DATED: May 14, 2001
UNITED SATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
Amendment #1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 000-24767
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BRIDGE TECHNOLOGY, INC.
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(Name of small business issuer as specified in its Charter)
NEVADA 59-3065437
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(State or other Jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
12601 Monarch Street, Garden Grove, CALIFORNIA 92841
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: (714) 891-6508
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Issuer's facsimile number: (714) 890-8590
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Securities to be registered pursuant to Section 12(b) of the Act: None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained in this form, and no
disclosure will 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]
State issuer's revenues for its most recent fiscal year. $120,918,774
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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 sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.) December 31, 2000 $21,726,372
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $0.01 Par Value - 10,863,186 shares as of December 31, 2000
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DOCUMENTS INCORORATED BY REFERENCE
Registrant's Form 10-SB and subsequent amendments 1 and 2 which
were initially filed in August 1998 with the Securities and Exchange
Commission in connection with the Registrant's Registration Statement
is incorporated by reference into Part I, II and III of this report as
well as certain exhibits filed with the Registrant's Registration Statement.
In addition Form 10KSB for the years ended 12/31/98, filed 3/31/99 and
12/31/99, filed 3/31/00 with the Securities and Exchange Commission is also
incorporated by reference into Part I, II and III of this report as well
as certain exhibits filed with the Form 10KSB.
TABLE OF CONTENTS PAGE
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PART I
Item 1. Business. 4
Item 2. Property. 11
Item 3. Legal Proceedings. 11
Item 4. Submission of Matters to a Vote of Security Holders. 11
PART II
Item 5. Market for Registrant's Common Equity and Related 11
Stockholder Matters.
Item 6. Management's Discussion and Analysis of Results of 12
Operations and Financial Condition
Item 7. Financial Statements and Supplementary Data. 19
Item 8. Changes in and Disagreements with Accountants on 53
Accounting and Financial Disclosure.
PART III
Item 9. Directors and Executive officers of the Registrant. 53
Item 10. Executive Compensation. 54
Item 11. Security Ownership of Certain Beneficial Owners and 55
Management.
Item 12. Certain Relationships and Related Transactions. 57
Item 13. Exhibits and Reports on Form 8-K. 58
SIGNATURES 74
ITEM 1. BUSINESS.
Our Company's vision is to develop state-of-the-art components for digital
data storage and communication. Our Company uses these components to design
leading edge products for data, voice, multimedia, Internet and broadband
wireless communications industries. To capitalize on the potential of these
designs, our Company develops, buys, assembles, manufactures, tests, packages,
markets and sells a broad family of custom made products. Our Company
established operating divisions and subsidiaries under several separate
business names, while each of them is focused on specific products,
ultimately these products are marketed through our Company's international
channel and distribution networks.
Through in-house development, joint ventures, licensing, and acquisition of
leading edge technologies and companies, our Company is deploying new and
existing leading edge technologies. Our Company design teams are continuously
creating innovative products demanded by computer and communications equipment
Original Equipment Manufacturers (OEMs), Value-Added Resellers (VARs) and
system integrators, and ultimately by the end users. Our Company sells these
products directly to OEMs and systems integrators as well as through selected
major distributors and manufacturer's representatives. Our Company currently
employs 356 full time employees, including senior management, manufacturing
personnel and 25 administrative personnel.
Currently our Company has the following active subsidiaries: Autec Power
Systems, Inc., PTI Enclosures, Inc., Newcorp Technology Ltd. (Japan), Bridge
R&D, Inc., CMS Technology Ltd. (Hong Kong), and Pacific Bridge Net.
Our Company is organized along four primary groups:
I) CORE COMPETENCY GROUP: AUTEC (USA), PTI (USA)
II) HIGH TECHNOLOGY GROUP: Newcorp Technology Ltd. (Japan), Bridge R&D (USA)
III) CHANNEL GROUP USA (under Bridge R&D USA): DataStor Division (National
Distribution), Classic Trading Inc. (Value Added Resellers and Systems
Integrator sales) and Newcorp Technology, Inc. (USA) (e-commerce).
IV) CHANNEL GROUP ASIA: CMS Technology Ltd. Hong Kong (Asia Distribution)
Our Company is essentially vertically integrated and horizonally operational.
I. CORE COMPETENCY GROUP:
Autec Power Systems Inc.
------------------------
Autec designs, develops, engineers and produces high quality power supplies
for a diversified list of clientele. Autec markets power supplies to the
principal manufacturers of gaming devices. Mr. Winston Gu, Chairman and CEO
of our Company, manages our research & development and manufacturing
operations in Simi Valley, California.
Autec also sells power cells and battery packs to private label customers and
OEMs. With the continued proliferation of portable devices, wireless devices,
wireless remote controllers, and other wireless appliances, the market demand
for quality batteries will grow at an increasingly rapid pace. Strategically,
our subsidiary, Newcorp Technology Limited (Japan), is in the process of
acquiring licenses for certain specific battery and intelligent charging IC
circuit technologies, which our Company plans to market internationally to
obtain patent protection for our Company.
In addition our Company's new battery techniques utilize Newcorp Technology
Limited (Japan)'s developing technologies. However, there can be no assurance
that our Company's battery business unit will be successful in such efforts.
PTI Enclosures, Inc. (PTI)
--------------------------
Our Company's subsidiary, PTI Enclosures, Inc. (PTI), is focused on designing,
developing, manufacturing, testing, and selling custom-designed enclosures,
power supplies and complete subsystems for computer peripherals,
telecommunications equipment, medical equipment, gaming equipment and other
electronics devices. Our customers include major computer and computer
peripheral manufacturers, telecommunications manufacturers, government
entities, manufacturers of gaming devices and medical instrumentation
manufacturers who use PTI's capabilities to produce OEM products manufactured
to their exact specifications. To our OEM customers Bridge is known as the
"time to market" supplier. Bridge also sells products to sub-system
integrators who add the peripherals and software to PTI's enclosures and
then sell these complete products to the end users. The enclosures PTI
provides encompass hard drive enclosures, tape enclosures, CD tower
enclosures, DVD tower enclosures, RAID enclosures, communications
system enclosures, medical system enclosures, various server enclosures
and other enclosures.
II. TECHNOLOGY GROUP:
Newcorp Technology Ltd. (Japan)
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Newcorp Technology Ltd., (Japan) is a high technology R&D and sales company
based in Tokyo, Japan. The mission of Newcorp (Japan) is to develop and/or
license leading edge technologies that can be used in products made for major
OEM customers. Newcorp (Japan) is actively pursuing the acquisition and
licensing of several new hardware and software technologies from high
technology R&D companies worldwide. Newcorp (Japan) plans to capitalize on
its strategic alliances and relationships in Japan to procure unique new
technologies and designs principally related to computer enhancements and
communications businesses, through which our Company expects to generate
additional revenues and earnings. Our Company has already commenced delivery
of components made specifically for subcontractors that supply new products
for Microsoft Corporation and other OEM's.
BRIDGE R&D, INC. (USA)
----------------------
BRIDGE R&D's mission is to design, develop (patent and copyright) certain
components and devices required to provide high-speed broadband wireless
access to the Internet backbone infrastructure. Such wireless broadband
components and devices are foreseen to provide the high speed Internet access
to the buildings that have no direct link to the light or dark fiber networks.
It is estimated that almost 90% of the buildings do not have (and in the
foreseeable future will not have) high speed communication access lines such
as the T-1, T-3, OC-3, etc. This creates an opportunity for companies that
make wireless broadband communication components and devices to provide
wireless broadband Internet access to these buildings, "the last mile".
BRIDGE R&D is in the final phase of designing an engineering prototype of high
speed wireless broadband transceiver and a derivative platform. To be
successful in this endeavor, BRIDGE R&D has to continue to attract new talent
in this highly innovative and competitive area, and efficiently execute an
innovative marketing strategy. Upon successful completion of the design
efforts, our Company expects to receive immediate orders for these products
from several of its customers.
III. CHANNEL MARKETING AND DISTRIBUTION GROUP:
Bridge R&D, Inc.
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Bridge R&D subsidiary of our Company has three operating units: DataStor,
Classic Trading Inc. and Newcorp Technology, Inc. (USA).
DataStor
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DataStor unit identifies, designs, develops, manufactures, assembles, tests,
and distributes metal and plastic enclosures, brackets and enhancement kits
for a variety of computer platforms. Certain products are produced under
specific contracts with several manufacturers. DataStor also sells external
peripheral kits consisting of enclosures and power supplies, mounting brackets
for various peripheral devices, and complete kits for integration of various
peripherals into PC systems. DataStor supplies over 60 different mass storage
products, including enclosures for 1 to 7 drives, drive mounting brackets, and
fixed and removable mounting bracket kits. DataStor also procures, markets,
sells, and supports a family of medium size RAID-ready enclosures and
subsystems through selected distribution channels.
DataStor's customers include INGRAM Micro, NECX and other national and
international distributors who further sell to the second tier distributors
and systems integrators. Other customers are master resellers who sell to
second and third-tier OEMs, Value Added Resellers (VARs) and system
integrators. To maintain its market position as an industry leader in making
cutting edge technology, DataStor is constantly researching market demand and
developing new product lines and solutions. DataStor plans to continue to
expand the number of OEM customers and systems integrators to increase sales
volume.
Classic Trading, Inc.
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Classic Trading unit operates as a nationwide computer and communications
hardware wholesale distributor, providing wide variety of high quality
computer and communications hardware products. CTI specializes in volume
sales of computer and notebook accessories such as faster CPUs, memory
expansions, hard drives, graphic cards, motherboards, DVD and CD-ROM drives,
modem and network cards and much more. CTI sells brand name products from
manufacturers like IBM, Fujitsu, MAXTOR, Samsung, Quantum, Seagate, INTEL,
Western Digital, Microsoft, ASUS, and others.
Newcorp Technology, Inc. (USA)
------------------------------
Newcorp Technology (USA) unit markets and sells computer enhancements and
peripheral products and Internet infrastructure products such as routers,
switches, firewalls, hubs, Ethernet LAN network cards, wireless broadband LAN
network cards and Access Points, and wireless broadband WAN Access Points and
Subscriber Units. The primary mission of our Company's Newcorp (USA) unit is
to innovate by identifying, evaluating and procuring technologies that provide
new products with substantial added value. Newcorp (USA) plans to introduce
several new products that integrate new-generation PC and energy related
technologies to create an innovative solution for mobile computer users.
Newcorp (USA) is actively pursuing the acquisition and licensing of several
new technologies from major high technology companies, principally in Japan
and USA. Newcorp (USA) plans to develop, license or acquire products that it
is able to sell through our Company's existing sales channels. Newcorp (USA)
is also in discussions with several companies, which offer products that would
complement or supplement our Company's core products.
IV) CHANNEL GROUP ASIA:
CMS Technology Ltd. unit is an IBM authorized distributor for China and other
Asian countries. Primary focus of CMS is distribution of computer hardware
components, especially high volume sales of computer and notebook peripherals
such as faster hard drives, memory expansions, hard drives, graphic cards,
motherboards, DVD and CD-ROM drives, modem and network cards. CMS has
organized our Company's main sales channel distribution system for Asia
especially China. In addition CMS markets our Company's products
from other business units. Our Company's customers in China for example are
the top ten OEM manufacturers. CMS sells brand name products from
manufacturers like IBM, Quantum, Seagate and Intel. CMS has branch offices
in most major cities in China and other Asia countries.
Competition
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Manufacturing and distribution of power supplies, computer peripherals,
computer enhancement, communications and other commercial electronics products
is fiercely competitive. Our Company competes with numerous other companies,
including several major manufacturers and distributors. Some competitors have
greater financial and other resources than our Company. Consequently, such
entities may begin to develop, manufacture, market and distribute systems that
are substantially similar or superior to our Company's products. There is no
assurance that our Company will be able to continue to develop and sell
products that afford it significant competitive advantage in the market.
Ultimately our Company is indirectly affected by end user sales. The current
worldwide slow down in business activity has not to date affected our China
operations. Our Company has experienced minor slow down in our US
manufacturing facilities which have resulted in lower sales in the last two
quarters of 2000. Autec had 1/2 of its sales in the 4th quarter. This slow
down in domestic sales is expected to continue through the first two quarters
of 2001. However, as our Company's backlog of business continues to rise,
finished goods inventory also has risen. Deliveries are expected to be made
at a higher rate in the second half of 2001. Projected manufacturing revenues
for the full year 2001 are expected to be greater than the full year 2000.
Importance of New Product Development to Growth
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Our Company's ability to develop and successfully introduce new products
will continue to be a significant factor to its growth and remaining
competitive. Development of new product lines is costly and risk intensive.
New product development often requires long term forecasting of market trends,
the development and implementation of new designs, compliance with extensive
governmental regulatory requirements and substantial capital commitments.
There are a number of manufacturing and design risks inherent in engineering
high cost custom built prototypes upon which development and contracting
decisions are often made, into commercial products that are able to be
manufactured in large quantities at acceptable cost. Also, the computer
peripheral industry is characterized by rapid technological change.
As technological changes occur in the marketplace, our Company may have
to modify its products in order to keep pace with these changes and
developments or have to accept modified OEM delivery schedules based on their
customers demands. Delayed or modified OEM delivery schedules have the effect
of deferring our Company's revenues as revenue is recognized when shipmentS
are made.
The introduction of products embodying new technologies, or the emergence
of new industry standards, may cause the existing products, or even the
products under development, to become obsolete or unmarketable within a rapid
time frame. Any failure by our Company to anticipate or respond in a cost-
effective and timely manner, to government requirements, market trends, and
customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on our Company's business,
results of operations, and financial condition.
Expansion through Acquisitions and Joint Ventures
-------------------------------------------------
Our Company has experienced rapid growth in revenues and earnings and
geographic scope of operations. With new management acquired control of our
Company in 1997, Mr. Winston Gu, the President of our Autec unit also serves
as CEO and Chairman of the Board of our Company. Mr. John Harwer, serves as
President of our Company, heads the Company's efforts to conceive, invent,
design, develop (patent and copyright), and ultimately produce certain devices
required to provide high-speed broadband wireless access to the Internet
backbone infrastructure. Such wireless broadband devices are foreseen to
provide the high-speed Internet access to the buildings that have no direct
link to the light or dark fiber networks.
Our Company intends to expand its product lines and domestic and
international markets, in part, primarily by internal growth and secondarily
through acquisitions. Our Company's ability to expand successfully through
strategic acquisitions will depend upon the availability of suitable
acquisition candidates at the valuation acceptable to our Company and the
availability of financing on terms acceptable to the Company. With limited
financial resources and depressed market values of our common stock, our
Company will be prohibited from pursuing the acquisition of target companies
in the near future.
Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward-looking statements, which could cause actual results to differ
materially from those projected or forecast in the statements, appear below.
In addition to other information contained in this document, readers should
carefully consider the following cautionary statements and risks factors.
