional financing to fund operations through common stock offerings and bank borrowings to the extent necessary to provide working capital. Over the next twelve months we intend to develop revenues by developing specific target markets. We believe that existing capital and anticipated funds from operations will not be sufficient to sustain operations and planned expansion in the next twelve months. Consequently, we will be required to seek additional capital in the future to fund growth and expansion through additional equity or debt financing or credit facilities. No assurance can be made that such financing would be available, and if available it may take either the form of debt or equity. In either case, the financing could have a negative impact on our financial condition and our stockholders. We anticipate incurring operating losses over the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as technology related companies. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, obtain a customer base, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, provide superior customer services and order fulfillment, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations. GOING CONCERN The Company's independent certified public accountants have stated in their report included in the Company's December 31, 2005 Form 10-K, that the Company has incurred operating losses and that the Company is dependent upon management's ability to develop profitable operations. These factors among others may raise substantial doubt about the Company's ability to continue as a going concern The Company has experienced losses from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the years ended December 31, 2005, 2004, and 2003, the Company incurred net losses from continuing operations of $3,538,300, $62,591,443, and $3,308,609, respectively. At December 31, 2005, the Company had a working capital deficit of ($320,430) and a stockholders' deficit of ($225,673). The Company's ability to continue as a going concern is contingent upon its ability to secure financing and attain profitable operations. THE CONSOLIDATED FINANCIAL STATEMENTS DO NOT INCLUDE ANY ADJUSTMENTS TO REFLECT THE POSSIBLE FUTURE EFFECTS ON THE RECOVERABILITY AND CLASSIFICATION OF ASSETS OR THE AMOUNTS AND CLASSIFICATION OF LIABILITIES THAT MAY RESULT FROM OUR POSSIBLE INABILITY TO CONTINUE AS A GOING CONCERN. 19 CRITICAL ACCOUNTING POLICIES The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policy involve the most complex, difficult and subjective estimates and judgments. STOCK-BASED COMPENSATION In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS No. 123 - Accounting for Stock-Based Compensation, providing alternative methods of voluntarily transitioning to the fair market value based method of accounting for stock based employee compensation. FAS 148 also requires disclosure of the method used to account for stock-based employee compensation and the effect of the method in both the annual and interim financial statements. The provisions of this statement related to transition methods are effective for fiscal years ending after December 15, 2002, while provisions related to disclosure requirements are effective in financial reports for interim periods beginning after December 31, 2002. We elected to continue to account for stock-based compensation plans using the intrinsic value-based method of accounting prescribed by APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under the provisions of APB No. 25, compensation expense is measured at the grant date for the difference between the fair value of the stock and the exercise price. RECENT ACCOUNTING PRONOUNCEMENTS In May 2005, the FASB issued FASB Statement No. 154, ("FAS 154"), "Accounting Changes and Error Corrections." FAS 154 establishes retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. FAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. FAS 154 became effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of FAS 154 to have a material impact on our financial position, cash flows or results of operations. In December 2004, the FASB issued FASB Statement No. 123(R), ("FAS 123(R)"), "Share-Based Payment," which is a revision of FASB Statement No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation." FAS 123(R) supersedes APB Opinion No. 25, (APB 25), "Accounting for Stock Issued to Employees," and amends FASB Statement No. 95, "Statement of Cash Flows." FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at the date of grant and to record that cost as compensation expense over the period during which the employee is required to perform service in exchange for the award (generally over the vesting period of the award). Excess tax benefits, as defined by FAS 123(R), will be recognized as an addition to common stock. In April 2005, the SEC adopted a new rule that amends the compliance dates for FAS 123(R). In accordance with the new rule, we are required to implement FAS 123(R) at the beginning of our fiscal year that begins January 1, 2006. The Commission's new rule does not change the accounting required by FAS 123(R); it changes only the dates of compliance. In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, "Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards." The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee share-based compensation awards that are outstanding upon adoption of SFAS 123(R). An entity may make a one-time election to adopt the transition method 20 described in this guidance and may take up to one year from the later of its initial adoption of SFAS 123(R) or the effective date of this guidance, which was November 11, 2005. We are in the process of determining whether to adopt the alternative transition method provided in FAS 123(R)-3 for calculating the tax effects of share-based compensation pursuant to SFAS 123(R). Effective January 1, 2006, we will adopt FAS 123(R) using the modified prospective transition method, which provides for certain changes to the method for valuing share-based compensation. The valuation provisions of FAS 123(R) apply to new awards and to awards that are outstanding at the effective date and subsequently modified or cancelled. Estimated compensation expense for awards outstanding at January 1, 2006 will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FAS 123. In accordance with the modified prospective transition method, our statements of operations for periods prior to January 1, 2006 will not be restated to reflect the impact of FAS 123(R). Our calculation of share-based compensation expense in future periods will be calculated using the Black-Scholes option valuation model and will include the portion of share-based payment awards that is ultimately expected to vest during the period and therefore will be adjusted to reflect estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS 123 for the periods prior to 2006, we accounted for forfeitures as they occurred. For share awards granted after January 1, 2006, expenses will be amortized under the straight-line attribution method. For share awards granted prior to 2006, expenses are amortized under the straight-line single option method prescribed by SFAS 123. We expect that our adoption of FAS 123(R) in 2006 will have a material impact on our results of operations and net loss per share. On February 16, 2006 the FASB issued SFAS 155, "Accounting for Certain Hybrid Instruments," which amends SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company does not expect its adoption of this new standard to have a material impact on its financial position, results of operations or cash flows ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. We believe that we do not have any material exposure to interest or commodity risks. We are exposed to certain economic and political changes in international markets where we compete, such as inflation rates, recession, foreign ownership restrictions, and trade policies and other external factors over which we have no control. Our financial results are quantified in U.S. dollars and a majority of our obligations and expenditures with respect to our operations are incurred in U.S. dollars. Although we do not believe we currently have any materially significant market risks relating to our operations resulting from foreign exchange rates, if we enter into financing or other business arrangements denominated in currency other than the U.S. dollars, variations in the exchange rate may give rise to foreign exchange gains or losses that may be significant. We currently have no material long-term debt obligations. We do not use financial instruments for trading purposes and we are not a party to any leverage derivatives. As discussed by our accountants in the audited financial statements included in Item 8 of our Annual Report on Form 10-K, our revenue is currently insufficient to cover its costs and expenses. We anticipate raising any necessary capital from outside investors coupled with bank or mezzanine lenders. As of the date of this report, we have not entered into any negotiations with any third parties to provide such capital. OUR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS HAVE STATED IN THEIR REPORT INCLUDED IN OUR DECEMBER 31, 2005 FORM 10-K THAT WE HAVE INCURRED OPERATING LOSSES 21 IN THE LAST TWO YEARS, AND THAT WE ARE DEPENDENT UPON MANAGEMENT'S ABILITY TO DEVELOP PROFITABLE OPERATIONS. THESE FACTORS AMONG OTHERS MAY RAISE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. OFF-BALANCE SHEET ARRANGEMENT None. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and related notes are included as part of this report as indexed in the appendix on page F-1 through F-32. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. EVALUATION OF DISCLOSURE AND CONTROLS AND PROCEDURES. As of the end of the period covered by this Annual report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. There was no change in our internal controls, which are included within disclosure controls and procedures, during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Our directors and executive officer are:

Our executive officers are elected annually by our board of directors. There are no family relationships among our directors and executive officers. 22 Mark Ellis has been our chief executive officer and a director since February, 2003. He has been president, chief executive officer and a director of Universal Broadband Communications since August 2000. Mr. Ellis has over eight years of experience in the telecommunications industry, serving in executive management positions with several telecommunication ventures. Since December 2001, Mr. Ellis has served as the Chief Executive Officer, president and a director of Qbe Technologies, a wireless telecomputing company. From 1997 to 1999, Mr. Ellis was chief executive officer of TelQuest Communications, Inc., a start-up telecommunications company. He served as staff accountant at International Aluminum Corporation from 1990 to 1992. From 1983 to 1986, Mr. Ellis was a statistical analyst at Northrop Grumman Corporation. Mr. Ellis is currently enrolled at DePaul University in order to complete his Master's degree. Brian Brittain has served as our director since 2004. Since 2002, he has been the president of UCG, a marketing company serving clients such as AT&T, Global Crossing, and Quest. From 1999-2002, Mr. Brittain served as vice-president of sales for ECP, an e-commerce merchant service company providing credit card processing, web sites with e-commerce enablement and private label loyalty cards. John Ryan was executive vice president of Simon Marketing, Inc. from May 1990 through September 2001. From January 1989 through March 1990, he was controller of Southern California Title Company. From October 1985 through January 1989, he was treasurer/controller of Monolith Portland Cement Company. From July 1977 through October 1985, he was senior audit manager at Arthur Andersen & Co. Mr. Ryan holds a master of business administration degree from California State University, Northridge and a bachelor of science in business administration from California State University, Northridge. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Under Section 16(a) of the Exchange Act, our directors and certain of our officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the Securities and Exchange Commission. Such persons are also required to furnish us with copies of all forms so filed. CODE OF ETHICS We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics is designed to deter wrongdoing and to promote: o Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submits to, the SEC and in other public communications made by us; o Compliance with applicable governmental laws, rules and regulations; o The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and o Accountability for adherence to the code. A copy of our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions was filed as an exhibit to our Annual report for the year ended December 31, 2003, and filed with the Commission on March 30, 2004. We have posted a copy of the code of ethics on our website at www.winstedholdings.com. 23 We will provide to any person without charge, upon request, a copy of our code of ethics. Any such request should be directed to our corporate secretary at 100 Crescent Court, Suite 700, Dallas, Texas 75201, telephone number (214) 459-8245. ITEM 11. EXECUTIVE COMPENSATION. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION SUMMARY COMPENSATION TABLE The following table provides certain summary information concerning the compensation earned by the named executive officers (determined as of the end of the last fiscal year) for services rendered in all capacities to Winsted Holdings, Inc. and our subsidiaries:

* During the year ended December 31, 2003 the Company issued 2,600,000 shares of common stock with a fair market value of $740,000 to Mark Ellis as a bonus and in lieu of cash compensation. During the year ended December 31, 2004 the Company issued shares to Mark Ellis as follows: 7,000,000 shares of preferred stock convertible into 140,000,000 shares of common stock with a fair value of $0.0066 per share or $924,000, granted on March 30, 2004; 16,000,000 shares of preferred stock convertible into 320,000,000 shares of common stock with a fair value of $0.0024 per share, or $768,000, granted on May 21, 2004; and 16,000,000 shares of preferred stock convertible into 320,000,000 shares of common stock with a fair value of $0.17 per share or $54,400,000, granted on December 2, 2004. During the year ended December 31, 2005, the Company paid to Mark Ellis the amount of $499,775 in cash. The Company also issued to Mr. Ellis 49,000,000 shares of Series B Convertible Preferred stock, convertible into 490,000,000 shares of common stock with a fair market value of $441,000. The above information has NOT been adjusted for the effects of the six reverse stock splits which have occurred during the period August 2003 through January 2006. The cumulative effect of these reverse stock splits is the result of the reverse split rations multiplied in cumulative fashion, or 250 x 250 x 1,000 x 1,000 x 1,500 x 1,250. . The product of this equation equals the number of shares of common stock at August 16, 2003 which would have been reduced to one share of common stock at January 26, 2006. EMPLOYMENT AGREEMENTS We have an employment agreement with one of our directors, Mark Ellis. Pursuant to Mr. Ellis' five-year employment contract with us, as amended on November 24, 2003, we will pay Mr. Ellis a base salary of Three Hundred and Fifty Thousand Dollars ($350,000) for the first year of his Employment Agreement; Four Hundred Thousand Dollars ($400,000) for the second year of his Employment Agreement; Four Hundred and Fifty Thousand Dollars ($450,000) for the third year of his Employment Agreement; Five Hundred Thousand Dollars ($500,000) for the fourth year of his Employment Agreement; and Five Hundred and Fifty Thousand Dollars ($550,000) for the fifth year of his Employment Agreement. In addition, Mr. Ellis' employment agreement allows Mr. Ellis to elect whether to receive his Revenue Bonus in the form of cash, our preferred stock, or a combination of cash and preferred stock. Finally, a new provision provides for preferred stock bonuses to be awarded to Mr. Ellis when certain milestones are accomplished. We do not have employment agreements with any of our other employees except Mr. Ellis. CONFIDENTIALITY AGREEMENTS We generally require our employees to execute confidentiality and nondisclosure agreements upon the commencement of employment with us. The agreements generally provide that all inventions or discoveries by the 24 employee related to our business and all confidential information developed or made known to the employee during the term of employment shall be the exclusive property of us and shall not be disclosed to third parties without our prior approval. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. EQUITY COMPENSATION PLAN INFORMATION SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table provides information as of the end of the most recently completed fiscal year with respect to compensation plans (including individual compensation arrangements) under which equity securities of the registrant are authorized for issuance, aggregated as follows: o All compensation plans previously approved by security holders; and o All compensation plans not previously approved by security holders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of December 31, 2005, information concerning ownership of our securities by: o Each person who owns beneficially more than five percent of the outstanding shares of our common stock; o Each person who owns beneficially outstanding shares of our preferred stock; o Each director; o Each named executive officer; and o All directors and officers as a group. 25

---------- * Less than one percent. (1) Unless otherwise indicated, the address for each of these shareholders is c/o Winsted Holdings, Inc., 100 Crescent Court, Suite 700, Dallas, Texas 75201. Also, unless otherwise indicated, each person named in the table above has the sole voting and investment power with respect to the shares of our common and preferred stock which he beneficially owns. (2) Beneficial ownership is determined in accordance with the rules of the SEC. The total number of outstanding shares of the common stock on the date of this Report is 2,408,957, the total number of outstanding shares of the Series A preferred stock on the date of this Report is 50,000,000 and the total number of outstanding shares of the Series B preferred stock on the date of this Report is 50,000,000. (3) Mr. Ellis is our chief executive officer, chief financials officer, president and director. (4) Mr. Brittain is our director. (5) Mr. Ryan is our director. (6) Universal Broadband Communications, Inc. is a California corporation, whose address is 100 Crescent Court, Suite 700, Dallas, Texas 75201. Universal Broadband Communications, Inc. is controlled by Mark Ellis, our chief executive officer, president and director. (7) C2C Exchange, Inc. is a California Corporation, whose address is 100 Crescent Court, Suite 700, Dallas, Texas 75201. Universal Broadband Communications, Inc. is controlled by Mark Ellis, our chief executive officer, president and director. (8) Includes 780,000,000 shares from the conversion of 39,000,000 shares of Preferred Stock Series A held by Mr. Ellis; also includes 120,000,000 shares from the conversion of 6,000,000 shares of Preferred Stock Series A held by UBC, Inc. and beneficially owned by Mr. Ellis; also includes 100,000,000 shares from the conversion of 5,000,000 shares of Preferred Stock Series A held by C2C, Inc., and beneficially owned by Mr. Ellis; also includes 10,000,000 shares from the conversion of 1,000,000 shares of Series B Preferred stock held by Medspa Solutions, Inc., and beneficially owned by Mr. Ellis; also includes 490,000,000 shares from the conversion of 49,000,000 shares of Series B Preferred stock held by Mr. Ellis. (9) Includes 120,000,000 shares from the conversion of 6,000,000 shares of Preferred Stock Series A. (10) Includes 100,000,000 shares from the conversion of 5,000,000 shares of Preferred Stock Series A. (11) Includes 39,000,000 shares held by Mr. Ellis. Also includes 6,000,000 shares held by Universal Broadband Communications, Inc. and beneficially owned by Mr. Ellis; Also includes 5,000,000 shares held by C2C Exchange, Inc. and beneficially owned by Mr. Ellis. There are no arrangements, known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of Winsted Holdings, Inc. There are no arrangements or understandings among members of both the former and the new control groups and their associates with respect to election of directors or other matters. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On December 6, 2004, we purchased all of the outstanding stock of Medspa Solutions, Inc. for 20,000,000 shares of common stock. The closing price of the stock on the acquisition date was $0.17, and the acquisition was valued at $3,400,000. We have recorded an impairment to the carrying value of this asset in the amount of $3,400,000 and charged this amount to operations during the twelve months ended December 31, 2004. Medspa Solutions, Inc. is controlled by Mark Ellis, our chief executive officer, president and director. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. AUDIT FEES The aggregate fees billed by Russell Bedford Stefanou Mirchandani LLP for professional services rendered for the audit of our annual financial statements for fiscal year 2005 were $88,974. The aggregate fees billed by Russell Bedford Stefanou Mirchandani LLP for professional services rendered for the audit of our annual financial statements for fiscal year 2004 were $20,000. 26 The aggregate fees billed by Russell Bedford Stefanou Mirchandani LLP for professional services rendered for the audit of our annual financial statements for fiscal year 2003 were $25,000. AUDIT-RELATED FEES The aggregate fees billed by Russell Bedford Stefanou Mirchandani LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements for fiscal year 2005 were $0. The aggregate fees billed by Russell Bedford Stefanou Mirchandani LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements for fiscal year 2004 were $0. The aggregate fees billed by Russell Bedford Stefanou Mirchandani LLP for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements for fiscal year 2003 were $0. ALL OTHER FEES There were no other fees billed by Russell Bedford Stefanou Mirchandani LLP for professional services rendered, other than as stated under the captions Audit Fees, Audit-Related Fees, and Tax Fees. POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS The Company currently does not have a designated Audit Committee, and accordingly, the Company's Board of Directors' policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Company's Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis. ITEM 15. EXHIBITS. EXHIBIT NO. IDENTIFICATION OF EXHIBIT ----------- -------------------------------------------------------------- 3.1** Articles of Incorporation (Exhibit 2(a) to Company's Form 10-SB, Commission File No. 0-32333) 3.2** Articles of Amendment to Articles of Incorporation (Exhibit 2(b) to Company's Form 10-SB, Commission File No. 0-32333) 3.3** Articles of Amendment to Articles of Incorporation (Exhibit 3(i)(b) to Company's Form 10-K for fiscal year ended December 31, 2001, Commission File No. 0-32333) 3.4** Articles of Amendment to the Articles of Incorporation 3.5** Articles of Amendment to the Articles of Incorporation. 10.1** Agreement to Purchase Assets of The Site Doctors. 10.2** Agreement to Purchase Assets of C2C Exchange. 10.3** Agreement to Purchase Assets of Universal Broadband Communications, Inc. 10.4** Stock Purchase Agreement between Indiginet, Inc. and Medspa Solutions, Inc. 10.5* Form 1-E as filed with the Securities and Exchange Commission on February 8, 2005. 14** Code of Ethics 21* Subsidiaries. 27 EXHIBIT NO. IDENTIFICATION OF EXHIBIT ----------- -------------------------------------------------------------- 31.1* Certification of Mark Ellis, Chief Executive Officer of Winsted Holdings, Inc., pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Mark Ellis, Chief Financial Officer of Winsted Holdings, Inc., pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Mark Ellis, Chief Executive Officer of Winsted Holdings, Inc., pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Mark Ellis, Chief Financial Officer of Winsted Holdings, Inc., pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002. ---------- ** Previously Filed * Filed Herewith 28 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Winsted Holdings, Inc. Date: April 28, 2006. By /s/ Mark Ellis ----------------------------------------------- Mark Ellis, President, Chief Executive Officer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