CAUTIONARY STATEMENTS AND RISK FACTORS
Limited Operating History; History of Losses and Accumulated Deficits
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While our Company has been in existence since 1969, its operations between
1975 and 1997 were limited to the exploration of acquisition opportunities.
Bridge Technology Inc. and its subsidiaries have only been in operation since
June 1, 1997. The ability of our Company to obtain and sustain profitability
will depend, in part, upon the successful marketing of existing products and
the successful and timely introduction of new products.
Need for Additional Financing
-----------------------------
Based on its current operating plan, our Company anticipates that further
capital will be required during the next twelve months to satisfy our
Company's expected increased working capital requirements. Our Company is not
seeking equity financing at this time; however in 2001 we expect to increase
our bank credit line from $4,000,000 currently to $20,000,000. No assurance
can be provided that we will be successful and if successful that the increase
will be $20,000,000. The actual credit line could be far less. In the
interim, our Company has borrowed on a short term basis $2,800,000 from
Messrs. Winston Gu and James Djen, senior executives of our Company. No
assurance can be given that additional financing will be available when needed
or that, if available, it will be on terms favorable to our Company or its
stockholders. If needed funds are not available, our Company may be required
to curtail its operations, which could have a material adverse effect on our
Company's business, operating results and financial condition.
Dependence on Key Personnel
---------------------------
Our Company's future performance will depend significantly upon its
management. Our Company contemplates entering into 5 year employment
contracts with the following Officers and Management who are members of our
Company's Executive Steering Committee.
Winston Gu, CEO of Bridge Technology, Inc.
John T. Gauthier, CFO of Bridge Technology, Inc.
John Harwer, President of Bridge Technology, Inc.
James Djen, Managing Director of Bridge Technology, Inc.
Hideki Watanabe, President of Newcorp Technology Ltd. Japan
In addition, our Company has demonstrated strong growth over the past four
years, with this success is the absolute requirement to recruit competent
additions to management. Failure by our Company to retain and attract key
personnel could have a material adverse effect on our Company's business,
operating results, and financial condition.
Limited Proprietary Protection
------------------------------
Our Company's success and ability to compete is dependent in part upon it's
proprietary technology. Several of our Company's proprietary technologies are
not yet protected by any patents. However, our Company's President, Mr.
Harwer, is reviewing the benefits of developing patent and/or Copyright
applications for at least six of our Company's technological products. Our
Company has protected certain products by registering their brand names with
the US Copyright office. Therefore, to date our Company has relied primarily
on trademark, trade secrets and Copyright laws to protect its technology.
Also, our Company has implemented a policy that most senior and technical
employees and third-party developers sign non-disclosure agreements. However,
there can be no assurance that such precautions will provide meaningful
protection from competition or that competitors will not be able to develop
similar or superior technology independently.
Ultimately, for financial and other reasons, our Company may be unable to
enforce its rights under the intellectual property laws. In addition, the
laws of certain countries in which our Company's products are or may be
distributed may not protect our Company's products and intellectual property
rights to the same extent as the laws of the United States.
Lack of Market Research or Marketing Organization
-------------------------------------------------
Our Company has determined on its own that a market demand exists for our
Company's contemplated business. Our Company does not utilize an outside
marketing organization. Present management will market our Company's
products and services on a division basis with the utilizing of sales
representatives. Even if demand is identified for valued added computer
peripheral products which may be in the development stage by our Company,
there is no assurance our Company will be successful in marketing our
products.
Regulation
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Our Company is subject to regulation under the Securities Exchange Act of 1934
Management believes that our Company will not also be subject to regulation
under the Investment Company Act of 1940, as we are not be engaged in the
business of investing or trading in securities. In the event our Company
engages in business combinations which result in our Company holding passive
investment interests in a number of entities, our Company could be subject to
regulation under the Investment Company Act of 1940. In such event, our
Company would be required to register as an investment company and could be
expected to incur significant registration and compliance costs. Our Company
has obtained no formal determination from the Securities and Exchange
Commission as to the status of our Company under the Investment Company Act of
1940 and, consequently, any violation of such Act would subject our Company
to material adverse consequences.
Product Liability
-----------------
Although our Company has not experienced any product liability claims to
date, the sale and support of products by our Company may entail the risk of
such claims, and there can be no assurance that our Company will not be
subject to such claims in the future. A successful product liability claim
or claim arising as a result of use of our Company's products brought
against our Company, or negative publicity attendant to any such claim, could
have a material adverse effect upon our Company's business, operating results
and financial condition. Our Company does not maintain product liability
insurance.
Limitation of Liability and Indemnification
-------------------------------------------
Our Company's Amended and Restated Certificate of Incorporation limits, to
the maximum extent permitted by the Nevada General Corporation Law ("Nevada
Law"), the personal liability of directors for monetary damages for breach of
their fiduciary duties as a director, and provides that our Company shall
indemnify its officers and directors and may indemnify its employees and
other agents to the fullest extent permitted by law.
Our Company is required to indemnify such directors or executive officers
against liabilities that arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature) and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified.
Our Company has purchased director's and officer's liability insurance.
Nevada Law provides that a corporation may indemnify a director, officer,
employee or agent made, or threatened to be, a party to an action by reason of
the fact that he was a director, officer, employee or agent of the corporation
or was serving at the request of the corporation against expenses actually and
reasonably incurred in connection with such action if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect of any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful.
Nevada Law does not permit a corporation to eliminate a director's duty of
care, and the provisions of our Company's Amended and Restated Certificate
of Incorporation have no effect on the availability of equitable remedies,
such as injunction or rescission, for a director's breach of the duty of
care. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING
THE COMPANY PURSUANT TO THE FOREGOING PROVISION, OR OTHERWISE, THE COMPANY
HAS BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE
COMMISSION SUCH INDEMNIFICATION IS AGAINST THE PUBLIC POLICY AS EXPRESSED IN
THE ACT AND IS THEREFORE UNENFORCEABLE.
ITEM 2. DESCRIPTION OF PROPERTY.
Our Company's corporate offices, and the offices of several subsidiaries are
located in a 50,000 square feet free standing sublet facilities at 12601
Monarch Street, Garden Grove, CA 92841. In addition to the corporate offices,
this facility houses manufacturing and warehouse operations for all business
units except our power supplies subsidiary and foreign operatons. The lease
is for 20 years at an average annual rent of $145,000 per year. In addition
our Company leases a 30,000 square feet facility in Simi Valley, California
where we conduct research and development and manufacturing of power supplies.
The lease is for 10 years at an average annual rent $198,000 per year.
Manufacturing
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Our Company received and maintains the ISO 9002 certification to qualify as
an approved vendor for major computer and computer peripheral manufacturers.
Our Company also uses off-shore vendors to procure certain sub-assemblies,
from which our Company then assembles the final products. Before shipment the
products are inspected and tested to maintain the high quality and low return
levels demanded by our Company's customers.
ITEM 3. LEGAL PROCEEDINGS.
There is no litigation pending or threatened by or against our Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the security holders in the year 2000.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our Company's Common Stock is traded in the over-the-counter market under the
NASDAQ symbol BRDG. The following table sets forth the range of high and low
closing prices in the NASDAQ Small Cap Market System for the Common Stock for
the periods indicated, as reported by the National Quotation Bureau
Incorporated. Prices represent actual reported sale prices.
Fiscal Years Ended December 31,
Price
High Low
2000
First Quarter ................... $14.625 $9.75
Second Quarter .................. $ 9.25 $4.875
Third Quarter ................... $ 8.88 $5.50
Fourth Quarter .................. $ 7.50 $1.53125
1999
First Quarter ................... ------ ------
Second Quarter .................. $ 4.125 $1.50
Third Quarter ................... $ 3.50 $1.3125
Fourth Quarter .................. $17.50 $2.00
Our Company had approximately 2,800 shareholders of record on March 31, 2001.
Dividend Policy and Restrictions on Dividend Payments
-----------------------------------------------------
The Company intends to continue its policy of retaining all earnings for
reinvestment in the business operations of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION AND
FINANCIAL CONDITION.
Results of Continuing Operations
--------------------------------
The following tables set forth, for the periods indicated, the percentage
which certain items in the consolidated statements of income bear to revenues
from continuing operations, and the percentage change from period to period
of these items:
Years Ended December 31,
----------------------------------------------
1998 1999 2000
-------------- -------------- --------------
(dollars in thousands)
Revenues................ $ 28,738 $ 34,272 $ 120,919
Cost of sales ......... 23,233 27,962 108,834
-------------- -------------- --------------
Gross Profit............ 5,505 6,311 12,085
Percentage ............ 19% 18% 10%
Operating expenses...... 5,736 5,355 9,766
-------------- -------------- --------------
Operating income (loss). $ (232) $ 956 $ 2,319
============== ============== ==============
Net income (loss) from
continuing operations. $ (308) $ 661 $ 1,099
============== ============== ==============
Percentage of Revenues
Years Ended December 31,
----------------------------------------------
1998 1999 2000
-------------- -------------- --------------
Revenues ................... 100.0 % 100.0 % 100.0 %
Gross profit................ 19.2 18.4 10.0
Operating income ........... (0.8) 2.8 1.9
Interest, net............... 0.04 0.2 (0.3)
Income tax expense ......... 0.3 1.1 0.5
Net income (loss)........... (1.1) 1.9 0.9
Percentage Increase (Decrease)
Years Ended December 31,
---------------------------------
1999-1998 2000-1999
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Revenues ........................ 19.3 % 252.8 %
Gross profit..................... 14.6 91.5
Operating income ................ 512.6 142.6
Interest, net.................... 551.3 (668.6)
Income tax expense .............. 319.7 73.8
Net income ...................... 316.2 66.4
Safe Harbor Statement
---------------------
Statements which are not historical facts, including statements about our
Company's confidence and strategies and its expectations about new and
existing products, technologies and opportunities, market and industry
segment growth, demand and acceptance of new and existing products are
forward looking statements that involve risks and uncertainties. These
include, but are not limited to, product demand and market acceptance risks,
the impact of competitive products and pricing, the results of financing
efforts, the loss of any significant customers of any business, the effect of
our Company's accounting policies, the effects of economic conditions and
trade, legal, social, and economic risks, such as import, licensing, and,
trade restrictions; the results of our Company's business plan and the impact
on our Company of its relationship with its lenders.
Results of Operations for Years ended December 31, 1998 and 1999
-----------------------------------------------------------------------
Net Sales increased 19.3% from $28.7 million in 1998 to $34.3 million in
1999. Products and services mix in 1999 has changed substantially in
comparison to those in the prior year, due mainly to the revenue generated by
Autec.
Gross Profit increased 14.6% from $5.5 million in 1999 to $6.3 million in 2000
principally as a result of augmented sales volume. Facing the competitive
environment and declining prices, gross profit as a percentage of net sales
decrease from 19.2% in 1998 to 18.4% in 1999.
Research and development expenses increased by approximately 5.4% from
$322,000 in 1998 compared to $339,000 in 1999. The increase was attributed
to on-going product development and enhancement of existing technologies.
Selling and administrative expenses decreased approximately 7.4% from $ 5.4
million in 1998 to $5.0 million in 1999. The decrease in selling, general
and administrative expenses was attributed mainly to the cost-saving effort
made by our Company to reduce all possible expenses.
Net income increased approximately 314.6% from a net loss of $308,000 in 1998
to a net income of $661,000 in 1999. The increase in net income was
attributed to the increase in revenue in Autec and Bridge R&D from which the
sale revenue generated a relative higher gross margin.
Results of Operations for Years ended December 31, 1999 and 2000
-----------------------------------------------------------------------
Net Sales increased 253% from $34.3 million in 1999 to $120.9 million in
2000. Products and services mix in 2000 has changed substantially in
comparison to those in the prior year, due mainly to the revenue of
approximately $70 million generated by CMS, which is an authorized IBM
products distributor in Asia.
Gross Profit increased 92% from $6,3 million in 1999 to $12.1 million in 2000
principally as a result of augmented sales volume. Facing the competitive
environment and declining prices, gross profit as a percentage of net sales
decrease from 14.6% in 1999 to 10% in 2000. The gross margin in CMS was
relative low comparing to the gross margins in other subsidiaries.
Research and development expenses increased by approximately 103% from
$339,000 in 1999 compared to $689,000 in 2000. The increase was attributed
to on-going product development and enhancement of existing technologies.
Selling and administrative expenses increased approximately 81% from
$5.1 million in 1999 to $9.1 million in 2000. The increase in selling,
general and administrative expenses was attributed mainly to the expansion of
business activities in Asia and the United States.
Net income increased approximately 66% from $661,000 in 1999 to $1.1 million
in 2000. The increase in net income was attributed to the net income
generated by Autec and CMS in 2000.
Liquidity and Capital Resources
-------------------------------
Since current management acquired control of our Company in early 1997, our
Company has financed its operations with internal generated cash with the
private placement of its securities and with loans from principals of our
Company.
Comparison between 1998 and 1999
--------------------------------
The Company's capital requirements have been, and will continue to be,
significant. At December 31, 1999, the Company had a working
capital surplus of $5,353,306 and cash and cash equivalents of
$2,900,029 compared to a working capital surplus of $3,710,978 and cash and
cash equivalents of $2,115,727 at December 31, 1998. Since inception, the
Company has satisfied its working capital requirements through revenues
generated from operation, the issuance of equity and debt securities, and
loans from banking institutions.
Net cash provided in operating activities in the twelve months ended December
31, 1999 was $391,263, as compared to net cash used of $850,593 in the twelve
months ended December 31, 1998 the difference is mainly due to net income and
changes in other operating activities.
Net cash used in investing activities in the twelve months ended December
31, 1999 was $621,866 essentially for the purchase of fixed assets and
purchase of intangibles, as compared to $314,162 for the purchase of fixed
assets in twelve months ended December 31, 1998.
Net cash provided by financing activities in the twelve months ended
December 31, 1999 was $1,041,104 as compared to $1,813,992 provided by
financing Company's activities in the twelve months ended December 31, 1998.
This reflects the cash provided from the issuance of the Company's stock in
several private placements to accredited investors.
The Company has obtained approval from the Board of Directors to invest
$250,000 in Pacific Bridge Net Inc., a Nevada subsidiary of the Company whose
mission is to design, develop, manufacture, deploy infrastructure systems in
Asia through Joint Ventures and to sell wireless infrastructure operating
equipment to third parties. $200,000 was actually invested by the Company and
$50,000 was invested by a strategic alliance partner, Worldwide Wireless
Internet additional funding of at least $1,000,000 will be required in 2000.
Comparison between 1999 and 2000
--------------------------------
Our Company's capital requirements have been, and will continue to be,
significant. At December 31, 2000, our Company had a working capital surplus
of $6,932,287 and cash and cash equivalents of $4,870,836 compared to a
working capital surplus of $5,353,306 and cash and cash equivalents of
$2,900,029 at December 31, 1999. Since inception, our Company has satisfied
its working capital requirements through revenues generated from operations,
the issuance of equity securities, loans from banking institutions and
principals of our Company.
Net cash used in operating activities in the twelve months ended December
31, 2000 was approximately $4.5 million, as compared to net cash provided of
$681,000 in the twelve months ended December 31, 1999. The difference was
mainly due to the cash decrease in accounts receivable and inventory and cash
increase in accounts payable.
Net cash used in investing activities in the twelve months ended December
31, 2000 was approximately $5.0 million, as compared to $662,000 in twelve
months ended December 31, 1999. The main reason for the increase in cash
used in investing activities was the net cash of $5.3 million used for
acquiring 60% equity interest in CMS.
Net cash provided by financing activities in the twelve months ended
December 31, 2000 was approximately $11.4 million as compared to $791,000
provided by financing activities in the twelve months ended December 31, 1999.
The main factor for the increase in cash provided by financing activities was
the net increase of $5.8 million from lines of credit obtained in the United
States and in Hong Kong and the cash of $4.2 million injected as capital by the
ex-shareholders in CMS before the acquisition took place.
We believe that our Company can accommodate the fund needs from the growth of
business with internally generated cash flow and increased credit facilities
from one or more banking institutions. However, there can be no assurances
that an additional credit will be obtained. The absence of an increased
credit line is sure to stymie our Company's growth plans.
Effects of Fluctuation in Foreign Exchange Rates
------------------------------------------------
Our Company continues to buy products and services from foreign suppliers.
Our Company contracts for such products and services in U.S. dollars, thus
eliminating the possible effect of currency fluctuations. However, there
is continuous risk in market demand fluctutations with CMS Technology's
operations in China and Newcorp Technology's operations in Japan. To date
the risk has been minimal.
Fluctuation in Quarterly Results
--------------------------------
Quarterly results may be adversely affected in the future by a variety of
factors, including the possible costs of obtaining capital, as well as the
initial costs associated with the release of new products and promotions
taking place within the quarter. Our Company plans to continue to fund
research and development and its expanded patent work with cash generated from
internal operations. To the extent that such expenses preceed, or are not
subsequently followed by, increased revenues, our Company's business,
operating results and financial condition will be adversely affected.
Recent Accounting Pronouncements
--------------------------------
Statement of Financial Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133). SFAS No. 133 requires
companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Historically, our Company has not entered into
derivatives contracts either to hedge existing risks or for speculative
purposes. Accordingly, our Company does not expect adoption of the new
standard on January 1, 2000 to affect its financial statements.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
-----------------------------------------------------------
Bridge Technology, Inc. develops products in the United States and Japan and
sells primarily in North America, Asia and Europe. As a result, financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Since our
Company's products are generally initially priced in U.S. Dollars and
translated to local currency amounts, a strengthening of the dollar could make
our Company's products less competitive in foreign markets.
SELECTED FINANCIAL DATA
-----------------------
The historical operating results data, per share data and balance sheet data
set forth below are derived from the historical financial statements of our
Company, which have been restated to reflect the Autec Power
Systems, Inc., and PTI Enclosures, Inc. acquisitions and the related
accounting treatment (See note 1 of notes to consolidated financial
statements). The balance sheet data includes the accounts of PTI Enclosures,
Inc. as of December 31, 1999, and 2000; Autec Power Systems, Inc. as of
December 31, 1999 and 2000; and CMS Technology Limited, Hong Kong as of
December 31, 2000. Operating results and per share data for the years ended
December 31, 1998, 1999, and 2000 include the results for PTI Enclosures, Inc.
and Autec Power Systems, Inc., and December 31, 2000 includes the operating
results of CMS Technology Limited, Hong Kong. Consolidated balance sheets at
December 31, 1999 and 2000 and consolidated statements of operations,
stockholder's equity and cash flows for the years ended December 31, 1998,
1999 and 2000, together with the related notes and the report of BDO Seidman,
LLP, independent certified public accountants, are included elsewhere herein
and should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein.
Selected Financial Data
(Figures in thousands, except per share amounts)
Years Ended December 31,
----------------------------------------------
1998 1999 2000
-------------- -------------- --------------
Revenues:
Manufacturing ............ $ 21,102 $ 22,188 $ 28,137
Channel Distribution ..... 7,636 12,084 92,782
-------------- -------------- --------------
28,738 34,272 120,919
-------------- -------------- --------------
Cost of Sales:
Manufacturing ............ 18,449 17,957 20,441
Channel Distribution ..... 4,784 10,005 88,393
-------------- -------------- --------------
23,233 27,962 108,834
-------------- -------------- --------------
Gross profit ............... 5,505 6,310 12,085
Selling, general and
administrative costs ..... 5,415 5,016 9,077
R & D expense .............. 322 339 689
-------------- -------------- --------------
Operating income ........... (232) 956 2,319
Interest income, net ....... 11 69 (391)
Minority interest in earning 2 11 (233)
-------------- -------------- --------------
Income before income taxes . (219) 1,024 1,731
Income tax expense ......... 87 363 632
-------------- -------------- --------------
Net income from continuing
operations ............... (306) 660 1,099
-------------- -------------- --------------
Preferred stock dividend ... 2 - -
Net Income ................. $ (308) $ 660 $ 1,099
============== ============== ==============
Earnings per share:
Basic .................... $ (0.04) $ 0.07 $ 0.10
============== ============== ==============
Diluted .................. $ (0.04) $ 0.06 $ 0.10
============== ============== ==============
Basic weighted average
Number of common shares
outstanding .. 8,183,487 10,581,406 11,254,022
============== ============== ==============
Dividends declared per share None None None
Selected Financial Data
(in thousands)
December 31,
----------------------------------------------
1998 1999 2000
-------------- -------------- --------------
Working capital ............ $ 3,711 $ 5,353 $ 6,932
Total assets ............... 12,197 13,283 44,722
Borrowings under bank line
of credit................. 572 98 6,000
Long-term debt, including
current maturities........ 776 878 777
Stockholder's equity........ 3,782 5,766 9,497
ITEM 7. FINANCIAL STATEMENTS.
Bridge Technology, Inc. and Subsidiaries
_______________________
Consolidated Financial Statements
For the Years Ended December 31, 1998, 1999 and 2000
_______________________
Bridge Technology, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance Sheets F-3
Statements of Operations and Comprehensive Income (Loss) F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Summary of Accounting Policies F-9
Notes to Financial Statements F-15
Schedule II F-30
Independent Auditors' Report
The Shareholders of
Bridge Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bridge
Technology, Inc. (a Nevada corporation) and subsidiaries as of December 31,
1999 and 2000, and the related consolidated statements of operations and
comprehensive income (loss), shareholders' equity, and cash flows for each
of three the years in the period ended December 31, 2000. We have also
audited the schedules listed in the accompanying index. These consolidated
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. 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 Bridge
Technology, Inc. and subsidiaries as of December 31, 1999 and 2000 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
Los Angeles, California
March 14, 2001
F-2
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1999 2000
------------ ------------
Assets (Note 4)
Current assets:
Cash $ 2,900,029 $ 4,870,836
Accounts receivable less allowance for
doubtful accounts of $112,911 and
$465,656 (Note 11) 5,793,882 17,666,626
Subscription receivable (Note 9) 75,000 -
Advances to employees 1,200 42,898
Other receivables 39,082 1,057,217
Inventory, less provision of $168,101 and
$619,504 (Note 1) 3,157,433 16,991,615
Due from related party (Note 8) 28,107 21,932
Other current assets 110,284 219,192
------------ ------------
Total current assets 12,105,017 40,870,316
Property and equipment, net (Note 2, 5 and 8) 801,881 716,384
Goodwill, net of amortization of $598,210
(Note 6) - 2,586,324
Purchased intangibles (Note 9) 200,000 190,000
Deferred income tax (Note 3) 70,750 63,201
Investments 39,998 229,862
Other assets 65,910 66,834
------------ ------------
Total assets $ 13,283,556 $ 44,722,921
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable (Note 4) $ 97,905 $ 6,000,000
Current portion of long term debt (Note 5) 150,155 155,980
Accounts payable, net of accrued rebates
and credits of $0 and $860,580 5,289,936 23,180,434
Accrued taxes payable 307,804 537,241
Deferred income tax (Note 3) - 26,425
Accrued liabilities 905,911 1,148,870
Shareholder loan, including interest (Note 6) - 2,888,919
------------ -------------
Total current liabilities 6,751,711 33,938,029
Long term debt, less current portion (Note 5) 727,643 621,023
------------ -------------
Total liabilities 7,479,354 34,559,052
------------ -------------
Minority interest 38,552 667,224
Commitments and Contingencies (Note 7)
Shareholders' equity (Notes 9 and 10):
Convertible, cumulative and redeemable
preferred stock, $1 stated value per share,
500 shares authorized, none outstanding - -
Common stock; par value $0.01 per share,
authorized 100,000,000 shares, 10,442,186
shares and 10,863,186 shares outstanding at
December 31, 1999 and 2000 104,422 108,632
Additional paid-in capital 6,721,852 9,308,139
Related party receivable (Note 8) (250,000) (225,000)
Treasury stock, 1,000 shares at cost (2,000) (2,000)
Retained earnings (accumulated deficit) (744,415) 354,745
Accumulated other comprehensive loss (64,209) (47,871)
------------ ------------
Total shareholders' equity 5,765,650 9,496,645
------------ ------------
Total liabilities and shareholders' equity $ 13,283,556 $ 44,722,921
============ ============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Year ended December 31,
-------------------------------------------
1998 1999 2000
------------ ------------ -------------
Net sales (Note 11) $ 28,738,213 $ 34,272,187 $ 120,918,774
Cost of sales 23,233,168 27,961,504 108,833,687
------------ ------------ -------------
Gross profit 5,505,045 6,310,683 12,085,087
Research and development 322,016 339,380 689,056
expenses
Selling, general and
administrative expenses 5,414,702 5,015,522 9,077,087
------------ ------------ -------------
Income (loss) from operations (231,673) 955,781 2,318,944
Other income (expense):
Interest, net 10,552 68,724 (390,757)
Other 2,034 (11,949) 35,958
Minority interest in net loss
(income) of subsidiaries - 11,448 (233,428)
----------- ------------ -------------
Income (loss) before
income taxes (219,087) 1,024,004 1,730,717
Income taxes (Note 3) 86,559 363,283 631,557
------------ ------------ -------------
Net income (loss) (305,646) 660,721 1,099,160
Preferred stock dividends 2,250 - -
------------ ------------ -------------
Net income (loss) applicable
to common shares $ (307,896) $ 660,721 $ 1,099,160
============ ============ =============
Basic weighted average number
of common stock outstanding 8,183,487 9,800,665 10,703,929
============ ============ =============
Basic income (loss) per share $ (0.04) $ 0.07 $ 0.10
============ ============ =============
Diluted weighted average number
of common stock outstanding 8,183,487 10,581,406 11,254,022
============ ============ =============
Diluted income (loss) per
share $ (0.04) $ 0.06 $ 0.10
============ ============ =============
Comprehensive loss and its
components consist of the
following:
Net income (loss) $ (305,646) $ 660,721 $ 1,099,160
Foreign currency translation
adjustments (34,569) (26,197) (16,338)
------------ ------------ -------------
Comprehensive income (loss) $ (340,215) $ 634,524 $ 1,115,498
============ ============ =============
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(SEE NOTES 9 AND 10)
STOCK
SUBSCRIP-
TION/ ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL SHARE- OTHER
--------------- ------------------ PAID-IN ACCUMULATED HOLDER TREASURY COMPREHEN-
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE STOCK SIVE LOSS TOTAL
------ -------- --------- --------- ----------- ----------- ----------- -------- ----------- ------------
BALANCE, January 1, 500 $ 50,000 6,247,186 $ 62,472 $ 3,692,910 $(1,097,240) $ 1,213,630 $ - $ (3,443) $ 3,918,329
1998
Subscription - - 2,300,000 23,000 1,127,000 - (1,150,000) - - -
collection
Subscription - - - - 63,630 - (63,630) - - -
collection
Issuance of common - - 250,000 2,500 122,500 - - - - 125,000
stock
Conversion of (500) (50,000) 100,000 1,000 49,000 - - - - -
preferred stock
Stock subscribed - - - - - - 25,000 - - 25,000
Additional paid-in - - - - 55,928 - - - - 55,928
capital
Net loss - - - - - (305,646) - - - (305,646)
Dividends paid - - - - - (2,250) - - - (2,250)
Translation - - - - - - - - (34,569) (34,569)
adjustment
------ -------- --------- ---------- ----------- ----------- ----------- -------- ----------- -------------
BALANCE, December 31, - - 8,897,186 88,972 5,110,968 (1,405,136) 25,000 - (38,012) 3,781,792
1998
Stock issued for - - 50,000 500 24,500 - (25,000) - - -
stock subscribed
in prior year
Forgiveness of loan - - - - 100,000 - - - - 100,000
payable to share-
holders in PTI
Warrants exercised - - 75,000 750 74,250 - - - - 75,000
Stock repurchase - - - - - - - (2,000) - (2,000)
Autec
Issuance of common - - 600,000 6,000 444,000 - - - - 450,000
stock
Issuance of common - - 700,000 7,000 693,000 - - - - 700,000
stock
Issuance of common - - 120,000 1,200 238,800 - - - - 240,000
stock
Non-employee compen- - - - - 34,500 - - - - 34,500
sation due to war-
rants issued
Warrants issued for - - - - 1,834 - - - - 1,834
public relationship
service
Notes receivable from - - - - - - (250,000) - - (250,000)
shareholder
Net income - - - - - 660,721 - - - 660,721
Translation - - - - - - - - (26,197) (26,197)
adjustment
------ -------- ---------- ---------- ----------- ----------- ---------- --------- ----------- -------------
BALANCE, DECEMBER 31, - - 10,442,186 104,422 6,721,852 (744,415) (250,000) (2,000) (64,209) 5,765,650
1999
Warrants issue for - - - - 3,666 - - - - 3,666
public relation-
ship service
Warrants exercised - - 10,000 100 34,900 - - - - 35,000
Warrants exercised - - 1,000 10 1,740 - - - - 1,750
Issuance of common - - 40,000 400 189,600 - - - - 190,000
stock
Issuance of common - - 360,000 3,600 2,336,400 - - - - 2,340,000
stock (Note 6)
Warrants exercised - - 10,000 100 17,400 - - - - 17,500
Non-employee comp- - - - - 2,581 - - - - 2,581
ensation due to
warrants issued
Repayments of share- - - - - - - 25,000 - - 25,000
holder notes
receivable
Net income - - - - - 1,099,160 - - - 1,099,160
Translation - - - - - - - - 16,338 16,338
adjustment
------ -------- ---------- ---------- ---------- ----------- ------------ -------- ----------- -------------
BALANCE, DECEMBER 31, - $ - 10,863,186 $ 108,632 $9,308,139 $ 354,745 $ (225,000) $ (2,000)$ (47,871)$ 9,496,645
2000 ====== ======== ========== ========== ========== =========== ============ ======== =========== =============
See accompanying summary of accounting policies and notes to consolidated financial statements.