29 WINSTED HOLDINGS, INC. (FORMERLY INDIGINET, INC.) INDEX TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- Report of Independent Registered Certified Public Accounting Firm F-2 Consolidated Balance Sheets at December 31, 2005 and 2004 F-3 Consolidated Statements of Losses for the Years ended December 31, 2005, 2004, and 2003 F-4 Consolidated Statement of Deficiency In Stockholders' Equity for the three years ended December 31, 2005 F-5 - F-7 Consolidated Statements of Cash Flows for the Years ended December 31, 2005, 2004, and 2003 F-8 - F-10 Notes to Consolidated Financial Statements F-11 - F-31 F-1 RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP CERTIFIED PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Winsted Holdings, Inc. Newport Beach, CA We have audited the accompanying consolidated balance sheets of Winsted Holdings, Inc. (formerly Indiginet, Inc.) (the "Company") as of December 31, 2005 and 2004 and the related consolidated statements of losses, deficiency in stockholders' equity, and cash flows for each of the three years ended December 31, 2005. 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 audits. We have conducted our audits in accordance with the standards of the Public Accounting Oversight Board (United States of America). 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the three years ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has incurred net losses since its inception. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to this matter are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP -------------------------------------------- Russell Bedford Stefanou Mirchandani LLP Certified Public Accountants New York, New York March 21, 2006 F-2

F-3

F-4 Winsted Holdings Inc. Consolidated Statement of Deficiency in Stockholders' Equity

F-5

F-6

* indicates less than one share as adjusted for all reverse splits. The accompanying notes are an integral part of these financial statements. F-7 Winsted Holdings, Inc. Consolidated Statements of Cash Flows

F-8

F-9

The accompanying notes are an integral part of these financial statements. Total Ownership Estimated Cash Carrying Interest Value Advance Value --------------------------------------------- Medspa Solutions, Inc. 100% - $ -- $ -- Gaeacare 90% - -- Nu Image Medspa 2% - 47,000 47,000 - ------ ------ Total value at December 31, 2005 - $47,000 $47,000 = ====== ====== The accompanying notes are an integral part of these financial statements. F-10 WINSTED HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005, 2004, AND 2003 1. GOING CONCERN BASIS OF ACCOUNTING As shown in the accompanying financial statements, the Company has incurred significant losses. The Company has experienced losses from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the years ended December 31, 2005, 2004, and 2003, the Company incurred net losses of $3,210,533 $62,591,443 and $3,308,609 respectively. At December 31, 2005 and 2004, the Company had negative working capital of $320,430 and $314,372, respectively. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is contingent upon its ability to secure financing and attain profitable operations. The Company has experienced a change of control effective February 24, 2003. In addition, the Company's ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates. During 2005, the Company financed its operations with $880,070 of proceeds from the stock and with $63,974 from the exercise of options to acquire its common stock. The Company's existence is dependent upon management's ability to develop profitable operations and resolve its liquidity problems. Management anticipates the Company will attain additional equity investment in the Company. The accompanying consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern. The accompanying financial statements do not include any adjustments to the amounts and classification of assets and liabilities that would result if the Company were unable to continue as a going concern. 2. COMPANY BACKGROUND AND BASIS OF PRESENTATION Winsted Holdings, Inc., formerly Indiginet, Inc. (the "Company"), was incorporated under the laws of the State of Florida on September 24, 1997. The Company was seeking to merge or acquire an interest in business opportunities. Effective March 7, 2005, the Company changed its name to "Winsted Holdings, Inc." The financial statements include the accounts of the Company. The investments in Medspa Solutions and Nu Image Medspa are not consolidated into the financial statements of Winsted, but are shown as investments at their fair market value. Intercompany transactions are not eliminated. At December 31 2005, the fair market value of the Company's investments is $0. Under business development company accounting, all equity investments are carried at fair value with any adjustments recorded in the statement of operations. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments, including those in which it has a controlling interest. ACQUISITIONS The following acquisitions were consummated before the Company became a Business Development Company and accordingly these acquisitions are consolidated into the financial statements of the Company: Acquisitions completed prior to November 22, 2004: C2C Exchange ------------ On December 30, 2003, the Company entered into an Asset Purchase Agreement with C2C Exchange, Inc. ("C2C", the "C2C Asset Acquisition") whereby the Company purchased substantially all of the assets of C2C in exchange for 5,000,000 shares of Series-A Preferred Stock. C2C is controlled by the President and Chief Executive Officer of the Company. The Series-A Preferred Stock was deemed to have a fair market value of $400,000 based upon the market price of the underlying common stock for the ten F-11 days immediately preceding the transaction. The assets acquired were estimated to have a fair market value at the time of the C2C Asset Acquisition of $100,000. The assets acquired, including costs in excess of net assets acquired, and liabilities assumed in the acquisition of C2C are as follows: Tangible assets acquired at fair value $ 100,000 Costs in excess of net assets assumed 300,000 Liabilities assumed at fair value -- ---------- Total purchase price $ 400,000 ========== Universal Broadband Communications, Inc. ---------------------------------------- On December 30, 2003, the Company entered into an Asset Purchase Agreement with Universal Broadband Communications, Inc., ("UBC" or "UBC Asset Acquisition") whereby the Company purchased the assets of UBC in exchange for 6,000,000 shares of Series-A Preferred Stock with a fair market value of $480,000. UBC is controlled by the President and Chief Executive Officer of Winsted. The assets acquired were deemed to have a fair market value at the time of the UBC Acquisition equal to their carrying value on the books of UBC at the time of the UBC Asset Acquisition, or $305,497. The assets acquired, including costs in excess of net assets acquired, and liabilities assumed in the acquisition of UBC are as follows: Tangible assets acquired at fair value $ 305,497 Costs in excess of net assets assumed 174,503 Liabilities assumed at fair value -- ---------- Total purchase price $ 480,000 ========== As a result of the Company's lack of resources, the Company is unable to market its telecommunications products and services acquired in connection with the C2C and UBC acquisitions. Management performed an evaluation of the recoverability of the C2C and UBC assets and concluded from the results of this evaluation that a significant impairment charge was required because the estimated market value of the assets was less than the carrying value of the assets. Considerable management judgment is necessary to estimate fair value and actual results could vary significantly from managements' estimates Accordingly, the Company recognized an asset impairment loss of $474,503 or $0.00 per share during the year ended December 31, 2003. The Site Doctors ---------------- On April 30, 2004, the Company purchased substantially all of the assets of The Site Doctors, a partnership located in Orange County, California in the business of web hosting and web site development. The Company purchased the following assets for $40,000 in cash: Accounts receivable 2 Computers Design software Hosting customer list The Company also received an agreement not to compete from the principal owner of The Site Doctors, and hire the principal owner as a web developer and consultant. The Company assigned the value of $7,999 to the accounts receivable, $4,000 to the computer hardware and software, and $28,001 to the customer list and agreement F-12 not to compete. The $28,001 was charged to operations during the year ended December 31, 2004. 