F-5
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
------------------------------------
1998 1999 2000
----------- ------------ -----------
Cash flows from operating activities
Net (loss) income $ (305,646) $ 660,721 $ 1,099,160
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 188,256 162,825 857,904
Provision for doubtful accounts 74,184 6,413 382,693
Provision for slow moving inventory (17,074) (40,764) 451,403
(Gain)/loss on disposal of fixed
assets 61,394 - (1,016)
Write-off of intangible - - 50,000
Stock issued in exchange for services 5,928 36,334 6,247
Deferred taxes - - (69,026)
Minority interest - 38,522 233,428
Changes in operating assets and
liabilities, net of business
acquired
Trade receivables (2,210,117) 91,794 (7,961,928)
Inventory 588,274 (179,371) (3,311,272)
Other receivables 53,998 25,940 (952,672)
Advances to employees (27,500) 26,300 (41,698)
Prepaid and other assets (123,716) 156,982 (108,908)
Other assets (249,679) 171,709 (922)
Accounts payable (23,752) (129,265) 4,668,423
Accrued liabilities 1,074,028 (571,434) (98,573)
Income taxes payable 60,829 229,859 229,597
Due from related party - (5,304) 6,175
Interest payable - - 88,919
---------- ---------- -----------
Net cash provided by (used in) operating
activities (850,593) 681,261 (4,472,066)
----------- ---------- -----------
Cash flows from investing activities
Purchase of property, plant and equipment (321,462) (421,866) (135,620)
Purchased intangibles - (200,000) -
Proceeds from disposal of fixed assets 7,300 - 34,891
Investment in affiliate - (39,998) (39,866)
Acquisition of CMS, net of cash acquired - - (5,293,164)
Repayment from (advance to) shareholder - - 449,872
---------- ---------- -----------
Net cash used in investing activities (314,162) (661,864) (4,983,887)
---------- ---------- -----------
F-6
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31,
------------------------------------
1998 1999 2000
----------- ------------ -----------
Cash flows from financing activities
Proceeds from loans payable 557,499 102,768 130,680
Repayments on loans payable (74,578) (474,664) (81,320)
Proceeds from issuance of common stock 1,275,000 1,390,000 -
Repayment on related party payable (55,309) - -
Notes payable, net - - 5,761,322
Proceeds from shareholder loans - - 16,691,766
Repayments on shareholder loans - - (15,489,413)
Related party receivable - (250,000) 25,000
Proceeds from exercise of warrants - - 54,250
Proceeds from issuance of common stock
in PTI 113,630 - -
Stock subscription collected - 25,000 75,000
Stock subscription collected in CMS - - 4,241,645
Stock repurchase - (2,000) -
Dividends paid (2,250) - -
---------- ---------- -----------
Net cash provided by financing activities 1,813,992 791,104 11,408,930
---------- ---------- -----------
Effect of exchange rate changes on cash (33,294) (26,199) 17,830
---------- ---------- -----------
Net increase in cash and cash equivalents 615,943 784,302 1,970,807
Cash and cash equivalents, beginning of
year 1,499,784 2,115,727 2,900,029
---------- ---------- ----------
Cash and cash equivalents, end of year $2,115,727 $2,900,029 $4,870,836
========== ========== ==========
Cash paid during the year for:
Interest $ 32,808 $ 44,216 $ 393,303
Income taxes 19,459 51,376 401,960
---------- ---------- ----------
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental disclosure of non-cash activities:
-----------------------------------------------
PTI issued 11,856 shares of common stock in December 1998 in exchange for
consulting services provided by one of the Company's minority shareholders at
$0.50 per share.
PTI issued 50,000 shares of common stock in December 1998 in exchange for
100% of the outstanding shares of Classic Trading, Inc. at $0.50 per share.
In 1998 PTI sold 50,000 shares of common stock at $0.50 per share and recorded
a stock subscription receivable of $25,000.
During the year ended December 31, 1998, Autec sold certain fixed assets
with a cost of $34,500 and accumulated depreciation of $20,700 to a vendor in
exchange for a credit of $27,815. Autec recognized a gain of $14,015 for this
transaction.
In December 1998, the Company issued 1,926,696 shares of common stock in
exchange for 100% of the outstanding shares of PTI Enclosures, Inc. See
Basis of presentation for details.
In 1999, the Company cancelled a note of $100,000 payable to a shareholder in
accordance with the terms contained in the promissory note. The term states
that if the Company became a public reporting company before December 1, 2000,
the shareholder would forgive this note of $100,000 payable to him.
Accordingly, the Company recognized the forgiveness of note of $100,000
payable to the shareholder as a part of additional paid in capital.
In October 1999, the Company granted 310,000 stock warrants to key employees,
officers and directors. Accordingly, a non-employee director compensation
cost of $34,500 was recognized and included in general and administrative
expenses for 1999.
In May 2000, the Company acquired five patents, including design and tooling
from an unrelated entry for $190,000, in exchange for 40,000 shares of common
stock at market price of $4.75 per share.
In May 2000, the Company exercised an option to acquire the remaining 30%
interest in CMS Technology Limited (CMS) in exchange for 360,000 shares of the
Company's common stock at a market price of $6.50 per share.
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-8
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
---------------------
Bridge Technology, Inc. (the Company) was incorporated under the laws of the
State of Nevada on April 15, 1969. Starting from April 1997, the Company
registered to do business in the State of California and is primarily engaged
in development and distribution of various hardware, software, and peripheral
products used in computer systems and sales to value added resellers and
system integrators. The Company started to enter into wireless internet
business in 1999.
The Company has the following subsidiaries:
Ownership
---------
Bridge R&D, Inc. 100% Established on June 1, 1997
Newcorp Technology Limited (in Japan) 100% Merged on November 1, 1997
PTI Enclosures, Inc. 100% Merged on December 14, 1998
Newcorp Technologies, Inc. (USA) 100% Established on March 23, 1999
Pacific Bridge Net, Inc. 80% Established on August 16, 1999
Autec Power System, Inc. 100% Merged on December 1, 1999
CMS Technology Ltd. 90% Acquired on January 3, 2000 (60%)
Acquired on May 15, 2000 (30%)
On December 14, 1998, the Company issued 1,926,696 shares of its common stock
in exchange for 100% equity interest of PTI Enclosures, Inc. (PTI), a
computer enclosures entity incorporated in the State of California, via a
stock swap transaction. The terms of this transaction were: (1) one share of
common stock of the Company was exchanged for one share of common stock of
PTI and (2) one common stock warrant of the Company was exchanged for one
common stock warrant of PTI a total of 285,000 common stock warrants without
changing the exercise price.
This stock swap transaction was accounted for as a pooling of interests.
Consequently, the consolidated financial statements report the consolidated
financial position, results of operations, changes in shareholders' equity,
and cash flows of the Company as if the two entities had been combined for
all years presented.
On August 16, 1999, the Company formed a subsidiary, Pacific Bridge Net, Inc.
("PBN") incorporated in the State of Nevada with a strategic alliance
partner, Worldwide Wireless Networks, Inc. ("WWWN"). The initial capital
of $250,000 was contributed 80% by the Company and 20% by WWWN. PBN
acquired know how and technology from WWWN for $50,000, including
specifications to design, patent, manufacture, and sell for certain
wireless infrastructure equipment. During the last quarter of 2000, WWWN was
unable to deliver the technology and in February 2001, the strategic
relationship with WWWN was terminated by a mutual agreement.
On December 1999 the Company committed to issue 2,763,250 shares of its
common stock in exchange for 100% equity interest in Autec Power System, Inc.
("Autec"), via a stock swap transaction. Autec is an entity incorporated in
the State of California and engaged in the design, sale and servicing of
switching power supplies. The terms of the transaction were: one share of
common stock in the Company was exchanged for two shares of common stock in
Autec.
F-9
This stock swap transaction was accounted for as a pooling of interest.
Consequently, the consolidated financial statements report the consolidated
financial position, results of operations, changes in shareholders' equity,
and cash flows of the Company as if the two entities had been combined for
all years presented.
During 2000, the Company acquired 90% equity interest in CMS Technology
Limited (CMS), a company incorporated under the laws of the Hong Kong
Special Administrative Region, through two transactions which were
accounted for under the purchase method of accounting. (Note 6)
Basis of Accounting
-------------------
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
which include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements are presented in U.S.
dollars.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
Accounts Receivable and Concentration of Credit Risk
----------------------------------------------------
During the normal course of business, the Company extends unsecured credit to
its customers who are located in various geographical areas. Typically
credit terms require payment made within 30 days of the sale.
The Company regularly evaluates and monitors the credit worthiness of each
customer on a case by case basis. The Company provides an allowance for
doubtful accounts based on its continuing evaluation of its customers' credit
risk. The Company does not require collateral from its customers. The
Company maintains its cash accounts at credit worthy financial institutions.
Inventories
-----------
Inventories consist principally of microcomputer component parts and are
stated at the lower of cost (first-in, first-out) or market.
Foreign Currency Translation and Transactions
---------------------------------------------
The financial position and results of operations of the Company's foreign
subsidiary are determined using local currency as the functional currency.
Assets and liabilities of the subsidiaries are translated at the prevailing
exchange rate in effect at each year end. Contributed capital accounts are
translated using the historical rate of exchange when capital is injected.
Income statement accounts are translated at the average rate of exchange
during the year. Translation adjustments arising from the use of different
exchange rates from period to period are included in the cumulative
translation adjustment account in shareholders' equity. Gains and losses
resulting from foreign currency transactions are included in operations.
F-10
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed primarily utilizing the straight-line method over
the estimated useful lives of the assets as follows:
Estimated Useful
Life (in Years)
------------------
Computer equipment 4-5
Furniture, fixtures and equipment 4-7
Vehicles 5-6
Leasehold improvements 4-20
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are
capitalized. When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any resulting gain or
loss is included in statement of operations.
Intangible Assets
-----------------
In 1999, the Company entered into an agreement with a Japanese company to
distribute DVD related products principally for the People's Republic of
China for market 10 years. The Company paid $150,000 for the distribution
right. During the last quarter of 2000, a former director of the Company
established a separate entity incorporated in Japan and specializing in DVD
technology. The Company exchanged the distribution right for approximately
8% interest in that Japanese company. Consequently, the intangible asset
was reclassified as an investment, which is accounted for under the cost
method.
In 1999, the Company entered into agreement with a strategic partner to
develop wireless internet equipment and purchased technology from this
strategic partner for $50,000. In the last quarter of 2000, management of the
Company determined that the technical know-how was impaired. Consequently,
the intangible asset was written off as of December 31, 2000.
Accounting for the Impairment of Long-lived Assets and for the Long-lived
Assets to be Disposed Of
-------------------------------------------------------------------------
Statement of the Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed
Of" (SFAS 121) establishes new guidelines regarding when impairment losses
on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment
losses should be measured. The Company reviews such assets for possible
impairment whenever circumstances indicate that the carrying amount may
not be recoverable. To the extent the carrying value of the asset exceeds
its fair value, which is determined using discounted cash flows, a write down
to fair value is made.
Investments
-----------
The Company has made investments in other entities in various industries for
which its investment represents less than 20% of the voting stock of the
investee and for which the Company does not otherwise exert significant
influence. The Company accounts for these investments under the cost method
and periodically reviews its investments to determine that the cost does not
exceed the fair value of the investment.
F-11
Revenue Recognition and SAB 101
-------------------------------
The Company recognizes revenue when the risk of loss for the product sold
passes to the customer and any right of return can be quantified, which is
generally when goods are shipped.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements (SAB No. 101). SAB No. 101
provides interpretive guidance on the recognition, presentation and
disclosure of revenue in the financial statements. SAB No. 101 must be
applied to the financial statements no later than the quarter ending
September 30, 2000. The adoption of SAB No. 101 did not have a material
effect on the Company's financial results.
Research and Development Expense
--------------------------------
Research and development expenses are expensed when incurred. The Company
incurred research and development expenses of $322,016, $339,380 and
$689,056 in 1998, 1999 and 2000.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash, trade accounts receivable, notes receivable,
trade accounts payable and accrued liabilities are reasonable estimates of
their fair value because of the short maturity of these items. The carrying
amounts of the Company's lines of credit and notes payable approximate fair
value because the interest rates on these instruments are subject to change
with market interest rate.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenues
and expenses during the reporting period. Among the more significant
estimates included in these financial statements are the estimated accounts
receivable allowance for doubtful accounts and the deferred income tax asset
allowance. Actual results could differ from those estimates.
Income Taxes
------------
The Company accounts for income taxes using the liability method, which
requires an entity to recognize deferred tax liabilities and assets. Deferred
income taxes are recognized based on the differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements
which will result in taxable or deductible amounts in future years. Further,
the effects of enacted tax laws or rate changes are included as part of
deferred tax expenses or benefits in the period that covers the enactment
date. A valuation allowance is recognized if it is more likely than not that
some portion, or all of, a deferred tax asset will not be realized.
Earnings (Loss) Per Share
-------------------------
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS No. 128). The statement replaces the calculation
of primary and fully diluted earnings (loss) per share with basic and diluted
earnings (loss) per share. Basic earnings (loss) per share includes no
dilution and is computed by dividing income (loss) available to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted earnings (loss) per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings (loss) per share.
F-12
Stock-based Compensation
------------------------
Statements of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" (SFAS 123) establishes a fair value method of accounting
for stock-based compensation plans and for transactions in which a Company
acquires goods or services from employees and nonemployees in exchange for
equity instruments. SFAS No. 123 also gives the option, for employees only,
to account for stock-based compensation, utilizing the intrinsic method, in
accordance with Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees." The Company has chosen to account
for stock-based compensation for employees utilizing the intrinsic value
method prescribed in APB No. 25 and not the fair value method established by
SFAS No. 123.
As required by SFAS No. 123, the Company has disclosed in Note 10 the pro
forma effect of stock-based employee compensation at the grant date based on
the fair value method. The fair value of the stock-based award is determined
using a pricing model at grant date or other measurement date.
In March 2000, the FASB issued Interpretation No. 44 (FIN No. 44) Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of
APB Opinion No. 25. FIN No. 44 clarifies the application of APB Opinion
No. 25 for (a) the definition of employee for purposes of applying APB
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and
(d) the accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effectively July 1, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January
12, 2000. The adoption of FIN No. 44 did not have a material effect on the
Company's financial results.
Comprehensive Income (Loss)
---------------------------
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income (loss) and its components in a full set of general-
purpose financial statements. The Company has chosen to report comprehensive
income (loss) in the statements of operations. Comprehensive income (loss)
is comprised of net income and all changes to stockholders' equity except
those due to investments by owners and distributions to owners.
New Accounting Pronouncements Not Adopted Yet
---------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133). SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
F-13
New Accounting Pronouncements Not Adopted Yet (Continued)
---------------------------------------------------------
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.
Reclassifications
-----------------
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the 2000 presentation.
F-14
BRIDGE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Inventory
Inventory consists of:
December 31,
----------------------------
1999 2000
------------ -------------
Service parts $ 1,575,435 $ 1,505,715
Work in progress 624,820 558,406
Finish goods 1,125,279 15,546,998
Allowance for slow moving items (168,101) (619,504)
------------- -------------
$ 3,157,433 $ 16,991,615
============= =============
Note 2. Property, Plant and Equipment
Property, plant and equipment consists of:
December 31,
-------------------------------
1999 2000
-------------- --------------
Furniture, fixtures and equipment $ 324,337 $ 730,967
Vehicles 158,697 100,748
Computer equipment 358,971 179,961
Leasehold improvements 537,159 567,700
-------------- --------------
1,379,164 1,579,376
Accumulated depreciation and amortization (577,283) (862,992)
-------------- --------------
Property, plant and equipment, net $ 801,881 $ 716,384
============== ==============
Note 3. Income Taxes
The income tax provision is as follows:
Years ended December 31,
------------------------------------------------
1998 1999 2000
------------- -------------- -------------
Current
Domestic
Federal $ 64,400 $ 362,671 $ 294,677
State 21,500 - 103,889
Foreign
Japan 659 612 592
Hong Kong - - 308,974
------------ ------------ -----------
Total current 86,559 363,283 708,132
------------ ------------ -----------
Deferred
Domestic
Federal - - -
State - - -
Foreign
Japan - - -
Hong Kong - - (76,575)
------------ ------------ -----------
Total deferred - - (76,575)
------------ ------------ -----------
Total $ 86,559 $ 363,283 $ 631,557
============ ============ ===========
F-15
Note 3. Income Taxes (Continued)
The difference between the effective income tax rate and the expected
federal statutory rate is as follows:
Years ended December 31,
--------------------------
1998 1999 2000
------ ------ ------
Federal statutory rate (34.0)% 34.0 % 34.0 %
State taxes, net of federal benefit (6.0) 6.0 6.0
Subsidiary income not offset by NOL 37.4 - -
Changes in valuation allowance 40.0 (2.0) (5.2)
Impact from permanent differences 2.6 (2.0) 15.0
Foreign subsidiaries rate reduction - - (16.2)
Other - - 2.9
------ ------ ------
Effective income tax rate 40.0 % 36.0 % 36.5 %
====== ====== ======
Net deferred tax assets consist of the following:
December 31,
----------------------
1999 2000
---------- ----------
Domestic (U.S.)
Accrued bonus $ - $ 14,000
Audit service accrual - 14,000
State taxes - 37,421
Accumulated depreciation 5,145 65,175
Provision for bad debts 41,823 122,663
Accrued vacation 34,801 49,091
Reserve for obsolete inventory 73,251 23,020
Net operating loss carryforward 207,876 5,539
Valuation allowance (362,896) (330,909)
--------- ---------
Net deferred tax assets - -
Foreign (Japan)
Net operating loss carryforward 222,787 157,191
Valuation allowance (152,037) (93,990)
--------- ---------
70,750 63,201
Foreign (Hong Kong)
Accrued rebates - (137,693)
Provision for bad debts - 24,964
Reserve for obsolete inventory - 89,913
Depreciation and amortization - (3,609)
--------- ---------
- (26,425)
--------- ---------
Net deferred tax assets $ 70,750 $ 36,776
========= =========
F-16
Note 3. Income Taxes (Continued)
A valuation allowance has been provided at December 31, 1999 and 2000
for that portion of net deferred tax assets which management cannot
determine, with reasonable certainty, that the benefit will be realized.
One of the subsidiaries of the Company has net operating loss carryforwards
which are separate return year losses in the amount of approximately $16,000,
and will begin to expire in 2008. On December 14, 1998, the subsidiary had a
change in ownership as defined under Internal Revenue Code Section 382. The
net operating loss carryforward is subject to an annual limitation.
Note 4. Notes Payable
At December 31, 1999, the Japanese subsidiary has an outstanding balance of
approximately US$97,000 from a commercial bank at interest of approximately
2.07% per annum, which was guaranteed by a former director of the Japanese
subsidiary. During 2000, the outstanding balance was fully repaid.
During the year ended December 31, 1999, Autec had a $1,300,000 revolving
line of credit with a bank that was secured by substantially all of Autec's
assets except inventories and was guaranteed by certain shareholders of the
Company. The line bears interest at the Bank's prime rate. At December
31, 1999, there were no borrowings outstanding under the line. Autec
terminated its credit line on February 14, 2000.
During the year ended December 31, 1999, Autec had a $300,000 equipment
purchase line of credit with a bank that was secured by the equipment
purchased by Autec and was guaranteed by certain shareholders of the Company.
The line incurred interest at the Bank's prime rate. At December 31,
1999, there were no borrowings outstanding under the line. Autec terminated
its credit line on February 14, 2000.
In 2000, the Company obtained a revolving line of credit, as amended, from a
commercial bank with an aggregate amount of principal not to exceed
$4,000,000. Advances bear interest at the prime rate (9.5% at December 31,
2000). The outstanding balance at December 31, 2000 was $4,000,000.
Repayment is in the form of a promissory note which stipulates that all
outstanding interest and principal is payable by no later than June 30, 2001.
The revolving line of credit is subject to certain restrictive covenants and
is collateralized by substantially all of the assets located in the US.
As of December 31, 2000, the Company was not in compliance with the current
ratio covenant, for which a waiver has not been obtained.
During 2000, the Hong Kong based subsidiary obtained a revolving line of
credit, with the maximum borrowing not to exceed US$2 million, from its main
vendor to finance the product purchases. The line is available to the
subsidiary for one year, expiring September 26, 2001. The line is secured by
all the Company's receivable and credit balances placed with financial
institutions together with first floating charge against certain assets,
undertakings and rights as prescribed under the loan agreement. At
December 31, 2000, the outstanding balance was US$2 million and the
borrowing rate was prime (9.5% at December 31, 2000) plus 2%, not to be less
than 9%.
F-17
Note 5. Long Term Debt
December 31,
---------------------------
1999 2000
------------ ------------
Note payable with a foreign (Japan) bank, $ 76,776 $ 132,815
monthly payment of $1,625 including
interest of 2.075%, due November 2003.
Guaranteed by government Guarantee Association
Note payable with a foreign (Japan) bank, 329,274 220,990
monthly payment of $6,824 including
interest of 2.375%, due May 2004.
Guaranteed by government Guarantee Association
Loan payable for the purchase of a vehicle, 8,322 2,921
monthly payment of $501 including
interest at 10.25%, collateralized by
the related asset, due June 18, 2001
Note payable to the Small Business 279,441 254,801
Administration, collateralized by
substantially all of the assets of Autec
and personally guaranteed by four of the
Company's shareholders, payable in monthly
installments of $2,950, which includes
interest at 4% per annum
Note payable to a U.S. Bank, collateralized 183,985 165,476
by substantially all of the assets of Autec
and personally guaranteed by four of the
Company's shareholders, payable in monthly
installments of $2,138, which includes
interest at 4% per annum
----------- ------------
877,798 777,003
Current portion (150,155) (155,980)
----------- ------------
$ 727,643 $ 621,023
=========== ============
The aggregate maturities of notes and loans payable are as follows:
Year ending December 31, Amount
------------------------- -------------
2001 $ 155,980
2002 154,895
2003 136,498
2004 88,968
2005 64,834
Thereafter 175,828
-------------
$ 777,003
=============
The note payables by Autec to the Small Business Administration and a U.S.
bank includes various covenants. As of December 31, 2000 Autec was in
compliance with loan covenants.
F-18
Note 6. Acquisition of CMS
In December 1999, the Company entered into an acquisition agreement with CMS
Technology Limited (CMS), a related party company incorporated under the laws
of Hong Kong Special Administrative Region, to acquire 60% equity interest for
cash of $6 million based on a valuation report which was performed by a third
party appraisal firm. Funding of acquisition has been obtained from the
following sources: $2.9 million borrowed from shareholders, and $1.55
million from the Company's line of credit. The remaining $1.55 million was
financed from the Company's working capital.
The acquisition was effective January 3, 2000. The acquisition transaction
was accounted for under the purchase method. The estimated fair value of 60%
of the net assets in CMS amounted to $3,331,416. Consequently, the Company
recognized goodwill of $2,668,584, which represented the excess of the value
of the cash expended over the equity acquired and will be amortized over a
five year period.
At the same time, a director and shareholder of the Company acquired 10% of
equity interest in CMS. In accordance with the acquisition agreement, the
Company has an option to acquire the remaining 30% of equity interest in
CMS in exchange for 360,000 of the Company's common stock.
In May 2000, the Company exercised the option to acquire the remaining 30%
interest in CMS. The acquisition was effective May 15, 2000. The estimated
fair value of 30% interest of CMS amounted to $1,824,050. Consequently the
Company recognized additional goodwill of $515,950, which represented the
excess of the value of the Company's stock issued over the equity acquired
and will be amortized over a five year period.
The following unaudited pro forma information is intended to present the
results of the CMS acquisition transaction assuming that it occurred on
January 1, 1999. The pro forma amounts do not purport to be indicative
of the results that would have been obtained had the acquisition occurred then
or of the results which may occur in the future.
CMS Bridge Pro Forma
December 31, December 31, December 31,
1999 1999 1999
------------ ------------ ------------
Revenue $ 51,534,484 $ 34,272,188 $ 85,806,672
============ ============ ============
Net income $ 571,200 $ 660,721 1,231,921
============ ============
Adjustment:
Amortization of goodwill 636,907
-----------
Pro forma net income $ 595,014
===========
Basic income per share 0.06
===========
Diluted income per share 0.05
===========
Note 7. Commitments and Contingencies
The Company signed an operating lease for a building from a related party.
The lease term is 20 years and expires in December 2017. The Company
entered into a sublease agreement with another related party, for a portion
of the building for a monthly payment of $1,380, through October 2003.
F-19
Autec leases facilities under an operating lease from a company owned by a
majority stockholder. The lease calls for monthly lease payments of $16,500,
subject to cost of living adjustment, through 2007. Autec entered into a
sublease agreement with a related party, for a portion of the facility for a
monthly payment of $4,125. The term of the sublease was for 10 years.
The following table represents the consolidated rental commitments at
December 31, 2000.
Year ending December 31, Amount
-------------------------- -------------
2001 $ 556,756
2002 509,754
2003 523,771
2004 542,393
2005 555,248
Thereafter 5,619,476
-------------
$ 8,307,398
=============
Total rental expense for the year ended December 31, 1998, 1999 and 2000,
was $499,077, $392,334 and $595,934, respectively.
Note 8. Related-Party Transactions
In the ordinary course of business, the Company's Japanese subsidiary engaged
in transactions with Digital Stream Corporation ("DSC"). The Company's
Japanese subsidiary has an officer who is also a director and major
shareholder in DSC. DSC leases office space to the Company's Japanese
subsidiary and is entrusted with the Company's Japanese subsidiary.
Transactions with DSC were as follows:
Year Ended December 31,
-------------------------------------
1998 1999 2000
----------- ---------- ----------
Purchases $ 6,667 $ 52,851 $ -
Rent 9,161 11,749 11,132
----------- ----------- ----------
On January 15, 1995, PTI signed a promissory note to pay $100,000 to a
company wholly-owned by one of the Company's minority shareholders.
In 1999, the shareholder forgave this note of $100,000 payable to him.
Accordingly, the Company recognized the increase of $100,000 in additional
paid-in capital.
During the years ended December 31, 1998, 1999 and 2000, Autec was reimbursed
for certain operating and overhead expenses attributable to a related party,
owned by one of the Company's major shareholders. The amount of $22,803,
$28,107 and $21,932 represented the unreimbursed expense due from the related
party as of December 31, 1998, 1999 and 2000 respectively.
F-20
Note 8. Related-Party Transactions (Continued)
In January 1999, the Company purchased a motor vehicle from a director of the
Company for $37,000. In 2000, the motor vehicle was sold back to the original
owner at its net book value, $22,817.
During 2000, the Company sold a different motor vehicle to an entity owned
by a director of the Company for $8,700, the net book value of the motor
vehicle. The related party entity was also paid $37,000 in consulting fees.
During 1999, the Company lent $250,000 to an entity at which a shareholder
of the Company is the Director of Marketing. This related party entity is
engaged in the business of converting digital image to film based image.
During 2000, $25,000 of the loan was repaid. As of December 31, 2000,
Management believes that the receivable is fully recoverable.
During 2000, the Company paid $18,900 in consulting fees to an
entity owned by the CFO of the Company.
During 2000, $2.9 million was loaned to the Company, at an interest rate of
9.5%, due on demand from related shareholders and entities owned by
shareholders and officers, for the purchase of CMS. Principal of $100,000
and interest of $152,859 were paid during 2000. At December 31, 2000, there
was an accrued interest payable of $88,919 and a total interest expense of
$241,778.
Note 9. Shareholders' Equity
1998
----
During September and October 1998, the Company issued 50,000 and 200,000
shares of common stock, respectively, at $0.50 per share and received
aggregate proceeds of $125,000.
In December, 1998, the Company issued 1,926,696 shares of common stock to
acquire a 100% equity interest of PTI Enclosures, Inc. The transaction was
accounted for as a pooling of interest, therefore, the financial statements
for the year ended December 31, 1998 have been retroactively restated to
include all activities of PTI Enclosures, Inc. The results of the operations
of the Companies before the acquisition took place were as follows:
Net
Income
Revenue (Loss)
------------- -------------
Bridge Technology, Inc.
January 1 to December 14, 1998 $ 5,786,128 $ (555,967)
============ =============
PTI Enclosures, Inc. (Stand Alone)
January 1 to December 14, 1998 $ 12,000,153 $ 117,679
============ =============
F-21
Note 9. Shareholders' Equity (Continued)
During December 1998, PTI sold 100,000 shares of common stock at $0.50 per
share to a third party company and received proceeds of $50,000.
During 1998, the Company sold 50,000 shares of common stock at $0.50 per
share to two individuals and recorded a common stock subscription receivable
of $25,000. The subscription was received early in 1999.
During December 1998, PTI issued 11,856 shares of common stock in exchange
for consulting services provided by a shareholder.
During December 1998, PTI acquired a 100% equity interest in Classic Trading
Inc. (CTI) through issuing 50,000 shares of common stock at $0.50 per share.
The net assets acquired in this acquisition were immaterial.
1999
----
During March 1999, the Company sold 600,000 shares of common stock at $0.75
per share and received proceeds of $450,000.