3. SIGNIFICANT ACCOUNTING POLICIES Cash And Cash Equivalents ------------------------- The Company considers cash on hand, deposits in banks, and short-term investments purchased with an original maturity date of three months or less to be cash and cash equivalents. The carrying amounts reflected in the balance sheets for cash and cash equivalents approximate the fair values due to short maturities of these instruments. Property And Equipment ---------------------- Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using straight-line methods over the estimated useful lives of the assets, principally three to five years, or the term of the lease, if shorter, for leasehold improvements. On December 30, 2003, the Company completed the acquisition of certain items of property and equipment in transactions with two companies controlled by Winsted Holdings President and Chief Executive Officer (the "Asset Acquisitions"). Pursuant to the Asset Acquisitions, Winsted acquired property and equipment valued at approximately $405,497 in exchange for a total of 11,000,000 shares of the company's Series-A Convertible Preferred Stock. These assets were valued at their historical net book value at the time of the acquisition, which approximates their fair value. During the twelve months ended December 31, 2004, the Company acquired an additional $14,406 of fixed assets for cash. The Company made no asset acquisition during the twelve months ended December 31, 2005. During the years ended December 31, 2005 and 2004, the Company recorded depreciation and amortization expense in the amount of $188,893 and $186,772, respectively. Revenue Recognition And Deferred Revenue ---------------------------------------- The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. Internet connection fees are billed in advance and recognized over the period for which services are provided. Technical services revenues are recognized when services, as described in the contract, have been completed. Equipment revenue is recognized when both title and risk of loss transfers to the customer, provided that no significant obligations remain. On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. The staff updated and revised the existing revenue recognition in Topic 13, Revenue Recognition, to make its interpretive guidance consistent with current accounting guidance, principally EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." Also, SAB 104 incorporates portions of the Revenue Recognition in Financial Statements - Frequently Asked Questions and Answers document that the SEC staff considered relevant and rescinds the remainder. The company's revenue recognition policies are consistent with this guidance; therefore, this guidance will not have an immediate impact on the company's financial statements. For the year ended December 31, 2005, the company recognized revenue of $300,000 from consulting services provided to a portfolio company. For the year ended December 31, 2004, the Company generated revenue of $23,691 from web hosting fees and website F-13 development fees. For the year ended December 31, 2003, the Company had no revenue. Consulting services: The Company recognizes revenue from consulting services in a pro-rata basis over the term of the contract. During the three months ended December 31, 2005, the Company's consulting contract with a portfolio company called for revenue of $50,000 per month, or $150,000. The Company did not provide any such services to this portfolio company during this three month period, and did not charge the portfolio company for any such services and did not recognize this revenue of $150,000. Website hosting: The Company recognizes revenue from website hosting as the service is provided to its customers. Website development: The Company recognizes revenues from website development on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. The Company recognizes revenues from fixed-price and modified fixed-price construction contracts on the percentage-of-completion method, measured by the percentage of cost incurred to date to estimated total cost for each contract. That method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation. Selling, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period. The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts," represents revenues recognized in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts," represents billings in excess of revenues recognized. As of December 31, 2004, revenues recognized were equal to amounts billed. The Company recognized neither an asset nor a liability from its website development. Valuation of Investments ------------------------ Investments for which there is no ready market are initially valued at cost and, thereafter, at fair value based upon the financial condition and operating results of the issuer and other pertinent factors as determined in good faith by the Board of Directors. The financial condition and operating results have been derived utilizing both audited and unaudited data. In the absence of a ready market for an investment, numerous assumptions are inherent in the valuation process. Some or all of these assumptions may not materialize. Unanticipated events and circumstances may occur subsequent to the date of the valuation and values may change due to future events. Therefore, the actual amounts eventually realized from each investment may vary from the valuations shown and the differences may be material. The Company reports the unrealized gain or loss resulting from such valuation in the Statements of Losses. Gains (losses) on Portfolio Of Investments ------------------------------------------ Amounts reported as realized gains (losses) are measured by the difference between the proceeds of sale or exchange and the cost basis of the investment without regard to unrealized gains (losses) reported in the prior periods. Gains (losses) are considered realized when sales or dissolution of investments are consummated. Advertising ----------- F-14 The Company follows the policy of charging the costs of advertising to expenses incurred. The Company incurred no material advertising costs in 2005, 2004 or 2003. Income Taxes ------------ Income taxes are provided based on the liability method for financial reporting purposes in accordance with the provisions of Statements of Financial Standards No. 109, "Accounting for Income Taxes". Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be removed or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. Segment Information ------------------- The Company adopted Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") in the year ended December 31, 1998. SFAS 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The information disclosed herein, materially represents all of the financial information related to the Company's principal operating segment. Impairment of Long-Lived Assets ------------------------------- The Company has adopted Statement of Financial Accounting Standards No. 144 (SFAS 144). The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. SFAS No. 144 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. On December 30, 2003, the Company completed the an asset acquisitions whereby the Company acquired property and equipment with a book value of $405,497 in exchange for 11,000,000 shares of the Company's Series-A Convertible Preferred Stock. This stock was valued at a total of $880,000 based upon the average closing price of the underlying shares of common stock for the ten business days immediately preceding the acquisitions. The difference between the book value of $405,497 and the $880,000 value assigned to the Series-A Convertible Preferred Stock, or $474,503, was charged to operations during the period ending December 31, 2003. On April 30, 2004, the Company completed an asset acquisition from The Site Doctors, a California general partnership ("Site Doctors") pursuant to which we purchased for $40,000 cash all of the assets of Site Doctors. These assets consisted primarily of two computers valued at a total of $4,000, accounts receivable of $7,999, and goodwill of $28,001. During the twelve months ended December 31, 2004, the Company recorded an impairment to the carrying value of this goodwill in the amount of $28,001, and charged this amount to operations. Stock-based compensation ------------------------ The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees", and related interpretations, in accounting for its stock option plans. As such, compensation expense would be recorded on the date of grant only if the current F-15 market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No.123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123 which are included in Note 10. The Company has also adopted the annual disclosure provisions of SFAS No. 148 in its financial reports for the year ended December 31, 2003 and for the subsequent period. In accordance with EITF 96-18 the measurement date to determine fair value was the date at which a commitment for performance by the counter party to earn the equity instrument was reached. The Company valued the shares issued for consulting services at the rate which represents the fair value of the services received which did not differ materially from the value of the stock issued. Basic And Diluted Loss Per Share Basic and Diluted Loss per Share -------------------------------- The Company has adopted Statement of Financial Accounting Standard No. 128, "Earnings Per Share," specifying the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share have been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per share because they are either anti-dilutive, or their effect is not material. 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 the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Concentrations of Credit Risks ------------------------------ Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. The allowance for doubtful accounts was $2,665 at December 31, 2004. Reclassification ---------------- Certain prior period figures have been reclassified to conform to the current year's presentation. Fair Value of Financial Instruments ----------------------------------- Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. Comprehensive Income -------------------- Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," establishes standards for reporting and displaying of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company does not have any items of comprehensive income in any of the periods presented. Reverse Stock Splits -------------------- The Company has undergone a total of six reverse stock splits from August 2003 to January 2006. These reverse-splits are listed in the table below: F-16 Effective Date Reverse split ratio -------------- ------------------- August 17, 2003 1 for 250 August 16, 2004 1 for 250 November 29, 2004 1 for 1,000 March 7, 2005 1 for 1,000 June 23, 2005 1 for 1,500 January 26, 2006 1 for 1,250 All of the above reverse splits of the Company's common stock are reflected in the Company's financial statements at December 31, 2005. The cumulative effect of these reverse splits at December 31, 2005 is computed by multiplying the reverse split factor of each reverse split, or 250 x 250 x 1,000 x 1,000 x 1,000 x 1,500 x 1,250. The product of this equation equals the number of shares of common stock at August 16, 2003 that would be worth 1 share of common stock at December 31, 2005. This large dilution factor renders all items based in shares or per share amounts essentially not comparable over different accounting periods. Many of the share amounts in prior periods, when adjusted for the cumulative effects of the reverse splits, are a small fraction of one share. Similarly, some items measured in per share amounts, such as earnings per share, are too large to have any significant meaning to the reader of the financial statements. New Accounting Pronouncements ----------------------------- In May 2005, the FASB issued FASB Statement No. 154, ("FAS 154"), "Accounting Changes and Error Corrections." FAS 154 establishes retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. FAS 154 also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. FAS 154 becomes effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of FAS 154 to have a material impact on our financial position, cash flows or results of operations. In December 2004, the FASB issued FASB Statement No. 123(R), ("FAS 123(R)"), "Share-Based Payment," which is a revision of FASB Statement No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation." FAS 123(R) supersedes APB Opinion No. 25, (APB 25), "Accounting for Stock Issued to Employees," and amends FASB Statement No. 95, "Statement of Cash Flows." FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values at the date of grant and to record that cost as compensation expense over the period during which the employee is required to perform service in exchange for the award (generally over the vesting period of the award). Excess tax benefits, as defined by FAS 123(R), will be recognized as an addition to common stock. In April 2005, the SEC adopted a new rule that amends the compliance dates for FAS 123(R). In accordance with the new rule, we are required to implement FAS 123(R) at the beginning of our fiscal year that begins January 1, 2006. The Commission's new rule does not change the accounting required by FAS 123(R); it changes only the dates of compliance. In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, "Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards." The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of employee share-based compensation, and to determine the subsequent impact on the APIC pool and consolidated statements of cash flows of the tax effects of employee share-based compensation awards that are outstanding upon adoption of SFAS 123(R). An entity may make a one-time election to adopt the transition method described in this guidance and may take up to one year from the later of its initial adoption of SFAS 123(R) or the effective date of this guidance, which was November 11, 2005. We are in the process of determining whether to adopt the alternative transition method provided in FAS 123(R)-3 for calculating the tax effects of share-based compensation pursuant to SFAS 123(R). Effective January 1, 2006, we will adopt FAS 123(R) using the modified prospective transition method, which provides for certain changes to the method for valuing share-based compensation. The valuation provisions of FAS 123(R) apply to new awards and to awards that are outstanding at the effective date and subsequently modified or cancelled. Estimated compensation expense for awards outstanding at F-17 January 1, 2006 will be recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes under FAS 123. In accordance with the modified prospective transition method, our statements of operations for periods prior to January 1, 2006 will not be restated to reflect the impact of FAS 123(R). Our calculation of share-based compensation expense in future periods will be calculated using the Black-Scholes option valuation model and will include the portion of share-based payment awards that is ultimately expected to vest during the period and therefore will be adjusted to reflect estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma information required under SFAS 123 for the periods prior to 2006, we accounted for forfeitures as they occurred. For share awards granted after January 1, 2006, expenses will be amortized under the straight-line attribution method. For share awards granted prior to 2006, expenses are amortized under the straight-line single option method prescribed by SFAS 123. We expect that our adoption of FAS 123(R) in 2006 will have a material impact on our results of operations and net loss per share. On February 16, 2006 the FASB issued SFAS 155, "Accounting for Certain Hybrid Instruments," which amends SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company does not expect its adoption of this new standard to have a material impact on its financial position, results of operations or cash flows 4. RECEIVABLE FROM PORTFOLIO COMPANY On April 5, 2005, the Company entered into a consulting agreement with Medspa Solutions, a company which Winsted controls. Under the terms of this consulting agreement, Winsted receives a consulting fee of $50,000 per month payable in cash. Winsted recognizes consulting revenue as services are rendered in the contractual amount of $50,000 per month. Winsted recognized the amount of $300,000 as revenue from this agreement during the period April through September 2005. The Company has received cash payments of a total of $240,500, and has reserved the amount of $27,440 as uncollectible. Winsted has not recognized any revenue from this agreement for the period October through December, 2005. At December 31, 2005, Winsted has a receivable from Medspa Solutions in the amount of $45,000. 5. INVESTMENTS AND ADVANCES TO AFFILIATES Business Development Company status ----------------------------------- Effective November 22, 2004, the Registrant became a "business development company" by filing Form N-54 with the Securities and Exchange Commission and electing to be governed by sections 54 through 65 of the Investment Company Act of 1940. The Registrant will continue to be subject to the periodic reporting requirements of the Exchange Act and the proxy solicitation requirements of Section 14 of the 1934 Act. The Registrant's management personnel will continue to report trading in the Registrant's stock. Acquisitions consummated previous to November 22, 2004 are consolidated in the Company's financial statements for the years ended December 31, 2005 and 2004. Acquisitions completed after November 22, 2004 are presented as investments on the Company's balance sheet, net of any impairment charges. Valuation of Investments ------------------------ Investments for which there is no ready market are initially valued at cost and, thereafter, at fair value based upon the financial condition and operating results of the issuer and other pertinent factors as determined in good faith by the Board of Directors. The financial condition and operating results have been derived utilizing F-18 both audited and unaudited data. In the absence of a ready market for an investment, numerous assumptions are inherent in the valuation process. Some or all of these assumptions may not materialize. Unanticipated events and circumstances may occur subsequent to the date of the valuation and values may change due to future events. Therefore, the actual amounts eventually realized from each investment may vary from the valuations shown and the differences may be material. The Company reports the unrealized gain or loss resulting from such valuation in the Consolidated Statements of Losses. Value, as defined in Section 2(a)(41) of 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the board of directors. Since there is typically no readily available market value for the Company's privately held investments, the Company values substantially all of its investments at fair value as determined in good faith by the board of directors pursuant to a valuation policy and a consistent valuation process. At December 31, 2005, the Company had 3 investments with an aggregate historical cost of $3,720,300. A total of $3,673,300 was reserved at December 31, 2005, and the net value on the Company's balance sheet at December 31, 2005 is $47,000. The amount charged to operations during the twelve months ended December 31, 2005 was $3,673,300. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments determined in good faith by the board of directors may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. The Company must determine the fair value of each individual investment on a quarterly basis. The Company records unrealized depreciation on investments when it believes that an investment has decreased in value, including where collection of a loan or realization of an equity security is doubtful. Conversely, the Company records unrealized appreciation if it believes that the underlying portfolio company has appreciated in value and, therefore, the Company's investment has also appreciated in value, where appropriate. As a business development company, the Company intends to invest primarily in illiquid securities including debt and equity securities of private companies. the Company's investments are generally subject to some restrictions on resale and generally have no established trading market. Because of the type of investments that the Company makes and the nature of its business, the Company's valuation process requires an analysis of various factors. the Company's fair value methodology includes the examination of, among other things, the underlying portfolio company performance, financial condition and market changing events that impact valuation. With respect to private debt and equity securities, each investment is valued using industry valuation benchmarks, and, where appropriate, the value is assigned a discount reflecting the illiquid nature of the investment and/or the Company's minority, non-control position. When an external event such as a purchase transaction, public offering, or subsequent equity sale occurs, the pricing indicated by the external event will be used to corroborate the Company's private debt or equity valuation. Investments in equity securities: Under business development company accounting, all equity investments are carried at fair value with any adjustments recorded in the statement of operations, combined with adjustments in the fair value of investments in loans, as investment gains (losses)--unrealized. In accordance with Article 6 of Regulation S-X under the Securities Act of 1933 and Securities Exchange Act of 1934, the Company does not consolidate portfolio company investments, including those in which it has a controlling interest. CONTROLLED COMPANIES: Medspa Solutions, Inc. ---------------------- Effective December 6, 2004, the Company entered into a stock purchase agreement with Medspa Solutions, Inc., a Nevada corporation ("Medspa"), to purchase all of the issued and outstanding capital stock of Medspa for * restricted shares (post reverse-splits) F-19 of the Company's common stock with a fair value of $3,400,000. Medspa is in the business of skincare services, and is controlled by the Company's president and chief executive officer. At December 31, 2004 and 2005, the Company determined that the fair value of Medspa was $0. The amount of $3,400,000 was charged to operations during the year ended December 31, 2004. GaeaCare Syndicate Partners --------------------------- During the year ended December 31, 2005, the Company purchased 90% of the outstanding common stock of GaeaCare Syndicate Partners, Inc. ("GaeCare")for $3,000 cash. GaeaCare is a proactive environmental products and services corporation that intends to become a leading environmental cleanup, emergency response, and environmental remediation company by the use of new computer systems technology, sensor technology, communications technology, systems concepts and microbial environmental cleanup treatment. At December 31, 2005, the Company determined that the fair value of its investment in GaeaCare was $0. The amount of $3,000 was charged to operations during the year ended December 31, 2005. OTHER AFFILIATES: Nu Image Medspa --------------- As of December 31, 2005, the Company has purchased 2% of the issued and outstanding capital stock of Nu Image Medspa, Inc., a Nevada corporation ("Nu Image"). The Company has purchased 2,576,000 shares of Nu Image for cash payments of $270,300 from the Company's chief executive officer, who continues to own the remaining 98% of Nu Image Medspa. Nu Image is in the business of franchising medical spa facilities, which provide skincare services. At December 31, 2005, the Company determined that the fairvalue of Nu Image was $0, and charged the amounts of $270,300 to operations during the year ended December 31, 2005. The Company has also made certain payments of operational expenses on behalf of Nu Image. These expenses consist primarily of rent expense, aggregate $47,000 at December 31, 2005. This amount is included in the Company's consolidated balance sheet at December 31, 2005 as investments and advances to affiliates - other affiliates. The Company offers consulting services to Nu Image Medspa, Inc. Contractually, these services are paid for in shares of common stock of Nu Image Medspa. At December 31, 2005, the Company determined that the fair value of Nu Image Medspa stock was $0, therefore the Company has recognized zero revenue from these consulting services. Bareskin Medspa --------------- As of December 31, 2005, the Company has made a cash advance in the amount of $27,440 to Bareskin Medspa, an entity in which Winsted has no equity interest. At December 31, 2005, the Chief Executive Office of Bareskin Medspa was also Winsted's Chief Executive Officer. Bareskin Medspa is controlled by the spouse of Winsted's President and Chief Executive Officer. At December 31, 2005, Winsted has fully reserved this cash advance and has charged the amount of $27,440 to operations. 