During June and July 1999, the Company sold 700,000 shares of common stock at
$1.00 per share and received proceeds of $700,000.
During July and August 1999, the Company sold 120,000 shares of common stock
at $2.00 per share and received proceeds of $240,000.
In October 1999, the Company granted 310,000 stock warrants to key employees,
all officers and directors. Accordingly, a non-employee director
compensation cost of $34,500 was recognized and included in general and
administrative expenses for 1999.
In October 1999, the Company issued 50,000 warrants to a public relations
firm in exchange for public relations services starting from November 1, 1999
to April 30, 2000. Accordingly, an expense of $1,834 on a pro rata basis was
recognized and included as a general and administrative expense. The
remaining $3,666 was recognized in 2000.
During later 1999, the Company issued 75,000 shares of its common stock as a
result of warrants exercised with an exercise price at $1.00 per share. The
proceeds of $75,000 were received subsequent to December 31, 1999.
In December 1999, the Company committed to issue 2,764,250 shares of common
stock in exchange for 100% equity interest in Autec Power Systems, Inc. The
transaction was accounted for as a pooling of interest, therefore, the
financial statements have been retroactively restated to include all
activities of Autec Power Systems, Inc. for all periods presented.
F-22
Note 9. Shareholders' Equity (Continued)
On March 14, 1999, per one employee-shareholder's request, Autec repurchased
2,000 shares of common stock at $1.00 per share from this individual.
Accordingly the actual shares issued by the Company were 2,763,250 as Autec
reserved the rights to issue 2,000 shares of treasury stock in exchange for
1,000 shares of common stock in the Company.
The results of the operations of the Companies before the acquisition took
place were as follows:
Net
Income
Revenue (Loss)
------------ ------------
Bridge Technology, Inc.
December 31, 1998 $ 20,737,017 $ (381,585)
January 1 to November 30, 1999 23,016,451 (103,089)
============ ============
Autec Power System, Inc. (Stand Alone)
December 31, 1998 10,014,963 73,689
January 1 to November 30, 1999 8,538,951 771,382
============ ============
2000
----
During 2000, employees of the Company exercised warrants to acquire
21,000 shares of the Company's common stock. Proceeds received
from the exercise totaled $54,250.
In May 2000, the Company acquired five patents, including design and
tooling from an unrelated entity for $190,000, in exchange for 40,000
shares of common stock at market price of $4.75 per share.
Note 10. Stock Warrants
The Company granted warrants to its officers, key employees, advisory
board members, and outside consultants in order to provide certain incentive
for their services.
Each warrant entitles the holder to purchase one share of the Company's
common stock at the exercise price specified by the warrant and each
warrant is only valid within the effective period. Shares acquired
through exercising a warrant will be restricted and will not be registered
for trading purposes unless the Company, at its sole discretion, files a
registration statement and includes these designated shares.
F-23
Note 10. Stock Warrants (Continued)
Warrants activities in the Company for 1998, 1999 and 2000 were summarized
as follows:
Weighted
Average
Exercise Vesting Expiration
Shares Price Period Date
---------- -------- ------- ----------
Outstanding at January 1, 1998 180,000 2.46 None 01/15/03
Warrants carried over from PTI 105,000 3.50 None 01/30/04
Warrants granted 360,000 1.75 None 01/30/04
---------- -------- ------- ----------
Outstanding at December 31, 1998 645,000 2.23
Warrants granted 310,000 5.00 None 01/15/05
Warrants granted to consultant 50,000 5.00 None 10/11/01
Warrants exercised (75,000) (1.00)
---------- --------- ------- ---------
Outstanding at December 31, 1999 930,000 3.40
Wattants granted 600,000 1.87 None 12/21/02
Warrants granted to Advisory Board 30,000 3.00 None 12/21/02
Warrants granted to consultant 125,000 3.00 None 02/09/04
Warrants granted to consultant 15,000 3.00 None 12/21/02
Warrants granted to consultant 10,000 4.50 None 12/21/02
Warrants granted to consultant 25,000 5.00 None 12/21/02
Warrants exercised (21,000) (2.58)
--------- --------- -------- --------
Outstanding at December 31, 2000 1,714,000 2.78
========= =========
In 1998, the Board of Directors of the Company approved a proposal made by
management in December 1998 to grant 360,000 warrants to officers, directors,
and a consultant for their performance and contribution to the Company in
1997 and 1998.
On November 29, 1999, the Board of Directors of the Company approved a
proposal made by management in October 1999 to grant 360,000 warrants to
officer, directors, and a public relationship firm for their performance
and contribution to the Company in 1999.
F-24
Note 10. Stock Options and Warrants (Continued)
On December 21, 2000, the Board of Directors of the Company approved a
proposal made by management to grant 500,000 warrants to the Company's
officers and key employees and 100,000 warrants to outside directors, with an
exercise price of $1.875 per share and vesting immediately, for their
performance and contribution to the Company in 2000.
On December 21, 2000, the Board of Directors of the Company also granted
30,000 warrants, with an exercise price of $3.00 per share and vesting
immediately, to the Advisory Board members.
On the same day, the Board of Directors of the Company also granted 175,000
warrants, with an exercise price ranging from $3.00 to $5.00 per share and
vesting immediately, to outside consultants in exchange for their services to
be provided.
The Company follows APB No. 25 and related interpretations to account for
stock warrants granted employees. During 1998, 1999 and 2000 the Company
did not recognize any compensation costs for warrants granted to employees
as the warrant price equaled the fair value of the Company's common stock
on the date of grant.
The Company adopted SFAS No. 123 to account for stock warrants granted to non-
employees using the Black Scholes option pricing model to determine the fair
value of the warrants granted. The Company recognized $0, $36,334 and $6,247
stock compensation expense for the warrants granted to non employees in 1998,
1999 and 2000 respectively.
The assumptions used in the Black Scholes option pricing model in 1998,
1999 and 2000 were as follows:
December 31,
-----------------------------------------
1998 1999 2000
--------- ------------- -------------
Discount rate - bond yield rate 4.50 % 5.86% - 6.03% 6.18% - 6.34%
Volatility 0.0 % 25.0% - 47.0% 14.5%
Expected life 5 years 2 - 5 years 2 - 3 years
Expected dividend yield - - -
--------- ------------- -------------
In 1999 using the Black Scholes option pricing model, the Company determined
that the fair value of warrants with different exercise prices ranged from
$0.11 to $0.46 per share. The fair value of the total warrants granted was
$148,100.
In 2000 using the Black Scholes option pricing model, the Company determined
that the fair value of warrants with different exercise prices granted ranged
from $0.01 to $0.37 per share. Total fair value of these warrants granted was
$225,381.
F-25
Note 10. Stock Options and Warrants (Continued)
Had the Company determined compensation cost based on the fair value at the
grant date for its warrants under SFAS No. 123, the Company's net loss would
have been increased to the pro forma amount indicated below:
Year ending December 31,
------------------------------------
1998 1999 2000
--------- --------- ---------
Net income (loss)
As reported $ (307,896) $ 660,721 $ 1,099,160
Pro forma $ (307,896) $ 552,621 $ 876,360
Basic earnings (loss) per share
As reported $ (0.04) $ 0.07 $ 0.10
Pro forma $ (0.04) $ 0.06 $ 0.08
Diluted earnings (loss) per share
As reported $ (0.04) $ 0.06 $ 0.10
Pro forma $ (0.04) $ 0.05 $ 0.08
The following table summarizes information about Warrants outstanding
as of December 31, 2000:
Warrants Outstanding and Exercisable
--------------------------------------
Weighted
Average Weighted
Remaining Average
Exercise Number Contractual Exercise
Price Outstanding Life Price
---------------------- ------------------------
$ 1.75 349,000 3.08 years $ 1.75
$ 1.87 600,000 2.00 years $ 1.87
$ 2.00 105,000 1.96 years $ 2.00
$ 3.00 125,000 3.00 years $ 3.00
$ 3.00 45,000 2.00 years $ 3.00
$ 3.50 95,000 3.08 years $ 3.50
$ 4.50 10,000 2.00 years $ 4.50
$ 5.00 385,000 3.28 years $ 5.00
--------- ------
1,714,000 $ 2.78
========= ======
F-26
Note 11. Concentration of Customer and Suppliers
The Company derived a significant portion of its revenue from sales to
certain customers. Sales as a percentage of total sales were as follows:
Years Ended December 31,
----------------------------------
1998 1999 2000
------ ------ ------
Customer A 8 % 12 % 6 %
Customer B - 24 3
Customer C 31 11 -
Customer D - 9 10
---------------------------------------------------------
39 % 56 % 19 %
=========================================================
Three customers accounted for approximately 30% of consolidated accounts
receivable at December 31, 2000, including one customer who accounted
for approximately 19% of consolidated accounts receivable. Four customers
accounted for 73% of consolidated accounts receivable at December 31, 1999.
Four vendors accounted for approximately 36% of consolidated total
purchases during the year ended December 31, 2000, including two vendors
accounted for approximately 10% and 12% of consolidated purchases. Three
vendors accounted for 42% of consolidated total purchases during the year
ended December 31, 1999. Three vendors accounted for 29% of consolidated
total purchases during the year ended December 31, 1998.
One vendor accounted for 21% of consolidated accounts payable at December
31, 2000. Two vendors accounted for 66% of consolidated accounts payable
at December 31, 1999.
Note 12. Profit Sharing Plan
Autec has a 401(k) profit sharing plan covering substantially all Autec
employees, subject to certain participation and vesting requirements. The
plan provides that Autec will partially match employee contributions up to
specified percentages. The amount charged to selling general and
administrative expense for the 401(k) profit sharing plan amounted to $5,455,
$18,388 and $10,617 in 1998, 1999 and 2000, respectively.
F-27
Note 13. Segment Information
Industry segments:
1998 Manufacturing Distribution R&D Total
---- ------------- ------------ ---------- -------------
Assets $ 9,688,704 $ 2,508,333 $ - $ 12,197,037
Revenue 21,102,176 7,636,037 - 28,738,213
Operating income before
income taxes and minority
interest 392,873 (611,960) - (219,087)
Depreciation and
amortization expense 80,595 107,661 - 188,256
------------- ------------ ---------- -------------
1999 Manufacturing Distribution R&D Total
---- ------------- ------------ ---------- -------------
Assets 9,097,868 3,927,065 258,623 13,283,556
Revenue 19,227,878 15,044,309 - 34,272,187
Operating income before
income taxes and minority
interest 1,593,660 (581,104) - 1,012,556
Depreciation and
amortization expense 90,131 72,694 - 162,825
------------- ------------ ---------- -------------
2000 Manufacturing Distribution R&D Total
---- ------------- ------------ ---------- -------------
Assets 15,318,477 29,383,241 21,203 44,722,921
Revenue 28,137,002 92,781,772 - 120,918,774
Operating income before
income taxes and minority
interest 1,638,846 495,973 (170,674) 1,964,145
Depreciation and1
amortization expense 138,812 706,921 12,171 857,904
------------- ------------ ---------- -------------
Geographic segments:
1998 United States Asia Other Total
---- ------------- ------------ ---------- -------------
Long lived assets $ 698,683 $ 145,649 $ - $ 844,332
Revenue 25,790,298 2,775,637 172,278 28,738,213
1999
----
Long lived assets 1,094,722 83,817 - 1,178,539
Revenue 31,643,293 2,227,051 401,843 34,272,187
2000
----
Long lived assets 3,715,708 136,897 - 3,852,605
Revenue 47,899,565 72,709,064 310,145 120,918,774
F-28
Note 14. Quarterly Results (Unaudited)
Quarterly results for the years ended December 31, 2000 and 1999 are
reflected below:
First Second Third Fourth
------------------------------------------------------------------------------
2000
----
Revenue $ 21,750,963 $ 25,503,867 $ 28,338,705 $ 45,325,239
Gross profit $ 1,902,738 $ 3,199,049 $ 2,315,990 $ 4,667,310
Net income $ (64,084)$ 601,368 $ 131,627 $ 357,311
Basic earnings per share $ (0.01)$ 0.06 $ 0.01 $ 0.03
Diluted earnings per share $ - $ 0.05 $ 0.01 $ 0.01
1999
----
Revenue $ 9,588,094 $ 7,183,806 $ 9,074,011 $ 8,426,276
Gross profit $ 1,477,141 $ 1,439,054 $ 1,389,389 $ 2,055,099
Net income $ 216,554 $ 190,058 $ 147,944 $ 106,725
Basic earnings per share $ 0.02 $ 0.02 $ 0.01 $ 0.01
Diluted earnings per share $ 0.02 $ 0.02 $ 0.01 $ 0.01
------------------------------------------------------------------------------
Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may
not agree with the per share amounts for the year.
F-29
Schedule II - Valuation and qualifying accounts
for the years ended December 31, 1998, 1999 and 2000
Amount
Beginning Charged Ending
Description Balance to Expense Deductions Balance
--------- ---------- ---------- ---------
Allowance for doubtful accounts
Fiscal 1998 $ 108,609 $ 74,184 $ 76,295 $ 106,498
Fiscal 1999 $ 106,498 $ 6,413 $ - $ 112,911
Fiscal 2000 $ 112,911 $ 382,693 $ 29,948 $ 465,656
Reserve for inventory obsolescence
Fiscal 1998 $ 225,939 $ - $ 17,074 $ 208,865
Fiscal 1999 $ 208,865 $ - $ 40,764 $ 168,101
Fiscal 2000 $ 168,101 $ 451,403 $ - $ 619,504
F-30
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers of the Registrant are as follows:
Year First
Name Age Position Became Officer
----------------------------------------------------------------------------
Winston Gu 50 Chairman & Chief Execurive Officer (1) 1999
John Harwer 53 President 1997
James Djen 46 Managing Director 1997
John T. Gauthier 73 Chief Financial Officer 1997
Mr. Gu was appointed Chief Executive Officer in December 1999. He also serves
as a Director since 1997 and Chairman since December 1999.
John Harwer was appointed President in 1997. He also serves as a member of the
Board of Directors.
James Djen was appointed President in January 1999 and Managing Director in
January 2000. He also serves as a member of the Board of Directors.
John T. Gauthier was appointed Chief Financial Officer/Sec/Treas. since 1997.
He also serves a member of the Board of Directors.
Conflicts of Interest
---------------------
Certain members of our Company's management are associated with other firms
involved in a range of business activities. Consequently, there are
potential inherent conflicts of interest in their acting as Officers and
Directors of our Company. Insofar as these officers and directors are
engaged in other business activities, management anticipates they will devote
less than full time to our Company's affairs. The officers and directors of
our Company are now and may in the future become shareholders, Officers
or Directors of other companies that may be formed for the purpose of
engaging in business activities similar to those conducted by our Company.