6. PROPERTY AND EQUIPMENT Property and equipment at December 31, 2005 and 2004 consisted of the following: 2005 2004 ---------- ---------- Furniture and fixtures $ 235,960 $ 235,960 Office equipment and telephone equipment 94,543 94,543 Software 89,400 89,400 Leasehold improvements 879 2,639 ---------- ---------- 420,782 422,542 Less accumulated depreciation (373,025) (185,892) ---------- ---------- $ 47,757 $ 236,650 ========== ========== F-20 Depreciation expense for the twelve months ended December 31, 2005 and 2004 was $188,893 and $185,892, respectively. The Company neither recorded depreciation expense nor accumulated depreciation for the year ended December 31, 2003. The equipment was acquired December 30, 2003. 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following at December 31, 2005 2004 ---------- ---------- Accrued payroll taxes and penalties $300,000 $ -- Accounts payable and accrued payables 151,521 94,625 Accrued interest 47,533 34,661 Accrued payroll and related costs 216 56,741 ---------- ---------- $499,270 $186,027 ========== ========== 8. NOTES PAYABLE Notes payable at December 31, 2005 and 2004 are as follows: 2005 2004 -------- -------- 8% unsecured 1-year note payable due June 16, 2003. As of December 31, 2005 and 2004, the note payable is in default. $ 95,000 $ 95,000 8% unsecured 30-day note payable due February 28, 2002. As of December 31, 2005 and 2004, the note Payable is in default 33,930 33,930 8% unsecured 30-day note payable due February 28, 2002. As of December 31, 2005 and 2004, the note payable is in default 18,574 18,574 8% unsecured 5-month note payable due March 31, 2003. As of December 31, 2004, the note payable is in default 7,057 7,057 8% unsecured 30-day note payable due February 28, 2002. As of December 31, 2004, the note payable is in default 6,370 6,370 -------- -------- Total $160,931 $160,931 Less: notes payable-current portion (160,931) (160,931) -------- -------- Note payable - long-term $ - $ - ======== ======== On April 30, 2004, the Company paid a note payable, consisting of unpaid principal of $1,500 and accrued and unpaid interest of $300, for cash of $1,800. These notes are unsecured, short-term, and bear interest at rates ranging from 8% to 12%. The entire amounts outstanding are delinquent at December 31, 2005 and 2004. Accrued interest expense under these notes as of December 31, 2005 and 2004 were $47,533 and $44,312, respectively. These amounts are included in accounts payable and accrued expenses. 9. CAPITAL STOCK Reverse Stock-Splits -------------------- F-21 The Board of Directors approved the following reserve splits of the Company's common stock: Effective Date Reverse split ratio -------------- ------------------- August 17, 2003 1 for 250 August 16, 2004 1 for 250 November 29, 2004 1 for 1,000 March 7, 2005 1 for 1,000 June 23, 2005 1 for 1,500 January 26, 2006 1 for 1,250 All of the above reverse splits of the Company's common stock are reflected in the Company's financial statements at December 31, 2005. The cumulative effect of these reverse splits at December 31, 2005 is computed by multiplying the reverse split factor of each reverse split, or 250 x 250 x 1,000 x 1,000 x 1,000 x 1,500 x 1,250. The product of this equation equals the number of shares of common stock at August 16, 2003 that would be worth 1 share of common stock at December 31, 2005. This large dilution factor renders all items based in shares or per share amounts essentially not comparable over different accounting periods. Many of the share amounts in prior periods, when adjusted for the cumulative effects of the reverse splits, are a small fraction of one share. Similarly, some items measured in per share amounts, such as earnings per share, are too large to have any significant meaning to the reader of the financial statements. Common Stock ------------ Effective June 30, 2003 the Company changed the par value of its preferred stock and common stock from $0.0001 per share to no par value. As of June 30, 2003, the Company reclassified $112,000 from additional paid-in capital to common stock. On February 23, 2005, the Company amended the Articles of Incorporation to issue 5,500,000,000 shares, of which 5,000,000,000 shares shall be common shares at no par value per share, and 500,000,000 shares shall be preferred shares at no par value per share. Common stock transactions - twelve months ended December 31, 2003: During the year ended December 31, 2003 the Company issued less than one share (post reverse-splits) of common stock with a fair market value of $1,584,760 to consultants in exchange for services to be provided through March 2004. The Company has recorded deferred compensation of $98,438 for services to be received subsequent to December 31, 2003. During the year ended December 31, 2003 the Company issued less than one share (post reverse-splits) of common stock with a fair market value of $740,000 to its Chief Executive officer as a bonus and in lieu of cash compensation. The Company has recorded deferred compensation of $536,250 for services to be received subsequent to December 31, 2003. During the year ended December 31, 2003 holders of stock options exercised options for less than one share (post reverse-splits) of common stock under the Company's Employee Stock Incentive Plan (see Note 11) The Company received proceeds of $1,283,162 and recognized compensation expense of $227,639 related to the exercise of these options for the year ended December 31, 2003. During the year ended December 31, 2003, the Company converted a note payable in the amount of $105,000 to less than one share (post reverse-splits) of common stock. Also during the year ended December 31, 2003, the Company converted a note payable in the amount of $15,000 to less than one share (post reveres-splits) of common stock. Common stock transactions - twelve months ended December 31, 2004: F-22 During the year ended December 31, 2004 the Company issued less than one share (post reverse-splits) of common stock with a fair market value of $1,164,100 to consultants in exchange for services to be provided through August 2005. The Company has charged to expense the amount of $860,760 during the twelve months ended December 31, 2004. The balance of $360,000 has been charged to deferred compensation at December 31, 2004, and will be amortized over the terms of the related agreements. During the year ended December 31, 2004, the Company issued stock options to purchase less than one share shares (post reverse-splits) of common stock with a fair market value of $1,278,883 under the Company's Employee Stock Incentive Plan (see Note 11). These options were all immediately exercised. The Company received proceeds of $1,087,050 and recognized compensation expense of $191,833 related to the exercise of these options for the twelve months ended December 31, 2004. During the year ended December 31, 2004, the Company had not yet been paid for the exercise of stock options to purchase less than one share (post reverse-splits) of the Company's common stock. The Company has recorded non-cash compensation in the amount of $22,203 and also recorded a receivable of $125,756 representing the amount due under the terms of these options. The total value of the stock sold pursuant to these options was $147,959. During the twelve months ended December 31, 2004, the Company issued less than one share (post reverse-split) of restricted stock with a fair value of $6,000 to a potential acquisition candidate as a non-refundable negotiation fee. The Company charged the entire amount of this fee to operations during the twelve months ended December 31, 2004. During the twelve months ended December 31, 2004, the Company's President and Chief Executive Officer converted 1,000,000 shares of Preferred Stock Series A into less than one share (post reverse-splits) of common stock. Common stock transactions - twelve months ended December 31, 2005: During the three months ended March 31, 2005 the Company issued 22 shares (post reverse splits) of common stock with a fair market value of $390,300 to consultants in exchange for services to be provided through July 2005. The Company has charged $41,400 of this amount to operations and $333,629 to deferred compensation during the three months ended March 31, 2005. Also during the three months ended March 31, 2005 the Company issued stock options to purchase 3 shares (post reverse splits) of common stock under the Company's Employee Stock Incentive Plan (see Note E). These options were all immediately exercised. The Company received proceeds of $63,973 and recognized compensation expense of $11,291 related to the exercise of these options for the three months ended March 31, 2005. Also during the three months ended March 31, 2005, the Company issued stock options to purchase 5 shares (post reverse-splits) of common stock under the Company's Employee Stock Incentive Plan for which the Company has not yet received payment. The Company charged the $7,632 amount due under these options agreements to Stock Options Receivable. During the three months ended June 30, 2005, the Company wrote-off to non-cash compensation expense stock options receivable in the amount of $133,388 representing the exercise price of options on less than one share (post reverse-split) of the Company's common stock. Also during the three months ended March 31, 2005, the Company sold 21 shares of common stock (post reverse-split) for aggregate proceeds of $75,000. An additional 13 shares of common stock (post reverse-split) were sold for which payment has not yet been received, for which Company charged the amount of $44,200 to subscriptions receivable during the three months ended March 31, 2005. Also during the three months ended March 31, 2005, the Company issued 43 shares of its common stock (post reverse-split) for conversion of 4,000,000 shares of convertible stock. Also during the three months ended March 31, 2005, the Company issued less than one share (post reverse-split) of its common stock due to rounding-up in the reverse-split process. F-23 During the three months ended June 30, 2005 the Company issued 78 shares (post reverse split) of common stock with a fair market value of $106,700 to consultants in exchange for services to be provided through June 30, 2005. The Company has charged $106,700 of this amount to operations during the three months ended June 30, 2005. Also during the three months ended June 30, 2005, the Company sold 1,887 shares of common stock (post reverse-split) for aggregate proceeds of $111,525. The Company has received cash payment in the amount of $65,500, and has charged the balance of $1,825 to common stock subscriptions receivable during the three months ended June 30, 2005. Also during the three months ended June 30, 2005, the Company wrote-off common stock subscriptions receivable in the amount of $133,388. During the three months ended September 30, 2005 the Company issued 48,000 shares of common stock (post reverse-splits) with a fair market value of $107,000 to consultants in exchange for services to