Accordingly, additional direct conflicts of interest may arise in the future
with respect to such individuals acting on behalf of our Company or other
entities. Moreover, additional conflicts of interest may arise with respect
to opportunities which come to the attention of such individuals in the
performance of their duties or otherwise. Our Company does currently have
a right of first refusal pertaining to opportunities that come to
management's attention insofar as such opportunities may relate to our
Company's proposed business operations.
The Officers and Directors are, so long as they are Officers or Directors
of our Company, subject to the restriction that all opportunities
contemplated by our Company's plan of operation which come to their
attention, either in the performance of their duties or in any other manner,
will be considered opportunities of, and be made available to our Company and
the companies that they are affiliated with on an equal basis. A breach of
this requirement will be a breach of the fiduciary duties of the Officer or
Director. If our Company or the companies in which the Officers and Directors
are affiliated with both desire to take advantage of an opportunity, then
said Officers and Directors would abstain from negotiating and voting upon the
opportunity. However, all directors may still individually take advantage of
opportunities if our Company should decline to do so. Except as set forth
above, our Company has not adopted any other conflict of interest policy with
respect to such transactions. Although our Company will be subject to
regulation under the Securities Act of 1934 and the Securities Exchange Act of
1934, management believes our Company will not be subject to regulation under
the Investment Company Act of 1940 insofar as our Company will not be engaged
in the business of investing or trading in securities in the event our Company
engages in business combinations which result in our Company holding passive
investment interests in a number of entities, our Company could be subject to
regulation under the Investment Company Act of 1940. In such event, our
Company would be required to register as an investment company and could be
expected to incur significant registration and compliance costs. Our Company
has obtained no formal determination from the Securities and Exchange
Commission as to the status of our Company under the Investment Company Act of
1940 and, consequently, any violation of such Act would subject our Company to
material adverse consequences. Our Company's Board of Directors unanimously
approved a resolution stating that it is our Company's desire to be exempt
from the Investment Company Act of 1940 via Regulation 3a-2 thereto.
ITEM 10. EXECUTIVE COMPENSATION.
The following table shows all cash compensation for services rendered
during the last three fiscal years ended December 31, 2000 paid by our
Company to each of our Company's executive officers whose cash compensation
exceeded $100,000.
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------------- ----------------- ---------------------
Secu-
rities
Other Restr- Under-
Annual icted lying
Name and Compen- Stock Options/ LTIP All Other
Principal Salary Bonus sation Award(s) SAR's Payouts Compensation
Position Year ($) ($) ($) ($) ($) ($) Warrants
----------------------------------------------------------------------------------
Winston Gu 2000 120,000 50,000 @ $1.875
CEO 1999 75,000 200,000 25,000 @ $5.00
1998 60,000 200,000
J. Djen 2000 120,000 50,000 @ $1.875
Managing 1999 120,000 0 0 0 0 0 25,000 @ $5.00
Director 1998 159,900 0 0 0 0 0 45,000 @ $3.50
1997 82,000 0 0 0 0 0 45,000 @ $2.00
J. Harwer 2000 120,000 50,000 @ $1.875
President 1999 120,000 0 0 0 0 0 25,000 @ $5.00
1998 158,333 0 0 0 0 0 100,000 @ $1.75
1997 98,333 0 0 0 0 0 0
R. Fox 2000 120,000 15,000 @ $1.875
General 1999 125,000 0 0 0 0 0 15,000 @ $5.00
Manager 1998 123,637 0 0 0 0 0 30,000 @ $3.50
PTI 1997 73,839 0 0 0 0 0 30,000 @ $2.00
Enclosures
John T. 2000 120,000 50,000 @ $1.875
Gauthier 1999 60,000 25,000 @ $2.25
Chief 1998 36,000
Financial
Officer
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below lists the beneficial ownership of our Company's voting
securities by each person known by our Company to be the beneficial owner
of more than 5% of such securities, as well as the securities of our Company
beneficially owned by all directors and officers of our Company. Unless
otherwise indicated, the shareholders listed possess sole voting and
investment power with respect to the shares shown.
Name and Address
of Title of Preferred Common Class
Beneficial Owner Shares Shares % Ownership
-------------------------------------------------------------------------
Winston Gu (3) 2,773,334 25.5 Common
12601 Monarch Street
Garden Grove, CA 9841
James Djen (1) 565,000 5.2 Common
12601 Monarch Street
Garden Grove, CA 92841
John T. Gauthier (1) 36,334 0.3 Common
12601 Monarch Street
Garden Grove, CA 92841
John J. Harwer 0 0 Common
and Oliva Harwer Trust (1)
12601 Monarch Street
Garden Grove, CA 92841
Hideki Watanabe (1) 300,000 2.8 Common
4-14-2 Nagatsuda, Midori-Ku
Yokohama-Shi, Kanagawa-Ken, Japan
Cayman Computer 373,206 3.4 Common
Alliance Corporation
12601 Monarch Street
Garden Grove CA 92841
COMMON
All Officers & Directors (2) 5,288,334 48.7 Common
(1) Officer and/or Director of our Company.
(2) Officers and Directors as a Group. The balance of our Company's
outstanding Common Shares is held by approximately 2800 persons.
(3) Include shares owned by wife Jeannie Gu.
Warrants activities in the Company for 1998, 1999 and 2000 were summarized
as follows:
Weighted
Average
Exercise Vesting Expiration
Shares Price Period Date
---------- -------- ------- ----------
Outstanding at January 1, 1998 180,000 2.460 None 01/15/03
Warrants carried over from PTI 105,000 3.500 None 01/30/04
Warrants granted 360,000 1.750 None 01/30/04
---------- -------- ------- ----------
Outstanding at December 31, 1998 645,000 2.230
Warrants granted 310,000 5.000 None 01/15/03
Warrants granted to consultant 50,000 5.000 None 10/11/01
Warrants exercised (75,000) (1.000)
---------- --------- ------- ---------
Outstanding at December 31, 1999 930,000 3.400
Wattants granted 600,000 1.875 None 12/21/02
Warrants granted to Advisory Board 30,000 3.000 None 12/21/02
Warrants granted to consultant 125,000 3.000 None 02/07/04
Warrants granted to consultant 15,000 3.000 None 12/21/02
Warrants granted to consultant 10,000 4.500 None 12/21/02
Warrants granted to consultant 25,000 5.000 None 12/21/02
Warrants exercised (21,000) (2.580)
--------- --------- -------- --------
Outstanding at December 31, 2000 1,714,000 2.780
========= =========
The following table summarizes information about Warrants outstanding as of
December 31, 1999:
Warrants Outstanding Warrants Exercisable
---------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
---------------------------------------------------------------------------
$ 1.75 360,000 4.04 years $ 1.75 360,000 $ 1.75
$ 3.50 210,000 3.04 years $ 3.50 210,000 $ 3.50
$ 5.00 360,000 4.37 years $ 5.00 360,000 $ 5.00
--------- ---------
930,000 930,000
========= =========
The following table summarizes information about Warrants outstanding
as of December 31, 2000:
Warrants Outstanding Warrants Exercisable
-------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-----------------------------------------------------------------------------
$ 1.750 349,000 3.08 years $ 1.750 349,000 $ 1.750
$ 1.875 600,000 2.00 years $ 1.875 600,000 $ 1.875
$ 2.000 105,000 1.96 years $ 2.000 105,000 $ 2.000
$ 3.000 125,000 3.00 years $ 3.000 125,000 $ 3.000
$ 3.000 45,000 2.00 yers $ 3.000 45,000 $ 3.000
$ 3.500 95,000 3.08 years $ 3.500 95,000 $ 3.500
$ 4.500 10,000 2.00 years $ 4.500 10,000 $ 4.500
$ 5.000 385,000 3.28 years $ 5.000 385,000 $ 5.000
--------- ---------
1,714,000 1,714,000
========= =========
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There have been no related party transactions, or any other transactions or
relationships required to be disclosed pursuant to Item 404 of Regulation
except as disclosed in the Notes to the financial statements.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) INDEX TO EXHIBITS
Exhibit
Number Description
---------- ------------------------------------------------------------
EX-3 (i) ARTICLES OF INCORPORATION
EX-3.A (i) Newcorp Technology, Inc. (Nevada) incorporated March 15,
1999 (incorporated by reference to Bridge Technology, Inc.
Form 10KSB filed March 31, 1999)
EX-3.B (i) Bridge Technology, Inc. as amended April 21, 1997
(incorporated by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 3(i) filed December 23,
1998 with the Commission)
Bridge R & D, Inc. incorporated June 25, 1997 (incorporated
by reference to Bridge Technology, Inc. Form 10-SB,
Amendment #2, Exhibit 3(i) filed December 23, 1998 with
the Commission)
EX-3.C (i) Pacific Bridge Net incorporated June 9, 1999
EX-3 (ii) BY-LAWS
of Bridge Technology, Inc., as dated August 1, 1997,
(incorporated herein by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 3(ii) filed December 23, 1998
with the Commission)
EX-4 DETERMINATION OF SHAREHOLDER PREFERENCES (incorporated herein
by reference to Bridge Technology, Inc. Form 10-SB, Amendment
#2, Exhibit 4 filed December 23, 1998 with the Commission)
EX-10 MATERIAL CONTRACTS
EX-10.A Classic Trading, Inc. Agreement (incorporated by reference
to Bridge Technology, Inc. Form 10KSB filed March 31, 1999)
EX-10.B Allied Web, Inc. Purchase of Assets Agreement,(incorporated
herein by reference to Bridge Technology, Inc. Form 10-SB,
Amendment #2, Exhibit 10(A) filed December 23, 1998 with
the Commission)
EX-10.C John Harwer Employment Agreement, dated June 1, 1997,
(incorporated herein by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 10(B) filed December 23,
1998 with the Commission)
EX-10.D EEMB Co., Ltd. China Agreement, dated November 11, 1997,
(incorporated herein by reference to Bridge Technology, Inc.
Form 10-SB, Amendment #2, Exhibit 10(C) filed December 23,
1998 with the Commission)
EX-10.E Newcorp Technology, Ltd. (Japan) Stock Exchange Agreement,
as entered into November 11, 1997, (incorporated herein by
reference to Bridge Technology, Inc. Form 10-SB, Amendment
#2, Exhibit 10(D) filed December 23, 1998 with the
Commission)
EX-10.F Autec Power Systems, Inc. Acquisition Agreement, dated
December 8, 1999
EX-10.G CMS Technology Limited (HK) Acquisition Agreement as amended
March 15, 2000
EX-21 SUBSIDIARIES OF THE REGISTRANT
A. PTI Enclosures, Inc. (California) - July 1993
B. Newcorp Technology, Inc. (Japan)
C. Bridge R & D, Inc. (California)
D. Pacific Bridge Net
E. Autec Power Systems, Inc.
F. CMS Technology Ltd. (Hong Kong)
EX-99 ADDITIONAL CONTRACTS
EX-99.A Assignment of Trademarks (incorporated by reference to
Bridge Technology, Inc. Form 10KSB filed March 31, 1999)
EX-99.B Property Lease (incorporated by reference to Bridge
Technology, Inc. Form 10KSB filed March 31, 1999)
EX-99.C Incentive Stock Option Plan (incorporated herein by
reference to Bridge Technology, Inc. Form 10-SB, Amendment
#2 filed December 23, 1998 with the Commission)
EX-99.D Distribution Product Rights Development Agreement dated
July 1, 1999
EX-99.E Five recently acquired patents. Submitted by hard copy only.
EX-99.F CMS Technology Ltd. (Hong Kong) Financial Statements.
(b) DESCRIPTION OF EXHIBITS
EX-99.F CMS Technology Ltd. (Hong Kong) Financial Statements
---------------------------------------------------------------
CMS TECHNOLOGY LIMITED
Independent Auditors' Report
and Financial Statements
For the Year Ended December 31, 1999 and the
Period from Incorporation to December 31, 1998
CMS TECHNOLOGY LIMITED
INDEX TO THE FINANCIAL STATEMENTS
Page
Report of Independent Auditors 62
Balance Sheets 63
Statements of Operations and Comprehensive Income 64
Statements of Shareholders' Equity 65
Statements of Cash Flows 66
Notes to The Financial Statements 67 - 73
CMS TECHNOLOGY LIMITED
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
CMS Technology Limited
We have audited the accompanying balance sheets of CMS Technology
Limited ("the Company") as of December 31, 1999 and the period from
incorporation to December 31, 1998 and the related statements of operations
and comprehensive income, owner's equity and cash flows for the year ended
December 31, 1999 and the period from incorporation to December 31, 1998.
The financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the 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 financial statements referred to above present
fairly in all material respects, the financial position of CMS Technology
Limited as of December 31, 1999 and December 31, 1998, and the results of
its operations and its cash flows for the year ended December 31, 1999 and
the period from incorporation to December 31, 1998, in conformity with
accounting principles generally accepted in the United States of America.
BDO INTERNATIONAL
Certified Public Accountants
Hong Kong, March 21, 2000
CMS TECHNOLOGY LIMITED
BALANCE SHEETS
(Expressed in United States Dollars)
ASSETS
Dec 31, Dec 31,
1998 1999
------------ ------------
Current assets
Cash and cash equivalents $ 1,035,677 $ 706,836
Accounts receivable, net of allowance for
Doubtful accounts ($0 and $0) 1,966,330 4,304,546
Subscription receivable (Note 4) - 4,241,645
Other receivables and deposits 54,243 65,631
Inventories 9,965,191 11,002,524
Receivable from shareholders (Note 4) - 449,872
------------ ------------
Total current assets 10,021,441 20,771,054
Property and equipment, net (Note 2) 62,739 72,638
------------ ------------
Total assets $ 10,084,180 $ 21,843,692
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable, net of accrued rebates
of $89,445 and $628,944 $ 5,863,738 $ 13,257,682
Shareholders' loans (Note 4) 3,403,355 1,597,647
Other payables and accrued expenses (Note 3) 77,572 333,003
Deferred income taxes - 103,000
------------ ------------
Total current liabilities 9,344,665 15,291,332
------------ ------------
Commitments (Note 6)
Shareholders' equity
Common stock, with par value HK$1 each
Authorized: 6,000,000 and 39,000,000
shares in 1998 and 1999
Issued and outstanding: 6,000,000 and
39,000,000 shares in 1998 and 1999 771,888 5,013,533
Retained earnings (accumulated loss) (34,710) 541,085
Accumulated other comprehensive income
- foreign currency translation adjustments 2,337 (2,258)
------------ ------------
Total shareholders' equity 739,515 5,552,360
------------ ------------
Total liabilities and shareholders' equity $ 10,084,180 $ 20,843,692
============ ============
See accompanying notes to the financial statements.