be provided through December 12, 2005. The Company has charged $36,333 of this amount to operations during the three months ended September 30, 2005. Also during the three months ended September 30, 2005, the Company sold 424,860 shares of common stock (post reverse-splits) for aggregate proceeds of $531,675. The Company has received cash payments in the amount of $374,375, and has charged the balance of $157,300 to common stock subscriptions receivable during the three months ended September 30, 2005. During the three months ended December 31, 2005, the Company sold 1,557,000 shares of its common stock (post reverse-splits) for aggregate proceeds of $289,200. Also during the three months ended December 31, 205, the Company issued 268,000 shares of common stock (post reverse-splits) with a fair market value of $306,500 to consultants for services to be performed through April 2006. The Company charged the amount of $240,083 to operations and the amount of $66,417 to deferred compensation during the year ended December 31, 2005. Also during the three months ended December 31, 2005, the Company issued 24,000 shares of its common stock (post reverse-split) valued at $28,500 to a consultant in exchange for services provided through December 31, 2005. The Company charged the amount of $28,500 to operations during the year ended December 31, 2005. All valuations of the above shares are based on the stock price at the date of issue, which did not differ materially from the value of the services that were rendered by the consultants under the contracts. S-8 Stock Registrations ------------------------- The Company has filed the Forms S-8 during the twelve months ended December 31, 2005, 2004, and 2003, and registered shares as follows (all shares are presented on a post reverse-splits basis): Date of S-8 Filing Number of Shares Registered ------------------ --------------------------- April 17, 2003 Less than one share (post reverse-splits) May 29, 2003 Less than one share (post reverse-splits) June 20, 2003 Less than one share (post reverse-splits) August 11, 2003 Less than one share (post reverse-splits) April 2, 2004 Less than one share (post reverse-splits) May 27, 2004 Less than one share (post reverse-splits) July 12, 2004 Less than one share (post reverse-splits)(de-register) July 26, 2004 Less than one share (post reverse-splits) September 3, 2004 Less than one share (post reverse-splits) October 18, 2004 Less than one share (post reverse-splits) January 18, 2005 Less than one share (post reverse-splits) E-1 Stock --------- In February 2005, Winsted filed a Form E-1 with the Securities and Exchange Commission with regard to the offering of up to 20,000,000,000 E-1 shares of common stock at prices F-24 ranging from $0.00025 to $0.05 per share. The maximum amount of this offering is $5,000,000. Preferred Stock ---------------- On February 23, 2005, the Company amended the Articles of Incorporation to issue 5,500,000,000 shares, of which 5,000,000,000 shares shall be common shares at no par value per share, and 500,000,000 shares shall be preferred shares at no par value per share. Series A Preferred Stock ------------------------ On October 21, 2003, the Company designated a series of the preferred stock to be called the "Series A Preferred Stock" to consist of 50,000,000 shares. Each shares of the Series A preferred stock is convertible into 20 shares of our common stock. The Company, at the option of its directors, and with the consent of a majority of the stockholders of the Series A Preferred Stock, may at any time or from time to time redeem the whole or any part of the outstanding Series A Preferred Stock. Any such redemption shall be pro rata with respect to all of the holders of the Series A Preferred Stock. Upon redemption the Company shall pay for each share redeemed the amount of $0.01 per share, payable in cash, plus a premium to compensate the original purchaser(s) for the investment risk and cost of capital equal to the greater of (a) $0.25 per share, or (b) an amount per share equal to 50 percent of the market capitalization of the Company on the date of notice of such redemption divided by the number of the shares of the Series A Preferred Stock then issued and outstanding (the "Redemption Premium"), the redemption amount and the Redemption Premium hereinafter being referred to as the "Redemption Price." Such redemption shall be on an all-or-nothing basis. During the year ended December 31, 2004, the Company issued 50,000,000 shares of Series A Preferred stock with a fair value of $56,092,000 to its President and Chief Executive Officer as compensation. The preferred shares are convertible into shares of common stock at the rate of 1 preferred share for each 20 common shares. The preferred shares were valued at the market price of the underlying common shares. Also during the year ended December 31, 2004, the Company's President and Chief Executive Officer converted 1,000,000 of these Series A Preferred Shares to less than one share (post reverse-splits) of common stock. During the three months ended March 31, 2005, the Company issued 5,000,000 shares of its Series A Convertible Preferred Stock to its President and Chief Executive Officer as compensation. The Company charged the fair value of the shares of common stock underlying this preferred stock, or $50,000, to operations during the three months ended March 31, 2005. Also during the three months ended March 31, 2005, the Company cancelled 4,000,000 shares of its preferred stock outstanding due to conversion of this stock into 80,000,000 shares of common stock by the owner of these shares, the Company's President and Chief Executive Officer. Series B Preferred Stock ------------------------ Effective January 12, 2005, we filed a certificate of designation for the Series B preferred stock with the Secretary of State of Florida. 50,000,000 shares have been designated as Series B preferred stock. Each share of the Series B preferred stock is convertible into 10 shares of our common stock. On all matters submitted to a vote of the holders of the common stock, including, without imitation, the election of directors, a holder of shares of the Series B preferred stock shall be entitled to the number of votes on such matters equal to the number of shares of the Series B preferred stock held by such holder multiplied by the number of shares of the common stock into which each such share of the Series B preferred stock shall then be convertible. The Series B Preferred stock is redeemable at our option. Upon redemption, the Company shall pay for each share redeemed the amount of $0.01 per share, in cash, plus a premium to compensate the original purchaser(s) for the investment risk and cost of capital equal to the greater of (a) $0.25 per share, or (b) an F-25 amount per share equal to 50 per cent of the market capitalization of the Company on the date of notice of such redemption divided by the number of the shares of the Series B Preferred Stock then issued and outstanding. In December 2004, pursuant to the terms of the MedSpa Solutions acquisitions, the Company issued less than one share of common stock (post reverse-split) which was to be automatically converted into 1,000,000 shares of Series B Convertible Preferred Stock upon the filing of the certificate of designation for the Series B Preferred stock with the Florida Secretary of State. The common stock was not yet issued but was held as common stock subscribed at the time of the filing of the certificate of designation for the Series B Preferred stock. The Common Stock subscribed then immediately converted to Series B Preferred Stock subscribed. The Company issued 1,000,000 shares of Series B Convertible Preferred Stock in June 2005. 10. STOCK OPTIONS During the year ended December 31, 2003, the Company authorized four Employee Stock Incentive Plans ("ESIP") for 2003 and four Non-Employee Director and Consultant's Retainer Stock Plans ("NDCRSP") for 2003. The purpose of the ESIP is to provide stock incentive to employees of the Company. Under the ESIP plans, employees are entitled to purchase shares for no less than 80% of the market price of the company's common stock. The Compensation Committee of the Company's Board of Directors approves shares issued under the plan. The purpose of the NDRCSP is to attract non-employee directors and consultants who capable of improving the success of the Company by providing a direct economic interest to Company performance. Under the terms of this plan, non-employee directors or consultants may be compensated through the issuance of Company stock at a deemed value of $0.0009 per share. The Compensation Committee of the Company's Board of Directors administers the plan. The following table summarizes the changes in options outstanding and the related prices for the shares of the Company's common stock issued to shareholders and employees at December 31, 2004. (All prices and option amounts are presented post reverse-splits. The symbol * denotes less than one share on a post reverse-split basis) Number of Weighted-average Shares exercise price --------------- ---------------- Outstanding at December 31, 2002 -- $ -- Granted * 483,032,500 Exercised * 483.032.500 Cancelled -- -- --------------- ---------------- Outstanding at December 31, 2003 -- $ -- Granted * 72,194,102 Exercised * 72.194,102 Cancelled -- -- --------------- ---------------- Outstanding at December 31, 2004 -- $ -- Granted * 65,309 Exercised * 65,309 Cancelled -- -- --------------- ---------------- Outstanding at December 31, 2005 -- $ -- =============== ================ (A) The exercise price is 85% of market value at the time the option is exercised; thus it is not possible to determine the weighted-average exercise price of stock options not yet exercised. F-26 The weighted-average fair value of stock options granted to employees during the years ended December 31, 2005, 2004 and 2003 and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes option pricing model are as follows: 2005 2004 2003 ---- ---- ---- Significant assumptions (weighted average) Risk-free interest rate at grant date 2.85% 3.75% 2.65% Expected stock price volatility 248% 328% 189% Expected dividend payout 0 0 0 Expected option life-years based on contractual expiration dates .02 .02 .02 In nearly every case, options are exercised via a cashless transaction immediately upon issuance. For this reason, the life of the options is deemed to be one week, or .02 years. If the Company recognized compensation cost for the non-qualified employee stock option plan in accordance with SFAS No. 123, the Company's pro forma net loss and net loss per share would have been $(62,718,607) and $(33,114.36) for the year ended December 31, 2004 and $(3,369,743) and $(22,464,953.33) for the year ended December 31, 2003, respectively. 2005 2004 2003 ----------- ----------- ----------- Net loss, as reported $(3,538,300) $(62,591,443) $(3,308,609) Add: Compensation recognized under APB 25 63,627 191,832 226,400 Less: Compensation recognized under SFAS 123 (78,492) (318,996) (287,534) ---------- ----------- ----------- Pro forma net loss $(3,553,165) $(62,718,607) $(3,369,743) ========== =========== =========== Earnings per share: Basic and diluted loss per share: As reported $ (8.54) Note A Note A Pro forma $ (8.57) Note A: Stating the loss per share for the years ended 2004 and 2003 for the cumulative effect of the reverse stock splits which the Company has undergone would render the earnings per share number meaningless as it would be multiplied by a factor of 468,750,000,000,000. There was no change in the pro forms earnings per share amounts under SFAS 123 for the years ended December 31, 2004 or 2003 compared to the earnings per share amounts originally stated. 11. RELATED PARTY TRANSACTIONS UBC and C2C Acquisitions --------------------------- In December 2003, the Company entered into two asset purchase agreements with companies controlled by the Company's President and Chief Executive Officer (See Note 5). In accordance with STAFF ACCOUNTING BULLETIN NO. 48: TRANSFERS OF NONMONETARY ASSETS BY PROMOTERS OR SHAREHOLDERS, the Company recorded the assets at the historical cost of the seller, which did not differ materially from the assets' fair value. These transactions resulted in the acquisition of assets with a historical cost of $405,497 in exchange for 11,000,000 shares of the Company's Series-A Convertible Preferred Stock with an assigned value of $880,000. The difference of $474,503 was charged to expense during the twelve months ended December 31, 2003. F-27 The acquisitions of UBC and C2C should not be considered arms-length transactions as they were 100% controlled by Winsted's President and CEO at the time of the acquisition. Medspa Solutions, Inc. Acquisition -------------------------------------- In December 2004, the Company purchased all of the outstanding common stock of Medspa Solutions, Inc. for less than one share (post reverse-split) of common stock with a fair value of $3,400,000. Prior to the acquisition by Winsted, the common stock of Medspa Solutions, Inc. was held as follows: Winsted Holdings President and CEO: 64.8% Spouse of Winsted Holdings President and CEO: 8.8% Employee of Winsted Holdings: 8.8% Consultant to Winsted Holdings: 8.8% Consultant to Winsted Holdings: 8.8% ------ Total 100.0% The acquisition of Medspa Solutions, Inc. should not be considered an arms-length transaction as none of the shareholders of Medspa Solutions, Inc. were unaffiliated with the Company prior to the acquisition of Medspa Solutions, Inc. by the Company. GaeaCare Syndicate Partners, Inc. --------------------------------- During the year ended December 31, 2005, the Company purchased 90% of the outstanding common stock of GaeaCare Syndicate Partners, Inc. for $3,000 cash from an individual who is a consultant to the Company. The investment in GaeaCare should not be considered an arms-length transaction. Nu Image Medspa, Inc. Investment -------------------------------- As of December 31, 2005, the Company has purchased 2% of the issued and outstanding capital stock of Nu Image Medspa, Inc., a Nevada corporation ("Nu Image"). The Company has purchased 2,576,000 shares of Nu Image for cash payments of $270,300 from the Company's chief executive officer, who continues to own the remaining 98% of Nu Image Medspa. The investment in Nu Image Medspa, Inc. should not be considered arms-length transactions as they were 100% controlled by Winsted's President and CEO at the time of the investment. Cash advance to Nu Image Medspa, Inc. ------------------------------------- The Company has also made certain payments of operational expenses on behalf of Nu Image. These expenses consist primarily of rent expense, aggregate $47,000 at December 31, 2005. This amount is included in the Company's consolidated balance sheet at December 31, 2005 as investments and advances to affiliates - other affiliates. Winsted's President and Chief Executive Officer is the majority owner of Nu Image Medspa and these advances should not be considered arms length transactions. Cash advance to Bareskin Medspa, Inc. ------------------------------------- The Company has also made certain payments of operational expenses on behalf of Bareskin Medspa, Inc. These expenses consist primarily of rent expense, aggregate $27,440 at December 31, 2005. This amount has been fully reserved, and $27,440 has been charged to operations during the year ended December 31, 2005. Winsted's President and Chief Executive Officer and his spouse are the majority owners of Bareskin Medspa and these advances should not be considered arms length transactions. Receivable From Portfolio Company -------------------------------- On April 5, 2005, the Company entered into a consulting agreement with Medspa Solutions, a company which Winsted controls. Under the terms of this consulting F-28 agreement, Winsted receives a consulting fee of $50,000 per month payable in cash. Winsted recognizes consulting revenue as services are rendered in the contractual amount of $50,000 per month. Winsted recognized the amount of $300,000 as revenue from this agreement during the period April through September 2005. The Company has received cash payments of a total of $240,500, and has reserved the amount of $14,500 as uncollectible. Winsted has not recognized any revenue from this agreement for the period October through December, 2005. At December 31, 2005, Winsted has a receivable from Medspa Solutions in the amount of $45,000. Preferred Stock Issued to Chief Executive Officer ------------------------------------------------------- During the year ended December 31, 2004, the Company issued 49,000,000 shares of preferred stock with a fair value of $56,092,000 to its President and Chief Executive Officer as compensation. The preferred shares are convertible into shares of common stock at the rate of 1 preferred share for each 20 common shares. The preferred shares were valued at the market price of the underlying common shares. During the year ended December 31, 2005, the Company issued 5,000,000 shares of preferred stock with a fair value of $50,000 to its President and Chief Executive Officer as compensation. The preferred shares are convertible into shares of common stock at the rate of 1 preferred share for each 20 common shares. The preferred shares were valued at the market price of the underlying common shares. Employment of Spouse of Chief Executive Officer ----------------------------------------------------- The Company employed the spouse of its Chief Executive Officer. During the twelve months ended December 31, 2004, the spouse was paid a salary of $26,000, and also received non-cash compensation in the form of stock options with a fair value of $13,387. 12. COMMITMENTS AND CONTINGENCIES Employment Contract On March 7, 2003, and as subsequently amended on August 14, 2003 and November 24, 2003, the Company entered into a five-year employment agreement with its Chief Executive Officer. The agreement calls for the following: 2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- Base salary $350,000 $400,000 $450,000 $500,000 $550,000 Bonus - cash $50,000 to $50,000 to $50,000 to $50,000 to $50,000 to $100,000 $100,000 $100,000 $100,000 $100,000 Stock options * * * * * * less than one share, post reverse-splits. During the years ended December 31, 2005, 2004 and 2003, the Company has paid the Company's Chief Executive Officer in the form of cash and the Company's common stock substantially in excess of his employment agreement. Also, during the year ended December 31, 2004, the Company has paid the Chief Executive Officer in the form of Preferred Stock substantially in excess of his employment agreement. In addition, the agreement calls for stock awards of up to less than one share (post reverse-split) of either common stock or preferred stock based upon the Company reaching certain milestones. During the year ended December 31, 2003, the Company settled a note payable to a related party in the amount of $117,006 for less than one share (post reverse-splits) of the Company's restricted common stock with an estimated fair value of $105,000. During the year ended December 31, 2003 a shareholder of the Company forgave amounts due to him in the amount of $11,675, which the Company recorded as a capital contribution. F-29 Lease Commitments ------------------- The Company leases office space on a month to month basis. All previous leases have expired or been assumed by third parties. The Company has no non-cancelable lease commitments at December 31, 2005. Contingencies ------------- During the years ended December 31, 2003, the Company filed a series of Registration Statements on SEC Form S-8 registering shares of the Company's common stock (see Note 9). The Company issued shares of its common stock in excess of the shares authorized under the plans. As a result, the Company may have violated federal and state securities laws in connection with the issuance of those shares. In the event that any of the exemptions from registration with respect to the issuance of the Company's common stock under federal and applicable state securities laws were not available, the Company may be subject to claims by federal and state regulators for any such violations. In addition, if any purchaser of the Company's common stock were to prevail in a suit resulting from a violation of federal or applicable state securities laws with respect to the unavailability of such exemption, the Company could be liable to return the amount paid for such securities with interest thereon, less the amount of any income received thereon, upon tender of such securities, or for damages if the purchaser no longer owns the securities. As of the date of these financial statements , the Company is not aware of any alleged specific violation or the likelihood of any claim. There can be no assurance that litigation asserting such claims will not be initiated, or that the Company would prevail in any such litigation. The Company is unable to predict the extent of its ultimate liability with respect to any and all future securities matters. The costs and other effects of any future litigation, government investigations, legal and administrative cases and proceedings, settlements, judgments and investigations, claims and changes in this matter could have a material adverse effect on the Company's financial condition and operating results. 13. INCOME TAXES Due to the Company's operating losses, there was no provision for U.S. income taxes for the years ended December 31, 2005, 2004, and 2003. For income tax reporting purposes, the Company's aggregate unused net operating losses approximate $66,000,000, which expires through 2025, subject to limitations of Section 382 of the Internal Revenue Code, as amended. Also, due to change in control carryforward losses may be limited under the provisions of Internal Revenue Code. The deferred tax asset related to the carryforward is approximately $1,500,000. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earning history of the Company, it is more likely than not that the benefits will be realized. Components of deferred tax assets as of December 31, 2005 are as follows: Non Current: Net operating loss carryforward $ 1,500,000 Valuation allowance (1,500,000) ------------ Net deferred tax asset $ -- ============ 14 - ECONOMIC DEPENDENCY Management fee income from the Company's one major customer-related party was $300,000 or 100% of total revenue for the year ended December 31, 2005. 15 - SUBSEQUENT EVENTS Reverse Stock-Splits The Board of Directors approved the following reserve stock splits: Reverse Stock-split ------------------- - 1-for-1250 reverse stock-split effective January 26, 2006. F-30 For the purposes of financial statement presentation, all share and per share information has been restated to reflect the cumulative effects of these reverse stock-splits. Because the cumulative effect of the splits is so large, the restatement of shares to a post reverse-split basis sometimes results in a fraction of a share. In these cases, the exact fraction is not stated, but the phrase "less than one share" is used. Stock Issuances --------------- From January 1, 2006 through March 31, 2006, the Company sold 18,441,722 shares of common stock for net cash proceeds of $59,500. F-31

Winsted Holdings, Inc. 10-K