CMS TECHNOLOGY LIMITED
STATEMENTS OF OPERATIONS
(Expressed in United States Dollars)
Period ended
---------------------------
Dec 31, Dec 31,
1998 1999
------------ -----------
Revenue, gross $ 8,959,065 $ 54,987,432
Sales return and discounts (418,948) (3,452,948)
------------ -----------
Revenue, net 8,540,117 51,534,484
Cost of sales 8,273,358 49,405,361
------------ -----------
Gross profit 266,759 2,129,123
Selling, general and administrative expenses 340,273 1,528,034
------------ -----------
Operating income (loss) (73,514) 601,089
Interest expense (578) (2,185)
Other income 39,382 79,891
------------ -----------
Income (loss) before income taxes (34,710) 678,795
Income taxes (Note 5) - (103,000)
------------ -----------
Net income (loss) (34,710) 575,795
Other comprehensive (loss) income
- foreign currency translation adjustments 2,337 (4,595)
------------ -----------
Comprehensive income (loss) $ (32,273) $ 571,200
============ ===========
See accompanying notes to the financial statements.
CMS TECHNOLOGY LIMITED
STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in United States Dollars)
Accumu-
lated
Other
Compre-
Common Stock hensive Total
---------------------- Retained Income Shareholders'
Shares Amount Earnings (loss) Equity
---------- ---------- --------- -------- ----------
Balance, June 22 1998 6,000,000 $ 771,888 $ - $ - $ 771,888
Net loss - - (34,710) - (34,710)
Translation
adjustments - - - 2,337 2,337
---------- --------- -------- -------- ----------
Balance, December 31,
1998 6,000,000 771,888 (34,710) 2,337 739,515
Stock subscribed 33,000,000 4,241,645 - - 4,241,645
Net income - - 575,795 - 575,795
Translation
adjustments - - - (4,595) (4,595)
---------- --------- ------- -------- ----------
Balance, December 31,
1999 39,000,000 $5,013,533 $541,085 $ (2,258) $5,552,360
========== ========= ======= ======== =========
See accompanying notes to the financial statements.
CMS TECHNOLOGY LIMITED
STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
Period ended
-----------------------------
Dec 31, Dec 31,
1998 1999
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (34,710) $ 575,795
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation of property and equipment 20,913 31,157
Changes in cash due to changes in
operating assets and liabilities:
Accounts receivable (1,966,330) (2,345,798)
Other receivables and deposits (54,243) (11,597)
Inventories (6,965,191) (4,064,191)
Accounts payable 5,863,738 7,416,555
Other payables and accrued expenses 77,572 255,730
Deferred income taxes - 103,000
----------- -----------
Net cash provided by (used in) operating
activities (3,058,251) 1,960,651
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (83,652) (41,298)
----------- -----------
Net cash used in investing activities (83,652) (41,298)
----------- -----------
Cash flows from financing activities:
Shareholder loans 8,203,630 6,564,463
Repayments of shareholder loans (4,800,275) (8,357,048)
Advance to shareholders - (449,872)
Proceeds from issue of shares 771,888 -
----------- -----------
Net cash (used in) provided by financing
activities 4,175,243 (2,242,457)
Effect of exchange rate changes on cash
and cash equivalents 2,337 (5,737)
----------- ------------
Net (decrease) increase in cash and cash
equivalents 1,035,677 (328,841)
Cash and cash equivalents, beginning of year - 1,035,677
----------- ------------
Cash and equivalents, end of year $ 1,035,677 $ 706,836
=========== ============
Supplemental disclosure of significant
non-cash transactions
Stock subscription $ - $ 4,241,645
=========== ============
Supplemental disclosure of cash flow
information
Interest paid $ 578 $ 2,185
=========== ============
See accompanying notes to the financial statements.
Note 1 - Basis of Presentation and Summary of Significant Accounting Policies
Organisation
------------
CMS Technology Limited ("the Company") was established under the laws of the
Hong Kong Special Administration Region of China on June 22, 1998. The
Company signed an OEM distribution agreement with International Business
Machines Corporation (IBM) on June 24, 1998 to distribute IBM hard disks and
other products in the territory including China, Vietnam, Philippines starting
from June 24, 1998, and Hong Kong starting from April 1, 1999. This
distribution agreement commenced on the date of signing and remained in
effect for one year and was automatically renewed for an additional one year.
Basis of Accounting
-------------------
The financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America ("U.S. GAAP") and
presented using United States dollars ("US$").
Foreign Currency Translation and Transactions
---------------------------------------------
The financial position and results of operations of the Company are determined
using local currency, Hong Kong dollars ("HK$"), as the functional currency.
Assets and liabilities are translated into US$ at the exchange rate in effect
at each year end. Revenue and expenses are translated into US$ at the
weighted average exchange rate during the reporting period. Contributed
capital is translated into US$ at the historical exchange rate when capital
was injected. Any difference resulted from using current rate, weighted
average rate and historical rate in determination of retained earnings is
accounted for as translation adjustment and reported as a separate item
in the equity section. Gain and loss resulting from foreign currency
transactions are included in other income (expense).
Revenue Recognition
-------------------
The Company recognizes revenue when the risk of loss for the goods is passed
to the buyers, which is usually at the time of shipping, net of sales returns
and trade discounts, and commission earned during the sales process. IBM
ultimately provides original manufacturer warranty, however, the Company
recognizes limited accrued warranty expense, which ultimately will be
reimbursed by IBM.
Inventories
-----------
Inventories represent merchandise held by the Company. Inventories are stated
at the lower of cost or market value. Cost is determined using the first-in,
first-out method.
Note 1 - Basis of Presentation and Summary of Significant Accounting
Policies - Continued
Property and Equipment and Depreciation
---------------------------------------
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method to allocate the cost of depreciable assets over the
estimated useful lives of the assets as follows:
Estimated
Useful Life
(in years)
-----------------
Leasehold improvements 4
Furniture and fixtures 4
Computer equipment 4
Machinery and equipment 4
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to property and equipment are
capitalized. When assets are disposed of, the related cost and accumulated
depreciation thereon are removed from the accounts and any resulting gain or
loss is included in operations.
Income Taxes
------------
The Company accounts for income taxes using the liability method, which
requires an entity to recognize deferred tax liabilities and assets.
Deferred income taxes are recognized based on the differences between the
tax bases of assets and liabilities and their reported amounts in the
financial statements which will result in taxable or deductible amounts in
future years. Further, the effects of enacted tax laws or rate changes are
included as part of deferred tax expense or benefit in the year that covers
the enactment date. A valuation allowance will be provided if it is more
likely than not that some portions, or all of, a deferred tax asset will not
be realized.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash on hand, cash accounts, interest
bearing savings accounts, and time certificates of deposit with an original
maturity of three months or less.
Rebates and Credits Receivable
------------------------------
As a common practice in the computer parts distribution business, IBM
periodically updates its price list for all its products and provides certain
incentive programs to attract its authorised distributors to sell more of
its products. As a result of changes in price list (usually decreases in
prices), the Company is entitled to receive certain rebates and credits for
the inventory held and sold by the Company within the specified period
of time as defined by IBM through submitting the necessary application forms.
Once applications were approved by IBM these rebates and credits approved by
IBM will be deducted from the Company's accounts payable to IBM and decrease
the cost of goods sold correspondingly.
Note 1 - Basis of Presentation and Summary of Significant Accounting
Policies - Continued
Accounts Receivable and Concentration of Credit Risk
----------------------------------------------------
During the normal course of business, the Company extends unsecured credit
to its customers who are located in various geographical areas. Typically
credit terms require payments to be made by the thirtieth day following the
sale. The Company regularly evaluates and monitors the creditworthiness of
each customer on a case by case basis. The Company provides an allowance for
doubtful accounts based on its continuing evaluation of its customers' credit
risk. The Company also insures some of its foreign receivables. The
Company maintains its cash accounts with high credit quality financial
statements.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of certain financial instruments, including cash,
accounts receivable, other receivables, accounts payable and other payables
approximate fair value as of December 31, 1999 and 1998 because of the
relatively short-term maturity of these instruments. Fair value of the
receivables from shareholders and shareholders' loans cannot be readily
determined because of the nature of the related party transactions.
Use of Estimates
----------------
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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 revenues and expenses during the
reporting period. Among the more significant estimates included in the
financial statements are the estimated allowance for doubtful accounts
receivable and the deferred tax asset valuation allowance. Actual results
could differ from those estimates.
Accounting for the Impairment of Long-lived Assets and for the Long-lived
Assets to be Disposed of
-------------------------------------------------------------------------
Statement of the Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed
Of" (SFAS 121) establishes new guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment, and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company has adopted this accounting standard and its effects on
the financial position and the results of operations were immaterial.
New Accounting Pronouncements Note Adopted Yet
----------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133). SFAS No. 133 requires companies to
recognise all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
nor designated as a hedging instrument, the gain or loss is recognised in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000.
Note 1 - Basis of Presentation and Summary of Significant Accounting
Policies - Continued
New Accounting Pronouncements Note Adopted Yet - Continued
----------------------------------------------------------
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.
Note 2 - Property and Equipment, net
------------------------------------
Property and equipment consists of:
Dec 31, Dec 31,
1998 1999
---------- ----------
Leasehold improvements $ 30,795 $ 31,457
Furniture and fixtures 14,932 22,554
Computer equipment 20,914 39,754
Machinery and equipment 17,011 30,863
---------- ----------
83,652 124,628
Less accumulated depreciation (20,913) (51,990)
---------- ----------
$ 62,739 $ 72,638
========== ==========
Depreciation charged to operations for the periods ended December 31 1998
and December 31 1999 was $20,913 and $31,157, respectively.
Note 3 - Other Payables and Accrued Expenses
Accrued staff bonus $ - $ 128,535
Accrued expenses 5,763 143,453
Temporary receipts from customers 57,294 14,353
Accrued warranty expense - 46,029
Other 14,515 633
--------- ---------
$ 77,572 $ 333,003
========= =========
Note 4 - Related Party Transactions
Historically, the Company's working capital was financed by
shareholder loans. When the accounts payable were due, the shareholders
of the Company provided the necessary funds to pay off the trade payables
and received repayments after the accounts receivable were collected.
Usually these shareholder loans were due on demand because of the nature
of short-term loans and did not bear any interest. During 1999 and 1998,
the shareholders of the Company provided a total of $6,564,463 and $8,203,630
shareholder loans and received repayments of $8,357,048 and $4,800,275. As
of December 31, 1999 and 1998, there were outstanding balance of $1,597,647
and $3,403,355, respectively. In December 1999, interest-free temporary
advances were made by the Company to two of the shareholders. Receivable
from shareholders as of December 31, 1999 was $449,872.
The Company has increased its registered capital from HK$6 million to
HK$39 million before December 31, 1999 by recording subscription receivable
of US$4,241,645 and stock subscribed of $4,241,645. The cash injection was
not collected as of December 31, 1999, however, it was received subsequent to
December 31, 1999. The following table is a summary of stock subscription
receivable:
Dec 31,
1999
Subscription receivable: -----------
Rise Tech Holdings Limited $ 1,484,576
Cheng Kim Man, Edwin 1,272,493
Fortune Agents Limited 1,484,576
-----------
$ 4,241,645
===========
Note 5 - Income Taxes
The standard corporate income tax rate in Hong Kong is 16%. No
provision for current income tax has been made as the Company has no net
taxable income for 1998 and 1999.
Period ended
----------------------
Dec 31, Dec 31,
1998 1999
--------- ---------
Current income tax $ - $ -
Deferred income tax - 103,000
--------- ---------
$ - $ 103,000
========= =========
Note 5 - Income Taxes (Continued)
Significant components of the Company's deferred tax assets
(liabilities) are as follows:
Dec 31, Dec 31,
1998 1999
---------- ----------
Net operating loss carry forwards $ 23,400 $ 5,000
Accrued rebates (14,300) (100,600)
Depreciation and amortization (3,500) (7,200)
Other - (200)
---------- ----------
5,600 (103,000)
Valuation allowance (5,600) -
---------- ----------
$ - $ (103,000)
========== ==========
The Company's effective tax rate differs from the Hong Kong standard
corporate tax rate, as follows:
Period ended
----------------------
1998 1999
------- -------
Income tax provision at standard rate 16.0% 16.0%
Change in valuation allowance (16.0) (0.8)
------- -------
Effective tax rate - 15.2%
======= =======
Note 6 - Commitments
Lease commitments
-----------------
Minimum lease payments on sales offices and dormitories under operating
leases with non-cancellable lease terms in excess of one year are as follows:
Operating
Year Ending December 31, leases
------------------------ ---------
2000 $ 16,938
2001 144,524
2002 21,329
--------
$ 182,791
========
Rent expense for the periods ended December 31, 1998 and 1999 was
US$36,855 and US$147,428, respectively.
Note 7 - Equity Transaction
In December, 1999 the Company entered into a purchase and sale
agreement with a related party company, Bridge Technology, Inc. (Bridge),
a U.S. based public company, to sell 60% equity interest for cash of US$6
million subject to a valuation report that will be performed by a third
party appraisal firm. At the same time, another director and shareholder
of Bridge will acquire 10% of equity interest in the Company. In accordance
with the purchase and sale agreement, the Company has an option to sell the
remaining 30% of equity interest in exchange for 300,000 shares of Bridge's
common stock. Consequently, the Company increased its registered capital
from HK$6 million to HK$39 million before December 31, 1999 by recording
subscription receivable of US$4,241,645 and stock subscribed of $4,241,645.
The cash injection was not collected as of December 31, 1999, however, it
was received subsequent to December 31, 1999.
Note 8. - Concentration of Vendor and Customers
During 1998 and 1999, the Company purchased a total of $16,933,357
and $69,918,354 of products from its sole vendor, IBM.
During 1998 and 1999, the following customers accounted for more
than 10% of total sales as follows:
Period ended
-------------------------
Dec 31, Dec 31,
1998 1999
----------- -----------
Customer A $ 461,236 $ 7,096,503
Customer B 1,546,985 -
Customer C 1,400,962 -
Customer D 2,151,580 -
----------- -----------
Note 9. - Segment Information
Dec 31, Dec 31,
1998 1999
----------- -----------
Revenue Segment
Geographical Region
-------------------
China $ 8,959,065 $ 37,177,663
Hong Kong - 17,809,769
----------- -----------
Total revenue, gross: $ 8,959,065 $ 54,987,432
=========== ===========
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunder duly authorized.
Registrant: BRIDGE TECHNOLOGY, INC.
-----------------------
By: Winston Gu
----------------------
Winston Gu, CEO
Date: May 14, 2001
----------------------
By: John T. Gauthier
----------------------
John T. Gauthier, CFO
Date: May 14, 2001
----------------------
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: Winston Gu
----------------------
Winston Gu, CEO
Date: May 14, 2001
----------------------
By: John T. Gauthier
----------------------
John T. Gauthier, CFO
Date: May 14, 2001
----------------------
By: John Harwer
----------------------
John Harwer, President
Date: May 14, 2001
----------------------
By: James Djen
----------------------
James Djen, Managing Director
Date: May 14, 2001
----------------------